Posted by Jonathan Tse
By David Bogoslaw
Investors in mutual funds may need to brace themselves for higher fees in the future if a case under review by the U.S. Supreme Court results in a substantially different legal standard for judging whether or not fund advisory fees are excessive. On Nov. 2, the Supreme Court heard oral arguments in Jones v. Harris Associates LP, in which the plaintiffs—individual shareholders in the Oakmark Funds—claim the mutual fund adviser, Harris Associates, violated its fiduciary duty by charging them fees that were double those the adviser charged institutional investors.
What complicates the case is the fact that Chief Judge Frank Easterbrook of the Seventh Circuit Court of Appeals, in ruling for the defendants, rejected Gartenberg v. Merrill Lynch Asset Management, a decision by the Second Circuit Court of Appeals in New York in 1982 that has served as the legal standard by which all excessive-fees cases have been evaluated for nearly 30 years.
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