Supreme Court to Review Mutual Fund Fee Issue

Today, the U.S. Supreme Court granted review of a 7th Circuit decision which held that a mutual fund advisor’s fee was not excessive and an action brought under the fiduciary obligations of section 36(b) of the Investment Company Act was not appropriate unless it could be demonstrated that the advisor misled the fund’s directors who approved the fee.

In its October term, the Supreme Court shall review the decision in Jones v. Harris Associates, L.P., 527 F.3d 627 (7th 2008) . In Jones v. Harris Associates the 7th Circuit reasoned that because the advisors fee was approved by the directors of the fund, it could not be deemed excessive, unless it could be shown that the advisor materially misled the directors to gain such approval.  The court determined that there is enough competition among mutual fund advisors to keep the fees they charge in check. In other words, it was not up to the court to determine a limit, or or put a cap on such fees.

Obviously, this case is of great importance to mutual fund advisors everywhere, and will be closely followed.   Currently, millions of individuals have vast amounts of wealth tied up and invested in mutual funds for retirement and other investment initiatives, so the outcome in this case could loom large.