The Investment Company Institute filed a brief yesterday urging the U.S. Supreme Court to endorse the longtime Gartenberg standard for evaluating claims that a mutual fund's investment advisers have received excessive compensation.
The Gartenberg standard determines a fee's fairness based on whether two independent parties would have determined the same amount.
The Supreme Court is scheduled to begin hearing arguments Nov. 2 in the case of Jones v. Harris Associates, which is challenging that framework.
The case involves a lawsuit filed by a group of investors against Harris Associates LP, which advises the Oakmark Funds.
The plaintiffs alleged that Harris breached its fiduciary duty by charging excessive management fees.
In its brief, the ICI asserts that the Gartenberg framework provides “real and substantial protection to investors.”
“Mutual fund independent directors, charged with protecting investor interests, rely on this established framework in their annual review and approval of fund advisory fees,” the ICI wrote in its statement.
The ICI's brief also highlights the “competitive nature of the fund industry, with fees falling even as investors have received more and better services,” the statement said.
The total cost of investing in both stock and bond mutual funds fell by about 60% from 1980 to 2008, the ICI reported.
Last fall, the 7th U.S. Circuit Court of Appeals in Illinois
ruled against the plaintiffs.
Chief Judge Frank Easterbrook upheld the fees set by Harris, saying that as long as there is transparency and no fraud, there is no breach in fiduciary responsibility.
If the Supreme Court creates a different, more stringent standard, it could reduce fees for mutual fund shareholders industrywide, according to Morningstar Inc.
No shareholder has ever won an excessive-fee case in court under the Gartenberg standard, Morningstar has noted.
James Bradley, an attorney with Richardson Patrick Westbrook & Brickman LLC of Charleston, S.C., which is representing the plaintiffs, said the firm is currently working on a reply brief and would reserve any comments for the brief.
