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Investors are calling for an inquiry into mutual fund fees, but the Supreme Court is reminding them that it isn't beholden to public opinion. The mutual fund industry is being accused of charging "excessive" fees, which could be particularly harsh on individual investors who use these tools as their primary way to access the market. Currently, the mutual fund industry has more than $10 trillion in assets under management, some of it through retirement and 529 college savings plans.
The Court doesn't seem inclined to step into the fray, saying that regulatory agencies are better equipped to address the situation. Chief Justice John Roberts, for example, said during arguments that "It makes a lot more sense to have the SEC regulate rates than to have courts do it, doesn't it?"
In the case currently being heard, Jerry N. Jones, Mary F. Jones and Arline Winerman sued Harris Associates L.P., advisor to the Oakmark group of mutual funds (and the group that sets Oakmark's fees). The plaintiffs accuse Harris of having fees so high that they violate the Investment Company Act. The Act's purpose is to keep fees from becoming excessive.
To violate the Act, the funds fees have to be high enough that they have "no reasonable relationship to the services rendered." Lower courts have dismissed the case, saying, "Plaintiffs do not contend that Harris Associates pulled the wool over the eyes of the disinterested trustees or otherwise hindered their ability to negotiate a favorable price for advisory services."
In addition to indicating that the SEC is better equipped to handle fees, Roberts and Justice Scalia indicated that investors are free to find funds with lower fees. Justice Breyer suggested kicking the case back to lower courts to decide what type of information mutual funds should have to supply to prospective investors.
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Reader Comments (Page 1 of 1)
11-03-2009 @ 1:42PM
clikdawg said...
"The Court doesn't seem inclined to step into the fray, saying that regulatory agencies are better equipped to address the situation."
Talk about assuming a fact not in evidence ...