Supreme Court Sets Aside Ruling on Excessive Mutual Fund Fees

Justices rule unanimously that investors should use 1982 standard

Lending more confusion than clarity to an issue of interest to advisors and their clients, the Supreme Court ruled unanimously on Tuesday, March 30, to set aside a lower court's ruling determining the size of fees an advisor may charge a mutual fund client.

The investors in Oakmark mutual funds who brought the case said that their investment advisor, Harris Associates, had overcharged them. The high court said that the U.S. Circuit Court of Appeals for the 7th Circuit in Chicago used the wrong standard for determining what excessive fees were. The lower court's standard would likely have made it very difficult for investors to sue over excessive fees on mutual funds.

Justice Samuel Alito, writing for the court, said the appeals court should have made its decision based on the widely used standard set in a 1982 case, Gartenberg v. Merrill Lynch Asset Management.

Alito said that for advisors to violate the Gartenberg ruling, "an investment adviser must charge a fee that is so disproportionately large that it bears no reasonable relationship to the services rendered and could not have been the product of arm's-length bargaining."

But the March 30 decision offered little guidance for lower courts, which could lead to many more battles between investors and fund advisors over fees. In fact, Alito kicked the ball back to the legislative branch, saying, "The debate is a matter for Congress, not the courts."

The case is Jones v. Harris Associates, 08-586.

To read the text of the Supreme Court's decision, please click here.

To read more about the mutual fund case from the archives of, please click here.

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