Supreme Court May Request Mutual Fund Fee Standard

Although the Supreme Court appeared hesitant to intervene significantly on determining appropriate mutual fund fees as the Jones v. Harris Associates case began Monday, the justices appeared interested in setting a clearer standard on fees, The Wall Street Journal reports.

Although the case contests that Harris breached its fiduciary duty by charging retail investors twice what it charged institutional investors, a number of justices suggested that investors could simply take their business elsewhere to a lower-cost fund, and that even if they were offered only a handful of funds in a 401(k), plan sponsors are increasingly moving to lower-cost offerings.

However, Justice Sonia Sotomayor questioned whether fees negotiated by an investment advisor, even if approved by independent directors, constitutes a neutral, fair decision, saying, “Let’s assume all independent board members vote for a fee negotiated by an insider who does the evaluation and says, ‘I think this is a great deal, guys.’ Is that a process that would constitute an arms-length deal?”

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