The Mutual Fund Fee War

The Supreme Court handed down a ruling this week on mutual fund fees that has left both sides cheering. The case involved a suit against the Oakmark family of mutual funds; a group of investors charged that the fund's advisor had charged individual investors twice what it was charging institutional investors to buy into the same funds.

The Court's decision affirmed the idea that exorbitant fees are illegal when "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," wrote Justice Samuel Alito. That's been the standard since a 1982 lawsuit against Merrill Lynch, although a lower court had thrown it out, saying that as long as the adviser misled the fund's directors, the fees could be characterized as excessive. Now the Supreme Court is reiterating that the tougher standard is the law of the land.

So why are investors groups happy about the ruling? Simply because they left the door open for such suits against excessive fees. The simple fact that investors can still use pension fund fees as a comparison was considered a victory.

Of course, investors still have a very powerful tool to combat excessive mutual fund fees: Sell the fund and buy another one.