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Gartenberg Standard and Mutual Fund Fees

It’s not often that the Supreme Court takes on a case with such a key personal finance subject, mutual fund fees, so when the highest court in the land made a ruling [3] last week, I perked up. The case was Jones v. Harris Associates and it concerned Harris Associates’s Oakmark funds. Shareholders owned Oakmark funds through their employer’s plans and were charged a management fee of 0.88%, versus the 0.45% fee charged to Harris Associates’s institutional clients. The plaintiff’s argument was that they were being charged an excessive fee compared to Harris’s clients, in this case almost twice as much.

The Supreme Court unanimously ordered the appeals court to adopt the Gartenberg Standard for mutual fund fees, established in Gartenberg v. Merrill Lynch Asset Management, which stated that in order for the fee to be deemed excessive, it had to be “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.” Yeah, it’s pretty vague but it’s the legal standard.

While lawyers and professors can argue the nuances in the ruling, how Jones v. Harris modifies the Gartenberg Standard or how this ruling favors investors over funds, or vice versa, the end result for the investor is the same. Do your research and compare the expense ratios of whatever you invest in. If you are investing through your employer’s plan and only have access to a limited set, pick the best one for you or lobby your administrator to offer more options.

Invest in funds that charge you a fair rate for what you get and remember to shop around. You are the final arbiter of where your money goes and you are solely responsible for your financial future.