Fund Directions - Jones v. Harris: What Next?

Jones v. Harris: What Next?

Mutual fund firms, financial advisors and independent fund directors have been watching Jones v. Harris Associates for months in anticipation of how the outcome will affect the funds industry. The case is currently before the Supreme Court, where the Securities and Exchange Commission has just filed an amicus brief on behalf of investors. Last week SEC Chairman Mary Schapiro jumped even further into the debate, asking Congress for more authority to define who can be an independent director. Washington Bureau Chief Stanley Wilson sat down with Bruce Rosenblum, partner at K&L Gates in Washington, D.C., to talk about the latest developments and where the case will go from here.

FD: What is the main issue the Court is currently considering in the Jones case?

Rosenblum: The Court is considering what standard lower courts should apply in cases where plaintiffs are alleging fund advisors are charging fund clients excessive fees, in particular, whether lower courts should be comparing fund fees to typically lower fees advisors charge institutional clients. [Section] 36(b) of the ’40 Act imposes a fiduciary duty on fund advisors regarding the fees they charge. So they can’t charge excessive fees.

FD: What yardstick have courts used up until now to decide when an advisor’s fees are excessive?

Rosenblum: Since 1982 the Gartenberg decision has served as the standard for courts to assess 36(b) cases. The Jones court basically said we don’t need Gartenberg anymore, as the mutual fund market has grown so large and competitive. So, if an advisor is charging fees comparable to what other fund advisors charge ...

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Jones v. Harris: What Next?