High Court Hears Mutual Fund Case

NEW YORK (TheStreet) -- The U.S. Supreme Court begins hearing arguments Monday in a mutual fund case that could profoundly affect investors and the industry.

A group of investors has sued mutual fund advisors Harris Associates, alleging that the group charged mutual fund investors more than twice the amount of fees as it did non-fund clients for the same investment strategies. The funds in question are Oakmark(OAKMX Quote), Oakmark Equity and Income and Oakmark Global.

This latest chapter in mutual fund regulation follows in the footsteps of the landmark Gartenberg v. Merrill Lynch case in 1982. As a result of that case, the U.S. Second Circuit Court of Appeals instructed courts to consider claims against an investment manager's fee in light of a various factors, including the approval of independent directors.

There have been several important developments in the mutual fund industry, however, since 1982. According to the Investment Company Institute, the mutual fund trade association, mutual-fund fees have dropped 63% for bond funds and 57% for equity funds since 1980. ETFs have also presented a significant challenge to traditional mutual funds with low-expense ratios and passive-indexing strategies.

The arguments heard today before the Supreme Court should be of interest to anyone invested in mutual funds. While 401ks have suffered significant losses in the wake of the global economic slowdown, it is still a trillion-dollar pool of assets, and a significant portion of those assets are invested in mutual funds.