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Rating:An Insurance Giant Settles a Mutual Fund Fee Suit Not Rated 5.0 Email Routing List Email & Route  Print Print
Monday, May 20, 2013

An Insurance Giant Settles a Mutual Fund Fee Suit

News summary by MFWire's editors

So, just what is a fair fee for managing a mutual fund and can economies of scale be factored in?

Of course, it's the billions dollar question for the mutual fund industry and it has been put under a microscope due to a lawsuit against funds managed by subsidiaries of Principal Financial Group, according to the Business Record.

The suit was settled out of court on May 17th, but no details have been yet released. Federal magistrate Celeste Bremer has asked for closing documents for the settlement by June 17th.

Nearly four years ago, shareholders of two Principal-managed funds filed a lawsuit in federal court here challenging the fees charged by two funds of funds operated by subsidiaries of Principal, according to the newspaper.

The Business Record reports that lawyers for shareholders Judith Curran, of Kensington, Calif., and Michael Earp, of Middletown, R.I., argue in the suit that annual fees charged by Principalís subsidiaries are too high and out of line with fees charged by competitors. For example, the suit claims that shareholders bear the expense of attracting new investors to the funds but never receive any benefit from the economies of scale that occur.

The case was filed by the Seattle law firm of Keller Rohrback.

The newspaper reports that case has led to a great deal legal wrangling, much of which has been hidden from the public on the grounds that many of the details about how the big funds generate their fee structures are trade secrets.

Before the suit settled, it was scheduled to go to trial in June and would have involved an "advisory" jury, which, as the name suggests, would have advised the judge on how to handle the case.

Legal experts say such juries are very rare.

Read more about the case in Business Record.  

Edited by: Tommy Fernandez


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