Here Comes the Judge…Against the Wrong Fund?

The Supreme Court will soon be hearing a case involving Harris Associates, Inc. (advisory firm of the well respected Oakmark family of mutual funds), due to shareholder litigation over the mutual fund expenses charged by these funds.

This is an important topic, as many mutual funds charge fees that we think are way too high. For example, for US stock mutual funds that we generally use, the expense ratios are .10% – .40%, depending on the type of fund. Industry averages for comparable funds are usually between 1.00-1.50%. Thus, our clients may be paying 1% less in mutual fund fees than an industry average fund, not including our advisory fee.

This case going to the Supreme Court may be good, from the standpoint that it may raise awareness of how expensive so many mutual funds are (which most investors are not even aware of). However, it is unfortunate that the case is being brought against the Oakmark family of funds, as their expense ratios are at the lower end of the range, near 1.10%. There are many fund families that charge much higher fees, in addition to front or back end loads (sales charges).

Part of our investment philosophy is to control whatever costs that we can control. We cannot control the direction of the stock market, but we can control the expense ratios for our clients, by our selection of mutual funds with lower costs. Utilizing very low cost mutual funds, without sacrificing investment performance, is a win-win for our clients.

When we meet with new prospects, one of the things we do is to perform a “portfolio analysis” of their current investments, which includes reviewing the costs of their existing investments. We feel it is important for clients to understand all the fees they are paying and recognize that their current investments may have far higher annual costs, which they are not aware of. This is frequently an eye opening experience.

For the mutual fund industry, this Supreme Court case may become an eye opening experience!

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