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Jones v. Harris Associates LP

U.S. Supreme Court Allows People to Protect Their Retirement Investments

The Supreme Court Decision

After noting the "exponential growth" of the mutual fund industry and the history of the Gartenberg standard, the Supreme Court by a unanimous 9-0 ruling found that the Gartenberg approach fully incorporates the understanding of the applicable fiduciary duties and "insists that all relevant circumstances be taken into account." The Court ruled that "by focusing almost entirely on the element of disclosure, the Seventh Circuit panel erred … The Gartenberg standard, which the panel rejected, may lack sharp analytical clarity, but we believe that it accurately reflects the compromise that is embodied in [the law] and it has provided a workable standard for nearly three decades."

What's at Stake

More people than ever are investing in mutual funds on their own and through Individual Retirement Accounts, employer-sponsored 401(k)s, and similar plans, and expenses associated with inflated adviser compensation get passed on to all of the investors reducing their earnings. The stakes for investors inside and outside of retirement plans are substantial.

A major AARP priority is to assist people in accumulating and effectively managing retirement assets. The shift away from traditional defined benefit pension plans (in which employers bear the responsibility of asset accumulation and the risk of loss) to defined contribution plans (under which plan participants bear those responsibilities and risks) places a significant weight on individuals, including many first-time investors, to make appropriate investment choices. Yet, the brief notes studies by AARP and others that indicate that many investors lack basic knowledge about how investment vehicles operate and are unaware of key features of their own investments. These findings apply to the various fees and other expenses charged by their funds and how the fees reduce investors' earnings and overall accumulations. It is crucial that mutual fund fees and expenses be clearly disclosed, and that they be set appropriately. Otherwise, millions of people risk seeing their hard-earned savings and retirement accumulations drained away.

The Court's ruling in Jones v. Harris Associates LP  helps ensure that investors have as many enforcement tools as possible to help protect themselves.



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