| 08 September 2009

For the first time in his more than 50 years in the investing business John Bogle has filed an amicus brief with the U.S. Supreme Court. The case is Jones vs. Harris Associates. The issue is charges and fees wrought by mutual fund companies on investors.

If the case is decided in favor of the investor it will likely unleash a torrent of similar legal fights to lower fees and make fees more equitable between retail and institutional investors.

Bogle, founder and former CEO of low-fee mutual fund giant Vangaurd Group, said in his brief that this "is going to be a wakeup call for fund directors, and I think the Supreme Court is going to come down hard" on the entire mutual fund industry and its fee practices.

"It's a fundamentally flawed economic system we have for setting fees in the industry,'' said Bogle. "We look at everybody else and say, in effect, "They're overcharging, so why shouldn't we?"

The fund companies and their representatives are stepping up their efforts to fight the charges. Fidelity Investments basically said to the courts, "Don't second-guess our good judgment on business practices." That argument has not worked well in the past when it comes to fee settlements.

The Investment Company Institute rests their claims on the fact that the mutual fund industry is highly competitive, by which we assume they mean the markets are at equilibrium. Apparently ICI employees have more than the typical number of five mutual funds to choose from in their company 401(k) program.

The case has been pending in the courts for about five years and arguments will be heard November 2nd. A ruling is expected by next June. If Bogle is anywhere close to right on this one, prepare for a good old fashioned industry shake-up.