Eighth Circuit Says No Standing For Fund Of Funds' Shareholders Under Section 36(B)

On July 24, 2017, the U.S. Court of Appeals for the Eighth Circuit affirmed a district court ruling that a shareholder of a fund of funds lacks standing under Section 36(b) of the Investment Company Act of 1940, as amended (the "1940 Act"), to challenge investment advisory fees paid by the underlying funds.

The plaintiff, a 401(k) plan on behalf of its participants, originally sued the investment adviser of six target-date funds in which it invested. The target-date funds are structured as "fund of funds" and invest in other mutual funds ("underlying" or "acquired" funds) managed by the same investment adviser. The plaintiff alleged that the investment adviser breached its fiduciary duty under Section 36(b) of the 1940 Act and sought to recover "unfair and excessive fees." Each target-date fund charged an advisory fee of 0.03% of total net assets. The acquired fund fees and expenses ("AFFE") for each target-date fund ranged from 0.59% to 0.75% of the fund's total