Seventh Circuit and Mutual Fund Fees

Judge Frank Easterbrook, chief judge of the Seventh Circuit [corrected], has released an opinion that withdraws federal courts from overseeing the fees of mutual fund managers.  If fund managers make full disclosure, the judge says courts should not "cap" the fees, the market should.   I normally am for market solutions be this one goes to far.  Fund managers are fiduciaries to fund investors and trust law, going back several centuries, imposes a reasonableness requirement on the fees of fiduciaries that control the cash of beneficiaries.  It is a part of the old widow rule;  widows of wealthy men whose funds were placed with fiduciaries could rely on the equity courts to see that they were not cheated.  The reasonableness requirement is no more vague that a similar requirement in many, many other contexts -- it relies on custom and practice in the trade.  Since the investors in mutual funds are the general population who have a great deal of trouble deciphering fees and performance data, this rule makes good sense.  It will apply only in egregious cases and acts as a deterrent in all cases.