On October 17, 2013, a shareholder of several Russell Funds filed a complaint against Russell Investment Management in the U.S. District Court for Massachusetts. The complaint alleges that Russell is collecting large investment management fees and then using sub-advisers at a much lower cost to perform the actual investment management work.
The complaint states that in fiscal year 2012, Russell was paid more than $164 million in investment management fees from the mutual funds involved. Of that amount, Russell paid its sub-advisers $57 million for investment management services, while retaining $107 million for itself. The plaintiff alleges that Russell breached its fiduciary duty under Section 36(b) of the Investment Company Act by charging its mutual funds these excessive fees.
On December 8, 2014, the plaintiff filed a second complaint against Russell, expanding his subadviser claims to include excessive administrative fees. These two cases were consolidated on March 10, 2015.
After a period for discovery, Russell filed a motion for summary judgment in June 2016. The Court granted Russell's motion regarding the plaintiff's claims involving board independence, economies of scale, and comparative fees. On November 15, 2016, the Court denied the defendants' motion for summary judgment regarding the other Gartenberg factors, including profitability, nature and quality of services, and fallout benefits. A trial is expected in March 2017.