On September 30, 2015, the Wayne County Employees' Retirement System filed a complaint against Fiduciary Management, Inc. (FMI) in U.S. District Court for the Eastern District of Wisconsin. The complaint alleges a breach of fiduciary duty under Section 36(b) of the Investment Company Act for charging excessive advisory fees to the FMI Large Cap Fund.
The FMI Large Cap Fund grew from $100 million in assets under management to more than $9.6 billion over the past decade. The plaintiff alleges that economies of scale in the advisory fee were not shared with the Fund's retail investors, as the fee has remained fixed at 75 basis points (0.75%) during this entire 10-year period. The plaintiff also alleges that the trustees of the Fund did not engage in a robust annual fee approval process, as the language summarizing the advisory fee approval process was identical in annual prospectus disclosures from 2006-2014.
The complaint compares the advisory fee charged to the Fund with the fee schedules used for FMI's institutional advisory clients. The advisory fees for these clients, which are negotiated at arm's length, are set at only 40 basis points (0.40%) for assets under management over $100 million.
These institutional clients also have "most favored nation" clauses in their advisory contracts, permitting a lower effective fee rate whenever FMI negotiates a more favorable fee with a comparable client. No such clause exists in the advisory fee contract between the FMI Large Cap Fund and FMI.
The complaint also compares the advisory fee for the FMI Large Cap Fund with those fees being paid by third-party mutual funds to FMI to act as a sub-adviser to these funds. In the case of the largest of these funds, the subadvisory fee is only 28 basis points (0.28%) for assets under management that exceed $100 million.
On January 4, 2016, this case was dismissed by agreement of all the parties.