Securities Regulation Daily Wrap Up, FIDUCIARY DUTIES—N.D. Cal.: T. Rowe Price charged affiliated funds too much for too little, complaint alleges, (Apr 29, 2016)

By Amy Leisinger, J.D.

Shareholders in several T. Rowe Price funds have filed a complaint against the funds’ investment adviser alleging that the firm breached its fiduciary duty by receiving excessive investment management fees from each fund. According to the shareholders, the adviser realized economies of scale with the increase in total asset under management without passing on benefits to the funds and charged smaller fees to similarly situated sub-advised funds. Further, the plaintiffs contend, the funds’ trustees approved regularly approved advisory contracts without adequate review of the fees. As such, the fees charged are excessive and violate the adviser’s fiduciary duty under Investment Company Act Section 36(b), the plaintiffs state (Zoidis v. T. Rowe Price Associates, Inc., April 27, 2016).

Allegations. According to the complaint, the fee rates charged to each of the funds by their affiliated investment adviser, T. Rowe Price Associates, Inc., are as much as 73 percent higher than the adviser has negotiated with other clients (including similarly situated sub-advised funds) for the same or substantially similar services. Collectively, they stated, the funds pay almost $390 million more in fees each year than they would pay if the rates had been negotiated at arm’s length, and the fees have increased in recent years with no attendant change in services provided. Further, the plaintiffs state, the adviser has retained all benefits of economies of scale resulting from increases in the funds’ assets under management during recent years and increased its profits at the expense of the funds and their shareholders.

The adviser breached its fiduciary duty under Section 36(b) by receiving investment management fees so disproportionately large that they bear no reasonable relationship to the value of the services rendered and could not have been the product of arm’s-length bargaining, the shareholders contend.

Relief sought. The shareholders request an order permanently enjoining the adviser from further violations of Section 36(b) and awarding damages in the form of repayment to the funds of unlawful and excessive investment management fees. The shareholders also seek rescission of the existing investment management agreements between the funds and the adviser.

The case is No. 3:16-cv-2289.

Attorneys: James Michael Hennigan (Hennigan Bennett & Dorman LLP) for Christopher Zoidis.

Companies: T. Rowe Price Associates, Inc.

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