Section 36(b) of the Investment Company Act of 1940 imposes on mutual fund advisers a fiduciary duty with respect to their receipt of compensation from fund assets for the advisory services they provide. For the past quarter century, courts adjudicating claims for breaches of this fiduciary duty have relied heavily on a rubric proposed in Gartenberg v. Merrill Lynch Asset Management Trust, 694 F.2d 923 (2d Cir. 1982). But in doing so, courts have tended to read Gartenberg to require them to serve as rate setters and to make substantive economic judgments about the fairness of mutual fund advisory fees. As a consequence, there has not been a single liability finding under section 36(b), even as the compensation paid to mutual fund advisers has skyrocketed. In this paper, the authors propose that courts enforce the fiduciary duty that section 36(b) creates through a process-based and comparative approach that is rooted in the common law of trusts and relies on judicially administrable guideposts. If section 36(b) is to serve the role Congress envisioned for it, it is imperative that courts move beyond the Gartenberg approach.
