Definition of Gartenberg standard

The long-established U.S. legal standard is a way to determine whether a mutual fund adviser has breached its fiduciary duty under Section 36(b) of the Investment Company Act by allowing a fund to charge excessive fees.

The Standard, which was created in 1982, rejects the notion that a fund’s fees are excessive just because the fees of competing funds are lower. Several factors that a court should consider when applying the Gartenberg standard are: the adviser’s cost in providing its service, the nature and quality of the service, to what extent an adviser achieves economies of scale and the volume of orders that must be processed.

Gartenberg to face liability under 36(b), an investment adviser must charge a fee that is so disproportionately large that it bears no reasonable relationship to the services rendered and could not have been the product of arm’s-length bargaining. [1]

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