What can mutual fund boards and advisers learn from the AXA trial ruling

PurposeTo analyze the August 2016 court decision in Sivolella v. AXA Equitable Life Ins. Co. and its implications for cases concerning mutual fund advisory fees under Section 36(b) of the of the Investment Company Act of 1940.Design/methodology/approachDiscusses Section 36(b), the plaintiffs’ arguments and the judge’s decision in favor of the mutual fund adviser. Provides insights from the judge’s analysis of the advisory fees at issue, including the independence of the mutual fund board and quality of the annual advisory contract renewal process, whether the language of the advisory and subadvisory agreements fully reflects the nature and extent of services provided, the board’s reliance on outside experts and advisers when considering the advisers’ fees and services, and continuous improvements in the boards’ annual advisory contract renewal process.FindingsAXA was a decisive victory for the adviser, and serves as a reminder to boards and advisers alike that a diligent focus on board process and independence can pay twofold after litigation is filed.Practical implicationsBoards and advisers should consider AXA’s implications, and whether the decision raises issues that should be reviewed by independent counsel with experience advising funds and advisers with respect to the Investment Company Act.Originality/valuePractical guidance from experienced financial services lawyers.