What is a fair fee to charge for managing a large mutual fund?

Is 1.5 percent of assets too much? How about 1 percent? Lower still?

What about economies of scale? Should a fund that manages $10 billion in assets charge the same fixed percentage fee as a fund that manages $1 billion, or $100 million, or $10 million?

Investors in mutual funds managed by subsidiaries of Des Moines-based Principal Financial Group Inc. could get answers to those and other questions this summer with the assistance of a little-used judicial procedure known as an advisory jury. Nearly four years ago, shareholders of two Principal-managed funds filed a lawsuit in federal court here challenging the fees charged by two large mutual funds (actually, funds of funds) operated by subsidiaries of Principal, the nation’s largest manager of retirement assets.

Lawyers for shareholders Judith Curran, of Kensington, Calif., and Michael Earp, of Middletown, R.I., contend in the suit that annual fees charged by Principal’s subsidiaries are too high and out of line with fees charged by competitors. Among other things, the suit claims that shareholders bear the expense of attracting new investors to the funds but never receive any benefit from the economies of scale that occur.

The Seattle law firm of Keller Rohrback filed the case at a time when mutual fund fees were much in the news, with no less an authority than Warren Buffett challenging the independence of fund directors hired by companies like Principal to watch out for the interests of investors like Curran and Earp.

Principal says in court papers that its fees are not too high, that they are, in fact, lower than the fees charged by some competitors. The company also says its fund directors are independent, even though they receive up to $100,000 in annual compensation for part-time work.

At stake in the lawsuit are tens of millions of dollars in annual fees approved by the independent directors and collected by the Principal subsidiaries. Not to mention the boatload of attorneys’ fees on both sides.

The case has produced a lot of legal wrangling, a fair share of which has been hidden from the public on the grounds that many of the details about how the big funds arrive at their fee structures are trade secrets.

But now the case is going to trial in mid-June. Or at least that’s the plan.

An interesting wrinkle was added last month when the plaintiffs’ lawyers asked U.S. District Judge Robert Pratt to try part of the case before an advisory jury.

Advisory juries are just what the phrase sounds like. They are called upon to advise judges in equity cases, which are typically tried without juries. Advisory juries are used so rarely that Drake University law professor David Walker, a two-time dean of Drake’s law school, could not recall having seen one used in Iowa.

But it makes sense in this case, he said, because advisory juries have been used elsewhere to help determine community standards, particularly in cases involving excessive compensation or self-serving transactions.

“Judges are free to disregard what the advisory jury says. But judges sometimes want someone else’s take on what is going on,” Walker said

As I write this, Judge Pratt has not ruled on whether to impanel an advisory jury. But Walker said there is a good chance he will, because advisory juries sometimes serve as a catalyst to produce an out-of-court settlement, which would make Pratt’s job a lot easier.

Update: An out-of-court settlement in this lawsuit was announced May 17, after this story was published in the Business Record. No details of the settlement were contained in the court order filed Friday morning by federal magistrate Celeste Bremer, who asked that closing documents be filed by June 17.