.floatimg-left-hort { float:left; } .floatimg-left-caption-hort { float:left; margin-bottom:10px; width:300px; margin-right:10px; clear:left;} .floatimg-left-vert { float:left; margin-top:10px; margin-right:15px; width:200px;} .floatimg-left-caption-vert { float:left; margin-right:10px; margin-bottom:10px; font-size: 12px; width:200px;} .floatimg-right-hort { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 300px;} .floatimg-right-caption-hort { float:left; margin-right:10px; margin-bottom:10px; width: 300px; font-size: 12px; } .floatimg-right-vert { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px;} .floatimg-right-caption-vert { float:left; margin-right:10px; margin-bottom:10px; width: 200px; font-size: 12px; } .floatimgright-sidebar { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px; border-top-style: double; border-top-color: black; border-bottom-style: double; border-bottom-color: black;} .floatimgright-sidebar p { line-height: 115%; text-indent: 10px; } .floatimgright-sidebar h4 { font-variant:small-caps; } .pullquote { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 150px; background: url(http://www.dmbusinessdaily.com/DAILY/editorial/extras/closequote.gif) no-repeat bottom right !important ; line-height: 150%; font-size: 125%; border-top: 1px solid; border-bottom: 1px solid;} .floatvidleft { float:left; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} .floatvidright { float:right; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} Investment arms of Principal Financial Group Inc. charge excessive management fees that eat away at shareholders’ returns, according to a lawsuit filed in U.S. District Court in Des Moines.

The case, filed on behalf of a California retiree with investments in Principal mutual funds, focuses on management fees charged by Principal affiliates that manage the funds. Those companies are Principal Management Corp., Principal Global Investors LLC and Principal Funds Distributor Inc.

Those companies have varying degrees of responsibility in managing the funds, basically a pool of mutual funds falling under a master fund, the Principal Fund Inc. Strategic Asset Management Portfolio (SAM Fund), and 18 underlying funds.

They are accused of breaching their fiduciary duties under the Investment Company Act of 1940 by charging excessive management fees, extracting excess profits from their functions as fund managers and charging unreasonable distribution fees, which among other things pay for marketing the funds.

As a shareholder in those funds, Judith Curran of Kensington, Calif., has filed the lawsuit on behalf of the funds and against the three management companies.

The suit is similar to a case heard Nov. 2 before the U.S. Supreme Court, which makes the same basic argument: that shareholders are losing value because fund managers charge excessive fees, particularly in relationship to the growing asset levels of the funds.

In fact, the Des Moines lawsuit cites Jack Bogle, founder and retired CEO of mutual fund giant The Vanguard Group, who filed a friend of the court brief in the case before the U.S. Supreme Court. The Seattle law firm that filed the brief on Bogle’s behalf also represents Curran and has a similar lawsuit pending in the 8th Circuit Court of Appeals, which includes Iowa.

Bogle has been a critic of fees charged to manage mutual funds.

Michael Woerner, of the Seattle law firm Keller Rohrback LLP, said the lawsuit was filed to strip away layers of management activity to determine actual roles and expenses in handling the funds. Curran also is represented by the Des Moines law firm Babich, Goldman, Cashatt & Renzo P.C.

In most instances, the funds are managed by member companies of Principal, with investors paying fees to each. In some cases, the companies perform no more than a bookkeeping function, while others make the actual investment decisions, according to Woerner and the lawsuit.

Shareholders do not benefit from economies of scale that are achieved when the value of the fund rises but the work involved in managing the fund or funds remains the same, Woerner said.

The lawsuit says shareholders pay four layers of fees and challenges the legality of two of those layers.

“It’s indisputable that investors would benefit by paying lower fees,” he said.

Citing a U.S. Department of Labor study, the Curran lawsuit estimates that a 1 percent difference in management fees can reduce the value of a 401(k) account by 28 percent over 35 years.

According to the lawsuit, in the fiscal year that ended Oct. 31, 2008, Principal Management Corp. received nearly $13.7 million in fees for the SAM Fund, which had $3 billion in assets at that time. That amount included fees paid to Principal affiliates and other companies that sub-advised all of the funds. In total, management fees for all funds that fiscal year were $207.3 million.

The lawsuit maintains that Principal Management Corp. provides nothing more than “back-office” services for most of the funds, with sub-advisers doing most of the heavy lifting in allocating investments and performing other services.

As a result, the management functions are self-serving, benefiting management rather than shareholders.

Principal, which as of Nov. 5 had not been served a copy of the lawsuit, said it disputes all allegations.

“We disagree with the allegations in this lawsuit and will vigorously contest them,” said spokeswoman Terri Hale.