The US Supreme Court weighed in Monday of this week on an arcane area of the mutual fund world: whether 401(k) plan sponsors have a continuing obligation to search for the lowest cost share class options for their participants. Leaving aside the details of that case, investors might be wondering whether similar logic might be applied to mutual funds selected by their investment advisers.

Here at Essential Investment Partners, we are fiduciaries for our clients so we are required to put their best interests first, always. In the context of selecting share classes, that means we pick the share class we believe makes the most economic sense for our clients.

The math involved is usually pretty straightforward. Typically (though not always), the difference in the annual cost of a fund's "investor" class and its "institutional" share class is 0.25%. On the flip side, our clients typically pay a $25 fee to buy an institutional share class and there is no upfront fee to buy the investor class. So the question is: what is the breakeven point? If we assume a one year holding period, the answer is $10,000 (10,000 X 0.25% = $25).

This is the rule of thumb we use in selecting share classes for client portfolios. If the purchase is for more than $10,000 and we expect to hold the fund for at least a year, then we buy the institutional share class, if it is available. (Not all fund companies offer institutional share classes and some that do have very high minimums that our clients might not be able to meet.)

This is just one of the elements we consider when making investment decisions for our clients. And, there may well be circumstances when an approach other than our rule of thumb for share class choice is appropriate.

Back to the US Supreme Court case for a moment. This is likely to turn into an "inside baseball" case before it is done because of the complexity of how fees are shared in 401(k) plans. That is a subject for another day. However, we are happy that the Court took up a case that is likely to shed light on the importance of the costs of retirement investing. And, most importantly, how we should be putting plan participants' long term interests first.