The case law on who bears the risks inherent in a mutual fund’s operations is becoming paradoxical, and may now require intervention by mutual fund boards. Investment advisors have, incredibly, convinced some federal courts that they bear enormous risks in operating their mutual funds—so much so that they’re justified in charging hundreds of millions of dollars in extra advisory fees—but, at the same time, should not be held liable if and when those risks materialize, even if the result is a catastrophic meltdown of the fund.

Two cases exemplify this state of affairs. Last year, JPMorgan was trapped in a litigation requiring it to justify charging $132 million more, annually, to certain ...

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