RIA Firm Ties Fees To Performance

I actually examined performance fees, too, as I agree one can argue it's the truest alignment of investor and asset manager incentives. We decided not to give clients that option for two reasons: 1) the regulatory structure heavily discourages performance fees, and 2) our clients would have paid more under a performance fee structure when we backtested it than under our current fee structure of 0.50% on the first $5 million of assets managed. Yes, we could have changed the performance fee structure so it cost the client less and us more, but given the additional risk to the firm under that arrangement it just didn't make economic sense. So until the regulatory stance discouraging performance fees changes and/or evidence grows that the client saves money that way, we will stick with our current fee structure. I'll be interested to hear how it turns out for this firm, I hope you'll post a follow-up article in a few years.

Re: Skin in the Game All the regulatory issues aside, I am more inclined that what we have here is a very "slick" price oriented promotion to attract business. I doubt the desired "profit margins" will be compromised and, as far as absorbing some level of financial loss for uncontrollable and "black swan" events, that's demeaning to the profession. I am not registered investment advisor. David F. Sterling, Esq., Consultant