3. How and when the fee will be paid by the client.
Furthermore, if you are deemed to charge "high fees" and/or "performance fees," additional disclosure will need to be included in your client agreements.
High Fees
While the SEC provides no clearly defined threshold for what constitutes high fees, it does mandate that an advisor who charges higher fees than those charged by other advisors providing similar services should disclose that "the same or similar services may be available elsewhere at a lower fee" in his or her client agreements.
The commonly accepted viewpoint is that fees of 3% or higher need to include additional disclosure. It's important to note, though, that this relates to the client's cumulative fee. So for advisors using third-party money managers, if the combination of their fee plus the manager's fee is 3% or higher, then it should be disclosed within the client agreement.
Performance Fees
Generally speaking, the SEC prohibits advisors from being compensated via "performance fees." There are, however, certain notable exceptions-the most common being that performance fee arrangements may be entered into with "qualified clients."
In accordance with full and fair disclosure requirements, any applicable performance fees must be clearly articulated in your client agreements with appropriate disclosure noting the following:
The time periods used to measure investment performance and their significance in the computation of the fee;
The nature, significance and perceived appropriateness of any index that will be used as a benchmark for comparative performance purposes;
The possibility that the performance fee may create an incentive for your firm to make riskier or more speculative investments;
When applicable, the fact that you may receive increased compensation with respect to unrealized appreciation, not just realized gains; and
If the fee pertains to any securities for which market quotations are not readily available, how those securities will be independently valued.