Fee Structures

There are three basic ways that you can get paid as a money manager. These include; performance fee, management fee, and trade commission. The key compliance and ethical concept to keep in mind is that all fees that you charge have to be pre-disclosed to the client. If fees are not properly disclosed to the client you create an undisclosed conflict of interest. What this means is that the goal of the manager becomes inherently different from the goal of the investor.

For example if the manager is being paid out a volume based cash commission, his main incentive is to trade a lot rather than make money for the client, because he gets paid as he trades while the client gets paid as he performs. When the client fills out the power of attorney form and signs off on the disclosure document of the manager, he must sign off on all of the fees being charged and understand and accept all of the risks that are associated with his investment.