You can theoretically charge whatever clients are willing to pay for RIA work.  For RReps, you have to charge what is “fair and equitable”.  Most firms place limitations on how much a  client can be charged, regardless of how much profit you make for them.  I think at Jones, it’s like 5% on round-trip trades within 2 years or something like that.  I only run into that on bonds (mostly the past year after making huge short-term gains on LT bonds).

As an RIA you can charge anything you want. However, I believe anything over 3% has to have a statement to the client stating that the client can get similar services at a lower price.

I have seen many RIAs start a 3% for a good active managed strategy.

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I have seen many RIAs start a 3% for a good active managed strategy.

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That is just insane.

Speaking to the original poster now, if you are charging 3%, I can guarantee you don’t have your clients best interests at heart.  Any real analysis would conclude that your clients weren’t benefiting from your sweet “active” management enough to justify that kind of fee.

Hi eman07,

Generally speaking I agree. Over 1 percent for most of the work I've seen people do . But some strategies are so monitor -, labor- and research intensive that a higher fee might make sense. That's why rich people are willing to go on the 2 - 20 programs of hedge funds. The highly active trading program I have in mind would involve a 1% wrap fee, with some kind of reward for achieving results superior to a comparable published index, as well as some kind of penalty for underperforming that index.  This is essentially what hedge funds do, except they don't usually tend to suffer much on the downside...  I don't know if a performance based contract is allowed for RIA's and maybe the only way to implement that at all is to create a hedge fund. But that seems to be a huge and expensive administrative hassle.

We’ve always told our clients (based on actual experience) that 3.00% is the “legal limit” and 2.00% is the “moral limit” (not our phrase, that’s how one state regulator once explained it to me).   While the SEC may let you get away with fees above 3.00% with the “same or similar services elsewhere for less” disclaimer, almost none of the states will.   I’m only even saying that because I can’t think of a single state we work with that will allow above 3.00% for non-accredited/non-qualified investors.  

First off, Zach, thanks for your input. Like Fred over at TPMR, I hope you will stick around and offer your valuable insights on this industry.



As far as performance fees are concerned (speaking to Free’s comment), I personally know of one RIA that has these. And he does not serve accredited investors. His basic fee structure is as follows:

The Fee schedule is simple and straightforward. The two options are as follows:



1.) A flat half of one percent (.50%) of assets under management.



2.) One quarter of one percent (.25%) plus a .75% performance fee if returns are 10% or greater annually.

If my clients don’t do well, why should I?



Pretty low schedule, but I think he manages a lot of 401K assets for working clients.

Zachary,