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Sep 16, 2009 10:36 pm

Novice in the business, just 15 months into the trade, but already frustrated with the limitations of my b/d. Latest no commissions on short term trades, short term being under 1 year… Anybody guess where I work?

Searched on this forum and through Google but cannot find any info on maximum allowed rates an RIA may charge. Is this 3% as one broker informed me?

Only thing I find on the web was a recent petition by TD Ameritrade to SEC as follows
"Clear SEC Fee Guidance. We think the SEC should provide clear
guidance as to the maximum permissible advisory fee rate that an RIA
can deduct from client assets through an independent qualified

Can you charge different fees for different portfolio strategies (e.g 1% for buy and hold
strategies, 3 pct for active trading, options, spreads, etc)?

Appreciate your answers or a reference to where I can look (Investment act of 1940?). D**n,  I know just about enough to be dangerous…

Sep 16, 2009 11:10 pm

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).

Sep 16, 2009 11:22 pm

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.

Sep 17, 2009 12:23 pm

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

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.

Sep 18, 2009 3:56 am

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.

I've seen how some people issue "hurdles" to protect the client from poor results, but I don't think it offers that much protection. Anybody know of a good system - other than one's inherent ethics - for assuring a client that the risks taken are not excessive?        
Sep 25, 2009 11:33 pm

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.  

  Taking it a step further, most of the states that actually review your fees prior to registration ask us to put the "same or similar services" disclaimer on any fees above 2.00% per year.     Speaking to the post about seeing "many RIAs starting at 3.00%," I've had a hand in over 700 RIAs now and I can count on one hand the number of RIAs that had a fee schedule that included 3.00% for non-accredited/non-qualified investors.    Even the highly specialized active manager types are usually in the 1.50%-2.50% range (with exception, of course).
Sep 26, 2009 1:02 pm

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.

Oct 1, 2009 4:42 am


Thanks for your reply. Anything exist along the lines of the following (for aggressive investors and very actively managed accounts) 0.5% fee if best result is "average", but 25% of improvement (difference) over a predetermined index, that of course would have to have comparable risk factors. So if your index (msci or other) produced 12% and you achieved 18%, you would be entitled to (18-12 ) x 0.25 = 2.5% incentive plus 0.5% base.    In other words, client is only paying for your ability to generate better than average returns. This is similar to hedge funds 2/20% structure, but with far less cost to the customer if you have mediocre results.   Thoughts ? Comments?