How do RIAs avoid charging clients twice when they invest in the RIA's own fund?
RIAs · Video 7 of 8 · 0:35 ·
If you charge 1% on a client's whole account and your fund charges 2% on the part invested in it, the same dollar pays 3%. Common ways out: leave fund assets out of the advisory bill, offset one fee against the other, or put clients in a lower-fee class. Pick one before clients invest, and spell it out in your brochure.
Everything here is for educational purposes only and is not legal, tax or investment advice, or an offer to buy or sell any security. Laws and thresholds change and depend on your facts, so talk to a qualified attorney before acting.
Key facts
- An advisory fee plus a fund fee on the same assets is double charging.
- Common approaches: exclude fund assets, offset fees, or a lower-fee class.
- Disclose the approach in Form ADV Part 2A.
Transcript
Operator: Your client pays you 1%. Then your fund charges them 2%. On the same dollar.
Founder: That doesn't sound great.
Operator: Follow it. Your advisory fee covers their whole account: 1%.
Operator: Part of that account goes into your fund. The fund charges 2% on the same money.
Operator: Together: 3% on one dollar.
Founder: So how do I stop that?
Operator: Three common ways. Leave fund assets out of the advisory bill.
Operator: Offset one fee against the other. Or put clients in a lower-fee class.
Founder: And pick one before they invest.
Operator: And spell it out in your brochure.
Founder: So, 1% plus 2%...