Series 65
Client Communication and Compensation - Compensation
Restrictions on Fees
There are few specific restrictions on fees within either the Investment Advisers Act of 1940 or the Uniform Securities Act. The advisory fee must not be "unreasonable," which means that it generally should be in line with what other advisers charge. Under the Uniform Securities Act, the following types of fee arrangements are permitted:
There are few specific restrictions on fees within either the Investment Advisers Act of 1940 or the Uniform Securities Act. The advisory fee must not be "unreasonable," which means that it generally should be in line with what other advisers charge. Under the Uniform Securities Act, the following types of fee arrangements are permitted:
- Fees based on a percentage of assets under management
- Flat annual dollar amount for services agreed upon
- Brokerage fees on trades made for clients
- Wrap fees that combine all services (asset management and transaction fees) into a single annual fee
- Registered investment companies (mutual funds)
- An individual with an account value in excess of $1 million (Uniform Securities Act), or
- An individual with an account value in excess of $750,000 AND a net worth of at least $1.5 million (Investment Advisers Act)
| Look Out! Don\'t confuse performance-based fees with performance guarantees - read the exam questions carefully. Remember that performance guarantees are always prohibited, while performance-based fees are generally prohibited, with the exceptions discussed above. |
| Exam Tips and Tricks Here is a question you might encounter on the exam: |
- Based on the level of trading activity
- Based on a percentage of the value of all assets under management
- Based on a percentage of capital gains or losses in the account
- Any of the above
The correct answer is "b". The other two options are specifically prohibited.
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