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Our Take Blog

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Our Take Blog
SEC Staff Allows Fee Rebate for Poor Performance 

SEC Staff Allows Fee Rebate for Poor Performance 

The staff of the SEC’s Division of Investment Management has granted no-action relief to allow an adviser to rebate investment advisory fees to clients that experience two consecutive calendar quarters of negative performance.  The adviser acknowledges that the rebate provision is a contingent fee that could violate Section 205(a)(1)’s limitations on performance fees.  However, the staff granted the no-action relief because of program conditions that limit risk to clients including: (i) the adviser utilizes a sub-adviser for all security recommendations and the adviser would only deviate for financial planning or other reasons not related to fees; (ii) the sub-adviser’s fees would not change regardless of the rebate; and (iii) the adviser would not benefit from any “catch up” provision that would allow recapture of the rebated fees.

OUR TAKE: It will be interesting to follow whether this idea of a rebate for performance is a marketing gimmick or part of a broader trend toward lower fees for active management.

http://www.sec.gov/divisions/investment/noaction/2014/amerivest-081914-205a1.htm

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