Q & A Database

The GIPS Standards Q&A database contains questions and answers (Q&As) on various searchable topics that provide additional interpretation on an issue. Q&As are considered to be authoritative guidance and must be followed in order to claim compliance with the GIPS standards.

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Archived

Effective: 1 November, 2012 - 31 December, 2019

Categories: Fees

Source: GIPS Handbook, 3rd Edition

A firm manages both pooled funds and separate client accounts and charges investment management fees for its services to both. Clients may hold pooled funds as part of their separate account investments and, in this case, are being charged double for investment management services at both the pooled fund and separate account level. To eliminate the double charging of fees, the firm deposits on a monthly basis a “fee rebate” to client accounts holding the pooled funds. How should this “fee rebate” be treated in performance calculations?

If a firm reduces its investment management fee charged to clients, the recommended method is to waive the appropriate portion of the investment management fee so that there is neither a withdrawal nor deposit of cash (i.e., payment or refund of fees). The net-of-fees return must be reduced by the fee minus the rebate. The net-of-fees return will be higher than if it were calculated using the full fees charged at both the pooled fund and separate account levels. The gross-of-fees return must be calculated as if the investment management fee were not charged and the rebate not given. When presenting gross-of-fees returns, firms must disclose if any other fees are deducted in addition to trading expenses.

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