1) yes and 2) yes.

1) an RIA can have a different fee structure for each of his clients, with the caveat that he can’t charge a performance fee on any clients who are not “qualified clients” (net worth > $1.5 million.)

2) the rebate wouldn’t be structured as a rebate. It would be structured as a hurdle. For example, you could arrange it so that you only take a performance fee to the extent that you beat your benchmark.

Not really. If you are the client this is “Heads we both win, tails I lose”. As they say, the best way to make money out of Hedge Funds is to run one!

What I’ve learned is that RIAs are prevented from charging performance fees except for high net worth clients. IMO this rule results in misalignment since the advisor will be primarily focused on gathering and retaining AUM rather than growing the clients’ accounts.

It can be argued that a management fee (2%) provides incentive to grow the account, but IMO it places more emphasis on growing the book through client acquisition and less emphasis on growth via strong returns.

I would be grateful if anyone here has the answer to:
1) Can an RIA have one fee structure for HNW clients and another fee structure for non-HNW clients?
2) Can an RIA offer fee rebates if the RIA fails to meet performance benchmarks?

I’m not sure you make any sense in what you say or maybe I just misunderstood you.

Let me break it down for you:

I work at an IBD. My biz partner and I have a 91% payout, most of our revenue comes from asset management fees. Our payout grid is a function of book value (combination of all “products” value) and your overall production, if one or the other is to drop a lot in one year your payout could go down along with a drop in overall rev. On our platform lowest payout is 70%. This is gross of course and based on production, not results for clients. My overhead stays fixed or increases every single year regardless of my performance, and yes, my overhead is very high.

Last year when we went to almost all cash in the early part of the year a big part of the 91% payout we get just vanished as we get paid 0 on money markets here, also no trail. So yeah, we still got 91%, as it was locked in for the year, but on a much smaller overall number so we did in fact have to worry about our income at an IBD. I don’t understand how your brokers don’t deal with the same thing???? If you get most of your revs from wrap and you pull it out and don’t get paid on it does it matter what % payout you get? Any trail would not make up for that loss of rev.

I have a similar platform to what you describe, my clients are almost all stocks/options/etf’s so I’m not in any sort of conflict by selling prop. or trying to get trails just for showing up. I have over 7,000 mf’s to rec on our platform but they are all shit, like most all mf’s are so I don’t use any of them. At the end of the day I still feel like last year I made some very good moves for my clients and I didn’t get rewarded for it in the form of income.

As for the comment above from someone else about how we should have to post our names and returns every year, I’d have no problem with that but what does that solve at all? If my name was Bill Miller and in 2007 I reported 15 years running that I beat the S&P and you moved all your life savings to me in Jan. 2008 what good did that list do?

Banks might even start to provide leverage for these products, as they appear to have a preference for the esoteric over those investments the benefit the common person.