Why Do You Use a % of Assets Under Management Fee Structure?
We feel that a AUM % fee structure best aligns our interests with those of the client without having to charge performance based fees like high fee hedge funds. That is, we are incentivized to generate high returns for our investors because the firm benefits from growth in assets. Likewise, poor performance hurts the firm’s revenues because assets will decline.
Further, we manage assets on behalf of individuals as well as institutions. Unfortunately, the flat fee model doesn’t work well across all clients because some clients with substantially larger portfolios require much more service and maintenance than other clients. This makes the flat fee structure very cost ineffective for us given that a $250,000 retail account requires far less maintenance and customer service than a $100 million institutional account.
One of the reasons we are able to maintain a low fee structure is because we account for this reality in our cost structure. While we do believe that a flat fee structure can make sense in some circumstances the % of AUM model helps us effectively manage our time and costs by aligning costs with customer service needs. By maintaining this fee structure across all of our accounts it helps us to better manage overhead, time and service all clients more efficiently. More importantly, it helps us keep our interests aligned with those of the client without charging high performance fees like many hedge funds do.