A Performance Fee is a fee that an adviser earns only when there are positive results in a client’s account, rather than a percentage of assets regardless of outcomes. Our 35% Performance Fee is designed to create a direct link between investment performance and the compensation we receive, but clients should understand how this investment performance fee is calculated, what “net profits” Alignment of Interests: Why We Charge a 35% Performance Fee
A Performance Fee is a fee that an adviser earns only when there are positive results in a client’s account, rather than a percentage of assets regardless of outcomes. Our 35% Performance Fee is designed to create a direct link between investment performance and the compensation we receive, but clients should understand how this investment performance fee is calculated, what “net profits” means in practice, and how this compares to more traditional hedge fund fees and advisory models.
Summary
Performance Fee versus Traditional Hedge Fund Fees
In a classic hedge fund fees structure, investors often pay a combination of a fixed management fee on assets (for example, “2% management”) plus an investment performance fee on profits (for example, “20% incentive fee”), sometimes with a high‑water mark and, less commonly today, a hurdle rate. By contrast, our approach is a performance-based RIA model where the advisory fee is a Performance Fee of 35% of net profits, with no separate asset‑based management fee, no trading commissions charged by us, and no hidden advisory charges. This means that in periods without net profits, the advisory Performance Fee is zero, although clients will still bear market risk, custodian fees, and any applicable brokerage costs charged by third parties.
Why a 35% Investment Performance Fee in a Performance-Based RIA?
A 35% investment performance fee in a performance-based RIA structure aims to replace ongoing asset‑based fees with a fee that is paid when—and only when—net profits are realized in the account, as defined in the advisory agreement. We believe this Performance Fee better aligns interests because our revenue is directly tied to the same net profits calculation that matters to clients, rather than growing solely with market levels or additional deposits. However, no Performance Fee structure, including our 35% investment performance fee, guarantees that net profits will be achieved in any period; clients remain fully exposed to the risk of loss in their accounts, and should carefully review Form ADV Part 2A and Form CRS for complete details.
How Net Profits Calculation Works Under Our Performance Fee
Under our model, the Performance Fee is calculated on net profits, meaning that we look at gains after deducting realized and unrealized losses, and after considering withdrawals and deposits, as defined in the advisory agreement and disclosures. In practice, net profits calculation is typically performed on a periodic basis (for example, annually and upon withdrawal), and the Performance Fee is assessed only on positive net results above the relevant starting capital and any applicable high‑water mark or similar mechanism, if specified in the client’s contract. Clients should understand that this net profits calculation does not eliminate volatility or drawdowns; it simply defines how and when a Performance Fee may be charged within a transparent framework.
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Comparing Performance Fee Structures to Hedge Fund Fees and Flat Fees
Compared with hedge fund fees, our Performance Fee model removes the additional fixed management fee on assets and focuses solely on net profits calculation, which can reduce ongoing costs in flat or negative markets but increase the fee paid in strongly profitable periods. Compared with traditional percentage‑of‑assets advisory fees, a Performance Fee can be more variable and harder to predict, but it tightens the link between realized results and the compensation of a performance-based RIA. Clients should weigh whether a Performance Fee or more traditional fee schedule is better suited to their objectives, liquidity needs, time horizon, and sensitivity to fee variability over time.
Performance-Based RIA Alignment and Regulatory Considerations
As a performance-based RIA, we are subject to SEC rules and must comply with eligibility and disclosure requirements that govern which clients may be charged a Performance Fee and how. Our Marketing and Advertising Policy under SEC Marketing Rule 206(4)-1 requires that any discussion of a Performance Fee, investment performance fee, hedge fund fees, or net profits calculation be fair and balanced: we cannot imply that a Performance Fee guarantees superior results, nor can we present past performance in a cherry‑picked or misleading way. This article does not include any actual or hypothetical performance data; any future presentation of performance would need to be net of fees, shown over standardized time periods where applicable, and accompanied by clear explanations of the methodology and risks, as described in our policies and Form ADV Part 2A.
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How Our 35% Performance Fee Works Within an Algorithmic, Digital Model
In our algorithmic, discretionary model, we manage portfolios of U.S. equities on a fully digital platform, and the Performance Fee is applied to net profits generated by those portfolios, subject to the terms in each client’s advisory agreement. We do not charge separate commissions, hidden advisory fees, or asset‑based management fees; instead, the 35% investment performance fee is our primary compensation, which we believe strengthens alignment of interests between the firm and clients in a performance-based RIA structure. At the same time, clients remain responsible for understanding that investment risk—including market, liquidity, and strategy risk—remains with them, and that a Performance Fee does not change the possibility of losing principal.
A YMYL View of Performance Fee Communication
Because fee structures directly affect net outcomes for clients, any discussion of a Performance Fee, investment performance fee, hedge fund fees, performance-based RIA models, or net profits calculation falls under “Your Money, Your Life” standards and must be written in clear, non‑technical language where possible. Our goal in describing the Performance Fee is to help sophisticated investors understand the mechanics, trade‑offs, and regulatory context so they can decide whether this arrangement is appropriate for their situation, rather than to suggest that any particular fee structure is inherently superior in all cases. Prospective clients should review the full details of our Performance Fee and other costs in Form ADV Part 2A and Form CRS and may wish to consult their own tax, legal, or financial professionals before committing capital.
Is a 35% Performance Fee the Right Choice for You?
A Performance Fee can be an effective way to align interests, but it is not automatically the best solution for every investor, and it does not reduce or eliminate the risks of investing in securities markets. For some investors, a 35% investment performance fee on net profits in a performance-based RIA may offer a clearer link between results and costs than traditional hedge fund fees or asset‑based advisory fees; for others, fee predictability or different structures may be more important. Ultimately, the decision to accept a Performance Fee structure should be based on a full understanding of the Performance Fee, the investment performance fee mechanics, how net profits calculation works, and how this aligns with your objectives, risk tolerance, and time horizon.
