Fees, Compensation & Their Disclosure
Fees must be disclosed and reasonable in light of the services.
What is Fees, Compensation & Their Disclosure?
Charging an unreasonable fee, or failing to disclose how and how much the adviser is paid, is an unethical practice. Advisers must disclose all material compensation arrangements, including commissions, 12b-1 fees, and payments from product sponsors. 'Fee-only' means compensated solely by the client; 'fee-based' usually means fees plus commissions.
Fees, Compensation & Their Disclosure: a worked example
An adviser calling itself fee-only while receiving 12b-1 fees is making a misleading representation.
More terms in Ethics & Fiduciary Obligations
Form ADV Part 2 Brochure Delivery
Deliver 48 hours before the contract, or at signing with a 5-business-day exit.
Advisory Contract Requirements
Written, specific about fees, no assignment without consent, no waiver of rights.
Assignment of an Advisory Contract
Transferring a client contract requires the client's consent - including by change of control.
Performance-Based Fees & Qualified Clients
Allowed only for qualified clients: $1.4M with the adviser or $2.7M net worth (from June 29, 2026).
Prepaid Fees & Financial Requirements
Prepayment over $500, six months ahead, triggers net worth and balance sheet rules.
Custody
Holding, or having authority to obtain, client funds or securities.
Discretionary Authority
Deciding the asset, the amount, or buy versus sell - without asking first.
Third-Party Trading Authorization
Anyone other than the owner needs written authority to trade the account.