A client recently suggested that whenever a firm shows money-weighted returns (with the possible exception of private equity and direct real estate) the returns should always be net-of-fee, since they’re representing how the client is doing. I think this makes sense.

When to show net, when to show gross, are, in general, good questions. I have suggested in the past that when marketing ones services, gross-of-fee is probably best, especially if the net-of-fee return is a mix of fees, making interpreting the returns a challenge. With a gross-of-fee return the prospect can always back into the net-of-fee return they would have had. With clients reporting, I think that net-of-fee is, in general, best.

I recently commented how the idea of accruing fees appears to make little (or should I say, “no”) sense; recognizing the fees when they occur is, to me, preferable.

Perhaps more discussion is needed on this topic. Your ideas and thoughts are invited.