A GIPS(R) (Global Investment Performance Standards) client asked if a certain disclosure is needed. They, like a few firms, include language such as:
The collection of fees produces a compounding effect on the total rate of return net of management fees. As an example, the effect of investment management fees on the total value of a client’s portfolio assuming (a) quarterly fee assessment, (b) $1,000,000 investment, (c) portfolio return of 8% a year, and (d) 1.00% annual investment advisory fee would be $10,416 in the first year, and cumulative effects of $59,816 over five years and $143,430 over ten years.
I am unaware of any reason to include such language. I know that some verifiers request (or require) firms to include this, but unless they can provide a reference for such a demand I’m at a loss as to why this is needed. I think that with all that’s required, why invent new disclosures?