The 2010 edition of GIPS(R) (Global Investment Performance Standards) introduced the term “model fee,” but without any clarification as to what the term means. Consequently, we get questions like the following, which was sent by a verification client to me yesterday:

“Our composite net returns are based on the highest tier of our fee schedule. Does that then fall under ‘Model Fees’? If there is some guidance on this subject can you please give me a reference.”

The client was referencing the following provision:

Since the alternative to “model” is “actual,” one might conclude that model referencing anything but actual. And so, I responded to the client that “yes, what they do falls within the realm of a ‘model fee.'”

If you have any insights or thoughts, please offer your comment below.