"The standard in the industry is around a 1% AUM fee. Sometimes it's 1.25%, maybe upwards of 2% in a crazy scenario, but 20%? Unheard of."
"Under the uncle's proposed structure, if gains exceed the 10% hurdle in any year, 20% of those excess gains leave the account permanently. Compounded over years, the drag is severe."
"The S&P 500 has returned about 33% over the past year and 68% over five years. A passive index fund investor captured those returns in full, paying expense ratios well under 0.1% annually."
Dan's uncle proposed a 2% AUM fee plus 20% of profits over a 10% threshold for managing Dan's investment. This fee structure is akin to hedge funds, which typically manage large sums and employ teams. The proposed fees are significantly higher than the industry standard of 1% AUM. If the account grows to $24,000 over five years, the uncle's fees could severely diminish the investor's returns, while a passive index fund would capture full market gains at a much lower cost.
Read at 24/7 Wall St.
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