Mastering Fee Disclosures: A Guide for RIAs to Ensure Client Trust and Compliance

Mastering Fee Disclosures: A Guide for RIAs to Ensure Client Trust and Compliance

Clear and accurate fee disclosures are essential for Registered Investment Advisers (RIAs) to build trust with clients and meet regulatory requirements. The Securities and Exchange Commission (SEC) and state regulators have increased their focus on how fees are described, calculated, and charged. This means RIAs must review and improve their fee disclosure practices to avoid enforcement actions, client disputes, and damage to their reputation.

This guide explains why fee disclosure matters, where disclosures should appear, and the key elements that make fee disclosures effective.

Why Fee Disclosure Matters

Clients want to know exactly how they are being charged for advisory services. Transparency helps clients feel confident that they are receiving fair treatment. Regulators expect RIAs to provide clear explanations of fees to protect investors and maintain market integrity.

When fee disclosures are unclear or misleading, clients may question the value of services or suspect hidden costs. This can lead to complaints, legal challenges, and regulatory penalties. Firms that prioritize transparency demonstrate professionalism and build stronger, longer-lasting client relationships.

Where Fee Disclosures Appear

Fee disclosures must be consistent and easy to find across all client-facing materials. Common places to include fee information are:

• Form ADV Part 2A (Brochure)

This official document must clearly describe all fees charged by the firm.

• Advisory Agreements

Contracts should specify fees in detail to avoid misunderstandings.

• Firm Website and Marketing Materials

Online content must align with formal disclosures to prevent confusion.

• Performance Reports and Client Statements

These documents should show fees deducted and how they affect returns.

• Pitch Decks and Onboarding Documents

Early communications set expectations about fees and billing.

Ensuring consistency across these platforms reduces the risk of conflicting information and helps clients make informed decisions.

Key Elements of Effective Fee Disclosure

To meet regulatory standards and client expectations, fee disclosures should include the following components:

Clarity

Use simple, plain language. Avoid legal jargon or vague terms that clients might not understand. For example, instead of saying “fees are assessed pursuant to the agreement,” say “we charge a fee based on your account value as explained below.”

Fee Types

List each type of fee clearly. Common fee types include:

• Asset-based fees, such as 1% of assets under management (AUM)

• Flat fees for specific services

• Hourly fees for consulting or planning

• Performance-based fees, if applicable

• Third-party or platform fees charged by custodians or other providers

  
  

For example, a disclosure might state: “Our advisory fee is 1% annually on assets under management, billed quarterly in arrears.”

Calculation Method

Explain how fees are calculated. Clients should know whether fees are based on the ending balance or an average daily balance. Clarify if fees are prorated for partial periods or if tiered pricing applies.

Example: “Fees are calculated quarterly based on the average daily balance of your account. If your account value exceeds $1 million, a lower fee rate applies to the amount above this threshold.”

Billing Frequency

Specify when fees are charged. Are fees deducted monthly or quarterly? Are they billed in advance or after the service period?

Example: “Fees are billed quarterly in arrears and deducted directly from your account.”

Payment Method

Describe how fees are collected. Common methods include direct deduction from client accounts or invoicing for manual payment.

Example: “We deduct fees directly from your custodial account unless you request invoicing.”

Fee Negotiability

Indicate whether fees can be negotiated and under what circumstances. Some clients may qualify for reduced fees based on account size or other factors.

Example: “Fees are negotiable for accounts over $5 million or for family members of existing clients.”

Termination Policy

Disclose what happens to fees if the advisory agreement ends. Clarify whether fees are refundable or if any termination charges apply.

Example: “If you terminate the agreement mid-quarter, fees will be prorated and refunded for the unused portion.”

Practical Tips for RIAs

• Review all client materials regularly to ensure fee disclosures remain accurate and consistent.

• Train staff to explain fees clearly and answer client questions confidently.

• Use examples and scenarios in disclosures to help clients understand complex fee structures.

• Keep records of fee disclosures provided to clients to demonstrate compliance.

• Stay updated on regulatory guidance and adjust disclosures as needed.

  
  

Building Trust Through Transparency

Transparent fee disclosures are more than a regulatory requirement. They are a foundation for trust and professionalism. When clients understand exactly what they pay and why, they are more likely to value your services and maintain a long-term relationship.

By mastering fee disclosures, RIAs can protect their firms from regulatory risks and create a positive client experience that supports growth and reputation.