According to question 3 pg 285 CFAI Ethics… “Company charges 2% asset based management fee. In addition, clients may pay an incentive fee at the end of each year. The incentive fee is 20% of accounts net investment income and net realized and unrealized capital gains for the year.” , [according to the recommendations and guidance of AM Code.] Managers MUST disclose to prospective clients the average or expected expenses or fees and other costs charged to them. So i guess saying that the fee will be performanced based does not meet this requirement? Seems like they said the expected fees will be 20% of … However, I guess they are required to be more specific under Asset Manager Code. Anyone see any other questions testing this?
actually nevermind. they can do incentive fees as long as they give the average or expected amount of fees.