Test on Equity Portfoli Management

Which of the following statements about manager fee schedule is least accurate? A. A principal advantage of performance-based fees is that they help managers retain staff since they reward good performance. B. The principal purpose of a fee cap is to prevent managers from taking unnessasary risk in order to enhance fees. C. The principal disadantage of ad valorem fees is that they do not effectively align the interests of managers and investors.

A. The primary advantage of performance-based fees is they align the interests of the manager with the interests of the investor.

I will go with A too.

I think the answer should be C.

I think ad valorem fees do align the interests of managers and investors. So I guess I’ll change my answer to C. Ad valorem: “A tax, duty, or fee which varies based on the value of the products, services, or property on which it is levied.”

Sorry read the question incorrectly. I change my answer to A. To retain staff they need to have a good fixed fee and not performance fee. Dwight: i think your definition of Ad valorem fees is incorrect. They are more like Assets Under Management fees and hence indifferent to performance.

^ Gotcha. Yeah I just looked it up on dictionary.com or something and changed my answer prematurely. I’m changing it back to A now… Good thing this is not the actual test. :slight_smile:

a for me too

D - It doesn’t really matter as the government will take 90% of performance based fee’s.

^ lol

not performance fee but retainer bonus LOL

Yea, A



the correct answer is A