High Water Mark

Advisors and Fund Investment Managers with SMA accounts who select Percent of P&L as the basis of their client fees can apply High Water Marking to the billing period client fees to offset periods of losses in a volatile market. Advisors cannot charge a profit-based fee as long as a cumulative loss exists. You set up High Water Marking on the Client Fees page when you select Percentage of P&L as client fee method.

High Water Marking lets you:

  • Specify a look-back period (in quarters or years, based on the period selection in the Percent of P&L fee schedule).

    High Water Marking keeps track of cumulative losses per billing period within the specified look-back period. A loss in any period will be added to the look-back period's cumulative losses. A gain in any period will decrease the cumulative loss recorded to date. By default, the look-back period is zero, which means High Water Marking will not be in effect.
  • Prorate for withdrawals. If an advisor chooses to prorate, withdrawals in the current period reduce any cumulative losses that are carried over from previous periods. The losses are reduced in proportion to the percentage of equity that was withdrawn.
  • Note that current period losses are never adjusted by current period withdrawals, gains are not prorated and deposits are not used to prorate losses.
  • Optionally initialize High Water Marking with previous periods' losses by entering the amount of the losses. These losses may have been incurred for the client in another account or with another broker.
  • Gains are applied to the oldest losses first.

High Water Marking is effective on the day we process the approved client agreement.

High Water Mark Example

The following example shows how losses are offset after two periods.

Period Ending Equity Deposits Actual P&L Gains Period Loss P1 Loss P2 Loss
0 1000 1000 0 0 0 0 0
1 900 0 -100 0 -100 0 0
2 920 0 20 0 0 -80 0
3 910 0 -10 0 -10 0 -80
4 920 0 10 0 0 0 0
5 930 0 10 10 0 0 0
6 980 0 50 50 0 0 0
7 940 0 -40 0 -40 0 0
8 990 0 50 10 0 0 0
9 1000 0 10 10 0 0 0
10 1000 150 -150 0 -150 0 0
11 1010 0 10 0 0 -140 0
12 1020 0 10 0 0 0 -130
13 1030 0 10 10 0 0 0

 

The following list describes the example period by period.

  1. Period 1: Loss of 100 is added to the cumulative losses.
  2. Period 2: The gain of 20 is applied to the 100 loss from period 1. This leaves a loss of 80 that needs to be recovered before advisor client fees are applied.
  3. Period 3: Loss of 10 is added to the list of cumulative losses.
  4. Period 4: The remaining loss of 80 from period 1 is dropped. The loss of 10 from period 3 is carried over. The gain of 10 is applied to the loss from period 3.
  5. Period 5: There are no losses carried forward. The gain of 10 is subject to incentive fees.
  6. Period 10: The loss of 150 is added to the list of cumulative losses
  7. Period 11: The gain of 10 is applied to the period 10 loss, leaving a 140 loss that needs to be recovered
  8. Period 12: The gain of 10 is applied to the period 10 loss, leaving 130 of the original 150 loss.
  9. Period 13: The loss from period 10 is dropped. The gain of 10 is subject to incentive fees.