Rule 206(4)-1(e)(10)

Definition: Net performance

definitionnet-performancefees

Excerpted verbatim from the rule

Net performance means the performance results of a portfolio (or portions of a portfolio that are included in extracted performance, if applicable) after the deduction of: (i) all fees and expenses that a client or investor has paid or would have paid in connection with the investment advisory services to the portfolio, including, if applicable, advisory fees, advisory fees paid to underlying investment vehicles, and payments by the investment adviser for which the client or investor reimburses the investment adviser; (ii) any model fees, calculated as if the highest applicable advisory fee had been deducted; and (iii) for a portfolio that pays a bundled fee, the entire bundled fee, including the portion that includes brokerage or other transaction costs.

Source: 17 CFR § 275.206(4)-1 on eCFR.

Edge cases — what counts as this

Brochure

"Net of management fees."

Why this counts: "Net of management fees" alone isn’t sufficient if other fees — custody, transaction costs, fund-level expense ratios in a fund-of-funds — would also reduce client returns. "Net" under (e)(10) means after all fees and expenses the client actually pays.

How to handle it

"Net of management fees, custody, and trading costs." If any client-borne expense isn’t deducted from the figure, name it explicitly so the reader can adjust.

Pitch deck

"Returns shown net of management fees" — but the strategy uses a 1.50% expense-ratio mutual fund as its core holding, the cost of which isn’t deducted.

Why this counts: Fund-level fees borne by the client must also be deducted to qualify as "net" under the rule. A net figure that excludes underlying-fund expense ratios overstates what the client actually receives.

How to handle it

Show net of all client-borne costs including the expense ratios of any underlying funds. If the strategy is fund-of-funds, the deepest fee layer reaches the client and must be reflected.

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