Canadian Securities Course (CSC) Level 2 Practice Exam

What criterion determines the bundled fee in Portfolio Management?

1. Total assets under management

2. Performance-based incentives

3. Per transaction charges

4. Client's net worth

The correct answer is: Total assets under management

The correct criterion that determines the bundled fee in portfolio management is the total assets under management. Typically, portfolio management fees are structured as a percentage of the assets managed by the investment advisor or management firm. This method aligns the interests of the advisor and the client since the advisor's compensation directly correlates with the performance and growth of the client's investments. A fee based on total assets encourages the portfolio manager to increase the overall value of the client's investments, as a larger asset base results in higher fees, benefiting both parties. In contrast, performance-based incentives or per transaction charges often serve different purposes and may not reflect or include the comprehensive management that bundled fees represent. Client's net worth is a broader measure and may not directly relate to the specific assets being managed under the portfolio management agreement.