Tuesday, January 4, 2011
Is net-of-fee performance supplemental information?
A colleague asked whether net-of-fee returns are supplemental. I must admit that I found the question to be a bit odd, but there actually is some logic to how this is arrived at. Paragraph 5.B.1 of the 2010 edition recommends that firms show gross-of-fee; it doesn't recommend net. Does this mean that net must be supplemental, since it's neither required nor recommended? In reality, the standards permit either and often refer to both (see, for example, ¶ 4.A.5 and ¶ 4.A.6).
While I can see the logic behind the question, there seems to be evidence that net-of-fee returns are not supplemental. I often suggest to clients that they use the sample presentations in the standards as templates for their use; and if we look at Appendix A (page 46) of the 2010 edition we find a sample that shows both gross- and net-of-fee returns. If net-of-fee were supplemental, it would be so indicated here.
The requirement is that firms must show either net- or gross-of-fee returns; they can show both or either. Neither is supplemental.