The GIPS Standards outline how firms may use model investment management fees when calculating and presenting net of fees performance to prospective clients and investors. These rules are intended to ensure that reported performance is fair, not misleading, and comparable across firms and strategies.

At the GIPS Standards Conference last month, the GIPS Standards Help Desk session addressed a few questions on the frequently raised and often complex topic surrounding the use of model fees in performance reporting. This topic has long been challenging for firms, particularly where the SEC requires applications of model fees that are not permitted under the GIPS Standards. While firms have faced a compliance disconnect, recent discussions indicate that relief could be on the horizon with a possible 2030 version of the GIPS Standards.

We have summarized questions and answers related to model fees from the GIPS standards Q&A database and from the GIPS Standards Help Desk session at the conference.  These five Q&As highlight how firms can apply model fees in practice, when additional return streams are allowed, and what disclosures are needed to stay aligned with the 2020 GIPS standards. Sources and links (where applicable) are provided for each question.

Source: GIPS Standards website Q&A database (Search criteria: Current; Organization Type: Firm; Effective: 1 March, 2021; Categories: Information Outside of GIPS Reports; Source: 2020GIPS Standards)

Question 1: If our firm uses a model investment management fee and calculates composite net-of-fee returns that are greater than returns that would have been calculated using actual investment management fees, can these returns be presented outside of a GIPS Report? If so, what disclosures would be appropriate to include with these returns? Finally, may we submit these returns to consultant databases?

Under the GIPS Standards, firms may apply a model fee when the goal is to show performance that is relevant to a particular prospective client or fee schedule, so long as the resulting net returns are not higher than those based on actual fees.

A firm may show a composite net-of-fees return series that is higher than it would have been using actual fees outside of a GIPS Report, but only if it clearly discloses that a model fee was used, what that model fee is, who the series is intended for, and that the return series is higher than those based on actual fees.

This higher model-fee return series can be submitted to databases as secondary to the GIPS Compliant net return series, provided they are submitted in addition to the GIPS Compliant series, use a model fee appropriate to prospective clients, includes the same disclosures as above, and are clearly labeled as secondary to the GIPS‑compliant net return series.

Source: GIPS Standards Help Desk session of the 2025 GIPS Standards Conference

Similar to Question 1 above, this question was included in the GIPS Standards Help Desk session of the 2025 GIPS Standards Conference.

Question 2: Can a firm that currently uses a “highest of” model fee in its GIPS Reports—often resulting in a net return stream based on a high retail share class fee—add a second, lower fee net of fee return stream tailored to institutional or similar clients, label that second stream as supplemental information, include it in the main performance table, and still remain aligned with GIPS requirements that govern the use of model fees and the presentation of multiple net return streams.

Yes, firms may present an additional, lower-fee net return stream tailored to institutional or similar clients as supplemental information, provided specific requirements are met. While the GIPS Standards note that the model fee must be equal to or lower than the returns that would have been calculated using actual management fees, the discussion section under Provision 2.A.31 goes on to note that a firm may present an additional net-of-fees return stream based on a different model fee (e.g., an institutional fee), even if that return would be higher than returns calculated using actual fees, as long as:

• The additional net return stream is clearly labeled as supplemental information; and
• The firm discloses how the supplemental net return stream was calculated.

Source: GIPS Standards Help Desk session of 2025 GIPS Standards Conference

Question 3: Can a reduced management fee (e.g., from 1% to 0.75%) be applied retroactively to historical composite returns, or must changes be applied only prospectively?

GIPS Standards require that when model investment management fees are used, net of fee composite returns must be equal to or lower than returns that would have resulted from using actual fees. If a composite’s main portfolio reduces its management fee during the year (for example, from 1.00% to 0.75%), applying the new, lower 0.75% rate retroactively to prior periods would generally cause historical net returns to be higher than returns using the actual 1.00% fee and therefore fail this “equal or lower” test.

In practice, fee reductions are typically applied prospectively under the GIPS Standards framework: historical periods reflect fees that were in effect at the time, preserving comparability and avoiding overstated historical performance. While there is some discussion about whether these rules might evolve in a future GIPS Standards revision cycle, firms currently should not retroactively re calculate historical GIPS Compliant net returns using a lower fee if that produces returns that are higher than those based on actual historical fee rate charges.

Source: GIPS Standards Help Desk session of 2025 GIPS Standards Conference

Question 4: Can a firm calculate composite net-of-fee returns by mixing actual fees for segregated accounts (where identifiable) with a model fee for other accounts, and if so, what disclosures are required?

The GIPS Standards focus on ensuring that composite returns are fair and consistent, but they do not explicitly prohibit using a mix of actual and model fees across different accounts in the same composite, provided the net of fees return series remains equal to or lower than the return series using actual fees overall. In the described situation, it is permissible to calculate net of fee composite returns using actual fees for segregated accounts (where they are readily identifiable) and a model fee for other accounts, as long as the model fee assumptions are appropriate and applied consistently.  Another example we have observed is that several firms apply a model fee specifically to portfolios with low or no management fees, while reporting actual fees for other portfolios. This approach allows firms to present consistent net-of-fees performance for fee-sensitive portfolios, while maintaining accurate performance reporting for their standard, fee-paying strategies.

Transparency is critical when combining methodologies within a composite. The firm should clearly disclose that some accounts use actual investment management fees while others use a model fee and specify which account types fall into each group and how each net of fees calculation was performed. Such disclosure enables prospective clients and consultants to understand how the composite net series was constructed and to assess how closely it reflects their expected fee experience.

Source: GIPS Standards website Q&A database (Search criteria: Current; Organization Type: Firm; Effective: 1 July, 2021; Categories: Alternative Investments, Pooled Funds; Source: GIPS Standards Technical Committee)

Question 5: In a master-feeder fund-of-funds structure where no fees are charged at the master fund level (all investment management and administrative fees occur at the feeder funds), how should a firm calculate gross-of-fee and net-of-fee returns for composite purposes?

In a fund of funds master–feeder structure where the firm manages both the master and the feeder funds, and no investment management or administrative fees are charged in the master (all fees are charged at the feeder level), the master fund’s return is considered a gross of fees return for composite purposes because it does not reflect the deduction of investment management fees. To derive a composite’s net of fees return series when using the master fund in a composite, the firm can deduct the actual investment management fees charged at the feeder level from the master’s gross of fee returns, or it can calculate gross of fee composite returns and then deduct an appropriate model fee.

If a model investment management fee is used at the composite level, it must either be: (a) the highest investment management fee incurred by each portfolio in the composite (whether at master or feeder level), or (b) a model fee appropriate to prospective clients. In both cases, the resulting net of fee composite returns must not exceed net returns that would have been calculated using actual fees.

When portfolios in a composite have mixed fee structures (e.g., fixed and performance-based), determining the single highest fee may be impossible. In such cases, firms may use a model fee based on the highest rate applicable to the specific prospective client, provided the resulting net-of-fee return series is no higher than that using actual fees.

Similarly, a firm may calculate pooled fund gross and net returns for inclusion in a GIPS Pooled Fund Report using the same approach as above. Gross returns are calculated as previously described, before deducting any fees. Net returns must reflect all pooled fund fees and expenses, including investment management and administrative fees. Net returns can be based on either actual or model total fees, rather than just investment management fees.

Finally, to assist in evaluating model fees in accordance with GIPS Standards requirements, firms can use our Effective Fee Validation tool to assess both actual and model fees. When using model fees to calculate net composite returns, the tool helps confirm that net returns based on model fees remain lower than they would be if actual fees were used. For additional guidance on net-of-fee returns or to obtain a customizable Effective Fee Validation tool, please reach out to connect@cascadecompliance.com.

‍