Layered Fees

Two sets of management fees that are paid by an investor for the same group of assets. This practice is found in many types of investment vehicles such as wrap funds, variable annuities, registered investment advisor client accounts and even mutual funds.

Information about layered fees in an investment product should be stated in the prospectus. Layered fees should generally be avoided by an investor because paying money managers for assets they are not directing is wasteful.

However, layered fees should be considered if there is truly a case to be made for the primary manager to add value. There are several cases where paying a layered fee can be acceptable, such as:

1. Investments in foreign companies. This is because of the higher costs and complexities in investing in these companies directly.

2. A low cost ETF or other fund purchased to provide exposure to a commodity, such as gold or silver.

3. As a hedge, such as in the case of a short fund or interest rate instrument.


Investment dictionary. . 2012.

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