Skip to Content

Investment Advisers Craft Fee Rebate Programs

Recently-publicized fee rebate programs may signal a coming trend, as investment advisers seek to market strong cultures of client service and responsiveness.

For example, in August, the Securities and Exchange Commission (SEC) staff issued a no-action letter for a program under which a TD Ameritrade-affiliated adviser automatically rebates advisory fees to clients that invest pursuant to model portfolios that experience two consecutive calendar quarters of negative performance.

This follows Charles Schwab’s announcement last December of a program that permits clients who are for any reason “not happy” with the advisory services provided to request refunds of the most recent quarter’s advisory fees.

Because advisory fee rebates can make the adviser’s compensation to some extent contingent upon an account obtaining a certain performance level, TD Ameritrade sought SEC guidance because its program might be construed to violate the Investment Advisers Act’s general prohibition on adviser compensation that is based on capital gains or capital appreciation in a client’s account. This prohibition reflects Congress’ concern that such compensation schemes could encourage advisers to take undue risks and speculate with client assets on a “heads I win/tails you lose” basis.

However, this type of conflict is largely absent under the circumstances of both the TD Ameritrade and Schwab programs. For instance, the TD Ameritrade adviser will hire an independent adviser to make the investment decisions for the model portfolios, from which the TD Ameritrade adviser will have only limited discretion to deviate (such as for tax-related considerations and client restrictions). Under the Schwab program, dissatisfied clients may obtain fee rebates regardless of account performance. Therefore, any relationship between the adviser’s compensation and any capital gains or capital appreciation is attenuated, at best.

©2024 Carlton Fields, P.A. Carlton Fields practices law in California through Carlton Fields, LLP. Carlton Fields publications should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information and educational purposes only, and should not be relied on as if it were advice about a particular fact situation. The distribution of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship with Carlton Fields. This publication may not be quoted or referred to in any other publication or proceeding without the prior written consent of the firm, to be given or withheld at our discretion. To request reprint permission for any of our publications, please use our Contact Us form via the link below. The views set forth herein are the personal views of the author and do not necessarily reflect those of the firm. This site may contain hypertext links to information created and maintained by other entities. Carlton Fields does not control or guarantee the accuracy or completeness of this outside information, nor is the inclusion of a link to be intended as an endorsement of those outside sites.


The information on this website is presented as a service for our clients and Internet users and is not intended to be legal advice, nor should you consider it as such. Although we welcome your inquiries, please keep in mind that merely contacting us will not establish an attorney-client relationship between us. Consequently, you should not convey any confidential information to us until a formal attorney-client relationship has been established. Please remember that electronic correspondence on the internet is not secure and that you should not include sensitive or confidential information in messages. With that in mind, we look forward to hearing from you.