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Form ADV Part 1A Item 5E(6) · Answer type: yn · Item 5 - Compensation
Item 5E(6) asks whether the firm is compensated by performance-based fees. These are fees that change with investment performance, typically taking a share of gains above a benchmark or hurdle rate.
Performance-based fee arrangements can include structures like 20% of gains above a high-water mark, or fees that reduce if performance lags an index. The firm's rate rises when portfolios beat targets and falls (or disappears) when they do not. This contrasts with standard asset-based fees that charge a fixed percentage regardless of performance.
On Form ADV, this checkbox covers any compensation arrangement where the firm's fee varies based on portfolio gains, losses, or returns against benchmarks. The firm uses its own definition of what counts as performance-based - hedge-fund-style carried interest, performance adjustments to base fees, or similar structures where results drive compensation.
Performance-based fees typically serve institutional clients, high net worth individuals, or pooled vehicles like hedge funds. SEC rules restrict these arrangements for most retail accounts, requiring clients to meet wealth or sophistication thresholds before accessing performance-fee structures.
Do not confuse 5E(6) with asset-based fees under 5E(1) that charge a percentage of assets but stay flat regardless of gains or losses. Also distinguish it from trading commissions under 5E(5) that vary with transaction volume rather than performance results.
Yes
The firm marks this box when at least some clients or accounts pay fees that rise or fall with investment results - for example, a share of gains above a hurdle, or a fee that adjusts against a benchmark - not a flat asset-based percentage alone.
No
The firm does not claim performance-based compensation on this checkbox. It may still use other fee structures such as asset-based percentages or fixed fees.
5E(6) - Performance-based fees (Yes / No).
This is one checkbox in Item 5E, "Compensation Arrangements." Firms mark each compensation method they use. Empty or No on a box means that fee type is not claimed on this checklist - not that the firm has no compensation at all.
Performance-based fees align the adviser's compensation with client results but create different incentives than fixed or asset-based fees. If you want a firm whose pay depends on beating benchmarks, look for Yes on 5E(6). If you prefer predictable fee costs regardless of performance, a No here with Yes on asset-based fees may suit you better.
A Yes does not tell you the performance hurdle rate, fee percentage, high-water mark rules, or which clients are eligible. Those details live in the firm's client agreements and Part 2A Brochure. SEC regulations limit performance fees to qualified clients (generally those with over $1.1 million invested or $2.2 million net worth), so retail investors may not access these arrangements even at firms that mark Yes.
Performance-based structures can encourage higher-risk strategies when advisers chase gains to boost their fees. Conversely, they can reduce conflicts when advisers earn more only if clients earn more. Use 5E(6) as a fee-structure signal, then confirm the specific terms and your eligibility with the firm.
The answer also does not predict performance quality, investment skill, or client satisfaction. Many successful advisers use only asset-based fees, while some performance-fee firms underperform their benchmarks.
Yes
The firm reports performance-based fee arrangements. On Best Investors, find Item 5E on the firm's ADV panel and confirm 5E(6) is Yes. Then check whether the firm also marks other compensation types like asset-based fees - many firms use multiple structures for different clients or account types.
If you want performance-fee exposure, ask the firm about minimum account sizes, performance hurdles, fee rates, and whether you qualify as an eligible client under SEC rules.
No
The firm does not report performance-based fees on Item 5E(6). Look at other 5E boxes for how it does get compensated - usually asset-based percentages, hourly charges, or fixed fees. You can still ask about performance fee options, but the firm did not claim that structure on its ADV filing.
Compare the same firm's client count answers in Item 5C for scale context and services in Item 5G for what it does beyond compensation method. The 5E(6) checkbox sits in the Item 5E compensation row on the firm's Best Investors ADV form.