Why PMS Fee Structures Matter ?
When selecting a Portfolio Management Service (PMS), most investors focus heavily on returns. Very few take the time to understand how fees are charged and whether those fees are truly justified.
This oversight can be costly.
A PMS may show positive returns, yet an unfair performance fee structure can quietly erode long-term wealth. Understanding how performance fees work is essential before entrusting anyone with your capital.
At PriceBridge, we believe performance fees should reward genuine skill, not average outcomes or short-term market movements.
How PMS Performance Fees Typically Work
Most PMS providers follow a dual-fee model:
Management Fee
- Typically 1.5% to 2.5% annually
- Charged monthly on total assets
- Applicable regardless of portfolio performance
Performance Fee
- Charged only when returns exceed a predefined hurdle rate
- Often positioned as investor-friendly
On the surface, this sounds fair. In practice, it often is not.
The Reality Behind “Zero Fee, Zero Hurdle” PMS Models
Some PMS offerings promote:
- Zero management fee
- Zero hurdle rate
However, these models usually take 20% of any positive return, regardless of how modest that return is.
Example
If your portfolio earns 8 percent in a year, the PMS takes 20 percent of the gains. That equates to a 1.6 percent fee for performance that barely outpaces inflation.
This means investors pay premium fees even when performance is average.
What Defines a Fair PMS Performance Fee?
A fair PMS performance fee structure must include three essential safeguards.
1. A Meaningful Hurdle Rate
Many PMS providers set hurdle rates around 8 percent, which closely mirrors market averages.
At PriceBridge, the hurdle rate is 14 percent, ensuring performance fees are charged only when meaningful wealth creation occurs.
2. High Watermark Principle
Under this principle:
- If the portfolio declines after reaching a peak
- No performance fee is charged again until the previous highest value is exceeded
This prevents investors from paying multiple fees for the same gains.
3. Catch-Up Mechanism
Even after recovery from a drawdown:
- Performance fees apply only if the average annual return exceeds the hurdle rate
This ensures consistency is rewarded, not isolated performance spikes.
Real Example: How a Fair Fee Structure Works
Assume an investment of ₹1 crore.
Year 1:
Portfolio grows to ₹1.2 crore. Performance exceeds the hurdle rate. Performance fee applies.
Year 2:
Portfolio declines to ₹96 lakh. No performance fee is charged.
Year 3:
Portfolio grows to ₹1.38 crore. Still no performance fee because the investment has not beaten the 14 percent annualized return threshold.
This structure prioritizes investor protection over short-term fee collection.
Why Fair PMS Fees Matter for Long-Term Wealth
True portfolio management is not about capitalizing on a single good year. It is about:
- Risk-adjusted returns
- Capital preservation
- Consistent outperformance
- Transparency and integrity
A fair performance fee aligns the PMS manager’s success with the investor’s long-term outcomes.
One Question Every PMS Investor Should Ask
Before selecting a PMS, ask:
“Do you charge performance fees only above a high watermark with a catch-up mechanism?”
If the answer is unclear, the risk is clear.
PriceBridge’s Philosophy on Performance Fees
At PriceBridge, fees are earned only when investors experience sustained and meaningful growth. We do not charge for recovery, volatility, or average outcomes.
Performance should be rewarded only when it is consistent and above expectations.
Transparency Builds Real Wealth
In wealth management, clarity matters as much as returns. A transparent performance fee structure protects investors, encourages disciplined management, and builds trust over time.
Before choosing a PMS, ensure the fee model works in your favor. Your wealth deserves nothing less.
