Has your manager charged twice for the same profit? Probably

Say you gave a manager $1,000 with a 25% performance fee.

• Month one: the account reaches $1,200. A $50 fee, perfectly fair; the balance after the fee is $1,150.
• Month two: the market turns and the account falls back to $1,000. No fee.
• Month three: the account climbs back to $1,150. The manager says “we made $150” and asks for a new $37.50 fee.

After month one you made no new profit, yet your fees have reached $87.50. This is very common in informal investing, and most investors never notice.

The global fix: the high-water mark

Professional funds worldwide follow a simple rule: fees only on profit above the previous highest point. Under this rule, month three above carries no fee, because the account only returned to its previous peak ($1,150 after month one's fee). A fee applies only to growth above that peak.

Two more traps

The deposit trap: if you deposit another $1,000 mid-period, the balance rises but that is not profit. A correct calculation adds the deposit to the reference point.

The withdrawal trap: if you withdraw $500, the balance drops, but that is not a manager loss to “recover” and charge for later. The reference point must come down too.

A full example with a deposit

Say your account is at $1,150 after month one's fee, and the reference peak is $1,150 too. Now you deposit another $1,000. The balance becomes $2,150, and the reference peak must become $2,150 as well. If the account reaches $2,350 the following month, the real profit is $200 and a 25% fee is $50.

But if the manager ignores the deposit, they will say the account grew from $1,150 to $2,350 and ask for $300 on $1,200 of “profit”: six times what they are owed. The mistake is not always deliberate, but the result for you is the same.

Do not forget the management fee

Some managers charge a management fee on top of the performance fee: a fixed percentage of all capital, in profit or loss. The model is common in funds, but you should know exactly what the percentage is, which figure it is charged on and how often it is deducted. Two percent a year on $10,000 is $200 a year, even in a year with no profit.

Three questions before you sign

1. “Do you calculate fees over the previous peak?” The answer should be clear and in writing.
2. “Will you show me the calculation with evidence every period?”
3. “What happens if I disagree with a figure?”

How it works on PAMM Iran

In PAMM Iran fee agreements, the high-water mark rule runs automatically. Deposits and withdrawals are handled correctly, and every settlement is sent to you with evidence. No fee is final without your confirmation, and if you dispute one, PAMM Iran staff are informed too.

A fair fee means the manager is paid only when they have actually made money for you.

Common questions

What if the manager says “we reset the peak every year”? It means that after every losing year they charge again for recovering the same loss. Ask about this before you sign, and get the answer in writing.

What is a fair performance fee? There is no fixed number; the method matters more than the percentage. A 30% fee with a high-water mark is fairer than a 20% fee without one.

How often should fees be settled? Monthly or quarterly is common. Longer periods are usually better for investors, because short-term swings have time to even out before any fee is charged.

Further reading

• Guide: reviewing and confirming a manager's fee
• Fee agreements and periodic settlements on PAMM Iran
• 40% a month? First ask where the number comes from