Graduated vs Cliff Fees
The recent fee schedule discussions on the sub have gotten me thinking. I read several of the Kitces reports on the topic and had some questions between the two. Seems like there are three major ways to bill on portfolios:
Cliff - Ex 1% on portfolio under $1M once it crosses a new threshold (say $1M), the whole portfolio is billed the new rate of 0.9% and so on.
Graduated - Ex: 1% on the first $1M, 0.75% on the next 3, .55% on the next 2 etc.
Flat - Same dollar amount regardless of size.
Kitces Research said Graduated is the most common (58% of firms)
Which do you prefer for your practice, and why?
Additionally, how do cliff firms deal with clients near breakpoints. If a client crosses a breakpoint and then a recession hits, does their fee go back up across the whole portfolio? Seems difficult to explain to a client a large increase over the last marginal dollar in such a situation, but I could be misunderstanding.
Cheers!