What does a fee cap limit?

A fee cap limits the total fee paid by a client, which ensures that the charges associated with managing their investments do not exceed a predetermined threshold. This is particularly important in investment management contexts, where the fees can fluctuate based on asset levels or performance metrics. By establishing a fee cap, clients can have a clearer understanding of their total costs, allowing for better financial planning and budgeting.

The concept of a fee cap does not relate to minimum fees, which would mean clients could be charged any amount above a certain baseline. It also does not pertain to potential returns on investments since a fee cap strictly deals with the costs incurred and has no influence on the performance outcomes of the investment assets. Additionally, a fee cap does not correlate with the equity available for trading, as that concerns the amount of capital invested in various securities rather than the expenses associated with managing those investments.