Frequently in a hearing a witness when testifying about a managed account will refer to the cost in “bips.” The statement might be “the management fee was 75 bips.” A “bip” is securities industry trade jargon for a basis point. A basis point is 1/100th of a percent. So, a fee of 75 basis points would be ¾ of one percent.
Portfolio management fees are expressed on an annual basis. So, a $100,000 portfolio with a management fee of 75 basis points would cost the investor $750.00 annually. These fees are calculated as a percent of assets under management and usually charged quarterly. Since asset values change daily, the annual cost of a managed account in basis points will stay constant while the annual cost in dollars spent will fluctuate with the market.