A tiered upfront fee is not a tax bracket: it applies in full at the tier reached, which creates cliffs, dead zones and a 10,000 lesson in household aggregation.
A sales load breakpoint applies the rate of the tier the purchase reaches to the whole purchase, not just to the slice above the threshold. On an illustrative schedule of 3.5, 3.0, 2.0 and 1.0 per cent, a family investing 900,000 through three separate accounts pays 28,000 of load if the tickets are priced one by one, and 18,000 if they are aggregated: the same money, 10,000 apart, decided by paperwork.
Worked in full in The Private Wealth Fundraiser by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Upfront fees on semi-liquid private markets funds sold through wealth channels are commonly tiered by ticket size. The schedule sits in the prospectus, the distributor applies it, and the client rarely sees it. Getting it right is a suitability question as much as a pricing one, which is why distributors and fund managers both need to be able to run the arithmetic.
| Ticket | Load, % of offering price | Load, % of net invested |
|---|---|---|
| Under 250,000 | 3.50% | 3.627% |
| 250,000 to 499,999 | 3.00% | 3.093% |
| 500,000 to 999,999 | 2.00% | 2.041% |
| 1,000,000 and over | 1.00% | 1.010% |
The second column is the one the client lives with. A load charged on the gross amount is a larger fraction of what actually gets invested: load ÷ (1 − load), so 3.5 per cent of the offering price is 3.627 per cent of the net amount.
The household subscribes 400,000 in the client's own account, 300,000 in the spouse's and 200,000 in a family trust, 900,000 in all.
Load = ticket × rate of the tier the ticket reaches
Client: 400,000 × 3.0% = 12,000. Spouse: 300,000 × 3.0% = 9,000. Trust: 200,000 × 3.5% = 7,000.
Total load 28,000, or 3.11 per cent of 900,000. Net invested: 872,000.
In Excel, with the lower bounds in A2:A5 and the rates in B2:B5: =C2*LOOKUP(C2,$A$2:$A$5,$B$2:$B$5)
Most schedules let linked accounts count together: a spouse, minor children, trusts for the family, and existing holdings in the same fund. Counted as one purchase of 900,000, the household reaches the 2.0 per cent tier.
900,000 × 2.0% = 18,000. Net invested: 882,000.
Saving against Step 1: 10,000, or 36 per cent of the load.
If the family plans to add 100,000 within the window the prospectus allows, typically 13 months, a letter of intent prices the whole programme at the tier it will reach. At 1,000,000 the load is 1.0 per cent: 10,000, with 990,000 invested. The family puts in 100,000 more and pays 8,000 less in load than in Step 2. If the second purchase never comes, the fund recovers the difference, usually from shares held in escrow.
| Route | Invested | Load | Value after 5 years | Annualised return | Drag, bp a year |
|---|---|---|---|---|---|
| Separate tickets | 900,000 | 28,000 | 1,281,254 | 7.32% | 68 |
| Aggregated | 900,000 | 18,000 | 1,295,947 | 7.56% | 44 |
| Letter of intent | 1,000,000 | 10,000 | 1,454,635 | 7.78% | 22 |
Failing to aggregate costs the family 14,693 of terminal value on the same 900,000, and 24 basis points a year of return. That is the kind of figure that turns up years later in a complaint, not in a sales report.
Because the rate applies to the whole ticket, the load in money falls when a ticket crosses a threshold. 240,000 pays 3.5 per cent, 8,400; 250,000 pays 3.0 per cent, 7,500. Investing 10,000 more costs 900 less and puts 10,900 more to work.
Every breakpoint therefore has a dead zone beneath it: the range of tickets that pay more load in money than the threshold amount itself. It starts where ticket × lower-tier rate = threshold × higher-tier rate.
| Ticket | Rate | Load | Net invested | Load, % of net |
|---|---|---|---|---|
| 200,000 | 3.5% | 7,000 | 193,000 | 3.63% |
| 240,000 | 3.5% | 8,400 | 231,600 | 3.63% |
| 250,000 | 3.0% | 7,500 | 242,500 | 3.09% |
| 400,000 | 3.0% | 12,000 | 388,000 | 3.09% |
| 499,000 | 3.0% | 14,970 | 484,030 | 3.09% |
| 500,000 | 2.0% | 10,000 | 490,000 | 2.04% |
| 900,000 | 2.0% | 18,000 | 882,000 | 2.04% |
| 1,000,000 | 1.0% | 10,000 | 990,000 | 1.01% |
A schedule design point for the manager. The halving of the rate at 1,000,000 makes the whole 500,000 tier a dead zone. A distributor paid out of the load has an incentive to leave tickets inside it; a regulator reviewing breakpoint compliance will look for clusters just below thresholds. Smaller steps, or a final tier closer to the one before it, shrink the zones.
The common mistake is to read the schedule like an income tax table and charge each rate only on the slice of the ticket within its band. On that marginal reading, 900,000 would pay 8,750 + 7,500 + 8,000 = 24,250, and the household would be quoted 6,250 more than the prospectus actually charges. Breakpoint schedules are cliff schedules, not bracket schedules. The second most common error is simply not asking which other accounts the family holds, so the cliff is never reached at all.
Price the household, not the ticket: aggregate linked accounts, ask about planned additions before the first subscription, and check whether the amount sits inside a dead zone. The load difference compounds with the investment, and on these figures it is worth 24 basis points a year to the family. The full fee stack a wealth client pays is set out in how much of a semi-liquid fund's return the fees take, the choice between an upfront class and a servicing-fee class in upfront fee or ongoing servicing fee, and the distribution models behind both in the free workbooks for this book.
The right to have the client's existing holdings and the holdings of linked accounts, typically a spouse, minor children and family trusts, counted towards the breakpoint. In the illustrative case, three tickets of 400,000, 300,000 and 200,000 pay 28,000 of load separately and 18,000 when counted together as 900,000 at the 2.0 per cent tier.
Selling a ticket just below a breakpoint so the client pays the higher rate. On the illustrative schedule, 240,000 at 3.5 per cent pays 8,400 of load, while 250,000 at 3.0 per cent pays 7,500 and puts 10,900 more to work. Any ticket from 214,286 to just under 250,000 pays more load in money than 250,000 would.
Usually on the offering price, the gross amount the client pays, so the load is a larger share of what is actually invested. A 3.5 per cent load on the offering price is 3.627 per cent of the net amount invested; a 1.0 per cent load is 1.010 per cent.
This article is one calculation from The Private Wealth Fundraiser. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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