Trump’s SEC wants to allow fund managers to charge extra fees for better performance. Here’s why it’s a terrible idea.

The SEC has proposed allowing registered fund managers to charge performance-based fees, a structure long used by hedge funds but largely off-limits to mutual funds and ETFs. Under the proposal, a manager could collect a base fee plus an additional "fulcrum" fee when returns exceed a benchmark, with fees falling when performance lags. The stated rationale is to better align manager and investor interests.

The concern is asymmetric incentives. Performance fees can encourage risk-taking to chase high-water marks, and investors may struggle to judge whether returns reflect skill or simply a favorable market. Fee structures are also hard to compare across funds, making it difficult to assess the true cost of advice inside a 401(k) menu.

What to watch: the comment period, whether a fulcrum requirement survives in final rulemaking, and how plan sponsors evaluate any performance-fee funds added to retirement lineups. The key question for savers is not whether a manager can earn more, but whether they keep more of what they earn.