How do fees typically work with mutual funds in wealth management?

Mutual funds in wealth management typically involve ongoing management and performance fees. This means that investors pay an expense ratio that covers the operating costs of the fund, including management expenses, administrative fees, and other costs associated with running the fund. The expense ratio is charged annually, which makes this a recurring fee structure rather than a one-time upfront payment.

Additionally, some mutual funds may have performance fees, which are fees applied when the fund exceeds a certain performance benchmark. This structure aligns the interests of fund managers with those of the investors, as managers are incentivized to enhance performance to receive higher compensation.

The other options do not accurately describe how fees work in mutual funds. Fees being entirely upfront and one-time would not reflect the ongoing nature of mutual fund expenses. Similarly, the concept of fees being capped and non-negotiable or based purely on fund performance misses the nuanced way in which mutual fund fees are structured, as they often include both fixed management costs and variable performance incentives.