He charged his investors a fee for managing the fund, plus separate fees for each of the underlying funds.

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Earning a management fee for managing or monitoring assets under management (AUM) results in income that should be taxed at ordinary income tax rates. (Fees earned and taxed in Year 1).

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In the original formulation the teller had access to the customer with the big paycheck and merely had to steer him down the hall for the bank to make a second fee by managing his portfolio.

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