Basis Point

The abbreviation is bp (singular) or bps (plural). Because percentage changes in finance are often small but financially significant, basis points reduce ambiguity. Saying a fee increased by 25 bps is clearer than saying it rose by "a quarter of a percent," especially when compounding over large sums.

Basis points appear constantly in family office work. Asset-based fees charged by investment managers are almost always quoted in basis points. A manager charging 50 bps on an illustrative $10 million portfolio is charging $50,000 per year. That same 50 bps on an illustrative $100 million portfolio is $500,000 — the unit stays constant while the dollar impact scales dramatically.

Families comparing managers during a manager selection process will often build fee comparison tables in basis points to make differences visible at a glance. A 20 bp difference between two otherwise similar managers can represent a meaningful dollar amount annually when applied to a large asset base.

A common confusion: basis points measure a rate, not a dollar amount. They must always be applied to a principal or asset value to produce a dollar figure. Basis points also appear in discussions of private credit spreads and bond yields, where small differences in rate can reflect large differences in risk or return over time.