Account Fees.

[aviator]

Hi Mark,

I'm having a real problem with account fees and how they're handled in FM. I'm sure it's something I'm doing wrong, but here's the gist of the problem:

1. My brokerage house charges fees that get downloaded once per month for each of my accounts.

2. Each account contains a Money Market Account, from which the fees are deducted.

3. But when the fees get deducted from the MMA, the cost basis for that security (which always has a price of $1) ends up higher (by the amount of the fees) than the market value, resulting in a negative unrealized gain. In my opinion, the cost basis for a MMA should always be the same as its market value. I don't know why the cost basis should be affected by fees.

4. When I view the imported transaction, the distribution type is Account Fee; The Reinvested box is checked; the value and the shares are both negative; and the price of $1 is positive.

5. When I compare my MMA to the brokers web site, their cost basis always equals the market value, which is what I'd like to see in FM to simplify comparisons.

6. The MMA's use an accounting method of Specified Lots... not sure if that makes a difference.

Thanks.

[Mark]

Hi aviator,

The "account fee" and "return of capital" distribution types are treated uniquely in Fund Manager with respect to tax cost basis. An account fee is added to your cost basis, and a return of capital reduces your tax cost basis. This works the same for all investment types (including cash). Generally cash investments are not displayed on Capital Gains reports, unless you go turn on this option, so it usually is not a problem. If you want the tax basis of your cash to not change, you can do this a couple different ways:

1) Simply change the distribution type of these fees to something other than Account Fee or Return of Capital.

2) Move the fees to another investment. Right now they are negative reinvested distributions in your cash account, so they will apply against the performance/cost basis of your cash. If you want them to apply against another investment, move the fee to that investment, and make it distributed (not reinvested), and still have the money come out of your cash account. This keeps your cash balance correct, but puts the burden of the fee on this other investment that you moved the fee to.

I would personally probably just leave it in the cash account, and not worry about what the tax cost basis of my cash is, as you know that won't show up in your capital gains report. The overall performance of your portfolio will be the same no matter where you put the fees, but wherever you put them, that investment holding the fees will pay the performance penalty.

[aviator]

Edit: Please disregard the question in my last paragraph. I found the answer by clicking on Options, Distribution Labels...

Hi Mark,

As usual, I sincerely thank you for your prompt reply. It really is refreshing to find an individual and company that takes an interest in their customers, even on a Sunday afternoon.

I chose to use option 1 above. I experimented with one account and it works as you said. The reason I chose option 1 is that I routinely compare account balances (both market value and cost basis) in FM to my brokers web site. The other option would likely affect account balances, which still wouldn't match my brokers reporting.

One question regarding the Distribution Type: In my single account experiment, I changed the type from Account Fee to User-defined 1. Is there a way to globally change the label of User-defined 1 to something like, say, Acct Fee?

Thanks,

[Mark]

Hi aviator,

Glad you found that option to customize the distribution names.

[aviator]

Hi Mark,

Is there a way to permanently change the Original Label on a Distribution Type? The reason I'm asking is this:

1. As mentioned above, I changed the Distribution Type of my imported account fee transactions from Account Fee to User-Defined 1. (I also went into Options, Distribution Labels... and changed the Long Label and Short Label of User Defined 1 to Account Fee and Account Fee Month, respectively. I also changed the Long Label and Short Label of Account Fee to DO NOT USE Account Fee and DNU Account Fee, respectively. The Original Label remains the same as there is no way to change it.

2. When I retrieve transactions, the account fee transactions reappear. I think it's because the original label for Account Fees is still there and the transactions are not recognizing User-Defined 1 as the new Account Fee.

3. What I'd like to do is change the Original Label of Account Fee to something else (or delete it completely) so that the same account fee transactions don't get imported again. Is there a way to do this or is there another workaround?

Thanks,

[Mark]

Hi aviator,

No, you can't do this. Any new account fees that get retrieved will be placed into the distribution type with an original name of Account Fee. No matter what you name this distribution type, it is still treated as an account fee. Just changing its label to "User Defined" doesn't matter, it is still the account fee bucket. You would have to actually edit each fee transaction, and change it's assigned distribution type to something else.

[paulk]

Hi Mark

Just figured I would ask this here since the topic was already listed. I too like to compare my basis to what my custodian lists as a quick check. If I wanted to not effect the basis of my cash you are saying I should set up a separate account item (say management fee) and have that come from cash? As I understand it that will still reduce my cash value and basis as weell as the overall performance of the client portfolio.I assume when I import the trasaction from TD Ameritrade they will go to account fee and I will have to edit them one by one.

Does that sound about right?

Thanks
Paul K

[Mark]

Hi Paul K,

You could do this, as you suggest and put the fees in a separate investment, and then just sell cash to keep the management fees investment at a value of $0.

There is probably a better option though, that is now available. You can elect to not have Account Fees be added to your tax cost basis. See "Options / Report Preferences... / Capital Gains", and turn off the option "Include Account Fees in Basis". This way, you don't have to set up a separate investment, and manually move account fees into it.

[paulk]

Thanks Mark

I assume this will only impact my cap gains report and not a figure shown for my "avg basis" on the portfolio editor screen correct?

As ususal thanks for the detailed and quick response. I am quickly getting acclaimated to the software. It's great so far, much better than the software I was using previously.

Paul Kutz

[Mark]

Hi Paul,

Glad you're enjoying FM. Actually, that preference will affect any tax cost basis reported, including the "AVG Basis" column in the Portfolio Editor.

[paulk]

Mark

Sorry to be so dense about this. I was entering my first management fee in a client account this morning. I used the account fee field and reinvested to cash. Under the capital gain report preferences I have the "add account fees to basis" option off. My cash fmv and basis are fine. I had three other transactions in the account for the month, a reinvested dividend in mutual fund A, a distributed dividend in ETF B, and interest income on the cash balance. The average cost basis of mutual fund A and ETF B were reduced by FM even though there were no redemptions of any kind. If I remove the account fee transaction everything is fine again (except for the cash obviously since no fee was recorded).

I'm missing something conceptually here. Please help.

Paul

[Mark]

Hi Paul,

I think I see the confusion. When you record a reinvestment, the purchased shares will affect your cost basis. You can think of it as a distribution, plus a purchase. (In the case of an account fee, since the distribution is negative, this is a negative distribution and a redemption for the account fee case.) Normally, the distribution part does not affect your cost basis, but the purchase part always does. In the case of Account Fee or Return of Capital, the cost basis does change from the distribution part. You can optionally control whether or not the Account Fee distribution affects your cost basis. However, the purchase/redemption part is still going to factor into your cost basis, because you bought/sold shares. If you reinvested those shares at a different price than originally purchased, your average cost basis will change.

It sounds like you are recording your account fees in the fund and ETF? I believe most advisors usually record the account fees into the default cash account, which is kept at a fixed $1 price. Since you have off the option to add account fees to basis, your cost basis in cash should end up just equaling your market value.