Advisor Fees

[speedbump]

Mark... What would be the correct way to account for advisor fees which are a percentage of all funds under management? I've had difficulty with this fee causing return errors in reports using Quicken... Is there a simple way here to attach a 0.5% fee to the entire portfolio under management?

[Mark]

Hello speedbump,

The easiest way to handle this is to just record an "Account Fee" transaction in the default cash account of the sub-portfolio. When reporting performance, each individual fund's performance will not reflect this fee, but the overall sub-portfolio will.

[elliots]

Mark,

I've got a sub-portfolio for the client household and then sub-subs for each actual brokerage account the client has. Some clients pay my fee by check and some clients have the fee deducted from one of their brokerage accounts.

What's the best way to handle the fees and have portfolio performance calculated on a net of fees basis?

It seems that I should establish an artificial sub-portfolio for fees with only a cash account. If I get a check I could deposit it into the fee account and put a fee transaction in that account. If the money comes from a brokerage account, I could redeem in the default cash account at the broker, buy in the fee account and then put in the fee transaction. I only want the fee to affect performance of the household level portfolio.

Will this work? Is there a better way?

[Mark]

Hi elliots,

Yes, that would work. You could also divide up the fee, and record the appropriate amount in each account's cash account. You want to record it as an account fee transaction.

[elliots]

Mark,

I'm still not sure I've got this right. I have a client from whom I have collected fees for 2 quarters. I've created a sub-portfolio with a cash investment under the client for fees. First quarter they wrote a check to me which I've recorded as a purchase in the fee cash account. I've then put an advisor fee transaction (distribution? reinvestment?) for that amount in the cash account. Next quarter, I took their fee from one of their accounts -- I transferred out the dollars from a brokerage cash account and transferred in to the fee cash account. Then I have an advisor fee transaction in the fee cash account. The cash balance in this dummy account is 0 which is fine. But when I do a performance report covering both quarters, the fee sub-portfolio is only showing the first quarter's fees as invested and -gain; the second quarter's fee amount doesn't show.

Elliot

[Mark]

Hi Elliot,

You are right to record these as "Account Fee" transactions. If the money for the account fees is deducted from this cash investment, then you should mark the account fee as "Reinvested". This will be a negative valued distribution, so reinvested in this case means some shares were sold to pay for the account fee.

In the case where they wrote you a check for the account fee, you can record that a couple of ways:

1) A purchase into the cash account, and a reinvested account fee. The net effect is no change in cash account balance assuming the check was for the same amount as the account fee.

2) A distributed (not reinvested) account fee. Again there is no effect on the cash balance.

On your question about the fees not showing in the 'invested/gain' fields... The 'invested/distrib' columns do not include any 'reinvested' distributions, which includes account fees recorded as reinvested. The net effect of this reinvested account fee is a lower ending value, so it will reflect in the gain, but won't be explicitly listed in the invested/distrib columns. If you want to force it into being displayed in these fields, instead of recording as a reinvested account fee, record as a distributed account fee, plus a sell of cash to pay for the fee.