Advorra blog

Quarterly advisory fee billing in arrears: a step by step for small RIAs

By the team at The CollabHub · Co-written with Mohammad Aamish Aaftab
Published 20 Sep 2026 · Updated 17 Oct 2026

Billing in arrears means charging for a quarter after it ends, based on the account values your client agreements say you bill on. A clean quarterly run has six steps: fix the billable balance and valuation date, apply each agreement's exclusions, prorate accounts that opened or closed mid-quarter, check every bill against its inputs, send the fee file to the custodian, and reconcile what was actually deducted. Write the method down so someone else could reproduce every bill from it.

The quarter closed last week. Values are final at the custodian, and you have a spreadsheet from last quarter with formulas you trust about as far as you can see them. Two new accounts opened in February, one closed in March, and a client renegotiated their rate in January. This is the run where errors happen, and they are almost always the same handful of errors.

What does billing in arrears mean?

Billing in arrears means you charge for a quarter after it has ended, using the account values your client agreement names as the basis. Many small firms prefer it because the fee reflects the quarter that actually happened. The cost is timing: revenue arrives a quarter later than it would in advance.

Switching from advance to arrears needs planning. The quarter you already billed in advance can't be billed again in arrears, so the firm has one quarter with no fee income. Tell clients what is changing and when, and plan the cash gap before it arrives.

What are the six steps of a quarterly arrears run?

1. Confirm the billable balance and valuation date. Write down, once, which value you bill on: quarter-end value, average daily balance, or whatever the agreement specifies. Use the same date and the same source for every account, every quarter.
2. Apply the exclusions in each agreement. List them per client, from the agreement, not from memory. Typical ones are cash or money market positions, limited-purpose accounts, and non-discretionary or held-away assets. If an exclusion isn't in the agreement, it isn't an exclusion.
3. Prorate partial quarters. Pick a method (days held over days in the quarter is common), write it down and apply it the same way every time.
4. Calculate and check every bill. Use the checks in the table below.
5. Send the fee file to the custodian. Use the custodian's format and keep a copy of exactly what you sent, with the date.
6. Reconcile what was deducted. When deductions post, compare them account by account to your calculated bills. Investigate any difference before the next quarter and keep the reconciliation with the billing record.

How do you check each bill before it goes out?

Check each bill against its inputs, not against last quarter's total. A total that looks about right can hide one account billed at the wrong rate and another billed twice.

A worked example

Take a two-person RIA with about 120 households and a flat 1.00% annual fee, billed quarterly in arrears on quarter-end value. These numbers are hypothetical.

Account B is the one that goes wrong most often: someone bills the full $800,000 because the exclusion lives in the agreement and not in the spreadsheet. That is a $125 over-bill on one account in one quarter, repeated every quarter until a client notices. Account C goes wrong when nobody remembers it opened mid-quarter and it gets a full $750 bill.

Notice that account C could also be calculated as $300,000 x 1.00% x 40/365, which gives $328.77. Both methods are defensible. Using one method in January and the other in April is not.

What should the billing record show?

For each bill, the record should show the account, the balance used and its source, the rate, any exclusion or proration, the amount, the date sent and the amount deducted. If you can produce that line for every account, you can explain any bill to a client or anyone else who asks. Corrections go in as their own dated entries, so the original and the fix are both visible.

Trade-offs and when this is overkill

A firm with twenty accounts on one flat rate and no exclusions can run this in a spreadsheet and check it by eye in half an hour. The six steps still apply, but step 4 becomes a short read-through. The process earns its keep once you have tiered or household pricing, several exclusion types, or more accounts than you can hold in your head. That is usually earlier than firms expect.

Fee deduction from client accounts can also raise custody questions under your regulator's rules. That is a question for your compliance consultant, not your billing spreadsheet.

How Advorra handles billing

Advorra calculates quarterly fees in arrears on the balances you actually bill, with the exclusions you set, and lands every bill on a billing blotter you can search and check line by line, reconciled against its own inputs. If your next quarterly run is coming up, see how it works on the product page, or read RIA books and records.

General description of a billing process, not tax, legal or compliance advice. Your client agreements and your compliance consultant decide how your firm bills.