Changing your advisory fee schedule: how a small RIA rolls it out without billing errors
A fee schedule change is the point where a firm's new rates, effective dates and client agreements all have to agree in the billing file for the first time. Treat it as a records job: pick one effective date, check what each agreement requires, record each client's new rate with its start date, plan the transition quarter, and check the first bills on the new schedule line by line before they go to the custodian.
The decision to change fees usually takes one meeting. The rollout takes a quarter, and that's where the errors happen. The new schedule sits in a memo or spreadsheet while the old rates sit in the billing file, the client agreements and the habits of whoever runs billing. The first quarter on the new schedule is where they meet.
Why do fee changes cause billing errors?
Fee changes cause errors because the new rate gets recorded in one place and the bill gets calculated from another. Three mistakes come up again and again: a client billed the old rate after the change, the new rate applied from the wrong date, or a client who never received notice billed the new rate anyway. None of them is a maths problem. Each is a missing or unclear record.
What are the steps, in order?
Work through these in order, and don't send a single bill on the new schedule until the first five are done.
| Step | What to do | Record to keep |
|---|---|---|
| 1. Decide the effective date | Usually the first day of a billing quarter, so no quarter has two rates. | A dated decision note |
| 2. Check the agreements | Confirm what notice or consent each client agreement requires. Ask your compliance consultant. | A list of clients and what each needs |
| 3. Notify clients | In writing, with the old rate, the new rate and the effective date. | Proof of delivery or signed consent per client |
| 4. Record the new rate per client | Enter it with its effective date, without overwriting the old one. | Rate history for each client |
| 5. Plan the transition quarter | Especially when switching between billing in advance and in arrears. | A note of which quarter each bill covers |
| 6. Check the first bills | Line by line against the new rates before the fee file goes to the custodian. | The checked bill list, signed off and dated |
| 7. Update procedures and disclosures | Your billing procedure and any document that describes your fees. Ask your compliance consultant about disclosures. | The updated documents with their dates |
What does a fee change look like in practice?
Take a hypothetical two-person RIA with about 120 households. It bills 1.00% a year, quarterly in arrears, and decides to cut the rate to 0.90% for every household from 1 January.
One household has an $800,000 billable balance. At the old rate its quarterly bill is $800,000 × 1.00% ÷ 4 = $2,000. At the new rate it is $800,000 × 0.90% ÷ 4 = $1,800. Because the firm bills in arrears, the bill run in early January covers October to December and must still use 1.00%. The first bill at 0.90% is the one run in early April, for January to March.
That is the trap. Whoever runs the January bills sees "new rate from 1 January" and applies 0.90% to a quarter that ended in December. The household is underbilled $200, and the firm now has to explain a correction. Recording the rate with an effective date, and billing each quarter on the rate in force during that quarter, prevents it.
What happens when you switch between advance and arrears?
Switching from billing in advance to billing in arrears leaves one quarter with no new bill. Say the firm billed July to September in advance on 1 July, then switches. Under the old method it would bill October to December on 1 October. Under arrears it bills that quarter in early January. So nothing is collected in October, and the firm's cash comes in one quarter later than it used to.
Switching the other way can put two bills close together: one in arrears for the quarter just ended and one in advance for the quarter starting. Either way, tell clients before it happens and record exactly which months each bill covers.
| Switch | What happens to clients | What happens to the firm |
|---|---|---|
| Advance to arrears | One quarter with no bill | One quarter's revenue arrives three months later |
| Arrears to advance | Two bills close together | A cash bump, and more questions from clients |
Read the billing in arrears guide for how the arrears method works quarter to quarter.
What should the record show afterwards?
If someone asks about any bill a year from now, the record should answer without anyone's memory:
- Each client's old and new rate, with effective dates.
- The notice or consent for each client.
- Which quarters were billed on which basis.
- The checked bills for the first quarter on the new schedule.
When is this overkill?
For a solo firm with 20 households and one flat rate, a seven-step table can feel heavy. The parts you can't skip are the agreement check, the written notice and recording the effective date. A spreadsheet with one row per client and a date column covers the rest. The full plan earns its keep once you have tiered rates, household discounts or a change in billing method.
How does Advorra handle billing?
Advorra calculates quarterly fees in arrears from the fee rates and exclusions you set, and every bill lands on a billing blotter you can check line by line against its inputs. That check is step 6 above. More flexible fee schedules are part of what we are building next. If you're planning a fee change, see how the billing blotter works on the product page.
General description of a process, not tax, legal or compliance advice. Your client agreements and compliance consultant decide what a fee change requires.
Questions advisors ask
Do clients need to agree to a fee change?
That depends on your advisory agreements and the rules that apply to your firm. Many agreements require written notice or consent. Check with your compliance consultant before changing any client's fee.
Should existing clients move to the new schedule at the same time as new clients?
Not necessarily. Some firms apply a new schedule to new clients only and leave existing clients on their old rate. If you do, record which schedule each client is on, because two schedules running at once is where wrong bills come from.
What if a client signs a new agreement mid-quarter?
Decide your rule in advance and write it into your billing procedure: either the new rate starts next quarter, or the quarter is prorated by days on each rate. Then apply the same rule to every client.
How long should I keep the old rates?
Keep the old rate, its end date and the notice or consent with the client's billing history, so any past bill can be recalculated. Ask your compliance consultant about retention periods.
Is this tax or compliance advice?
No. It describes a process. Your agreements and compliance consultant decide what a fee change requires.
See it on a demo firm
Advorra is practice software for independent RIAs: clients, models, IPS, billing and compliance records in one place, on top of the custodian you already use. Built by The CollabHub.
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