What your clients actually pay: a yearly effective fee check for small RIAs
Once a year, a small RIA can total the fees each household actually paid, divide by its average billable value, and compare that effective rate with what the published fee schedule says it should be. Differences usually come from negotiated discounts, exclusions, older agreements or billing errors. Each one should either be explained by a written agreement or fixed. Record the check and its findings.
A firm's brochure says 1 percent on the first million. Ask what clients actually paid last year and the answers spread out: 0.85 percent for a family that negotiated, 0.62 percent for a household with a large excluded cash position, 1.1 percent for someone still on an agreement from 2019. Most of these are fine. A couple might not be. The only way to know is to look.
How do you calculate it?
| Step | Example |
|---|---|
| Total fees paid in the year | $8,400 |
| Average billable value over the year | $1,000,000 |
| Effective fee | 0.84 percent |
| What the schedule says | 1.00 percent |
| Difference to explain | 0.16 percent |
Where do differences come from?
- Negotiated discounts or household rates.
- Excluded assets, such as cash or held-away accounts.
- Clients on an older agreement with a different schedule.
- Prorations for deposits, withdrawals and accounts opened mid-quarter.
- Billing errors.
The yearly routine
- Pull each household's fees for the year from your billing records.
- Work out its average billable value.
- Calculate the effective fee and compare it with the schedule.
- Flag any difference above a threshold you choose.
- Match each flag to a written agreement or exception. Fix what doesn't match.
- Record the check, the flags and what you did.
A worked example
Take a hypothetical two-person RIA with 60 households. It runs the check in January. Fifty-one households land within a tenth of a point of the schedule. Six differences are explained by signed discounts. Two come from cash exclusions agreed in writing. One household has been billed on the wrong tier for three quarters; the firm corrects it, tells the client, and notes the fix with the billing record.
What are the common gaps?
- Discounts agreed by email and never written into the agreement.
- Old agreements nobody remembers.
- Exclusions applied in billing but not documented.
- No yearly look, so errors repeat every quarter.
When is this overkill?
If every client is on the same schedule with no discounts or exclusions, a quick spot check of a few households is enough.
How Advorra fits
Advorra runs quarterly billing in arrears with your exclusions and keeps every run on a billing blotter, so a year of fees per household is in one place to check against the schedule. See the product page, or read about negotiated fee exceptions and fixing billing errors.
One thing to do this week: calculate the effective fee for your five largest households.
An operations check, not legal or compliance advice. All figures are illustrative.
Questions advisors ask
What is an effective fee?
The total fees a household paid over a period, divided by its average billable value over the same period. It shows what the client actually paid as a percentage.
Why would it differ from our schedule?
Negotiated discounts, excluded assets, households billed on an older agreement, prorations for money moving in and out, and occasional billing errors.
How often should we check?
Once a year is enough for most small firms, plus whenever you change your fee schedule.
What do we do with differences?
Make sure each one is backed by a signed agreement or written exception. Fix any that aren't.
Is this compliance advice?
No. It is an operations check.
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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