Household billing for small RIAs: grouping accounts without billing mistakes
Household billing means grouping a family's accounts so their combined billable value sets the fee rate, then splitting the fee back to each account. It's common at small RIAs and usually what the client expects, but it causes two easy mistakes: an account left out of the group, and an exclusion lost when values are combined. Apply exclusions per account first, then group, and keep the calculation for every bill.
A client calls about her quarterly statement. Her Roth IRA was charged a little more than she expected, and she wants to know why. You look it up and find the Roth was opened in August and never added to her household, so it was billed on its own at the top tier. The fix is a small refund. The harder part is that you now need to check every other household for the same gap.
What is household billing?
Household billing combines a family's accounts so their total billable value decides the fee rate on a tiered schedule. Clients think of their money as one relationship, not five accounts, and most fee schedules reward larger relationships with a lower rate. Billing the household lets the combined value earn that lower tier, which is usually what the agreement promises.
How do you calculate a household bill?
Work out each account's billable value, add them up, apply the schedule to the total, then split the fee back by each account's share.
- Confirm which accounts belong to each household.
- Work out each account's billable value, applying its exclusions.
- Add the billable values to find the household total.
- Apply the tiered schedule to the household total.
- Allocate the fee back to each account by its share of billable value (or by your agreement's rule).
- Check each account's bill against its inputs, then send and reconcile as usual.
What does that look like with real numbers?
Take a hypothetical two-person RIA with about 120 households. Its schedule, for this example only, is 1.00% a year on the first $1,000,000 and 0.75% above that, billed quarterly in arrears on quarter-end values. One household has four accounts:
| Account | Quarter-end value | Excluded | Billable value | Share | Quarterly fee |
|---|---|---|---|---|---|
| Joint brokerage | $700,000 | $50,000 cash | $650,000 | 54.17% | $1,557.29 |
| Traditional IRA | $400,000 | None | $400,000 | 33.33% | $958.33 |
| Spouse's Roth IRA | $150,000 | None | $150,000 | 12.50% | $359.38 |
| Held-away 401(k) | $300,000 | All (not billed) | $0 | 0% | $0.00 |
| Household | $1,550,000 | $1,200,000 | 100% | $2,875.00 |
The annual fee on $1,200,000 is $10,000 on the first million plus $1,500 on the next $200,000, so $11,500. A quarter is $2,875.00. That is split by each account's share of billable value.
Now the two mistakes. If the Roth is never added to the household, it's billed alone at 1.00%: $375.00 instead of $359.38. If the $50,000 cash is left in the combined value, billable rises to $1,250,000 and the quarter becomes $2,968.75, an overcharge of $93.75. Neither is large on its own. Both repeat every quarter until someone notices.
Where does household billing go wrong?
Mostly at the edges of the household: accounts that join, leave or carry exclusions.
| Mistake | How it happens | How to prevent it |
|---|---|---|
| Account billed alone | A new account is opened and never added to the household group | Add the account to its household the day it is opened |
| Exclusion lost | Cash or a held-away account is included in the combined value | Apply exclusions per account before combining |
| Wrong allocation | The household fee is split evenly instead of by value | Write down and apply one allocation rule |
| Stale grouping | A family member leaves the relationship and stays in the group | Review households when relationships change |
What should the billing record show?
For each household: the accounts in it, each account's billable value and exclusions, the combined total, the rate applied and how the fee was allocated. Keep it for every quarter. When a client asks why an account was charged what it was, you can point to one line in one table.
When is household billing more trouble than it's worth?
If your schedule is a flat rate with no tiers, grouping doesn't change anyone's fee, so there's little reason to do it for billing. The same goes for a firm where nearly every relationship is a single account. Household grouping still helps with reviews and reporting in those cases. It just doesn't need to drive the bill.
It's also worth thinking twice before grouping accounts you don't manage on the same terms, such as a held-away account that's advised but not billed. Keep the exclusion visible in the record so nobody adds it back by accident.
How Advorra handles billing today
Advorra calculates quarterly fees in arrears on the balances you bill, with the exclusions you set, and puts every bill on a billing blotter you can check line by line. Household-aggregated and tiered fee schedules are part of what we are building next. If you want to see the billing blotter before your next quarter closes, visit the product page, or read the billing in arrears guide.
General description of a billing method, not tax, legal or compliance advice. Your client agreements decide how your firm bills.
Questions advisors ask
Who belongs in a household for billing?
Whoever your client agreement says. Commonly that is spouses and dependents, sometimes adult children or a family trust. Write the rule down so every household is grouped the same way.
Can a household span more than one custodian?
It can, if your agreement allows it and you bill the outside accounts. The work is getting values for those accounts on the same date as the rest.
What happens when a household splits up, for example after a divorce?
Treat it as two new households from the date the relationship changes, and record that date. Bills before it use the old grouping; bills after it use the new ones.
Does household billing change how fees are deducted?
The fee is still deducted from individual accounts. Household billing changes the rate and the split, not where the money comes from.
Is this tax or compliance advice?
No. It describes a billing method in general terms. Your client agreements and compliance consultant decide how your firm bills.
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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