How to prorate advisory fees for accounts opened or closed mid-quarter
Prorating an advisory fee means charging only for the part of the billing period an account was actually managed. The most common method is days held: multiply the full-quarter fee by the number of days the account was under management, divided by the number of days in the quarter. Whatever method your agreement and disclosures describe, write it down, apply it the same way to every account, and keep the calculation with the bill.
A new client funds their account on 12 February. At quarter end, the billing sheet charges them for the full quarter, the same as a client who was there since January. Nobody meant to overcharge. The proration step was just never written down, so it didn't happen.
What does prorating a fee mean?
It means charging only for the part of the period the account was actually managed. If an account was with you for half the quarter, it pays roughly half the quarterly fee, using whatever method your agreement and disclosures describe.
How does the days-held method work?
Full-quarter fee × (days under management ÷ days in the quarter).
| Quarter | Days |
|---|---|
| 1 January to 31 March 2027 | 90 |
| 1 April to 30 June 2027 | 91 |
| 1 July to 30 September 2027 | 92 |
| 1 October to 31 December 2027 | 92 |
Leap years add a day to the first quarter. Use the real day count, not 90 every time.
A worked example: an account opened mid-quarter
Take a hypothetical account billed quarterly in arrears at 1.00% a year. It was funded on 12 February 2027 and is worth $400,000 at quarter end.
| Step | Calculation | Result |
|---|---|---|
| Full-quarter fee | $400,000 × 1.00% ÷ 4 | $1,000.00 |
| Days under management | 12 Feb to 31 Mar, counting 12 Feb | 48 |
| Prorated fee | $1,000.00 × 48 ÷ 90 | $533.33 |
Billing the full quarter would have overcharged by $466.67.
And an account that closed mid-quarter
A second account at the same rate closes on 15 May 2027, with a final value of $250,000.
| Step | Calculation | Result |
|---|---|---|
| Full-quarter fee | $250,000 × 1.00% ÷ 4 | $625.00 |
| Days under management | 1 Apr to 15 May | 45 |
| Prorated fee | $625.00 × 45 ÷ 91 | $309.07 |
Which value to use for a closed account (the last value, or the value on the closing date) is part of your written method.
What about large deposits and withdrawals?
Some agreements prorate significant cash flows during the quarter, often above a stated threshold. If yours does, calculate each one the same way and record it with the bill. If your agreement doesn't mention it, don't add it on your own.
How should you document your method?
- The method: days held, months, or another convention.
- Whether the opening and closing days count.
- Which value is used for new and closed accounts.
- How cash flows are treated, if at all.
- Rounding: to the cent, and when.
Keep each quarter's proration calculations with that quarter's billing records.
When is this overkill?
A firm with very few new or closed accounts can do this by hand each quarter. It still needs the written method, because the one quarter you skip it is the one a client notices.
How Advorra fits
Advorra runs quarterly billing in arrears with exclusions set on the record, and each run lands on a billing blotter, so you can look back at what was billed and on what value. Keep your proration method in your written procedures alongside it. See the product page, or read quarterly billing in arrears and fixing a billing error.
One thing to do this week: find every account that opened or closed last quarter and check each bill was prorated.
An operations guide, not billing or compliance advice. Your agreements and compliance consultant decide how your firm bills.
Questions advisors ask
Is days held the only method?
No. Some firms use months, or a fixed convention such as a full quarter if opened in the first half. What matters is that the method matches your agreement and disclosures and is applied consistently.
Do I count the opening day and the closing day?
Decide once and write it down. Many firms count the day the account is funded as day one. Consistency matters more than the convention.
Should large deposits and withdrawals be prorated?
Some agreements say so, often above a threshold. If yours does, apply it the same way every time and record each adjustment. If it doesn't, don't invent one.
What if the account closes after the fee was billed in advance?
A firm billing in advance may owe a prorated refund. Check what your agreement says and record the refund calculation.
Is this billing or compliance advice?
No. It is an operations guide. Your agreements and compliance consultant decide how your firm bills.
See it on a demo firm
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