Fee Billing Reviews: A Compliance Check Every Investment Adviser Should Be Performing
- Coulter Strategic Services
- 4 days ago
- 4 min read
Advisory fee billing is one of the most important areas for investment advisers to review periodically. It is also an area where errors can occur even when the firm has strong intentions, experienced personnel, and established systems.
Many firms rely on custodians, portfolio management systems, billing software, spreadsheets, or internal operations personnel to calculate advisory fees. These tools can be helpful, but they do not eliminate the adviser’s responsibility to ensure that fees are calculated correctly, deducted properly, disclosed accurately, and consistent with the firm’s advisory agreements and Form ADV disclosures.
Fee billing issues continue to be a common area of regulatory focus. The SEC has previously identified advisory fee and expense deficiencies involving inaccurate fee calculations, billing practices that were inconsistent with advisory agreements or disclosures, failure to apply negotiated fees or discounts, incorrect valuations, improper billing on assets that should have been excluded, failure to refund prepaid fees, and disclosure issues related to the timing, frequency, and methodology of advisory fee billing.
A periodic fee billing review can help firms identify and correct issues before they become examination findings, client complaints, or refund obligations.
A fee billing review should generally include a comparison of the firm’s advisory agreements, Form ADV Part 2A, billing invoices, portfolio management system settings, custodian deductions, client fee schedules, and actual billing practices. The goal is to confirm that the firm is doing what it says it does, charging what it agreed to charge, and clearly documenting the process.
Areas that may warrant review include:
1. Whether fees are billed in advance or arrears and whether that practice matches the advisory agreement and Form ADV disclosures.
2. Whether the firm is using the correct billing period, valuation date, account value, and billing frequency.
3. Whether fee schedules, breakpoints, negotiated rates, legacy arrangements, householding, tiered billing, flat fees, minimum fees, and special arrangements are being applied correctly.
4. Whether any assets should be excluded from billing, such as cash, unmanaged assets, legacy holdings, employer-sponsored retirement plan assets, alternative investments, or other excluded assets identified in the client agreement or disclosures.
5. Whether terminated accounts, partial periods, deposits, withdrawals, account transfers, and prepaid fees are handled consistently with the firm’s agreements and disclosures.
6. Whether refunds are calculated and issued when required.
7. Whether billing records, invoices, approvals, calculations, and supporting documentation are maintained in accordance with the firm’s books and records obligations.
8. Whether Form ADV Part 2A accurately describes the firm’s fees, billing methodology, negotiability of fees, other costs, conflicts of interest, and related compensation arrangements.
9. Whether cash sweep arrangements, money market funds, affiliated products, revenue sharing, custodial compensation, or other economic conflicts are fully and fairly disclosed.
10. Whether the firm’s policies and procedures include reasonable controls for reviewing and approving fee billing.
Fee billing reviews should be part of the firm’s ongoing compliance review process and should also be considered when conducting the annual compliance review. Depending on the firm’s size, complexity, billing practices, and systems, fee billing should be reviewed periodically throughout the year to help identify calculation errors, disclosure inconsistencies, refund issues, or control weaknesses before they become larger compliance concerns.
This is particularly important for firms that have changed custodians, added new billing software, updated fee schedules, acquired clients from another adviser, added new service models, implemented householding or breakpoint arrangements, changed advisory agreements, or updated Form ADV.
A third-party review can be useful because fee billing practices often become routine. Internal personnel may be familiar with the process but may not always identify inconsistencies between the firm’s agreements, disclosures, system settings, invoices, and actual deductions. An independent review can provide a fresh perspective and help determine whether the firm’s fee-billing controls are operating as intended.
The objective is not only to identify errors. The objective is to confirm that the firm has a reasonable process for calculating fees, reviewing billing, documenting approvals, issuing refunds when required, and ensuring that disclosures remain accurate.
Fee billing is one of those compliance areas where small inconsistencies can create meaningful regulatory, financial, and reputational risk. Taking the time to conduct periodic fee billing lookbacks can help firms identify problems early, strengthen their internal controls, and better prepare for regulatory examinations.
Coulter Strategic Services assists SEC and state-registered investment advisers with fee billing reviews, annual compliance reviews, disclosure comparisons, and related compliance testing. Firms that have not recently reviewed their fee-billing process may want to consider adding a fee-billing lookback to their compliance review calendar.
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Coulter Strategic Services provides customized compliance and regulatory consulting designed to meet the specific needs of each investment advisory firm. Services are tailored to the firm’s structure, business model, and regulatory obligations to help maintain an effective and sustainable compliance program aligned with current expectations. Contact us today to discuss your firm’s compliance program needs. Learn more at https://www.coulterstrategicservices.com/
All information provided is for educational purposes and should not be construed as specific advice. The information does not reflect the view of any regulatory body, State or Federal Agency or Association. All efforts have been made to report true and accurate information. However, the information could become materially inaccurate without warning. Not all information from third-party sources can be thoroughly vetted. Coulter Strategic Services and its staff do NOT provide legal opinions or legal recommendations. Nothing in this material shall be considered as legal advice or opinion.