by Nate Porter: COO; SoundView Advisors
A few weeks back, I had a conversation with a friend who recently became the director of a private elementary school in the Midwest. While getting the lay of the land she was able to get a good look at the school’s accounting ledger, and what she found shocked her. Several of the families hadn’t paid their tuition yet. Not only that, but they hadn’t paid last year’s tuition either… or the year before that. In fact, the school had been running a deficit for over a decade, not due to a lack of enrollment, but due to a lack of payment. When my friend inquired about the issue to the school secretary, the response was: “Yeah, gosh, we really aren’t comfortable asking people to pay their bills, so we never have.”
Money can be a funny thing. We all have it (some of us more than others), but it makes a lot of folks a bit uneasy to discuss topics like “fees” and “billing” and… “payment”. We’d rather tiptoe around the subject, or keep it vague, or only answer questions if asked, or if there’s a problem. Friends, I am not one of those “uneasy” sorts of folks! There always seems to be an air of mystery surrounding fees; I’m here to bring some clarity. Let’s talk about your managements fees!
HOW ARE MY FEES CALCULATED?
Your investments up to $1.5 million are billed at 1.00% (annually), the next $1.5 million (up to $3 million) is billed at 0.75% annually, and everything above $3 million and beyond is billed at 0.50%. While at first glance, this may seem a tad confusing, I promise you it’s actually a fairly straightforward formula.
Here’s an example of how we calculate a quarterly management fee of a client with a overall portfolio value of $5 million dollars:
HOW MUCH OF MY INVESTMENTS ARE CONSIDERED BILLABLE?
Since we typically oversee your entire investment portfolio, we typically consider your entire portfolio when we calculate your fees. If we manage $2 million in total for you, then that’s the figure we’ll use to calculate your fee.
WHAT DATE DO YOU USE TO CALCULATE PORTFOLIO VALUE FOR BILLING?
Great question, intrepid reader! We draw a metaphorical “line in the sand” at the beginning of trading the first day of each quarter. So, that’s January 1st, April 1st (no joke), July 1st, and October 1st.
WHEN ARE FEES PULLED?
We pull fees at the end of each quarter. So, for example, at the end of the third quarter (the last week of September) we pulled our management fees. We based those fees on the value of your investments at the start of the quarter. We’ll pull fees again at the end of December based on October 1st portfolio values.
WHERE ARE FEES PULLED FROM?
The vast majority of fees are pulled directly from your taxable investment accounts at one of our preferred custodians. In some cases, it may make sense for fees to be drawn directly from an IRA, which is something your Lead Advisor would discuss with you. A handful of clients pay via check.
WHEN SHOULD I RECEIVE MY FEE STATEMENT?
You should receive your management fee statement mid-month, the last month of every quarter – hopefully, BEFORE fees have been withdrawn from your accounts. Timing in this area is a place that my team can improve. Our goal for Q4 is December 15th, 2020. Hold us accountable.
WHAT IF THERE’S A MISTAKE WITH MY FEES?
The bad news is that no process is perfect, but the good news is that everything is correctable. If you notice that something seems off, please bring it to my attention right away. If you see something, say something! We’ll look into it and make it right – ASAP.
HOW DO YOU SLEEP AT NIGHT, SIR???
Very well, thank you.
I know sometimes it can feel that when money is exchanged between two parties, then something else changes too, something relational. I think that is why the employees at my friend’s private school didn’t want to ask families to pay their tuition fees. They didn’t want the parents to think that they cared more about money than their kids. I understand their hesitation, but I don’t share it. We advocate for the person and the portfolio.
As for me, every quarter, I’m incredibly proud to be involved in calculating management fees, because I get to see firsthand how much effort goes into serving each and every client we have. Our staff is first-rate, and I couldn’t be more delighted with the work they do, and of the devotion, care, and appreciation they have for our clients.
Nate Porter
Chief Operating Officer
SoundView Advisors