Study Notes:
Within the IBKR platform, financial advisors can charge their clients using automatic billing methods or manual electronic invoices. This video will review two of the automatic billing methods available to financial advisors: Annualized Percentage of Net Liquidation and Annualized Flat Fee.
As a reminder, the automated billing structures are calculated in arrears meaning that the fee is charged to the client account at the end of the payment period. Fees Templates can be configured by opening the left side menu, expanding Administration & Tools, expanding Fees & Invoicing, and selecting Fee Templates. For more information on configuring fee templates, please see our Introduction to Advisor Client Billing video.
For this video, the advisor will edit the fee structure for an existing client by selecting the Fees from the left side menu, then selecting the client from the Account Selector, and clicking the pencil Edit icon in the upper right corner.
Annualized Percentage of Net Liquidation
The Annualized Percentage of Net Liquidation (or NLV) method, also referred to as a management fee, is an asset-based fee where the advisor is charging a percentage of the assets held in the client account. For the Annualized Percent of NLV method, the fee is calculated in the base currency of the client account.
There are two types of calculations within the Annualized Percent of NLV method: Fixed or Blended. Fixed is a specified constant percentage that the advisor is charging. For example, the advisor is charging 1% of the account value.
Blended is a tiered, blended calculation that allows the advisor to specify net asset value ranges and separate annualized fee percentage for each range (or tier). For example, if the advisor wanted to charge:
- 2% on the first $100,000
- 1% on the next $200,000, up to $300,000
- And 0.5% on the assets above $300,000.
For both fixed and blended, the percentages are entered as annualized rates, but the advisor can select the period the fee is applied and charged to the account. Click the Applied drop down to see the list of available periods:
- Daily
- Monthly
- Monthly (on month end balance)
- Quarterly, and
- Quarterly (on quarter end balance).
Daily, Monthly and Quarterly are daily average calculations whereas the other two options are only calculated based on the Month end or Quarter end account value and therefore do not consider if the client made any deposits or withdrawals during the fee period.
Annualized Flat Fee
The Annualized Flat Fee is a specified dollar amount to be charged to the client on a periodic basis. For example, if the advisor wanted to charge the client $1,000 per year for their services regardless of the size of their account. Note that this method, the fee is configured in the base currency of the advisor account.
The flat fee can be applied on a Daily, Monthly or Quarterly basis. Continuing with our previous example of the advisor charging $1,000 per year, if they select to apply this fee on a monthly basis, the $1,000 fee will be split into 12 monthly payments and each payment is assessed to the client account at the beginning of the following month.
Please see our website for more information on the formulas used in the fee calculations as well as helpful examples.
Resources
Automatic Billing Methods & Examples
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