There are several inputs into the billing calculation. At a high level, the formula can be summarized as follows:
Account Fee = (Group Billable Balance) * (Fee Structure) * (Period Weight) * (Account Weight)
Below is an overview of each of these inputs.
Billable Balance
There are several inputs that affect the billable balance:
Valuation Method
This can be defined at the Fee Structure level
Ending period balance - the balance reflects the closing account value on the end date of the billing period (e.g. account value on 3/31)
Average daily balance - the balance reflects the average daily balance of an account for a given time range excluding non-market days (e.g. average account value for 1/1-3/31)
Calculation: Average of all Beginning Period Values from Each Market Day within Billable Period
See Example and Further Details by Clicking This Link
Asset Adjustments
This can be defined by Account or at the Firm level
If an asset exclusion is defined, the billing calculator will take the closing account value on a given day and subtract the market value of the specified position. For example, if an account closes on 3/31 at $100,000 with $5,000 in cash, and cash is not being billed on, the billable balance would be $95,000.
If an asset inclusion is defined, the billing calculator will calculate the billable balance as the market value of only the positions being included. For example, if an account has 30 securities and the advisor wants to only bill on 5 of the securities, you can include the 5 securities as opposed to excluding 25.
Accruals
Advisors may choose to include accruals in the billable balance. Accruals represent dividends that have been announced but not yet paid out.
Each of these inputs can affect an individual account's billable balance. Account billable balances are then grouped together based on the Billing Group assignments so that a Group Billable Balance can be calculated. This is done particularly for tiered or drop through fee structures so that lower fee tiers can be incorporated into the calculation.
Note: The total account value can differ from custodial statements for valid reasons. There can be rounding differences at times, but the most common reason for differences arise from custodian statements being settlement based whereas portfolio accounting systems are trade based. For example, if trades are made at the end of a month and have not settled or there are corporate actions and dividend adjustments, the total account value may differ from the statement.
Fee structure
There are many different options when setting up fee structures, so see here for a full description. In most cases, fee structures are expressed as annual percentages, and these are multiplied with the Group Billable Balance.
Period weight
When the Group Billable Balance is multiplied by the Fee Structure, we get an annual fee for the billing group. This fee needs to be adjusted for the specific period that is being billed. The period can vary based on a few things:
Collection type - billing in arrears, advance, or advance with proration
Frequency - billing monthly or quarterly
Billing partition - using actual days in period (e.g. 91/365) or set periods (e.g. 1/4).
Account open date - Atlas will automatically assign the open date of an account to be the first day an account is funded. This will be used in determining the period weight. For example, if you are billing in arrears on 3/31 and an account opened on 3/15, Atlas will bill this account for 17 days (inclusive of start and end date). For new accounts, the default is to use actual days in period as opposed to set periods, so that the proration is correct.
Account weight
The account weight is calculated as the account billable balance over the group billable balance. This percentage is used to convert the group level fee into the individual account fees.
Note: the account weights can be adjusted using fee locations. Specific accounts can be designated from which to pull fees.