When the Billing Report is generated for a client, Atlas will first calculate the fee due based on the ending value amount. Atlas will then make adjustments based on prorations. Please note that both security and cash contributions will be accounted for and impact the billable balance.
Atlas follows the logic below to calculate the adjustments for flows. The adjustment periods will vary depending upon the date of deposits/withdrawals. The calculation for each day adjustment period is:
A/B = C
Where:
A = Number of days elapsed in the quarter prior to transaction
B = Number of days in the quarter
C = Day Adjustment Ratio
Please note, the number of days in the quarter will depend upon the selected Billing Partition. This is located in Billing Settings. If this Billing Partition is set to Quarterly, the value is 1/4. If the Billing Partition is set to Daily, the value is the actual number of days in the quarter divided by 365 (e.g. 90/365; 91/365; 92/365)
Next, the following formula is used:
(C x D) * E = F
Where:
C = Day Adjustment Ratio
D = Quarterly Rate (from the management fee setting)
E = Value of Transaction
F = Adjustment/Credit
The adjustments are then taken into consideration and applied to the fee.
Conceptual Example on how this works:
*Please note this scenario uses rounded numbers for the sake of the example. (1 month = 1/3 of a Quarter) As a result, this is not an exact example. This should suffice showing a conceptual illustration on how the calculations work for demonstrative purposes only.
Basic Example for account #123
$100,000 account balance on the first day of the first month of a Quarter
Stable 12% Annual Return (i.e. 1% Monthly Return) occurs over the Quarter
Client withdraws $500 at the very end of every month
1st Month = $100,500 ending Balance (-500 end of month withdrawal + 1,000 return)
2nd Month = $101,005 ending Balance (-500 end of month withdrawal + 1,005 return)
3rd Month (end of Quarter) = $101,515.05 ending Balance (-500 end of month withdrawal + 1,010.05 return)
Even though the account withdrew ~$500 / month, you still were managing that $500 during a portion of the billing period. So Adjustment for flows will prorate each $500 withdrawal and add the prorated amount to the ending balance thus resulting in a higher billable balance.
Month end #1 Withdrawal of $500
You spent labor managing this money for 1 out of 3 months. Therefore we will take 1/3 of this $500 = $166.67 and add it on to the ending period balance to ensure we bill on it. $101,515.05 + $166.67 = $101,681.72 Billable Balance after Month #1
Month end #2 Withdrawal of $500
You managed this money for 2 out of 3 months. Therefore we will add 2/3 of this $500 on to the ending period balance. $101,681.72 + $333.33 = $102,015.05 Billable Balance after Month #2
Month end #3 Withdrawal of $500
You managed this money for nearly 3/3 months. Therefore we will add 3/3 of this $500 on to the ending period balance. $102,015.05 + $500 = $102,515.05 Billable Balance after Month #3
As a end result for Q1 this account #123 = $102,515.05 Billable Balance
In this particular example you can see that due to the returns outperforming the withdrawals, the ending Billable Balance was actually higher than the account value ever reached during that billing period. As a result, we have noticed this may cause confusion for clients. If this is causing confusion, you may consider changing to an Average Daily Balance methodology to help clear up this confusion. Feel free to utilize our conceptual example above for demonstrative purposes.