Currently PortfolioCenter offers two options for calculating management fees: billing on the entire value on the first day of the billing cycle or the entire value on the last day of the billing cycle.
When PortfolioCenter 5.7 is released (expected Spring 2013), you will have a third method: Average Value billing — but only if you use the billing statement found in Presentation Studio which requires a license.
Average Value Billing is not calculated by dividing the sum of the daily ending values by the number of days in the billing cycle. PortfolioCenter performs a more complex calculation that adjusts for accounts added or closed during the billing cycle and a value that may fluctuate to meet some or all the breakpoints in a billing specification.
Basically, the method:
- calculates daily rate(s) by dividing the annual rate(s) by the number of days in the billing cycle
- multiples the daily value of billable assets by the daily rate(s)
- adds the daily fees to arrive at a total management fee
- finally processes any adjustments or discounts
If you’re in the good habit of creating a price file for the last day of the month even if that day is a weekend (a previously recommended “best practice” for interval processing), you’ll need to stop. Weekend or holiday price files adversely affect Average Value Billing.
Similarly, all manual entry must be priced daily for an accurate daily value. Any missing prices will skew your management fee.
Make sure you understand this method and can explain it to your clients before switching.
For a detailed explanation see: PortfolioCenter Billing.