Billing is still a very manual process for many advisory firms. Rep payouts, billing on retirement accounts, and relationship-level billing can add complexity that some billing applications don’t handle especially well.
“Complicated agreements get dumped on the lap of the operations department – these might include discounts, non-billable securities, payouts to sales people related to the account – and the advisor generally is not the one doing the billing work and dealing with exceptions,” said BaySys Technology Principal Larry Baker.
When it comes to options for handling billing, most advisory firms probably fall into one of these categories:
1) Use the billing functionality that exists in their portfolio management / accounting platform
2) Use Excel to manually calculate fees
3) Run a specialized billing application
4) Outsource billing services to a third-party provider
Choosing the right solution for your firm will need to take into consideration the complexity of your billing and your reporting needs. Many firms use functionality built into their portfolio management system (PMS) to handle schedules and billing arrangements, including fees on a 401(k) that are taken from a brokerage account. They simply prepare a fee file and upload it to the custodian and funds are moved to the firm’s business account.
For others, BaySys Product Manager Michael Gowen tells me that the PMS doesn’t have all the functionality to handle schedules and billing arrangements firms make with their clients, like custom billing schedules.
When it comes to handling what Michael calls “relationship billing” using a PMS system may no longer be sufficient. “Relationship billing, sometimes called family or group billing, is when a firm bills on the aggregate value across accounts to take advantage of price tiers, and then they pro-rate fees to other members in the group,” says Michael. “It is one thing that causes many firms to do manual work.”
When determining whether a PMS can meet your needs, find out if it will handle a situation where one member is paying fees for other members in the relationship – a designee who pays the fees for different accounts within a group. Oftentimes this is an exception that needs to be handled as an “exception” or manual process.
How to evaluate specialized billing systems
When Excel or the billing setup and functionality within a PMS are not sufficient, many firms look for specialized billing applications. There are several to choose from. To shortcut the due diligence process I asked BaySys Technology what firms should look for when evaluating a billing system. Here’s their checklist:
1. Flexibility. You want a system that can handle unusual fee schedules
tiered billing, flat fees, relationship billing, one account to pay for another, allow for discounts, ability to exclude non-billable securities or security types
ease of use and setup
rep payouts: can it pay out a portion of fees they collect to an interested party like a broker that referred the business to the firm.
2. Robust reporting functionality. Look for applications that meet reporting needs
Ability to send a copy of a statement to an accountant or other interested party
Capability of creating report formats for upload to a client reporting portal
Exception type reporting (e.g., how many clients were charged a minimum fee)
Check cash balances of accounts first to make sure there are sufficient funds to pay the fees
Management reports to show total fees over time and see which are top fee producing clients
Integration with client reporting portals like Junxure or LightPORT
3. Data robustness and integrity. You want a system that efficiently handles all your data
If you are going to bill on retirement accounts or other held-away assets, can the system import market value and holdings data on these accounts directly from a PMS? If the data is not in the PMS, can it be imported from other sources, such as ByAllAccounts?
Understand which large providers the system can work with to use their extract files
Availability of historical reports
4. Security and privacy. Look for state-of-the art security practices
Ability to mask account numbers on statements
Outsourcing billing services
If a specialized billing application isn’t right for your business, outsourcing billing services might be an option. “Firms with fairly simple billing requirements that don’t require a lot of custom setup might choose to select a firm to create their bills each billing cycle,” says Michael. He says to ask yourself if your billing can be outsourced. Does it need to be available on mobile apps for reps? Do you need a SaaS model?
Fairlane Investment Advisors in Dearborn Michigan uses ByAllAccounts account aggregation technology, which is integrated with billing services provided by Orion Advisor Services, offering an automated, end-to-end process.
Orion receives real-time market values on retirement assets from ByAllAccounts.
They apply the fee schedule for each account provided by Fairlane.
Fairlane then sends an electronic billing file to their custodian.
In the end it comes down to choosing the right solution for your firm’s needs today and in the future. Take the time to explore the options and speak with others in your network for referrals and references.
Larry Baker is the Principal at BaySys Technology. He has over 20 years experience in the financial industry with emphasis on data management, technology, and back office systems. Michael Gowen is a Product Manager at BaySys Technology. Michael has over 20 years experience in the financial services and investment management software industries with an emphasis in portfolio accounting and product management.
You might also be interested in information on the mechanics of billing on retirement accounts:
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