How are advisor fees charged and billed?

In this article, we will discuss:

  1. Automatic management fee deduction
  2. Manual electronic invoicing 
  3. Charge client expenses to the advisor
  4. Forced liquidation

Your client's advisory fees will be charged in arrears. The advisory fee will be accrued on a daily basis and you have the option to choose from "daily/monthly/quarterly" for the advisor fees to be pulled into your master account. You will be able to see these options here.



Automatic management fee deduction

Percentage of net liquidation value entered as an annualized percentage, accrued on a daily basis (252 business days are applied in this calculation method).

Assumption: You specify 5% of net liquidation value as an annualized percentage and your client’s previous day ending-equity is $100,000.

Calculation: Your advisor client fees for the given day will be: 5%*$100,000/252=$19.84.

Timing: Depending on your setting, the advisor fee will be pulled from your clients' accounts into your master account daily/monthly/quarterly. 

Fees will be posted ten days after the close of a day/month/quarter.

The fee will be billed by and deducted by Interactive Brokers directly. It is the policy of Interactive Brokers not to deduct fees from accounts with values less than $3,000.


Manual electronic invoicing 

In addition to the automatic method above, advisors can submit electronic invoices for client fees on a monthly or quarterly basis by entering a maximum amount. Invoices can be submitted for up to ten clients at a time, but only one invoice can be submitted per client account per day.

To set manual invoicing, advisors should follow the instructions here: by logging in to IB Account Management.

If your client needs a recurring manual invoice, please ask your client to refer to "Where can clients find IB usernames and passwords in TradingFront client portal?" to obtain his/her IB username and password in the TradingFront client portal under "Setting/Brokerage Account Information." Then login to  IB Account Management by using the IB username and password. The client needs to confirm a request sent from you in his/her Account Management under Pending Request. 


Max Fee Per Billable Period: This is a fixed fee you can collect periodically from clients for managing their accounts. It is only for manual invoicing and has no impact on the management fee configuration. We recommend you leave $3,000 in there. 

Setting this field does not mean your will clients will be billed $3,000. It is the max fee you can bill your client annually given the billable period.


Advisor Fee Cap Formulas (manual invoicing only):

Available Fee Cap Limit (Period X) = (R* Average Equity (Period X)) - Amount Paid (Period X).
If Available Fee Cap Limit for any period is negative, no advisor fee will be charged.

Period X = 12 30-day cumulative periods over the last 360 days.
If an account has been opened less than 360 days, all the even 30-day periods up to the time the account has been opened will be included.  Or Period X will be the exact number of days the account has been opened.

R (Period X) = ((0.252/360)*Number of Days)1/2

Available Equity = Average Equity over Period X

Amount Paid = Advisor Fees paid over Period X

For example, you have the client account open for one month (30 days) and the average equity for this account over a month is $10,000. You manually charged $50 as advisor fees for that month. Your available fee cap would be: ((0.252/360)*30)1/2*$10,000-$50 = $671.69


Charge client expenses to the advisor

As an advisor, you can select to charge client commissions to your own advisor master account when configuring fees for a client account. Commissions charges will revert to the client account if the advisor master account has a balance of less than $1,000 when the commission charges are posted.



 Forced liquidation

If a client does not have enough cash in their account to cover the advisory fees, are trades to raise cash automatically placed? 

Yes, if the account is not margin compliant then a liquidation occurs. This liquidation will be initiated by the custodian IB directly. Per IB, "If deduction of any fee causes a margin deficiency, the account will be subject to liquidation of positions as specified in the IBKR Customer Agreement."