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Industry guide

Accounting for RIAs: the fee calculation is only half the job.

Registered investment advisers usually have strong systems for client portfolios and fee billing, and much weaker ones for the firm’s own books. Here is what makes RIA bookkeeping different, and what a clean monthly routine looks like.

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Revenue

Advisory Fee Revenue

Most RIA revenue is a fee based on assets under management, usually calculated quarterly and deducted from client accounts by the custodian.

How it is recorded depends on how it is billed:

  • Billed in advance. The firm receives a quarter’s fee at the start of the quarter. On accrual books, the unearned part is deferred revenue and is recognized month by month.
  • Billed in arrears. The fee for a quarter is collected after it ends. On accrual books, the firm accrues the fee it has earned before the cash arrives.

Other revenue lines, such as financial planning fees, hourly consulting or flat retainers, should sit in their own accounts so the firm can see what each service earns.

Reconciliation

Matching Fees to the Custodian

The fee schedule from your billing software, the fee deductions on custodian statements and the deposits in the firm’s operating account should all agree. In practice they often differ, because of:

  • accounts opened or closed mid-quarter and prorated fees,
  • fee waivers, household discounts and minimum fees,
  • accounts where the fee is billed directly rather than deducted,
  • timing differences between deduction and deposit.

Each quarter, the books should tie billed fees to collected fees and explain every difference. A reconciliation that is done every quarter takes an hour. One done once a year, under audit or exam pressure, takes days.

Compensation

Advisor Compensation and Payouts

Many firms pay advisors a share of the revenue from their clients, sometimes with a base salary, sometimes as independent contractors. The books need to support those payouts:

  • revenue tracked by advisor or team, using classes in QuickBooks Online or tracking categories in Xero,
  • a payout calculation that agrees to the revenue in the books,
  • payroll or contractor payments posted to the right accounts.

When revenue by advisor in the books does not match the payout spreadsheet, disputes follow. Keeping them in agreement every quarter avoids that.

Compliance support

Records That Help With Compliance

An RIA’s regulatory obligations belong to the firm and its compliance adviser, not its bookkeeper. Clean books still make several of those obligations easier:

  • Books and records. Advisers are required to keep accurate financial records of the business. A reconciled ledger with documents attached is the starting point.
  • Balance sheet disclosures. Some advisers that collect fees well in advance, or that have custody, must provide a balance sheet in their disclosures. Monthly closed books make that straightforward.
  • Exams. When the SEC or a state regulator examines a firm, financial records are among the documents requested. Books that are current and reconciled shorten that request.

We do not give regulatory or compliance advice. We keep the books so your compliance adviser and CPA have accurate records to work from.

The routine

A Monthly Routine for an RIA

  1. Reconcile the operating, payroll and credit card accounts.
  2. Record fee deposits and post deferred or accrued fee entries.
  3. Record technology, custody, research and compliance software costs, which are often large for RIAs.
  4. Post payroll and advisor payouts.
  5. Each quarter, reconcile billed fees to collected fees and to the books.
  6. Close the month and send a profit and loss by service line and advisor.

Where we fit

How We Work With RIAs

We keep the firm’s own books for advisory practices in QuickBooks Online and Xero: fee revenue recorded on your billing basis, quarterly fee reconciliations, revenue by advisor, and a closed month with reports. We work alongside your CPA and compliance adviser and do not touch client portfolios.

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Questions

Common Questions

How should an RIA record advisory fees billed in advance?
On accrual books, record the quarterly fee as deferred revenue when it is received, then recognize one month’s share each month of the quarter. Your CPA should confirm the policy.
How should an RIA record fees billed in arrears?
Accrue the fee earned during the quarter before the cash is collected, then clear the accrual when the custodian deducts and remits it.
Why do billed fees and collected fees not match?
Common causes are prorated fees for accounts opened or closed mid-quarter, waivers and discounts, accounts billed directly instead of by deduction, and timing differences. A quarterly reconciliation explains each one.
Can a bookkeeper help with SEC or state exams?
A bookkeeper keeps current, reconciled financial records, which regulators may request during an exam. Regulatory and compliance advice should come from a compliance adviser or attorney.
Which accounting software suits an RIA?
QuickBooks Online and Xero both work well for most advisory firms. Use classes or tracking categories to report revenue by advisor and by service line.
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Next

Where to Go Next

Who we serve Professional Service Firms Bookkeeping for firms that sell expertise. Industry guide Xero for Professional Services Time, projects and retainers. Guide Month-End Close Checklist The close steps, in order. Guide Bookkeeper vs Accountant vs Controller Who does what as the firm grows. Insight Multi-Entity Accounting When the practice has more than one company. Service Bookkeeping Packages Monthly and weekly bookkeeping in QuickBooks or Xero.

Want the firm’s own books as tidy as the client reports?

Tell us how you bill and which software you use. We will tell you what a monthly routine would look like for your practice.

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