Investment Advisor Fees

martyh1953

In 2010 several people in this forum said the best way to account for advisor fees for an accurate rate of return was to manually set up a security, enter 0 shares, and enter the fee in commission. I stopped using the financial advisor in 2015. Everything was ok until the latest Quicken update. Now the advisor fees are now included in reports, including net worth, investment activity, and rate of return which inflates account balances in any report run after 2015. Account balances are correct on the homepage and investing portfolio page. Is anyone else having this issue?

NotACPA

The advisor fees in my IRA account that's professionally managed by Fidelity are simply taken from the cash position in that account.

I record those quarterly transactions as "Withdraw" with an appropriate category.

And, of course, these transactions show up in the various reports. They're expenses just the same as any other expense.

Jim_Harman

A few years back Quicken introduced an improved way to track management fees. You can set up a Category for the fee and there is a checkbox in the Category setup called "Affects investment performance". The Help is very confusing, but if you check the box, any fees with that Category will reduce the performance reported in the Investment Performance Report, the Growth of $10,000, and the Avg. Annual Return (%) columns in the Investing > Portfolio views.

I record the fees using a Sold if any securities were sold to cover the fee followed by a MiscExp transaction for the fee.

martyh1953

Jim Thanks for your help! Can you clarify your last comment? Are you saying that you record the advisor fee in "commissions" in the individual stock they sold to cover their advisor fee? Why the MiscExp?-seems like a duplicate advisor fee transaction. Getting ready to go back and correct 5 years of advisor fees on multiple accounts-want to make sure I am doing it right.

Jim_Harman

Say the Category I use for the fee is AdvFee and they sold X shares of Security ABC to cover the fee of $Y. I enter a Sell of X shares with no commission with proceeds of $Y. Then I enter a MiscExp for $Y with the Category AdvFee.

martyh1953

Final clarification question-In your example above, are ALL advisor fees recorded in MiscExp under the Category AdvFee?

Jim_Harman

I guess it depends on the nature of the fees. If you check the "affects investment performance" box for that Category, the fees will reduce the reported performance of the account. I consider all fees to be a drag on the performance, but If you have fees for things that are not investment related, you might want to assign them to a different Category.

q_lurker

@martyh I never bought into the buy security with a commission approach. Never struck me as potentially accurate and it seemed kludgy.

I have always recorded the fees as a MiscExp transaction to a category I defined as Invest Exp:Advisory Fees. If necessary, shares of a money market or other fund are sold to produce the cash to pay the fee. The more recent feature addition that Jim refers to allows that category to not be included in performance calculations if I so choose. Prior to that addition, I had to use calculations external to Quicken to get performance returns net of the fees.

the advisor fees are now included in reports, including net worth, investment activity, and rate of return 

If I recall correctly, that method you used had you buying a fictitious security. I wonder if the newer update to Quicken is automatically including that security in the reports you cite whereas you need it excluded - or maybe vice versa.

martyh1953

Yes, the newest version is including the ficticious "advisor fee" security even though it falls outside the date range of my reports for net worth, performance, etc. I'll have "fun" recategorizing these transactions. Thanks to all.

martyh1953

The fun has begun-the account was reconciled and closed out with a zero balance back in 2015. I thought I could just change the fictitious security buy to the advisory fee expense within the reconciled transaction. This change results in a negative cash balance matching the amount of the advisor fee. There were money market funds that were sold on occasion to cover the advisor fee. What am I doing wrong?

Jim_Harman

If you just have a MiscExp, it will reduce the cash balance. The sale of the money market fund would compensate for that. If you have not been recording those sales, you need to do that now.

I suggest you enter these transactions for one year and check your performance reports to make sure they make sense to you.

q_lurker

Buying 0 shares with a commission should have similarly reduced your account balance. Did it? If not, why not? Swapping out that buy for an expense should be neutral.

Also, I don’t see why the program updates are causing the problems. Should not affect net worth reports since there are no shares of that fake security. Other reports you should be able to deselect the security if that is appropriate. You may be chasing the problem on the wrong path, thus Jim’s suggestion.

Jim_Harman

I think to old method for recording fees was to sell a fraction of a share to match the broker's report with the commission equal to the fee and zero proceeds.

I think the issue with this was that Quicken would sometimes not allow a sale with zero proceeds, and the fee counts as a Return in the IRR calculation so it does not reduce the reported performance.