What should be included in a Cash Flow or Income/Expense report

mdcbk

I have a financial advisor who charges a quarterly fee for services. They sell the shares needed from my portfolio to pay themselves this fee. This transaction is pulled into Quicken as a management fee. Is this considered an 'expense' that I should keep track of, like groceries or mortgage interest, or is this considered a cost of investing, like the fees that might be charged in selling a stock? I don't track portfolio performance in Quicken, so I don't care about the fee affecting performance. I understand that I can do whatever I want in my reports, I just was wondering whether others track this as an expense.

Boatnmaniac

Those management fees are not tax deductible expenses through 2025. Unless the law changes to extend this date, they will become tax deductible, again, starting in 2026...provided those fees are not directly debited from tax deferred nor tax exempt accounts. So, there is no point in trying to track them as tax deductible expenses…at least not yet.

As for me, I track them as investment costs so they do affect investment performance, not as living expense costs, because like with you the brokerage deducts the fees directly from the investment accounts which increases my investment costs but not my living expenses. So, in this scenario it makes no sense to track them as living expenses because they are being deducted from investments and not taking away from your household income.

If, however, you were to pay directly for those management fees out of your checking account (i.e, your household income or assets), then you would want to track them as living expenses.

Does this make sense?

Tom Young

"Is this considered an 'expense' that I should keep track of, like groceries… or is this considered a cost of investing…?

Well, it's both really. Broadly speaking an "expense" reduces your net worth, so the management fee is an expense, it's a cost of hiring somebody to advise you. You incur that expense in an investment Account instead of a typical Spending Account, but no mater what it's an expense.

This particular expense flows out of your Investment Account so it will be "accounted for" in a Performance Report as an outflow from the Account, reducing your Internal Rate of Return.

If you are preparing an Income and Expense report that's "global", one that encompasses ALL your income and ALL your expenses, this management fee will show as a line-item Category titled whatever you choose to call it. The Cash Flow report, right out of the box, will not take into account transactions within Investment Accounts, it focuses on typical Spending Accounts, like checking, credit cards and so forth.

I say "yes it's an expense" that's how you should account for it.

Boatnmaniac

Those management fees are not tax deductible expenses through 2025. Unless the law changes to extend this date, they will become tax deductible, again, starting in 2026...provided those fees are not directly debited from tax deferred nor tax exempt accounts. So, there is no point in trying to track them as tax deductible expenses…at least not yet.

As for me, I track them as investment costs so they do affect investment performance, not as living expense costs, because like with you the brokerage deducts the fees directly from the investment accounts which increases my investment costs but not my living expenses. So, in this scenario it makes no sense to track them as living expenses because they are being deducted from investments and not taking away from your household income.

If, however, you were to pay directly for those management fees out of your checking account (i.e, your household income or assets), then you would want to track them as living expenses.

Does this make sense?

q_lurker

I agree with the prior 2 responses - the fees are expenses. Certainly at some level you should be prepared to track them as expenses in order to know how worth it the service is.

I’ll suggest if you are including the income from this account in your cash flow view, you should also include those expenses. Omit the income and it is probably fair to omit the expense.

mdcbk

Thanks for your helpful answers. For the record, we decided to create 2 reports. One with the advisor fees in it to track all the outflows (to evaluate the relative worth of the advisor compared with gains). And another report that only includes expenses we actually pay out of pocket (to evaluate how much we spend each month, since we're retired on a fixed income)