RIA Fees / Accrued Interest

[austin3515]

When calculating an RIA's fees, can/should the value of accrued interest on bonds be included in the portfolio value?  Is there guidance written anywhere on how to value an account for charging fees?

[Peter Gulia]

I presume your query is about a registered investment adviser and its fee measured on assets under management or advice.

 

Law regulating investment advisers generally requires a written agreement.  Just as many BenefitsLink commenters might say about a retirement plan, Read The Fabulous Document, to discern an investment adviser’s fee one might say, Read The Investment-Advisory Agreement.

 

An agreement that anticipated the client’s investment in bonds might specify counting accrued interest.

 

Or an agreement might specify that assets to determine the fee is measured by a custodian’s reporting or accounting.

 

If there is an ambiguity in the client’s agreement with the adviser, some might look to some interpretation aids:

 

Some might prefer an interpretation that is consistent with the adviser’s brochure or other disclosure over an inconsistent interpretation.

 

Some might prefer a measure that does not involve the adviser’s discretion (if the discretion could allow the adviser to affect its fee).

 

After considering the investment-advisory agreement, relevant law, and other interpretation aids, some might prefer a measure that is consistent with generally accepted accounting principles over one that is not.

 

This is just some abstract thinking, not advice to anyone.

[Bird]

Interesting Q; what brings it up?

Is it of any significance, dollar-wise?

I'd think it should be included - doesn't the value of the bond reflect the accrued interest - in other words, if a buyer were to purchase the bond, I think they would pay a bit less for the bond since they would get the bond itself plus the accrued interest.  So the accrued interest is really part of the portfolio.