By Doug Fritz

It’s natural to choose a familiar tool to make tasks easier, and turning to spreadsheet applications for calculations is no exception. In the investment management world, financial services teams, CFOs and operations teams often use spreadsheets for client fee calculation and billing. While the endless formulas, worksheet linking, and cross-tab capabilities may make spreadsheets a good choice at first, firms will quickly realize how much complexity and risk they end up creating. 

Investment managers must be able to prove the accuracy of their calculations and how access to the data is controlled. When selecting the method for calculating fees and billing clients, care should be taken to ensure the platform provides flexible and consistent fee calculation, fee collection capabilities, audit tracking and data security, external system interfaces and analytical reporting. Hands down, spreadsheets offer limited ability to meet these requirements.

Here are six substantial risks investment managers take when they use spreadsheets for client fee calculation, billing and cash flow management.

By Doug Fritz

It has been about a year since the U.S. Securities and Exchange Commission announced a risk alert that “Most Frequent Advisory Fee and Expense Compliance Issues Identified in Examinations of Investment Advisers.” Such inappropriate fee billing and expense practices may violate the Investment Advisers Act of 1940 and the rules implementing it, including anti-fraud provisions. Since the SEC announced the risk alert, there have been numerous fines and penalties charged to firms who have overbilled clients, whether intentional or not.