RIA fee billing guide

How to test AUM breakpoint billing errors

Test breakpoint boundaries, marginal tiers and household changes with a practical checklist and a quarterly fee example.

All guides · Illustrative examples only. Not legal or compliance advice.

A breakpoint test asks whether the right schedule applied to the right assets on the right date. A rising balance alone does not prove the rate should drop on every dollar.

Worked example: missing marginal tier

Assume an annual rate of 1.00% on the first $1 million and 0.75% above it. At $1.2 million, the annual fee is $10,000 plus $1,500, or $11,500. With four equal installments, the quarterly fee is $2,875. Charging 1.00% on everything produces $3,000 quarterly, an illustrative $125 difference.

Boundary testing checklist

  1. Calculate one dollar below, exactly at and one dollar above each threshold.
  2. Confirm tier ranges have no gaps or overlap.
  3. Verify account versus household eligibility.
  4. Check the schedule amendment's effective date.
  5. Distinguish excluded assets from assets counted only for pricing eligibility.
  6. Test accounts crossing thresholds and households gaining or losing members.
  7. Compare the independent calculation to both billing output and actual debits.

The 2018 and 2021 SEC staff alerts discussed missed or incorrectly applied breakpoint discounts. These testing ideas are not a regulator approved program. SEC fee calculation observations (2021) and OCIE advisory fee risk alert (2018)

FAQ

Should crossing a breakpoint reduce the rate on all assets?

Not under every schedule. Marginal schedules price individual slices.

Does a higher total fee prove a missed breakpoint?

No. Assets can rise while the effective percentage falls.

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