Advice fees and ongoing fees in the ledger
How an advice practice's accepted quotes post initial advice fees and ongoing advice fees to separate income accounts, and what it prices itself.
By Achekam · · 5 min read · For Financial services businesses in South Africa, Nigeria, Kenya
Launching soon. The Industry CRM add-on described in this article is launching soon. This article describes it as it will work at launch.
Ask the owner of a small advice practice how much of last year's income came from once-off advice and how much from ongoing fees, and the answer usually involves a spreadsheet and a lost afternoon. Both kinds of fee went to the same income line, and only the invoice descriptions tell them apart.
The split matters more than it seems. Ongoing fees are the recurring base of the business, the income that arrives whether or not a new client walks in. Initial advice fees depend on new clients and new needs. A practice that cannot see the two separately cannot tell whether it is growing its base or just staying busy. Achekam's Financial services pack keeps them apart from the first quote to the ledger.
The fee items in the starter catalogue
When the pack is switched on, its starter items are added to the business's catalogue:
- initial advice fees;
- financial plans;
- estate planning;
- hourly advice;
- ongoing advice fees.
None of these carries a price. No starter item in any industry pack does: each business sets its own prices.
Advice fees and ongoing advice fees on separate accounts
Switching the pack on also adds its revenue accounts to the business's chart of accounts:
| Account | Code |
|---|---|
| Advice fees | 4230 |
| Ongoing advice fees | 4240 |
The catalogue posts to these two accounts, so once-off work and recurring fees appear as separate lines in the income statement without anyone sorting them by hand.
Before switching on, check your chart for those two codes. If either is already used for a different type of account, activation is refused and the clashing account is named. That is far better than having fee income land somewhere unexpected, but it is easier to sort out in advance with your accountant than on the day.
When the client accepts
A quote reaches the client as a link. The client accepts by typing their name and ticking a box, and the acceptance keeps the client's IP address and browser. Once a quote has been sent it is frozen; changing the terms means sending a revision, so the version the client accepted is never altered after the fact.
Acceptance drafts an invoice in receivables. Someone in the practice then checks it and issues it. Issuing straight away on acceptance is possible only where an administrator has given recorded authority for it, and many practices will prefer the check: it is the moment to confirm that the fee matches the record of advice and that the client's details are right.
One invoice, two accounts
Each invoice line names the revenue account and the product it sells, and revenue is posted account by account. An invoice that bills a new client's financial plan together with the first month's ongoing fee posts each line to its own account, in one journal. Where a line sells something with a cost, cost of sales is posted in that same journal. When an initial fee and an ongoing fee each count as revenue is a question for your accountant; the IFRS Foundation's summary of IFRS 15 Revenue from Contracts with Customers explains the principles, built on a five-step model, for reporting revenue and cash flows from contracts with customers.
For your accountant, the split is simply there in the ledger. For the partners, the income statement answers the base-versus-growth question every month.
Reading the split each month
Here is how the split shows up in practice. Picture a month in which the practice took on two new clients and billed its existing households as usual. The new clients' financial plans and an estate planning consultation post to Advice fees (4230). The month's ongoing fees for existing households post to Ongoing advice fees (4240). In the income statement, the first line tells you how much new work the month brought in; the second tells you how much of the business would have earned that month without any new clients at all.
Watched over a year, the two lines answer questions partners care about. Is the recurring base growing, or are new clients simply replacing ones who left? Does a quiet month for new advice actually hurt, or does the ongoing base carry it? Those questions are hard to answer from a single income line and easy to answer from two.
Pricing the items yourself
Because no starter item carries a price, pricing is the first job after switching the pack on. Decisions to make:
- Initial advice fees and financial plans: a set fee per type of plan, or a fee quoted on the work involved.
- Estate planning: a standard fee, or quoted per case.
- Hourly advice: the hourly rate, and whether it differs between advisers.
- Ongoing advice fees: the amount and how often it is invoiced.
Some ongoing fees may reach the practice through a product provider rather than through an invoice the practice issues. If that applies to you, agree with your accountant how those amounts are recorded, so that the Ongoing advice fees (4240) line shows the whole picture and not only the invoiced part. Otherwise the very split this article is about will be understated.
A short set-up list
- Your accountant confirms that codes 4230 and 4240 are free in the chart.
- The pack is switched on and the five items appear in the catalogue.
- Each item is priced, or marked to be quoted case by case.
- The practice decides who checks and issues invoices drafted from acceptances.
- The treatment of provider-paid ongoing fees is agreed with the accountant.
The same chain, from accepted quote to separate income accounts, works for law practices; see from accepted fee estimate to legal fees in the books. For an agency earning commission rather than fees, commission into the ledger covers the equivalent.
Price the five starter items before you send the first quote, and ask your accountant to confirm the two account codes. From then on the ledger keeps the split for you.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
