By Luis Leon, Chief Financial Officer
Updated assessment process follows industry best practices
The CFO administrative fee calculation process is changing starting with our new fiscal year on July 1, 2021. As we continue to improve our organization to provide the best service to our fundholders, this new process of calculating fees based on average daily balances meets the industry’s best practices.
Why are the administrative fee calculations changing?
We heard you! Up until July 1, 2021, our administrative fees have been assessed based on quarter-ending market values multiplied by one-quarter or 0.25 of your annual administrative fee rate. This type of fee assessment is simple to calculate but it may incidentally impact your fund if you decide to add new monies towards the end of the quarter. In order to minimize the fee impact of new additional funds, we are shifting from quarterly fees to monthly fees based on average daily balance.
How were administrative fees assessed prior to July 1, 2021?
Through June 30, 2021, administrative fees were assessed based on quarter-ending market values multiplied by 0.25 of your annual administrative fee rate. We process administrative fees after we post month-end interest and market earnings. These fees are calculated in April, July, October, and January and posted to the previous month.
How will the new administrative fees be calculated?
Beginning July 1, 2021, administrative fees will be assessed based on average daily balance. The average daily balance totals each day's fund balance for the assessment monthly cycle and divides by the total number of days in the month. Then, the balance is multiplied by the monthly administrative fee rate to assess the fund's total administrative fee for the monthly period.
When did this change take place?
The administrative fee change is effective July 1, 2021. The first new fee assessment will be calculated in August and posted to end of July based on the average daily balance in July.
How will the new fee impact newly established funds or soon-to-be-closed funds?
Any new funds established after July 1 will be charged a fee based on the new average daily balance fee process. For example, if a fund was established on July 22, the fund will be charged a pro-rated fee based on the 10 days the fund was at the Foundation. The same logic would apply to closing funds. If a fund is closed on July 15, the Foundation will charge a pro-rated fee based on 15 days at the Foundation, prior to releasing the final distribution.
Anything else worth considering?
The most important thing to remember is that rates are not changing*, only the fee assessment process and timing. Average daily balance is a well-known industry best practice, and we feel the most fair way to assess fees. Most of our current investment managers charge the Foundation based on average daily investment balances and tiers in our investments. They also charge fees monthly to smooth out cash flows for budget and projection purposes. If your charitable fund is invested in our diversified pool or part of our advisor-managed program, our system will not track daily market valuations. Market earning and fund valuations will continue to change monthly after posting month-end figures.
If you want to know more about the new fee assessment process, please call or email your primary CFO contact for more information.
*A few CFO funds are experiencing a rate change starting July 1. Your organization would have received communication via letter if your fund is affected.