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💼 Conducting Internal Fee Audits: A Step-by-Step Guide for RIA Firms

Ivan Barretto
Apr 22
3 min read

By RIA Compliance Concepts

Increased regulatory scrutiny has made fee transparency a front-line compliance issue for Registered Investment Advisers (RIAs). Recent SEC enforcement actions underscore one critical point: fee miscalculations, inconsistencies, and lack of documentation can trigger regulatory penalties, even when unintentional.

To protect your firm and your clients, conducting a regular internal fee audit is no longer a best practice—it’s a necessity.

Here’s a step-by-step guide to help your RIA firm conduct a thorough internal fee audit in 2025.

🧩 Step 1: Establish an Audit Framework

Before diving into data, define your audit's objectives, scope, and timeline:

Audit Frequency: Conduct fee audits quarterly or semi-annually.
Scope: Will you audit all accounts or a representative sample? Consider account types, billing structures, and client segments.
Responsibility: Assign roles across compliance, operations, and billing teams to ensure accountability.

Tip: Include your Chief Compliance Officer (CCO) in the process from the outset.

📂 Step 2: Gather Documentation

Pull together the key documents needed to validate fee accuracy and transparency:

Client agreements and advisory contracts
Billing statements and custodial reports
Form ADV Part 2A
Fee schedules and policies
Third-party fee disclosures (if applicable)

Ensure that client agreements match what's disclosed in your Form ADV and that the billing methodology is explicitly clear.

🧮 Step 3: Recalculate Advisory Fees

Randomly select a sample of client accounts and recalculate fees manually:

Confirm the agreed-upon fee rate (flat fee, tiered, asset-based, etc.)
Verify assets under management (AUM) as of the billing date
Check the billing frequency (monthly, quarterly, etc.)
Validate pro-rata adjustments for account openings or terminations
Compare results to actual fees charged

Tip: Use Excel or compliance software to flag discrepancies quickly.

📉 Step 4: Identify Common Errors

Be on the lookout for frequently overlooked issues:

Fees applied to non-billable assets (e.g., held-away assets)
Outdated or missing fee schedules
Incorrect pro-rata billing for new or closed accounts
Misapplied breakpoint discounts on tiered fee schedules
Fees not aligning with what's disclosed in Form ADV

🕵️ Step 5: Document and Address Discrepancies

If discrepancies are found:

Document the issue: Include the account name, nature of the error, date range, and dollar impact.
Investigate the root cause: Was it a data entry error, system issue, or contract misinterpretation?
Notify affected clients (if necessary): Transparency builds trust—even when admitting mistakes.
Make refunds promptly and document the remediation.

📘 Step 6: Review and Update Procedures

Use audit findings to strengthen your internal controls:

Revise billing procedures or system workflows if needed
Update training for operations staff
Review your compliance manual for gaps in fee oversight
Ensure all fee-related disclosures are up to date in Form ADV

🧠 Step 7: Summarize Findings in an Internal Report

Prepare an internal memo or report summarizing:

Audit period and scope
Methodology used
Key findings and discrepancies
Corrective actions taken
Recommendations for process improvement

This report serves as evidence of your proactive compliance approach and can be shared during regulatory exams.

🔍 Final Thoughts

Fee audits aren’t just about catching mistakes—they’re about upholding fiduciary responsibility, maintaining client trust, and staying ahead of regulatory scrutiny. In today’s environment, a robust internal fee audit program is as essential as your investment strategy.

If you're unsure where to begin or need an independent review, our team at RIA Compliance Concepts is here to help.

Get Expert Support

We offer turnkey compliance audits, billing reviews, and Form ADV assessments tailored for RIA firms.

📧 info@riacc.io📞 1-833-RIACCIO🌐 www.riacc.io