Let me explain my "Huh". I know the fee is being treated as
an investment. Thus my question...WHY is a FEE treated as
an investment. Better said, why have a concept of a fee if
it throw into the investment bucket with everything else?
It is pointless.

IraS1@aol.com wrote:
> That's because the fee DOES count as an investment. It is an investment for which the member received no units. Therefore, member one (who paid the fee) has invested more money in the club than member two. Their current value is the same. That means, by definition, member one has a lower rate of return. It took more money to get to the same end point.
>  
> Ira Smilovitz
>  
> In a message dated 1/15/2004 5:04:08 PM Eastern Standard Time, cyfan2000@bivio.com writes:
> We have two members that have identical contributions except
> one paid an extra fee.  (Which was entered as a Fee in
> Bivio.)  In the reports, everything is exactly the same
> except for the IRR of the one who paid the fee is lower, as
> though the fee counts as an investment.  Huh?

Wayne Myers writes:
> Let me explain my "Huh". I know the fee is being treated as
> an investment. Thus my question...WHY is a FEE treated as
> an investment. Better said, why have a concept of a fee if
> it throw into the investment bucket with everything else?
> It is pointless.

To add to what Ira is saying... Investing costs money. If your club,
or a mutual fund, charges someone a fee, it is money down the drain.
It goes into the operating budget of the fund/club. It's a cost to
the investor (one of your members or the mutual fund investor).

There are two choices here, actually. When a member contributes money
to the club, we could include it as income, and it wouldn't be added
to a member's capital account. However, that would penalize the other
members, because they would have to pay ordinary income taxes on the
fee for that year.

The way we account for it now, we only penalize the member who pays
the fee. The other members don't see any tax consequences.

In both cases, the market value of the club goes up by the amount of
the fee. It's money that's gone into the pool of assets owned by the
club.

All that being said, I don't generally agree with charging fees. It
makes for a lot of confusion (hence this dicussion), and in general,
if a member is receiving fees often, e.g. for late payments, you have
an issue that should be handled at the personal level. That is, you
may want to talk with the member or simply kick him or her out. If
it's only one fee a year or so, fees simply create more work for the
treasurer (explaining why the capital accounts/returns are different),
and that's not something we at bivio like to see. Our company focus
is to simplify the work of treasurers!

Rob

We've never had to charge a late fee. Our fees are for club
expenses. (NAIC membership, Bivio fees, etc.) So the money
comes in and goes right out. Those fees are never invested.
I always thought fees were treated separately in Bivio,
otherwise why have that as a transaction type?

=============

Rob Nagler wrote:
> Wayne Myers writes:
> > Let me explain my "Huh". I know the fee is being treated as
> > an investment. Thus my question...WHY is a FEE treated as
> > an investment. Better said, why have a concept of a fee if
> > it throw into the investment bucket with everything else?
> > It is pointless.
>
> To add to what Ira is saying... Investing costs money. If your club,
> or a mutual fund, charges someone a fee, it is money down the drain.
> It goes into the operating budget of the fund/club. It's a cost to
> the investor (one of your members or the mutual fund investor).
>
> There are two choices here, actually. When a member contributes money
> to the club, we could include it as income, and it wouldn't be added
> to a member's capital account. However, that would penalize the other
> members, because they would have to pay ordinary income taxes on the
> fee for that year.
>
> The way we account for it now, we only penalize the member who pays
> the fee. The other members don't see any tax consequences.
>
> In both cases, the market value of the club goes up by the amount of
> the fee. It's money that's gone into the pool of assets owned by the
> club.
>
> All that being said, I don't generally agree with charging fees. It
> makes for a lot of confusion (hence this dicussion), and in general,
> if a member is receiving fees often, e.g. for late payments, you have
> an issue that should be handled at the personal level. That is, you
> may want to talk with the member or simply kick him or her out. If
> it's only one fee a year or so, fees simply create more work for the
> treasurer (explaining why the capital accounts/returns are different),
> and that's not something we at bivio like to see. Our company focus
> is to simplify the work of treasurers!
>
> Rob

> We've never had to charge a late fee. Our fees are for club
> expenses. (NAIC membership, Bivio fees, etc.) So the money
> comes in and goes right out. Those fees are never invested.
> I always thought fees were treated separately in Bivio,
> otherwise why have that as a transaction type?

This is historical, mostly. The NAIC accounting manual mentions them,
and we implemented them. It is from paper-based accounting systems.

In general, I would recommend you avoid fees. If only some of your
club members are members of the NAIC, let them pay their fees directly
without the club accounts being involved. If everybody is a member,
use an equally allocated expense to keep the capital accounts in
sync.

A service fee that applies to the whole club, e.g. a bivio
subscription, is best treated proportionally without a separate
contribution from members. Just use a portion of your normal member
payments to pay the expense.

Rob