Road to Independence

In the world of advice, discussion can be a very healthy thing. Even if you don’t agree with a particular point of view, it can still be beneficial. Because we are emotional creatures, we often make decisions based not on empirical data, but rather on our gut instinct. With this as a backdrop, I’d like to follow up on last week’s blog in which I discussed the frequency of the advisor fee deduction. There seems to be a lot of interest in this topic. On my blog, from last week, there were some interesting points brought up.

Before we discuss them, I had a typo in my last blog pertaining to the ending values that I should correct here. Although Scenario B (monthly fee deduction) did outperform Scenario A (quarterly fee deduction), the ending balance in Scenario B was $1,156,455, not $1,554,535 as I wrote. I apologize for the error.
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There is a lot to keep up with when you run your own advisory firm. Not that this is a surprise, but staying abreast of everything that must be done can be a bit overwhelming. Each client is on a different track and each is at a different stage in the process. With one client, I have completed the financial plan and we are in the implementation phase. We are transferring assets to me and getting an attorney involved to draft their wills. With another client, I am nearing completion of their plan but there are some special nuances which require me to do further research. Another client is gathering additional information so I complete their plan. On top of all that, keeping up with planning strategies, tax laws, changes in the insurance market, etc., requires a lot of time. Then the asset management piece, which leads me to this week’s topic, deducting the fees.

Last week I said I made an interesting discovery about fees and would share it with you this week. The question I had was this, “With what frequency should I deduct the fees?” Should I deduct them monthly or quarterly?
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I’d like to begin this blog by recapping my progress to this point. My business income will come from four primary sources.

First will be financial planning fees. These fees, on a per client basis, will range from a few thousand dollars to several thousand dollars per year. It will not only cover the initial planning phase but will allow for ongoing advice throughout the course of the year.

Another source will be from the management of client assets. Currently I have one fee schedule but will create an additional schedule soon. I’ll use one if the extent of my service is portfolio management and the other will be for clients who have also hired me to be their planner. In this case, the asset fee will be slightly reduced since I am also collecting financial planning fees.

A third area will include insurance, mainly life and long term care.

The final area is a slight departure from the traditional wealth management arena. Here’s one example. I am currently in discussions with a large engineering company. They produce estimates for their clients on projects that may be $10 million, $20 million, even as much as $100 million. The estimates project the total cost of the project and are calculated on a linear basis using static assumptions. I will add Monte Carlo simulation to their quotes, giving their clients a better and more realistic understanding of the projection.

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Please permit me to be a little reflective in this blog. Let’s consider the phrase Life, Liberty, and the pursuit of Happiness. These are three unalienable rights granted to each of us by our creator as argued in the Declaration of Independence. As I write these words I think about the freedoms we enjoy here in this great country. Although we are not without our problems, this is still the land of opportunity. Here in my third month of independence, I am thoroughly enjoying my new-found freedom.

I find opportunity abounds and for that I am grateful. I am enjoying the freedom to choose the clients I will work with. The freedom to choose the tools I will use. The freedom to structure my business the way I desire in order to best serve those who are the most important to it, my clients.

Our clients also enjoy these freedoms.

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