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.

Using probability analysis, we can assess the probability of the project’s cost exceeding the initial projection. My fee for this service could range from $2,000 to $10,000 per occurrence. If you’d like to know more about this process, you can refer to the September 2006 article in Investment Advisor entitled “Risk Manager”. There I outline how I use this same capability in financial planning.

On another issue, as an RIA I’m faced with the task of deducting the asset management fees myself. I’ll have to create a system to do this efficiently. I will get the balance of a client’s account at the end of the period (e.g., monthly or quarterly), multiply it by the applicable fee %, go online with my RIA custodian, and deduct the fee. One way to do this is to create an Excel spreadsheet with my clients’ names and annual fee %, paste their account balance in the sheet, and calculate the fee. Then I’ll need to deduct it from their account. For those of you out there in a similar situation, how are you handling this?

Next week I’ll share an interesting discovery I made concerning the frequency of the asset fee deduction.

I encourage you to log in and post a comment. Let’s make this a valued resource for all those facing similar issues.

Thank you for reading and I look forward to hearing from you.