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?

To analyze this, I built an Excel spreadsheet. I assumed an account of $1 million, an annual return of 8.0%, an annual fee of 75 basis points, and taxes were not considered. I projected each scenario out for two years so there were eight quarters in scenario A and 24 monthly periods in scenario B. The result was that the client’s account grew to $1,154,540 in scenario A when the fees were deducted quarterly and $1,155,535* in scenario B when the fees were deducted monthly. Also, the total fees paid in scenario A were $15,987 and in scenario B they were $16,090. The bottom line? At the end of the two-year period, the client’s account was worth $996 more and the advisor collected $103 more when the fees were deducted monthly. I will be deducting fees on a monthly basis now that I know it benefits both the client and me.

My next challenge that I hope you’ll help me with? I am currently looking for a system which will assist me in the investment arena. I need a tool which will allow me to track my client’s portfolios and put together proposals. I have used Morningstar Principia in the past and am in a trial period with Morningstar Advisor Workstation. I’ll let you know the results of this possibly in my next blog on June 28th.


When this entry was originally posted it included a typo listing the client’s account size as $1,554,535 instead of $1,155,535.–Ed.