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My Business Plan

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To recap my journey on the Road to Independence, I began my business on April 1, 2007. In the beginning my plan was to use an independent broker/dealer. Circumstances changed and I ended up setting up shop as an RIA. For the first two months I did not have a place to custody assets so I spent my time in financial planning mode. By the end of the first year I had a couple million dollars in assets under management. Today, that number is nearly quadrupled. By this time next month I should have an additional million. Overall, things are looking pretty good.

This year I have spent much more time and energy refining the asset management part of the business since the financial planning portion is already well established. With a growing asset base it is imperative to have an efficient management process.

How I Get Paid

I charge a flat fee percentage based on the total amount of assets per relationship. It is not a progressive scale. For example, if the client has $900,000 I would charge 0.80% per year. If they have 1.1 million, my fee would be 0.65% annually. With this fee schedule, I actually make slightly less on the $1.1 million than I would on the $900,000. Maybe I’ll change this someday, but I think it encourages larger accounts.

I also deduct fees on a monthly basis. This works like dollar cost averaging in reverse. The client is slightly better served as it reduces the possibility of taking a larger quarterly deduction at a point when the markets have tanked. That’s what my analysis has shown.

How I Assess Risk

I have developed my own risk questionnaire. It includes a few questions from Daniel Kahneman’s work in the area of behavioral finance. I have found (in my former corporate life) that most risk questionnaires are full of fluff. I believe the role of this questionnaire is to create a starting point for discussion with the client. Moreover, these questionnaires probably don’t accurately determine the point where a client would be uncomfortable as much as they predict the point where the client becomes totally unnerved.

I have also found that clients’ answers will change based on the prevailing climate of the financial markets. In a bull market, clients tend to be more accepting of risk. In a bear, I’ve found the opposite to be true.

Thanks for reading!

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