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Responding to Your Questions and Comments

Our Building the Business columnists

Veena A. Kutler and Annette F. Simon, 07/06/2006

We began writing a monthly column for Morningstar Advisor earlier this year. Our column describes our practice from startup phase five years ago to where we are today. In the columns, we have discussed working from a home office, transitioning to an office suite, hiring our first employee, our use of technology, and the challenges related to setting client expectations.</P> <P>Along the way we have received comments and questions about the column from colleagues--people we know locally, when we attend conferences, and in the form of e-mail and phone calls. We thought we would use this month's column to discuss some of the comments and questions along with our responses. </P> <STRONG>Thank You!<BR></STRONG>More than any other comment, we have heard, "Thank you for the articles. It is so helpful to hear about your practice." A local colleague and friend told us that although he knows us well reading the details about our practice has made him even more familiar with what we do on a day-to-day basis. Although our practice niche is different from his, he is now more aware that challenges we all share as advisors tend to be similar in nature. Others have observed, "I could have written your columns. So many of your experiences are similar to mine."&nbsp; </P> <P><STRONG>Why Do It?<BR></STRONG>On the other side of this, a colleague wondered at a recent conference, "Why would you want to write that column and share your personal details with the world?" A longtime NAPFA leader who is passionate about the organization (as we are) added: "And why share outside of the fee-only community?"&nbsp; </P> <P>We are writing this column because we thought it would be a fun to share our experiences with the broader universe of independent advisors. While we have interesting and worthwhile jobs, it can be an isolating experience to run a small firm with just a handful of people, as most of us in this industry do. We both enjoy writing and saw this as a good opportunity to use our skills to connect with others and to raise our firm's profile as we build our practice.</P> <P>With regard to sharing personal and practice details, we agree that there is a line that shouldn't be crossed. However, it appears that the line is drawn at different places for different folks. We are comfortable sharing many things and especially comfortable with saying that some decisions we made didn't work out and others did. Is this a sign of weakness? Maybe, but we would bet there is not an advisor out there who hasn't made a mistake or two. As moms, we just might be more inclined to admit them!</P> <P>Regarding t he fee-only versus non-fee-only comments, our practice is staunchly and, we think, successfully fee-only. If other planners are inspired to commit to that philosophy by learning about our experiences, great!</P> <P><STRONG>Technology<BR></STRONG>Our column on technology brought quite a few comments from other advisors.</P> <P>TechFi, the promising but now defunct portfolio management system we used to use, has quite a few fans, and we commiserated with colleagues on its demise. It was easy to use and had high-quality reports, but it required a significant cash infusion to fix all the bugs.</P> <P>Regarding Advent Axys, we have been asked: "How can you stand it--it is so user-unfriendly?" While we agree, we also believe that Advent is unlikely to go out of business. Because we pay via our custodian for full data-scrubbing and reconciliation, Axys works well enough for us, although we continue to keep an eye out for alternatives.</P> <P>Our use of server technology also elicited numerous comments and suggestions. Several people asked if we had looked into virtual desktops and ASPs (application service providers, who maintain programs and data on a secure Web site that can be accessed from any Internet connection). This is an area that is of interest to us, and the comments and suggestions we received made us look into it further. We are exploring further 'virtualizing' our office by moving to ASP systems and are working with Joel Bruckenstein, a Morningstar Advisor columnist and an advisor technology expert on an analysis. </P> <P><STRONG>Fees<BR></STRONG>We received several questions about fees and how we charge them. We used to use separate financial planning and assets under management fees. However, we made the move to retainer fees for most new clients a few years ago. Since then, we have been charging a flat annual fee quoted in dollars based on net worth and complexity. Our retainer fees are pa yable quarterly, reset annually, and there is a minimum. We are also transitioning clients on AUM to flat retainer.</P> <P>Comments we received from advisors related to how subjective it is to tie calculations to net worth. That may be true--although it hasn't been much of an issue for us because our comprehensive work means we know our client's net worth initially and on an ongoing basis. In addition, because we tell our client exactly what the fee is in dollars and show the calculation, there is little room for miscommunication. </P> <P>We decided to move to retainer fees for a variety of reasons. Our only product is comprehensive financial service. We felt that a single fee, quoted in dollars, reflected our comprehensive, integrated service. Because we do so much more than just managing client's investments, it did not make sense to tie our fee to the investment portfolio. Our fee structure helps us communicate to clients that we are focusing not just on their investments, but on their overall financial goals. At the same time, it frees us from conflicts when we make recommendations on dollars that are not directly under our management (401(k)s, mortgages etc.). It has worked well for us.</P> <P><STRONG>Our Client Reporting<BR></STRONG>In our last column, we mentioned that we have developed a five- to six-page client report for our initial and ongoing client meetings that we believe works well in helping to set expectations. We believe it works because it focuses on the client's critical issues first and presents key client data in a compact format. We received an e-mail asking if we had decided not to show asset allocation, holdings, or performance because we had moved to the new reporting. In fact, we continue to show a great deal of detail including asset allocation, holdings, performance of portfolios that we manage, as well as performance of outside portfolios. The order of the reports and the graphic presentation of the details is wh at we altered to present the most important issues first and in an easily digested format.</P> <P>Several people requested copies of this report. The two of us discussed this and decided that we are not comfortable sharing the report. So apparently for us the line is drawn there! We would encourage everyone, however, to identify your core service and focus your reporting so that you show your clients the value and relevance you deliver.</P> <P><STRONG>Next Month<BR></STRONG>Next month we will discuss conflicts that can arise within a financial advisory partnership and how we have dealt with the issues that have cropped up between us as we have worked to build a successful advisory business.</P> <P><EM>Get practice-building tips and information&nbsp;from our team of experts delivered to your e-mailbox every Thursday. </EM><A href="http://advisor.morningstar.com/products/enews.asp"><EM>Sign up for our free Practice Builder e-newsletter</EM></A><EM>.</EM></P>


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