Saturday, August 13, 2011
Building a business
As announced previously, I am going through a number of steps to hang out a shingle on my own. I'll be doing financial planning and investment management; combining what I love to do, I love to talk about, and what I can see myself doing for a long time without burning out.
In the next few weeks, I'll post somewhat frequently about the steps in setting up such a business. While a sole proprietorship in some industries can be started by simply taking on work, this type of business is quite convoluted in some ways.
For liability reasons, I have decided that I need to either incorporate or form an LLC. And as a financial planner, I will need to pass the NASD Series 65 test to become a Registered Investment Adviser (RIA).
Those two steps, and the associated compliance, will take a couple months as well as about $7K to get the ball rolling. Then there are the practicalities to think about:
An office, a home-office, or a "virtual" office?
Equipment? Laptops, smart phones...
Business name, fictitious business name, trade/service marks, logo design...
Domain names, building a website...
Accounting! Taxes!
CRM (client relationship mgmt) software, electronic signature vendor...
Marketing! Advertising! Networking (I don't know any millionaires, personally), what is my niche? What are my bragging points?
What services exactly will I offer? Pricing?
Fortunately I do not see myself hiring employees for a long time yet... reading up on all the hoops that an employer must go through gave me a headache.
One thing I know for certain, is that I will be using the Spoke Fund concept (see www.SpokeFund.com) for how I handle investing money. Starting a mutual fund would cost about $400K, and while a hedge fund is much cheaper, you can only advertise to "high net worth individuals"... or basically millionaires. With a Spoke Fund, the investor's money remains in his or her own name, with a discount brokerage custodian I select, but invested according to a model of stocks I control. Importantly, my own account is the "hub" - where I am invested in the model myself with all the risks and rewards - and the "spokes" connecting my account and my clients' accounts are simply the model's percentages of the various investments.
As to financial planning, I intend on being a fee-only planner, taking no commissions, kickbacks, or other incentives for the products I may recommend.
So please, gentle reader, lay it on me! Ideas this post may have raised? Questions on the whys or hows? Advice from experience? I thank you and look forward to any comments!
Regards,
Trond
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2 comments:
Hey Trond, I like it: go pro at something you enjoy!
I did have a question: what minimum balance would you need from an individual investor to make it work? Is there a sliding expense scale that could be employed to work around the minimum balance?
Thanks,
Pete
Hi Pete,
I still have to actually contract with FolioFN (my probable custodian) on their specific fee schedule so my numbers are close-but-not-exact. It appears that an investor would need to have somewhere between $8-10K to reasonably invest with the target of about 1.25% of assets... and that means I would make pennies a year. It is closer to $30K where I'd actually make my projected fee.
This is why most investment advisers won't touch individual investors with less than $100K of assets to invest. Me, I'd rather get people started investing in the market with the chances of returns that beat inflation... assets can grow but if you don't start, you'll never arrive.
For smaller balances, there's three choices: subsidize the accounts (up to the custodian's minimum), disclose up the yin-yang that their effective fee % is higher than everyone else's, or have some sort of other method (newsletter?) that advises people of potential stock picks, that they can exercise on their own until they get to the minimum.
I want to help everyone I can, but at the very beginning stage of a business I don;t think I can be in the business of actually paying people to invest with me - so #1 is out. A choice of #2 or #3 appears to be the best.
Regards,
Trond
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