Q. Like any number of people, I took the plunge last year and went into business for myself as a one-person operation. Seems like a lot of us are doing it these days. I'm wondering about the implications of this trend with regards to personal finance and related areas. Are there any studies on how many solo types prosper and how many fail? Do many people drain their savings and retirement funds in pursuit of self-improvement?

In my own case I've been fortunate enough to prosper so far. I'd already become disciplined along the lines of your "Seven Laws of Personal Finance," which I believe is fundamental to my ability to become a Free Agent and to the long-term viability of my business finances. There doesn't seem to be much difference between the finances of a small business and those of a family. What's your perspective--- especially with regards to the various types of retirement accounts and your take on the relative advantages/disadvantages of being self-employed.

---G.M., by e-mail


A. In the early seventies I worked at a management consulting company. Most of the professional staffers had MBA degrees, primarily from Harvard although management would occasionally add someone from Columbia, Stanford, or Chicago. Many aspired to becoming independent consultants and there was a regular parade of staffers leaving to "go out on their own." A surprising number came back, in spite of what most people would think was perfect preparation for business.

I think this happened because most of us are better suited to be employees than to be business owner/operators. Whatever the worshipful attitude of "free agents" in magazines like Fast Company, it remains that self-employment is a difficult route and most small businesses fail. More important, the number of people who actually want to be entrepreneurs is relatively small. Most people work because they need to and because it fulfills social as well as financial needs. Studies done in the early 90's showed that many of the people who lost their jobs in the first wave of downsizing had great difficulty being "on their own" and were shocked at how hard they had to work after they bought a franchise or existing small business.

Anyone who IS self employed needs to take every opportunity to use available qualified investment accounts--- such as SEP IRAs--- because they need to save more than an employee who may have a defined benefit pension plan as well as a 401(k) plan with an attractive corporate match. A self-employed person also needs to take disability insurance seriously.


Q. My question may be as much about personality as finances. My mother is a 78 year-old widow. Recently, she relocated from her home of 47 years to a comfortable apartment in the same town. At the time of the sale of her home she enlisted a financial planner/broker to help her decide on strategy for the cash from the sale and to realign her portfolio. Her assets are about $1.5 million, mostly in blue-chip common stocks, but she also has more than one third of the total in a small local bank stock.

The planner seems to know his stuff: he recommended that she move some money into a bond fund and keep a reserve of current income in a money market account, and he convinced her to sell off one-tenth of her bank stock per year. She asked me about the planner's fees and I said that they seemed high. The banking firm he works for receives one percent of the first $500,000 and 0.7 percent of all additional amounts in the portfolio.

I calculate her annual fee at about $12,000, which applies regardless of investment return. There are no additional fees on the accounts or transactions. Am I correct that the fees are still pretty high? If yes, how can I make it easy for my mother to change things over to a lower-fee management scheme and what would you recommend?

---N.W., Dallas, TX


A. This may be a good time to leave well enough alone. If you check these fees against major brokerage competitors, you will find them quite competitive. That's doesn't mean the advice is cheap, it just means you'd have to do some hard shopping to find a significantly lower price.

Now look at the rest of the picture. Your mother engaged the planner on her own. She apparently feels comfortable with him. And you think his advice has been sound. Unless the signals reverse, this is a relationship to support. Remember, the only truly price competitive alternative is self-management. Your mother, like millions of people, simply may not want that.