#FASuccess Ep 030: Self-Publishing A Book To Establish Your Authority (As A 401(k) Expert) with Josh Itzoe

What You’ll Learn In This Podcast Episode

• How financial advising for 401(k) plans differs from financial planning for individual clients. [2:49]
• Why Josh became fascinated with the 401(k) side of the business, and how he got started in it. [4:53]
• Why talking to 401(k) plan trustees about their operational and administrative duties can be even more effective than discussing fiduciary issues to open the door to new business. [22:36]
• How the process of meetings and client engagement works when working with 401(k) plans, and why soliciting business for qualified plans is very different than getting individual clients. [34:48]
• Where to learn about the 401(k) side of the business, and how Josh became a widely recognized expert in the industry. [45:00]
• The process of writing and self-publishing a book (about fixing 401(k) plans) that turned Josh into a recognized expert and helped him land big qualified plan clients. [1:01:37]
• Where Josh sees upcoming business opportunities in working with 401(k) plans, including leveraging FinTech to reach the smaller plan marketplace. [1:23:08]
• Why Greenspring has built its own technology solution (for use by non-clients and clients alike). [1:26:26]
• What’s next for Josh and Greenspring as the 401(k) industry becomes ever more competitive. [1:28:54]

Resources Featured In This Episode:

• Josh Itzoe – Greenspring Wealth
• Patrick Collins
• Fixing the 401(k): What Fiduciaries Must Know (and Do) to Help Employees Retire Successfully by Josh Itzoe
• FeeMetri(k)s
• FAS Ep 023: Delivering Workplace Financial Wellness With A Salaried CFP Career Path with Liz Davidson
• 401(k) Plan Fix-It Guide from the IRS
• ERISA Law
• Fi360 & the AIF Designation
• PlanAdviser Magazine
• PlanSponsor Magazine
• 401(k) Specialist
• Fred Reish
• Marcia Wagner
• David Levine
• Jerry Schlichter
• Save More Tomorrow: Practical Behavioral Finance Solutions to Improve 401(k) Plans by Shlomo Benartzi
• Mill City Press for book “self-publishing” support

Full Transcript: Self-Publishing A Book To Establish Your Authority (As A 401(k) Expert) with Josh Itzoe

Michael: Welcome, everyone. Welcome to the 30th episode of the Financial Advisor Success podcast. My guest on today's podcast is Josh Itzoe. Josh is a co-founder of Greenspring Wealth, an independent RIA based in Towson, Maryland that advises on more than 2.2 billion in 401k plan assets. What's unique about Josh's business, though, is not just the success that he's had in the 401k plan niche, but how he built his business. By reading the entire ERISA code himself, and then self-publishing a book to share his new-found expertise with prospective clients, which quickly established him as an authority, and brought him nearly $80,000 in new revenue within the first six months of publishing the book.

In this episode, Josh talks at length about the business of being a financial advisor to 401k plans, how it differs from the traditional model of serving individual financial planning clients, the intensive RFP process it takes to win business in the mid to large size 401k plan space, how the pricing model for advising on 401k plans is shifting from an AUM model to a flat fee structure based on size and complexity of the plan, and how including the stability of thos 401k plan consulting fees was able to smooth out the revenue volatility of the AUM fees in the other half of his advisory firm, which manages more than 400 million in AUM for individual wealth management clients.

We also talk more generally about trends in the 401k advisory space, why the real value to most plans is not helping them understand or scaring them about their fiduciary duties as plan trustees, but simply helping them avoid the administrative and operational mistakes that really get most plan sponsors in trouble, and why in today's environment it's difficult to break into the 401k plan space as a financial advisor, unless you're really ready to dedicate your full time to it.

And be certain to the end, where Josh talks about why he thinks the future of serving 401k plans better is all about leveraging new technology solutions, and offers up some great resources for those who want to get more active in this space, a list of resources that we have also listed in the show notes for this episode number 30 as well, which you can find at Kitces.com/30.

And so, with that introduction, I hope you enjoy this episode of the Financial Advisor Success podcast with Josh Itzoe.

Welcome, Josh Itzoe, to the Financial Advisor Success podcast.

Josh: Well thank you so much for having me. I'm looking forward to it.

How Advising 401(k) Plans Differs From Planning For Individual Clients [2:49]

Michael: I'm excited to have you on, because most of the advisors we've had on the podcast so far work primarily in the, I guess I call it, like the individual, personal financial planning world. So like, financial plans, one-to-one, for individual clients. And I know you primarily built your firm in the 401k space, so working with employers and retirement plan trustees. And so, I'm excited to talk about that whole side of the financial advising business, and maybe you can - correct me if I'm wrong - but I feel like working with 401k plans, small business retirement plans, was really popular like, 10 plus years ago.

And then it seemed to get less popular for a while as the industry shifting to fee-based accounts, and so you didn't necessarily want to work with the original commission based plans. And now there seems to be this big upsurge again of fee-based 401k platforms starting to arrive, and costs coming down on traditional plans, and everything's kind of converging in the space where there's a lot of activity going again in small business 401k plans. Like, is that a fair characterization? You obviously live the space way more than I do.

Josh: Yeah, I think that is. I think what you've found is that the...much like the private client world, the industry has changed so much over the past 10 to 15 years. And I think what you'll find, and perhaps we'll get into, is there's some complimentary things that are done on the private client side, but they really are two different businesses, two different service models, two different areas of expertise. You can leverage certain things from the private client side, and perhaps vice versa.

But yet, it's...the world is changing quite a bit, and I think what's happened is I've seen over the past probably 10 to 12 years, the retirement plan space really catch up in many ways, from a consulting standpoint, to what's traditionally been delivered on the private client side. So, I do live it every day, and my team does as well, and we also have a private client side to our business. So, happy to kind of share our experiences with you.

How Josh Got Started On The 401(k) Side Of The Business [4:53]

Michael: Yeah, so let's dive into that. Can you talk a little bit about, just the advisory business you have as it exists today, and paint us a little bit of a picture of what that looks like?

Josh: Sure. So, we're coming up on our 13th anniversary in October. So, 2004. And just, really quickly, kind of the origin story, Pat Collins, who's the other founding partner - we currently have five equity partners, but Pat and I were the two founding partners of Greenspring - actually came out of the big, kind of wirehouse world. He was with Merrill Lynch, I was with Morgan Stanley. When we started the firm, I think we made a good decision, and there was a reason around it, but we dropped all our securities licenses, except the 65, and we started the firm as a pure registered investment advisor, and as a fee only firm. Really, 100% focused on private clients at the time. And so...

Michael: I mean, that was a big shift, particularly for 2004, to say, "I'm coming straight out of a wirehouse, dropping all my securities licenses, and just going pure RIA."

Josh: You know, it was, but I think the reason behind it's actually pretty interesting, when you kind of peel back the layers of the onion. And the reason being, when we started in the business, there was a really big push around fee-based work in the big wirehouses, and fee, in lieu of commission accounts. And so, when I look back at Morgan Stanley, all of my training holes, none of it was around commission-based work. It was all around fee-based work. You know, three months into...once I finished and passed the 7 and got my 66, I immediately enrolled in a CFP program.

And so, what was interesting was, because all of our goals and all of our focus was around building a fee-based business at the time, when we left to strike out on our own, you know, 99% of Pat's revenue and my revenue was fee-based. And so, it's not like we had 50% of our business was trails or commission-based business. And so, you know, in many ways, we felt like the fee-only, kind of pure RIA fiduciary model, we felt like that was best for clients. But what was really easy for us was, it wasn't like we were leaving half our revenue on the table. The fact that Morgan Stanley and Merrill Lynch had essentially trained us to build a fee-based business meant that it was a really easy transition.

What I found subsequent to that is, you know, I think later, kind of cohorts and classes and training programs after I was there, actually the goals kind of went back to more of a mix between kind of fee and commission.

Michael: And there was a lot of regulatory change going on at the time. It was...1999, I know that the SEC first issued its no-action letter for what, at the time, was called either the broker deal or exception for fee-based accounts, or actually what got dubbed for a couple years back then as quote, "the Merrill Lynch rule," because Merrill and the wirehouses had championed it. And it was a rule that said wirehouses and other brokerage firms could do fee-based accounts and not be required to register as investment advisors, and kind of kicked off the whole fee-based business direction.

And ultimately, that got rolled back, because the Financial Planning Association sued the SEC over it and won, saying that if firms are going to do fee-based accounts, they should just have to actually register as investment advisors, which is what our...supposed to be the structure for advisory-fee accounts. And they...I think they won that lawsuit in 2007, and that's what kicked off the whole hybrid, broker dealer RIA movement.

And so, that kind of makes sense to me. Like, I was living on the independent side, not the wirehouse side at the time, but that pendulum swing then makes to me, that, you know, when you came in, there was lots of fee-based focus, because the exemption had just come in place. And then a few years later, it swung back to a more blended model, because everybody had to go back to doing the actual blended commission and fee model and become hybrid, once the FPA won their lawsuit.

Josh: Correct. And so, you know, it's an interesting...it was an interesting pocket of time.

Michael: Yeah, you tucked right in that window.

Josh: We did. And if...you know, if we look back, you know, it's been interesting over the past almost 13 years, there's been some kind of watershed moments and events that have kind of occurred that were, you know, really fortuitous for us. And I think that was one of them.

So, you know, to kind of get back to the question, the structure of our firm, we started 100% on the private client side. We kind of stumbled into the 401k side. You know, but fast forward, in January of 2006, we had somewhere around maybe $20 million in assets, and just really, the two of us. You know, fast forward, right now we've got 15 people at the firm, we've got...on the 401k side, we work with about 70 plan sponsors around the country. We advise on defined contribution assets of somewhere around $2.2 billion or so, you know, as of the end of last quarter.

And then, on the private client side, we've got another, call it $400 million or so in assets under management that our private client team works with. So, when you look at the revenue split, it's about 55% private client, and about 45% institutional client revenue at this point in time.

Michael: Interesting. So that brings to mind kind of a few questions, just trying to understand that business a little bit more. So, $2.2 billion amongst 70 plan sponsors. So, if I do my math here, that's an average of a little over $30 million per plan that you're working with. I would imagine it's probably a little more lopsided than 70 plans that are all $31 million. But, an average in that neighborhood?

Josh: That's correct. So our average plan is somewhere around, you know, call it in the low 30s. Our median is probably closer to $22, $23 million.

Michael: Okay. Right. Because you got a handful of large plans that tend to throw averages off.

Josh: Correct. You know, what's interesting about the 401k side is that, you know, when you get down to it, pretty much every 401k plan is somewhere between, call it, you know, on average, a $50,000 and $150,000 account balance. What's interesting is, you know, working with committees, it's just a bunch of zeroes. What you do for a $500 million plan is really, in many cases, the same thing you do for a $50 million plan, or a $5 million plan.

And typically, the three decision makers, there's three or five or seven people who make up a committee that make up...or make 99% of the decisions for, you know, all of their employees. Actually, employees have very little control over their 401k plan. All they can really decide is, you know, do I participate? If so, at what level? And, you know, what investments do I choose among this menu that's been given to me? That's really the amount of control that employees have. And that's why kind of our philosophy has always been, if we can give really good advice, and influence that small group of decision makers who, essentially, set the entire game up for all of their employees, we can really drive a lot of influence, and really impact a significant amount of people, hopefully, in a really good way over time and improve their lives.

Michael: With plans, you said, that have average account sizes, tend to sort of be $100,000 plus, almost. Like, or no matter what the plan is. So I guess, the like...in practice, the size of the plan is just very heavily driven by the sheer size of the business, like the number of employees. $30 million plans mean you've got businesses that probably have 200 or 300 employees to get them to that kind of balance. And if you want to be working with $100 million plans, then you need to find 1,000-person businesses?

Josh: That's correct. There's a really tight correlation between that. There are...what plays into is industry demographics. So, you know, typically, what you're going to find is, professional services companies tend to have higher account balances. They...you know, whether that's engineering firm, or accounting firms, or law firms, or you know, larger medical practices.

Michael: People with higher income and more disposal dollars tend to be able to save a little bit more and generate larger account balances.

Josh: That's correct. And companies tend to...you know, they tend to have more generous matching structures from standpoint to kind of attract and recruit folks. And then, you know, if you have, more on, perhaps maybe the manufacturing side, or service industry businesses, or businesses where there's lots of turnover, where you know, it's harder to drive participation and whatnot, you tend to see average account balances, you know, that may fall on the lower side. It may be $15,000 or $20,000 or $30,000 or $40,000.

So, you know, you can typically...again, it correlates. You know, typically, you're going to see, I would say $50,000 to $150,000 account balances. If you divide the total plan assets, you look on a Form 5500, and you know, you divide that by $50,000 to $150,000, you're going to get a pretty good sense of how many employees work in the company.

Michael: Now, what does this look like from the business model end? So, I know the AUM model in general for personal financial planning world, you know, we've got a median fee right around 1%. It scales down a little bit as net worth goes up. What does this look like on the 401k side, though? Because I'm presuming you're not necessarily, and they're charging the exact same kinds of fees that advisors would charge to individuals, as when you get into $30 million plans.

Josh: That's correct. You know, when you think about it, and there's a lot of dynamics that are currently going on in the industry that are pretty fascinating. And you know, one of the things I think we've done at Greenspring is, we've really been ahead of the curve from that standpoint. Been at the forefront of some of the fee best practices.

You know, when you look at...you're seeing a trend historically, it was very much an asset based fee structure within 401k plans. Philosophically, in most cases, we think that's the wrong fee structure for a plan. You know, if you look, just - and being kind of transparent - if you look at most of our engagements with plan sponsors, it typically ranges between, call it, $15,000 to $20,000 on the low end per year, and $50,000 to $60,000 on the high end.

You've seen fee compression really kind of up market within the industry. You know, 5, 7, 10 years ago, it wasn't uncommon for, you know, advisory firms working with really large plans to charge $100,000, $150,000, $200,000 a year. Just what I've seen is, we've really kind of seen that really start to come down. Haven't seen as much fee compression in the lower end of the market, but definitely seeing fee structures change from more of an asset based approach to more of a fixed fee approach. Which, you know, there's a number of reasons we think that's a much better structure for companies and for participants over time.

Michael: Well, and I guess it...I mean, it makes sense to me in that so much of the 401k side is...you know, there's a certain number of meetings you need to do. There's a certain number of engagements and interactions that you're going to have with the investment committees. As you noted, it's kind of similar on what you have to do for smaller plans and larger plans, because the stuff is the same. So you get down to what looks more like a flat fee style approach that just compensates you for the time and the hours it's going to take to do all the work that's involved in servicing the plan?

Josh: Yeah, I definitely think...I would agree with that. I mean, I think there is some more that goes into, in terms of, it's not just a pure hourly approach. But certainly, to your point...and that's how we kind of build our pricing model, is a lot of it is driven around...you know, a company that wants to meet quarterly is going to pay more than a company that wants to have one committee meeting a year.

A company where you...and I think on one of your previous podcasts, you had I think Liz Davidson from Financial Finesse, who is doing some really fascinating things within the industry. But, I think one of the things she had said, which is true, is you know, probably the least profitable, most intensive things you do is the one-on-one participant work.

Michael: Right.

Josh: So, you know, you have to, you know, from a business owner standpoint, when you price plans, you know, you have to take into consideration what's the scope of work going to look like from that perspective? But, you know, the industry loves asset based fees on the retirement side. And the reason being is, you know, if plan assets double and I'm charging an asset-based, well my fee doubles, and essentially, I'm delivering, in many cases, a very similar, if not the same scope of work. And we've always tried to kind of turn that on its head and say, "You know, the reason plans grow, it's not because we do a great job from an advisory standpoint." Though I think we do a good job for our clients.

Really, when it gets down to it, the reason these plans tend to grow over time is because they get funded every pay period. And so, that flow that goes into the plan is why plans grow. And so, one of the things we often talk about with plan sponsors is, in most cases, a fixed fee is going to drive economies of scale as the plan continues to grow, because your numerator is going to be more fixed as your denominator grows. And as a percentage of assets, you know, the fee is going to go down.

And you know, when we look at Greenspring, most of our fees on the institutional side are fixed fees with a small inflation kicker each year, and the fees on our private client side are, you know, a percentage of asset fees. And so we really look at Greenspring and some ways, I look at a Greenspring, at a high level, like a really diversified kind of balanced portfolio, where the private client side is more of the equity exposure within our business, and the 401k consulting is more of the...you know, the fixed income. You know, more of like, an inflation protected bond in some ways.

Michael: Well, and you make an interesting point, that, you know, when we look at, on the individual side...you know, I can still make at least some case that the sheer amount of dollars is at least some proxy for client complexity. Clearly not the best driver of client complexity. You know, people with $3 million are not doubly complex of the people that have $1.5 million, who are not doubly complex than the people who only $750,000. But there is some rising complexity that tends to come as net worth rises. And most advisors have graduated fee schedules, so it's not like they charge the same thing on the last million that they do on the first million, I think, in recognition of that.

But, we also just get an effect that when you're on the...when I'm on the individual side, for at least most of us that are on the AUM model, we actually are managing the money. Now, we may manage it more passively, or we may manage it more actively, but we're managing the money. And so, with an AUM fee, I've got some incentive to make sure I'm managing it well and that it's growing, because that's how my fees go up, so I have an incentive to manage it well.

Whereas in the 401k side, you're not necessarily hands-on managing the assets. You don't typically, or - correct me if I'm wrong - I don't think you typically have discretion over portfolios to manage them. You're assisting them in a fiduciary process around setting what plan investments are going to be available, but you're not hands-on managing the dollars with the same kinds of responsibilities and incentives that go with hands-on management in the individual side.

Josh: That's correct. And I think that's the distinction. You know, we do have clients, probably 15% of our client base, where under ERISA, we have discretion as a 3(38) investment manager. But it's not the same type of engagement. You said it. You know, from an investment standpoint, it's really around implementing a process, making sure that, you know, there's an investment policy statement in place, that there's reporting and monitoring that we can implement consistently to make sure that we adhere with it. It's not like managing an individual investor's portfolio on a discretionary basis. It's a very different type of engagement.

And so, to that point, that's...you know, I don't think asset-based fees on the private client's side...you know, we definitely embrace that, and I think there's more of an argument to be made on the private client's side than there is, you know, on the institutional side. Interestingly, on the institutional side, you know, we often say that, you know, only 10% to 15% to 20% of what we do for our clients is investment related. I would argue that what we do, our model is actually very similar on the private client side, to kind of comprehensive financial planning approach, plus portfolio management.

You know, some firms are heavy on the investment management side and maybe lighter on the comprehensive planning side. And others are much more focused on comprehensive planning, and kind of the discretionary portfolio management is a component of that. That's how our private client group is structured. It's really similar how we engage with companies and plan sponsors. I would make a distinction between simple investment consulting, which is what the industry has primarily focused on historically, to much more of a movement around comprehensive plan consulting, where you're focusing on things like fiduciary governance, and plan design, and vendor management, and fee analysis, and negotiation, and so on and so forth.

Why Talking About Operational And Administrative Duties Of Plan Trustees Can Be More Effective Than Discussing Fiduciary Issues [22:36]

Michael: Now I'm wondering, can you walk us through that in more depth? Again, like I know what financial planning looks on the individual side. I'm going to gather information, I'm going to do a series of analyses around tax and retirement and cash flow, and I'll probably look in your insurance and estate, and I'll present a plan, and there may be a second part to it. And then, for many advisors, I may manage some dollars or help with some other implementation, implementing insurance or annuities or whatever the solutions. And that's the process and I get some AUM fee or commission or planning fee or some blend of them.

But, what does it look like on the 401k plan side? Like, when a plan with, I don't know, $20 million and 150 plus employees gets in touch with you and says, "Okay, Josh, we got to do 401k things, and we're told you're the person," and you're going to charge them some...I don't know, you tell me. But like, maybe $20,000 fee from the range that you talked about earlier, which is a pretty hefty fee, at least compared to private client business, for a lot of firms. Like, what do you do for this $15,000 or $20,000 or $30,000 fee that you're going to generate for doing 401k business with this company?

Josh: Sure. So, take the same paradigm that you just described with the private client side engagement, right? You sit down with a prospective client. Probably the first thing that you do is you have a conversation with them to help identify and discover what their goals are individually. And it's going to be different for, obviously, you know, different individuals. But you really want to find kind of, what's the end point, right? What do you want to accomplish? What are your goals?

And then, I would imagine, on the...this is actually, I guess, how we do it, right? The second part of that, the other bookend is, well let's take at, you know, where are you currently? From a savings standpoint, and from an asset standpoint? And what type of insurance coverages, and your estate plan, and so on and so forth. And then, you know, the goal is really to analyze where people currently are, and where they want to get to, and help come up with a strategy that aligns all the activities to drive the outcomes that they've identified that are important to them.

Is that kind of a fair description of the private client engagement from you perspective?

Michael: Yeah, yeah, I think so. I think that's a fair description.

Josh: So it's a really similar approach that we take with companies. When you think about the constituents and the clients within a 401k plan, you really have to. You have the company, and the goal of the company is typically, "Keep me out of trouble from a risk management standpoint, and help us offer a good, competitive benefit that helps us attract and retain employees. But make it administratively feasible, because you know, the 401k plan doesn't keep the doors open, and I have a business to run. So, you know, I want to offer a good plan, but I don't want it to take a ton of time."

And then you have the participants, who, you know, what they want is they want to be able to retire successfully, at some point in time, and in the world we live in now, as we've shifted to the defined contribution world, away from the defined benefit, the onus is much more on employees. So, you know, the first thing that we do...and again, going back to what I described earlier, in terms of it's typically the small number of decision makers for the plan. The, you know, three, or five, or seven members of the retirement plan committee, that make the decisions that are going to determine whether or not their friends and their colleagues and their co-workers have a successful retirement experience or not.

So, the first thing we want to do with a company is we want to sit down and we want to identify, "Well, what do you want this plan to do?" Like, what's important to you? What are the goals that you have? And we go through a discovery process to help identify what that looks like. And it's different for every company.

Some companies say, "You know what? We really care about...we don't feel like we're getting a good deal from a cost standpoint, so fees are really important to us." In other cases, participation is really low, or average deferrals are low, and you know, that's bad, just in general, in terms of outcomes for employees, but in some cases it may be having a negative impact on the plan because they're failing discrimination testing. And that means that the highly compensated employees, you know, are having to give money back. And then they're, you know, barking in the ear of the CFO or the HR director, and complaining, and...

Michael: Complaining they can't maximize their 401k contribution because everybody else isn't contributing enough, so what do we have to do to get everyone participating? Come on, guys.

Josh: That's exactly right. And historically, you know, it's been, "Hey, let's just try to educate people more." But, you know, when you really look at the evidence, what really drives outcomes is plan design. And so, being progressive from that standpoint.

In some cases, we find that companies are having operational issues. They're having operational failures. As much as everybody wants to fear monger in the industry, and talk about fiduciary risk and highlight companies getting sued and whatnot...which again, it happens and it's legitimate. The actual bigger risk in my opinion to companies is they have operational failures. they forget to enroll employees once they become eligible or give them the opportunity to join the plan, or the payroll system had a glitch, and they forgot to make contributions on behalf of employees for a year, or two years.

And what happens is, it has really big implications from an internal revenue code standpoint, and they have to go through a correction program, and in some cases, those corrections can reach into the tens of thousands, to hundreds of thousands of dollars to correct that. And so, you know...

Michael: Meaning, you've just got to come up with the money you should have been contributing and didn't, or like, fines and penalties, kinds of things?

Josh: You know, if left unchecked, and you get audited by the IRS, and they find those issues, it can lead to fines and penalties. But in many cases, you know, if you've got a good process in place, and you identify those issues, what the DOL and what the IRS want, you know, they recognize that, you know, these plans are really complex on the back end. They have failures all the time. What the IRS and the DOL want is they want a process in place where companies can find these errors, and then fix the errors, and then put controls in place to make sure that those errors have a lower likelihood of occurring in the future.

I always tell prospective clients to Google the 401k Fix-It Guide. This is a publication that the IRS put out, you know...

Michael: The 401k Fix-It Guide.

Josh: That's correct. And it's about 70 or 80 pages long, and it outlines like, you know, 10 or 15 or 20 potential plan failures, and how you find the errors and how you fix them and correct them. And you know, it's just fascinating when you start to look into, you know, how these plans can break down. And I would tell you, from our perspective, you know, you don't get a lot of credit for picking really good investments from plan sponsors. You do get a lot of credit when they have an operational issue and you come alongside them and you help them navigate through that and fix that. It's really compelling from a client service standpoint, when they feel like they have a partner who helps them navigate it.

Michael: Well, and I feel like there's almost an effect. You know, on the individual side, a lot of us do investment strategies, right? Pick investments. But I know, at least for me, a lot of the most, like immediately tangible client gratitude comes from tax strategies, because everyone can point to a hard dollar tax savings that they avoid and don't have to pay. And so I can imagine something similar on the 401k side, where, yeah, we can debate about which investment option was better, or worse, or what was going on. But, you know, help me avoid a $10,000 fine from the Department of Labor, and we're friends for a long time.

Josh: That's exactly right, you know? That's exactly right. And, part and parcel of that, there's that component, there's also vendor management issues. A lot of times what we find is that plan sponsors...so, when I describe plan sponsor I mean a company, right? So, you know, a company will go in, and they say, "Well, we're with Vendor X, Y, Z, and you know, our service is terrible, and you know, we want to move away from them."

And so, you know, the first thing we want to do is, we always tell clients, "Look, it's easy to rip and replace your vendors. And the reality is, it's a very labor-intensive process. So, first and foremost, let's see if we can go in and kind of repair the relationship and optimize things. And if we get, you know, 12 months in, or 18 months in, and we haven't been able to make improvement, we can always move away." But what we often find is that the vendor and the plan sponsor have totally different perspectives on what each other is responsible for.

It's kind of like a husband and wife. You sit down in a planning engagement and the husband says, you know, "I want to, you know, keep working until I'm 65 because I'm running a business, and I'm having the time of my life," and you know, the wife says, "Well, I want you to retire." And, you know, "I want to, you know, move out West, and I want to travel." And there's a disconnect between the two, and part of the planning process is really getting them to kind of communicate and come to agreement on, you know, each others' goals. It's very similar.

We found in many cases, it's like a company and their vendor, the record keeper, their plan provider, you know, it's like they're speaking different languages. And in a lot of cases, what we do is we come in and play marriage counselor and we get them both talking about expectations and roles and responsibilities. And in some cases, you know, they wind up finding, "Hey, we have a lot better marriage than we thought we did. We just weren't communicating." So, part of what we do is we bridge that gap.

And then lastly, where you get a lot of bang for your buck is around fee analysis and fee negotiation. And you know, that's where...one of the areas we've really kind of hung our hat and been a calling card for us, you know, over time, is really helping companies understand, plan economics, and then use that information and that data and that analysis to kind of hold the industry accountable and make sure that the industry's treating them fairly from a...you know, from a cost standpoint.

We recently...last year, we picked up a, you know, a plan that was about $100 million and had about 1,500 employees, and they were with a really well-known vendor. They didn't work with a consulting firm. They were paying about 65 basis points a year, so about $650,000 in fees. We came in. We got hired. We renegotiated with their vendor. We redid their fund lineup. And you know, at our last committee meeting, it was about a nine-month process to do everything, but we restructured all the fees in the plan. We moved to a fixed record keeping fee. We had a fixed advisory fee, and total cost went down to 27 basis points.

So when you can...you know, we did a five-year present value calculation where, you know, we projected we were going to save a $1.5 million, you know, over the next five years at a 4% discount rate for the participants. And you should just see...these companies, their eyes light up when somebody's able to do that for them.

So I guess my point in all of this is, it's not just about picking some investments and taking the owners out to play golf. There's a lot of work that goes into doing this. There's a lot of kind of earned knowledge and expertise over time, where...it's just like the planning side. You know, you can read about things in a textbook, but it's not until you actually are in the trenches and you go through things, where you can take forth a lot of expertise.

And you know, one of the important things is, and what's a powerful, call it, sales tool, when you meet with a plan sponsor and they articulate, "Hey, we've had these issues," and you can say, "You know what? We worked with other companies over the past year who had the exact same issues, and these were the things that we did and how we approached it." You know, it's...people want to work with...whether it's on the private client side, I think, or whether it's on the institutional side, people want to work with people who understand their needs and their situation, and that's what we try and do.

How Meetings And Client Engagement Works When Working With 401(k) Plans [34:48]

Michael: So can you take me through what a meeting process or an engagement looks like when someone hires you and want you to come on board to do this? I mean, I just...again, I've lived my world in the individual client planning side, so I know, you know, most advisors do either one or two meetings, with prospects, to get going. And then there's a data gathering meeting, and then there's one or two plan presentation and implementation meetings. Then we do a couple monitoring meetings a year. What does this look like from the 401k plan perspective? Like, what meetings do you have, and with whom? And like, what does that process actually look when you have to go and deliver it?

Josh: Yeah, that's a great question. And again, it parallels that process that you just laid out. Typically, you know, through the sales process, we're finding larger plans, typically, it's much more of a...kind of a formal RFP process. So, you know, you get a 20-page RFP, and you got to fill it out and answer all these questions. And then, you know, the decision makers...

Michael: So an RFP, Request for Proposal. So, you have to basically bid for the business from day one? I mean, what do you even put in there? Like, 20 pages is a big RFP! Like, that's a lot of stuff just bidding for...right? Like, my prospects are like, "Yeah, we had lunch. It was a good lunch. We spent an hour." Like, that's not a 20-page RFP. So I mean, what goes into an RFP if you're even trying to win some business, and how do you know there's an RFP to even respond to in the first place?

Josh: Yeah, so that's a great question. So again, the sales process, this is a little bit different. Larger plans, like I said, are moving more towards this formal RFP process, and I kind of outline for you what that looks like. Smaller plans, it still can be more informal, whether interviewing a few firms, or you know, it's kind of a...more of a relational sale, where you know the CFO of a company, or you know the VP of HR. And, you know, probably more similar to the private client side.

On the RFP side, we get RFPs in a number of different ways. Sometimes, we're finding more and more it's from vendors. You know, we work with probably about 12 to 15 vendors across our client base. And they've seen our work product, so if they have a client that's going out to RFP, or doesn't have an advisor, and wants one or is unhappy with who they currently have, and they're going to do something formal, they may throw our name in the ring, or hat in the ring, and give the company our name. And then they'll email us their RFP.

And, you know, I just filled out one for a possible engagement. It was 125 questions. It took me about 20 hours to fill it out! Our RFP responses are pretty detailed. They typically are around 60 to 65 pages, once we respond to them. So, you know, that process, they read through. They typically pick three finalists or so, and then you get an hour to go in and kind of tell your story. So it's much more impersonal.

Michael: I mean, what are you answering 125 questions about?

Josh: So, the corporate buyer and the corporate engagement's very different than the institution...or, than the private client engagement. Where, you know, you typically may have one or two decision makers. You know, you have an individual, you have a couple, and you know, typically, they're not going through, you know, a large scale due diligence process. I think, in our history, I can remember maybe two or three times we got kind of like a little bit of an RFP from a private client. So, you know, our private client team, you know, laughs at us when we have to do these responses.

The corporate is really different. And I think it's different because of the psychology. Typically, you've got three or five or seven...or, you know, in one case we had a committee that we presented to, they had 20 committee members. That was a major red flag for us.

Michael: I was going to say, like, is one of the first recommendations you give them when you come in, "You might want to change your committee process"?

Josh: Absolutely. No question about it. We found that the most effective committees typically have between three and seven committee members. If you have, you know, too few you don't get diversity of thought. If you have too many, literally, nobody agrees and every single committee meeting, it's like that movie "Groundhog Day." You talk about the same thing every meeting, and nothing ever gets decided. So...

Michael: Right. Every person bangs the table about their pet peeve issue, and no one's actually accountable for a decision, and...yeah.

Josh: So it's a complex sale, because everybody's different. You know, these RFPs typically...they want you to be able to check the box. Larger plans, the reality is, right, wrong, or indifferent...you know, we didn't start to make finals in RFPs until we had about a billion dollars in assets under advisement.

Michael: The RFP is mostly...like, is it about what you're going to...like, is it you sort of pitching solutions? "Here's what we're going to do"? Or is this more of a vetting process of, it's basically 125 questions about you, your background, your experience, your firm, all the prior things that you've done, just to try to validate that you should be allowed to be at the table in the first place.

Josh: Exactly. And 125 questions is a really big RFP, but usually it's...you know, it's somewhere between, call it 20 and 50 questions. But, you nailed it. It really is, they're just trying to validate. Because if you think about it, people are concerned about fiduciary responsibility. They're concerned around if we hire, you know, a firm that isn't able to kind of check the box. You know, do we have risk from that standpoint? There's something about sitting on a committee, even though committee members are participants in the plan, they don't really view it as their money.

And so, there's just...it's really around checking the box and validating, as you said, you know, "This firm, it is a legitimate firm that we should bring in, and that we should talk to." There really isn't...you're not necessarily...we talk a lot about our philosophies, but you're not really presenting solutions at that point.

What we do from there, if get to be a finalist, is you know, we try and have a conversation with, you know, one of the...whoever's driving the process, to try to identify, you know, what's important to the committee and to the company, and what are their needs? And so then, when we go in and we get our hour, we get our 45 minutes to present, what we want to try and do is we want to try to present kind of, observations and recommendations, and present some solutions, given what we know about the plan in that meeting. But you're not doing that as part of the RFP process.

So that's what it really looks like. When we do get hired, you know, the first thing we typically do is we have, you know, a pretty involved onboarding process. One of the things we do for prospective clients is we lay out like, a 90-day action plan that gives us a clear sense of, "These are the different things that we're going to evaluate and analyze, you know, over the three-month onboarding process." So the first thing we typically do is, we want to come in, and we either want to formalize a retirement plan committee, or create one in some cases. You know, we do things like, fiduciary training, we put some kind of, oversight documents in place, we evaluate plan design. You know, we look at the investments, we look at the fees.

And really, what we want to do is we want to equip the committee, and we want to put them in a position of understanding, you know, what their role and responsibilities are. We want to give them some fiduciary training that'll let them know, you know, what are the kind of key drivers of best practices and trends in the industry. We want to make sure that they know what a big responsibility it is, so that they're going to be engaged in the process. That's where we start. Or, if they want to bail out, they can do that.

And then, we put in place, you know, based on meeting frequency, typically we have kind of a...what we provide is what we call "A Year in the Life of an Effective Retirement Plan Committee," and we cover some of the same things at every committee meeting. So we're going to look at...you know, we're going to typically look at investment due diligence and fees, and some high level plan statistics at each committee meeting. But generally, you know, for instance, you know, in the first quarter of each year, what we may look at is, we may focus on a review of the prior year accomplishments.

Just like from a private client standpoint, when you meet, you know in a subsequent year, you want to look back and say, "Hey, we accomplished...we focused on these areas and these are the things that we accomplished. You know, one of our action items was, we wanted to get your estate planning documents updated. And so, we, you know, introduced you to an estate planning attorney. And, you know, they were able to do all those things. And when we updated your beneficiary designations to align with that estate plan."

We do the same thing with our retirement planning committees. "You know, one of the things last year we wanted to look at is, you know, we wanted to look at driving plan participation from, you know, 60% to...we had a three-year goal of driving it to 90%. And here are the things that we did. And so, year over year, we went from 60% to 67%." Those are the types of things that we look at, and we want to look at prior year accomplishments. "We've reduced your fees by $400,000 over the past year, and so on and so forth." So that may be Q1.

Q2, we may look at like, a plan design benchmark in industry trends. "How does your plan compare to other plans in terms of participation rates and deferral rates and..." You know? So we may look at that. Q3 may be a legislative and regulatory update. "Hey, what's happened in...you know, what's the DOL fiduciary rule mean? How's it going to impact your plan from our perspective? Or, from your vendor perspective? You know, what happened in recent litigation? What are some of the trends? What are the best practices that we've implemented to stay ahead of the curve?" And then Q4, maybe we do a fee benchmark, and maybe we do some strategic planning for the upcoming year. Or, you know, maybe the subsequent year, they really want to focus on employee engagement, so let's talk about those strategies.

So it's a really similar model that most advisors follow on the private client side. It's just around structuring it on the 401k side for the committee, and then implementing those solutions and then reviewing those with the committee, and seeing how things turned out. And it's very much a consultative approach.

Where To Learn About The 401(k) Side Of The Business [45:00]

Michael: And so, where do you go to learn all of this? You know, I got my CFP. I kind of remember some of this, a ways back. You know, we did a little bit around plan design. There was, you know, a fraction of one course on it. You're obviously way, way, way deeper than that. Like, where do advisors even go if they want to be working in the 401k space?

Josh: So that's a great question. And first and foremost, what we would say - and we've seen this in the industry - is, it's not impossible, but the barrier to entry to get into the 401k space is a lot higher than it was a decade ago. When we kind of stumbled into this, I would tell you that the...I felt like a decade ago the retirement advisory space was well behind the private client space. What I've seen is, especially over the past three to five years is, we have fewer competitors because of that kind of, "check the box" mentality, but the competitors we do have, it's become much fiercer, you know? In many ways, it's a smaller number of really good competitors, but we all do really similar things, and in some ways, it's harder to differentiate.

And so, I think, first and foremost, you have to specialize. And I would argue the same thing on the private client side. You know, just the needs of clients and complexity of financial planning is such that, like you have to focus on it 100% of your time. You're just not going to be up to speed in terms of the latest trends and research and best practices. It's really...on both of the sides of the business, I'm finding that...I just think it's hard to be a jack of all trades and a master of none. So the first thing I would say is, you need to make a decision as an advisor, "Do I want to be on the private client side, or do I want to be on the 401k side?"

And then you have focus, you know, pretty much all of your time in either one of those areas. That's why with our team, you know, private client advisors don't advise 401k plans and vice versa. It's just, there's too much to know. I can kind of...you know, I have my CFP and I used to do private...you know, I used to do financial planning, but when people ask me, I say, "You know, I'm the last guy you want giving you personal financial advice." Because I don't really work in that space. And the industry's just evolved so much, you got to specialize. I think that's the number one thing.

Michael: And we talk about that a lot on this podcast as well, that you know, going forward, just, it gets harder and harder to differentiate when you're a generalist, because the world's getting really competitive, and there are a lot of other people who are specialists, and you don't want to be the only generalist responding to an RFP with a bunch of specialists in 401k plans. Or, you're just going to respond to a lot of 125 question questionnaires and then not get any callbacks, which isn't very fun.

Josh: Which isn't fun. That's exactly right. And so, you know I think, you know, how you build, it's just like anything. You know, in many ways, you know, you apprentice. Kind of like, on the financial planning side. You know, we...back when I used to do financial planning, which was a long time ago, and even, you know, our private client team now, the really fun engagements, or the most fun engagements I think for them are probably the ones that create...that have more complexity, because it really requires you to...you know, to go in and research and analyze, and it's the same way on our side. You know, part of the reason where we've built this knowledge base is just, you know, having clients and really trying to be a partner and rolling up your sleeves and getting involved in areas that may traditionally be out of scope, you know?

How we fell into the 401k space was, you know, back in 2004 and '05 and '06, we were doing...you know, Pat and I were doing comprehensive planning engagements, and we had a number of small business owners and corporate executives, and part of what we would do is we would evaluate their 401k fund options. And, you know, I found myself, one, totally confused when I looked at all these options around like, fees. And two, I remember saying to myself, "Your plan really stinks. Do you know that?"

And so, through that process, just out of curiosity, I started to try to, you know, uncover and learn more about...you know, the fees were the area I really didn't...it was hard to make any sense of. And you know, one day I went into Pat's office and I said, "You know, I really think there's an opportunity for us in the 401k space." Because, you know, we were fee only. So the transparency piece was a really good story, and we were having a lot of success on the private client side with that story. The fact that we were a fiduciary. At the time, I didn't know there was a difference between being a fiduciary under ERISA, and under, you know, the Advisers Act. But this idea of being a fiduciary.

Michael: Yeah, like, "401k's talk about fiduciaries. I run an RIA. That says I'm a fiduciary, so I can do this."

Josh: That's exactly right. And so, you know, and I said, "I really think there's an opportunity here." And our business had gotten to the point where it was profitable enough, where I started to spend a little bit more time in this area, and lucked into this concept early on, from a marketing standpoint - I tried to think strategically - and I said, "You know..." I was 31 years old at the time, so it's...I couldn't rely on like, my grey hair when I was talking to prospective clients. I had only ever worked with one 401k plan, it was a startup plan, when I was at Morgan Stanley. So it's not like I could say, "And I've worked with 401k plans for all these different years." I didn't really understand the industry, but what I did feel like was that we gave really good advice.

And so, I really embraced this idea of wanting to be a, you know, kind of a, more of a technician on the fiduciary side. And I just kind of came up with the idea of, it's really around a fiduciary process. And that came back to something I said earlier, is I recognized early that if we could influence the handful of people who made all the decisions, then we could really have a major impact on a lot of people.

And my goal early on - not that I didn't like working with individual private clients - but, you know, we spent a lot of time, or I spent a lot of time, trying to chase down, you know, affluent and high net worth individuals. Which was great, but I really wanted to...what was attractive to me was, if there was a company with 100 employees, and I could give them a great 401k plan because I influenced the three people who made decisions about it, well I could have an impact on 100 people. Even though I would...probably wouldn't recognize those 100 people if they walked up to me on the street. And so, there was that element.

Then the other aspect was, I was a one man show. A lot of times I felt like I was like, a mad scientist in my little lab, trying to do things that nobody else understood. And it was hard for me to engage with participants, because I didn't have the bandwidth. So I came up with this idea of, "Let's build a really good focus on empowering committees, and helping them follow a good fiduciary process." And so, I started to research this idea of what it meant to be a fiduciary. And I would have wholesalers from Fidelity and Prudential and Principal and all the vendors come in, and I would ask them about fiduciary responsibility and 401k plans.

And again, you know, everybody talks about fiduciary now. I like to say that we've been talking about the F word since it wasn't cool, you know? Going back to 2005, 2006, it wasn't a big focus, but you know, I asked these vendors, "What do you know?" And nobody could really give me a good answer. I would talk to companies and they had no idea what it meant to be a fiduciary. And so, I printed out one weekend the entire ERISA regulation, and I read it over a weekend. If you want to really...

Michael: Like, the actual, original...like, the actual ERISA laws.

Josh: The entire regulation. And I read it over a weekend. And what I realized was, very few people had any idea what the rules and regs actually said. And, ERISA is very, kind of technical and esoteric, and I just started to try to think practically. "What are some practical things we could to kind of fulfill the spirit and the intent of the regulation, and what it meant?" You know, "What were the four basic fiduciary duties that are found under ERISA? And then, what were some things we could do to help companies fulfill those?"

And around that time, I found an ERISA attorney named Fred Reish...is now our ERISA attorney. But he is arguably one of probably the top three or four, if not, the most well-known ERISA attorney in the country.

Michael: Well, and now has quickly become probably one of the three best-known DOL fiduciary experts, as well, as scope of Department of Labor fiduciary has expanded beyond ERISA plans.

Josh: Correct. And he's...you know, with Drinker Biddle. And, he was writing a lot of this stuff...about these things way back then. And I read everything I could that he had put out. And, you know, within four or six weeks, I would say that I probably knew more about fiduciary responsibility and 401k plans than 98% of people that I came across. And so, I really embarked upon trying to build my knowledge base, from that standpoint.

Michael: You know, I think there is just...really fast. Like, there's an interesting thing to point out there, that, I feel like for so many of us, when we're trying to get going in the business, and particularly when we're trying to get into some sort of niche and specialization, that it's like, "Well, can someone just give me like, the course, or the program that teaches me to be an expert in this thing, in this niche."

And, part of the opportunity here is...well, I guess on the one hand, like, just sometimes the best way to become the expert in the niche is, just go do it. Like, just immerse yourself into it and do it. Like, you want to become an expert on ERISA? Start by reading the actual ERISA law. You will already be ahead of 99.9% of all advisors who have never actually pulled out that law and read anything in it.

And you know, then find some of the other experts in the space and spend time with them. And, there's no substitute sometimes for just, putting some hustle into the effort of, if I want to be an expert in this thing, just put in some time and teach yourself to become an expert. And the fact that you're putting in the time and doing it is what differentiates you from almost everybody else who never actually gets around to putting in the time and effort.

Josh: I couldn't agree more. But, you know what's tough? Everybody wants the bullet point and the course and the checklist, because they want to do it quickly. And the reality is, you know, you don't build experience and expertise overnight. It takes a long time, and you have to actually be working on engagements. You could be the knowledgeable advisor in the world and the best technician, but if you don't have clients to actually work on, you know, you're probably going to be the greatest secret nobody's ever heard about.

And that was what was tough, is I found myself...I had a lot of great technical knowledge, and I started to come up with a narrative and a story that I would tell back then, which in reality has not changed all that much. The story I tell is really similar to the one I told a decade ago, and I think I tell it a little bit better now. But at the time, I was telling such a different story than everybody I felt like I was competing against.

Michael: Because at the time, they were mostly brokers that did a little 401k business on the side. "Hey, I already worked with the wealthy business owner, and did some life insurance for a buy-sell agreement, so while I was there, I did the 401k plan." And like, that was your competition.

Josh: Exactly. Or, this advisor, "All I do is kind of work with...I do kind of the...you know, the employee meetings." But it was really...you know, it was really...you know, it's not to try to make money on plan consulting. It's because you're trying to find, you know, a rollover, a $100k here that you could work with on a private client basis. And so, what was interesting was, I felt like I was telling such a different story, is that, for the first year or two, quite frankly, it was really hard to get clients.

You know, I actually had a company one time, a CFO, he said to me, "You know, all you do is talk about process. Can't you give me like, a product?" He's like, "This other guy I'm talking to, like, he brought in this vendor. And you know, they have like...they have these...you know, these great little, kind of, shiny sales sheets, and they did me a demo of their website." And, you know, "Can't you give me something like that?" And needless to say, I did not get them as a client.

So, I almost gave up. I would say about a year in, in early 2007, I walked into my partner Pat's office at the time. I said, "I am so fed up with the 401k industry. It's such a mess. I quit. I'm not doing it anymore." He's got a great way about him, and he kind of talked me back off the ledge, and on a whim, I said, "You know what? I'm going to write a book." And he laughed, and he said, "Oh, really?" He's like, "What are you going to call it?" And I said, "Fixing the 401k. Because the retirement industry is so broken it needs to be fixed." And he kind of chuckled. You know, I walked out of his office.

But that night, I went and said, "If I was going to write a book for, kind of, the layman about a 401k plan, if I was going to write my treatise on what a great 401k looked like, what would the chapters be?" And I came up with an outline of like, 10 or 12 chapters. And then, over the next, you know, six or seven months, I would just write and knock out chapter by chapter. And next thing I knew, I actually had this book that got published called "Fixing the 401k Plan" and...

Michael: So, did you go like, pitch a publisher to do it? Did you just say like, "Screw it. I'm just...I'm publishing it on my own, whatever it takes"? I mean, how do you actually get a book published?

Josh: Yeah, you know, I found a on-demand publishing company in Minneapolis at the time, and you know, it went through probably a three or four month process to get published and to get up on Amazon. And it was a really interesting, neat experience, kind of going through it, and what that looked like. But in August of 2008, "Fixing the 401(k)" came out, and the subtitle was "What Fiduciaries Must Know and Do to Help their Employees Retire Successfully."

You know, what that allowed me to do, there weren't too many books on 401k plans at the time. There still aren't all that many. I always laugh and say, "If you have insomnia, this book is the cure. By chapter 2, you'll be sleeping like a baby." But, what it was, is it really was kind of my treatise on what I felt like companies should really be paying attention to, and how they should think about fees and plan design and investments and engaging participants.

And, you know, that book allowed me to...it got some marketing mileage around it. I wound up getting pretty involved at the conference circuit, and it gave me a chance to...a platform to go out and speak at conferences, and start to build, you know, a little bit of exposure, you know, around having some expertise in the area. When I would go meet with companies, I would be able to use as kind of a...as a leave-behind. And, you know, slowly but surely, we started to get some companies who kind of took a leap of faith, and embraced our approach and our philosophy, and some early adopters.

And I just, in the trenches, slowly over time, getting, you know, four or five or six new clients a year, that that's how we initially built our book of business. And then I met another advisor in another part of the country who had a small book of business in Georgia, that a couple of years later, decided he wanted to sell the book, and we wound up doing a transaction on that.

And, you know, I just...a lot of this stuff, we learned as a team, just by having engagements and figuring out how to be a partner for clients. And when things would break or things would come that we'd never come across before, we'd do a bunch of research and analysis, and then we would file away that experience, so the next time it came up, we would know where to go. We would know how to approach the issue. And it's pretty simple. It's simple, it's not easy, I guess is the way I would describe it.

The Process Of Writing And Self-Publishing A Book [1:01:37]

Michael: And I'm curious. I still find there's all this debate about publishing books and how to go about it, and whether you need a publisher if you're going to create this thing to demonstrate your expertise. So, did you have challenges with this? I mean, did you ever have anyone say, "Fixing the 401k" book, and they say, like...I don't even know what people ask. Like, "Is this a real book or did you make it yourself?" Like, I don't know.

Just, I've heard from a lot of folks that have been thinking about publishing books that are very anxious that they don't think they can get a publisher to take it, and they think no one will respect it if they've self-published. So, having gone down that route, like what's your experience with it when you actually try to use this to build your business as a book that you kind of drove through online self-publishing? Or, with a supporting distance publisher.

Josh: So I think that's a good question, and to be honest with you, it's never, to my knowledge, come up. You know, nobody's ever said, "Well, how did you get this published, and is this...you know, is this..." You know, I would say the answer, "Is this a real book?" is yes.

Michael: It's there. You handed it to them. It's a book. It's got a glossy cover. Like, they're holding it in their hands. Any questions?

Josh: Correct. And is it self-published? Yes! The answer is yes to both. I think...you know, going through that process...and I made a decision early on, was I think you really need to think about what the goal was. The goal for me, I really don't care about being able to say...and again, going back, almost a decade ago, kind of the "on-demand," kind of publishing is...it's much more embraced now than it was back then. So it was kind of on the front end of that a little bit. But, you know, my goal was not...my credibility, from my perspective, was the knowledge that I included in the book. Like, I didn't...from an ego standpoint, I really didn't care whether or not, you know, a big publishing house published it.

And the other thing was, even if it could have gotten published, the time that it would take...what I cared about was, I wanted to get my ideas into the marketplace as quickly as possible. You know that...writing a book is not that...it's nothing special. I would say the two things, for me, that I take away from it is one, you have to have an opinion. And, you know, you better research what you're going to put down in writing, because it's going to last in perpetuity. The other thing is, it's just dedicating the time to get it done. You know, the first 80%, I knocked out pretty quickly. The last 20%, it's like...you know, working on a house. It took a long time.

Michael: And I mean, what was "pretty quickly" to you? Like, you know, you spent a thousand hours, a hundred hours? Like, you spent an hour or two a week, and six months later, there it was? Like, how did you get it done? I mean, what did that take?

Josh: So, I would write on like, nights and weekends. My wife was pregnant with our second child at the time. When she would go to sleep, I would sit in bed with my laptop, and I would write, and you know, I would just carve out time to do it. The other thing was, I had written like, some papers and some blog posts and stuff like that that I was able to kind of repurpose and finish and whatnot. So, you know, I couldn't tell you from an hour perspective. It was probably, I don't know, a few hundred hours to do it?

Michael: I mean, it sounds like it was that, sort of, a couple hours a week when you had some time on evenings and weekends, and how many months were you going at it?

Josh: So, it was about, probably...I think I started it in November of 2006, and it started like, to...it was finished and kind of started to get published, I want to say, in March of 2006? And then, the publishing process, it came out in August of 2008.

Now here's the interesting thing, was I had done a workshop with Fidelity, October of 2006, and there were about 10 or 12 companies who came to this workshop that we did. And I talked about fiduciary best practices. I still have the presentation. There were three of those companies that took a meeting with me afterwards. And, I met with them, and I did all this plan analysis, and I was trying to kind of move them to become clients, and just was not getting the ball moved forward.

And, the book came out in August of 2008, and the first week I sent all the committee members of these companies copies of the book. And the next week, all three companies became clients, effective October 1, 2008, and it was about $80,000 in revenue.

Michael: That's good timing, in October of 2008.

Josh: And it was all fixed fee revenue. And so, what was interesting was, and this is kind of the fascinating...for me, the origin story. You know, our private client...our firm revenue dropped during the market downturn, because we were a lot smaller, but dropped by about $80,000 in annualized revenue. But we had these three fixed fee engagements of about $80,000 in revenue.

And, you know, what I realized right there was that the...you know, the book was...I wasn't looking to be a, kind of a published...I didn't need to say, "I've been published by Wiley, or HarperCollins," or whatever. My goal was to get a resource out into the marketplace, to get my ideas out, and to really try and shape in the minds of prospective clients the way we would help their companies. And that's...you know, probably professionally, writing that book, in terms of the knowledge I had to build to do it, and from a marketing standpoint, it was probably the best single investment in my career that I did.

It's not great writing, it's not all that interesting. But, you'd be amazed at how many...people even now say, "You know what? I read the book. It made sense. It made the industry seem a lot more understandable." A lot of advisors have read the book. Over the years, that's mostly who buys the book off, you know, off Amazon, is advisors, and that want to get into the 401k space. So, I'm really happy that I did it.

Michael: So for all the people who are wondering, like, "How do I get into the 401k space?" when you had to just ERISA code from scratch, the answer now is, "Read your book, because it's easier than reading the ERISA code"?

Josh: Maybe it's a good...you know, put it on the course syllabus. I think, to your point earlier, that the best way to get experience...you know, when you're young, and you don't have a lot of clients, it's all about...you over-emphasize passion and energy and excitement. And as you get older, and you know, maybe your energy wanes a little bit, you begin to realize that all those things are important, but there really is no substitute for experience, and being a good student over time.

And the thing I've always tried to...for myself, and for our team is, you know, make sure that we're in a position that when a company...a client, a corporate client has an issue, we're their first phone call. And we may not know the answer, but we can help them find it, or we can help identify what other professionals need to be brought in. And then you just have to have a memory like an elephant, where you know, when you come across an issue, you have a reference to go back and say, "You know what? Last time we ran into this, these were the things that we did." And that's...it just takes time. It just takes time.

Michael: And how much did it cost to actually get this thing produced? I'm just wondering, you got the book out there, and quickly landed $80,000 of new business revenue that drove heavily from the fact that you were this published author and could hand out a book, and like, the credibility that implies when you hand it out. But, what did it actually cost you to produce? I mean, it was a whole bunch of time for writing it, but the publishing process, I mean, was this like a, "Hey Pat, now that I've written the book, I need like, 20 grand out of the business to get the thing published"? Or 50 grand, or 5 grand?

Josh: I would say it was probably $5,000 or $6,000 in total.

Michael: Wow. So, I mean, not a huge number in the grand scheme of things. I mean, not a lot of us have 5 grand laying around to do nothing, but on the scale of marketing investments, or where you can spend your marketing dollars, that's not a huge number. Like, you can throw your money at a whole lot of other things that are way more expensive than that.

Josh: That's correct. Now I think that the...that's the direct cost. Kind of the indirect cost is what you said, is from a time standpoint. And you know, I look back, in terms of how we formed the business, you know, from the very beginning, Pat and I were equal partners. And we always viewed...and that's partly how our relationship historically has worked really well. And again, we have more partners and more employees now, and we work together, I think, pretty well as a team overall.

But, you know, when...from the very beginning, we never looked at prospective clients as "Pat's clients" or "my clients." We never valued what I did more than that Pat, or what Pat did more than me. We always viewed...because we were equal partners, we viewed...you know, I was his biggest cheerleader, and he was my biggest cheerleader. And we always viewed...a win for Greenspring was a win for both of us.

And so, I give him a lot of credit as well early on when I went to him and said, "Look, I think we have an opportunity in this other space that we have no experience in. And we have no idea about. And I want to spend..." You know, instead of me going after private clients, and helping grow our revenue if we're both going after and probably growing our revenue more quickly, "I want to take a detour, and I want to spend time trying to build this area of our business, and I hope it's going to pay off at some point in time." And, you know, we talked about it, and we came to the conclusion that, "You know what? Let's go for it, and let's not be afraid to see if it works out."

And you know, thankfully, you know, it did. But we probably could have grown more quickly early on, you know, in a short period of time, had I just continued to focus on private client opportunities in partnership with him. But I think long term, it was a really good decision that we made back then, for a couple of reasons. One, it's been a really big...you know, we've had a lot of growth in the area.

Michael: Well, you know, $2 billion is nothing to shake a stick at.

Josh: Yeah. You know, if you look at our...you know, both sides of the business are very profitable. But, you know, if you look at, you know, our institutional side, probably our average fee is somewhere between maybe two and a half to three times what our private client fee is. Now you can support a lot more private clients than institutional clients, just because, you know, typically, we're meeting with committees. You know, we're probably meeting with our corporate clients, and involved...you know, we're on the phone with them usually, probably on a monthly basis. We're meeting with them.

Michael: Yeah, that's an interesting point. So it's a more, I mean, I guess that's part of why fees for corporate clients start at 15 grand and move up. Like, it's a more service-intensive side of the business than even high net worth private client?

Josh: I would say that that's accurate. Yes. I would say that's accurate. In terms of...certainly around maybe the frequency that we're meeting with clients. It's something that we...you know, we committed to, and back then it was a bet that really paid off. But, you know, it just as easily couldn't have paid off, and we probably would have gotten behind the 8 ball. We would have gotten behind the 8 ball a little bit, but I'm thankful we focused on it.

And I have a...you know, our team, just in general, you know, I've never been around a group of people on both sides of our business that are more committed to...you know, kind of our primary core value is what we call "Love your neighbor," and it's really about being others-focused. And so, we have a real passion around, you know, helping companies make good decisions about their 401k plans, and make sure they're aligned with best practices and the latest and greatest research. And, you know, really helping having an impact on improving the lives of their employees.

And so, I enjoyed the private client side of the business, but I, you know, personally love what we do for corporate clients.

Michael: So, for someone that's looking at coming into the 401k side of the industry today, aside from ordering your book, which of course, we'll put a link out to in the show notes. So this is episode 30, anyone who's listening, Kitces.com/30, and we'll have a link out to Josh's book. So aside from course reading the book, I mean, how should an advisor get started today, if they're...I mean, maybe they're new and coming into the business, or maybe they've been in the industry for a while and perhaps at a similar split to where you and Pat were, where you want to add 401k as a revenue line, or as a business line to the overall advisory firm. Like, how would you direct someone that wants to get started in this now?

Josh: Yeah, so that's a great question. I would say, you know, I get asked this quite a bit by advisors and advisory firms. If a firm has the resources and is really serious about getting into the business, what I would say is, you have to be serious about it. You have to be willing to invest, and probably the fastest, quickest way to get ramped up is probably to hire somebody who's got experience. They're going to get firms much further, much faster.

If you do want to go the route that we did, and again, I think it was probably...it's not impossible to do it now, but it was probably easier 10 years ago, just because the competition hadn't advanced as much as it has. There's a lot more resources out there now that can really help companies, or help advisors and advisory firms get an understanding of the lay of the land.

So, you know, there's a lot of resources, there's a lot of training organizations. You know, things like Fi360. You know, that's probably a...

Michael: Their AIF designation is pretty much for advisors that are doing fiduciary qualified plan work.

Josh: Correct. There's a number of...you know, there's a lot of great resources. PLANADVISER Magazine, PLANSPONSOR Magazine, and their websites. There's a really good resource called 401(k) Specialist, 401kspecialist.com. I would google Fred Reish. Marcia Wagner is another ERISA attorney. David Levine from Groom Law Group is anther ERISA attorney. What I would say, first and foremost, is try to find as much...as many resources as possible, and just read and understand kind of the lay of the land. Understand where the trends - from an industry standpoint - where the trends are, what's happening. You know, I would read about 401k lawsuits and Google that. I'm trying to think of some...

Michael: Yep. Read Jerry Schlichter.

Josh: Read...yeah, exactly. Who, from Schlichter Bogard & Denton, he's kind of the, you know, the patron saint of 401k participants. You know, it's interesting, I find I agree with a lot of the, you know, philosophies that he has, maybe to the chagrin of...there's a lot of fear mongering going on with companies, and there's a lot of advisors, quite frankly...that's the other thing I would say, is don't be a fear monger. There's so much misinformation that's out there.

There's a great book called "Save More for Tomorrow." It's by a researcher named Dr. Shlomo Benartzi from UCLA. And he was the...a lot of the research that he's done has kind of, from a behavioral finance standpoint, has underpinned a lot of the plan design features, like automatic enrollment and automatic escalation. Within the retirement industry, he's got phenomenal resources that really talk about behavioral finance.

That's one of the areas where, you know, I would argue that, on the private client side, I feel like there's a real opportunity for FinTech in the institutional side of the business. I think a lot of FinTech and a lot of the tools and resources that, a decade ago we didn't have on really either side of the businesses, a lot of FinTech has been focused on the private client part of the business. But there's a lot of FinTech opportunity and some of the things we've tried to do actually, where we've started to branch out and build some tools and some technology platforms as well on the institutional side of the businesses.

But one of the areas where I do think the institutional side, the 401k side, has advanced in many cases beyond the private client side, that we're actually trying to figure out how to incorporate in more in our private client side, is around behavioral finance. You think about a lot of the evidence that supports how you design a 401k plan to get participants engaged and saving and increasing the amounts that they save over time. Actually, a lot of applicability in the private client side of the world, and we do a lot around educating companies around the different types of plan design features that can drive outcomes.

You know, on the 401k side, there's only a handful of levers that drive outcomes over time. It's how much someone puts into the plan, including their own contributions and whatever their company puts in for them, it's what comes out of the plan, in terms of fees and loans and withdrawals and others leakage, it's the rate of return that somebody gets over time, and it's time. Time's the great healer. If you get people saving early at meaningful amounts, that actually can solve a lot of the retirement income undersaving. We always say that you can't invest your way out of a savings deficit.

So, I would encourage people, spend a lot of time looking at the plan design, best practices in the industry, and engage companies. If you've got private clients that may be in positions of influence at a company, or sit on a retirement plan committee, you know, have conversations with them. See how they're doing. You know, see if you can do a plan analysis. See if you can engage them.

Michael: I think it's an interesting angle to point out. I mean, I hear the same thing that you mention, which so many advisors kind of go in with the...you know, you've got to be..."I've got to help you, save you from fiduciary liability because you're probably doing things wrong and you're going to get sued," and kind of playing up the Jerry Schlichter lawsuits that...I mean, you have an interesting point, that probably the most tangible thing for a lot of these plans is just going in and doing an operational assessment to make sure you're following all the really boring, utterly crucial administrative and operational requirements about how the 401k plan is supposed to be done, and maybe a fresh look at some fees. Then at some point down the road, to revisit the fiduciary issue as well.

Josh: That's exactly right. You know, I always like to say that the primary role of good fiduciary process isn't risk management. Like, that's the secondary goal. That's the byproduct. If you follow a good fiduciary process, as a company, you're going to manage your risk and your liability in a really significant way. It doesn't mean that you can't possibly get sued, but I would argue that, if you've got good process...and the bar's set pretty low. You meet on a regular basis as a committee, you look at fee, you follow an investment process, you document what you've done. If you have operational failures, you fix them. That's the recipe for success for a good retirement plan committee.

I always say though, the goal of fiduciary process is to help your people retire successfully. You know, to make decisions...and the analogy I often use is when my daughter...so I have four kids under 11. My daughter is just about ready to turn 9. And when she was in kindergarten, she went to a birthday party at a bowling alley with one of her classmates. And do you know what they put up? You've got young kids...I don't know if you've been to a birthday party at a bowling alley. Do you know what the bowling alley does to engineer the experience for kids?

Michael: No, beyond like, the little bumper lanes thing.

Josh: They put up the bumpers. Why do they put the bumpers up?

Michael: So that they don't just spend the whole time rolling gutter balls and never wanting to go bowling again. They want to see the pins fall down at the end.

Josh: That's exactly right. And so this bowling alley, they weren't dummies. What they wanted to do is they wanted to engineer the outcome for success. They wanted the kids to have a great time. They didn't want them to get frustrated and throw temper tantrums and stand their feet and hold their breath. And so they engineered the experience for success. When we got in the car, what do you think the first question my daughter asked me was?

Michael: "When can we go back?"

Josh: That's exactly right! And, "Can I have my birthday party at a bowling alley?" Because it was so much fun. And so, what we try and tell companies is, the reason you want to follow a fiduciary process, you want to have a good process, you want to make thoughtful decisions around your investment architecture, you want to negotiate competitive fees for your participants, you want to implement plan design features that have been shown to help participants overcome behavioral inertia, you want to meet on a regular basis and manage your plan the same way you manage your business. It's essentially, you want to put bumpers up for your people, so they don't throw a gutter ball with their retirement savings. And if you do that, you're going to make a big impact in your employees lives, but you're also going to manage your risk as a company.

And that's really kind of the gist of our philosophy. Most companies don't run their 401k plan the way they run their business. If they did, they'd be out of business. And so, it's really just trying to bring kind of that consultative approach. And then, you know, we're trying to build tools and technologies and resources and methodologies that kind of set us apart, that I think we've done pretty successfully over time, that help us stand out, relative to, you know, the other really good firms that do what we do.

Where Josh Sees Business Opportunities For Working With 401(k) Plans [1:23:08]

Michael: So as we come to the end here, where are you looking forward from here? I mean, what's next for you on the 401k space? Is it just, "Hey, we're getting big now, and at $2 plus billion, we're starting to win some big RFPs, and we're just going to try to keep working in the more larger plans as we get more size and clout"?

Josh: Yeah, so that's a really interesting question. You know, I think where we're shifting to strategically is, like most firms, is how do we continue to scale, and how do we build a model that is scalable and consistent and efficient and creates a really consistent client experience on both sides of our business, essentially, that we can find other like-minded, you know, advisors that can come in and do a really good job for clients.

I actually, personally, think that the business opportunity is less on the high end. I think there's a huge business opportunity for plans in the under $20 million space that, up-market, they're really good consulting firms. Down-market, you're competing against what we often call, "recreational 401k advisors." They may work with, you know, a couple of plans, but you know, it's...they just don't have the expertise or the resources to really focus well.

You know, I think from our perspective, we feel like we've built a really good model, a really good platform. We're looking at ways we can continue to make it efficient, that we can scale it.

And then, ultimately, you know, we...earlier this year, we brought on a two-person advisor team in the Baltimore area, one of the top 401k advisors in the country. Been working with plans for 20 years. He became our fifth partner. Had about 40 plans that he worked with...30 plans or so. Forty plans that he worked with as well. You know, evaluated a number of firms, and ultimately, you know, kind of bought in to our approach and our philosophy. Really, really exciting. It's been an incredible win for us. Great reputation in the industry, and in the marketplace. And you know, I think was kind of a validation for what we do and how we do it.

And so, we're trying to continue to take the best of what we do, and refine our approach. But really, you know, I want to...personally, one of my passions and kind of my personal goal is to, you know, to help our people be successful. I want to build them a Ferrari, and all they need to figure out how to do is really drive it, you know, as well as possible, and provide good feedback around, you know, if we did this tweak over here, you know, if we did that tweak over there...and as we continue to get better, hopefully, as we have success and as we win more business and opportunities, you know, we can be attractive to other advisors and other firms.

And ultimately, we want to expand our influence. And, the more companies that we work with of any size, our core purpose at Greenspring is to improve lives by helping people make better decisions for themselves and the people who depend on them. And so, in the context of a 401k plan, that really comes down to...you know, the people who make decisions are the committees, and the people that they impact are, you know, their employees. So the better job we can do for clients, the more clients we can get, the more we can magnify our impact over time.

Why Greenspring Built Its Own Technology Solution [1:26:26]

And the other thing is trying to build tools and resources. We just launched a technology platform that...called Fee Metrics, which is a 401k fee and pricing intelligence platform that is really meant for not...you know, we're using it for advisory clients, but the goal is to really scale that to...you know, my hope is every company in the country that has a 401k plan, this will become kind of the de facto pricing database for them. So we're trying to branch off and do some other things as well that, you know, help us differentiate and do a better job for clients.

Michael: And that just becomes another angle for people to...from a marketing perspective, they can, you know, evaluate the fees of their plan by coming to Fee Metrics, and if they see things that are not good, then it's like, "Hey! We can help you with this. Just contact Josh, or Josh will be in touch."

Josh: Yeah. And the reality is it's built less to be, you know, "help Greenspring," or "hire Greenspring." I mean, there could be those opportunities. It's really...quite frankly, it's meant to bring our fee methodologies and practices to plans...it's hard to scale consulting, as you know. I mean, we've got 70 or 75 companies we work with. It's a really involved service model. It's much easier to scale technology. And so, you know, as thousands, tens of thousands of companies can use Fee Metrics, we couldn't support that many advisory clients.

Michael: Well, and I've always had the same philosophy as well. It's part of why we publish our platform in this podcast and do what we do. You know, you can give away immense amounts of information for free, or at a very low cost, and help lots and lots of people. And there'll always be a subset that want more help and need more help, and are going to contact you to do business with you. But you also get to help the other 99% that you weren't going to work with as well, but just making it available to everyone.

Josh: Exactly, and when I think about for you, how many advisors that you've influenced and impacted, that, you know, you're not going to know everybody's name, but by what you do and how you do it, and your ideas, and like you said, your research and your publishing, you know, it's how you get leverage and scale. And, same type of...you know, I think what's reshaping the 401k space is, I do think over the next five years, FinTech and tools and resources, I'm really excited to see how we can move to having, you know, more precise instruments instead of some of the blunt instruments that currently exist, to just help us do a better job for companies.

What's Next For Josh And Greenspring [1:28:54]

Michael: As we finish here, this is a show about successful advisors, and you know, the challenge with that is even the word "success" means different things to different people. And so, you know, you've certainly built a successful 401k business, with the team that you've got, and upwards of $2 billion of 401k plans. But I'm curious from the personal perspective, as you look forward for the business, and your own career trajectory, what does success mean for Josh?

Josh: That's a great question. So, you know, it's been an interesting progression. When you first start and when it was just, you know, the two of us sitting in an office, you know, it was more of being technicians and working in the business. And I think what has happened over time, and as we continue to grow, we went through a...we hired a consultant and kind of a business coach last fall to help us from a strategic planning standpoint. Pat and I, when we started the firm, we actually, at our previous firms, had individual advisory boards. And so we brought that together. And so since the founding of Greenspring, we've had a great advisory board that we meet with every quarter.

Michael: Those are like, clients and...who work with the firm?

Josh: Couple of them are clients. A lot of them are just business owners and executives who've - around kind of the Baltimore area - who have given back and invested time with us, and really help us strategize. And in the middle of early last year, one of the early questions that...we were reviewing kind of our growth numbers and our financials, and you know, they asked us, you know, "What do you see for Greenspring moving forward?" And we said, "Well, you know, we've done a pretty good job growing and we think we're just going to...you know, hopefully, we'll continue to grow." And they said, "Well, what's your strategic plan?" And, it was like the cobbler's kids who had no shoes. We kind of looked at each other and it was kind of embarrassing. We were like, "Well, we don't really have one."

So, we wound up hiring a strategic planning consultant, and went through an incredible process in the third and fourth quarter last year, to kind of help us figure out kind of what do we want Greenspring hopefully to look like over the next, you know, three, five, ten and twenty years. And out of that...you know, I think for me, personally, what I want to do, and I'm starting to...I'll always have, I think a...you know, a handful of client. But I'm finding that more of my time is phasing out of kind of a direct client responsibility, and more of my time is spent in terms of strategically, trying to think about where does Greenspring go? I think I'm a pretty good, you know, ideas and...ideas person. And, whether it's the book, or some of the tools, like a Fee Metrics, or we have a tool that we built called the Clarity Quotient, which is another technology platform and consulting tool.

You know, where I see myself going is helping to spend more time thinking about what are the things that we need to do to help our clients, and stay ahead of the curve in terms of our competition.

And then, really being an ambassador for Greenspring. What's been exciting for me is to see, we've attracted some really good talent and, you know, in many ways, a number of the other advisors and partners, folks on the institutional team and other lead advisors, when I sit in meetings with them, or I hear them work with clients, they're a lot better than I am! And it's been...

Michael: Which is a hard thing to adjust to. To, kind of, accept that, that sometimes you actually hire people who are better at your former job than you were.

Josh: And, you know, that's the important thing, is I came to...you know, we all advisors, we like to be in the spotlight, we like to be the go-to person. You know, we all probably like to have our egos stroked a little bit. And you know, I came to the conclusion that I felt like, what gave me the most joy was, I like to serve others, and have influence in people's lives. I love, in some small way, to help people be successful. And I like to do really good work. And so, I kind of embrace this idea...and it was tough at first, but it's actually become kind of gratifying in many ways is, it's more exciting for me to see other team members step in and do a great job for clients, and quite frankly, know things that I don't know, or approach things in ways that are more effective than me. Or, manage relationships in a better way.

You know, ultimately, if my goal is for us to impact people, I need to kind of step out of the way and still be involved, but you know, I feel like in some ways my time...and early on, you know, maybe I had more time in the spotlight. I'm okay with taking a backseat and seeing other people develop professionally and do a good job. And at the end of the day, if somebody's better suited to do a job better than me, they should be in that role instead of me. So, I don't know if that answers your question, but I'm moving from, I feel like...I'm still kind of like a player/coach in some ways, but personally, I'd like to move to more of ambassador/coach/kind of strategist in some ways over time. And that's my hope.

Michael: Very cool. Well, thank you for joining us and sharing that story and that path on the podcast here.

Josh: It's been my pleasure. I appreciate everything that you do, and have always had a ton of respect for you, and your ideas, and kind of the brand that you built. So, a lot of times on the 401k side, we feel like Cinderella who's been forgotten about, because you know, the two daughters are a higher priority. And so it's nice every now and then, when we can get to kind of tell our story a little bit, because it's not what you typically think of when you think of a financial advisor.

Michael: Well, absolutely. Well thank you again. Thank you for telling that 401k story.

Josh: Appreciate it. Thank you.