#FASuccess Ep 127: Creating A Stewardship Report To Show Your Ongoing Value To [401(k) Or Other] Clients, With Jania Stout

What You’ll Learn In This Podcast Episode

• What Jania's 401(k) Practice Looks Like [05:09]
• Why And How She Delivers A Stewardship Report To Clients [17:28]
• How Jania's Firm Sets Its Fees [27:31]
• What Her Service Model Looks Like [37:13]
• The Extent To Which Her Team Manages Clients' Investments [51:10]
• What Kind Of Tools Jania Uses In Her 401(k) Business [58:57]
• Where Her New Clients Come From [1:02:09]
• Jania's Path Into The 401(k) Realm [1:11:33]
• How Jania Grew Her Business To $4 Billion Dollars In Under 5 Years [1:18:54]
• How Jania Uses Linkedin To Grow Her Business [1:23:44]
• What Surprised Her The Most About Building Her Business [1:26:25]
• Jania's Advice For Advisors Thinking About Entering The 401(k) Space [1:36:35]
• How She Defines Success [1:40:30]

Resources Featured In This Episode:

• Jania Stout
• Fiduciary Plan Advisors
• How Much Does A (Comprehensive) Financial Plan Actually Cost?
• Salesforce CRM
• Avanade Salesforce CRM Consulting
• National Association Of Plan Advisors
• Retirement Plan Advisory Group (RPAG)
• Fi360
• SHRM (Society of Human Resources & Management)
• PSA Financial

Full Transcript:

Michael: Welcome, Jania Stout, to the "Financial Advisor Success" podcast.

Jania: Thank you, Michael. I'm excited to be here.

Michael: I'm looking forward to our podcast today. Getting into a topic that I've sort of realized in retrospect we've been a little remiss not to cover more effectively. And the topic is the world of 401(k) plans. Most advisors, certainly that we've talked to and I think still at the industry at large are in, well, I guess I would call the traditional and financial advising business. We work directly with individual consumers and help them with their retirement and insurance, and investments and all of those domains.

And the world of 401(k) plans I think for most of us as advisors is, "Yeah, well, I have a couple of small business owners and I've been working with them for a while and they've got a 401(k) plan and they said, 'Can you help me with my 401(k) plan?' So I did their 401(k) plan. So I've got a couple hundred clients and, like, six 401(k) plans on the side that I've done over the years." It seems to be where most advisors are these days. And your whole business is built around the 401(k) space with, as I understand now closing in on $4 billion under management. And so, I'm excited today to talk about, what does the financial advisor business look like when you are all in, as it were, on the 401(k) business and getting into some pretty sizeable plans?

Jania: Yeah. So I've never been on the wealth management side of it. I've kind of grown up in the 401(k) ERISA space, but I have worked alongside other advisors, other advisor teams that strictly do wealth management. And so I can kind of see a little bit of the difference. But certainly, it's a completely different model, all the way down from how you service clients to how you charge fees, and quite frankly, the liability around it.

Michael: So to start, why don't you just tell us a little bit about the advisory firm as it exists today? However you size it. Assets or firms or plans. What does your 401(k) business look like today?

What Jania's 401(k) Practice Looks Like [05:09]

Jania: Yeah. So we're a 13-person team out of Baltimore, Maryland, covering clients really all over the Mid-Atlantic and some other places throughout the country. But 13 people. We advise on close to $4 billion in assets and about 120 plan sponsor clients. So they would either be for-profit entities, or we also do advise on ERISA 403(b) plans. So not just 401(k). So anything that's really covered under ERISA is where you would find a segment of the market that we would serve.

Michael: Okay. And so, I'm just sort of doing the napkin math here, $4 billion of AUM or closing in on it, 120 firms that you're working with, so we're talking about, the average firm and plan is tens of millions of dollars. That's about a $30 million average per plan client that you're working with.

Jania: Yeah. We have the whole spectrum. I'd say if you looked over the last few years, the year-over-year growth, our average size client is going to be in the $100 million-plus space. We don't turn our back on really any size company or plan. ERISA doesn't discriminate based on size. So, fiduciary responsibility covers a $1 million plan to a $1 billion plan. So it's just, you know what it is, Michael. I think some of the smaller organizations or companies, our service model is super robust, and so it just...small business owners, they may not really want to go through all the things that we would require them to go through to hire us. So that's why our...it's not that we don't want to serve the smaller end of the market, it's just we might not be the right fit for those small business owners.

Michael: So, can you explain that a little bit more? Small business owners might not want to go through what it takes to hire you. I feel like most people say this the other way, like, "I don't want to work with the small business owners because I don't want to do what it takes to go through the process with them. And the dollars aren't worthwhile." You seem to have the reverse rejection thing set up here. So what is it about working with the firm or going through the process that then becomes a problem for small business firms, or I guess alternately makes it such a good fit for mid-to-large-sized plans?

Jania: Yeah. So we do have a minimum fee. So even if it's a small business owner, if they want to pay our minimum fee, we would certainly take them on as a client. But we're going to require a very robust governance process for the oversight of the investments to make sure the plan is in compliance with ERISA. And so, that requires somebody at that company to answer the phone when we call them, to set up meetings when we need them. And sometimes the smaller business owners, they don't put enough emphasis on that. They don't feel, I think...because they're wearing many hats, right? So they don't really have the bandwidth to sit down with us or to go through all the things we want to. I'm not saying that's right or wrong, it's just we find they don't have the appetite to do the things we want. And if we're going to put our neck on the line to be a fiduciary along with them, we want to make...it's got to be a partnership. And we find that the more mid-to-large-sized clients have that bandwidth and that focus. And that's why we gravitate towards that segment of the market.

Michael: Size of the plan is an indirect proxy for the size of the firm, and size of the firm means size of the org chart, I guess, basically. So if the plan is large enough, then there's a pretty good chance that, "Okay, this business might have 50 or 100 or 200-plus employees. Which means there is an HR department. It probably even is more than one person." And someone can actually have the primary responsibility of this 401(k) stuff as a part of what they're doing and work with you productively because just the business and the org chart is deep enough for that to make sense for them.

Jania: Exactly. That's exactly what I should have said more eloquently.

Michael: Well, so then I guess I have two questions. What is typical plan size for you at this point, and then, can you at least roughly translate that into how many employees or plan participants there would typically be? Just to get some understanding of the size of the firms and businesses that you're ending out working with.

Jania: Yeah, I would like to describe it as, "Who do we want to go after?" And I would say that market size would be employers that have 500 to 5,000 or 500 to 10,000ish employees. And then from an asset level, I would say maybe $30 million or 50 million to a couple of hundred million. And the reason why I like that segment of the market is like you said, they're going to have a deeper bench of HR and benefit professionals that believe that they can make a difference in the employees' lives.

We have larger clients than that. And even though I cherish those relationships as well, but it's harder. So for example, my largest client has about 60,000 employees all over the country. So it's very difficult. One thing that you'll hear throughout the next hour discussion, one of our big focus is really helping working America feel less stressed. And when you have 60,000 employees all over the country, we can only move the needle so much because we don't have enough interaction with those people. So, that's where I feel the most happiness and I would say our team feels the most happiness is in that 500 to 5,000 range because we can really make a big difference.

Michael: Okay. Interesting. Interesting. And so, help us understand what the business model looks like. I think I want to start with just understanding the business model and then talk more about the service model. As you said, it's a completely different service model in serving the space. And I'll call it traditional advisor world, the benchmark fee is the proverbial 1%. One percent on $1 million, scales down for bigger clients, might be higher for smaller clients. But that's sort of our benchmark fee number. So how do fees work in a 401(k) world where you're talking about tens of millions of dollars, sometimes even hundreds of millions of dollars as opposed to, "Hey, I've got a good client because they have 1 million bucks?"

Jania: Yeah. So we are a flat fee advisor. And I would say, if you look at the plan advisors across the country that I would kind of term the elite plan advisors, most of us are flat fee advisors. So our fee is not a basis point fee. And typically, most of us and ourselves, in particular, we do cap our fees. So that's why going after a $1 billion plan versus a $500 million plan, we actually get paid the same fee if you look at...when we get into our services from a baseline perspective. But those billion-dollar plans have greater liability because they're on the radar of some litigators out there.

Michael: I was going to say certain litigators that have pushed some very high-profile fiduciary lawsuits. Yes.

Jania: Yeah. So that's why I like that kind of $500 million as kind of a cap. Not that we wouldn't take a plan bigger than that, but I think we don't make more money on it, and we have greater liability. So yeah, we're a flat fee advisor. Our clients can pay our fee out-of-pocket or they can apply the plan...our fee to the plan asset. In a perfect world, all our clients would pay our fee directly from corporate assets and not from the plan. And we do have some amazing clients that do it that way. And it's just, we believe that that's the right way to do it, but it's also very acceptable practice for plan sponsors to apply any plan fees to the participants.

Michael: Right. And I guess from the business, at least from a tax perspective, it's kind of the same either way. It's pre-tax dollars from the plan assets or it's pre-tax dollars from corporate assets because it is a modified business expense. It's just literally like, is the business going to pay from its pocket or is the business going to pass the cost through to the plan participants and let them pay it out of their pocket?

Jania: Yeah, that's right. And I think if you look in the last probably five years, our industry has done a better job of educating plan sponsors that, if you think about it, most companies pay let's say 50% of the healthcare costs for their employees. But most plans, they apply all record-keeping and advisory fees to the plan participant. So why is it that way? It should be the retirement plan should have that same kind of model where maybe the plan sponsor or the company pays half of the record-keeping costs instead of applying it all to plan assets. The industry isn't there yet, but I do think that we are evolving and companies are starting to recognize that that might be the better approach for their employees.

Michael: Interesting. Because I know otherwise, it's pretty easy for any business to say like, "Oh, here's an expense we don't have to bear directly. We can put it right in the plan and rationalize it in our heads as, 'Look, the plan participants are paying for it because they're getting the benefits. So this seems reasonable.'" I can imagine that it's hard to convince them to come back and say, "No, this is really actually something you should consider paying on behalf of your employees. Treat it like the 50% of health insurance costs that you pay as well. You're supporting their employee benefit."

Jania: That's right. We only have a handful of clients that pay the total costs out of their own pocket.

Michael: So help me understand what typical fees look like. You said you're a flat fee, but I'm presuming there's still some kind of scaling to this based on the size or the complexity of the firm or the amount of stuff that they've got going on, or is this literally just like, there's one number and whether you're $20 million or $200 million, it's the same number?

Jania: No, I would say, in that aspect, it's similar to the wealth management side. So you're going to have kind of, for us, we have bands because we have to come up with the flat fee somehow. So it's calculated. And there's a couple of components that we look at when we price the plan. Assets are kind of the natural way of looking at it, A, because that's the best way to benchmark our fees. Because, being a fiduciary, the client has to also make sure our fees are reasonable. And the way the benchmarking companies are doing it is based on assets.

So we have a flat fee based on the tiers of the asset. And then in our case, what we do, we actually guarantee those fees for two years. And then at the end of the two years, we do a stewardship report for the client showing them all the work we've done over those two years. And then we ask, if let's say the assets grew by $20 million, we might ask them for a $5,000 raise, or whatever it may be. But that puts them in control of our fees, versus if you do basis points and the market did what it's done in the last 10 years. We'd all be getting raises without the client actually having any input.

Michael: Interesting. So there were a few things there that struck me. One is this thing you just mentioned, a stewardship report where you show all the work you've done for the past two years before you go back and sort of say like, "Hey, things have grown here. Here's the new fee." So tell me more about the stewardship report. I like this.

Why And How She Delivers A Stewardship Report To Clients [17:28]

Jania: Okay. So we break it down into different segments. So we have a segment on compliance. So we'll explain, "Over the past two years..." And we've customized our CRM to track all our interactions with our clients. So if we did a project for them, for example, let's say...and this, by the way, happens all the time. So those of you who are interested in, "What do plan advisors do versus what do wealth advisors do?" Our typical day will be basically putting out fires from a compliance standpoint. So we're all investment advisors, but we happen to know a lot about compliance and ERISA.

So for example, yesterday, a client called me and said they had a group of employees that didn't make the payroll file. And they should have been automatically enrolled six months ago, but for some reason, the payroll system didn't pick them up.

Michael: Oops.

Jania: Yeah. So that's a failure. So we have to fix that problem. So we would be documenting the fix that we're doing. We actually have someone on our team who's an ERPA, so she can represent the clients in front of the IRS in doing voluntary corrections. So we'll do a...if it needs to be corrected with the IRS, we'll do that for them. We'll track that in our system, and then that gets fed into the stewardship report.

Because, I think we all, anybody that works with clients, whether they're a company or an individual, you've got to keep reminding your clients all the work you do for them. Especially when you're coming back to them and saying, "Hey, our fees, the two years has expired, we're now going to ask for a raise." So we want to justify that raise by the work we've done, not just because assets grew.

So the compliance part would be in there. Then we do a ton around employee education and advice. So I have three people on my team. Their title is Participant Success Advisors, and their sole job, and they're salaried employees, they're licensed salaried employees, their sole job is to help employees of our companies that we serve. So they do group meetings, they do one-on-ones in-person, and we also do virtual advice days. So we give investment advice. But we'll track all those interactions. They're loaded into our CRM, and then that spits out on the stewardship report so that we can say, "Over the two years, we've met with 260 participants in your plan." And we actually get even further on reporting on that. We roll up on a quarterly basis to our clients. We'll tell them what positive impact did we have in those interactions. So that's education.

And then the investments, well, certainly, we track every quarterly meeting. We'll track even quarter-over-quarter and year-over-year driving down plan costs. So are we in the lowest-cost share class or the best net deal? So in, I don't know if this applies in wealth management, but in the 401(k) world, sometimes going to the zero revenue sharing fund isn't the best option. Sometimes it's going to the fund that shares revenue, but crediting that revenue back so that what's best net deal for the participant? It's somewhat complicated. And again, this is kind of the day in the life of a plan advisor. These are the kinds of things that we do. And that stewardship report would reflect all of the positive impacts we've had on our consulting to that client. And knock on wood, I've never had a client not approve us getting our fee adjusted.

Michael: I love it. So you sort of pull these reports out of your CRM that dump these activity line items into these different areas: compliance, employee education, and investments. Like, "Here are the primary domains we're working with you on and here's all the line items stuff that we did for you over the past two years?"

Jania: Exactly.

Michael: And so, what CRM are you using that does this magical report for you?

Jania: Well, I'm sure everyone could guess what CRM we use because it's probably used by lots. We use Salesforce. But we did hire a consulting firm that came in and created a custom interface for us, because it is so nichey the work we do. And that was definitely a painful process because I'm a big-picture person and they made me sit down and the rest of our team sit down and walk through every little thing we do.

Michael: Every little line item. So I'm curious. Do you mind sharing, who did you work with that helped build this? At least if you liked them enough you're willing to mention or recommend them.

Jania: So they were called Avanade, A-V-A-N-A-D-E. This was three years ago. Three and a half years ago. So we started...this November will be five years, or four years. Yeah. So it was, like, three years ago. But they were called Avanade. I think they actually got bought. So I feel bad saying that I should know better.

Michael: Okay. We'll put a link out in the notes for anybody that wants to delve deeper and see if they're still doing it. If they're deep in Salesforce consulting, I wouldn't be surprised if they just got bought by another bigger Salesforce consulting firm...

Jania: Exactly.

Michael: ...but they may still be doing the same thing. But for folks who are listening, this is episode 127. So if you just got to kitces.com/127, we'll have a link out to the Avanade folks, if you want to delve into this further.

Because to me, Jania, this is, the particular things you would put in the report might look a little bit different for other advisory firms, but I think almost all firms struggle with, we do all this, Gary Klaben calls it the "shadow work." All this work we do for clients behind the scenes that they don't see because actually, if we do a really good job, the whole point is we get it done for them and they don't see it. And then we get to meet with them at the end of the year and they don't realize we did all that much stuff for them because they don't see all the things that happen behind the scenes.

And so the idea of, "Why don't we all get a report out of our CRM where we hit a button and it says..." Again, the categories might be a little bit different, but, "Here's all the investment management stuff that we did for you: the trading, the rebalancing, the investment committee meetings, the research time that we spent on your stuff. Here's all the financial planning tasks and analysis that we did for you. Here are the advice meetings that we did for you. Here are the, just, ops administrative back-office stuff we did. We processed 42 withdrawals for you and we handled 3 transfers." And get to a similar point where I can just hit my button out of my CRM and I get this report that says, "Here's all the stuff I did for my clients over the past year so that when I sit down with them once a year, I can show them this."

Jania: Yeah, absolutely. I think I've learned some lessons throughout my career. And from kind of hitting the reset button this last time, I learned one of the things that we have to do is continuously share back to our clients what we do for them. They have a very short memory. They may love you, but at the end of the day, they've got to be reminded. It's kind of like that saying that you learn, tell them what you're going to tell them, tell them, and then tell them what you told them. You kind of have to do that same thing on your service model. Tell them how you're going to service them, service them, and tell them how you serviced them.

Michael: Yeah. And I do find there's this dynamic when you switch from AUM to flat fee or really any kind of what I call fee-for-service model. So monthly subscriptions, quarterly or annual retainers, hourly fees, whatever it is. The AUM model, as you said earlier, it's got this natural lift. As long as you just sit around and don't screw anything up, markets tend to rise. Which means your fees tend to rise. Now, if you take advantage of that too long and don't do anything more for your clients, eventually people get dissatisfied and say, "Why am I paying you so much?" and start leaving and firing you. But what happens for most firms is just the revenue per client lifts as AUM goes up. It gives them more free cash flow. They reinvest into doing more things for their clients then usually they start working with more affluent clients because they're doing more things for them and then minimum start rising in other paths.

So I think the increase in fees and increase in services tends to still happen in the AUM model, but it happens because we get the raise kind of by default, and then we reinvest so that we can show our clients that we're worth keeping around for these rising fees. And in the flat fee model that you're talking about, the whole thing shifts. Like, now I've got to ask for every fee increase. Which means I don't just get the fee increase and have to justify it later, I have to justify it up front because I have to ask for it and get them to sign off on a new fee. Where all of a sudden these kinds of stewardship reports or client service report, or whatever you want to call it in the wealth management context, suddenly becomes incredibly useful and relevant to the point that you would make the kind of investment that your firm did, which is, "No, we're actually going to have someone come in and customize our CRM so that we can get this report at the click of a button because it's that important to our ability to sustain and increase fees over time."

Jania: Yeah. And it's a super way to find out how your clients feel about you. I get asked when others have heard that this is how we do our fees. They say, "Well how uncomfortable is that when you have to ask for a raise?" And I said, "You know what? It's the checkpoint where we look each other in the face and we say, 'Do you think I'm worthy?'" And I always tell our team like, "Look, if we don't deserve that fee, then we need to know." And every two years we get a check-in with our client face-to-face and say, "Do I deserve this?" And you'll know if you haven't been doing your job.

How Jania's Firm Sets Its Fees [27:31]

Michael: So let me ask a little bit more just understanding what fees look like. I know on the advisor world, a lot of us end out with minimums of at least a couple hundred thousand dollars because that basically means our minimum fee for advisors who set one is usually $2,000, $3,000, $5,000, sometimes high-end advisors go higher. If you're working with the proverbial million-dollar clients at a 1% fee, your typical client pays you $10,000 a year. So help me understand what reasonable expectations are in the 401(k) plan world. You said you'd had a minimum fee. So what's a minimum fee for you, and then what's a typical fee when you're actually working with these $30 million, $50 million, $100 million plans? I just have no idea if we're talking about $5,000 fees or $50,000 fees or more or less.

Jania: I would say our bare minimum fee we have to make $10,000. And that would be a small client where maybe we do things more virtual because travel time obviously costs a lot of money. So I'll give you an example. I got referred to a whiskey distillery. Actually, might be close to you, Michael.

Michael: Do they trade in kind?

Jania: Well, it's funny you should ask. It's funny, the team always says, "Jania always finds reasons to take on a client. Either they do something good for the world or they make whiskey. There's something."

Michael: Well, they do something delicious for the world.

Jania: Yes. Yeah.

Michael: Absolutely.

Jania: So they were referred to us by a center of influence, a CPA. So sometimes what I'll do in these smaller cases, this was a startup plan, I will just do what I call pro bono work, where I just help them not go in a really bad direction. Because there's a soft spot in my heart I have for startups because there aren't many providers in the 401(k) world that want a startup plan.

Michael: Right. Everybody wants them after they've got a pile of assets.

Jania: Exactly. So what are they going to do? They're going to charge them a lot of fees around the investments. So these poor participants are paying, like, 2.5%, 3%. Unless you get the pro bono work from us where we know some providers that I think are priced very well in the small market, they're not ridden with lots of fees. So in this particular case, I said, "Hey, let me help you." We got them proposals. We got them in a good plan. We even helped them pick their fund lineup. And then we helped them with the plan provisions, like how should they structure eligibility and match. And I said, "So you guys are good. I'll set you free. If you need me, you can call me, I'll always help you. But I don't want to get paid, because if I get paid, that means I need to actually do the service model that we do." Right?

Michael: Right. "If you pay me, this has to be a full engagement. Frankly, I have to take full liability. Which means I'm going to put you through my entire process. And that's not going to be cost-effective for you."

Jania: Right. So they said, "Well, no, no, we want you. What does it cost?" I said, "It would be a bare minimum of $10,000." So this is a little startup plan that $10,000 was a lot of money for them. So that's our pro bono work. Where I said, "When you grow up a little bit to a bigger plan or you have the finances where, the budget where $10,000 isn't going to hurt you, then certainly, give me a call. We'd love to help you." So they did give me a bottle of whiskey, by the way. So I did a employee education meeting there. The owner of the distillery just said, "Hey, this is just a...I want you to try it so you can tell your friends." So that's why I laughed when you said, "Did it involve whiskey?"

Michael: Did it trade in kind? Absolutely. Fantastic.

Jania: But then from there I would say, for example, a $10 million plan would probably run around $25,000 flat fee. So you're looking at, like, a 25 basis points at that point. But there's some other things that come into the calculation. And this is really, our industry, when I say our industry I mean the plan advisory industry, has really been, and maybe...I bet this has happened on the wealth side, too, especially with robo-advisors, but we're getting the whole fee compression issue.

And what happens is there's some advisors that enter into the marketplace and they want to buy the business. So they start undercutting everybody's fee. So it used to be that all our services were included in our base flat fee. And then in the last few years, we've been forced to strip it out, and now our fees are, so our base fee, so our flat...let's say in this case a $10 million plan is $25,000, billed quarterly. In our case, we bill quarterly in arrears, but then we strip out education and compliance projects. So we'll still service our clients for day-to-day issues, but if they need a voluntary correction or they need us to do a full kind of review of something, we do bill an hourly rate on the education side. Then we'd bill a flat per day fee to have an advisor onsite to do education. So we've kind of had to do that because everybody...our competitors, they would quote fees...

Michael: Right. They'll quote $15,000 to your $25,000 client even though at the end of the day, then they'll probably charge separately for compliance, support, and participant education and the rest. They might come back to your $25,000 fee and be competitive, but by then you've already lost the business

Jania: Yeah. Or, like on the flip side of that, we might have charged $30,000 but that included 4 days of in-person all-day one-on-one advice sessions. But our competitors were charging $25,000 and saying that they'd have unlimited education but they didn't really have the service model to support that. As we talk about our team, we're very...I'm the only producer...well, I'm the main producer on the team. We have another team member who does some business development, but really, there's 12 people that support all the clients that we bring in. Whereas most practices have like six producers or six advisors and make six support staff. We are completely different. And it's good and bad. Which I'm happy to share kind of why I think it's good and why I think it's bad.

Michael: So then are there other things that go into the flat fee determination? It sounds like asset tiers is still one component. So the flat fee kind of sets up to a new tier because you still get benchmark to AUM fees. Then there's some layers that you may add in. So you may strip down like, "Okay, we'll do the basic compliance support, but if you've got voluntary corrections, that's now going to be separate. We can bundle or unbundle participant education. So that may move the fee up and down." Are there other like moving parts and levers? In the financial planning world, we sometimes talk about complexity-based fees where we sort of add in fee costs for complexity layers. Is there a factor of that for you or is sort of asset tiers and some of the a la carte services effectively cover it?

Jania: Yeah, the only other component I would say is geographic location. So we have to factor in... We have a lot of clients in New York City, Philadelphia. So I wouldn't say it makes a huge difference, but we do a lot of responses to requests for proposals. That's where a lot of our business comes from in the last few years. And so we know it's in a very competitive market. So we're not going to add a lot of fees if we have to travel, but we might add $2,000 to the flat fee because we know we've got to take a train to New York 4 times a year at least. So we're not covering all our costs. But we haven't got to that point where we're going to bill for travel. I feel like the industry is turning into more of a nickel and diming industry. And I hate that.

Michael: Yeah, it is fascinating to me, though, that, as you noted, you can charge your flat fee structure but you still have to at least reasonably align to what an AUM fee would have been because, either plans will comparison-shop you, or prudence demands benchmarking. And if most of the rest of the world charges AUM fees, you're still going to kind of get compared to an AUM fee.

We actually, we did a similar study on the financial planning side of the industry just a couple of months ago and strikingly actually found the same effect. That when we looked at what retainer fees clients pay for advisors that just charge standalone flat retainer fees and then sort of asked them like, "What's your client's typical income? What's your client's typical net worth?" Right? Which are measurements of ability to afford a retainer fee, and then, "What's your clients' investible assets?" what we found was even standalone non-AUM retainer fees were most directly related to how much the client had investible assets for an AUM fee. Because I think even in the flat fee world, at least right now, you still get benchmarks to the majority of advisors that are AUM. So you at least have to be in the neighborhood.

Jania: That's right.

Michael: You may not be the same. And obviously, it doesn't scale quite the same, but you have to be in the neighborhood.

Jania: Right. Right.

What Her Service Model Looks Like [37:13]

Michael: So tell me about what the service model looks like. When you're charging this $10,000 minimum fee or $25,000 for a $10 million plan and moving up from there, what do clients get? What do you have to do to service and keep a sizable 401(k) plan?

Jania: Yeah. So I'll cover kind of what people typically think of when they're thinking of hiring a plan advisor like us or anyone. We would come in. We would first do what I would call, like, a fiduciary...a governance audit. Do you have an investment policy statement? Do you have a committee? How often does the committee get together? Are you documenting that prudent process? And if those answers are, let's just say for example, "No, we don't have any of that," so we would help them put a committee together, who's the right committee members to be on the committee, and then we would introduce them to an investment policy statement that we would ask them to adopt. We would run the investments that they have inside their 401(k) today through our screening criteria. And then, based on the output of that, we may or may not make changes to their fund lineup. So that's kind of the blocking and tackling, the investment advisory piece of it.

We are either a 3(21) or a 3(38) investment manager.

Michael: Can you explain those I think for advisors not usually in this space that we don't know what 3(21) versus 3(38)s are?

Jania: Sure. So think of 3(21) is an advice giver. So clients would hire us to give them advice around their retirement investment. The investments offered in their plan. So we give them advice, but they ultimately make the decision. And so I always like to say, so if they get sued, we get sued. We don't want to get sued, so we're going to help them not get sued. So we're advice givers, but were basically co-fiduciaries with them.

Now, there's another level which is actually the definition of investment manager, which is 3(38), which means we have discretion over the investments in the plan. And in that scenario, they still have fiduciary liability, but it shifts a little bit. So now in that relationship, their duty is the duty to monitor our actions. So our meetings would look and feel the same in the sense that our meeting reports look the same. We put them through our investment policy statement, our monitoring criteria. And then we'd come with this report. And instead of saying, "We think you should...our advice is that you map from this T. Rowe large-cap fund to this American Funds large-cap fund," and then they ultimately vote.

In a 3(38), we say, "We're going to map from this fund to that fund." So they don't actually get a say in it. And you have to be very careful because if they speak into it and they start making it look like they're driving the decision, they step back into that decision-making role. So 3(38), there's some in the industry or some marketers out there that try to position 3(38) as a way to give a higher level of fiduciary protection. That's not necessarily true. It's a different level of protection because now the company has different responsibilities. And in that case, it's just to monitor our actions. So I know that was a long description but...

Michael: No that's really helpful. I think in our typical advisor realm, this is sort of the difference between...a 3(21) for us is I guess essentially, a non-discretionary client. You're giving them advice and recommendations on what to invest in, but then the client ultimately has to say yes or no about whether they want to move forward. In a 3(38) realm for 401(k) plans, that's essentially the equivalent of our discretionary management as advisors. Like, you have discretion, you control it, you manage it. The client's job is to decide whether you are doing a good job or not.

Jania: Yeah, absolutely. And one thing that's different with us, we don't charge more.

Michael: That was going to be my question. Is there a price difference in 3(21) versus 3(38) services?

Jania: There is not. And I know some advisors probably get upset with us that we don't charge more for 3(38).

Michael: Because others do. I'm presuming they say like, "Hey, we're going to take more fiduciary liability but we're going to charge you more because that's what you've got to pay for if you're going to defray this cost? Or are you going to defray your liability?"

Jania: That's what they think. Yeah. We think that what we gain in efficiencies kind of levels out the additional liability

Michael: Because the implementation of 3(38) is kind of literally easier and faster when you can just do your analysis and do it, not do your analysis and then have all the back-and-forth with the investment committee to try to get them buy off on the thing that you're recommending them to do and then help them go forward and do it. You just do it and then you explain what you did, obviously.

Jania: Part of our job, we study these lawsuits and the cases out there, I think we have just as much risk in a 3(38) as a 3(21). We're going to get pulled in either way, so I'd rather have control over the decisions than asking our clients to vote on it. So we have been moving a lot of our clients to a 3(38) arrangement over the last few years. And if a client asks me what's the best for them, I would say, "Absolutely, you should hire us as a 3(38)."

Michael: Interesting. And so I guess the 3(21) end, particularly if you don't have a price difference, really just becomes the domain of that subset of companies that truly actually just want to be more involved in how this plan is being delivered and what's being done for their clients. They've got some benevolence view or some other perspective that says they want to insert themselves more into the process, and that's why they would keep 3(21) status?

Jania: Yeah. I would say we made a push on this starting about a year to 18 months ago, and I think we've only had one client say no.

Michael: Most of them don't actually want to be that involved.

Jania: Yeah. And it's not that they're not...I used to, and I actually wrote an article about this years ago, that 3(21) was better than 3(38) because you have a more engaged committee, everybody's got skin in the game and everybody's kind of actively participating. But I will tell you, I've completely changed my mind on this because I've seen some of these cases. And there's one in particular that I reference when I talk to my clients. When you look at the NYU case, the judge ruled in favor of the defendants, the committee at NYU. However, if you read the judgment, she was really upset with the committee, because under deposition, the committee, when they were asked questions like, "Why did you decide on this share class?" or whatever it may be, the committee said, "Well, our advisor told us to do this." And in that case, it was a 3(21) relationship.

Michael: And they tried to get to the advisor as though it was a 3(38) anyways?

Jania: Yeah. So in that case, you might as well...because, then think about it. The plaintiff's attorney in a 3(38) case is deposing these committee members saying, "How did you monitor FPA's actions?" "Oh, I went to meetings. I looked at their meeting reports. I could see they were applying the standard of their investment policy statement." So it's not a, "Hey, I think this fund is better than that fund for this reason," it's more, "Did our process, were we following our process?" So it's easier for a client to defend themselves, I think, under a 3(38).

Michael: Okay. Interesting. And so, help me understand a little bit more of what this looks like on an ongoing basis. So I get sort of the set-up. "All right, we just have to figure out a few basics. We have to figure out if you're even complying with ERISA and your fiduciary obligations in the first place." So you do your governance audit. You put an IPS in place if they didn't have one. You put a committee in place if they didn't have one. You do an initial screening on their investment selection and do some cleanup. So what happens then on an ongoing basis?

Jania: Yeah. So, it's funny because I was just talking to...we just had our big national conference for plan advisors, and I was talking to some advisors that were newer in the industry, and we were actually talking about 3(38), 3(21), and they said, "Well what if you do 3(38) and you just do investment reviews, how will you...? So you don't ever talk to your clients but once a quarter then, right?" And I'm looking at them, I'm like, "Oh, my gosh, if you only knew." So to answer your question directly, Michael, we talk to clients every single week. Which I know kind of usually blows people's minds because they think that, "Aren't you guys just doing investment advisory work?" No. So it's hard to describe, but I would say, look at it this way, we run alongside...we're like an extension of our client's HR and benefits team. And they're running this 401(k) plan.

And let's say, you can name it, Fidelity, Empower, T. Rowe, whoever it is is the record keeper of their plan, there are so many opportunities for errors. Whether it's trying to understand their document, whether it's payroll didn't send the right file over, whether it's the record keeper didn't post something when they were supposed to. I think if we weren't there, the client would call the record keeper directly and may or may not get an answer. Whereas when they call us, we've had...if you look at our team, we've got a very senior level team. Most of us have been in the retirement business for decades and almost all of us worked at the large record keeper. So I used to work at Fidelity. We've got a bunch of T. Rowe people here. So we make sure everybody is running smoothly is the best way I could describe it. So that's part of our role is really making sure administration is done.

Michael: So just payroll problem. Because I'm just imagining a large firm, like, "We have 1,000 employees, like, oops, we added 27 of them and they didn't get added to the 401(k) plan in the right manner," which is not a difficult oopsie to happen in a ginormous firm. And now suddenly, they just have to actually fix 27 employees with messed up payroll who weren't in the 401(k) plan. Which is technically an ERISA of violation, so, "How are we fixing this?"

Jania: Yes.

Michael: And they call you and say, "Jania, what do we do? We made a mistake."

Jania: Yeah. And we're not...obviously, we're not attorneys or ERISA counsel. And we know lots of ERISA counsel because we use them quite a bit when we find the errors. But if you think about it, most companies, depending on their size, their benefits folks are tasked with health and welfare, payroll benefits, 401(k). So they're not necessarily experts on the 401(k) side. And as record-keeping fees have been squeezed, those teams have also been squeezed. And they don't have as much support as they used to. And it's really, I can't blame them. And part of it is our job. We benchmark plan fees, and we constantly go to the record keepers, "Hey, you've got to lower your fee." And what's going to happen in that scenario is...

Michael: They're giving less support.

Jania: That's right. So I kind of look at it, you know those squeezy balls where, like, if you squeeze one end the other end gets bigger?

Michael: Yeah.

Jania: So it's like we squeeze the record-keeping fees and now on the advisory side, we're forced to do more support. But that's a big part of what we do.

And then we also do a lot on education. So we probably have about...our 20 most engaged clients, we have either weekly or biweekly calls already set up on an ongoing basis. Where we have a log, and on that log, we're talking about anything that we're trying to work on to fix. For those who are in wealth management that maybe are considering going on the plan side, I love it. I'm a total ERISA geek. I love the complexity of ERISA and compliance. It's so broad that it's...every day is a new challenge. I've been in the business 24 years and I still learn something every single day. But yeah, we're very in touch with them.

But we do have an education strategy meeting with our clients every year. Some of our bigger clients we have subcommittees where we have a financial wellness committee. So like yesterday morning I was at a client at 7 in the morning meeting with their wellness committee. So we do more than just the...the investment part I would say is kind of the easy side. Chad, who's my business partner and director of investment consulting, he would probably get mad at me for saying that, but it is, most cases we're monitoring mutual funds. We do have collectives in some of our larger plans. But in general, it's not...we have a process, and we kind of put it through a system that spits out any funds that are flagged to be on watch. So it's not like we're actually...we're not stock-picking or anything like that.

The Extent To Which Jania's Firm Manages Clients' Investments [51:10]

Michael: That was going to be my other question actually is whether or to what extent literal hands-on investment management is part of what you do. Because in wealth management world, saying, "We have discretion" is literally, we have discretion to buy, sell, and trade. That's the discretion parts, like, hands-on investment management. So to what extent are you actually literally managing assets versus using the discretion simply to make changes in the lineup or other adjustments to what the participants pick themselves but you don't literally manage it for them?

Jania: Yeah, I would say we don't manage any assets. We manage the lineup. So under ERISA, you must offer prudent choices to the participants and demonstrate the prudent process. So that's what we do on a discretionary basis. The only place I would say we have true discretion on the actual asset would be in the pension side. So we do have pension plans in the large end of the pension. We actually hire an OCIO to manage that pension asset. In the smaller end, we'll manage the asset.

Michael: Okay. Okay. So I guess I'm just trying to envision, the other layer of this whole, call it managing assets, colloquially speaking, is I have some kind of investment platform. So Schwab, Fidelity, TD Ameritrade. If I'm on a broker-dealer I use one of their platforms. That's basically where the money sits. It's "my platform" because it's the one tied to my company and that's where I can trade and execute and do my stuff. So in this world where your services are consulting to the plans and your management isn't necessarily literally managing the assets per se, it's managing the lineup and the investment selection that goes with it, do you have, call it an investment platform that you tie to or do you just end out on a realm where you get paid directly for the advice and consulting work that you do and you don't care where the assets are aside from helping them pick a provider that's reasonably priced in the first place?

Jania: That's right. So we don't have a custodian. We're not tied to one. All of our plans are at some large record keeper, whether it's Fidelity or T. Rowe or Vanguard as the record keeper and custodian or trustee of the assets. If somebody came to us and said, "Here's $5 million," we would say, "Okay, I don't know what to do. We can't take your money. We don't do that."

Michael: So when does this shift? Because I know advisors that are in, I guess we'll call it the small and the micro department, where... Well, early on, a lot of us literally got paid to sell 401(k) plans. So we would work with, I know it was popular then and I'm trying to remember, like, Hancock plans and Principal and some of the others were like, I literally sell a 401(k) plan. It would be "my assets". It would be on my platform. I'd get my basis point trails off of it. I know there are a few advisors that do this through some custodial channels where they take the assets and they manage the assets hands-on. And they're billing on the assets because they're hands-on and they're touching them.

So when or where does this shift happen, where we go from, I'm managing these 401(k) assets hands-on, and still occurs in I think a number of wealth management firms and even some big 401(k) providers selling through individual advisors, versus this world you're in, where, "No, no, we just charge our fee. And you may have the record keeper pay it to us. We don't have an investment platform. We're completely in a standalone consulting realm." Where does that shift happen?

Jania: I would say it happens as you grow from a micro or a small plan to a medium-size plan.

Michael: Which is what in sizing? Just because I have no context for what's small and medium.

Jania: Yeah. So our RIA is HighTower, and HighTower has these offices all over the country. I own my own business. We just use them as our RIA. This will all kind of make sense as I tell you the story. So when I first came to HighTower, the thought process was, "Hey, we can go to these other HighTower offices that are..." Almost all of HighTower is wealth management. They're not 401(k).

Michael: Like, "What a prospecting pool. This is going to be amazing."

Jania: Matter of fact, when we selected HighTower, people in the industry were like, "Why did you go to HighTower? They don't do 401(k)." And I'm like, "Exactly. That's exactly why I did it." But what we found was very similar to a comment you made early on, which is, we'd go around to these offices, and many of them had between 3 and 10 401(k) plans, mostly small businesses ranging from $500,000 in assets to $3 million in assets. And maybe they had kind of their biggest client that might have been $10 million or $15 million. And in the smaller end, that $1 million to $3 million, they were maybe managing the actual assets as...they may had seven employees. I've seen things where they were basically putting them in their own portfolio. So it wasn't a participant-directed plan, it was managed by one of these advisors.

A lot of the teams that we went and talked to, great people, and they said, "Listen, this world is starting to get too complex for me." So I think for the teams, you really need somebody that focuses on 401(k) so that they understand kind of what they should be doing. And so a lot of these teams either I worked with them and gave them some advice around hiring somebody to actually be their 401(k) person or in some cases we actually took over the relationship for them on the 401(k) side. So I don't know if that answered your question other than, I think I see it in the small plan market. I think as you see more and more litigation going on, the liability is too great to be doing that directly.

Michael: And so, is this, like, $5 million to $10 million range? It sounds like is the sort of the fuzzy zone. If you're under that, you're probably getting individually managed. If you're materially over that, you're probably...if you're not hiring a firm like yours, it's at least getting close and someone is probably having the conversation?

Jania: Yeah. I would say $10 million and above, for sure. Like you said, $5 million to $10 million is probably a little fuzzy. Matter of fact, when the Department of Labor came out with the fiduciary rule, I actually met with the DOL. And even though I'm a fiduciary, I was concerned that if they made this too onerous on brokers, that brokers would get out of the business because their firm wouldn't allow them to be fiduciaries, and we'd have hundreds of thousands of small employers that had nobody to help them. So my thing is, transparency and honesty is the most important piece. Whether you're a broker or a fiduciary, just be transparent about it and disclose conflicts of interest. But I think in the smaller end of the market, that smaller end, definitely, you see more people managing the assets.

What Kind Of Tools Jania Uses In Her 401(k) Business [58:57]

Michael: And so, let me ask as well, what are the...what kinds of tools get used in your 401(k) realm? You talked about, you're building these IPSs. You're doing analysis and screening. Is this good old-fashioned, traditional Morningstar-style tools to do analysis and screening on mutual funds the same way that a lot of us have done it in the retail and wealth management space or are there more specific tools and platforms that a firm like yours uses in the 401(k) context?

Jania: Yeah. So we subscribe to a service called RPAG or R-P-A-G or Retirement Plan Advisory Group. I think in the industry, there's probably two main ones. So there's RPAG and there's Fi360. We used Fi360 early on. We migrated to RPAG probably about 10 years ago just because we felt like it was more institutional. It uses Zephyr reporting as well as Morningstar data. So it's just a...it's a tool that we use to put the funds through. And we like the reporting aspect of it. I like the Zephyr reporting. I think clients understand a picture a little bit better than they do a lot of data. So it's got both. Everybody has got a scorecard in our industry. So I think the scorecard is the one we like the best. So yeah, we know it's not homegrown. There are advisors out there that have their own homegrown kind of analysis tool. So far we talk about it, but we don't feel like there's a need for it in our particular case. We subscribe, obviously, to the monitoring criteria that the system uses.

Michael: Interesting. And so those sort of become the anchors? If you're going to be in this 401(k) space and doing the fiduciary due diligence support, you need some kind of tools that can do the analysis, formulate them up to scorecards, be able to produce the kinds of output that you need because this is fiduciary realm, it's like, document, process, document, process, document, process and so on...

Jania: Exactly. Yeah.

Michael: So the output matters in this context, and in RPAG, in Fi360, or I guess just kind of the go-to platforms that are doing this widely now?

Jania: Yeah. And I think Envestnet also has the capability of kind of creating some criteria. So I think those three. But what I see, sometimes when we're brought into a new opportunity where they were using an advisor that's not like us, the kind of the mistakes I see is they have...they would come in and just say, "Hey, this fund has been performing in the top 50 percentile or..." There's really no process or meat around it. And I think that's risky because then decisions look ad hoc. Because, why did you replace that one fund when it was in the 70th percentile but then you've got this one that's been there for 2 years in the 80th percentile? So you have to have really...I think you need a system to help keep you straight.

Where Her New Clients Come From [1:02:09]

Michael: So talk to us about where you find plans that have tens of millions of dollars that you get an opportunity to work with in the first place. You mentioned earlier, you get a lot of business responding to RFPs, responding to requests for proposals. So a large plan is looking for someone to do their plan consulting, so they put an RFP, they put a request out and you respond and then get a shot at the business. So where do these things go? Is there some master RFP database where I can just go to a website and, like, troll all the inquiries and try to find the ones that I think I've got a shot at? Where do you even find RFPs in the first place?

Jania: Yeah. So the RFPs came later. And that's just I think because people use Google more than they ever did before. And because of some of the accolades that we've won, our name gets put on a list. But I would say the first half of our career, we weren't getting those RFPs. We had to go out and get them the old-fashioned way. Now luckily, we're fortunate that we've got a name nationally known that bigger companies may see lists and they see that we've won Retirement Plan Adviser of the Year or some of the things that we've won.

Michael: So now that the firm has grown to higher profile, there's no magic database for RFPs. You get them because you've actually built enough of a brand that a large firm literally contacts you and says like, "Hey, we're doing an RFP. We've heard of you as a reputable provider. Would you like to submit for this?"

Jania: Absolutely. Yeah. And we do a lot on social media, or I should say I do a lot on LinkedIn and Twitter. And I'm involved in a lot of the SHRM groups speaking engagements?

Michael: What's SHRM?

Jania: SHRM is Society of Human Resource Management.

Michael: Okay. So when you get hired by firms and you're supporting all of these HR and benefits folks, like, SHRM is where they go.

Jania: That's right. That's where they get their designations and they have to get continuing ed. So I'll do speaker events where they come in and get continuing ed. I'll write articles. It really, it's about creating a brand so that people kind of hear your name a little bit and they reach out to you. So I would say that we weren't this fortunate early on. Nobody knew who we were. So we had to start from somewhere.

And I would say, I love hunting. That's my favorite thing to do. I love being on LinkedIn. I love seeing connections. I like to see how we're all connected. And I'm not afraid to ask people that I know to introduce me to somebody else, because I'm very confident about the service that we provide. And I think we do a really good job. So I genuinely want everybody to know about it. So I do a lot of work on LinkedIn. I would say that's where I get a lot of my business.

Michael: Fascinating. So there were a couple of things there that struck me. One, just the point you made, "I'm very confident about the service we provide so I genuinely want everybody to know about it." I'll admit, for me, this was one of my biggest challenges around business development when I started my career. They wind you up with cold-calling or some other prospecting process to send you out there to try to sell people and get them on board. And I knew deep down I didn't actually know much. You don't learn very much on a Life and Health exam and a Series 6 and 63. So I struggled a lot with business development early on. I think only later did I realize the reason was because I was so not confident that I actually was providing much of any value, since I knew I didn't know very much, that it was really hard to tell people about what I did and certainly and try to solicit them because I think deep down I was kind of embarrassed about it.

And then there's this point where that shifts and changes and you say, "No, I'm really confident in what I do. I know what I do is good and valuable." And once you have that level of confidence, suddenly it becomes a lot easier to talk about what you do because, like, it's not to be prideful, but just you're genuinely proud of the work that you do and you know you help people. Why wouldn't you want to tell pretty much anybody you can?

Jania: Right. Yeah, you're right. It's the one benefit, too, about getting older. I always say like, when I was younger and I used to be intimidated when I'd sit down with the CFO of a company and let's say I was 25 years old, 26 years old and he might have been my age now, which is 50, and he was looking at me like, "You're just a kid, how do you know this stuff?" And I feel like I learned pretty quickly in the business, but now that I'm a little older, it's nice to be able to sit across the table from somebody that's a similar age and not have to worry about that. Because I hired 2 people on our team that are in their 20s, and they're super smart and they're great individuals, and they're struggling sometimes with that whole issue of age, trying to get that respect being 25 years old.

Michael: Yeah. It's an interesting past. For me, at least I kind of found it was twofold. Part of it was getting some of the industry designations, going and studying and learning. Because if I was going to be young, at least I could show I had some credentials and actually had spent some time learning and knew what the heck I was talking about. And actually for me, that ultimately turned around to, "Well, if they're going to look at me and say, 'Geez, he looks young,'" because I looked pretty young in my 20s, "Then I'm going to make it a good thing, like, 'Holy crap, look at how young that guy is and he's got all this education and designations and degrees and credentials.'" I think I tried to turn that from a weakness into a strength by saying, "Well, if you're going to look at me like a young kid, I'm going to make you look at me like wonder kid."

Jania: I like that.

Michael: Well, I'm just going to pile all this stuff up so you can say, "Wow, that guy is really knowledgeable for being so young." So at least if you've got to acknowledge I'm young, you can give it to me in a good context.

Jania: Yeah. I had a client say to me, and this doesn't have to do with age but my personality. I'm a very happy person and very, I would say kind of passionate when I speak. And she said, "The first time I met you, Jania, I thought like, 'Oh, she's so nice and happy and bubbly.' And I have to admit, I was thinking you're probably just one of those nice bubbly girls but doesn't really maybe know a lot." And she said within, like, 5 or 10 minutes, she was like, "Whoa, wait a minute, you actually do know what you're talking about." So it's kind of...those impressions that people get of you, whether you're a certain age or a certain personality, at the end of the day, you've got to learn your trade because that's going to determine your success or not.

Michael: Yeah. To me, it was kind of a twofold of, it was competency to actually know what the heck I was talking about, and then it was confidence that I believed in what I was doing and the value I was bringing to the table enough to be able to talk about it. And at least for me, the competency was what drove the confidence. I could do it once I knew that I knew what I was talking about. And I know there are other advisors that manage this differently. They're better at the proverbial "fake it till you make it" version of this. Be confident and later you can prove you actually knew what you were doing. And I'm not trying to knock it. We get there in different ways. But that so didn't work for me. I had to know that I knew what I was doing and wasn't going to screw up clients in the first place. And it was the competency that led to the confidence and then the confidence that suddenly made business development so much easier.

Jania: Yeah. No, I can see. I would say I was probably...I was the other version you mentioned. So I was probably the fake it till you make it. But I was kind of born with confidence.

Michael: I was not.

Jania: Yeah, I would say, though, that one thing about myself and our team, the people that I hire, it's like, we all follow, not to get all kind of mushy, but one thing about our team is we're doing things for the right reasons. We follow our hearts. So even if I'm super confident or somebody on our team is super confident, we know that they're doing the right...it's always about doing the right thing. And not just because we're fiduciaries, it's because that's... In the interview process, we're always talking about, "What do you want to do this for?" We want people to be paid well, don't get me wrong, but we really want to build an organization here that is making a difference in the world.

Jania's Path Into The 401(k) Realm [1:11:33]

Michael: So tell us then about your own path. How did you end out in this realm of doing 401(k) plans and enjoying the hunt for giant 401(k) plan opportunities?

Jania: Yeah. So I guess going back. So I went to college. I was a two-sport Division I athlete many years ago. My daughter is always saying like, "Mom, stop telling people that. You're too old to talk about that you were an athlete." I'm like, "No, there is an athlete in here somewhere."

Michael: What were your sports?

Jania: I played field hockey and lacrosse at Hofstra in Long Island. So I went to college. I thought I was going to...I wanted to be a lobbyist or go to law school. I didn't take finance classes. Math was not my thing. So I was a double major in philosophy and political science. So I coached D1 lacrosse for a couple of years after I graduated, but basically got paid, like, $10,000 a season. Had to wait tables. I was like, "Okay, this isn't going to work."

So actually, a friend of mine worked for ADP, the payroll company, and she said... I was actually studying for my LSATs, and I was a legal assistant at a law firm, and I was seeing all these lawyers come in. They were working 70 hours a week with, at the time it was probably maybe $75,000 or $100,000 worth of debt. It's probably double that now. And I was like, "Wait a minute, you don't get to go and be, like, on "L.A. Law" and be a litigator? I want to do that kind of stuff." And I found out that that can happen, but it will take you 20 years to get there. So my friend said, "Hey why don't you come and sell payroll services?" And I'm thinking, "What in the world does that mean? Like, sell payroll? How do you sell payroll?" I think at the law firm I was getting, like $17,000 a year and ADP paid me $23,000. And I said, "Okay, I'm in."

Michael: That's a heck of a raise. Yeah.

Jania: So never in a million years thought I'd go into sales at all. It was a different world back then. Now when I see what I go through with my children, everything is studied and mapped out. Whereas back then, you just kind of went with your gut. There was no internet. We just were like, "Okay, that sounds like a good idea." So I worked for ADP for that first year as a payroll rep. And then the 401(k) division was just getting started, and the manager came down from New Jersey. And I had made President's Club my first year, which is kind of not really very common. And he tapped me on the shoulder and he said, "Hey, you want to come sell 401(k) plans?" And I really didn't even know what a 401(k) was.

Michael: I'm just imagining your ADP manager is like, "What are you doing poaching my top business person?"

Jania: Oh, yeah, there was a little bit of that. This guy, though, that tapped me on the shoulder, he's still one of my best friends in the industry. He's at Empower now. So he was really fun. And I just said, literally, I was like, "Well, would you be my boss?" And he said, "Yes." And I said, "Okay, I'll do it." And that's how my 401(k) world started.

It wasn't planned out. But what was interesting, when I look back, what kept me going, and this is going to sound really geeky, but I used to hate Fridays because that meant I didn't get to work for two days.

Michael: Ooh.

Jania: I know. I will say now at age 50, I'm starting to appreciate Fridays. But it took a long time to get there. I'm just fortunate. I always say I'm just lucky that I love what I do.

And the biggest part about it, it was complex. So I was at ADP then I went to Fidelity. And Fidelity is a great, great company. If you're in the 401(k) space, that's where most people would go and never leave, right?

Michael: Right.

Jania: At the time, when I decided to leave, I was actually the top rep in the country. And I remember resigning and Ed Murphy, who was the president there but now he's president at Empower, he called me and he said, "Listen, people like you don't leave. What's going on?" Because, honestly, I was doing very well financially and my friends and family thought I was crazy, too. And I said, "You know what? I'm not challenged. I feel like I'm selling a box. And the box is the same for everybody that wants to buy it. I want to go solve problems." And the way I felt I could solve problems was to be an independent advisor where clients could hire me and my team to help solve the problems.

I'll tell you this. It's kind of crazy. And I hope it's not true 10 years from now, but every time I've made a change, I've made a step back in my income. So I've never made the income I made when I left Fidelity. And I'm not worried about it. To me, again, I know this sounds kind of mushy, but we're doing this for a different reason. And I believe that if you do good things, good things happen to you if you're following your heart. And we've been fortunate. So after Fidelity, I went to a regional firm out of Baltimore, which was multi-level. So it was health and welfare consulting. I came in to build the retirement plan consulting practice. And they also had a small wealth management team.

Michael: And this is PSA Financial?

Jania: Yes.

Michael: Being a local Baltimore advisor myself, PSA has always been out there for a long time, is known as a very sizable firm in the industry and space. But I know part of the thing for PSA, both the good and perhaps sometimes the frustration was, Chip Lewis had kind of brought together this firm with all these different areas. He acquired P&C insurers and HR consultants, employee benefits folks and a financial advisor division, had all these different things. So you get lots of different synergies and you get lots of crossover, but it's also hard to not end out with a bunch of silos and challenges making everything work together.

Jania: Yeah. So I think exactly that, the silo part. I think it's very hard for organizations to break through those silos. Because you can position to a client that, "Hey, we're going to be all things for you. We're going to help you with your health benefits. We're going to help you with your 401(k). We're going to help you with your property and casualty," but they're so nichey in themselves, it's very hard. And I think there are firms out there that have done a good job as best as they can breaking those silos, but I was over there and really, I didn't own my own business. I didn't have full discretion to make decisions for our team.

Michael: That's the trade-off when you're in a larger-firm environment, more resources but not quite the same level of control.

How Jania Grew Her Business To $4 Billion Dollars In Under 5 Years [1:18:54]

Jania: That's right. And just people kept coming up to me and saying...because we built a pretty big practice over there, and people kept saying, "Why don't you just do this on your own?" And I feel so strongly about our service model and what we're trying to do that I wanted to have control of that and to grow nationally. So in the future, I'd love to have six to eight offices all over the country. Because I think the space has the room for it. I think we're still a fairly new kind of niche, and I think there's still lots of opportunity for growth. So that's what we did. We started our own firm. And back to, like, I think good things happen to good people, it was amazing. It was very scary to kind of step off that cliff and say, "Okay, I'm going to start over again." Because for non-compete reasons, we had to start over.

Michael: Oh, really? So when you broke away from PSA to go out on your own, you had to start over.

Jania: That's right. That's right. So we had to start over. And here I had two children. I'm divorced. But I never really was scared, to be honest with you. I knew that what we were doing was right. And I knew that what we could be was amazing. So that kept me going. And really, neat things happen. In that first year, people were calling me, companies who I'd never met with were linking in with me and saying, "Hey, I've seen your name, can you come in and talk to us?" Again, I really think if you're following your calling and you're doing good things, people will make sure you succeed. And that's how we grew it to $3 billion in 3 years, which was tiring and exhausting.

Michael: That's still a mind-blowing number, though. Like, "Oh, yeah, and then we went independent and then we got $3 billion in 3 years." Like, where does that come from again?

Jania: Yeah. It's one of those things you don't even know what's happening. Chad and I talk about it all the time. We're like, "We're working 24/7. We're hiring people." We had to hire people. So over those years, we grew to 13 people. Just in three and a half, four years, we hired that many people. And finding good people and just the interviewing process alone takes time. And we had some that didn't work out. That's probably a challenge of most business owners is finding good people. That would probably be my biggest challenge, I would say, is finding that next best hire. But, yeah. No, I don't know where it all came from, Michael. It just kind of, we finally woke up one day and we looked back and were like, "Wow, we've got $3 billion in assets now." I don't even know where to tell you it came from.

Michael: So is this mostly your hunting and going out on LinkedIn? Is this because you'd actually already built a brand for yourself, so even when you went away from PSA, the name on the business card changed but your name was already out there?

Jania: Yeah. So we can't ignore that even when I was at the other firm, I had a personal brand, right? So I was always speaking, doing my involvement with SHRM, other things like that. Now, you're right, the business card just changed. That's really kind of it. But we also had kind of that monkey on our back. We had to move fast because we had to support myself and my partners to be able to put food on the table. And in the plan advisory business, too, it's a slow process. I think from what I've seen on the wealth management side from my friends, not that that's not slow at times, but in the 401(k) space, it could take me a year to two years because it's a committee-driven decision. And then even once they hire you, we bill quarterly in arrears. So we're already...you know what I mean? We're six months out from getting paid on a client even if we start talking to them today.

So there was a lot of that stress of, "Hey, we've got to..." So it was just keeping the fire going in every...touching all the different influence centers that I could. Reaching out to people asking us, like, "Hey." Telling them, like, "We're ready. We'd love to be introduced to somebody." So really, having a network of people that will help you grow is where we got that business.

How Jania Uses Linkedin To Grow Her Business [1:23:44]

Michael: And then it sounds like, and going fairly outbound on LinkedIn as well to drive that further?

Jania: Yeah. LinkedIn, people in our industry will always say like, "Oh, you're so big on LinkedIn." I don't really do a whole lot on it, but nobody does anything, so I look like I do a lot.

Michael: And so, what are you doing that's actually driving some results for you or creating positive outcomes?

Jania: So I read articles. If I find something that's interesting, I share it, but not only share it, but I will speak into it in the post. I post it to groups. So not just my feed. I want to post that article to different groups on LinkedIn that might have people that would be interested in my services. And it's not going to happen overnight. I think that's...it's, people have to be patient. You have to build brand recognition and build that kind of...that you're somebody that they should turn to. And then also, just, I take the approach, I pretty much link in with anyone I meet. I've met other people that say, "Oh, I only link in with people that I could know their name if I saw them." And that's fine. But for me, I'm about kind of making sure I cast that net as wide as possible. Now, some people I won't link in with. I'll look at their profile and...

Michael: You'll ignore some people that are just, like, random sales pitches coming at you.

Jania: Yeah.

Michael: Yeah.

Jania: Or they're in an industry that's so off from ours. But if there's some connection, maybe I will. Because you never know how they could influence your success.

Michael: And so, was it in the transition from PSA that you went to HighTower or was there an intermediate step between?

Jania: Nope, I went straight from PSA to HighTower.

Michael: Okay. And so that's still where the firm is parked now as you've grown just, as it turned out, less from referrals from other HighTower advisors and more just the hustle of going out there and leveraging the personal brands you'd already built?

Jania: Yeah. Because, as I mentioned, a lot of the HighTower teams, what we found were, they are much smaller plans. So we have a couple of teams that we are their 401(k) team, but it's more the more local teams. It just didn't make sense to take over...to continue that model around the country.

What Surprised Her The Most About Building Her Business [1:26:25]

Michael: Yeah. So as you look back, what surprised you the most about just trying to build your own independent advisory business having spent so much of your career in other large-firm environments?

Jania: Well, I'd say the biggest, the absolute biggest surprise, I don't know if it was a surprise as much as I didn't think it through, was the brand. So I worked at ADP, the largest brand in payroll. I worked at Fidelity, the largest brand in the 401(k) business. And then PSA, large regional firm that you could point to a website and people are like, "Oh, I know who they are." And then now it's Jania. It's our team, but nobody knows FPA, Fiduciary Plan Advisors, right?

Oh. my gosh, I'll never forget the first few weeks when we were on our own and I didn't have anything behind me. It was just me and Chad. And we were out there talking to companies and basically just saying, "I want you to hire me. It's not as much the firm. There's nothing behind me anymore." And that was the biggest...the scariest moment. But then again, once they start hiring you, that's back to that confidence thing, you start to realize you do know a lot and you should not be nervous about it. But that was probably the biggest shock, is kind of, "Wait a minute, I don't have a big name behind me anymore. Are they going to want me?"

Michael: Yeah, it's a striking thing to me that frankly, a lot of advisors in the independent end have always been on the independent end and aren't used to what it's like having a big brand backing you and just how powerful that is. And then I see people on the other side that work in some big firms with big brands and I think similarly underestimate, people actually will hire you. Like, when you're delivering value, yes, the big brand can help, but if you deliver value, people do hire you and stick with you. You do have to figure out how to communicate it and get it out there. Your phone doesn't automatically ring. But I find that it's so striking on both ends that the independent advisors I think often really underestimate just how powerful big brands are, but some advisors with big brands overestimate how much you actually need that. It does help, no question, but it's not as essential as I think sometimes people make it out for themselves.

Jania: Yeah, and especially in this institutional space when a company is hiring you. Because sometimes it goes through different levels before it's approved, and they don't really care as much who the person is. They're all about brand buying.

Michael: Right. Well, the old famous saying in the technology world was "no one got fired for buying IBM." So back in I guess, like, the '70s and '80s when computers and personal computing and computer consulting was getting going, a lot of startups had trouble because they couldn't compete against IBM because IBM had such a brand that no one got fired for picking IBM. So it was always the safe choice for corporate enterprise buyers, and it made it really hard for anybody else to compete because people just bought the safe brand and sometimes didn't even look as much at the detail of the deliverables. Not to bash IBM. They also had a good solution, but so did some others who couldn't get their foot in the door because you could get fired for the startup. Nobody got fired for picking IBM.

Jania: Right. That's true.

Michael: And so, how do you overcome that in an independent world? I have to imagine it still has to come up from time to time.

Jania: Oh yeah. And I would say because we're on that list where when you Google "retirement plan advisor" or "top advisor" hopefully our name will come up because we've won some awards, but we're on that list with some very large national firms. For example, like we're close to $4 billion, we'll compete for business of a firm that might have $150 billion.

Michael: Right. You're large enough to be of critical mass, so you get a seat at the table now all of a sudden.

Jania: Yeah. I don't remember exact statistics, but it was something like, only 1% of the advisors in the country have more than $1 billion in assets under advisement in the plan space. So we're at close to $4 billion. But then if you look at that band of the one percenters, there's a huge disparity. There's, like, a cluster of us that are in that $3 billion to $10 billion, and then it jumps and it's like $70 million, $100 million, $150 million. Then you start getting into like the national consulting firms like Mercer and AON and such. Which we compete with them. That's who we compete with.

So to answer your question, I actually like when...I like to compete against those big firms because our story is that we're the more boutiquey, hands-on firm. Now, sometimes no matter what we say, it won't matter because the committee is going to, like to your point, nobody gets fired for hiring IBM, maybe nobody gets fired for hiring one of those big $100 billion firms. But if we can plant that seed to help kind of...help them understand that we want to be different and that we don't want to be that big. And when I mentioned that I want to grow nationally, I don't want to necessarily grow to $100 billion. I would love to have 6 or so offices with $3 billion to $10 billion in assets. So that would be a good place to be. I think once you get to that really...that over $100 billion space, you start looking more like one of the big national consulting firms, which is not what I want to do.

Michael: So what was the low point for you on the journey?

Jania: Well, definitely starting FPA. Those first few months, because of contractual and legal agreements, we weren't allowed to talk to certain clients. And that was probably the hardest for me because I go all in with my heart and my brain. And because of legal reasons, I couldn't explain to people why we did what we did. And that was hard. But there's nothing you can do about that. The law is the law. So that would probably be the lowest. But everyone that knows me knows I kind of...how I'm at a pretty high, happy range. So my low is probably most people's average.

Michael: Well, and I'm just struck. Most people I know if faced with, "You can go independent but you have to walk away from all your clients and start over from scratch," I don't know very many advisors who do that ever. And frankly, most of the ones that do I think tend to be in their maybe 20s or early 30s and like, "Yeah, I've got 30, 40-plus years. I'll keep going." You were further in your career when you made the switch to go completely independent.

Jania: Yeah. Matter of fact, that was the age thing. I said to myself when I kind of took the deep breath to say, "Okay, I'm going to do this," I said, "I can't let another year go by. I'm not going to have the energy to do this." And I was still on the later end, right? And I've had friends in the industry call me for advice that maybe wanted to do something like what we did, and I don't sugarcoat it. I tell them it's extremely difficult to kind of break away and start over. Luckily, I have good partners. We do have two other financial partners that helped support us so that we could at least keep lights on. But, yeah, we're out of the red and we have been and things have been great, but it was scary.

But I do believe that where you grow is where you feel uncomfortable. And I could have sat back and just stayed where we were, but I wouldn't have been challenged. I can't be happy that way. So thankfully, Chad, who's my business partner, we're completely opposites of each other. He's probably more like you, Michael. He's a CFA and he's analytical, and he's behind me making sure everything is getting executed. I'm kind of the big picture "Hey, we can do this." We wouldn't have been able to do it without each other, though. I would say that.

Michael: Yeah, those combinations of people who have the vision and people who are strong in the execution. There's this, I think idea out there in entrepreneurial world that there are people who are just lone wolves that have all these skill sets and bring it all together and make it all happen. But the truth for most businesses and startups is that they tend to be duos. Because if you're that strong in the execution skill set, you often need someone to complement you on the vision side. And if you're that strong on the vision side, you need someone to complement you on the execution side. And two superheroes often works better than one jack of all trades.

Jania: Yeah. And I'm just the one that's out there on social media and in the press and Chad tends to kind of fly under the radar more. But he is equally as important to our firm's success.

Jania's Advice For Advisors Thinking About Entering The 401(k) Space [1:36:35]

Michael: So you've talked about the dynamics of sort of transitioning independent and making the leap there, but I'm also just wondering what your advice would be more broadly for advisors thinking about coming into the 401(k) space today. Maybe particularly all those firms that are doing some wealth management stuff already and are thinking like, "Should I be doing 401(k) plans as well?"

Jania: Yeah. I've heard some of my peers that also have wealth management attached to their plan advisory business, they generate a lot of opportunities. So I would say, if you're in the wealth management space and you want to grow that, one way to grow it is to get into the 401(k) space. But you've got to do it mindfully and on purpose, not by accident.

Michael: Which means what for you? What do you have to do if you're going to launch 401(k) and actually do it right at this point?

Jania: Yeah. So you've got to take the time to learn the business. NAPA, which is our industry, has a lot of training courses. So that's National Association of Plan Advisors. The parent company is ARA, which is American Retirement Association. I happen to...I just stepped into the president's role of NAPA. But under that, we have courses that people can take. Advisors can take to get designations to learn more about the business. But nothing really will help them learn more than just going out there. And if you can align yourself with somebody that's already got the know-how. I've got two younger advisors on our team and all they do is shadow me. One is studying for his CFP but also taking some of these courses like the CPFA, which is the Certified Plan Fiduciary Advisor. So he's trying to learn that business.

But what I mean by doing it on purpose is, if you want to grow your wealth management business through the plan advisory space, don't just wait for the leads to come. So if you...for example, you have a 401(k) client, do on-site one-on-one meetings, provide services that would give you access to those individuals and then do a good job, right? Be transparent. Make sure you're not trying to sell them things that they don't need because that's the best way to get fired. But if you're doing the right thing, I think... I know a team in Salt Lake City who, he just started doing wealth management. He is very similar to our size and the plan advisory space, same size team. And three years ago, he kind of opened his doors to wealth management, and he's got $200 million in wealth management assets that he's gotten strictly from the 401(k) business.

Michael: That's a big crossover.

Jania: I don't know exactly how good that is. It sounds good to me. You're in wealth management, or you talk about this. And he told me, "Jania, this was like, people were begging us to help them." And I kind of see why in the 401(k) space more are doing this, because they get to know the 401(k) advisor and then the employee says, "Hey, well, I'm retiring," or, "I inherited this money. I trust you already. Can you help me?" And for years, many of us said, "No, we only do plan advisory." But we give out, like, a questionnaire that tells people what questions to ask somebody before they hire them. So we're educating them. My friend in Salt Lake, he's actually moved the needle more, and he said, "We're just doing a continuation," and $200 million in 3 years.

How She Defines Success [1:40:30]

Michael: Wow. So as we wrap up, this is a podcast about success, and one of the things we long observe is just the word "success" means different things to different people. And so, I'm fascinated by your story. You've had, frankly, multiple different successful career and business arcs, like building an ADP, building to the top of the team at Fidelity, then going over to PSA and building there, then starting from scratch once more and building on your own for FPA. And as you noted, and still not necessarily back to the income peak that you had at Fidelity. So clearly, this isn't solely an income driver for you. And so I'm just wondering, how do you define success for yourself?

Jania: I would say success for myself is having happy clients. Being admired and trusted by the clients that we serve has... I actually don't really look at our P&L very much. Chad does. He's looking at the revenue...

Michael: Someone's got to do it. Us nerdy number people will do that part.

Jania: That's right. Yeah. I literally, like, it's just not me. It's all about making sure...I know I've said this a few times, but it's helping working America feel less stressed, whether it's our clients. We fill out forms for them. We make their lives easier. And when they send an email to us or they're our raving fan, that's when I know we've hit success. Not by the revenue that we produce.

Michael: Well, I love it. I'm curious to see where it goes for you from here, since it obviously happens to also be producing a wee bit of revenue, with $3 billion or $4 billion of 401(k) plan growth in just a couple of years. So I'm excited to see where it goes for you next.

Jania: Thank you, Michael. I appreciate our discussion today.

Michael: Absolutely. Thank you, Jania, for joining us on the "Financial Advisor Success" podcast.

Jania: Have a wonderful day.

Michael: Thank you. You, too.