#FA Success Ep 259: Facilitating An Internal Succession Plan As The Pathway To Put Clients First, With Patricia Houlihan

Resources Featured In This Episode:

• Houlihan Financial Resource Group
• MoneyGuidePro
• Harold Evensky
• CFP Board
• Financial Planning Standards Board (FPSB)

Full Transcript:

Michael: Welcome, Patti Houlihan, to the "Financial Advisor Success" podcast.

Patti: Well, hi, Michael, it's great to be with you.

Michael: I really appreciate you joining us for the podcast today and looking forward to the discussion to talk a little about internal succession planning. If you look broadly at the industry statistics out there, depending on whose survey you use, it's somewhere between almost no one and really almost no one out there seems to actually have an internal succession plan set up and in place. Some firms just ultimately decide to sell externally to larger firms rather than doing a succession plan. Most just really haven't set a plan, either they're not sure what to do or they feel like they've got enough time horizon that they're not ready to do that planning process yet.

I know you are living through an internal succession plan after a wonderful career in the industry, which I guess is still going, you have not left yet but have put that structure in place. And so, I'm excited to talk about what internal succession planning actually looks like in the modern advisory firm when so few firms seem to actually be doing it and what brought you to the point to say like, "No, I don't want to sell externally, we're going to do this internally and we're going to figure it out."

Patti: Well, it helps that I have my son, Ryan, working with me. But I also have Carlton who if his parents would let me adopt him, he'd be my son also. And they’re my exit strategy and I've known it for over a decade. And so, what we've done with that in mind, is they are so much a part of me, I never meet with anybody without them ever. And clients, they call for them. Now, they'll also say, at the end of the conversation, "Tell Patti that I send my love," or they'll say, "Tell Patti to give me a call, we haven't chatted for a while." The clients are like family to all of us. And so, our plan is completely in place. I say all the time, if I get hit by the bus, they won't miss a beat.

They'll miss me, I know they will, they tell me that, but the firm won't miss a beat. They are just amazing. They run everything between the two of them. And actually, they are best friends, Ryan and Carlton are. So, Becca, she herds the cats really well. And that team is just the most amazing team you could ever have. So, that was important to me, Michael, because I do love our clients. And before I had an exit strategy, I worried because they would say things like, "Patti, nothing can happen to you," and now they don't have to say that and I've seen the change. It's amazing. So, my exit strategy, I came into it naturally and it's just been the most rewarding thing for me over these last 15-plus years, it really has been. I get to go to work every day and enjoy doing every minute of what I do with clients, but also with my team. My team is awesome.

How Patti And Her Small Staff Handle A Large Number Of Clients [6:22]

Michael: So, maybe just to paint a little bit more of the picture for everyone so they understand the context of the firm. Can you talk a little bit more about just the sizing of the firm itself? I don't know if you measure by AUM or clients or revenue, but just paint a little bit more of a picture for us of the firm itself.

Patti: We're small, it's literally Ryan, Carlton, Becca, and me, that's the team, and we manage about 345 million of assets. But the important thing, and this is one of the...I think this sets us apart. We don't take clients that are not a good fit for the client or for us. And so, when the phone rings, you're never saying, "Oh," you know? You're saying, "Oh, great." And that makes such a difference because the fit is there and we know we can help them. We always want to know what their goals are and what they want to accomplish. If somebody were to come in and say, "I want 100% return in the first six months," that's not a good fit. Our firm is financial planning-based and goals-based. So, we spend a lot of time getting to know our clients. And because of that, the clients stay with us and the children of the clients stay with us because we have older clients that we've lost because of death. And so, for that reason, I would say to you that being able to have a team that has the right heart, and what I mean by that, Michael, is that they're smart.

Ryan's a CFA, Carlton's got his master's in finance and a CFP, they're smart, that's not the issue. The issue for this team is the right heart. You want to help people. Not just manage assets, but you want to help people. And so, when I look at that as our main focus, then everything falls into place. Growing the firm, falls into place. Over this COVID time, we've grown. And when you know that you're doing something right, you get the referrals. They'll take good care of you, go see...and it's not just Patti, go see Patti, Ryan, and Carlton, they'll take good care of you. And the same thing, Becca, I don't think that I have one client that has not praised Becca. She lets them know when things arrive in the mail, she lets them know when she sent things out. It's just the communication is incredible. And when you have a team that has the right heart, you don't have to worry about anything, Michael. You don't.

Michael: So, speaking of just clients overall, how many clients is it with the firm? You'd said about 345 million assets under management, but how many clients are we talking about?

Patti: We go by client relationships, and by that, I mean it's a family. So that if I say to you, "We have 150 client relationships," that if we did a headcount, would be a lot more, but we don't. Because we can have mom and dad, mom and dad's parents, and mom and dad's adult children, so by the time you add all of those numbers in...but we don't look at it that way, we look at it as a family relationship. And because of that, we have family meetings, we can tie everything together so that when mom and dad call and want to know about the sons...we have privacy issues and we are very careful with that, but we know the history of the family.

Michael: Right. And it is about 150 client relationships, the measure for the firm?

Patti: That's a measure for the firm, yes. And because we feel so strongly about when we take on a new relationship, we know that that's going to be more than likely more than just the client sitting in front of you at the time. But that's what we want because that's when you really know you make a difference.

Structuring Client Fees When Services Go Beyond Asset Management [11:06]

Michael: Right. And what is the business model of the firm? Are you an asset under management firm? Are you a planning fees firm? Is it a blend of each? How has it worked from the business end?

Patti: From the business end, we manage assets but we do the entire relationship financial planning. I'm strong on financial planning because of my involvement with CFP Board and Practice Standards, I chaired that board, and then I chaired the board of governors. So, I believe firmly that you cannot manage assets without first doing the groundwork. So, we do the groundwork and we spend a great amount of time doing the groundwork. So, we used to do financial planning standalone but because the business grew, we now do financial planning for our asset management clients so it's all in one. And we charge a fee and we're fee-only, but the fee includes everything, financial planning, asset management, reviewing estate planning documents, reviewing their insurance documents, it's totally comprehensive.

Michael: And what does that AUM fee look like? Are you kind of the proverbial 1% fee? Or are you higher than that since you're bundling planning? Or are you lower than that because you've got some fairly affluent clients that hit breakpoints? What does that fee schedule look like?

Patti: The fee schedule is tiered. And by that, I mean we do 1% on the first million, 70 basis points on one to two, 50 basis points on two to three. And once we get over three, we then look at the total relationship and we actually call the clients and say, "This is going to be your fee from now on." We've done the heavy lifting, we've got the portfolio allocated and doing well and we actually will reduce fees.

Michael: So, you'll reset fees for existing clients after the initial years when there's just not as much stuff going on?

Patti: Yes.

Michael: And so, how do you structure that? Is that a flat fee, or did they just get a lower basis point charge? How does that work?

Patti: We do it in different ways. Again, it depends on the size of the account. And if for clients...we've had clients when we've actually called and said, "You know, I know this is the fee right now, but here's the fee going forward," "Well, Patti, we didn't ask you to do that," and, "Carlton, Ryan, we didn't ask you to do that." And we explained that I've always looked at this from the time I began that I want to provide the value that I'd be willing to pay for. And so, I've looked at the value we're providing and how much time we're taking and we sit down as a team and we go through this very often, almost quarterly. And it's a fairness factor, for me and for my team, we really are focused on what's best for the client and we are compensated fairly without question in my mind, and the clients are receiving great service.You'll hear that from me a lot, Michael. I didn't come into this to see how much money I could make, I came into this to help people.

Michael: So, I'm just wondering, this kind of resetting the fee to a lower number. I guess it was wondering what magnitude of change are we talking about? Is this like the fee goes down a couple of percent? Or is this like the fee could get chopped by 20% or 50% once you get through the initial stages?

Patti: No, it could. And again, it has to do with how much time we're spending. And I know that other colleagues are the same, you've got some client relationships that are intensive and time-consuming. You've got others, busy people, you call them and, "Let's get together," "Well, I'm leaving the country for..." "I'm doing this, I'm doing that." So, you look at all of that. At each individual situation, you look at it and you make a decision based on that. But yes, it can change by thousands of dollars in fees for the client

Michael: And just based on your assessment after you're a few years in of, "Okay, now that we're through the first stage and we're into monitoring and ongoing mode," just based on our experience with the client, just how service-intensive is this client really. And the really service-intensive clients hang out with the fee they got originally but the ones that are not so service-intensive, you'll come back and say, "You know what, I think we can adjust this fee downwards now."

Patti: That's a good way of saying it, Michael.

Michael: And so, is there a certain set timing to this? Like we evaluate at the three-year mark or the two-year mark or the five-year mark? Or just a little softer and more subjective even there, of when do you actually sit down to reevaluate?

Patti: We reevaluate very frequently. It can be...again, if the markets have run, as you well know, so when we do billing on a quarterly basis, we look at everything so that we make certain that if it's time to adjust the fee down, we do it.

Michael: And I am struck that you do work with some fairly affluent folks overall, the $345 million of assets across about 150 client relationships. So, granted, as you noted, sometimes disaggregates across a few people in the household, but the average relationship is north of $2 million per relationship.

Patti: We have a $1 million minimum. And so, yeah, the relationships that we have are successful people and they're getting younger, which I love too, because with Ryan and Carlton, their friends, we make exceptions to the million dollars but that's at our discretion. And so, it's working really well for us and we feel very positive about the business model that we have, we really do.

Why Patti Focuses On Visual Financial Data To On-Board Clients [17:38]

Michael: So, can you walk me through a little bit more of just what this planning plus investments process looks like for you? I find a lot of advisory firms, we say we do both but how we actually go about it sometimes varies quite a bit. So, if I'm a new client and I've said like, "Patti, I'm coming on board with you and Carlton and Ryan," and the services sound great, I'm good with the fees, I've got a few million dollars so I meet your minimum, I'm ready to go. What happens? How do I actually get started as a client? What's the process that you go through?

Patti: We send you a data-gathering form, because I want to see it. So, I've never had a situation where a client could tell me exactly what they had with long-term care or life insurance. For the most part, they really don't know. They know it's life insurance or they know it's long-term care insurance, but they don't know what the contract says. So, we want to see everything, we want to see two years of tax returns because a lot of information is on the tax return that they don't think to give, we want to see statements of every financial account that they've got, we want to see estate planning documents.

I say all the time, I'm not an attorney but after almost 40 years of doing this, I've read a lot of documents, and too many times when I read the documents that I get, I see things that I think, "That's not what you all have said to me, that's never anything that you've said to me." So, we read it from that perspective to see, "Is this really what you want? Do you want your estate at your death to be tied up in trust forever?" Because the client has not said that to me. And if they have, then the document should say that. So, we get everything, we get everything. So, again, when I say comprehensive, I mean that.

Michael: So as you were saying, you send out data gathering form but you're also not necessarily expecting them to actually have all the details information. So, what's the form in practice? Is this a PDF and you just tell them like, "Fill out as much as you can?" Is this a handwritten form? Is this more of a... like a one-page form and a list of documents because they're mostly going to send the documents? How do you actually do this if you're anticipating they're not going to know their own stuff?

Patti: Okay, the part that they do have to do is the budget. They have to literally do that. We give them help about how to do this. But when it comes to estate plans and insurance issues and tax issues, we want to actually see the documents.

Michael: And then what about just all the financial accounts and information, listing out your assets and liabilities? Is that part of it as well? Or is that, "Just send us your statements, we'll read through them?"

Patti: They can do either but usually what they do is they send us the statements. For example, we don't charge on 401k plans, yet we give advice on them. So, when we've got a client, they need to provide their 401k statements so that we can say, "We will put X amount in this allocation here with this particular asset." And so, we tell them what to do, and then the assets that we're managing, we can manage around that. So, with all of our clients, they want to give us the statements because they want us to see it.

Michael: And how do you actually cue this up to them? Is this a handwritten form? Is this a PDF? Is this a piece of software?

Patti: It's both, PDF and then because of what we've been doing with COVID, we can do a shared screen and do a cash flow model with them where they send us information so we can populate the field, like we want to see Social Security statements that they've gotten. So, again, we get as much information and then we populate, and then we will share the screen and go through this to see that we've got everything right.

Patti: So, you'll send the data gathering form, have them send back the form and as much information as they can put in, and then there's a follow-up data gathering meeting that is, "Let's look at the form and what you put in, we'll ask our questions, we'll verify some information." And then that's, I guess, the first meeting after I say, "I'm coming on board?"

Patti: Yes. And again, because of being able to be remote and to share the screen and to do things the way we've been able to do with Zoom and so forth, that has not been an issue for us for the last 18 plus months. But before this, all of this would have been in the office, in the conference room with their big-screen there, where we would have already populated...if they had sent it to us ahead of time, we would have populated it and it would be there. If they had not, if they brought the documents with them to the meeting, then it was a get-to-know-you meeting, we took all the documents, we scanned everything, we gave them back the originals, and then the second meeting would have been the one that I just described.

Michael: And when you say you're populating the information, what are you populating it into?

Patti: We use MoneyGuidePro, which we have really enjoyed. We used to have a different one but we've used this one now because it's so easy for clients to...once we've got it set up, to be able to give them their way to go into the portal and look at it as they're making changes, and then send back to us with changes and scenarios they want us to consider. It's intuitive for them.

Michael: So, the form goes out to them, they fill out what they can, they send back a lot of documents, you do a follow-on data gathering meeting where you've actually initially populated this in the MoneyGuidePro so that you can sort of reflect back to them like, "Here's what we've got for your assets and liabilities, here's what we've got for your projection of budgets." It sounds like not that you're necessarily presenting a plan yet, but just you're reflecting back the inputs into the planning software and making sure that everyone's on the same page about what the inputs are. Is that a good characterization?

Patti: And again, it focuses more on the cash flow, so that's estate planning, the insurance planning, the tax planning, all of that is an additional, but that's more of a verbal that we do with them going through their documents. But yes, the cash flow model is really important.

Michael: And what makes the cash flow model such a driver in the conversation and the focus for you?

Patti: It focuses the client on whether or not they've given us good information.

Michael: How so?

Patti: When they see the statements that we've looked at, that we've put in, and we've gotten all the assets together, we have it then defined as whether or not it's an asset that can fund their retirement or a used asset like their home, so they don't look at assets like their illiquid asset in the same way. So, it's a wonderful educational tool too. So, when the clients are looking at it, it brings scenario playing in, "What if I want a second home? What if I want to have a condo here and a condo in Florida?" So, it gives them the ability to look at the options that they can't get their arms around to know whether or not it's a good idea and whether or not it will blow things up. And so, with being able to look at a cash flow model and project into the future...and this model also has Monte Carlo, which is, from a mathematician, I used to teach math, that's important to me.

So, when we look at this and bring the client in, they start to feel comfortable. When they see that their plan won't work, that they're going to run out of money more than likely, it gets real for them because numbers, as we all know, you can make numbers say whatever you want them to say. And so, what we do is when they tell us what they tell us and then we look at what we can see, we see a disconnect, then we toggle and say, "If you're telling us your expenses are $6,000 a month in retirement, that's not what we're seeing here."

Michael: Right.

Patti: And so, it really does get to the crux of the matter for most clients, to be able to decide that, "Yeah, wait a minute, I think I really can retire." But not until we show them, "If you're telling us you're spending $7,000 a month," and we toggle it up to, "Really, you're spending $10,000 a month, $15,000 a month," it shows them what happens, what that means. And so, I think it's an excellent tool, I really do.

Michael: And out of curiosity, just because you had mentioned with your background teaching math that you really like to use Monte Carlo projections. As I'm sure you know, there's still some advisors that are very skeptical of Monte Carlo and whether it has the right distribution, whether it reflects the risks properly. So, I'm just curious, as someone that's a math teacher background and advocate, how do you think about Monte Carlo analysis?

Patti: I like it, and the reason that I do is it shows that wide range. I'm old enough and I've been doing this long enough that with a lot of software, you would just do a percent, 4%, 5%.

Michael: Yeah, just put in the flat percentage return and project it out.

Patti: And people would want me to put in, and I'm going back 20 years, 12%. Twelve percent that never changes, that's a whole different outcome. The reason that I like Monte Carlo is the graph that you can show them shows lots of green lines, red lines, whatever, and it shows how low it can be and how high it can be. What I say to them is, "Don't look at the high because that's what you want, we hope you don't get the low, but look where most of the lines gather."

Michael: But it's important to you just to show the range because it just literally visually shows much more of a range than projecting a straight line.

Patti: Michael, pictures are powerful. And when you can show a graph, a picture, it speaks, as we've said, 1,000 words. So, for me, I don't want one line, I don't want one return, and we do a lot of education on returns. Because back in the '90s, I had people say to me that...because all the markets we're doing was going to the sky, the return is in the sky, I had people saying to me, "Oh, I made 20% last year, I don't need to save as much." Well, when you can do this, you can show them, "If you don't save this much," or you can toggle it up, "If you save this much, you got..." It's the visual and I think visual is powerful, I really do. So, I understand what people are saying about Monte Carlo, but I use it in a way that shows how variable things can be.

Michael: Well, I guess, to me, part of the point just at the core is if you're concerned that Monte Carlo doesn't sufficiently show the range of outcomes, showing a straight-line projection instead is not better, it just takes the problem and makes it worse.

Patti: That's the way I feel.

Interpreting Client Risk Tolerance To Design A Comprehensive Financial Plan [29:54]

Michael: So, then what comes next in the planning process? I've given you the data gathering form, we did this initial data gathering meeting, you put some of the numbers into MoneyGuidePro, you showed them back to me in the meeting so I can either say like, "Yeah, that looks right," or like, "Oh, that doesn't look right," and then that's a wonderful conversation about where the gap is. So, what happens next in the planning process for you?

Patti: When I look at what we're trying to accomplish with clients, I look at how we can manage expectations. And so, when you say to somebody, "Can you take a 10% loss?" "Well, 10 is a small number, oh, sure." So then, we apply the 10% to the value of their liquid assets and we give them a number. That number isn’t small. They back up, "Oh, no, no, no." And we actually say, "If you opened your statement and you saw that you had lost $780,000, how would you feel?" I have not had one client say, "Oh, I feel great."

Michael: Right.

Patti: That helps us to see then whether or not are you...you went through the '90s so you know what it feels like. And you went through 2007 to 2009, so you know what it feels. If you've done that and you held steady, you didn't call and say, "Liquidate everything," then we can show them...and I do a lot...Carlton and Ryan and I do a lot with showing different numbers and what it means. And so, when you go through this with the client and you say, "If you had sold, this would have been your outcome." Because what we do, left to our own, is we will sell low and buy high. Because we do this, Michael, you see the market going up or going down and you say, "Oh, my gosh, oh, my gosh," and you're wringing your hands, "Oh, it's not going to do this, it's going to stop, it's going to stop, it's going to be okay, it's going to be okay." Wring hands, wring hands. Literally, in my career, I have said to my team, "This is the bottom of the market," and the reason that I know is I've had a client that has called and said, "I can't take it anymore."

Michael: Capitulation is happening in real-time.

Patti: Correct. It used to be that my sister, that we obviously take care of, would call and would be concerned, wringing her hands, and I would say, "We're not worried about it, markets cycle. They go up, they come down, they go up, they come down. We have time, we have time." But with clients, when this happens, then you know their risk tolerance was not what they said. Now we know...if I say one thing that I know now that I maybe didn't when I started out, it would be I know now how to test risk tolerance. Because to believe a client when they're saying, "Oh, I don't worry about this," some that's true, but some it isn't true and you need to be able to help them understand which they are. And so, we spend a lot of time on that.

Michael: And so, the driver of that for you is, "We're going to take the kind of volatility we're talking about, we're going to put it in actual dollar terms for your actual portfolio and you tell me if you still like it at that point."

Patti: Correct. Clients that have been with us for a long time, they understand. I have a client that actually has said, "Patti, if I ever call you again, tell me no. I know, you've done that before but tell me no, and then we won't talk anymore for a while." Because I'm right. If you've got the time, staying with the market if you've got the right allocation is the right thing to do for clients. And you can hold hands all day long and I am happy to do that, to talk with you whenever you want to talk with and that helps usually from...well, now, for everybody with me, it does.

But if you are concerned about allocation, go on the lower side. So, for example, we will do an investment policy guideline, IPG, that gives us a range. If you say you want 50% in equities and 40% in fixed income and 10% in cash, we will look at a range around it. So, if it's 50%, it can go to 40 or it can go to 60, and that's our range for doing a rebalance. So, what we do in that situation is make certain that whatever we've agreed on, if it's 60%, if it's 70%, we've got the range. We will call clients and say, "It's the time for a rebalance," we'll send the rebalance to them saying, "We like selling high rather than low."

Michael: I read it in the book somewhere, yep.

Patti: Yeah. There's a comfort level, Michael. Again, maybe this is the teacher in me, but education is powerful. And when you've lived through '87, when you've lived through 2000 to 2003 to 2007-2009, when you've lived through all of these different cycles, you know what has worked. And every single time for the time that I've been doing this, people will say, "But Patti, this is different." And then they come back and say, "Well, not really, it really wasn't, was it?" So, COVID is different. What happened? It went down and it's gone back up and it hadn't stopped.

Michael: So, in terms of this meeting flow process, you had said looking at MoneyGuidePro results and Monte Carlo, you come to a decision around asset allocation for the portfolio. So, does that come from that data gathering and data confirmation meeting and you can get to that conversation by the end of that meeting? Or is there a meeting for confirming the data and looking initially at MoneyGuide and then you come back in a second meeting to present results back out?

Patti: It's fluid and different with different clients and how much time they need to spend with it. But clearly, emergency fund matters. There are a lot of factors that come into it but what MoneyGuidePro does and Monte Carlo does is it shows the client how many variations are out there, and again, the risk tolerance. You can do an allocation, you can do a wonderful job with everything, but if you've got the wrong allocation because the client's risk tolerance can't handle it, that's not going to work. So, it's a dynamic situation, it's fluid.

Michael: Okay. And then, when do you get to in estate and insurance-related stuff? When does that come back into the picture?

Patti: That's a separate meeting. We've got clients that have been sending for years letters that they've gotten from the long-term care people saying, "If you stay with what you've got, your premium is going to go up 30%." So, we go back into that and we revisit what does that looks like for the client. If the client is older, is it can they afford that increase in the premium? So, we're constantly involved with things like that. Life insurance is, typically, once we've decided that you need life insurance...and some people, I say to them, "You either do it, you have life insurance to take care of people that are dependent on your income, or you want to make them really wealthy," which is for them? And we go through how much life insurance they need. And then we look at the policies, and I lived through...you remember the names, adjustable, universal, flexible, all of that?

Michael: Yep.

Patti: Yeah. So, I've lived through all of those so I know what it looks like. I taught insurance and I taught investments and I taught financial planning for 15 years for a review course for people going for their CFP exam. And so, I will go through in great detail those parts with Ryan and Carlton. I usually take the lead on that part because I've taught it. We do it in stages or whenever it's appropriate to do. When the client comes in and says, "I think I'm ready for long-term care," and one of the questions that I always ask is, "What does long-term care look like for you? Does it mean you want somebody to come stay in your home with you? Does it mean that you want to go into a retirement community? Does it mean that you are going to go to a nursing home?" I get very few that say they want to go to the nursing home. So, those questions give you different answers.

Michael: So, you're gathering data in advance of a meeting, you get that plugged in MoneyGuide, you can confirm that data and then present back some recommendations and conclusions in the first meeting that the client has to see if you get to a recommendation or decision on asset allocation.

Patti: Correct.

Michael: So, I guess I'm wondering are you a firm that just doesn't produce kind of like The Plan, Capital T, Capital P, The Plan, because you're just doing it interactively right out from MoneyGuide in a screen share or on the big screen, and so it doesn't get commemorated with a big plan because you're just doing the planning interactively? Or does a plan output still come later?

Patti: I can remember when I did the plan as you...The Plan, and it was like a book. And I've still got a client that has the plan...

Michael: The book?

Patti: ...and when he comes in, he says, "Patti, I can't believe how close we are on the plan." And I laugh because that plan was done over 35 years ago.

Michael: Well, he took it very seriously, clearly.

Patti: He did, and that's what I tell him, I say, "You did everything I said for you to do." And honestly...they were both workers, one a doctor, one an executive. I said, "Pick a salary that you live on and save the other one." And, honestly, it's not rocket science, you know? But what we end up doing is now, because of technology that we didn't have back then, we can do...we are so active with all of our clients when it comes to this, that we can change on a nanosecond with whatever scenario they want us to change with. Because we've got it in the computer already, they can go to their portal and they can see everything. So, yes, they got something that they can see but it's a work in progress always.

Michael: And so, you just send them to the client portal now rather than trying to produce the big plan or the big book?

Patti: Right. And they send us things on the client portal because we are very, very precise about security. We don't want them sending us anything electronically that doesn't get uploaded to our portal or password-protected.

Michael: And so, do you end up writing up any kind of recommendations or action items type of document, or just it all gets handled directly in the meeting because you're doing it straight off the planning software and then they can log in for whatever they want to see in the future?

Patti: It gets done there in the meeting and here's how: We all take notes and at the end of the meeting, we have to-do list, to-do list for us and to-do list for them, and we hand them their to-do list. We are hands-on. And I would be very surprised, Michael, if that's not the case for your listeners because with technology and even us old folk...I used to laugh and say, "They bring me kicking and screaming," but that's really not true. I've embraced technology from the very beginning because it's efficient and again, I love being able to share with the clients through the technology.

We can give them anything that they want to see and that makes a huge difference. And our clients, even the older clients, we're all going quite nicely along. So, I don't know how to write something that would be like a MoneyGuidePro, I'm not that kind of technician, or we outsource for tech support when there's a problem with my computer that I don't know how to fix. But when it comes to planning and planning software, I can see when something's not right, I can see when the numbers aren't saying what they should say, and I think that's my math and physics background. So, when I'm comfortable with the outcome and I can explain it to the clients, and Carlton and Ryan can do the same thing and they can, it's really rewarding. I can't imagine retiring, honestly.

How Putting Family First Helped Patti Evolve Her Firm [44:09]

Michael: So, talk to us a little bit more now about the journey and evolution of the firm itself from what I'm assuming was you originally just on your own getting started to adding Ryan, to adding Carlton, to adding Becca, to deciding to put an internal succession plan in place with them. So, how has the firm grown and evolved over the years, over the decades?

Patti: Well, in the beginning, I was it. I did everything, I answered phones, I filed, I did everything. And that was wonderful because it gave me a chance now to know all the different roles. I was officing downtown in DC on the 13th floor of a lovely building and I decided that I was going to move my office home, and I was getting a separation and my sons were in their teen years and I thought, "I got to be home." And I put my desk in my family room so that I could see the bay window, anybody that came to my front door, and if they came through the garage, they went past me. So, I could see everything. And I picked up the phone and I ended up calling clients and telling them what I was doing.

My business grew so much that I needed help. Like Ryan, he was majoring double major in finance and marketing and he was there. My other son, Sean, was there a bit. Literally, it was a family, it was just, “help me!” And so, when that happened, I would say to clients, the older clients, "I'll come to you," well, they love that because they hated coming downtown. Or they could come to my house and we would meet in the dining room. So, when you are honest and communicate, you don't have to have an office with windows and on the 13th floor.

And that's what I did because that was a priority for me. My children, my family has always come first and I figured out, "You know, I could work all night, I could pull an all-nighter, I could get everything done that needed to get done because I wasn't going back and forth to downtown DC." So, I remember people saying to me at the time because I was...actually during some of those years, I was doing volunteer work because of the Board of Practice Standards and everything, and I remember people being so surprised when they found out my home address was my office address. And I said, "It had to be because that's the only way I could do a good job for everybody." So, that's what I'm saying about women. I was not penalized for that at all.

My firm grew, and as a result, there was a magazine article, "Following the Mom's Footsteps," they got to see what I was doing and how hard I was working and loving it, and they got to know the clients because they came to the house. And so, you can understand, those clients are still clients, so they love Ryan and they love Carlton. They watched him grow, for Ryan. And so, it's all about the family and so that's how I grew. And then I moved back out because I needed space and so I got an office that was closer to my home. And it's worked, it's worked through all of it, and now we're at the place that if we needed to hire, we would hire, we've got an intern coming in this summer.

We're doing what we want to do, how we want to do it, and enjoying every day. So, that's how the firm has grown. It's been word of mouth, it's been some of the attorneys or accountants, it's been clients that just are happy. You can have your picture on a magazine...but there's another magazine coming out the next month, you know? There's a lifetime achievement award when I was in my 50s, Michael, and I said, "I'm only in my 50s, unless you were trying to tell me something, my life is not quite over." So, I've been very fortunate, I've had a lot of recognition, and that's been wonderful. In this office, I don't hang any of that on the wall. It's not about me, it's about the team. And that's the way it should be.

Michael: So, when did Ryan and/or Carlton come into the business? Or I guess even who came first into the business?

Patti: Ryan did because he was helping me when I was working from home. When he would come home from JMU, he would help me. Carlton came as soon as he graduated from college, and I wasn't really looking to hire but when I interviewed Carlton, I said, "I got to hire this young man because we will be hiring and then he won't be available." And he is smart, he is a wonderful person with a wonderful heart, and he's been with us ever since. So, he came straight out of school, and now he has three children just like you. And again, if his mom and dad would let me adopt him, he'd be my son. Becca, we just were so blessed. We had an opening for an office manager and one of Ryan's friends said, "I know somebody that's looking," and she came in and we hired her on the spot.

Michael: So, when did the succession planning process begin or the decision that it was time to start doing an internal succession planning process?

Patti: Probably over a decade ago. It's just been so obvious to me that I needed to make certain that my team was protected and that our clients were protected, so it just became very obvious to me. And when I was in my 50s, people didn't ask me, "Patti, how much longer are you going to work?" But now people will say, "Patti, are you going to retire anytime soon?" And it's so wonderful because I can say to them, "You all won't even miss me because you got this team here." It never entered my mind, Michael, to sell the firm. It just didn't. It never entered my mind.

Why Patti Opted For An Internal Succession Plan [51:27]

Michael: How is the internal succession structure work at the end of the day? Who's involved? Are they getting equity? Are they buying equity? Just how is this working in practice?

Patti: In different ways and yes to that. Ryan and Carlton know that they are going to have the business. Becca knows that as long as she is...and I told Becca, there's no way she can ever leave until I'm gone. So, they know, it's done through various ways, phantom stock or real stock, that's in flux right now for everything. But yes, they are compensated as if they are, regardless, owners. So, it's the way it should be. Again, it's not about money for me, never has been, Michael. You can't take it with you. So, for me, it's about the clients being taken care of, the firm outliving me, and that's what I'm working every day to make certain happens.

Michael: Can you share a little bit more of just what the structure actually is of how you transition this kind of ownership? So many firms out there, some do them as purchases, some do them as compensation for employment, some do it gradually, some do them in like one big transaction and then they pay it off over time. Are you able to share just how is this actually mechanically work to bring Ryan and Carlton into the ownership pool and do this transition?

Patti: I have done some of my own estate planning, which would mean Ryan has gotten some stock through using some of my exemption amount.

Michael: Okay, so not necessarily the business succession plan per se but simply the personal family estate planning process is, "I have a family business that I wish to transition, "conveniently," the child is actually in the business and taking over leadership of it anyways, so I'm going to facilitate some of this transition as a family gift for estate planning purposes."

Patti: Correct. And Carlton has helped to grow the firm too, and so I'm looking at the best thing for Carlton as well. So, whether it's bonuses and things of that nature, I want to make it as easy as I can because he is a partner. Ryan and Carlton and I are joined at the hip.

Michael: And so, is there a timeline for this of like you're trying to get your equity to zero by a certain date or down to a certain level by a certain date? How does the timing of this work?

Patti: I haven't figured that out completely, Michael, because I'm still working.

Michael: Okay. And it sounds like you don't actually have any plans to stop working anytime soon.

Patti: Well, God willing, if I stay healthy and can do this. I love it, so there's no reason for me to retire. If I did, I don't doubt for a second that Ryan and Carlton would make sure that I was taken care of. So, that's not an issue for any of us. So, if I get hit by the bus, then everything's taken care of...

Michael: Because they automatically buy or inherit whatever's left?

Patti: Right, and between Ryan and Carlton, everything is taken care of. But they keep telling me, "Don't get hit by the bus."

Michael: So, I had a curiosity, does this get to be a strange dynamic when the firm is called Houlihan Financial and Ryan is Ryan Houlihan and Carlton is Carlton not Houlihan. So, for some people, firm names get to be an issue or a concern unto itself. Does that crop up as an issue for you?

Patti: It has not because Carlton is, remember, this wonderful person. He has never, ever said a word about that. And, for me, that's going to be after my time, whatever Ryan and Carlton want to call it when I'm gone, they can call it whatever they want. So, as long as I'm still there, it's Houlihan, but that would not change things at all for me. It's not about that. It was Houlihan just simply because I didn't know what else to call it. And everybody around me was Evensky or...everybody was calling it that. So, that's why it was Houlihan but otherwise, that's not important to me. That's not part of my exit strategy or legacy to me. Whatever they want to call it when I'm gone, they call it.

Michael: But the flip side is it sounds like it's not necessarily creating a blocking point for succession either.

Patti: No. Not at all. Not at all.

Michael: And so, how is the client transition work? It sounds like you've been pretty straightforward with clients and saying like, "At some point, if I'm not here anymore and I've retired out, Ryan and Carlton are continuing the business," and that's been kind of an upfront conversation with clients. But I'm just wondering how do you introduce that conversation? How have you brought that forward to them? To the clients.

Patti: Oh, it's easy because we're all three in the conference room together. One of the funny conversations...because they are obviously much younger, one of the funny conversations when we were doing some of the MoneyGuidePro, Ryan and Carlton will say things like, "Well, in 20 years," and I started laughing and so did the clients that were there. And we were looking at each other and Ryan and Carlton are, "Why are they laughing?" Well, it was because when you add 20 years to our ages, it wasn't a pretty number. And when you add 20 years to their ages, it's great, you know?

And it was because they were asking, "Do you want to buy a new car in 10 years?" or, "How often do you buy a car?" It was like, "Oh, my goodness, gracious, we think we might be on our last car." But then we laugh and I say, "You can see where the exit is here. There it is, the exit strategy. You don't have to worry about adding 20 years to their lives." So, the clients...it's been wonderful, it's just been wonderful, they are very, very happy with it. And I'm never in a meeting without them, even a Zoom meeting. They're always on the Zoom calls.

Michael: And so, how long is that...well, so I guess two things. One, how long has that been the case that you're doing meetings jointly? And two, is it always literally all three of you for every client, or is there still a split of like...I think you said about 150 client households in total. Is there a split of like you and Ryan are...Ryan is lead with you for 75 of them and Carlton is lead with you for the other 75 but they're split between the two of them?

Patti: A lot of times, it's the three but if Ryan has got something with one of his children or Carlton has got something with one of his children, I just said to them, "Somebody is going to be here." So, it could be...the way we manage the assets, we have a lead on the client, it's Ryan or Carlton. And so, they can be each other, it doesn't matter. But because we do everything together, we have the investment committee, we do everything together, but I'm never in there by myself with them because of wanting Carlton and Ryan there. I think that's been very deliberate on my part because that's how you do have an exit strategy because they're in all the meetings.

Michael: So, one of them may be assigned as a particular lead but everyone's still in, so whether it's "Carlton's" client or "Ryan's" client, all three of you are still typically in every meeting, it just may be a different person who's taking the lead on the conversation?

Patti: Yes. Unless somebody is on vacation or somebody needs to go to the doctors or somebody...yes, yes.

Michael: And I know for some firms, the fear or the concern is it just seems like a lot of people, a lot of staff time, sort of indirectly a lot of costs to put that many people in the room every single meeting, is that a concern for you? Not a concern for you? A trade-off that's worthwhile? Just how do you think about just tripling up on every client that way?

Patti: It goes back to money is not the object for me, it's loving what I do and feeling like we do a good job. And so, I'm sure that people will disagree with this, but that's not been an issue for me. I don't ever sit in the conference room and think, "Okay, my billable rate, their billable rate," I don't do that. It's what we need to do for the right outcome for the particular clients that are there. And so, Michael, I know this probably sounds like I'm a terrible businessperson, but we love what we do, and the flexibility that everybody has because of the way we do it, it shines through and they'll respond to emails or clients over the weekend, late at night. I don't ever worry about any of that. I never do that math. I do other math but never that math. It's not the way it is.

And I think that...and I would say Becca worked with a financial institution before coming with us and Becca said, "I've never seen anything like the way you all work." And we don't fill up...I call them buckets because, remember, I taught 15 years and I taught a lot of CPAs, a lot of insurance people, a lot of brokers, those were the people getting their CFP. And I can remember people saying, "Patti, I want a job with you," but I wasn't hiring because they knew I don't fill up buckets. You don't have to do this production and this production and this production. It's the quality of the work for me. I don't know how to explain it otherwise, Michael. That's why heart matters to me. That's the biggest currency for me is heart, the right heart.

Michael: Although at the same time, I can do the math of the business economics, 345 million under management and a fee schedule that starts at 1% and then it goes to 0.7 and 0.5, there's a very healthy amount of revenue for four people in total. I am struck, this math adds up very, very well for just the financial strength of the practice, notwithstanding not being focused on maximizing the profits of the practice necessarily.

Patti: Right, but again, you share it, that's how we do it. It's just if they need to work from home, and that's where we're going now, three days a week or Monday and Friday, or we schedule client meetings, once we get back completely in-person, Tuesday, Wednesday, Thursday, that's what this does. It's quality of life.

And again, Becca said to me, "Patti, a lot of employers have said that, "We put family first," and when you work there, you realize that that wasn't necessarily the case." She said, "You have said it and you said it when you were interviewing me and it is absolutely the case." And it is, it absolutely is the case. Because that was what was important to me too, Michael, putting family first. Yes, so we're profitable, I'm sure that...there's not a week that goes by that I don't get some email or two or three because people can Google and they see how old I am and they're happy to have the conversation about selling my practice. And I always think, "Did they not go to the website?" So, I love that you focused on my exit strategy and legacy because I hope you can take away from this, Michael, that I really love my people and...so I'll leave it at that, I love my people.

How Patti Surpassed Her Expectations Of The Financial World By Channeling Her Confidence As A Woman [1:04:57]

Michael: So, what surprised you the most over the nearly 40-year process of building your own advisory business?

Patti: How it wasn't as difficult for a female or a woman as I thought it might be at the beginning because when I got into it and realized that I was really in a man's world, but here's the thing I'll tell you. I think the reason that I was able to chair the Board of Practice Standards and to chair the CFP Board and to chair the International CFP Council and during that time, to be able to help birth Financial Planning Standards Board, that was during that time. I was chair of the CFP Board and overlap at that time, chair of the International CFP Council and I knew that it needed to be an international entity and not ruled from Denver. And one of the things that I can tell you is that in going through all of my experiences, I can't even think of...other than the low point for me was when my daughter Carrie died, which put me on this path, I can't find a low point.

Because as a woman, I had confidence and my mother said there was nothing I couldn't do if I wanted to do it and that's really powerful for women to tell their girls because it gives them the confidence that, "I never doubted it, never, ever doubted it." And my father died when I was nine years old and she would say things like, "You're just like your father," and it was the most wonderful confidence boost that she gave me. And so, when I look at the thing that I took from that, it was, yes, I may be a woman in a man's world but by golly, if I tell you I'm going to do something, I'm going to do it 150%, 200% and you'll never say you can't count on me. And I am absolutely certain that that was the reason that this woman got to the level that I got to was because I never, ever said I would do something and then not do it right, I did it the best I could.

That's what I want to say for the women out there is just don't doubt yourself, put yourself in the man's world, and never look back and never think for a minute that you don't belong, and I never did because of my mother saying that to me. And so, I'm flying all over the world, I went to so many countries so I can't tell you. When I was in China, I went off the prepared remarks, told them, "They had been translated, you can read them," and I got a microphone and a lavalier, and I went into the audience of 1,000 people that were wanting to get their CFP. We were trying to bring China into the International CFP Council at the time. And I talked about what it was like to be a woman in the United States doing financial planning and what my day looked like. It was the most exciting time.

I took my boys with me to Malaysia. The same thing, I got up to speak but right before I got up to speak, one of the staff came over and said, "Patti, everything that's been said has been over everybody's head, this is not good." And I did the same thing, I got up on stage and I said, "I'd have to tell you, I am so delighted to be here because I was able to bring my sons with me." Well, that's the common language, Michael. We all have children or we're part of a family and we were a child. And I've said this many times in speeches, I don't care whether I was in China or Malaysia or Europe, everywhere, it was the same thing, we care about the same thing, we have the same goals.

Take care of your parents, take care of your children, want to get them to have a good education or a good vocation, whatever it is, that was the common language. You didn't have to speak French or Spanish, that was a common language and that's why I love financial planning because it is the common language. And we don't have to worry about which country we're standing in, we know what the people there want when it comes to family, and that's what we provide. So, again, I think that looking back on everything over all these years, it's been that confidence that do the right thing, stay up all night if you have to, give 150%-200%, and if you're not worried about putting money in the bank because the bank is not ever would count it for me, it was putting the value in my heart, it was not money in the bank.

And when you do that, things work out for you and they've worked out for me all my life in financial planning because of it. So, I hope that I've encouraged women to come into this profession...and I say profession and I know that some people will disagree that we've not quite reached that yet, and I'm one of those, I'm not sure that financial planning has quite reached that yet. But it's hard for me to call it an industry because I think it needs to be a profession, and I hope that the women will see that it's just such a great fit for them and I hope they have a mentor like I did.

Why Patti Values Following Your Heart In Business [1:11:24]

Michael: So, anything that you do wish you'd done differently, or I guess alternately, just what do you know now that you wish you could go back and tell you 20, 30-plus years ago when you were in the earlier days of still growing the firm?

Patti: Well, I wish I had the experience that I've had now to draw from back in the beginning but that's pretty obvious. But I don't think I would have done anything differently, Michael. I lead with what was right to me and I had to put my head on my pillow at night. I figured out early up people just didn't like insurance to talk about it and I thought, "Well, I'm going to teach it because then, you own it." When you teach something, you own it, you know it. And so, that's what I did. And that was early up, that was right at the beginning. I taught, can you imagine? And I didn't have life experiences but I was a teacher, so I taught. And I don't know that I would have done a thing differently than I've done it.

Michael: So, you were teaching financial planning classes when you were still a newer financial planner yourself?

Patti: Oh, I was just newly minted. I was teaching financial planning, then I went on to teach investment planning and insurance planning. Yes, I did. UCLA, Boston University, all over the place, I taught and it was so wonderful. When I chaired the CFP Board and I was traveling as the chair of the board to the different states, my students would come, they would come to see me. So you see, how can I possibly wish I'd done anything differently? I would work Monday, Tuesday, Wednesday, Thursday, and then I would fly out Thursday night, teach Friday, Saturday, and Sunday, fly back Sunday night, be at my desk Monday morning, and I would do that 6 weeks in a row, 3 times a year, for 15 years.

Michael: Wow.

Patti: And I loved every minute of it, loved every minute of it.

Michael: I get it by the time you're in the 10th to 15th years, but how do you get comfortable teaching CFP material when, as you'd said, you were newly minted, you just learned it yourself?

Patti: It was data. I was a good student and I was valedictorian of my class. You give me something to learn and I was really good at absorbing it and then taking the exam and flushing it and making room for more. And I honestly could learn and that was not the issue. I knew all the material that I needed to know and I could teach. I didn't like the confidence, I don't think anybody has ever said I was arrogant and I pray that they didn't. But I just was confident, I knew I could learn and I knew that I had been a teacher and as a math teacher, you had people that would come into your class and say, "I hate math," and I would say, "You won't by the end of the time that we're together." And they didn't. It was just I love teaching, I love knowledge. And so, it didn't enter my mind, just because I was a freshly minted CFP, it didn't enter my mind that I couldn't teach it.

When you're teaching, the students want to learn what it is that they're there to learn, whether it's math or financial planning or investment planning, whatever it is, they're there to learn the data, the information. And I didn't have a lot of stories to fill the time with about clients this and clients that. I was not there to tell stories, I was there to teach them what I thought they needed to know to pass their exam. And I focused on making sure I was really good with the computer, I had all sorts of shortcuts on the HP12, and they loved it. It was quite the experience and I look back on it now and I think I don't know how in the world I kept that six-week schedule up three times a year, but it was because I was so motivated and energized and I love the students and they were different than high school students, obviously. But I loved every minute of it, I wouldn't change a thing about that.

Patti’s Advice For Newer Advisors [1:15:54]

Michael: So, any other advice you would give for newer financial advisors? I think particularly women financial advisors trying to come into the industry since, as I'm sure you know and have seen firsthand for your years in the industry, we were about 23% women CFPs at least 20 years ago when I started the industry and we are still 23% women CFPs, it hasn't moved a percentage point in 20 years.

Patti: And that disappoints me more than I can tell you because...actually, I have a granddaughter that lives in Richmond that's a CFP and working for a firm there. It is such...and she actually said, when she went to Virginia Tech and was going through the financial planning program, she actually said that, "I was always able to be there." And if I could let women just know, you can always be there, your family doesn't have to come second. Because you're in charge of your appointments, you can be...now again, I didn't work in a corporate environment, I've been on my own since the '80s. So, I could do my own schedule so I didn't miss the baseball games, the football games, I didn't miss the wrestling matches, I didn't miss anything because I could be there, I just arranged my schedule but then I could work all night.

So, for women, I would say just don't doubt yourselves. A friend of mine that went through the CFP program with me said, 'Well, Patti, you can say that..." She was an art history major and she said, "You can say that because you were a math teacher." And I said, "Sandy, it doesn't matter what I was, what I'm doing now is not that." And she said, "Yeah, but you have more credibility." Well, I never saw it that way, Michael. I just saw that this is what I'm doing and I did this so I could help my mother. That's why I did this. I started this because I needed to help my mother, she was starting with Alzheimer's and somebody in the family needed to know the questions and if we got wrong answers.

I honestly did not do this...and CFP was really new when I started, that was in the early '80s. And so, I did it just because I wanted the information, I wanted the education, I wanted to be able to take care of my mother. And in doing it, I realized if I could do it for my mother, I could do it for others and that's how it all started. And so, I hope that women will look at this as...do it just for your own self. So many women are left, and they say, "My husband took care of everything for me, I don't even know where anything is," they don't even know what statements are coming in, they don't know any of it. Do it for yourself. Even if it's not a career move, do it for yourself because I can tell you, if you do it for yourself, it will be a career move when you realize how powerful it is.

What Success Means To Patti [1:19:06]

Michael: So, as we wrap up, this is a podcast about success and one of the themes that always comes up is even just the word success means different things to different people. And so, as someone who's built what anyone would, I think, objectively calls a very successful advisory business, I'm wondering, Patti, just how do you define success for yourself at this point?

Patti: I had a conversation yesterday and I can almost get a little bit teary-eyed. And the person said to me...I was on with mom who is going through a tough cancer battle and the attorney that's doing some updates for an estate plan that I had read through everything. And the daughter said to me, that was on the call too with the mom and the attorney, "Patti, I don't know what we would do without you." That is the definition of success for me. When people feel that I've made such a huge difference in their lives and that I was here for them when they really needed me, that's a success to me. That is the best thing in the whole wide world. And through almost 40 years, I've had so many attagirls and thank you and gratitude, that's success.

Michael: I love it. I love it. Well, thank you, Patti, so much for joining us on the "Financial Advisor Success" podcast.

Patti: You're welcome. Thanks, Michael.