#FA Success Ep 263: Building A High-Touch Boutique Firm Serving Tech Executives As Their Personal CFO, With Joyce Franklin

Resources Featured In This Episode:

• Joyce Franklin
• JLFranklin Wealth Planning
• Startup Wealth Podcast
• ClickTime
• Deloitte
• Dimensional Fund Advisors (DFA)
• Kochis Fitz (now Aspiriant)
• Litman Gregory AdvisorIntelligence
• Schwab Benchmarking Study
• University of California at Berkeley

Full Transcript:

Michael: Welcome, Joyce Franklin to the "Financial Advisors Success" podcast.

Joyce: Thank you so much, Michael. I am excited to be here with you today.

Michael: I'm really looking forward to the discussion today. And talking a bit about the dynamics of building what I've taken to start calling a boutique advisory firm. I know sometimes even the advisor, we throw around a lot of labels of different types of firms. And I try to use these labels pretty deliberately that I think of firms in three domains.

There are those of us who build lifestyle firms. Just the firm is meant to fit our life and fit our time. It's those folks that say, "I don't live to work, I work to live. I want to get enough dollars out of my business so that I can do other stuff that has nothing to do with my work. And that's where I want to spend my time and energy."

Then there's some folks at the other end of the stream that just are excited and engaged to be entrepreneurs and build big enterprises. Our industry likes to put a lot of those folks up on the pedestal that build giant firms and businesses. More power to them if that's how they're wired.

But I find for so many of us the advisor world, we're in between those two. "I don't necessarily want to go and build a giant thing and have to hire a ton of people and manage and deal with all that. I got a thing I do. It takes more than just me to do it because I'm doing it well and we're serving our community well, whoever it is that we try to reach, more clients keep coming to us. I don't want to just stop when I get to a certain number of clients. I want to keep going and serve a little more of them. But I'm not trying to make it humongous and take over the world. Just doing awesome thing for the people that we serve. And it probably means there's going to be more team members over time to do that."

That's what I think of as a boutique firm, right? A very focused firm, we know exactly what we do, and who we do it for. And we do it really well. We build a growing team to serve a growing number of people that do that, and it grows as big as it turns out to be based on how many people find their way to us.

And I know you have built a really awesome focused firm in your particular specialization, which is working with tech executives and all the equity compensation options. But just excited to have the conversation say about the journey of building a boutique firm, when you get clear on who you want to serve and what you're doing for them and get really good at that. And then enjoy the growth that comes when you get really good at serving the clients that you want to serve best.

So to start off, I'd love to just have you share with the audience just the firm as it exists today. Paint a little bit of a picture for us of what you do, and who you serve, and what you're doing today.

Joyce: Sure. So my firm has been in business for 22 years. And there's a team of four of us. There is my partner, who is a wealth manager, and we have an associate advisor, and we have client service manager.

And we serve people who are in the tech industry, for the most part. And that includes people who are executives at fairly high profile and very high-profile tech companies. So we have Google directors. We have executives at Facebook and Netflix. And they all have unique challenges.

The way we serve them is to make sure that we understand all of their benefits and help them with their equity awards. And as their lives get more complicated, we also help them with their personal financial family dynamics, whether that's helping kids with education or helping people, often people want to retire early or at least go on and do something else.

So we are very analytical. And our value added and our uniqueness is that we really get into the details, and we can look at all areas of our clients' financial lives and really help them plan.

How Joyce Built An Advisory Firm Helping Tech Executives Resolve Equity Compensation Issues [06:42]

Michael: So talk to us about overall sizing of the firm, however you measure, whether that's clients or assets or management or revenue. What's the scope of the folks that you're serving at this point?

Joyce: We manage 200 million for 40 client families. And many of these people I have been working with since the early days of my business. And people would come to me with some stock option or equity award issue.

And I started my firm in the dotcom bubble days. And it seemed like everyone I knew had stock options. And no matter where I was, people were asking me, "Oh, you do taxes? I have some stock options. I don't know what to do with."

And so we'd make an appointment, they'd come by, they'd bring their equity award grants, and I would help them figure out what to do with them on the tax side. And so I'm still working with many of these people who came to me when they had, let's say, a million dollars of equity awards. And they were terrified because they wanted to make a smart decision with them. And so I was able to explain the different choices they had and help them, on an analytical basis, to figure out the best way to go about diversifying.

Michael: Interesting. So this started for you as an advisor in Northern California in the tech bubble, so lots of tech companies, lots of wealth creation going on. And I know particularly back then, much more so than today, equity compensation was really common to do with incentive stock options in particular. And ISOs have a whole bunch of unique tax characteristics even above and beyond non quals and deferred comp and some of the other compensation mechanisms because the AMT rules.

So I'm envisioning, you ended up with a lot of complex ISO-AMT scenarios, in particular, that were driving tax conversations with clients, that then led to planning conversations with clients, that then led to holistic wealth management conversations with clients.

Joyce: That's right. And at the time, when I first started my firm, I was preparing tax returns. And so I really had it all incorporated together, all those discussions together. And at that time, I was also doing financial planning on an hourly basis where I would prepare a plan, prepare action items and instructions for them to do it on their own. And, for the most part, everyone who got these instructions wanted me to do it because they realized that that's not their specialty. They don't want to have to manage that and watch it all the time.

Michael: So I'm thinking through this, just the sheer math of it, $200 million of assets under management, 40 client families. That's an average household of about $5 million even. So you've got a pretty affluent clientele in terms of the asset base that they've got, either that they came to you with or that it's grown since then for clients to add up to those dollars.

Joyce: Yeah, and for the most part, people have come with a lot less, and they've stuck with me. And we've been able to help them over the years to grow their portfolio. So when I first started, our minimum was 500,000. And now those people who had 500,000 back then are $3, $4, $5 million.

Michael: So I guess that's an interesting question that I have. Because I hear this crop up for a lot of advisors that are thinking about... Specializations of this nature where you specialize in an event, a thing that happens or like you're an employee to tech company and the company's IPOing, and it's having this liquidity event. So money's moving, stuff's happening. There's an opportunity to do a lot of good planning work.

And the fear I know that I've heard from a lot of advisors is something to the effect of, "Well, if I specialize in something like stock options and liquidity events, then if I help them with the liquidity event, after it's done, they're no longer a tech employee. They no longer have a liquidity event because they got their big check, and they've done their thing. They're on to whatever's next in life. And once they get through the thing, they won't want to work with me anymore because I just work with people with options, and they're not people with options anymore."

So I guess I'm just curious how that plays out for you or how that has played out for you in practice. When you get known as someone that helps tech executives going through liquidity events, do you get problems where once they're through the liquidity event and their at other side, they say, "Well, thanks for all that help, Joyce, but I don't know if we really need to work with you anymore."?

Joyce: Michael, that's really interesting. That's never happened to me. It might be because being in the Bay Area, tech is everywhere. And I also find that people like to work with people who are similar age to them.

So when I first started my firm, I was in my early 30s. And my new clients were also in their early 30s. And back then, the people that I worked with didn't have a liquidity event that was so life changing, they never had to work again. Some people took a little time off. Other people started their own businesses. But they're still working. And they wanted that diversified portfolio that I helped them with initially to grow, so that eventually, they could tap into it.

Michael: So in that context, the liquidity event was the starting point. It wasn't the end point for the relationship. If the whole point is, "I'm going to help you transition through this liquidity and be a steward of your wealth on the other end," that doesn't end once you've got the wealth. In fact, that just keeps going once you've got the wealth because you still have to deal with what to do with the wealth.

Joyce: Exactly. And many of my clients will leave the initial company and go to another tech company that has a whole different equity award package. So we have to learn about that. And we're continuing our advice on an ongoing basis.

How The Tech Bubble In The 90s Led Joyce To Find Her Niche [13:28]

Michael: So how did it come about that you ended up focusing into this so much as a specialization for you? When you launched the firm, was it from day one? Like, "I'm in the Northern California area. There's a tech boom going on. I'm going to focus in on tech executives and go for this." Or was it more happenstance for how you got there? What was the original vision if you take us back 20-something years ago?

Joyce: I am a CPA. And I was working at the Big Four accounting firms. I worked at two different firms in the late '90s. And in that environment, I was preparing tax returns for executives of the big CPA firms. And so I developed a niche and a specialty and an expertise in stock option and equity award planning back then.

And then I realized I was an entrepreneur, and I wanted to start my own firm. And the easiest way to make money was preparing tax returns, which I already knew how to do. And then I had recently discovered financial planning as a career.

I started taking classes at the University of California at Berkeley. And I'd loved it and I realized that this is what I wanted to do. This is where I wanted my career to be focused. And so I was doing tax returns and as many clients as who were interested. I would also do the planning work for them and help them with a diversification of their company stock.

Michael: Interesting. So the lead for you when you started the firm... Were you formally a tax practice originally, launched as a tax firm, "We'll do your taxes," and then expanded into financial planning and wealth management from there? Or was it a little bit more blended? "We're going to do a wealth management thing. We're just leading with taxes because we do it and people pay for it, and everyone needs it."

Joyce: I think it happened all at the same time.

Michael: Okay. But the expertise came from...that was the gig you ended up working on when you started your career at the big accounting firms.

Joyce: Yes. And I was so thankful for that. Because prior to that, I earned my master's in tax, and I didn't know how to prepare a tax return. It was very interesting. So you can read about taxes all you want, but until you are in the trenches, preparing individual tax returns, you really don't understand all of the issues that come up and that are important.

Michael: So you had started with tax education. Tax education led to Big Four firm of doing tax preparation. Preparation was its own learning journey unto itself. And that's what ultimately spawned, "While I'm doing tax returns for executives and some high-net-worth folks, I know how to do these, but I'm feeling more entrepreneurial than being a cog in a very, very, very large Big Four accounting firm. So I'm going out on my own, I'm going to hang my own shingle, but I'm still going to do what I've been doing with this tax work at a Big Four accounting firm."

Joyce: Right. And now that you're taking me all the way back there, I am realizing that it was financial planning that I wanted to do. And I was preparing tax returns as I got the financial planning business up to speed and able to make a good income from that.

Michael: So the taxes are the side hustle in the early years?

Joyce: Yes, in today's terms, the side hustle.

Michael: Okay. It sounded like the vision out of the gate was you wanted from the start to be focusing with executives with these kinds of stock option, equity award planning issues, because that's what you had been doing at the Big Four accounting firm already. So you were comfortable in that space to say, "I've already been working with these folks. I'm just feeling more entrepreneurial. So I want to work with them, but I want to work with them on my own terms."

Joyce: That's right. And back then, it wasn't. I wouldn't say they were executives. They were people with 10 years of work experience or less.

Michael: Mid-level managers and, well, lower-level directors. I know there's a lot of tiers when you get to really big firms. But you said early, folks that were going to get enough equity compensation to make a material amount of money but not necessarily folks who are making life changing I-don't-need-to-work-any-more money.

Joyce: That's right. And also, being in the right place at the right time. So there were tech firms growing like crazy in the mid to late '90s. And if they had been there, three, four years, they could be sitting on a million or $2 million of equity. And many of these people didn't know what to do. And so they just sat on it. It still happens today, by the way, all the time. And so they were just looking for someone who could help them figure out what to do with it.

Michael: So how did you actually find your way to them and get started. It's one thing to say, "I have some background experience working with people with stock options and equity awards." But it's another to actually hang your shingle and get those folks to start working with you particularly when you're getting started from scratch and hanging your own shingle.

So there's not necessarily a lot of people to give you referrals already. You don't necessarily have a big-name firm backing you if you're getting started. So where did the first few clients come from? How did you get going initially?

Joyce: Yeah, two ways. One is there were people from the Big Four CPA firms who knew that I was going out on my own, and they trusted me, and they started referring business to me that wasn't a fit for them.

Michael: So you're going out on your own and your colleagues at your old firm that work with super affluent people, they're referring to you the merely six-figure-net-worth people, the little people, while they're keeping the seven-and-eight-figure-net-worth clients, one of those situations? Yeah, they're sending you the small ones to them that were still probably very nice clients for you when you're getting started?

Joyce: Yes, exactly. So they would send me either people who needed tax help or people who needed equity award help who weren't at the financial level to pay the Big Four accounting fees.

I also got clients from my network, basically, my friends in San Francisco who knew that I did this kind of work or friends of friends would send me people. So that's the benefit of getting out there and being young and single and hustling for the start of the firm.

Michael: So, how quickly did it grow early on? How quickly did clients start coming and flowing?

Joyce: I think at the height, I was doing 75 tax returns a year. And then a subset of those people, probably a third of them, wanted financial planning as well. And so I would prepare financial plans on an hourly basis. I am fee only and I've always been fee only, never selling commission-based products. And so then it just grew slowly. I made enough income to pay my rent.

Michael: It's always the good first threshold when we can cover the roof over our head.

Joyce: And to contribute to my retirement plan. So that was really important. And then after, I think about a year and a half, I got a small office space. I had one room in a shared office, and I had an admin assistant who greeted clients and did some data entry on tax returns and data entry on basic financial plans, meaning like Excel, and entering expenses and income in Excel.

And it was great. It was great. Just simple structure. And clients kept coming to me. And I was lucky that I had the choice, if it wasn't a good fit, I didn't have to accept them. And it was great to be making a difference in people's lives. They were so appreciative that they had finally found someone who understood the stock option issues, and the financial planning issues, and the tax issues.

Michael: So as you were getting started back at this time, was the business solely tax returns and hourly financial planning? Were you doing broader assets-under-management-and-portfolio-related stuff then or was this purely hourly taxes, hourly planning, straight fee for service?

Joyce: I was doing assets under management for anyone who was interested. So I got licensed fairly soon after I went out on my own. And I want to step back a bit to tell you what I did between the Big Four CPA firms and starting my own firm.

So I left the Big Four. And I realized that I wanted to do something that wasn't working in this big national company. I knew I wanted to do something in financial planning. But at that time, in the late '90s, there wasn't a lot of avenues to do financial planning. There were brokerage firms, where you needed to call your friends and family and ask them to invest in stuff.

Michael: Still some of that today, unfortunately.

Joyce: Yeah. And there were insurance companies that it was a little strange to me, they kept talking about being financial planners but, at the end of the day, it was selling insurance.

And then there were tax firms where I could do some planning, but they really weren't set up or licensed to do it. It was this little side business they would do, but they were really set up to do tax returns.

And then someone who I worked with at Deloitte said, "Hey, you should contact Tim Kochis. He started a firm called Kochis Fitz. He used to work at Deloitte. And he and Linda Fitz went out on their own a few years ago, and they are doing the kind of work that you're looking for."

So I had a couple interviews with the firm, and it seemed like a perfect fit. They were not advertising, I contacted them. I said, "Can I do an informational interview?" And everything they said resonated because they came from Big Four accounting firms. So we spoke the same language. They were trying to do the best work for their clients, very detail oriented, very thorough, and very analytical.

And once I talked to a couple of the partners in there, I knew this was the place that I'd like to do my internship at. So it was a six-month internship. And at the end, although I really loved working there, I love the partners, I'm still in touch with many of them, I realized that I'm an entrepreneur, and that I really wanted to start my own firm. So that was January of 1999. And I took on my first assets under management client in April.

How Joyce Evolved Her Services From Tax Planning To Holistic Wealth Management [25:51]

Michael: So talk to us more about just the pathway in how the firm has evolved. So I'm noting just you had said, in the early days, in those early years at the height you were doing 75 tax returns, almost a third of them wanted financial plans as well. So you were doing some planning on hourly basis and starting to build clients. But that was 75 tax return clients then. You're operating 40 client families now, much, much, much more dollars per client, so more focused and more higher net worth.

But talk to us about how that journey changed or evolved. That just you went from a world of 75 tax returns, "I'll do any hourly work that I can and every now and then someone wants me to implement" to 40 families, lots of dollars at stake, much more focused. How did that evolution occur?

Joyce: Well, I left Kochis Fitz, which was the firm prior to becoming Aspiriant in January of 1999. And then, I did a season of preparing tax returns, and I was continuing to take the financial planning classes. And then I sat for the CFP exam in the summer of 1999. And then Kochis Fitz started referring some clients to me that weren't a good fit for their firm after I got my CFP.

And then in April of 2000, I took on my first asset management client. And that year, in 2000, I took on 5 asset management clients.

Michael: Okay. What was the asset management process for you at that point? Were you a hands-on build and manage portfolios yourself internally? Were you outsourcing to a third-party provider? If you'd come up in the tax world, what was the investment approach for you at the time?

Joyce: Yes, well, when I worked at Kochis Fitz, I learned about Dimensional Funds and I became an approved Dimensional advisor, I believe in late '99 or early 2000, as soon as I could. And so I designed the portfolios myself. I also used Litman Gregory's AdvisorIntelligence service.

And so I built portfolios that were a combination of some AdvisorIntelligence pieces and some Dimensional pieces. I have since stopped using the AdvisorIntelligence and now I'm only using Dimensional Funds and some non-Dimensional Funds. But it's basically, we're still designing the asset allocation in house.

Michael: So what changed that you had started with Litman Gregory and then ultimately decided not to not to keep using their AdvisorIntelligence service?

Joyce: I found that the returns from the portfolios that we were creating were stronger and the returns were frankly better than the AdvisorIntelligence service, a little bit better. However, what I didn't like, and we weren't set up to do, was the amount of trading that AdvisorIntelligence was a fan of. Their model is trying to get these, what they call fat-pitch opportunities, where assets are undervalued or overvalued, and they place trades.

And we weren't really set up to do lots of trading. That's not something that I wanted to do. I wanted to spend my time and where I thought I could add most value with my time is on the financial planning, not on the trading. So we ended up being more of a buy and hold. We look at portfolios all the time, but we don't like to do too much trading.

Michael: Okay. So share with us more just how the business has evolved from early years of getting the first couple of AUM clients to the journey to multiple team members and $200 million under management. Were there other turning points in the journey and the evolution for the firm?

Joyce: I think it was more of a slow and steady where we were doing this thing, financial planning, tax prep. We were really good at it. I think over time, name got out there, and more clients would come to us. But because we now have a high minimum, our minimum is $2 million now, whereas when I first started, it was 500,000. And so we don't work with everyone who knocks on our door. And we've chosen to stay small so we can give a really high touch experience.

We consider ourselves the personal CFO for our clients. And you're familiar with the benchmarking studies that Schwab does?

Michael: Yep.

Joyce: So we participate in that. And it's always fascinating to me to see how off the charts we are in a lot of different areas. And one area is the amount of time we spend per client. So on average, we spend 71 hours per client. Now, average is a funny thing. You could have one hand in a pot of boiling water and another hand in your freezer and feel okay. But we could spend, or we do spend, 140 hours on some clients. And then other clients, we spend less than 30 hours or less than 20 hours on in a given year.

And so what that means in practice is we have to be really picky about the kinds of clients that we start working with because we want to take that very comprehensive approach to our clients. And being in the Bay Area, many of our clients like to dabble in private equity and investing in startups. And so that gives another piece of complication and tracking that we have to keep track of and monitor for our clients. And so we have to be choosy about how many clients we take on in a given year. And that's why we have the minimums we do because we have a very intense service offering.

The High-Touch, Personalized CFO Services The Firm Provides Their Clients [33:11]

Michael: So talk to us a little bit more about just what is going on in your service offering. At the end of the day, what are you doing that even an average client ends up with 71 hours per client much less the fact that that's an average, which means some clients are a big chunk higher than that? So just what's going on? What are you doing at the end of the day or week or month or a year that just adds up to that many hours? What are you involved with? What are you actually doing on an ongoing basis?

Joyce: So we consider ourselves the personal CFO for our clients. And that means that we are available for anything going on. So last year, we have a relatively new client and we spent over 140 hours on them because one of them had a big liquidity event and was getting a payout. And we strategized a dollar-cost average.

And then they decided they want to be a little faster with the dollar-cost average. So we had to bust that and do a new analysis for a new dollar cost average. We are preparing not tax returns, but we do tax projections.

And so this client also wanted to give a big chunk to charity, a big chunk of their assets. And of course, we prefer to give appreciated stock rather than cash, if the client has appreciated stock. And so we did an analysis of that. Well, what was the dollar amount that was going to make sense because their income was changing over the years.

So our service includes tax projections. It includes cash flow projections. And we're advisors that don't ask our clients, "How much do you want to invest? How much can you invest?" We actually prepare a cash flow projection. We look at their income. We look at the tax liability. And we look at their expenses. And we get to the bottom line, and we say, "This is how much we think that you are saving this year. Is this how much you want to add to the portfolio?" And from clients I've heard that this is pretty unusual that other advisors will just say, "How much do you want to add?"

Michael: And so is that actually an annual ongoing thing for every client? "We're going to do annual tax projections. We're going to do annual household cash flow projections." And that's something you're in with them on every single year?

Joyce: That's right, yep. We do cash flow projections. We do children's education planning, and that we do every year as well. We do long-term retirement projections, if that is appropriate for someone, if someone's in their 30s and expects to be status quo working for the next 10, 15, 20 years. It may not be appropriate to do a long-term projection. It just depends on what the client has going on.

However, if that couple is in their early 30s and has one or two small children, we most definitely would do a projection because we'd like to figure out, do they have enough life insurance? Do they have long-term disability insurance?

We also review the benefits from their companies. That would be 401(k). Do they have a backdoor Roth conversion option? Can they contribute 57,000, 58,000 a year? Or are they limited to 20,500? And so looking at all of these pieces, all of their benefits, and really going in deep, getting the summary plan description and reading them and understanding what it is they have.

Michael: So two other questions that surround this dynamic of the hour. I am presuming this is not just you personally, this is hours cumulatively spent across all the team members in the firm. So some stuff you do, some stuff your team supports.

Joyce: Exactly. And I want to mention that the hours that we are tracking, they are real hours. We have a time tracking system called ClickTime that we've been using since I started the firm in 1999. So we have 23, 22 years of data on exactly what we've done for every client for the length of the firm. And I expect and I presume that many of the people preparing the benchmarking surveys don't have as accurate data as we do.

Michael: Meaning, you're not sure if you spend that much more hours per client or if the reality is just that you're better at actually tracking and capturing all of it, and that the rest of us just underestimate how much staff time and how much of our personal time we're really spending because we don't track every minute and you guys actually systematically do?

Joyce: I don't know what happens at other firms. I just know that I think it's pretty unique to track time.

Michael: So, just curious, how does ClickTime work for doing the time tracking?

Joyce: So we enter the client name, the job, and the task. So the job would be investment management or financial planning. And the task would be forms or preparing the financial plan or meeting. And there's a stopwatch function, and we just turn on the stopwatch when we start a task, and we turn it off when we start another task.

Michael: And so every time you're queuing up a new task for a new client, you've got to take a moment to queue up the new client name, tag the job, investment management or financial planning, and tag whatever the task is before you jump in the next thing?

Joyce: We do. It sounds more complicated than it is.

Michael: I'm going to guess it's one of those, it sounds like it would be a lot of steps when you're used to doing it, and you've been doing it that long, it's just second nature to click, click, off you go.

Joyce: Right. And it really gives us so much data about profitability and where we're spending our time, what might be low hanging fruit that could be changed.

Michael: So do you tie any of this back to either your CRM system for tracking overall or just ultimately the fees that you charge for clients? If you have a client where you've got 140-hour year, are you charging separate planning fees or additional planning fees, or charging by the hour to cover that much time when you're in that deep with the client?

Joyce: It's interesting, Michael. We have found that for the most part, the client's assets and therefore the fees they pay us pretty much equate to the complexity of the work that we're doing for them. Sure, there are years where we may have to spend extra time, something is going on in their life that requires more time. Sometimes, we spend a little less time. But on average, it pretty much works out.

Michael: I'm sure you have heard for a long time the discussion that's just out there in the industry of, "Okay. But does a $5 million client really take 5 times the time as a $1 million client?" So I guess the case you're making is you've actually tracked the time, and the answer is yes.

Joyce: Well, I also want to give a caveat. So in the first year or two, clients do take more time than later on. So, it's an investment. We're making an investment in our clients as they're making an investment in us. They're learning to trust us. They're learning the way that we work. And so, I would say that, on average, over the first five years, the time works out, their portfolio gets bigger.

And I think that clients really get the most value from an advisor not in the 1st year or even the 2nd year, but in the 3rd year, in the 4th year, in the 10th year. Because we know our clients so well that they have a quick question, and they can send an email, and the backstory is in our minds and in our hearts. We know them. We really enjoy and like and love our clients. And so we can help them because we know their situation. We can help them quickly and thoroughly because we understand them.

Michael: And so, in essence, your time savings in the out years is their benefit of the relationship. This is why we've invested so much time into the relationship. If you went and started with another advisor because you weren't happy with the fees, the relationship, you're going to be starting over from scratch, which means it's going to be more time consuming, expensive for them. And it's going to be more time consuming for you as a client because you got to get your new advisor completely up to speed on all the complexity in your life that we know is a lot of complexity because that's what brought you here to work with us in the first place.

Joyce: I think that's very true.

Why Joyce Charges AUM Fees On Comprehensive Financial Planning [43:20]

Michael: So how do you think about just this dynamic? I’m very struck with your...you spend dozens and dozens of hours on clients on planning work, implementing portfolios that are largely DFA and largely passive by your description. So just how do you think about this dynamic of charging AUM fees on a portfolio where the bulk of your time and focus is not on the portfolio?

There’s a lot of industry discussion out there that are like, “This is an untenable split. We have to reconfigure our fees. We can’t do mostly planning for charge, mostly AUM fees.” Just it feels like you’re living that it even more of an extreme than most in how much time you spend on the planning work. So how do you think about that dynamic of AUM fees with such a planning-centric focus?

Joyce: So I don’t think about fees on a day-to-day basis. But we do have a project that happens every January where we’re comparing the time we spent for the client for the prior year and the fees we charged for the prior year. And we get a sense, over time, because I’ve been doing this so long, for if there is someone who is not profitable...

I had a discussion with a client a few years back who was taking more time than the fees that we were charging for many years in a row, probably three years in a row, at least two years in a row. And I did go back to that client. And we discussed having an extra financial planning fee because of all of the additional work that was happening at the time. But for the most part, it just ends up working out.

And the fee is not what drives me. It’s really doing a great job for our clients. It’s doing meaningful work and being the personal CFO for our clients and helping them live their best life.

Michael: So I’m struck that just when you’re doing the level of time tracking that you’re doing, I guess it’s pretty straightforward to, just pull out a spreadsheet at the at the end of every year and say, “Well, let’s look at what the fees were. Let’s look what the time was.”

I’m imagining you probably can even break out that time by who was doing it. So was this a client with a lot of Joyce’s hours or a client that had a lot of hours, but it wasn’t Joyce’s time, it was team time. And team time was a little bit more cost effective, so this one’s still okay. So every year, you can sit down, look at all the clients, look at all the time. And just figure out, are these clients working? Does the math add up?

Joyce: That’s right. That’s exactly right.

Michael: So how do you think about and define what a profitable client is in that context?

Joyce: So that’s an interesting question. And I’m going to answer it a little bit differently than you may be expecting.

Michael: Okay.

Joyce: So for many years, I did everything. So I’m the founder. I did the marketing. I did the finances. I did the operations. And then 14 years ago, I brought on someone who wanted to learn about the profession, and he started doing client service work, input on financial plans and spreadsheets. And we worked really well together. And he’s still with me, with our firm, and he became a CFP.

And I realized, as he was able to do more of the work that I was doing, that this is where we should be focused is bringing on a team so that I can focus more on the growth of the firm, and more the big picture goals of the firm. So, when you talk about profitability, obviously, when I am doing the client work, it’s more expensive than a new planner.

And one thing that has always been really important to me is educating people. I have client meetings where we focus on education, whether it’s education about the stock and bond market, or about insurance, or some other area of their financial plan, or educating the team. And so, because this is such a new industry, I have hired people who didn’t know what financial planning is. They were curious about it, but they didn’t really understand it. And so I’d bring them on, educate them, and get them up to speed, doing data entry on plans.

And so, that’s been something that has been a positive is teaching people. And it also helps with the equation of which clients are profitable, if I can teach people to fish and teach people to prepare financial plans.

Michael: Meaning, you’re willing to accept clients who are a little bit less profitable, dollar for dollar on your time, because, if at the end of the day, your time spent on that client was also time spent developing a team member on that client so that they will be able to support the client in the future, then it’s okay, if that wasn’t the most profitable client this year because you know it’ll be more profitable to serve them in the future since you got the training, education benefit from it?

Joyce: Yes, mhmm.

Joyce’s 5-Step Process For On-Boarding New Clients [49:13]

Michael: So talk to us about what the planning process looks like for a firm like yours? Just for the amount of time and the depth that you're going into, how does this actually work? If I say, "Joyce, the boutique, high-service experience sounds great. I want to come on board and become a client of the firm." What actually happens? How does this work as a new client process?

Joyce: Sure. So we have a five-step onboarding process. And we don't charge any fees for this. As I mentioned earlier, we are willing to put an investment into our new clients and even prospective clients. Because once we take on a relationship, we're expecting their assets to grow and for them to be with us for long time.

So our process includes a discovery meeting, which lasts about 90 minutes, an investment plan meeting, where we show them the portfolio that they currently have, the proposed portfolio, and the risk and returns of each, and a document that explains our investment philosophy. And they go off and read it. And we get together in a week or two. And if they want to move forward, we bring them on as a client.

Then we have a meeting about six weeks later. And we start to do some financial planning. Maybe that's kids' education. Maybe that's cash flow planning. Maybe that's looking at the stock awards that are the pain point. Whatever is the pain point, we usually do some financial planning in the first six weeks.

And then at 90 days, we have another planning meeting. And we do a high-level financial plan. So I work with a team of experts. It's a CPA, estate planning attorney, and two insurance brokers. And I present a client case to the team every quarter, usually a handful of client cases. I don't share any personal details, it's broad brushstrokes, no tax returns, no names given. And they provide their suggestions about planning opportunities. And then I present that to the client. So it's a high-level financial planning at that point.

And then, after all of that fairly intense meeting time and getting to know you time, then we have taken over the portfolio. We have started managing the portfolio at that point. And then we don't see them for until the annual review time.

We often talk to them. We often email or sometimes talk on the phone, but it's mostly email, about situations coming up. And then at that annual review meeting, then we do the deep dive. We do the cash flow projection, the tax projections, we do action items, and kids' education, maybe retirement projections, if that's something that's important to them. So that's our five stages plus the annual review. That's how we bring on clients.

Michael: Interesting. All right. So I have a couple of questions about this. First, so take me back to, I think you said it was the 90-day meeting that you've got this high-level planning meeting. And if I understood it right, you're taking clients' scenarios, anonymized, taking it to some outside professionals you work with - CPA, attorney, and some insurance brokers - and bouncing the anonymized scenario off of them to brainstorm about planning opportunities before you bring it back to clients.

Joyce: That's right. That's right because I'm not an estate planning attorney. And usually, that attorney can see things that I don't see, or I don't know about. And we feel it's really a value added to our clients to have that expert team.

Michael: So how does this work? Do you call all of them together into a room like it's the five of you, you and the CPA and the attorney, and the two insurance brokers, all around the table or, in virtual environment, all in the Zoom room talking through? So there's a standard crew that comes in for this?

Joyce: Yes.

Michael: And so if there's more than one client, do you just bring a stack of client cases? Like, "Hey, we had three come on this quarter, so we got three on the agenda this time around."

Joyce: That's exactly right.

Michael: Okay. And so the 90-day window for getting to the next full planning meeting, I'm guessing, it's because you meet with them once a quarter on a standing basis. And so if the client just came on board after one of these meetings, "You're going to have to wait another two months because my next group meeting isn't for two months from now, so we'll be getting to you in 90 days." And just that's the expectation you set, and clients accept because they wouldn't know anything, otherwise.

Joyce: It's not as structured as that. So, if we need to meet more often, we do. But generally, I know the clients in the pipeline. So, we might just have done the discovery meeting. Someone else, we might have just done the 45-day meeting. So I can see what's in the pipeline and then bring the client cases to them. So generally, we'll talk about two or three cases at each meeting. And sometimes there is no quarterly meeting if there aren't clients to talk about.

Michael: And so, how does this work with them? Are you paying them for their time? Is this just you've got such a deep ongoing relationship with joint clients? They're happy to do this and work with you because, ultimately, you've got a good working relationship and there's probably going to be some referral opportunities at end of the day, so it's good business for them. How does this work from a professional structured relationship?

Joyce: So I do not pay them. And I will give the client the expert's name, if they want to move forward and take action on the idea. They know who to talk to. And just as a CPA, and for my own professional liability, I generally give at least two names anyway, so one will be the expert on the team, and one will be another name.

Michael: Okay. And so now I'm following a little bit more of just the cadence, the process as well. So initial investment plan meeting, so that we can you handle transitions of dollars and money in motion. Then at 45 days, you got your initial planning meeting or whatever the pain point is. So at least if the clients got a particular thing that is their pain point, that's their anxiety, that's their concern, you will get to their pain point before perhaps you have the group meeting with the outside professional. So at least you can address their thing of greatest pain because we know by 90 days, we will have the next planning meeting, and then we'll be able to get deeper into all the stuff that might be going on in your life.

Joyce: That's right.

Michael: So talk to us about this...maybe this is the wrong word, but I'm counting this gap in time between you do a planning meeting at 90 days that's a high-level plan. And that the annual review, it sounds like you're going much deeper into cash flow projections, tax predictions, retirement projections, you said a lot of stuff there.

So why does that push out to the annual review? Why not add at 100 days or 180 days or whatever it is? Why doesn't it come sooner for you after you do the high-level plan to go deeper? Why does it push out to the annual review?

Joyce: So, generally, at the 45-day meeting, we will start to do some planning work. It's the pain point. And it also may be something that we see as an opportunity that they don't even know about. Now, at this point, at 90 days, we have not received any fees from them, generally. Unless it's some end of the quarter happened like very recently, maybe there's a couple of weeks of fees.

Michael: So there's at least an expectation they moved money. They may have done transfers, but there just may not have literally been a fee billed yet.

Joyce: Yep, exactly. So at this point, we've probably spent 20, maybe even 30 hours on meetings, onboarding, paperwork, the expert team, summary of the analysis, some pain-point financial planning. So we've put in a lot of time so far. And I always give the client a choice. If they said to me, "We really want this projection right now. We need to have it." We'll do it. But in general, they can usually wait until the annual review, until we can do that real deep dive.

Michael: Because, again, just whatever their actual real driver pain point issue was, you got that early on by design and the process.

Joy: That's right.

Michael: I joke sometimes but rarely do we find clients who are actually up in the middle of night in a cold sweat because they don't have themselves a comprehensive financial plan. Usually that's not the thing that drove them into our office.

There's something more proximal going on in their lives, right? Someone's born, someone's died, there's liquidity event, there's a transition event, there's something where life is in motion that is making them anxious and feel like they need an expert. And so, to that end, if you have addressed that, it takes a lot of the pressure off the rest.

Joyce: One of our core values as a firm is generate creative solutions. And I like to think of myself as being really strategic with the clients and understanding from the information provided at the discovery meeting and the few meetings we've had as we onboard, understanding what the client's full picture is, even if they may not understand themselves. And so I can identify what are some of the issues and come up with a creative solution for them. And again, they might not even know that's an issue.

How Joyce Acquires And Maintains Client Confidence Throughout Their Relationship [1:00:28]

Michael: So help us understand that. Just what's going on between, you did all this stuff in the first 90 days, then, "We're not going deep on planning until the annual review." So there's this nine-month gap. Do you get worried they're going to say, "Well, we didn't get through the planning process with you. I'm not sure why we're paying you all this money, Joyce."

Joyce: I'm not at all worried. And here's why. So, many of our clients are tech executives who work for top tier companies in Silicon Valley. And they have equity awards. So during the discovery process, we will gather their vesting schedules. And we'll calendar out when they have a big equity award vesting, we'll reach out to them. "You have this award vesting. Can we assist with any tax planning? Can we assist with helping you move any excess into the diversified portfolio?"

At tax time, we will send tax reports to the CPA. If there's charitable planning to do, we will help with that. And there's generally straggler things that happen in terms of moving all of their assets to our custodian, which is Schwab.

So maybe it's old 401k. They don't know how to get the assets out. So we'll get involved helping them with paperwork. Or maybe the title on their account needs to be changed because they just had a trust created. So we'll help them with that.

We're in touch with our clients all the time. We also send out a quarterly newsletter. And that often prompts clients to contact us to say, "Hey, I read about ESPP planning in your newsletter. How do I take advantage of that?" Well, usually we would have addressed that early on. But in case we didn't, the newsletter...

Michael: I guess the newsletter is, this is not just kind of generic "Seven Reasons to Contribute to a Roth IRA"? I'm presuming that just your quarterly newsletter is getting deep into stuff that tech employees deal with like having ESPPs because that's your clientele and that's where you're focused.

Joyce: Yeah, that's right. That's right. So often clients will contact us after we send out a quarterly newsletter. And the quarterly newsletter is powerful for keeping in touch with clients. And also educating, which is a strong value of mine, is to educate people.

Michael: So it's these ongoing touch points that are filling in a lot of the activity during the interim year. I guess getting back to tax-related issues and equity-compensation-related issues, because that's your focus and those are your people. So that's, I guess, streamed like that's what a lot of them want to talk about anyways, more so than the rest of the comprehensive financial plan.

Joyce: People want to talk about the comprehensive financial plan. However, when someone is 32 or 35, they are probably not chomping at the bit to have a long-term retirement projection.

How Joyce Uses Authorship, Education, And Referrals To Attract New Clients [1:03:58]

Michael: So, share with us a little bit more if you can, just like how does marketing work for you? Just where our multimillion-dollar tech executives coming from that they're finding their way to you and working with you?

Joyce: So I've been fortunate to have clients who are really good at singing my praises. And so I had a few clients that worked in HR, in C-suite in the HR function, and they all came from one client who was in that role. And she talked to a lot of people, and she was really good at promoting me and my firm.

And we also have the same thing on the tech side. People who work at tech companies and sometimes there are message boards, or if you're in a company that has thousands of people, the word can get out. And so that's how we get most of our clients.

I also, as I said, like to educate. And several years ago, I wrote two books. And the books have helped me find clients or rather the books have helped clients find me as well.

Michael: Okay. So how does that work? They're strolling their local bookstore or searching on Amazon literally finding their way to your book and then calling you as the author of the book or is it...?

Joyce: Yes.

Michael: So flowing directly off that? Okay.

Joyce: That has happened, yes.

Michael: So what are what are the books? What did you write about that makes fairly affluent clients reach out and call?

Joyce: So I wrote two books about my specialty, which is working with people in tech. One book is for tech executives and employees. And I talk a lot in the book about what different equity award types are, the tax explanation for the different award types. And then since having a technical tax book about equity awards would be pretty boring, I interviewed 65 executives, advisors, and founders when I wrote my two books. And I incorporated their really fascinating stories.

So as I said, one book is for executives and employees at tech companies. And the other book is called "Startup Wealth." And that book is for founders/entrepreneurs. And what I discovered when I was interviewing these people for my book is that, like in life, there were certain patterns that were universal.

So for the founder/entrepreneur, there were certain patterns. So there was phase one, when they're building the company. Phase two, getting ready for liquidity event. Then the event happens and then phase three happens, which is post-event, trying to generally wrap up the loose ends and leave that company. And then what was fascinating is for founders, they always want to go back to phase one again and start a new company.

That was very different than for the tech employees because generally tech employees and executives, when they have a big liquidity event, they often want to stop work and do a passion project or start a company or get into angel investing. And that may not last forever. But that is a real pattern as well that after the liquidity event, they don't necessarily want to go back and start a new thing the next day.

Michael: Whereas a lot of the founder/entrepreneur types are just addicted to it. The only thing that's better than starting your second company than your first is that you have the money from the first one to do the second one faster.

Joyce: Exactly. And I didn't realize that I was going to find the patterns that I did. And I feel like I've been able to make a real impact with the graphics that I created for the two books. So for "Startup Wealth," it's a graphic for entrepreneurs. And then for my other book, which is called "Life, Liquidity & the Pursuit of Happiness," the graphic is for tech employees.

Michael: So you said earlier that you we're making this conscious decision to stay small and focus on who you serve. And I know, just one of the challenges for a lot of firms when we make our conscious decision to stay small, and particularly for doing that, and we're serving our client’s well is, "Well, darn it they do go and refer us and more people show up." And then at some point, you can get more of them than you actually wanted, if you were trying to stay small.

So just how have you managed that in practice that you can stay small? Is it a function of just raising minimums as quickly as it takes to slow down the flow? Do you have a process for you to terminate or let go clients so that you can stay small? How do you actually manage that to stay at the size that you want to stay at?

Joyce: It's actually been my aha moment over the last year or so since the pandemic started. I am realizing that I would like to make sure my firm has a legacy plan and a succession plan. And to really do that right, I am now looking for another lead advisor to bring on.

And so in the 22 years I've been in business, I have generally hired people with either no financial planning experience or very little. And I've trained them, I've educated them. And now, I'm realizing as we have this 40 or so clients, that I need to bring on a lead advisor who's going to help me take this firm to the next level. And I feel like it's really going to be crucial for my clients as well because, at some point, I'm not going to be here anymore, maybe it's 10 years or maybe it's 15 years. But I want to make sure my clients are taken care of. And I think that bringing on this higher-level advisor will help me do that.

Michael: And so you just said 10 or 15 years, this isn't necessarily like a, "I'm trying to find a successor because I plan to retire in the next few years." This is more of a, "I just want to have someone that's running parallel with me if and when and should I ever decide that I want to wind down."

Joyce: I'm thinking of it as someone who can come in and take some of the business that's coming in now. So we get contact all the time from these tech executives, tech employees. And I am looking for a lead advisor or a wealth manager who can take over some of these clients that are coming in now, the new clients, and maybe some of the old ones as well.

Michael: With the idea that gives you capacity to have more clients in total? Is that to grow capacity of the firm or simply to have the additional advisor redundancy backstop if you decide to retire at some point?

Joyce: It's really to grow the firm. So my firm has stayed small for a long time so I could be involved in everything. And I like that for a long time. But I'm also realizing that what is best for clients and long-term growth may be different than what I've done all along and also based on my education and my experience working at the Big Four CPA firms, having a small firm seemed less than what I was capable of. I feel like I'm ready to build something a little bit bigger.

What Surprised Joyce The Most About Building An Advisory Business [1:12:45]

Michael: So as you look back over all the journey over the past 20-odd years, what surprised you the most about building your own advisory business?

Joyce: I think I was surprised that it would be harder than expected to do everything that I was doing. I am a mother. I have a family. The profession is not easy when you're managing assets. You can't just go away and close the doors and go on vacation for two weeks. You've got to have people there who are available to work and licensed, etc. So I'm at a new place where I am realizing that our firm, to grow, needs more talent at a higher level than what we've had in the past.

At some point, the lead advisor can't take on more clients. And I feel like we can still serve more clients and do a great job for them, but not any one person...I never want any one person at my firm to take on more than 40 or 45 clients because of the intense way that we work with our clients.

The Low Point On Joyce’s Journey [1:14:11]

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

Joyce: One of my challenges has been hiring. And back in 2005, a young high school student came across my radar. And she was on her way to Duke, and she was looking for a summer job. And I thought I had low expectations for a high school student. But she exceeded my expectations exponentially. And then she returned for three summers. And then she graduated.

And that was such a positive experience. I did it again. And I hired another bright young college student. This time she went to Stanford. She came back for three years. And each time, I had these interns, and I would put them on pretty important projects. Maybe they were writing procedures, maybe it was doing a client survey. And it was such a positive experience.

And then we did it again, two more times. So we had a total of 15 years of summer interns. And they were smart. And they were tech savvy. And they were quick to learn. And they had an immediate impact on the firm, which was wonderful. And then September would come, they'd go back to school.

And during the pandemic, 2020 was the first year we didn't hire a summer intern. And I realized that, "Okay. This is time, let's get real here. And I'm going to hire someone who is going to stay with the firm for a long time and not have them leave after they were trained up after three months." And so I think that hiring the interns, it was a wonderful, wonderful experience. But I think it also held me back from really being able to expand the team more permanently. And upon reflection, now we hire people who can demonstrate a passion for the industry, not just wanting to learn about business.

The Advice Joyce Would Give Her Former Self [1:16:33]

Michael: So having now gone this journey, what do you know now that you wish you could go back and tell you from 20 years ago in the early days?

Joyce: Hmm. Well, starting and growing a firm from scratch can be, I suppose, easy for some people if they have a family member who's done it before or mentors who've done it before. And I've been fortunate I have, in my experience, working at CPA firms and working at Kochis Fitz. They served somewhat as mentors to me.

However, starting a firm from scratch, you have to wear many hats. And you have to do all of those areas. Because you can't not prepare your tax return. You can't not do operations. And so I was everything. I was the tax preparer, I was the advisor, I was the C-suite on all the various functions from finance marketing, operations.

And my firm's stayed small, so I could be involved in everything. And that was fun. And that was challenging. And I love to learn. But my aha moment came recently when I realized that to have a lasting impact and to make sure that my clients are taken care of for the long term that it was really about building a team.

And that's where my focus is now is building a team, making sure that I'm educating the team, either internally or having them go to conferences, having them get their credentials, like the CFP. And I'm absolutely ready to let go of control of everything.

And I've been giving my team more responsibilities over the years. My partner now is in control of operations. And there's things that he does that I don't even know how to do. And that's a good thing. But at least two people in the company knows how to do it. So I'm ready to let go of the control. I have been giving responsibility to other team members, and looking to bring on advisors to take the firm to the next level, move the business forward.

Joyce’s Advice To Newer Advisors [1:19:02]

Michael: So what advice would you give to a younger, newer advisor coming into the industry today?

Joyce: I would say to think about what you really enjoy doing, and think not just about what's going to make you happy for one year or two year, but to realize that careers are long. And if you're 30, or 35, you're probably going to be working for 20, 30 years. And what do you really want to be doing in the future?

And I know it's hard to look forward 10 years in the future, but I would really encourage people to do that and to get honest with yourself about what your skills are. Are you a visionary? And if so, maybe you don't like working on the details. And maybe you need to find people to work with that are good with that. So, yeah, just to think long term about what it is that you want your career to look like.

Joyce’s Plans For The Future [1:20:09]

Michael: So what are you working on next? What comes next for you?

Joyce: Well, I love to educate, as I said, and I also like creating. And I have just started a podcast. And it's called "Startup Wealth." And my first season is out now. And I've interviewed some people who I interviewed initially for the books, some people who I've met along the way, and every interview is pretty different.

I interviewed Tim Kochis. And he talks about succession planning and merging his firm Kochis Fitz into what became, at that time when he did the merger, a $5 billion AUM firm. And he talks in detail about that experience.

And then I've talked to entrepreneurs and advisors who help people in the tech industry. And then I give the financial planning point of view some technical knowledge. I jump in with some technical knowledge when the guest is talking about the importance of taking advantage of the dependent care credit. And I jump in explain what that is.

What Success Means to Joyce [1:21:26]

Michael: Very cool. Very cool. So as we come to the end here, this is a podcast about success. And one of the themes that always comes up is what the word success means very different things to different people. And so as someone who's built what anyone would objectively call very successful advisory firm, as you come up on 200-plus million dollars under management, very affluent average client, so the business has been very successful. But I'm wondering, how do you define success for yourself at this point?

Joyce: Success to me means helping clients, helping families achieve financial independence, and do what they love, and create a great life. I meet with clients all the time, who I've been working with for 10, 15, 20 years. And they'll say to me, "Joyce, thank you so much for getting us to this place." So that is super rewarding.

I also think success means being the go-to expert for startup wealth, on the tax and financial planning side. And it's also setting goals and achieving them.

So three years ago, I really started getting serious about succession planning and growth, and I set a goal of 20% growth per year. And I've been able to accomplish that, 20% AUM growth.

And then the other thing I will mention is that success looks different in each new phase that I'm in. So starting out, success was helping my friends figure out what to do with their stock options, helping them with their tax planning pain points.

And then it became helping clients achieve financial independence, preparing projections, getting them comfortable with the position they were in because we were experts in the analysis. So we could really see, "Are you on track to achieve your goals?" So that was very, very satisfying.

And then it looked like having a handful of employees, building up a team. And now it looks like having a succession plan and bringing on a lead advisor to help take the firm to the next level and really make sure that we can continue to be there for our clients as they need us over the years.

Michael: Very cool. I love the journey and the and the evolution of it along the way. Thank you so much for joining us on the "Financial Advisor Success" podcast.

Joyce: Thank you, Michael. Thank you for giving me this opportunity to give back to this community that is doing such important work for so many thousands of people.

Michael: Absolutely. Thank you.