#FA Success Ep 330: Raising And Lowering Fee Minimums To Manage Growth Pace And Advisor Capacity, With Ari Weisbard

Resources Featured In This Episode:

• Ari Weisbard
• Values Added Financial
• #FASuccess Ep 098: Deepening Client Relationships With A Political Niche To Find Shared Beliefs with Zach Teutsch
• Ethic Investing
• XYPN LIVE
• Engine No. 1
• Transform 500 ETF (ticker: VOTE)
• Kinder Institute of Life Planning

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Full Transcript:

Michael: Welcome, Ari Weisbard, to the "Financial Advisor Success" podcast.

Ari: Thank you, Michael. It's so great to get to do this with you.

Michael: I'm really looking forward to today's conversation and talking about some of the ways that the strategy of how we price our services shows up beyond just sort of the straightforward, "Well, I tried to figure out what my clients are willing and able to pay based on the services that I provide," and try to find the intersection of that supply-and-demand curve from economics. There are more things that go with how we price. Some of it gets into, "Well, what do we really need to price in order to staff, in order to scale, if we're going to hire and build more infrastructure?" Part of it, to me, pricing can also essentially be...we'll just think of it like a flow regulator of, "Hey, if you're getting more business than you can actually handle right now, you dial up the price." You'll get fewer people at higher price points. Revenue grows, but you don't have as much volume, so you can manage to it. If you've got more staff capacity, you can bring minimums down and try to turn up the volume of people that are not screened out by a lower minimum or a lower price point and pick up the volume a little bit more.

In practice, though, I see advisors very rarely use pricing as a way to manage sort of the flow and capacity, but I know it's something that you've done very consciously in the firm over the past couple of years that have had not a small amount of volatility in life, as we had gone through pandemic and everything that's come along with it. So, I'm excited just to talk about ways that we manage business capacity and how being strategic about our pricing can overlap into trying to figure out what is our capacity to serve and what should our price be based on our capacity to serve.

Ari: Yeah, it's something that I think so many of us try at least half a dozen approaches in as many years. And there are certain values that I think we're often trying to balance when we're thinking about our fees and our staffing models. And some of those values are very consistent, but the exact way that we need to reconcile them in our lives changes where we learn a little bit about parts of those that didn't work as well in practice as we imagined in theory. And so, I think most of us have some sort of fee evolution story. And then the pandemic is a whole extra curveball thrown into that mix.

Why Ari Charges Investment Management And Planning Fees Separately [06:35]

Michael: Yeah, indeed. So, I think, to start, just help us understand the advisory firm as it exists today. And then I want to talk and understand a little bit more about how pricing and new client growth and flow have moved up and down over the past several years.

Ari: Absolutely. So, today, we're a group of 7 people. The firm is Values Added Financial. There are 7 of us. 2 of us are managing partners, Zach and I. 2 are essentially lead advisors, Kathryn and Bridget. And then 2 are associate advisors who are newer to the firm, Joel and Georgette. So, there's 6 advisors and then a wonderful CSA, Tracy, who helps everybody. And we have sort of divided that up into 2 teams. So, there's kind of 3 of us on each team that work most closely together on the actual clients so that there's a lot of cross-pollination. We work with about 75 households currently, and that's partially that we are still sort of filling up the capacity after doing some hiring. And the average household pays around $20,000 a year in fees and has around $2 million, but as is usually the case with averages, that means there's a lot of folks who are paying less than that or below that and some outliers on the top end too.

Michael: Okay. So, you've got $1 million, $1.5 million of total revenue across 75 clients that pay a pretty good household fee per client. Clients get assigned into, I guess, basically, a 3-advisor team of a managing partner, a lead advisor, and a support advisor for servicing, that gives, if I just do napkin math, 35 to 40 clients per team on average, and each of those teams might be, I guess, right now, doing $600,000, $700,000 of revenue on average. So, very healthy practice economics. And how do you look at that from a capacity? Is that near capacity? Is that "Oh, no, we could add a whole bunch more clients with this structure?" Where does that sit? I don't know how much service model stuff you have to do with all these advisors to support $20,000 fees for clients.

Ari: Yeah. We're definitely not at capacity yet. When it was just the 4 advisors, we were definitely coming up on the capacity wall. But we did some hiring, we did some investing in technology, and we have managed to kind of expand our capacity to some extent. There's sort of the long-term capacity question, and then there's, if you tried to get all the way there in 1 year when there's so much work in the first year, then you'd be too crunched. So, I think in the long term, we could probably be looking at those teams of 3, working with probably double, but we'd have to get there over the course of 2 or 3 years to not have our quality suffer or our quality of life suffer.

Michael: Right. So, I can get from 35 or 40 clients per team, up to 75 or 80 per team, so I might be at 150 for the practice on this structure, but only if I'm adding whatever it comes out to be, a dozen clients a year. If I'm adding 1 a month, I can spend 3 years building up another 35 to 40 clients, but absolutely not if I'm going to try to take 35 in a year and get blitzed with all the first-year work.

Ari: Yeah, exactly.

Michael: Okay. So, then help us understand how fee structure works now in the firm today.

Ari: So, now is actually, in a way, the simplest. We charge 2 fees for our 2 sets of services. Our investment management fee is very typical. It starts at 1%. It tiers down for folks with more than $3 million, and that's for investment management. It's very rare that we offer investment management alone because we really believe in comprehensive planning. And for the financial planning fee, that's a separate fee. And even though the services are offered together, we think it's tremendously valuable, and we want people to know they're paying for that and that it's not just a free add-on. So, that fee ranges for maybe $6,000 for a single, with a relatively straightforward life, and maybe $8,000 for a relatively simpler couple. And if there's business owners or more complexity in the picture, maybe more like $12,000 for the year. If there's a ton of trusts and held away assets and other things, that could go higher as well.

Michael: Okay. And so, these are just 2 fees fully in parallel. So, I'm, whatever, a $2-million client that wants in for the holistic service. I want it all, Ari. I'm paying 1% on my $2 million, and I'm paying a $6,000 to $8,000 or higher financial planning fee for the planning side of things.

Ari: Yes, exactly right.

Michael: So, I guess, just curious, there are so many firms out there that do bundle the planning fees into the AUM fees, including some that bundle all of that together for just "1%," not 1% plus separate planning fee. Do you worry about this from just a competitive pricing perspective of...are you in danger of losing clients that don't want to pay 1% plus 8 grand as a couple when another advisor is charging them 1% without the 8 grand add-on for financial planning?

Ari: Do I worry? Yes, I worry. And yet, it seems to not happen very often. And when it does, it's okay. There are folks who want to get a really good deal on their financial advising in the sense of the cheapest deal possible, and there are folks who want to get a really good deal in the sense of really good value for their money. And in the long term, we are better matched for people who want to get the value rather than just the cheapest advisor out there.

Michael: So, do you know how often this crops up in practice? Do you measure or track just how many people balk at separate fees versus not?

Ari: Definitely, I would say, probably a 3rd of people at least ask about it or clarify it if they're coming from another advisor, especially, where they're used to paying 1%. We've rolled it out relatively recently, so we don't have a ton of data on it yet. But one of the things that...the fact that they're asking questions is good. But as long as we're able to really help them see the value of all the things we're doing that their current advisor is not doing or not doing as fully or deeply, we haven't seen. In fact, in the last couple of quarters since we started this, we've been onboarding more people than we were historically. More like 2 a month.

Michael: So, sort of the inverse version, which is not, "Oh, you charge for both of these. I don't know if I want to work with you." It's, "Oh, wait, you charge for both of these? Explain to me what you do that you're charging both fees," to which you say, "Well, I'm so glad you asked. Let me tell you about all the awesome financial planning work that we do that's so substantive that, yes, we have separate fees, because you're going to love it that much." And off you go down the conversation door that they opened for you.

Ari: Right, exactly. And it also tends to be that, for any given household, it tends to be that one fee is the more significant one. So, if someone has a lot of wealth, then they're often used to paying 1% for investment management, and a lot of the folks that they may have been working with really only did investment management. They didn't help sort through complicated tax or estate situations, or they claimed to but then didn't really follow through adequately. And so, for them, it's really easy to say, "This financial planning fee is a rounding error, and look at all of the stuff you're getting." And for folks on the other end of the spectrum where they have pretty complex lives, they probably don't even meet an asset minimum for a typical firm with $1 million or $2 million as their minimum. But they have income, they have complexity, they're buying houses, they're shopping for mortgages, they're getting married, they're figuring out couple of finances, all these different things in their lives. They're happy to pay for some help figuring all that stuff out, and maybe they only have $100,000 or $200,000 that they're going to have managed, but that's not a significant fee rounding error, but we can actually work with them because we can be compensated for our time and have a good team. And they can just pay a reasonable price for really good services. And so, they're not really worried about what the AUM fee is, at least at this stage in their life.

Why Ari Updated His Fee Structure To Align With Firm Values [15:08]

Michael: So, now, talk to us about how this has changed. Because first, you said just even the layering in of planning and AUM as separate fees is something that you changed more recently. So, what did you change from? What was it before this?

Ari: So, when we first started, we had a single fee that was for all of the services, and it was calculated based on looking at their assets and their income and their complexity. And we sort of had a fee calculator to try to figure it out. Over time, in order to be more easily comparable to other folks, it started looking more like just 1% of the assets that we managed or advised on. So, the big difference there was if they had a 401(k), we were helping...we still help people screen share for their 401(k) or 529s that we can't directly manage for one reason or another. And we're helping incorporate that into the plan. We're doing asset location. It's actually more work that we can't manage it directly. So, we felt really comfortable including that as part of the assets we were looking at. And that was kind of a way also of making sure we had the ability to really invest in really holistic planning because we were being compensated on all of their wealth, and we didn't have any incentives to steer rollovers to our direct management.

So, that worked fairly well initially. And it just felt a little bit too cumbersome to update it over time as people's held away assets changed and make sure that it was really fair among our clients and we are being consistent about how we measured it, both as a compliance matter and as a fairness matter.

Michael: Because just if you're charging a 1% fee across managed and held away, you've got to get a data feed or, otherwise, have them share with you updated account values. And then you have to make a system across the whole business to actually cover that consistently for compliance purposes, and that was getting messy for you?

Ari: Exactly. The links break even if they've entered them in the aggregator, and you have to pester them. And if they have a rental investment property, do you just look at Redfin? And what about the mortgage on it? It gets very complicated, and so the information gets stale. And it makes it a little bit harder to compare your fee to other people's fee and to explain these concepts pretty early in the relationship. So, we are sort of innovating on fees when we didn't necessarily think that was the most valuable thing for us to be innovating on, and it just started feeling a little more cumbersome to have this kind of idiosyncratic way of explaining our fees to people.

Michael: Interesting. I'm struck by how you framed that. We were innovating on fees and realized that we didn't need to be. So, I take it...that sounds to me like an evolution of part of what we were doing when we started out was, we could actually say, "Hey, we've got this new alternative different fee schedule. It's not based on assets. We're different." But then you got enough clients who had assets and started comparing you to other advisors, and then, instead of being able to differentiate with the new fee structure, you were just ending out with a lot of conversations, explaining, rationalizing, and mapping your fee structure back to the thing they were actually more familiar with in the first place.

Ari: Yeah, to some extent, that's how it played out. I think really our differentiator that the fee part connected to was that we were fiduciaries who were very scrupulous about avoiding conflicts of interest. And so, what we liked as finance nerds was that we didn't have an incentive to get them to roll something over or to keep a mortgage longer so that we could invest the assets, because if we're really looking at net worth, then we're charging it on another way. So, if someone says, "Should I sell my rental property and invest the money in the stock market instead?" We think that's a good idea, for real, because it's a pain in the butt to be a landlord, and the stock market is a lot less work, and the return is probably similar. But we don't want to have anyone ever wonder, "Well, is the reason you're telling me that so your AUM number will be higher and your fee will be higher?"

Michael: So, you were in some blend of the relatively liquid asset. So, standard investment accounts, 529s, 401(k) plans, investment real estate, and the like may be an additional layer of complexity fee for someone that's got unique circumstances, like a business, but nominally, it was just kind of 1% of anything under the umbrella that's on your balance sheet that we might be giving you advice about.

Ari: Exactly. Right.

Michael: Okay. So, it sounds like the big challenge to that just practically was actually keeping the data up to date on the value of all the held away things got messy because account aggregation is decent but not perfect, at least when you're trying to scale billing across a large growing number of clients where there's actually a lot of assets at stake. So, you can't exclude one of these or get them materially wrong because you're working with some pretty affluent folks. It's a lot of money if you're wrong.

Ari: Right. And we also...one of the advantages of the initial model or what felt really ethical to us is, after we did our initial analysis, we would say, "And this is what it is a quarter, it's 2,000 bucks," or whatever it was. And they would just be printed in black and white there, wouldn't be any of the sort of ways that people sometimes pay a percentage and don't even realize what the actual dollar cost is on their statements. And we liked that transparency. It felt...I occasionally use Yiddish here, it felt menschy. It felt like the good, ethical thing to do. But what that also meant was if we wanted to update it over time as our client's wealth increased or as our cost with inflation increased. We'd both have to get accurate information, and we'd have to do a new amendment to the contract to update the fees. And the reason that this whole business is AUM, for the most part, is it's a lot easier if it's just part of the contract and a little bit more organic.

Michael: And so, did you go directly from 1% of everything we manage or advise upon, kind of this 1% of AUA, did that go directly to the current model of "We're just going to do 1% on AUM and a separate planning fee that kind of scoops up the outside stuff," or were there more intervening steps on this fee journey?

Ari: Yeah, there was 1 main intervening stage, which was, essentially, an AUM fee with a minimum. Our compliance people helped us to characterize that as whatever is not the 1% AUM fee is the planning fee. But essentially, if our minimum is...it changed over time, and we'll talk about that, but if our minimum is $8,000, someone only has $500,000 under management, then the contract will say, "That other $3,000 is the planning fee, and the 1% is the 1%." So, what that did is allow...

Michael: I hear some people refer to those as AUM offset model. We have an $8,000 planning fee that's offset by 1% of AUM. So, by the time you get to $800,000, you have no planning fee, because you're doing 8k on an $800,000 account. If you've got an 8k fee and you're only offsetting $5,000 of it with a $0.5-million account, $3,000 planning fee remains.

Ari: Exactly.

Michael: It's like that model, that essence.

Ari: Right. And it's a model that's very easy to explain to business owner financial advisors, but it's somewhat difficult to explain to the kind of people who want to hire financial advisors. We definitely did get just people who clearly were confused the first time we explained it, and we would need to re-explain it. But the virtue of that is it does away with asset minimums, which really, throughout all of it, that's been consistent. We don't want to say, "If you have the complexity and needs in your life where we could help you and you're willing to pay the amount of money that allows us to pay our team fairly and have good lives ourselves and help you, we're going to say no because you don't have the assets for it." We just never wanted to have that conversation. As it’s been discussed on the podcast before, it has potential racial discrimination effects, and it just limited who we could work with even more than the question of, "Can we add enough value to your life to justify our fee?"

Michael: So, you are pushing just to try to create this break of, "Yes, there's a certain amount of fee that we have to charge just to deliver the value that we deliver, but I don't want your eligibility for our services to be defined by whether you happen to have liquid wealth in an investment account. Just if you have a willingness to pay for our services, I want to make sure that you can buy our services."

Ari: Exactly. Right. And we still have very high standards for who's a fit. We want to still make sure that we feel the client is going to get a lot more value than their fee. We don't want that to be a closed question. And we want to make sure the fee allows us to compensate our team fairly and give us enough time for professional development and lives to do this job well. But we don't want it to just be limited by the assets.

Michael: So, you went from 1% everything, 1% on just managed but with a minimum fee, and now this sort of split approach, 1% AUM fee and a separate planning fee that layers on.

Ari: That's right.

Michael: So, what was the driving force for you to go from 1% fee with a planning minimum to 1% fee and a planning fee?

Ari: We weren't actually trying to do that as a way of raising fees. We were trying to do it as a way of clarifying ahead of time what the fee would be, making it a little bit easier to communicate around it. Yeah, really those 2 things. Our minimum had gotten as high as $15,000, and so what that meant is if someone had a couple hundred thousand in AUM, they're paying a fairly large planning fee, and there were some people where that made a lot of sense, especially for business owners or people with a whole lot of complexity. And we liked working with them, they're great clients, but we realized there were a lot of people where maybe there's $6,000 or $8,000 or $10,000 worth of really valuable work we could do for them and where it made sense at the stage in their lives to have everything in a savings account for a down payment or in their 401(k) at work and not really have anything managed. And as we expanded our capacity, we wanted to figure out, how can we serve those people, in a way, people much more like ourselves at that stage of life, in our 20s and 30s, and not be priced out by saying, "You would like $8,000 of work. We'd like to provide it to you. But since you're not a $15,000 complexity client, we won't serve you." Again, trying to make it more accessible while really making sure that we're compensated well enough that we can live the lives we want to and make sure our team can be compensated well and not have to work with 100 families each.

Michael: So, the idea was this, it sounds like, in practice, this tied to, "We've had a $15,000 minimum. We want to bring the minimum down to a $6,000 to $8,000 range." But rather than just bringing it down with the offset model or just instead of having AUM fees offset your 15k planning fee, we can have AUM fees offset your 6k planning fee. You just wanted to set it with 2 separate channels or just, "Look, the 6k minimum planning fee is just the 6k minimum planning fee, period. And if we're managing portfolios for you, that's a separate service, and we're going to charge separately for it."

Ari: Right. It's just simpler to explain, and we also felt like we could bring that planning fee down a little bit further if we will eventually be getting some AUM from it. And that made it possible to widen our net even a little more than we would have if we just brought the minimum down but still have this offset model.

Michael: And so, is that effectively your minimum now, is if you're willing to pay the planning fee that starts at 6k to 8k for simple singles or simple couples? They can engage you with that even if there's no assets, and so there's going to be no AUM, and you simply live at a $6,000 to $8,000 minimum fee per client for planning, and that's the minimum.

Ari: Yeah. That's our only economic criteria. Now, we still want to make sure that we feel like we're a really good match personality wise that we're going to offer enough value to them, that the types of needs and questions they have are the type that we're really great at answering. So, we still do carefully make sure we do mutual discovery before we take folks on. But we don't require any kind of AUM assets as part of it.

Changing Fee Minimums To Grow Intentionally And Limit Capacity Overload [27:57]

Michael: So, now, help me understand this dynamic of changing minimums, particularly, I guess, the more recent change to bring it down. Because when I look broadly at advisory firms, not uncommon to have minimums. Most advisory firms, as they start adding team and start to scale up, minimums begin to show up, because now you got set staff and payroll to make. So, if you're absorbing all your staff overhead time with clients that can't pay a certain level of fee, it actually starts being an outright money loser for the business. So, minimums get common as firms grow. When they add more staff and infrastructure, minimums tend to drift higher over time. Part of that is the overhead may get a little bit more expensive, and usually part of that is just we build our networks and ability to attract clients that are further upmarket, we're kind of literally mathematically getting paid more dollars for our time with more upmarket clients. So, minimums, usually, once they appear and start rising, I find, they almost never go the other direction for firms. So, I'm really curious to understand this journey of how the fee minimum got as high as $15,000 and how the fee minimum came back down again to barely half that.

Ari: Well, the first part of the journey is pretty intertwined with the pandemic and with the lives that my partner and I wanted to live. So, we had switched to this model I think relatively shortly before the pandemic started, and both of us are in relationships with women that we want to have be egalitarian and feminists, and where we want to be full equal partners in parenting and household responsibilities, and where our partners have careers of their own that are important and that we want to support, and where we have young kids. And so, when the schools closed...

Michael: You've got pandemic hits and you've got daddy daycare duties while you're running an advisory firm.

Ari: Absolutely. And I just had my second child. She was just a few months old at that point. Honestly, thank God, she was a relatively easy baby, but my older child was going pretty stir-crazy and just needed a lot of involvement from both parents. We, actually, Zach and I, live around the corner from each other, so we even combined forces and tried to do some co-oping of the parenting. But even so, our time was just tremendously valuable, and we cared a lot more about limiting our work time during those months. And we didn't know for how long it would be than we did exactly how fast our business grew. And so, at some level, we were really tempted to just close the doors entirely. This was also a time when, of course, our clients had all sorts of concerns, both with the crazy market during those first few months and if they needed to make a big change in their lives around their own parenting responsibilities or work. So, we really did not want our services to our current clients to suffer, we did not want our family lives to suffer, and we really were ready to close the doors. And yet we said...

Michael: Close the doors, not meaning like shut down the firm.

Ari: Oh, yeah.

Michael: Just meaning no one knew.

Ari: Yeah, no one knew. Let's figure out how to do well with what we have, the people we've made commitments to, our family and our clients, and not let the new clients displace that. But if someone comes along with $10 million, are we really going to turn them away? So, we decided, we sort of have an informal way of thinking, how good of a match is this in terms of personalities and values, and how good of a match is it economically? And we basically said, "If they're a 10 out of 10 on both, the economics and the..." we don't literally score this, but the metaphoric 10 out of 10 on both, then we'll still accept someone new because we just don't want to miss a chance for a wonderful lifelong relationship because of the unique timing, but we wanted to be extremely selective.

And it ended up that several folks came along during what ended up being those 3 years since then, but especially the first year of that, who were just wonderful matches for our firm and had significant wealth and were struggling with just the kind of issues about their own needs and the impact on the world that they wanted to have that we love helping people with. And we just couldn't say no. But the result is that the average person who came in then was paying a higher-than-average fee, and even with the higher minimums, we're kind of onboarding more than we meant to.

Michael: So, I guess I'm trying to understand how related those were. You were trying to be more selective about who to take, and you ended out with bigger clients, or you were literally just trying to ratchet up the minimums as a nice way to say, "Go away." "Oh, I'd so love to work with you, but, hey, our minimum is a $15,000 fee, and you only have a $1 million account. We might not be such a great fit for you." And it's a nice way to say no because you just say your minimum is so high, "We're not a good fit." And then they can reject you, so you don't have to reject them. I guess I'm just trying to understand, how much of it was "We ratchet up the minimums because we are trying to filter people out," or we were simply trying to be more selective in general, and what we ended out with, we're saying yes to people who had much bigger dollar amounts and were good fits, and lo and behold, that basically means we had higher minimums?

Ari: Yeah. I think we were deliberately trying to limit how many people we onboarded. I think we always were more transparent than a lot of firms and being honest about what we charge and relatively early. I think there's a different approach of kind of luring people in, getting them to like you, being a little cagey about what your fees are and only telling them after you've had a lot of chance to get them invested in you, telling what you charge. So, we were never quite that approach, but we got very transparent about our fees front and center on the website, sharing more information in advance, and having that minimum number go up.

As I'm remembering it now, we even started doing a little bit of this when I was going on parental leave, because we knew we'd have some capacity constraints. So, in the calmness before the pandemic, I think we maybe raised our minimum from $8,000 to $10,000 or something like that, and then we raised it even further when the pandemic happened, I think, to $12,000, and then eventually later to $15,000.

And if someone who was a great fit came along and maybe had a relationship, so we're chatting with them, but they didn't fit that, we may have granted exceptions where we may have said, "This is temporary. When Ari's back from leave, we're hoping to lower it again." But then, of course, the pandemic happened, and so our capacity constraints continued or got worse.

Michael: Yeah. I'm struck by what it sounds like the ultimate irony of this, which was you raised your minimums to try to dissuade some people from coming on because you were limited on capacity and how many you can take on because you've got childcare constraints at home. So, you ratchet up the minimums, you post it right out there on the website, these much higher minimums, and then people just kept coming and wanting to buy anyways.

Ari: Right. And the way you say it, maybe there was some element of it's a special, exclusive club, but we don't really know the counterfactual. If we hadn't raised the minimums, would 3 times as many people called us? I'm not sure. So, some of this was trying to... Zach takes the lion's share, God bless him, Zach takes the lion's share of the initial calls, or at least he was back then, and some of it was just trying to preserve some of that time again so he could focus on his family and on current clients. So, I think there was some filtering. That's, at least, my strong empirical hunch, I'll say.

Michael: Do you worry about turning away pretty good clients that may have been lost as you're going through that environment? How many million-dollar clients didn't say yes in that environment when, ironically, today, you would be quite happy to take that client because now the minimums have come down? Was it anxiety-producing for you to potentially turn away clients that now you probably would have been fine to have taken, or just you got to do what you got to do at the time?

Ari: No. There's probably a little loss aversion, but I'm someone who's always just valued my time a lot more than surplus money. As long as I have enough steady income that I'm paying my bills and I live a relatively frugal life, and was even more frugal back then, I feel fine about it. And I would never have had another chance to be the kind of partner or parent that I wanted to be during that crazy time. And there's always a chance to find another good client, and that's not something I'm going to miss out on in life. That particular who didn't knock on our door, hopefully, they found another really good advisor who had the capacity to really serve them well. And I know I was able to serve the people I did serve well because I was really disciplined about not saying yes to too many people.

Michael: I'm struck by just how you frame that, there's always another chance to find another good client, because I feel like I don't hear that from a lot of advisors. I don't know. Right or wrong, for better or worse, I feel like a lot of us just get anxious, "I've got a good client here in front of me. I don't necessarily know if I'm going to get another one or when I'm going to get another one or how long it's going to take to get one that's pretty darn good the way this one is." You never know if something will change. I don't know. I'm struck by the confidence or the comfort that you had of, "Yeah, there'll be more good clients in the future." It's cool.

Ari: Yeah. I feel like I've had a charmed life, and there are certainly lots of things I'm anxious about, but that particular one is not one of the things that I worried as much about. And some of that, we had a very good first couple of years of the RIA, and so that gave us a real foundation and confidence. We weren't paying for an office rent somewhere for an office we weren't using. We kept our expenses low. We had, essentially, a CSA share, because Tracy was running her own business at that point, working for multiple firms. So, we only were paying for the hours we used.

So, it was very easy for us to go into survival mode, focus on the time we needed, and delay growth, and that's what we needed then. And then once we were able to hire and get our kids back in school or some sort of camp childcare, then we were able to resume the growth. And maybe those exact same clients weren't still waiting for us, but when we've been able to accept clients, we've really never had an issue, having at least a few good matches come in every quarter.

Utilizing Referrals And A Progressive Values-Based Niche To Spur Firm Growth [39:00]

Michael: So, then help us understand where all the growth is coming from in practice. I think you've said your... Where does revenue sit at this point for you?

Ari: It's around $1.3 million or so.

Michael: Okay. We had your business partner on the podcast many, many years ago, I think back in 2018, probably 5 years ago, I think not long after the firm had launched, and I think it was at about $300,000 of revenue then. So, notwithstanding the minimums adjustments and the changing fee schedules moving up and down, just going from $300,000 of revenue to $1.3 million of revenue in a little over 4 years is a lot of growth unto itself, especially when you put on top of that, "And we were trying to slow it down for a while."

Ari: Right.

Michael: So, where is all the growth coming from?

Ari: So, there has been some fits and starts, some of them deliberate and some of them just the ebb and flow that happens for some reason. End of year and beginning of year is often a very popular time, and other times are a little slower. But roughly speaking, if you sort of exclude the noise and look at the big pattern, it's roughly one client a month. Some months are more, some are zero, but that's the average, paying around $20,000. Again, probably what that really means is 3 out of 4 are paying half that and then one really large one or something like that. But the averages basically work out to that. So, if you do the math, that's a dozen clients a year and $200,000 or $250,000 of additional revenue a year. And a huge chunk of that gets plowed back into hiring and technology and donating to causes. But that's how it's gone.

Michael: So, I think it is interesting to frame that you're not growing this in a high-volume business, as you noted, one client per month but $20,000 per client. Growth adds up pretty quickly, as you just noted with the numbers. But even at that level, one multimillion-dollar client a month is a really good healthy growth pace in revenue growth. So, where do clients come from for you? Where are you lobbying up a new multimillion-dollar client every month?

Ari: So, I want to give a huge amount of credit to Zach on this. And sometimes people compare the outside of other firms to their own insides, with all their internal struggles. And a huge leg up that we had that is not obvious from our 2017 start day is that Zach had been doing hourly coaching for almost 10 years in a sort of financial education way before he opened the RIA. And so, very few of those people actually became our clients. It's not like we did the kind of leaving a broker-dealer and having a big start that way. But there are a lot of people who were his Facebook followers and posted nice things when he launched and mentioned it to their parents or their friends. And so, we had the sort of snowballing of referrals, had a big head start that might not be obvious from the 2017 day. So, if you don't have $300,000 in revenue a year and a half in, you should not be comparing it with folks in your timeline.

Michael: So, part of your launch catalyst was, "Hey, I've actually been building a network, a following, an email list, or I guess a Facebook follower list, so I've got some warm folks who already appreciate some of what I do before I even get started here."

Ari: Right, right. And I have a network as well, and I had been doing a little bit of estate law, though not for nearly the 10 years that Zach had been doing his coaching. So, some of our clients came from them, but really a ton of them just came from our social networks or from the networks of his hourly clients. We've never done any paid marketing. We've maybe sponsored an ad in an organization's brochure, but that's about it. And then Zach, also, he's really passionate about having an impact and sharing a lot of the values-based approach that we have. And so, he has done some media work, and that has led to some clients. People apparently sometimes Google anti-capitalist or socialist advisor, and there are some headlines of articles interviewing him with that headline. So, I'm not sure how many of them have turned into clients, but we do get some good Google search off of the media work.

Michael: Because that's literally part of your targeting of who you serve. I know your homepage just outright says, "We help progressives build financial lives they feel good about." You are politically targeted, politically oriented in who you serve. That's part of the business offering and positioning out of the gate.

Ari: Right, absolutely. And what Zach likes to say is there's a lot more socialists looking for a financial advisor than there are socialists who are financial advisors.

Michael: So, it's got a natural niche effect to it.

Ari: Yeah. And there are increasingly...certainly, there's a lot of advisors who focus in ESG, and there's gradually more and more who are looking at a broader progressive values approach to their niche. At the recent XYPN LIVE, there was a panel, and there were several advisors who came and were interested in this and others who wanted to dip their toe in the water and think about it, being more open about one's own politics and ways that that touches on the work that we do with people.

Michael: Well, yeah, I'm fascinated by this because, classically, I feel like, in advisory world in particular, there are certain topics you're not supposed to talk about. You don't bring up religion, you don't bring up politics, because those are potentially divisive issues, and you don't want to blow up a client relationship, accidentally stepping on a landmine around making some any kind of statement about something religion or something politics and finding out your client is on the other side of that belief. It's fascinating to me that your approach is, "No, we actually just put that on our homepage."

Ari: Yeah. Well, it's been good. It's been good to niche that way, but also, before we knew it would be a good business idea, it's just who we are. We didn't want to go through our lives walking on eggshells, worrying about whether, if we showed up at a rally or got interviewed in the paper about something, some client would be mad. We just wanted to be ourselves in the world. Our whole first careers, both Zach and my case and several of our team members, were in public service or advocacy, and so I don't think we really had the option to hide the ball on that. But what we found is that, in our conversations with people about how much of their money to give away, we talk about religion, we talk about politics, we talk about conflicting morality that they have about wanting to do well for their kids, for their family to avoid putting them at risk but feeling that they have honor and privilege. They're deep moral and political conversations. And knowing that we are trying to balance, however imperfectly, the same kinds of goals is central to having those conversations.

Michael: And I guess, just practically speaking, when you stated out there in your website, you're never going to blow up a client relationship talking about progressive politics. Because if that's a concern for them, they got turned off on the website long before they ever possibly became clients. It strikes me, there's sort of a self-selection bias. It's one thing to have an existing client base and trying to decide whether were you're going to talk about issues like politics and religion, but when it's part of the offering and the marketing and the messaging in the first place, self-selection biases kick in pretty powerfully. The people who don't like that just won't become clients, and the people who either do like that or just don't care that that's part of the conversation will go ahead and become clients. And so, at that point, it's a fine thing to be part of client conversations because clients who care have already sorted themselves out. Either they like it and they're here or they don't like it and they're not. But that means none of the conversations with clients should be negative at that point.

Ari: Right. Now, the risk at that point is very low. As long as you're willing to say, "I'm not going to try to be all things to all people and make sure absolutely anyone who stumbles across my website is going to follow up, but rather, I'm going to be the right match for the right people. And if we only need 30 or 50 of them per team, then we're going to be able to find them sooner or later." The closest we came to a problem with this is that Zach was an Advisory Neighborhood Commissioner, which is a kind of funny D.C. sort of...it's elected office. It's an unpaid, volunteer office, and he sponsored a resolution about the Trump Hotel here in D.C. And some Trump fans saw that, and they went on Facebook, and they gave us...people we'd never done business with or talked to, but they went on Facebook and gave us one-star reviews. So, that wasn't pissing off any of our current clients, but it was one of the few times when our political activism had any blowback.

But one of our clients noticed this and said, "Hey, there's all these one-star reviews from these right-wingers who are trying to hurt Zach for his activism. Those of us who've actually worked with Values Added should weigh in to try to counteract it." So, it ended up that it created more positive activity for us and probably got us some clients.

Michael: Your clients rallied to support you because of the negative campaign.

Ari: Right. Exactly. The fact that we had been targeted for our politics actually helped us get more positive word of mouth.

Michael: And just out of curiosity, because I truly don't know the mechanics around these dynamics, in particular, were you able to clean up the Facebook reviews? Are you able to get some of that taken down? Do you think you can live with that being out there?

Ari: Luckily, they didn't organize as well as our clients did. So, I think it was only a couple of actual zero-star reviews, and I think Facebook moved away from stars after that. But it is an issue, because, as you know, there's weird rules around once you start having any influence over a third-party rater, whether that's now something that you're indirectly soliciting.

Michael: Right. Now, you got an RIA marketing rule if you're going to get involved in editing the reviews that you're getting, which is a weird intersection of, "Yes, but these are reviews from people who are not, actually, clients in the first place," but you have to be able to show that. Just, yeah, I can...

Ari: So, it was good that we didn't ask our clients to chime in on our behalf, but we explained that we couldn't weigh in.

Michael: Right. Interesting. And I guess, I suppose all of it goes back to the comment that you made earlier that just there's always another chance to find another good client that you're pretty straightforward and outright on the website of, "Here's our politics. Here's our views. It ties directly to what we do and what we offer."

Ari: Right. That's certainly right. And it turns out that there's millions of people who want to buy ESG funds, and some of them say, "Oh, maybe this isn't actually enough. Maybe there's more I can do around my values. That's not just about buying a fund that has an environmental label on it." And in this country, there's just a huge number of people that are thinking about every purchase decision or investment decision or whether they need or whether they drive this type of car or not. They're thinking about money in values terms. And so, they want someone to help guide them around those questions and not just how to die with the most money.

How Ari And His Firm Approach Values-Based Investing [51:30]

Michael: And so, is that part of what your actual offering is at this point? Are you involved in ESG or other values impact-related investing?

Ari: Yeah. We're very involved in both values as it applies to the investing part of things and certainly the giving and donating, both for nonprofits but also for politics, but also other lifestyle decisions, what kind of car to buy with the EV credits, with solar panels on your house, which is a very good thing to do in D.C. especially, financially and for the environment, so career coaching. So, we really were able to go much broader than the typical ESG fund conversation that an investment-focused manager would have, but we also, even just in the investment space, do have more tools in our toolkit.

Michael: So, what does that look like in practice in the investment space? What are you doing, or what have you built?

Ari: So, we offer several different options, and some clients really focus on one or another, and some blend these together. But there's different approaches to impact investing that people might be drawn to for different reasons. So, the classic ESG approach is "I don't want to profit off of certain types of industries or certain types of businesses. I don't want to be able to retire because a company sold more guns or burned more fossil fuels, so I don't want that in my portfolio."

Michael: So, kind of the traditional ESG that's very focused on screening out stuff that I don't want my capital to go towards.

Ari: Right. And there's a few critiques of that approach. One of them is that a lot of the funds claim to screen better than they do where they screen out certain things but then the companies that are left still have other problematic practices. But there's also a more fundamental critique, which is that choosing not to profit off of, let's say, Exxon, doesn't necessarily give Exxon an incentive to stop lying about climate change or to move toward more renewables as part of their business or anything else, because they're writing a dividend check to somebody no matter what. They don't really care who that dividend check goes to once they are already a public company.

Michael: Right. It's one thing if they're regularly raising capital in public markets and actually need investors that want to buy their story where, if enough people don't want to buy what they're offering, including for ESG filters, it can literally raise their cost of capital and maybe change behavior. But that's not really the case once they're already a publicly traded company. The stocks are already out there. The profits are already happening. Someone's willing to buy the dividend. So, how much does it really change behavior?

Ari: Right. And it's really hard to understand that because, for progressives, we think about the consumer boycott, because that's been a major tool. And when you say, "We're not sure how much filtering is really having an impact," they think you're saying, "Oh, well, because you're so small you're not having an impact." But it's really a different critique. When I switch to an electric car recently and stopped filling up at Exxon, that was a small effect, but that had some effect on oil companies' bottom lines. When millions of people do it, it cumulatively has an impact. But if all the progressives in the world refuse to hold Exxon shares, if anything, if price goes down a little bit but the profits don't, then some investor who doesn't feel that way is able to buy them at a little discount or perhaps at the same price that they would have anyway. But it doesn't have the pressure.

That said, it's still an important tool because people want to be able to sleep at night, and feeling complicit in problematic practices means they feel bad about investing. They don't necessarily save as much as they would. They might not be willing to put it in stocks at all if they can't filter out stuff that feels icky to them. So, it's still an important component for a lot of our folks, but we just don't want to over-advertise how efficacious it is at actually fighting climate change.

Michael: So then, what's the alternative or the next option if ESG doesn't actually have the kind of impact that your clientele really want to see, because boycotting in the investment context doesn't quite work the same as other domains?

Ari: So, there's really 3 other primary approaches. So, one of them is voting the shares you do own. So, maybe you don't want to own a gun company at all, but you understand our economy runs on fossil fuels and you don't need to totally divest from that, but you do want your shares to be voted when there's a shareholder resolution around board members or transparency or trying to nudge companies that are somewhat problematic to be a little better than they'd otherwise be. So, we have a couple of tools for that one.

Michael: That's the world of proxy voting.

Ari: Right, exactly. So, sort of we call that speaking up. The first part is avoid problem industries. The second category is speaking up. And the easiest way to do that is there's now an ETF that owns the 500 largest companies in the U.S., and that votes your shares in a progressive way. And they, I think, charge 3 basis points very similar to a normal index fund, but they vote the shares for you without any work in a progressive way. And it's founded by Engine No. 1, who was a hedge fund that actually was involved in the big push on Exxon's board. That's why I used Exxon for my example.

Michael: And what's that ETF?

Ari: The ticker is VOTE. So, they're really focusing...

Michael: Very witty. Very witty.

Ari: Yeah. And it's technically not the S&P 500, I guess licensing issues or whatever, it is the 500 biggest companies.

Michael: It's a diversified large-cap U.S. index, and they actively vote their proxies in a manner aligned to progressive values. So, I guess a little bit easier than saying, "We'll buy the individual stocks of the S&P 500 and then manage year-round proxy voting for all clients across the 500 stocks," which gets a little hectic.

Ari: Right, absolutely. So, now, what's a little bit tricky is if you want to do some of each, there's not...some of the ESG ETFs that exist out there, ESG stands for environmental, social, and governance, which are sort of 3 catch-alls for a lot of the concerns that people have, progressives have around companies. So, a lot of those funds will filter out certain companies, and they sometimes do some engagement. It varies by the fund. Some of them are a little more expensive than index funds. Some of them are a lot more expensive than index funds.

But it's relatively hard, we've found. Some of our clients do choose some ESG funds, and that's their approach. But it's relatively hard to find one that slices the market in just the way the client wants and that engages with the companies they do own in a progressive way that's effective at a reasonable cost. So, that's been hard. And for clients, that's where personalized indexing comes up.

So, personalized indexing, it needs to be at least somewhat larger accounts at the moment, although not quite as large as it used to be, where they'll actually own the individual shares, and they'll do some great tax-loss harvesting as part of it, and the partner we work with will vote the shares. So, you got the speaking up and the avoiding certain industries if you want to. And then there's also some tax benefits from being able to sell the ones that are down and donate the ones that are up the most. And if you have very concentrated gains in certain companies, you can donate them and then eventually replace them. So, that's very effective, and hopefully, when fractional shares become available, it'll be possible to do that with much smaller accounts and still have the diversification you want. But on the advisor side, we don't quite have fractional shares yet, so it tends to make sense for folks with [$]0.25 million in their taxable accounts or more.

Michael: And how do you input? So, that's effectively like a direct indexing approach but not necessarily, just as a lot of folks frame it, direct indexing for all the tax-loss harvesting benefits. It's direct indexing for the more personalized filtering of ESG-style filters plus a layer of proxy voting, comma and you get some of the cool tax benefits that are also attached. The lead is the screening and the weightings for you, not the tax-loss harvesting.

Ari: Right. Well, and we, financial nerds, really love the tax-loss harvesting, and that helps us feel like the cost is justified.

Michael: Yeah, we do.

Ari: And for our charitably young clients, which is, a lot of ours are, then we love that part too. But, yeah, clients, I think, are usually most excited about being able to design their own filter and have the shares voted and also just be a little bit in control, because if Vanguard or BlackRock initially is willing to push on environmental stuff, but then they soften, but you have an appreciated BlackRock or Vanguard or whatever ETF, you're kind of locked in. But if you own the shares themselves...and our provider is named Ethic, if Ethic stops doing a good job at the tax-loss harvesting or the voting, you can just take your shares to some other provider and hire them to take over the management.

Michael: Oh, interesting. So, I hadn't thought about it from that angle. If you decide you're not happy with them and you want to change to another provider, you don't have the effect of, "Well, I'm locked in someone's ETF, and I can't really change the ETF from the way they vote it. But if I own the raw stocks, worst case scenario, I just find another provider who can overlay personalized indexing and have them do the voting and the ownership and the shares and whatever it is that I want to see happen."

Ari: Yeah, exactly. So, you're really in the driver's seat about you can change managers if you want to, you can choose which industries or individual companies to cut out, and you don't have to do the proxy voting yourself, but if you ever want to take it back over, you can, or you can hire someone different to do it. So, it really puts the client in control in a wonderful way. It is a little bit complicated. You have a very long statement, you have more transactions than you might be used to, but we can help people with that complexity and help make sure that they don't have to deal with it too much.

Michael: And you said your platform of choice for executing on this is Ethic.

Ari: Yeah. And what we like about Ethic is that they have a very good interface for surveying clients about their values, they're really values-forward in a way similar to us, and that they do the proxy voting. There's a lot of personalized index providers, but I'm not sure how many others are doing the proxy voting in an activist progressive aligned way.

Michael: So, good interface, I guess, just for clients to express their values so that the portfolio can be filtered accordingly.

Ari: Mm-hmm, yep. And there's some off-the-shelf options if they want to really focus on the environmental part or if they want to have a little bit of a focus on all of the different things, or they can do more of a custom approach. We haven't used it as much as we probably should, but we can also develop our own menu options, or they can really have a very customized approach. And if someone also has legacy assets, you can kind of wrap around those assets, which is nice. So, if someone doesn't want Amazon because they're a journalist and they report on Amazon, and they don't want Apple because they have a lot of Apple from their dad that they're carrying, so they don't want to buy any more Apple, all of those kinds of concerns, you don't have to duplicate it the way you would if you were just buying a large-cap ETF.

Michael: And so, how does it work from a pricing perspective? What does Ethic cost? And who pays that? Where does that cost come from?

Ari: It's about 30 bips. It varies a little bit based on how customized it is, and the clients pay that, just like they'd pay a mutual fund or ETF expense ratio. We're pretty careful that we only put the assets in there where they're getting the value out of it. So, for a lot of clients, that's just their taxable accounts, and it might just be their taxable accounts for their new assets and not their legacy assets. For other clients, they really love the customization. They're happy to do it in their RIA too even though they're not getting the tax benefit from it.

Michael: I was going to ask, do you do it with RIAs for clients who just want their portfolio invested that way? So, yes, if they want to, because that alone is worth it for them. Others will just do it in the taxable accounts where the tax-loss harvesting mitigates a lot of the cost.

Ari: Yeah, exactly. So, we're very cost-conscious, maybe even a little too cost-conscious. We hate paying expense ratios, and one of our big values that we add is helping people get out of high-cost actively managed funds that they have as legacy. So, our biases are often against using any provider if there's not sort of hard economic benefit for it. And I think, over time, I've really learned that our clients really do value the voting and the carving out of things that they feel bad about. And 30 bips is really not that much in the scheme of things if that's viable to them. So, I say it's sort of a no-brainer for the taxable accounts because the tax benefit really pays the cost and then some. And then, for the other accounts, it's kind of up to them if they'd rather do bad or something more like vote with a lower cost but without the filtering.

Michael: And so, I guess I've got to ask. You're comfortable with the cost layering that does come with planning fee to the firm for the planning firm, 1% AUM fee for investment management plus another 30 bips to Ethic. And so, at that point, you're charging 1%, but Ethic's doing just, I guess, the trading implementation around the personalized indexing. You're good with the layers of who's charging what in that stack.

Ari: Yeah. And Ethic, that 0.3 is not on their whole portfolio. For the vast majority of our clients, a lot of their money is in retirement accounts, and initially, there were some issues with some of the fees for trading international companies where it raised the transaction cost. So, it's really just the taxable U.S. portion of the portfolio, and so it's really usually a rounding error. But we wanted to really have it be equivalent to mutual funds or ETFs. They're getting a more elaborate strategy. We do do more work for Ethic because we're going back and forth with them to make sure that the communication is happening about the client's values and that the tax-loss harvesting is happening in the right years and in the right style. So, it's actually more work than ETFs for...so we didn't want to have an incentive to steer people away from Ethic.

Michael: So, in practice, only a portion of dollars are actually in Ethic, their fee rate anyways. I guess it sounds like the rest...you're a low-cost ETF kind of investment firm in the first place, so the rest is just finding cost-efficient funds?

Ari: Yeah, exactly. So, even the 30 bips is not very high, and the tax-loss harvesting often helps us get them out some legacy holdings that are more expensive, and we're very conscious that Ethic isn't charging on legacy assets where they're not able to add value.

Michael: That's even an interesting angle. So, not just tax-loss harvesting for just sort of the sake of value in and of itself, but you'll use the tax-loss harvesting benefits to create the losses to offset against gains for other legacy things they have that are maybe higher costs and would be good to shift out of, but they don't want to leave them because of the capital gains. So, that's your tax-loss harvesting as a capital gains transmutation exercise.

Ari: Right. So, a lot of our clients come to us and they have some pretty expensive mutual funds that have underperformed by roughly expenses over time. Sometimes they have very concentrated positions. And absent Ethic, we still can gradually extricate them, but we're always carefully worrying about the capital gains and what year to realize them. So, we can extricate them a lot faster and save them those expenses a lot more quickly if we're able to get those losses harvested that the personalized indexing strategy allows.

How Removing Certification Requirements Help Ari Find More Diverse Employees [1:07:56]

Michael: Interesting. So, as you've gone through this growth cycle, and as you'd said, expanded team and refined some systems that you felt like you had the capacity to lower minimums and allow more flow in, so I guess just I'd love to hear a little bit more as you've scaled through that range. For most advisory firms, I find it's that window from about $0.5 million to $1 million of revenue where you have to start figuring out some of this hiring and tech and systems stuff. You can brute force it lower than that, and things really start breaking if you haven't solved for it higher than that. So, I guess I'm really curious to hear more of the journey of how did hiring start working for you. When did you decide to start expanding the team? How did you decide what positions to hire, and how do you go about finding advisors to fit the firm, particularly, given the nature of what you do? You're a little bit more of a specialized firm in just who you can hire that will be even fit in the first place.

Ari: Right. There's not always people who want to do financial advising but have a long history of being activists and got their start in college sit-ins and things like that. Yeah. So, we figured out we wanted to start doing some hiring in late 2018, and we hired Bridget, who was our first other advisor, in March of 2019. And she's been wonderful. She's still with us. None of the people we've hired have ever left us. So, we're doing something right. And it was really that we...Zach really led with managing her and mentoring her, and he really loves teaching. And we also are both really aware that there are some things we excel at and other things that we'll never learn no matter how hard we try to force ourselves to learn them. And having complementary partners, having complementary team members where they excel at places we're weaker and where we can both teach each other and complement each other's weaknesses really strengthens the team.

Michael: So, what did that look like in practice? What were the weaknesses you were trying to hire for as you were starting to build up the team?

Ari: For our first hire, it was really about expanding capacity and making it possible for Zach and I to really work with people without having the other one in the room. We really believe in having 2 people in the room whenever possible, 2 people from our team, because you catch things the other one didn't. The person leading can focus more and not have to take as careful notes, but the notes don't have to suffer. It's a little bit easier to occasionally slow someone down if they might have talked over a client, but then the one who's in the room can listen and notice that a client has something important that they need to get out. So, we wanted to have 2 people in meetings, but we wanted to be able to function a little bit more independently.

And so, having someone...for me, I'm just terrible at taking notes while leading, and so having Bridget be able to take notes and to brief afterwards is very helpful for me. I think, for Zach, he loves the emotional and behavioral and deep work but doesn't love the sort of project management part of making sure that every little detail gets prepared ahead of time and properly implemented afterwards. And so, we were really looking for someone who loves being an implementer, loves really carefully making sure balls don't get dropped, and wanted to learn the trade from us.

So, we really had to think about what kind of firm we wanted to grow. And both of us have been in pretty strong agreement, we didn't want to do dramatic scaling and be a huge firm. But we had some real soul-searching to do individually and together about, "Did we want to be a small giant of a firm that's great and larger and with a mentorship track and bringing in more advisors and teaching them and managing all of that complexity, or did we want to be a firm that was more focused on doing good work ourselves with some support and complementarity but not necessarily really growing an enterprise?"

And to be honest, Zach and I have very similar values, and we both care about work-life balance, but I've always been more on the end of the spectrum of the work-life balance question and not working too much and having time for other pursuits and family and not over committing. And Zach's always been, as you might imagine, as the one who really started the business, the more entrepreneurial one, the one who's optimistic about expansion and trying new things and a little bit more of an extrovert who loves to teach and mentor. So, there was a little bit of a tension about whether to grow really at all beyond the 3 of us, as well as, of course, Tracy.

And I had to do some soul-searching myself. I like building things, but I was frankly scared of being overwhelmed by the complexity and the demands of a larger business with more advisors where I had to do quality control and deal with any management challenges and have things outside of my own immediate control. We now have meetings going on where neither Zach nor I are in the meeting, and we're pretty confident that our people are doing a great job. And they asked us questions afterwards, but we don't know directly anymore. That's really scary to let go of that control but still have the responsibility. I'm someone who just really feels the responsibility. If we screw something up for a client, I don't just want to refund their fees. I want to go over to their house and dig them out of whatever we've messed up. So, it was really hard.

Honestly, in our Kinder training, I did a life planning where I realized I like building things, and I'm scared, and I had to face that. And especially, I had to face it because if it were just my business, lifestyle probably would have been okay. Both would have been okay. But I think I was worried I was going to be trimming Zach's wings, that he would have built this amazing cool thing and brought people into the profession, but because I was too anxious and scared of taking it, he was going to slow down and do it for me. And there's a healthy dynamism there if I slow him down a little bit, and we're a little bit more cautious, that's great. And certainly, if he speeds me up a little bit and gets me a little bit outside of my comfort zone, that's great. But you'd want that tension to be productive and not one where you're really stopping each other from realizing your visions.

Michael: How have you reconciled that tension in practice? How are you managing to that tension?

Ari: So, it's not just a matter of straightforward compromise. I really changed. I changed what I wanted, and I did it through...the pandemic helped me realize I had, essentially, untreated anxiety, and that exacerbated some of this. And getting the kinds of support people should get when they have anxiety helped me focus on what I would be excited about that growth and less focused on what could go wrong. I still think about what could go wrong. I still make sure we have a good compliance team. I still make sure we have training wheels before people are off to the races. But I don't stay up at night quite as much worrying about it because of really facing that and choosing to do things that are a little scary to me and just deal with the feelings that that brings up.

Michael: And so, that’s just the wonderful world of therapy to just work through that.

Ari: Yep, therapy, anxiety meds, meditation, taking some days off here and there to recuperate and address my own physical and mental health, all of those things. And I think, also, having the administration change, having COVID strictures relaxed, it started to feel like a more spacious time. So, we hired our 4th advisor in February of 2021. We just had the inauguration, we had the vaccines come out, and it was feeling like, "Okay, we can sort of start imagining a future where we can build capacity and fill it again instead of just survival mode." And we also realized we're in this new Zoom era, we can do a nationwide search and find people who want to work anywhere and offer them a really good work-life balance and really meaningful work and not make them move to the D.C. area. So, every hire after Bridget has been someone who doesn't live in the D.C. area, and that's actually still worked very well.

Michael: So then, how do you find people?

Ari: We decided we wanted to really grow people internally. We didn't want to just choose someone who's already a CFP, already established, already a known quantity, and that's partially because we do things in a very specific way, and we didn't necessarily want to have to retrain. And it was also around gender and racial equity. The stats are so terrible for people who are able to get all the way through the CFP process on their own or at a big firm. And by being willing to take career changers and start people who are earlier on their journey and do the training internally, we can have a much broader net. Every hire we've made has been a woman and/or a person of color and/or a person who's LGBTQ, and that's really wonderful. It means we're a much stronger team, with more understanding of what our clients go through. And I think it's, in part, because we're willing to hire people earlier in their career.

Michael: So, I'm curious just how you manage that from a hiring end. I know you were an attorney before moving to the advisor end, I'm sure you're well aware of our legal and employment law dynamics around trying to improve the diversity of your team, but what you are and are not allowed to do from a hiring perspective and taking gender and race into account. So, I guess, I'm curious, how are navigating that in practice?

Ari: Yeah. So, much of that discussion sort of imagines, at the very end of the process, 2 candidates, and 1’s better, but you're choosing the other one. It's a very tokenizing approach. And we found is it's really about taking the structural impediments out of the way, and it's really starting from day one of envisioning a role and who's right for the role that we can get rid of the societal structures that privileged people that come from a wealthy and racially and gender privileged backgrounds.

So, for example, I started with saying, "They don't need to already have their Series 65 or their CFP. They can learn that on the job and get that on the job." Making sure that they can have a flexible work-life, that we can have paid time off for parental leave, that a lot of the ways that they don't have to work 80 hours and that they can have a home-life outside of. That's good for everybody, but it's especially important for allowing women to get ahead in the workplace and succeed. And we envision our role and our culture and our benefits all in a way to try to make our work work for people from all sorts of different backgrounds. And in our job postings, we also really highlight that we think, not that any one hire is going to be a particular way but building a diverse team that reflects what the progressive movement looks like and has as their experience is critical to us understanding what our clients need from us and being able to not have blind spots that a bunch of cis white men might have if those are the only people in the room.

Michael: Well, I guess, it makes a good point that, for so many firms I know that are trying to get more diverse in their advisors and often come back to something the effect of, well, it's when less than 25% of women are CFP professionals and I think fewer than 10% are advisors of color, CFPs of color. It's really hard to have a more diverse advisor base when just the number of CFPs to hire from is more limited in the first place that, effectively, your workaround or alternative to that is, "Well, if we start earlier in the career progression, you haven't experienced those limiting factors in the first place." The number of people who just think financial advising sounds interesting before you put the other limitations in place, it turns out there's a lot more diverse people if you move further upstream before all those requirements crop up.

Ari: Right. It's moving further upstream, exactly, and it's also realizing that a lot of different types of life experiences can make someone a good advisor and skills. What we really realized was being able to communicate well and having emotional intelligence, those are actually the hardest things to teach, and there's a lot of different ways people can demonstrate that that are not necessarily as restricted to people who've had very privileged backgrounds. So, for example, our former careers among our 7 members of the team, we have a rabbi, we have someone who was a medic in Afghanistan, we have someone who was a physical therapist. And in all of those situations, they had pastoral skills, they had the ability to help someone feel cared for and demonstrated caring that was really authentic. Those are transferrable skills, and yeah, we'll teach them when to do a Roth IRA or a traditional IRA. That's easy to teach. But teaching someone how to be caring, how to listen well, that's actually really hard.

Michael: Interesting. Interesting. And so, because that's how you approached hiring in the first place when you drilled down to we're not requiring industry experience and industry background, we're not requiring people to come from the financial world. We're looking for just people who can demonstrate communication skills and emotional intelligence and some reasonable aptitude to learn Roth versus traditional IRAs at some point down the road. You get a much wider pool of people to hire from.

Ari: Right, yeah. And having that wider pool, putting the work in to make sure that you got the wider pool and that you're willing to put the time in to interview people who are not obvious but have something that's exciting to you. When I saw that Kathryn was a physical therapist and she answered our questions in a way that made it clear she really got our values, I might have taken a closer look than someone who only had 6 or 9 months of internship experience. And she's been phenomenal. I'm so glad that I found that, but it requires doing the extra work to look past the obvious signifiers. And it also requires hiring early enough that you know there's time for people to learn what they don't know yet. A lot of people don't hire until they're drowning in work. And we hired ahead of the curve. We both limited the new clients and started the hiring process early. So, that gave us the space to say, "It's okay if your first 6 months are just taking notes and chit-chatting with us about and nerding out together, and you're not eating to produce that much that has immediate economic value for the firm."

The Surprises And Low Points Ari Encountered On His Journey [1:23:26]

Michael: So, as you reflect back on this journey, what’s surprised you the most about building an advisory business?

Ari: I should have expected this question. I know you always ask this question.

Michael: That was a good sigh. That was a big sigh.

Ari: Yeah. Honestly, I have major imposter syndrome for my first few years. I worried I'd be an introvert. I'd worry that I'd get details wrong.

Michael: Which I find fascinating. You were a lawyer before this. I don't want to paint too many generalizations around lawyers, but certain level of aptitude and attention to detail you kind of have to get through to get a law degree and pass the bar exam in the first place. You came with a pretty good starting skillset to be able to do advising work.

Ari: Right. One of the tricky things is the more you know, the more you know that you don't know. And I think that's especially true in law where you can very easily know enough to be dangerous or to have a guess how something should come out, and then it turns out there's actually a regulation or a statute on that you weren't aware of. And I think I was very focused on acquiring technical aptitude and thinking that the main way I'm going to help people is by helping them play this game the right way. And what I've really learned is both the value I actually bring to people and that I feel most excited about, and I really spent my day well, is the emotional moments and the big vision question. There are clients who've realized they can cut back on the work they hate. They can leave the job, or they can say no to certain types of clients and scale back and really focus on the part that they love, and making those sort of big life choices that have nothing to do with exactly what they're invested in, but helping them just figure out what they want and give themselves permission to do it. It's just amazingly fulfilling for me. It's an impact that I... I've helped draft legislation, and there's large numbers of people who get paid family leave because of the movement I was part of here in D.C. And intellectually, I think that's a bigger impact, but emotionally, really helping someone make a key life decision that's going to make them more satisfied and let them be more involved with their family and community or have more meaningful work because they got the financial permission to duet. It's just gratifying in a way I never expected.

Michael: I think it's an interesting way to frame it of sort of, intellectually, my legislative work may have had bigger impact on paper from lives reached, but emotionally, just getting the client through that meaningful massive moment of change feels more fulfilling for you.

Ari: Yeah. And intellectually, I let myself off the hook on that impact because of the ripple effects. When we help those clients make those great changes, their career or they're donating, that's going to help get the next policy pass. And the fact that so many of our clients do donate through their time or their money or both to really...donating isn't the right word, but helping them live sustainable lives. I sort of imagine, I used to be on the frontlines of the army, fighting these battles. And now, I'm the cook and the supply lines. And our clients are out there, making the world a better place in all sorts of ways. And they would have burned out 20 or 30 years in or maybe sooner, but if we can help them live sustainable lives, then they're going to be able to do their work that much more effectively and longer. And we have an impact on them, but we also have an impact on everyone that they impact.

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

Ari: Definitely, it was COVID, COVID while having young kids. It was just really challenging to figure out how to balance everything in my life and whether all of our dreams about growing something really made sense if the rug could be taken out from under us, like that. And in the end, I think there were a lot of silver linings for our business because it helped us be disciplined and really thoughtful about what we wanted. And having that low point pretty early made everything else seem a little easier by comparison. But our clients were not as freaked out as your typical client in terms of watching their portfolio every day, but they had some major, major challenges. And it was nice to feel of service to them, but it was also really stressful to have our own challenges and need to be of service all at the same time.

Michael: So, I guess I'm just wondering more, what were you doing in practice to try to just manage, live with the balance? It sounds like part of it was, just very consciously, we're raising our minimums and slowing down the flow of new clients because just more work with new clients coming on board. If you ratchet up minimums and slow the pace of new clients, there's just less work to be done in the business for the time being. So, that created a little bit more space for all the parenting, childcare, and other pandemic-related stresses. Was that the primary thing? Were there other things you were doing or adjusting or changing in life just to try to manage the pandemic environment and all the childcare duties that showed up?

Ari: It's a little bit of everything. Luckily, some of our clients also didn't want to deal with their long-term challenges at the same time. So, we really did prioritize the things that were time sensitive for our clients. We did a lot of tax-loss harvesting. We did a lot of meeting with folks who had sudden changes to their career or their needs for hiring private care or other challenges from the pandemic. And we did need to prioritize a little bit. I don't think there was ever a time where someone said, "Hey, I want to review my portfolio or my estate plan," and we said, "No." We found a way to say yes to all of the requests. Honestly, the other part is I think any other partnerships, Zach and I, if we didn't have as strong of a partnership, it would have been really stressful with trying to divide up that among the 2 of us when we were both facing those challenges. One of us had a day where we just really needed to be with the kids. The other one could pick up meetings, because we do the double staffing. If one of us was out of pocket, we could do that substituting. We had strong enough relationships and trust on each other that we could each pick up slack during any particular challenging time that one family had.

And I thank God for that. There's parts of me that think a solo practice and a lifestyle practice would be simpler and easier, but doing that alone would have been terrifying. And just having someone who could pick up a ball when I needed to toss it off was huge. And I was able to do the same for him.

The Advice Ari Would Give His Former Self And Younger, Newer Advisors [1:30:42]

Michael: So, what do you know now that you wish you could go back and tell you 5 or 6 years ago as you were looking to switch from law into the business and partner with Zach and come into the industry?

Ari: I think if I could take a little bit of the confidence that having a good 6 years has given me and get it earlier, it would be nice. I think that's magical thinking, to be honest. But just really a sense of don't sweat the small stuff, don't worry too much about any one little decision or little decision point. The big picture is build a practice where you have team members who can be there for each other and where you can be there for your clients and have deep meaningful relationships with your colleagues and your clients. And if you can do that, it'll work. Your life will be good. The economics will work itself out sooner or later. And just really focusing on that, I'm not worrying quite so much about how prepped am I for this meeting. Have I done all the spreadsheets I could on this? That listening more and being present actually is what matters the most and that you'll figure out the technical things sooner or later.

Michael: So, I guess just in retrospect, anything you could have done that would have moved the confidence curve faster for you if that was the blocking point?

Ari: I think if we had kept things a little bit simpler from the start, just a somewhat narrower scope and just sort of how we thought about what we did, I think we really believed early on, we needed to offer dozens of different topics, and we are going to be more comprehensive, we are going to work so much harder than everyone else. I think we never got to deploy the physical cards, but we literally had these cards that I think Zach told you about that were 2 dozen different meeting topics, and we'd have people arrange them in this very bespoke way. And I think it's great to be able to customize. If someone has a spear on their back, they don't want to talk about their diet. You need to address things that are urgent. But there would have been ways to be a little bit more systematized and really focused on "Here's what we can do best if you have other needs." Talk to us. We'll try to do our best on them or help you find someone who will. But this is what our strong suit is. I think even being more hyperfocused on our niche, our skills, the things we are most helpful on from earlier. And it would have been hard because you do want to be all things when you're just trying to make sure you have enough clients.

Michael: But I guess the irony is, particularly if you're in the imposter syndrome stage of the career, the only thing rougher than imposter syndrome is imposter syndrome while you're also trying to be the most comprehensive financial advisor. You're digging a bigger hole for yourself to have to climb out of.

Ari: Yeah. On a test for law school, yes, I can quick-study, and I can usually get the right answer. But when you're trying to say, "What are the 20 different things someone might pull out of their hat?" is a concern they have in the meeting, and I need to be ready to know everything about all of those, it's overwhelming, especially for someone with anxiety. And I think, honestly, if I had to distill it to one thing for a new advisor, I'd say get really comfortable saying, "I don't know. I'll look into that and get back to you." And I went to Harvard in Yale, and people don't say I don't know there. Those places, they're all about trying to show how smart they are and just learning to say, "My job is not to show how smart it is. It's to listen, to connect, to be intellectually curious, and to, eventually, be able to answer what my client needs."

But I don't have to know off the top of my head. And in fact, they're already carrying around feelings of embarrassment or shame about what they don't know, it's actually really reassuring to have another smart person who does this professionally say, "That's a really tough question. Wow. I don't know." Oh, man, I'm trying to even think how I'd research that. Oh, yeah, well, I'll look into that for you and get back to you. That's actually really fine, but in the 1st year or 2, I was not comfortable saying that yet.

What Success Means To Ari [1:34:59]

Michael: So, as we wrap up, this is a podcast about success, and just one of the themes that comes up is that the word success means different things to different people. And so you're on this wonderful journey, and the firm is just plowed through, $1 million of revenue. You've added $1 million of revenue in just the past 4 years alone. The business is doing quite well by any objective standard. How do you define success for yourself at this point?

Ari: For me, success is about having deep, meaningful human connections with the people around me and my life, with my co-workers, with my clients, and even more importantly, with my family and friends in the community, and having those connections that allow us to help support each other and having a good impact on the world and being the kind of human beings we want to be. And I'm so glad that it's economically successful because it allows me to not worry about the economics and just to focus my time and my energy on caring for people and connecting in that deep, human way.

Michael: I like that framing that it's nice one, it's this economically successful, because then I don't have to focus on the economics and I can just focus on the human being in front of me.

Ari: Right. And the other thing that that's done for us as a business is it means we got to now think about new types of business flourishing that aren't really about the economics. So, when we changed our fee structure and we're thinking more and more about how can we provide free or very cheap one-to-many services, whether that's writing or videos or cohort classes, where we just don't care at all about whether it makes money or leads to clients, but it's just about helping progressives live sustainable lives. Because we care about that, and we don't want to work with all of them one on one, because we don't want to work all the time, but we want to have that bigger impact, and it's really wonderful to say, "We don't have to think about the economics of this. We just need to focus on almost like running a nonprofit." If your goal as a nonprofit is to help progressives live sustainable lives, what would you spend your grant money on? And we can be our own funders and just focus on that. So, I do have some mark I want to leave on the world through the financial advising space, as well as through other political things that I'm involved in. But in terms of my own life and contentment and satisfaction, it's really about having the space for that deep connection to other people on this planet.

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

Ari: Thank you so much for having me, Michael. It's such a pleasure to learn from you and explore these things together.

Michael: Likewise. Thank you. Thank you.