#FA Success Ep 373: Transitioning To Launch A New RIA By Taking On Passive Investors For Startup Capital, With Ben Hockema

Resources Featured In This Episode:

• Ben Hockema
• Illuminate Wealth Management
• Ben's Client Service Calendar – Download (PDF)
• Ben's Year-End Checklist – Download (PDF)
• #FASuccess Ep 055: Separating Management From Ownership On The Path To $10B of AUM with Tim Kochis
• Junxure
• Salesforce
• MoneyGuidePro
• Tamarac
• EOS 
• Wealthbox
• PreciseFP
• RightCapital
• XYPN Tech Stack
• Orion

Looking for sample client service calendars, marketing plans, and more? Check out our FAS resource page!

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Full Transcript:

Michael: Welcome, Ben Hockema, to the "Financial Advisor Success" Podcast.

Ben: Michael, thanks for having me on.

Michael: I really appreciate you joining us. And I'm excited for today's conversation around what I think is a different kind of take and approach to having an advisory firm with some sort of outside investors, passive investors. The industry has been in this trend over the past, I guess like 5 to 7 years in particular, of taking on outside investors. We have PE firms that buy majority stakes then put a lot of cash in to try to power the growth of organic or inorganic acquisitions. We have some different sets of investors that...more of the family office type, that buy minority stakes of advisory firms because they just want to participate in the dividend cash flows, kind of like a dividend income strategy for a family office to own some pieces of some RIAs.

But I know you've come to this from a very different perspective, which is not, "After I've been 20, 30 years into the firm and built it to a certain size do I want to partially liquidate my shares or take on outside capital." You actually did this in the process of launching the firm. I used to get questions years ago around is it possible to get capital and take on investors when you launch an advisory firm, the way that it is in some other industries. Certain manufacturing industries, you can go to the bank and get a loan to buy the factory equipment you need to get started. It's a little bit different in the advisory world. We're not buying real estate or equipment. It's kind of a people business and a service business, but there's still the overhead of our lives that we have to maintain while we're launching a firm.

And so I know you have gone down this road of what it looks like when you're trying to launch a firm and I guess not only take on passive investors, but then re-up with passive investors a couple of years later. I'm looking forward to the conversation of what that looks like and even just understanding how you came to that as an approach in the first place when you were launching.

Ben: Absolutely. I don't like to do things just the way it's always been done. That's part of why I'm an entrepreneur, right? I would definitely say that looking around to whether it's other industries in tech or outside of traditional RIA space on how things have launched and what you do, definitely looked to see what might make sense. And I think hearing the story at the beginning, kind of where I came from and then how a previous partnership didn't work that well and what I learned from that process, really led to Illuminate as we have it and that approach to getting new passive investors.

Ben's Start In Financial Planning And Young Firm Ownership [6:04]

Michael: So we have context. If you noted, it's hard to talk about launching the firm that you launched and taking on some investors without understanding the back story that led up to the point that you were launching because this wasn't just a like, "I'm brand new to the industry fresh out of college raising capital to start my firm." There was other stuff you were doing in the industry for some time before you got to that point. Why don't you start by taking us back to the beginning when you did come into the industry and get started as a financial advisor and your journey through prior stages of the industry before we got to the point of, "Okay, it's time to launch a firm and take on some investors to do it."

Ben: Absolutely. I like to say that I didn't really pick financial planning. I just kind of fell into it and learned that I loved it and loved working with clients. So, going back to even high school, I was good at math and science, didn't know what I wanted to do. I actually went to a career counselor and they said, "Oh, you should be an entrepreneur. No matter what the industry is, you should be an entrepreneur."

So I looked around and I said, "Who do I know?" And I honestly didn't know that many entrepreneurs or business owners. But I'm a lot like my dad. I look up to my dad. And he was a surgeon who had his own practice. And so I said, "Oh, well, maybe that's the route. Let's go pre-med with a business focus. I'll have my own practice, so I get to do the sciencey thing and help people, but also run a business or make some decisions." And so that was my plan for my freshman year of college. And then I went to the operating room with my dad. And I realized really quickly that I did not want to be a surgeon and I didn't want to be a doctor. That was not where my future lied.

Michael: Out of curiosity, what was the deal killer?

Ben: We're in the operating room and this was a procedure where he had to break somebody's jaw and then reposition it and screw it in place. And there was nothing appealing about that process, in my mind, of cutting someone open. And it's not that I fainted at the sight of blood or anything like that, but it was... I could not imagine doing that a single day of my life.

Ben: And so I talked to my dad about that after that experience and he said, "Well, if I wasn't in medicine, I would be a personal financial advisor. Why don't you meet with my advisor and he can tell you about the industry? He can tell you about what that looks like." And so that's what I did. And home for winter break, freshman year of college, and...

Michael: Interesting.

Ben: ...go into the office and meet his advisor who had founded the firm 25, 30 years before independent RIA, a big member of NAPFA. And turns out that hour meeting I had with him was actually an interview and I didn't know it. I was just curious in asking questions because I literally had no idea what this even was. And at the end of that conversation, I got an internship. And I believe I was their first intern that they had. And it was kind of a spur of the moment decision by the founder who just...it just happened and I didn't plan it. I didn't say, "This is really the industry." But when you're offered a job and you're a freshman in college, you say yes. That's good experience.

And so I did no research beforehand other than what I could find online or talking..."Dad, why'd you pick here? Why did you guys pick to go here?" That internship turned into 1 summer, 2 summer, 3 summers. After my junior year, I actually got engaged to be married. And my wife was not from the same area. This is in Indianapolis. And I said, "I can start working here full-time, but knowing I'm going to get married, probably have kids, I'm eventually going to have to move probably closer to my wife's family." And I just wanted to be upfront, honest with them. And then 2 months later, I get a call, and they'd offered me a full-time job in the office. But I got a call and they said, "How would you like to move right away? There's a firm that we've known for years that is looking...has a retiring advisor and we're going to buy it and have you take over. How does that sound?"

Michael: That was in Indianapolis?

Ben: The main firm is in Indianapolis and my wife is in the Chicago area. And so it's about a 4-hour drive difference, but it was in Chicago. So they acquired an Illinois office and I...the day I graduated college is the day they signed the papers. And I never actually worked full-time in the main office in Indianapolis. I moved to Chicago and started to work transitioning from another advisor.

Michael: All right. So that's nice opportunity. And so just literally, you were the advisor that was going to be taking over the clients of this advisory firm that had been acquired. Was it you and another advisor in a team, or literally, you were the guy who was going to take these over?

Ben: There was 5 years that I worked with that retiring advisor and got to know him very well. And he trained me day to day. And I quickly took the CFP test and became a financial planner and all of those steps. And then at the 5-year...about the 5-year mark he retired. His name was Gary. And he comes up later in the story. Gary retired and transitioned all of his clients to me at that point.

Michael: You made a very good impression in your internship. Well done, sir.

Ben: I guess, but talk about imposter syndrome at that point. I remember the day Gary was officially gone and had retired and we still had monthly lunches and stayed in contact. But that's a big change at that point, 27 taking over the Illinois office.

Michael: So, help us understand a little bit more, I guess just the firm, that Chicago office. What kind of clients was it? How big was the practice? What had you gotten yourself into at this point?

Ben: Good question. So we had one other...whether it's a CSA or paraplanner, depending on the role, that was in the office with me. And then soon after Gary left did hire another junior advisor out of school to help out. So there's really 3 of us most of that time in that office. And I think we had about 80 clients that I was working with and probably...what would that be, about $100 million AUM at that point.

Ben: A lot of them had worked with Gary for 20, even 30 years at that point. And so the biggest thing was when Gary trusted me and trusted the handoff, they were willing to give me a shot. And then having Gary around to help me through my mistakes and smooth over when I make a 24-year-old mistake was nice to have.

Michael: So talk to us a little bit more about how that that transition worked. What was the approach? What did you do over that 5-year window to get up to speed and make this transition go well?

Ben: So one big thing, coming from a bigger firm, having the internship, I knew all the software. I knew everything on the way that we did it. So that first probably 6 months to a year was really about transitioning the old systems to the new and being the youngest person in the firm and more...honestly, more tech savvy just because of being more of a tech native, was able to help the 2 systems work and coordinate and go through and comparing different...

Michael: So you're getting Gary up to speed on whatever your CRM system was...

Ben: Exactly.

Michael: ...versus what they were using. And what were you guys using, if you recall? That was years ago.

Ben: So for instance, CRM went from Junxure to Salesforce. And I think the financial planning software, it was both MoneyGuide Pro, but set up in 2 very different ways. And so transitioning financial planning from one to another given that I was, as an intern, doing a lot of the back office kind of financial planning, analysis and running MoneyGuide Pro and things like that, it was easy for me to then step in and just take that off of Gary's plate and say, "Okay, I'm going to just put this client in the new system. I know how to do it from scratch better. Let's look at the old way that you did it with our assumptions and things like that."

Michael: Okay. So the first 6 months is "Let's just get acclimated to new systems." I'm assuming some portfolio management tool system differences as well?

Ben: 2 different systems and then as technology changes, including my internship, I was at the firm for 13 years. And so I think we had 3 different portfolio management systems, ended up on Tamarac, but were using other ones beforehand. So again, just making the systems integrated, and then working through that. And from day 1, literally my first day, I was in a client meeting with Gary. And I remember the...I think it was 10 pages of notes because I was literally transcribing everything Gary said because I wanted to know how he approached it. And I was just fascinated by his process versus what I had seen before. And that helped. Being in the meetings from day one when the clients knew why I was there, is that eventually Gary was going to leave and eventually I would take over that relationship.

Michael: How did Gary introduce you and introduce this dynamic?

Ben: We had an open house. The senior partners from the Indianapolis office came up and a lot of clients came and asked a lot of questions on how it would work. And obviously when I was introduced in that setting, I didn't know what I was doing and just was "I'll get to know you all better later," and I didn't say all that much as a fresh 22-year-old with imposter syndrome afraid of everyone finding out that I don't know what I'm doing. And the biggest thing Gary said was, "Lean on. We're not just going to put Ben in a situation where he's on his own. Even when I retire, there's a whole team behind. We have a financial planning committee and an investment committee. And decisions are made across the firm, but this is your face. This is your relationship," and spoke more...as I got to know Gary, spoke more on, I guess, as a person and less about what I was able to do because we were able to leverage the resources of the whole firm.

Michael: Interesting. So Gary's positioning was not just "This is Ben. You're all in on Ben now." It was, "I've merged into a larger firm. It has more resources: a planning committee, an investment committee. It has Ben who's going to be your awesome advisor that works and interfaces with you directly. But hey, it's more than Ben. There's a whole firm here."

Ben: Absolutely. And it helps that they were...that Gary and that firm, the founder, who was the guy that came at my desk every Friday during the internship, they were personal friends, had known each other for 30 years...25, 30 years at that point. They were in a peer group together that they formed. And so they knew the way the businesses worked. They knew the way that they advised clients. There was a lot of synergy there that made it not just, "We found a firm to sell to," but it was rather, "This is who we've intentionally chosen. And we didn't take the best price. We took the best firm to serve you."

Michael: Right. Okay. So then talk to us how this evolves over 5 years. Out of the gate, it is...you're simply sitting in on every meeting and furiously taking notes and then asking questions afterwards. And I guess Gary had time or made time to answer those questions and dig into that?

Ben: Absolutely. I'm sure I was really annoying with all my questions and a lot of them, I just didn't know what I didn't know. And so it was great to be in all those meetings, kind of found the things...the more stuff that I did behind the scenes, the more confident I got in, whether it's the insurance analysis or the retirement projection, whatever it was that I had my hands on. And so over time, probably within the first year, I was presenting in the meeting, a small topic. And then it grew from there to...towards the end over that 5 years, there were a few times Gary even fell asleep in the meeting because he had nothing to say. And I was presenting start to finish and he was just there to be the person to make sure there were no other questions I couldn't answer.

Michael: So was there like a structured progression of, "Year one, I'm doing the meetings. Year two, we're doing the meetings. Year 3, you're doing the meetings?" Was it set up at that level in structure or did it just happen more organically?

Ben: I would say every client had their own structure. So some clients, we had a great relationship right away and it was easy and they were honestly the easier clients from a technical perspective. And so that was nice to happen. I remember the first time I had a meeting without Gary. And he had a family emergency. This is I think 2 years in. And he said, "Ben, I think for this, if it was a different client that you didn't have a relationship with already, we'd reschedule. I think you can handle this." And I was terrified. I went into that meeting. At the end, I actually let them know that was my first meeting without Gary and asked for feedback. And thankfully, they said, "Oh, we had no idea this was the first time without Gary here. So keep going." So that helped with the confidence a little bit.

But again, depending on the client situation and the specific client relationship, how often we met with them, if they were local or something more virtual, even at that point, each client had kind of their own process. And I do remember over time, we had maybe half the clients, we kind of said internally, I was the lead on, and half the clients Gary was. It was a spreadsheet that we just continued to maintain as we updated after each client contact.

Michael: I have to ask because I hear this. Do we know if Gary really had a family emergency?

Ben: I don't know either.

Michael: Or was this his way of pushing you out of the nest?

Ben: I haven't asked him that, but that is a great question. And I would not be shocked if he intentionally made that happen.

I will say, especially towards the end, there were a few clients that really hung on to Gary and we would intentionally... We told them I was the lead. Gary was still around and he was part-time at that point. But we made sure that Gary was in the office the day that the client meeting was, and he would stop in. I would be stuck on a call and Gary would go in for 10 minutes and just talk to the client before I walked in. And that was all scripted and more than anything, just to make sure that the client knew that Gary was still around. He knew what was going on, even if he had nothing to do with preparing for that meeting. I gave him the agenda. He knew what was going to happen. A that was enough to help those clients kind of get over that line.

Michael: How did compensation structure work through this?

Ben: Yeah. Good question. So until I was...really, until Gary had really stepped out and I was the "lead advisor" for the majority of clients, I was salaried at that point. And then we did shift like we did for all of our advisors that based on the revenue managed was a percentage that was part of the compensation.

Michael: Okay. And so that's the incentive for you to get there as quickly as you reasonably can with the caveat that once you get there, you are on revenue-based compensation. So if you get there too quickly and it doesn't go well and you lose clients, you will also deal with the consequences of that.

Ben: Absolutely. Absolutely. And I think the way that the transition happened, a big part of it obviously, is Gary staying around for as long as he did. But I believe... It's been a while, but I think the numbers, I think we had 97% retention over that 5 years of the clients that started were still there when I took over.

Michael: Wow. That's an incredibly high number only because there's also just some natural client attrition that happens. People move. They get divorced. They die. Stuff happens. So that's a phenomenally high 5-year retention rate.

Ben: Absolutely. And honestly, I can only think of a couple that left. And one of them was a really dumb mistake that I made and didn't know what I didn't know. And it was entirely my fault at that point and had nothing to do with the transition. Honestly, it was a trade error and that's part of the growing pains.

Michael: I was going to ask like... Can I ask what it was? What was the thing that blew up the client?

Ben: It was a large trade error that looking back maybe I even should've been fired for. But I think it's one of those expensive mistakes you learn from and I'm never going to do that again. And that's part of hiring a 22-year-old who...I think that probably I would've been 25 probably when that happened. But you make mistakes.

Michael: What did you do?

Ben: What did I do?

Michael: Do you remember?

Ben: I sold some securities that I should've and didn't buy the ones I told the client I was going to and didn't catch it for a long period of time as the market was up significantly.

Michael: That'll do it. That'll do it.

Ben: Yeah, absolutely.

Michael: So was that a like didn't take the right notes, didn't use the CRM system right in the follow through? It's like what was the lesson learned of...?

Ben: Absolutely. Absolutely. It was honestly an overconfidence that I could keep things in my head and didn't have to follow the procedures that were in place to put the task in the CRM and follow up on it and, "Oh, I've got this. It's in my head. It's a big number. I'm not going to forget that." Wrote it down on a piece of paper, misplaced the paper, didn't have the backups that I was supposed to do, just…

Michael: And then didn't go back to the client to clarify. Just moved forward because that's what we do sometimes as bullheaded young people.

Ben: Absolutely, yes. Yeah, it was an outside account that I had to work with a client to get access to and all that. And it just didn't happen.

Michael: Ouch. Ouch. Well, good lesson learned, right?

Ben: Learned earlier. Yes.

Michael: As you said, "We'll never forget that again, expensive lesson to learn," but definitely cements the point in your head.

Ben: Absolutely, never going to happen again.

Overcoming Imposter Syndrome As A Developing Leader [ 24:50]

Michael: So you get through the transition. What happens next? What's the state of Ben and the state of the firm at this point? You're 5 years in. You've been heir apparent to take over this client base that you've now taken over. They're now "your clients" as a representative of the firm. You're getting paid a percentage of that revenue. I feel like there's probably like a reset with the whole relationship you've got with the firm at this point.

Ben: Absolutely. Around the time that Gary left, it was maybe 6 months after the founder of the firm also semi-retired, was no longer leading client relationships, shifted his role a little bit. Still involved from an advisory of the firm perspective, but not client at that point.

Ben: And there was a very clear internal succession, I think even at that point. I think even when I was an intern, there were the 2 other senior advisors were already owners at that point. And so when the founder retired, it just...now we had two. About a year after that, I haven't lost clients. Gary is gone and it's still working. We don't have the people on my team quitting because I'm a bad boss or something like that. And so with that, then it was the natural conversation of, "Okay, at some point, we want you to be a part of this ownership team. You manage a good portion of the revenue and are bringing in some new clients." A lot of it is from referrals at that point. "And let's start talking about you buying in and step 1 of buying in with the long-term plan that 15 years from now, you're going to be the guy and we're going to retire at that point."

Michael: So I'm struck in this context. So the conversation got initiated by the firm, not necessarily you coming in saying like, "Well, I've taken over Gary. Now I want to be a partner." They came to you and said, "So you've taken over Gary. You have all these clients. You're helping to grow the business. Let's start talking about ownership team."

Ben: Absolutely. I, at that time, felt so lucky through the whole process of getting the internship, finding the industry, having this awesome opportunity just kind of presented to me without any work I did is how I felt at the time. And so there was no way at that point that I felt I could reasonably ask to even have that conversation. It was so far away from where my mind was at because again, I was still in the mindset of "I'm about to get exposed."

Michael: Right. Right.

Ben: This shouldn't be happening to me.

Michael: You're still in some imposter syndrome world here.

Ben: Absolutely, for sure. Even then as we moved forward, that was really important in our conversations because I didn't know the questions to ask. So eventually, I did buy in 10% ownership into the firm and again, I didn't...

Michael: And that was bought, not... That wasn't a compensation thing. That was a "You have to buy and write a check" arrangement.

Ben: It was an internal financing over 5 years that I was buying in.

Michael: Okay.

Ben: I was given access to the financials and things like that. And basically, it was presented as "Here is what we internally value the firm at. So that's what you're buying in at. And it's a multiple of revenue at that point. Take a look at the P&Ls and let us know if that seems fair." And I was so afraid of asking too many questions that would expose my lack of knowledge that they would reconsider the offer that I said, "Well, if you think that's fair, I trust you." And looking back, I want to make this really clear, I actually do think that was fair. But I didn't fully understand what I was buying in at because I was afraid to ask the questions.

Michael: So can I ask like what did you buy in at and what are the questions you wish you asked in understanding it more?

Ben: Yeah. So both in my situation and other advisors that I've talked to that I've had similar...I think there's kind of 2 sets of questions I really should have asked. Looking back, what I would ask instead would be things like, "Okay, how much of this is from new client revenue? How much of this is from increased wallet share? How much is from just market appreciation?" The 2010s were great for the market, and so how much of that is just AUM fees going up at that point? And then obviously, I knew none of it was acquisitions, but understanding that makeup would've helped me understand then how much risk and potential upside financially that we were taking.

So those are the questions I would've asked on the valuation. And again, I don't think it would've changed the ending numbers, but I should've known more. And then also more importantly, and this really comes back, I should've asked more questions about the management responsibilities, how that was going to be divvied up. I heard Tim Kochis talk about this at a conference in the spring. And he talked about the difference between equity and management responsibilities. And as an owner, he was speaking really to owners who are selling equity, that you can sell for the financial aspect, but still keep 100% management control. And you can structure it however you want.

Just because someone's buying in doesn't mean they have any say in anything. And that makes complete sense and I never thought about it. In my mind, I thought about it as I am now an owner, therefore, I had a list of expectations of what I thought that meant and never expressed that, never talked about it. And that meant that there's a reason I'm not there anymore. And it's because we didn't address this all upfront and have expectations that were the same.

Michael: Yeah. I find for a lot of advisors and firms, particularly coming from the younger advisor buying in perspective, there's this mindset of "I want to buy in and become a partner because then I'll have a seat at the decision table." And I hear some version of that over and over and over again very frequently.

Equity ownership and management are not the same thing. They can be aligned and often they're aligned for some obvious reasons, but as firms grow, it's virtually guaranteed that that doesn't happen because at some point, you're a really big firm. You have like 50 partners and you don't want to actually have 50-person committees making decisions. You have to create management teams and other layers. But even in firms where numbers-wise, you could have all the partners in the room making the decisions, ownership does not necessarily mean you get a say at the table for management decisions. It literally just means you own a piece of the equity and you have a legal right to the cash flows, the dividends, the profits. What the firm does with management is up to the firm's conversation for management.

Ben: Exactly. And again, I didn't know what I didn't know. Looking back, although I cared about the equity piece, that wasn't my motivation. My motivation was honestly, being an entrepreneur, going back to what the career counselor said, leading the business forward to the next stage. I had enough compensation just as an advisor. I didn't need the equity piece to make my personal financial planning goals met. But none of that was needed. It was great to have, but that's not why I wanted to do it. But because I didn't know and was afraid to even broach the subject that led to...18 months later, I went to my 2 partners at the time and said, "This isn't working for me. This isn't what I thought I was getting into. And I think we need to figure out what to do from here."

And at that point, I was seriously considering even leaving at that and starting my own because I didn't know another way. And I was pleasantly surprised that my partners at the time said, "Hold on. Before you divorce us, let's see if we can make this work." And so we did have some of those discussions we should've had at the beginning and tried it out for about a year.

Michael: So help us understand more like what happened over that 18-month period? Or I guess what didn't happen over that 18-month period from what you were expecting that time window to be and then what it turned out to be that was making you so unhappy?

Ben: It's great question. I would say that the biggest frustration that I had is I am a guy with a lot of new ideas. And I know most aren't going to work, but I want to try them all so I know which ones are. And having an established firm that had been around for at least 30 years at that point, happy clients, there's... I kind of agree there's not a need to try all these new things that I want to try. But I felt that my strengths were not being utilized in that context because it was a lot of "Well, we got happy clients and we're doing well. And the numbers are growing and we're profitable. Why are we trying...? Why are we going to take the risk?" And I understand. And I'm sitting there as...well, I'm 28 and if I'm looking at the firm, I'm looking ahead to eventually you guys are going to be gone. And the plan is for me to buy you out. I want to buy a firm I want to own at that point when I am in charge. And so I think that was the biggest thing of just maybe different time horizons, different stages of life, different risk tolerances, and just different motivations. And again, none of that is wrong for anybody. I just don't think it was a good fit now looking back.

Michael: Yeah. It's funny to me. Well, we often talk about things like risk tolerance and time horizons quintessential to financial planning discussions with clients and determining appropriate portfolio allocations. But to me, it really does show up in interesting ways in advisory firms as well, right? The scenario, the picture you're painting, right, you take a firm that's doing well, nicely profitable, primary owners at this point probably make more than enough money to accomplish regular financial goals. As you said, you had enough to accomplish your goals from the income before the equity ownership. So never mind owning the equity ownership as well. You can do all those goals now to zero and do those goals with bigger numbers.

So when that's where you are and the clients are happy, and the firm is still growing, and the profits are good, and even normal market trajectory means this thing will probably be almost 4x the size in 15 years just from steady referral organic growth in markets. When it's that good and it could 4x by the time you're retiring in 15 years, why would you do a bunch of new different things?

Ben: Absolutely. Absolutely.

Michael: Really totally understandable, except you're 28 and have a 40-year time horizon and I'm like, "Yeah, I want to do some things."

Ben: Exactly. If I'm doing even 15 years from now what I'm doing now, I'm going to be bored. It's just not fulfilling for me at that point.

Michael: That's a problem of alignment of interests, just fundamental mismatch of time horizon.

Ben: Exactly. So some of the changes that we made with those conversations where I expressed all this, maybe not quite as clearly at the time, but we talked through as much as we could. And so one shift that we made is I completely took over the marketing. I actually became the manager for every other member of the firm from both offices, except for the 2 senior owners, and just really took over the planning committee that we had and tried to think outside the box on things like that. I took on a lot and I asked for all of it, and unfortunately, still didn't work for me because I personally felt that at any time, my big ideas could get squashed by the senior owners, which was true. I still had to report to somebody. I couldn't work under that structure

Michael: Because in the purest sense and sort of...not stereotyping, but like typical entrepreneurism, you literally just had to be your own boss and deal with all the consequences of your own decisions.

Ben: Absolutely.

Michael: But you just had to be your own boss.

Ben: Right. At this point and...especially because I have been, I'm pretty much unemployable because I don't think I could go back to that and do as good of a job. And it's just a personality thing.

Michael: So they're trying to make changes. You're saying like, "I need to drive more of this. I've got these ideas." So they try to put you in that position like, "Okay, Ben. You take over the marketing. Everyone will report to you." I sort of think of it as like you're functionally becoming like the managing director of the firm, and it's still not enough.

Ben: Right. And it's still not enough. And I would say part of it too is when you have a firm that's working really well, you're...you have 15 people working there, people buy into a culture, and I was trying to create havoc. I was trying to change the culture completely. And so that's part of the problem too, was I don't think I was a good cultural fit long term. And the people I was trying to lead at that point, fit better with the way things were, not where I was trying to take it.

So, summer of 2019, I actually was at a peer group meeting with other younger advisors that are in the Midwest. And we'd been in the group for 10 years. And I was just kind of just expressing my frustrations and realized in that conversation...I realized it myself that there really, without causing a lot of changes that on paper were really bad, like a lot of staff turnover and things like that, it wasn't ever going to work. I realized I needed to leave. And so as soon as I realized that, I called up the 2 senior owners and let them know that I don't have a plan yet. I don't know when it's going to be. But we need to start thinking about it because this is not my long-term plan, and I don't want you to make decisions planning for me to be here when I'm not going to.

How Ben Negotiated Unwinding His Partnership [40:18]

Michael: How did that call and news go? Because I certainly know advisors that are terrified to make that call like, "What if I tell them they say 'Fine, then you're out,' and they fire me?" or transition faster than I was expecting, or "I'm going to blow up a relationship." I'm fascinated that that was the first and immediate go-to conversation for you.

Ben: Yeah, for sure. I felt that we had had good conversations year before. I felt like we had made it really clear that if this didn't work, that was going to be the end result. Looking back, I think they were very surprised that I had made that decision. I think that I should have had...given more opportunity to say, "Guys, this really isn't working for me," instead of keeping it to myself because I kind of did at that point. I felt like I'd already had the conversation and let's just see if this works or it doesn't. I don't want to keep trying to force this to happen if it's not a good fit. I had already had...

Michael: Well, I'm imagining from their end, they're like, "Ben, you came to us and said you wanted all this additional ability to drive things. We literally gave you the marketing and made you managing partner and you're still leaving."

Ben: Correct. And that, honestly, was pretty much the reaction. I already had talked to an attorney the year before just to understand my contracts. And I knew I wasn't going to be fired on the spot or anything like that and that we would still...there would be some negotiations. I was still the only advisor for the 80 clients in the Illinois office. They didn't know anybody else at that point. And so I wasn't sure how it was all going to shake out. But I also knew enough to say I have some protections that we will work this out. And having the long-term relationship helped and we ultimately wanted to get to something that worked for everybody. Obviously, everyone's going to have their own interests first, but we have a relationship that's able to work through things and not be combative and just use attorneys going back and forth.

Michael: Was there anything they could have done? What would it have taken for you to actually stay?

Ben: I thought there was something at the time. Looking back, I don't believe it was ever going to be a long-term fit. And I say that saying if I had experience with a different firm before, had worked somewhere else, and I was looking where to work if I was not going to start my own. But I was going to go join another firm with the rest of the future laid out the way that it could've been. I don't think that is where I would've worked. And it's nothing against the firm. It's a cultural fit and it's a goals fit and time horizon and all of those things. I really don't believe there's anything that could have kept me there. What I wish would've happened is that we would've had more...and really me mostly, more self-awareness and transparent conversations before I even became an owner. It would've made things a lot less messy to exit.

Michael: So then how do you go about starting to unwind this? You're now what? You're like 2 years past having inked the original partnership?

Ben: Yes. Yes. It's pretty quick turnaround there. And so we work through what worked...what we thought would work. And I was able to negotiate to bring 16 clients with me and pay for them. And I still had a loan due to the senior owners. And so that was obviously included. And I did have, as you would expect, non-solicitation, non-competes, all those things. And so we had to work through all that. I continued working through the end of the year. So this was June of 2019 that I told them. And I worked through the end of the year and through the...I was paid in the...part of the negotiation is I helped the rest of the clients transition to their new advisors, other advisors, junior advisors that were in the firm that were in another office and helped...I went to meetings with all of them, introduced them, talked about our relationship, and why I thought that was a good fit. I actually helped choose each client which advisor they were going to work with for the ones that I was not able to bring with me.

Michael: So I want to understand a little bit more just the equity unwind because as you noted, you bought in with a seller finance note from the firm. So you're trying to exit and good news, you still have shares, bad news, you have a big old loan. I'm just wondering what the arrangement was. Were you selling the shares back and they were actually appreciated a little bit and you could use the value of the growth to pay off the loan? Was it like, "I'll give you back the shares, you undo my loan, and we're just resetting back to where we were?" How did you actually do the unwind here?

Ben: Yeah. So I don't want to go too much into the details there, but what I will say is I did not get any of the appreciation that had occurred over that time that I'd been an owner. And part of that was in the negotiation, allowing me to purchase clients and leave at that point.

Michael: That was the tradeoff.

Ben: I couldn't have taken anybody... We narrowed down to that number. I was willing to do a lot more if it made sense. But just the way the numbers worked and through our negotiations, that's what we ended up with.

Michael: It sounds like on the whole, this did not work out the best financially for you for having been in as a partner for 2 years and then needing to unwind. Understandably, that's not an ideal situation.

Ben: No, definitely took a step back. And through the conversation, I felt that I was...I'm the one breaking this up. I'm the one that went into this. I felt a lot of responsibility for that. And also knowing that the reason I was doing it was not for financial reasons. So I'm not going to let that be the main factor as we negotiate through. I would rather have the freedom to do what I want to do and give up some money to do it.

Michael: Fair enough. If you've got the confidence that, "I can go entrepreneur my way to the thing I'm going to build in the future anyways, I don't have to maximize the dollar here. I got literally decades to build the thing that's going to come next. I just want the freedom and autonomy to build the thing that comes next."

Ben: Exactly. Exactly. I wanted to be able to open an office nearby, not to go after the same clients, but geographically, you know how non-competes and non-solicitation work.

Michael: Yeah.

Ben: I want to be able to do that because I live there.

Michael: You'd set your roots there. Yep. "Yeah, I don't want to have to move my family to re-launch my firm."

Ben: Exactly all that. So I looked at the traditional kind of RIA channels of lenders. And given the amount of revenue that I was purchasing, none were willing to take the chance because it was too small of a revenue to start with. And so that's where Gary comes back in to the story, and really what you started with at the beginning. Because I was at lunch with Gary and we're deep in negotiations on what to do. And I was just asking him for advice, and he, out of the blue, said, "Well, I could lend you some money or even buy in if you're selling equity."

I had never thought about that before. And as I thought about it, I said, "I don't want to owe Gary money. I don't want to take on that debt. If I'm going to owe money to somebody, it's going to be a bank." I just don't for philosophical reasons at that point. And so I said, "Gary, maybe we could do something equity-wise." And I went through and, using that 16 clients and the revenue that they were bringing, did a 10-year discounted cash flow projection. And I was planning on being a high-efficiency solo and never having an employee. And honestly, I was just burnt out at that time. And so looking at high profit margins and capping my salary at a certain percentage so that he would actually get paid something, and separate owner's comp versus the advisor comp and all those different pieces.

And so Gary bought in. And to raise a little bit more money, I went to a friend that I'd known since we were 6 months old in daycare, and he was best man in my wedding. And I told him what I was doing and he bought in as well. So they each bought 12.5%. So when I launched, I owned 75% of my company and they each own 12.5%.

Michael: So I'm just trying to visualize a little bit. So 16 clients that are transitioning, are we talking about tens of thousands of dollars of revenue? Is this $100,000 or $200,000? I don't know how big the clients were.

Ben: Let's assume it's $10,000 each, $160,000 of revenue.

Michael: Okay. So you run a 10-year projection on this $160,000 of cash flow...of gross revenue growing at some percentage. There's an expense structure on this. There's a salary on top of it. You can still run a pretty good profitability off of it. So this is probably tens of thousands of dollars a year of projected profits. So you run out 10 years of projected profits with growth, put a discount rate on it coming back, and get to some principle value of the business today seated with these 16 clients. And then they bought 12.5% each of that number. That was their cash buy-in to do the deal.

Ben: Exactly. They asked plenty of questions and I gave them multiple different projections of higher growth rate, lower growth rate. Here's the risk that I see. As a passive investor, here's what I...if I'm you, here's the questions I'm going to ask, if this is a good deal or not, people that I have relationships with. And so it's not some third party I don't know. I care about my relationship with them. And I think that came through because ultimately, they said, "Whatever you think is fair...your numbers make sense, your logic makes sense, we trust you." Again, looking back it, it's paid off for them, but that's a lot of trust and a lot of money they put in just based on our relationship.

Michael: And they didn't just buy a percentage of the profits of 16 clients. They bought 12.5% of the business.

Ben: Correct.

Michael: It's just the business was seeded with 16 clients as you're doing the models and some assumptions about new client growth on top of it. And that's what they were buying into to determine the valuation.

Ben: Exactly. And I had had... 2 other people from our peer group had launched businesses within a year before I launched. And given our relationship in the peer group, they're sharing all their costs and their expectations. I had good data on real live examples so I could use to project out.

Michael: And I'm presuming just the way it mathed given overall growth aspirations, this gave you enough cash to be able to actually do the transaction with the prior firm for the 16 clients that you were buying out?

Ben: I did have to... I put in some of my own money and I did have to also get a small loan, just really a personal loan at that point, to make it work because I couldn't get another business loan given we didn't have a business yet. Between all that and the equity upfront, I was able to write that check that I needed to, to buy out those clients.

Launching Illuminate Wealth (As A Lifestyle Practice) Into A Pandemic [52:09]

Michael: And so this was...I think you said this was in 2020.

Ben: Illuminate Wealth Management, launched January 1st, 2020 right before COVID.

Michael: That's nice timing. How did that feel when you're launched and transitioning your clients, and then the world comes to a screeching halt 2-and-a-half months later?

Ben: Yes, wonderful times. I was keeping costs low at the beginning, and so I had...instead of a rebalancing software, I had...each client had a spreadsheet and I could drop in their Schwab holdings into the spreadsheet and do rebalancing as I needed to. And let's just say March, April, May, there's a lot of rebalancing opportunities there that I quickly called up and tried to find the quickest way I could get onboarded with a rebalancing software so I can move a little faster. Things like that, definitely, you just hold on and do the best you can as quickly as you can through that process.

One nice thing is I had planned from the beginning that I wanted a virtual practice that didn't require an office. And so I was going to work from home. I had already set the client expectations on that. We already had Zoom set up and clients were used to that. And so there actually were a lot of great things I had already done, not...obviously, no one knew this was going to happen and the world was going to shut down. But I was prepared just by luck, at that point, to deal with all the restrictions that came in.

Michael: So what was, I guess, the proverbial tech stack that you launched with?

Ben: I launched with XY Planning Network and really just used everything that was offered and whatever the cheapest option was to start with through XYPN. And so things like Wealthbox and different services, PreciseFP, things like that, that either discounts or recommended by somebody else that we could have at that point. Prior firm was using only Schwab as the custodian. And so I was able to just onboard with them. And it made it easy to transition those clients because it was just signing IA authorization forms instead of transferring to a new custodian and things like that. So it definitely helped there's a lot of nice things that were already there. I was already on the investment committee at the old firm, and knew how we set up the models and what we were going to do, so just able to start with very similar and then since then, we've made a lot of changes.

Michael: So Schwab for the custodian, because you had prior relationship, Wealthbox because it was in the XYPN stack for CRM, PreciseFP for the data gathering stuff. What was planning software and investment tools?

Ben: So I was very comfortable with MoneyGuide Pro. So that's what I started with at that time. We have since shifted to Right Capital, but that was what we started with and then just used...

Michael: What led to that shift? Just like why leaving MoneyGuide for Right Capital?

Ben: I think the user interface for clients and onboarding clients and working through with the types of clients that we have. We use a lot of the tools that are built in that clients really enjoy because we are getting a lot of younger clients and I think it's more user friendly at that point. So that's a big part of it. Made sure we had both for a while and I would run plans in both just to make sure I knew the outputs for what I expected and they were consistent, all that. We used the XYPN Orion services for the portfolio management piece. Did shift that and we are now at Tamarac. A part of that's because that's what I was used to before and liked what we had at the old firm.

Michael: So now how has this played out over the past 3 years? You launched with 16 clients and some ambitions to grow, but I think you said also a desire to build this more in the vein of a lifestyle practice because you were feeling a little burnt up for...so where is it now? How has that played out?

Ben: So where we are now, we're at a...I've got 2 and a half other people that work for me part-time CFP. We have about 55 ongoing clients and a $100 million AUM. Just crossed that mark which was a good goal to have. What's interesting is for the first 3 months, I was all about the high efficiency solo lifestyle practice. And then I realized I was running from something not to something and I was missing having a team to celebrate wins with and delegate things to each other that use each other's strengths. I have a lot of strengths, but I have a whole lot of weaknesses. So it's nice to have some people on the team that can cover those for you.

And so I looked and made a couple really bad hires in 2020 that didn't work out. But again, a lot of my story is about right place, right time, and kind of luck. I was in Orlando November of 2020 with the other partner, so Gary, and then David is the other one who was best man at my wedding. He lives in Orlando. And he said, "I really think you should meet this friend of mine. We've worked together on some things. He's thinking about being a career changer, switching to something in personal finance. Why don't you talk to him?" I met him on a Friday, hired him on a Monday, and the rest is history. He's my number-2 guy and he is everything. He's good at everything that I'm not. He is a good balance. He is less of a risk taker, but still willing to deal with my risks that I'm willing to take. He is a great balance. We use EOS, the Entrepreneur Operating System. And I am the quintessential visionary and he is the quintessential integrator.

Ben: As we've grown over time, the number one thing we've done is just take advantage of opportunities as they present themselves. And again, less about pursuing, "Okay, we have to be at this point with this target." For instance, we had several people reach out and they didn't want our full wealth planning full services ongoing. They wanted to do some projects. So now we have projects and we do... We average about one a month of a project that we'll be working on with a client. It's a limited scope, start to stop, move on. We have added things like an outsource CFO service at this point.

The 3 people I've hired all have bookkeeping experience. And one is an EA, and so we're able to do for our business owner clients that have smaller businesses, 500 to 3 million in revenue. We're doing bookkeeping and payroll and invoicing, and then the tax preparation and tax planning, all those different pieces for the business owner on the business. And then also we have them as a personal client as well. And so integrating those 2 are a big part of it. That just happened because I had a client that was really struggling with their relationship with their CPA. I would ask questions to try to do tax planning, didn't like the answers I was getting, didn't feel like he was proactive enough. And so we said, "Well, we'll figure out how to do it for you," and just took it over.

The Services, Offerings, And Pricing Of Illuminate Wealth [59:40]

Michael: So then help us understand this. You're describing a couple of different offerings at this point. What are the offerings, the services, the pricing for Illuminate Wealth?

Ben: So our fee schedule has changed over time. Like everybody else, you start too low, and I intentionally didn't want to start too low, and I still did. And so we've increased fees a couple times in the almost 4 years at this point.

Michael: So where did it start? Where did it start?

Ben: Where it started was a minimum fee of $3,000 a year for our full wealth planning. So wealth planning includes all the financial planning, investment management. We bill based on net worth, not just AUM. And so it was 60 basis points of net worth was our starting fee with a minimum of $3000 a year. Did have a few people join in. My idea at that point was I want to serve the people that have almost no assets and $300,000 of student loan, but high income and we can do tax planning and help them with their savings buckets and budgeting, get the right insurance, and invest, but not focus on the investment. So that's why the minimum fee in the net worth was there. Raise that minimum after a year to $6,000, still the same 60 basis points on the net worth. We are now at minimum fee of $9,600 and 0.8% of net worth is our fee schedule. And that now also includes tax preparation in your full wealth planning service that we have.

Michael: All right. So I have a couple of questions around this. So net worth, just practically, how do you calculate that and manage the billing process? Is that everything? Are you figuring out business values? Are you figuring out home values or their assets you exclude? How does this work?

Ben: Basically everything is included unless there's a really compelling reason to exclude it. So December 31st of each year is our date that we set the net worth, and then set a flat fee based on that that's billed either monthly or quarterly for the next 12 months. And so our billing is actually February 1st because we need that month of January to get new net worth data. And we would do a net worth update anyway. And so we ask them and we say, "Okay, well home value, here's what Zillow says. You know better than we do. What do you think is fair?" And whatever they say is what we put in.

For the outside assets that are harder to calculate, we do have several clients that have stock options. Some are vested, some are not. We're obviously not including unvested, but even the vested ones, we do, given the volatility of the stock, we're putting some discounts in there and obviously putting tax liability or embedded tax liability on there as well for the net worth. So it's a true fair number. At the end of the day, we're agreeing to what we think is fair with the client. And they know that it impacts their fee. So I don't think I have clients that are coming up with really low numbers for their house. But if they are, so be it.

Michael: Do you have a feeling or concern that there are clients that low ball, exclude an asset from their balance sheet. They're like, "We got this. We don't really feel like we need advice on it, so we're not going to tell Ben so we don't have to get billed on it?"

Ben: One nice thing is, especially doing the tax returns as well, it's hard to hide assets because you get tax statements. Now I'm sure there are some things out there somewhere. I've never billed on a crypto balance. I know a lot of my clients had some crypto, some still do, never bill on that piece. It wasn't a large enough percentage of their net worth that it really mattered. Again, it's more about come up with something that's fair. You set it for the year. Now I do lose the quarterly increase if AUM is up. But it'll get caught in the backend and it also makes our planning a lot smoother as well because I don't have any volatility in the fees throughout the 12 months.

Michael: And how often in practice do clients have portfolios that you can bill this from versus needing to find some other outside account or place to bill it from?

Ben: At this point, I think 95% of our clients have enough in assets that we can bill from Schwab. And we've just made the decision, you probably come up with a way to take it out of...or a piece of it of an IRA, but we're taking it all out of a taxable account.

Michael: Okay. What are the rest of the models? And then I want to understand what you do for a minimum of $9,600 a year.

Ben: Occasionally, we'll get a client that just wants investment management. So we just have a tiered schedule starting at 1% AUM for the first million. Not a lot of clients are on that, but it's enough that we have it as an option. Like I said, we have a lot of project clients. That started with a minimum fee at $1,800. We've now increased that to $2,400. And it can go up to $15,000 depending on the scope for what we're going to do for that client. And a lot of those are what we call transition-to-retirement clients where...or a retirement-readiness project is what a lot of people hear. It's $4,800. It's basically all the questions that someone is going to have when they're a year or 2 from retirement.

So they don't want to hand over their assets. They don't want the ongoing tax planning and tax management, all the wealth planning services that we provide. They literally just want to know, "I'm planning on retiring. How much can I spend? Do I need to change my allocation? How do I sign up for Medicare? What do I do for social security? Is there anything else that I need to do before this happens?" And so that's just $4,800 for our standard retirement readiness project that we'll do. So we've made some standard project models, but we also have people that say, "I've got a lot of student loan debt and I don't know. Do I save or do I pay off the student loans?" So that's where the $2,400 would come in.

Michael: And so how do you price and layer that on by the time you're doing...that's the bookkeeping and payroll and invoicing work for small business owners?

Ben: Yes. So we have a fee, again, based on complexity. Do we have to recreate the books? Right now, for instance, we have 2 new OCFO clients that we are redoing their 2022 books. And they just were really messy and they filed tax returns and shouldn't have, but they had to. And so that's got a different upfront fee, but it's really just based on scope and how much work we're really going to go into on that. It's anywhere from $6,000 a year to $36,000 a year depending on the situation. What we want to do, and this is both the OCFO and the wealth planning clients, I want as much included as possible so they're not paying something else. So for instance, we're taking the payroll processing expense and paying for the software. We're not billing that to the client as well. We're filing the taxes obviously, but all of the different software pieces that we need to have, it's just included in our fee. You're not paying a separate fee for that.

Michael: And so then for the kind of the core offering, this wealth planning offering, 80 basis points on net worth, just what do you do for clients for this fee that's beyond an AUM fee?

Ben: So we're doing investment management. That's maybe 10% of my time and what we're doing...multiple tax projections. We do a cash flow projection at the beginning of every year for all the clients. We have a standard client calendar that basically checks every box. It's, "Okay, send us your auto and homeowner's insurance and we're going to go work with outside brokers to price it out and see if this makes sense."

We're going to do that work. I'm not paid. Obviously, fee only. We're not paid on any products, but let's price it out. Let's make sure you have the right policy. Same with signing up for supplemental insurance, or you need health insurance through the marketplace, help with the right partners and kind of use... Really, as I tell people, our projects are...if we're going to make recommendations, you're going to do it yourself. Our wealth planning is we're doing as much as possible for you.

So we have been doing tax returns for a couple years except for we've actually never signed the return. I just now have someone on my team who's an EA. What we've done instead is pay the fee to 1 of 3 different CPAs, gathered all the documents, didn't have them fill anything out. We already needed it for a tax projection. So I'm sending that to the CPA, answering the questions that they would have, making sure we approve the return before the client sees it, client's going to get the return, we pay the fee to the CPA. That's how we've handled the wealth planning on the tax prep. Now for most of our clients will be doing it internally, which from our process, is almost the same as what we were doing anyway. Now we're just putting the data in the software because we already were comparing with our projection and gathering all the data through that process.

So everything that you can think of that money touches is really in our client calendar. But I look at the calendar as the bare minimum to check the box we've done what we need to do so that we actually have time to do all the other things that matter. And so I'll give you a quick example of just a couple things that have come up in the last year that's outside of our normal scope that you would expect from a financial planner, but our process. So we have a client, for instance, that before they worked with us, had gotten the letter that they were turning 70 for social security, and if you sign up, you can get a lump sum if you go back 6 months and really start it as of 69 in 6 months.

And so he did that and woke up the next day and said, "Oh, I shouldn't have done that." Worked through the process, when he became a client, that wasn't a primary thing. But they lost the check during COVID and things like that. We reached out to the congressional offices and wrote letters, and ultimately got it resolved after nine months of working on it. That is outside of a typical scope, but we want to be efficient with everything else so that I can step in when those things happen.

Templating A Service Calendar "Guideline" To  Demonstrate Advisor Value [59:40]

Michael: So can you describe for us a little more just what's on this client calendar? What do you have on your annual service calendar?

Ben: So our annual service calendar...again, it's more of a guideline than anything else, but it separates into a monthly schedule. So we're sending an email to every client at the beginning of the month, say, "On our client calendar for January, we're going to have you update your risk tolerance. Here's a link to our risk tolerance questionnaire. And we're going to be starting your cash flow projections. Here's the information that we need from you." February, we're delivering the cash flow projections and we're talking about QCDs or RMDs and making sure that the timing is going to work.

March is the tax prep. March and April is tax preparation and May, June, July, and August are full-blown retirement projections. But we also have other things in there. So if it applies, Social Security timing and Medicare reviews. I don't know about you, but a lot of clients don't want to talk to me in the summer. So we just lump some of these things in, but at least we have it, right? We know it's there. The Property & Casualty Review is in June. And then obviously, we have estimated tax payments depending on the month that we have here. July, estate planning, beneficiary reviews. August is life, disability, long-term care reviews, and then college funding. Then we get to the end of the year, Roth conversions, if we haven't already covered it earlier in the year. Open enrollment, send us all your open enrollment information so we can analyze it all and give you recommendations on what you need to be doing. And then finalize at the end of the year, all the things we need to get done for that December 31st deadline.

And then you start over again with update net worth statement January, and all those other pieces. And we do deliver at the end of the year a kind of a year overview. We have a timeline at the top and so it's showing every meeting we had and all the...just really that is...so we can remind them how much we did for them. That's what the top is. The rest of it, honestly, is taking everything from the client calendar, all those different things that I mentioned, and they have a section and it's saying, "Is this in good standing or not?" because obviously as you know, a client calendar is great if clients respond proactively and immediately when you send them an email. But there are things that we should've done in March that were not as urgent in the client's mind and they're still not done.

And so it's marked yellow or red depending on how urgent it actually is and a reminder in our action of "We need to do this quickly. Make sure you're getting us this information." So it's kind of a combination of things. It also has a link to all of our blog posts and investment. We give out monthly investment...a monthly investment newsletter. And then quarterly, I will record an investment video talking about what's happening in the market and things. And so clients get access to that, too.

Michael: So out of curiosity, is there a...just wondering, is there a template that you can share with folks? I guess I'm trying to visualize this. I get the feeling this is powerful to look at visually. Is there like a templated version you'd be willing to share with folks who are listening just to try to visualize what the end-of-year checklist of the service calendar looks like?

Ben: For sure, yeah. I'll share both the client services calendar and then also the year-end checklist, which if you look at the 2...

Michael: Awesome.

Ben: ...you'll see that they definitely work together.

Michael: All right. Awesome. So for folks who are listening, this is Episode 373. So if you just go to kitces.com/373, we'll have links out for Ben's client service calendar, and then the end-of-year checklist that they're using to report all of it back to clients. Thank you, Ben.

Ben: As I said earlier, I like to change things so there's no promise that a year from now we're using the same thing.

Michael: It may or may not be different by the time even this episode airs because we record a ways in advance.

Ben: That's right.

The Most Surprising Thing Ben Encountered In Building An Advisory Business? [1:14:26]

Michael: Understood. So Ben, as you look back on this journey, what's surprised you the most about building an advisory business?

Ben: Yeah, I mean I think the biggest... I had that transition of time of going from wanting to be a solo to bringing new people on. And I've got a 50% success rate on hiring people that haven't worked out, but... It's not really a surprise, but what's shifted is as building the business, it's almost like I forgot at the beginning or as I was kind of burnt out at the end of how much joy I get out of serving clients and delighting them. And I think delight is probably a good word of knowing that a client is not worrying about...they're not worrying about money. That's my job, is you're going to be okay. Don't worry about money. Get them to that point so that as we tell clients all the time, money is just a tool to help you reach your goals and dreams. It's not the end all be all. It doesn't actually matter if you don't use it effectively and use it correctly.

And so as we're able to get deeper with clients, get a better relationship, it's been great to have that relationship and see the success for our clients. And I know that's why a lot of people come to the business. I lucked into the business and kind of backed into it. And so this has been really refreshing to see as we're building this, just see those successes. And obviously, we've had some failures and things like that. But when I get to the end of my life, at the end of my career, I won't care about how much money I made or how large Illuminate became. I'll remember those moments of helping clients. And that's been the best success that I've had up to this point. I've got an awesome team.

And I guess I'll share one more quick thing here just because we did talk about this before and kind of set the stage. In September of 2023, business had grown. I had the opportunity to hire a superstar to join our team. I talked to him for 18 months and just said, "Hey, I can't hire you. I can't bring you on board yet. The math doesn't work." I also, at that point, had accumulated some personal debt, which happens when you start with a much lower revenue and have to...you want to continue to grow. And as I say, my wife's retired. She was a biomedical engineer, but she stays home with our kids. And I told her when I launched, I wasn't... "You don't have to go back to work. I'll figure out how to make this work." And she supported me in that.

And so through that, the debts, the debts I took on originally, I decided that I don't want to worry about payroll or cash flow. I want to pursue the future we see for our clients. I want to keep pushing the envelope of what else can we do. And so I reached out to a group of family and friends, people that I knew really well and offered up some equity, sold some myself, and we also created new shares so that the business would have some cash. I'd be able to pay off basically all the debts except for my mortgage and helps me sleep better at night, helps me focus on building the business, not taking care of myself, and gives the opportunity for future people to...who are invested in a relationship with me that they now get invested into the business that I think about all the time.

And so we have 11 new owners now. Gary also bought in some more at this point. All those other owners are less than 5%. I sold about 10% of what I had. And so I'm under 65% now because we did also have some dilution with new shares. We now have 13 passive owners and then me.

Michael: Okay.

Ben: And as I told them at the beginning when we offered it up, same process, discounted cash flow, 10-year projection, I did build in a...essentially a call option that at the...anytime after the 10-year mark, I can...we can buy back shares at a formula based on that revenue and profits at that point. That was the protection of what if we get really big and need to bring in other owners or internal succession, things like that? I wanted some mechanism to get some of those shares back, but still they'd be paid for the growth. But I also said very clearly, our operating agreement essentially gives me full control. So I will take your ideas and I'll listen to them, but I don't have to follow them. And so you shouldn't go into this expecting you have any say. And I said that kind of tongue in cheek that I'm...

Michael: Having learned that lesson in the past from the other end like, "I'm giving you ownership, not management decisions. But hey..."

Ben: A hundred percent.

Michael: "...I value your input because you're smart people. But I just... I'm not committing to listen to you."

Ben: Exactly. So learning from the past and setting very clear expectations. And they still bought in and we actually were oversubscribed and had to tell people, "I don't want to sell that much. You need to reduce your...how much you're buying," which was nice.

Michael: And then just as the business generates profits, I guess you've got some agreement that you set around what a "reasonable salary" is for yourself because now you really have to get clear about what's salary in the business versus profit distributions because you get your salary, but they get a third of the profits.

Ben: Exactly. And it's actually the same formula I had from the beginning of a certain percent of revenue up to a certain point and then it's tiered from there for a lower percentage above certain levels so that it's very clear what's salary and what's profit.

The Low Point Ben Encountered On His Journey [1:20:14]

Michael: Okay. So what was the low point for you?

Ben: I think there were a couple low points. One definitely was when I realized that I wouldn't be happy staying at my old firm. I remember telling my attorney when I bought in I...he talked about, "Okay, well, maybe we should talk about how you would exit." And I said, "Well, I'm never going to leave. I don't need to worry about that." And then a couple years later, I did. And so it was painful. January 2020, I got a therapist because I had this grief of losing the relationships that I had for 13 years. And just the way that it was, I wasn't worried about the future. I was just grieving the past. And so that was probably my lowest point at that point.

And then also, honestly, from the business perspective, since we've launched, there hasn't been a lot of low points. There's things on paper that look really bad, but I have enough confidence in the future and myself and taking a long enough view, that we've been able to weather through a lot of the things that every business goes through. I know it's hard. It's always going to be hard. And so with that perspective, honestly, from the Illuminate Wealth Management perspective, we haven't had a whole lot of low points. I get very upset if we lose a client. It doesn't happen often. That's probably the lowest points that I have at this point.

What Advice Would Ben Give To Himself 10–15 Years Ago (And Newer Advisors Getting Started)? [1:21:46]

Michael: So what other advice would you go back and give you from 10 to 15 years ago when you were still in the Gary training, learning phase?

Ben: Number 1, I wish I didn't have the imposter syndrome. I don't know how to protect people from having that. What I would tell... What I would say is whether they're right or not, if you look throughout my history, someone has taken the time to invest their time and faith in me. And so what I would say is whether they're right or not, they believe in you. So why don't you believe in yourself a little bit and also not be afraid to ask the questions that you are afraid to ask. They obviously care. So go ahead and ask. What's the worst that can happen? You're not going to burst a bubble on what they think of you because you can't hide yourself for that long. It's not like I... It's not that I pulled the wool over their eyes for 13 years. There obviously was something there that they saw. And so be vulnerable earlier, is what I would've done. And it would've come to light a lot of things.

Michael: Any other advice you would give younger or newer advisors coming into the profession and getting started?

Ben: So it's been very, very valuable to me for now more than a decade to be in a peer group with other like-minded younger advisors. I'm the youngest, but I think the age difference between the 6 of us is 4 or 5 years. And so it's really great to have someone to turn to and say, "Is this normal? Is this what you're experiencing?" and be open and transparent. And I will tell you. We were transparent from day one in our peer group. The first meeting, the first conversation, someone asked, "Okay. We said to be open and honest. What does everyone make?" First thing we talked about was compensation. And it was more of we were younger junior advisors. We didn't have access to all the benchmarking studies. We didn't know if it was fair or not.

And it doesn't matter who was high and low. Having a forum of people that we've now built personal relationships with, all are doing really well and their careers have grown over time. And you can pull things from what's been successful and what hasn't worked and learn from each other. That's been the...probably my...the most valuable thing that I've experienced. The other thing I would say is I wouldn't be where I am without the mentorship of both the founder of my former firm and then Gary. Finding a mentor, whether it's in your firm or not, is invaluable as you're going through this and learning.

Michael: Well, I was going to say, how did you find these people? I know how you found the mentorship because it was the founder of a prior firm and Gary in his role. But how did you find the peer group, the study group?

Ben: So we were at a NAPFA conference, actually at the NAPFA Genesis under 33 group and just at a networking social event and started talking to people. And I connected with a few and we stayed in contact and just decided, after networking, "You know what? Let's make this official. Let's set up recurring meetings." For a while there, we were having monthly calls, hour at a time, talking through different things. We did 2 in-person meetings a year. We set the stage on what it needed to look like.

Now everyone in the group is an owner of their business and time is a lot less plentiful than it used to be. So we've narrowed down to one in-person meeting a year, but we still communicate regularly. And we'll send everything as small as, "Hey, I've got this tax...unique tax situation. Here's how I'm going to handle it. How do you guys handle this?" and just to have someone outside who doesn't know all the history, they can jump in on. And then also when you're at your low points and you're struggling with, "What do I do next?" they know you really, really well. And so it's formed through the networking, but then it builds over the years together.

What Does Success Mean To Ben? [1:25:50]

Michael: So as we wrap up, this is a podcast about success, and just one of the themes that comes up is the word "success" means different things to different people. As you noted, it even changes for us sometimes as we go through...you went from lifestyle practice focus to evolving a bigger business. As you're now building this successful business and already cresting a $100 million under management and growing well, the business is in a great place, how do you define success for yourself at this point?

Ben: So success at this point is really measured by both the impact for clients, that's the number one focus, but also creating a space for people who are like me just 15 years ago to step in and have a safe space to grow and develop, and be in a position that they can be the best that they can. We have an awesome team who are all actually career changers. And that's interesting. But they're learning... So they're not as young as I was when they started, but they're learning the industry with fresh set of eyes and helping...give them space to make mistakes, but maybe not quite that same trade error mistake that I made, and continue to grow and develop. If it's 10 years from now, success is going to be the number of clients we've impacted and seeing the fruits of them growing, whether it's under our umbrella or not. If it's better for them to leave, I want them to go launch their own business and do what they want to do. That's the focus right now, and I'm having a great time.

Michael: Very cool. Very cool. Well, thank you so much, Ben, for joining us on the "Financial Advisor Success" podcast.

Ben: Thank you, Michael. This was great.

Michael: Thank you.