#FA Success Ep 382: Helping Clients Stay The Course With A More Total Relationship Approach To Their Near-Term Cash Flow Needs, With Tyson Ray

Resources Featured In This Episode:

• Tyson Ray
• FORM Wealth Advisors
• Total Relationship Resources
• Kitces Report: What Actually Contributes To Advisor Wellbeing
• Strategic Coach
• Your World Impact: As A Financial Advisor by Tyson Jon Ray
• The Total Relationship: 4 Steps to Breaking the Mold, Transforming the Financial Advisor-Client Partnership and Building True Wealth by Tyson Jon Ray
• Nick Murray
• Coach Duncan MacPherson
• Certified Investment Management Analyst
• Salesforce
• Salesforce Financial Services Cloud
• Advisor's Guide To The SEC's Final Regulation Best Interest And Form CRS
• Securities Industry Essentials Exam
• CFP Certification

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

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Full Transcript:

Michael: Welcome, Tyson Ray, to the "Financial Advisor Success" Podcast.

Tyson: Hey, thanks for having me on. I'm excited to have a conversation and share and learn and see what comes out of this.

Michael: I really appreciate you joining, and I'm looking forward to diving into the discussion a little around as I think about what it means to have a really holistic, sort of all-encompassing relationship with clients. I feel like there's been this evolution for us as advisors in recent years around, how do we sort of go beyond "just the portfolio" and try to do more in financial planning and try to be more holistic in what we provide and kind of capture all the different domains of what it means to have a relationship with clients.

But I find for a lot of advisory firms, that it's one thing when we do that ourselves. It gets a lot harder when the firm starts growing beyond ourselves. And you have to figure out how to take this mental model in your head about how you think clients should be served and turn it into something that not just that you do but that the firm does, that other advisors in the firm do. That ideally, that we can systematize across the firm. And I know for a lot of advisors, that's a challenging thing to figure out how to take the way it is in your head that for most of us is just like, "Well, of course, that's the way you serve clients". That's the way you serve clients. It's natural to us. It's the like what does a fish know of water kind of metaphor.

But scaling the firm out beyond yourself often means you really do have to figure out how to get that out of your head and into something that you can teach others. And I know you have been living a version of that journey in building out a more systematized process for your firm of what the firm does for clients and how you teach other advisors in the firm to do that process as well. And so I'm looking forward to talking about how you take the things in your head about how you think clients should be served and turn that into an actual process about how clients should be served that you can even train other advisors in the firm how to do.

Tyson: Yes. I am excited to have that conversation as well. It's about, for us, making life better for clients, but what I've realized in the last 25 years I think I'm coming up on here is everybody says they are doing it until you get into what they're actually doing to realize that, one, they're all doing it differently, but they're really not all doing it as firms in general, but then especially as individuals. And you're correct, as you start bringing on other advisors and other people are meeting with clients, whether that's a new client to the firm, or if the relationship is transitioned, how do you give that client the same outcomes and some of the same deliverables, the same experience?

And I really had to go almost outside of our industry to see that my dentist office does it. The coffee shop does it. The doctor's office does it. So, it's doable, but how to bring that into the financial services and perfect that and not have to worry when a client walks in the door and sitting down with an associate, that that client is going to get the same experience as if I was sitting there. It has been quite the journey of mistakes and failures and learning and picking it back up, but we think we've kind of landed and had the right team in place to now come back and want to share to encourage others to try and be able to do the same for their practice and their clients.

Michael: Very cool. Very cool. So, I think we're going to dive in in a few minutes just into what your planning process looks like. But before that, can you just paint the picture for us of the advisory firm overall as it exists today? Help us understand the firm, and then we can get into the planning process and what you do in the firm for clients.

What Tyson's Firm Looks Like Today [6:50]

Tyson: Sure. So, the firm today is 3 different locations. It's a team of about 20. There's 3 people in a Kenosha office that we have. Most of them kind of work remotely, and we use the office for meeting with clients. Though when we acquired the practice, it was an actual full functioning office. The other satellite office is in Middleton, which is a suburb of Madison. That's also a 3-person office that's day-to-day running and functioning as its own location. And then the mothership is in Lake Geneva, Wisconsin, where there's, I think, 16 of us now. I started losing track at some point.

And that's a handful of 3 different senior wealth advisors, CFPs, and CIMAs, and different designations, different focuses of expertise. That then there are another 4 registered client-facing advisors that roll up underneath them, and then there's a support team for the portfolio, a support team for marketing, a support team for...a care team which is also kind of they serve as the back office to kind of help when the paperwork gets bottlenecked in any one person's desk. They can kind of come in and take over.

And most recently, a COO who's come in to help run the operations because I realized at some point, I'm great at seeing the vision and I'm great at seeing step 1 and step 10. I don't care about step 3, 4, and 5 although it turns out they're really important. And I had to get some coaching to realize at some point, you need somebody to come in and kind of manage people. And I didn't do that well. I made the mistake too many times to be like, "Michael, you want next week off? Absolutely, take next week off". And I show up next week and we have this, this, and this. "Where's Michael?" He's like, "Well, he took the week off". "Well, how did he take the week off? We need some backup."

Michael: Because I told him he could because he had...

Tyson: I kind of focus on giving other people what they want and trying to make other people happy and expecting it to reciprocate. And it turns out that sometimes, you need to bring in a manager to bring some structure and be like, "Yes, you can have it off, but what's the backup? What needs to be moved on your calendar? What do we need to do to make sure that Tyson doesn't miss having you around for that week". And then the manager also could remind me all week long that we gave you the time off because I keep going around going, "Where are you?".

And that actually has caused us to probably have the most productivity and some of the best culture because it brought consistency in policies and procedures that I just kind of thought, "Well, everybody's just going to want to do what we're doing." And sometimes people just kind of need some structure, especially getting started out, to know where the lines are and where the expectations are. So, that's kind of a backstop of the team. There's 21 of us, 22 of us, 3 locations. We're crossing milestones I never thought was going to be possible when I started the business 25 years ago.

Michael: Yeah. So, what's the client base at this point? I don't know if you measure by households or assets or revenue or some combination thereof.

Tyson: Yeah. So, I grew up with an eviction notice on my refrigerator, so I've always been encouraged to have some cutoff and I just can't do it. But what we tend to do here is we'll meet with anybody for an hour that wants to have help. And the numbers are literally like only 1 out of 4 will become a client because after you make sure you pay off your credit card bill or fully fund your 401k or do all the things you can do with money that no one's paid to tell you to do it, one thing, but just doing that good work over time and sending people off with the 3 bullet points that they need to go and and act on. And sometimes they come back with them done and then we give them 3 more. And 5 or 10 years later, they come in and they actually are finally at a point to becoming a client and are better for it, but the practice is a little over 800 households. We're crossing about $900 million in assets.

I think our average, there's about 200 of those 800 clients that are about below $500,000 and it's either clients' kids, or it's all they have and we're just trying to help them. And then those that are above, I think the average household is probably getting close to $2 million. And that gets skewed because you have some $10 million, $20 million here. But the bread and butter or what I get most excited about is that client that kind of falls between the million and probably $10 million. I don't want to take on the client unless we really feel like we're going to have the opportunity to make their life better. And there's an aspect in the industry and there's an aspect in wealth and our society in general, it's just the more money they have, they're not necessarily happier, and you're not necessarily going to make them more happier. But you have $2 million, $3 million, $4 million, $5 million and you spend it at the wrong time or you get carried away in what you want to purchase, you can hurt yourself or react to the markets.

And so we find that to kind of be the niche. We're located about an hour-ish north of Chicago and an hour south of Milwaukee and an hour south of Madison. And the area that a lot of people tend to retire to or spend the weekend coming up to the lake is what it's referred to the Lake Geneva area that we're in. And so it's just a great place to be and it's a great time to be in the spot that we're in as we just kind of help people that retire collect all the different buckets they've accumulated and then give them the freedom to go live their lives while we try and manage their affairs. And kind of have also gotten to the point where because of the systems that are in place, we're amazed at what's just coming in just from a pure marketing through the websites, through just people finding us online now in the social media sphere. That's a far cry from the 3,000 dials you had to do a month when I started.

Michael: And can I ask, where is the business revenue-wise at this point?

Tyson: Yeah. We're about $7.5 million.

Tyson's Firm's Blended AUM Fee Structure [13:05]

Michael: Okay. And so what does fee structure look for you? Are you on a fairly traditional AUM style model?

Tyson: Yes, we have that blended fee. All we do is manage discretionary portfolios. So, this is just for the portfolios that we'll end up managing for the client, but it's 1.5% on the first $500,000. It's 1.25% on the next $500,000. It's 1% from a million to $2 million, and it's 75 basis points to, I think, $4 million. And it's 50 basis points to above that. And I think at $10 million, it goes to 25 basis points. But it's a blend. So, everybody pays the first 1.5% and away you go. And it's a little high if you want to become a client on the lower end. But we broke out our fee in such a way that it's reported as the advisory fee is broken out between the portfolio and the service. And the service at a different certain dollar amount goes to zero, right? Because time, whether you're spending an hour with somebody that has $5 million, an hour spend with somebody that has $50,000, the time is the time.

And so it allows us to kind of show the clients that, "Here, this is why it's higher because the time is the same". And then as the clients get bigger, the time starts going down and the portfolio fee starts going down. But generally speaking, I occasionally reach out in the industry and grab the different research that's out there and kind of do an analysis to figure out what that fee should be. I think going into the financial crisis, we were a flat 1.75%, which I always felt was high and no one seemed to mind. And then I did an analysis and went, "No, this is kind of high". So, we went back and tiered it. Over my career, it seems like it just keeps going down and yet our value keeps going up, which is the way I guess it's supposed to be.

Michael: So, help me understand a little bit more this portfolio versus service split. So, I guess first, I'm just wondering literally, what's the split? I mean, is it even? We start at 1.5%. Half of that is portfolio and half of that is service. Are you 2/3 service, 1/3 portfolio, or 2/3 portfolio, 1/3 service? How do you allocate that when you're putting it in front of clients?

Tyson: Yeah. So, it's just a table and exactly right, it's 75/75, which is the 1.5% when it starts. And I believe the 75 on the portfolio side doesn't start dropping until you get above that $4 million mark, but the fee for service starts tiering down. And our thought process there is we don't charge for financial planning. But if we did, that's where that compensation would come from. Some of this, I started working on when we had the little period in the industry where the DoL was getting funny and the rooms were going to end up becoming hourly. What is that going to look like?

And so I started playing with the numbers, and what that's also allowed us to do is for foundations and non-profits where there isn't the ongoing service, I'm not having to help them buy a car, the financial planning is very different. I have the same fee schedule at this point. Here, you're not going to pay the service side. So, your fee is going to start at 75 basis points and take it from there. But it was a way of... it's another differentiator for one thing.

Michael: And so I guess functionally, you end out with a layer of portfolio management fees that start at 75 basis points and tier down. You end out with a layer of service fees that start at 75 basis points and tier down. It's just the service fees tier down faster and go all the way to zero. The portfolio management fees tier down more slowly and still finish at 20 or 30 basis points when you get to really big portfolios. And so your combined fee just steps down a little bit more quickly as clients add balances because you're peeling the additional service layer fee down and allowing the portfolio side to eventually just sort of pay the full freight as it were.

Tyson: Yeah. Well, one, to me, that made sense in the presentation of the client. In the actual application though, because it's tiered to the assets, it's the same fee that everybody else has when they plug it into the systems and says, "Go collect a fee." Right? The client is going to have a 1.5% fee. In our investment policy statement and in the information that's disclosed to the client explaining our fee is where we explain what those 2 things are. But we're not sitting there every year or every quarter calculating any of that.

Michael: Right, right. Yeah. The total fee is the total fee from a client billing and this is, how do we position it? How do we explain it to get to the total fees that are charged?

Tyson: There you go.

Michael: So, because I was going to ask, I feel like the industry likes to talk about the proverbial 1% on a benchmark fee, 1% on a million. You're higher on that. You get to 1% after a million, but you're higher on that for the first million. So, do you get fee pushback from clients? Does this show up as an actual concern for clients or is this just something we like to debate in the industry?

Tyson: Yeah. No, it doesn't. What we have found is the process that we take clients through, by the time we get to disclosing, "This is the fee," I think it could be high. We don't get pushback at all and I don't get the impression from clients. It just boils back down to if you are having to get into a fee comparison, somehow you are not adding value that gives the client the impression you're worth what you're charging, whatever that is. And again, I've had scenarios where there'd be a question or an accountant got involved or a family member comes in and starts asking questions about what it is. And my favorite way to take our fee is I take the fee. I take the full value of everything that they have that we're monitoring, which isn't just the portfolio, it's also the value of the house, or the other real estate and the bank balances.

I take the fee and I divide it by the total value of the net worth and the debt of what the clients have. And when you divide that into the fee, it's ancillary. I think the mistake people make is taking the portfolio divided by the fee. Well, if that's all you're doing is managing the portfolio, then that's an accurate reflection. We're charging out only on our portfolio management, but advising on everything that they have.

Michael: And I guess at worst, if clients are asking about so and so charges 1% for a portfolio, you're at 1.5%, you got to kind of come back with, "Well, no, no, no, no, our portfolio management portion is 75 basis points. We're lower than 1%. We charge you a little bit more for additional service. Did you not want service?". I think it opens up a good conversation. I can visualize how this goes from a sales perspective. Now, at worst, like, "Okay, well, my portfolio management fee is lower than others. Let's talk about the service that we provide". And if we've got a good compelling service, that tends to break through pretty quickly.

Tyson: Yeah. One of our core values is to be worth a multiple of what we cost. Well, I believe if we're finding ourselves having a fee conversation with the client, we have failed our end of communicating what our value is, or more importantly, having the client experience what that value is. And you get people that show up in the industry, sometimes that's all they can anchor on. Especially if we're having the opportunity of the do-it-yourselfer raising their hand and admitting they don't want to do it anymore. And then they start having a hard time over the fees or a comparison to your Fidelity, your Schwabs, your Vanguards and the platforms where they can do it themselves.

But I just find that one of the mistakes too many advisors make is that they view it as a sale, and then to get the sale, they appease the client or compromise themselves and the value they bring to the table. And it's just like, "This is our fee schedule, and if you don't like it, you don't like it, then we don't have to work together because that's okay because that's the way the world is. And you can also come and try it, and if it becomes an issue down the road and you want to find a cheaper alternative, then you can take everything we have and take it wherever you want to go".

But I think it's wise for the advisors to be thinking in terms that you are competing and bringing services. And if it's all wrapped in an advisory fee, and you never thought to break that out, there's a value where part of your fee is to pay for your employees and the office and the experience and the planning and the advice and not charging by the hour.

And that's why we built it in that way, because instead of charging a fee every year for a plan that...we have a different take on planning, but planning is an ongoing process and I didn't want to have to keep having the client stumble over the cost of that. Just bundle it.

How Tyson's Staff Is Structured [22:09]

Michael: So, now help me understand just this 20 something people on the team, what are the proverbial seats on the on the bus? What does the organizational chart look for how this firm is structured with 20 something folks?

Tyson: Yeah. So, of the 3 locations, there's basically a senior wealth advisor over each location. And so that would be tenured and CFP'd and what have you, but basically, they're the point of contact for your problems that someone needs to come to and say, "Hey, here's the scenario". Who read Michael Kitces' most recent piece on whatever this issue is defined as the answer, right? And they're responsible for that. They're responsible for sitting in on the problems. This model started... It's probably easier to go back to how we got here for a second.

One of the senior wealth advisors is...his name is Luke. He's been my best friend since I was 12. Went to college together. I got into the business 6 months before he did. He joined me about 2 or 3 years later. And the analogy he gave me is he said, "Tyson, you are like an open heart surgeon. You love crisis. You love solving complex problems. You love saving lives." And he said, "The problem is you're spending every day meeting with clients that don't have heart problems, you fixed them." I needed to go hire someone that could care for someone that has no problems to be looking to identify a problem that then I can get brought back into.

And so effectively, I'm trying to get my other 2 senior wealth advisors to the point, and we're getting there, that they are the open-heart surgeons. So, we're going to sit down with the client, we're going to sit down with the person that's coming in in the business or coming to us from scratch and helping them figure out, do we fit? Are we going to be able to make their life better? Do they want what we provide? Do they have reasonable expectations? Are we going to be able to help work them into the firm?

Sitting next to us is what we call client advisors, and basically, that is going to be your relationship advisor or the advisor that's going to service or be the point of contact. If I'm the open-heart surgeon, the client advisor is your family doctor. And the family doctor is there to open up, say, "How are you doing? Are you taking your medicine? Are you doing your exercise? Are you doing what you're supposed to be doing?" And to identify, do they need to see an expert beyond them? And so in that, we have 4 other associates. They're the ones that are doing the ongoing service. They or the client will decide when the wealth advisor, or the senior wealth advisor isn't in the meeting anymore. And my philosophy is if a client wants me in the meeting, I'm in the meeting. But the clients will be asked.

And I had to get over myself of feeling like I had to be in every meeting. And the way I got there was I looked at one of my clients and I said, "Here's my problem. I want to be in the meeting with you, but we fixed you, right? The whole goal is not to see me again". Which we kind of laughed. I said, "The reason why is that you have 4 kids, and they're going to have a financial problem or concern that needs to be addressed. And that's where my skillset is best aligned".

Michael: So, to make sure I understand the structure, so I'm kind of fascinated by it. So, the client advisors end up functionally being the primary point of contact relationship manager. The 3 senior wealth advisors don't have primary clients of your own in an ongoing relationship context at least. You're the ones that get brought in when there are more complex issues and challenges going on to drop in and say, "Okay, let's figure out how to solve this complex thing for the client".

Tyson: That's the goal. I'm there. Luke is probably only about 20% there. Christine joined us about 3 years ago and she's getting there. And a lot of it is finding the associate that can sit in the meeting and complement the other person. And this is, again, where on the fee side of things again, it's just like, "Wait a second, does your advisor that's charging 1% have 2 people sitting in every meeting?" If I'm in a meeting and there's another client advisor sitting next to me when we bring on a client, there are 2 people in the meeting. It's the person that's diagnosing and solving the problem, and then there's the person that's actually the point of contact.

Michael: So, how do you think about this from a capacity end? How many clients can a client advisor serve if they've got senior wealth advisor support, but they still have to actually be primary point of contact for all these clients?

Tyson: Yeah. Well, it's a math problem actually, and we've put this into our systems because clients grow in and out of service. I subscribed back in the day to, okay, if you have this many assets, you're going to get a quarterly contact and an annual review and whatever. And what I found is that it was harder and harder to get in touch with these people, especially after they get retired and everything gets consolidated and they get the monthly paycheck that we send them on the 15th every month that replaces the income and all that, everything's done.

Above a million dollars the minimum is twice a year. And so we'll back that off so we can keep track of how many annual reviews that are face-to-face and there's policy and procedures about what that expectation and deliverables are in prep and time. And then the contact 6 months later is a phone call of a checkup to basically say, "Hey, we met 6 months ago, we're going to meet in 6 months kind of like the dentist, and how's the bank balance? How's the cash flow? Did you take the vacation? Did you buy the car?". Just everything that is in the planning points of the relationship we're working with them on.

By and large, the ideal I think is going to be in the neighborhood of about 150 households and about $150 million [AUM]. Doing about $1.5 million [revenue] is going to be a client advisor underneath a wealth advisor.

Michael: Okay. So, now help me understand the rest of the organizational chart here. We've got 3 senior wealth advisors. We've got 4-plus client advisors that are driving some of these relationships as well. Who else fills out the rest of the 20 something seats on the team?

Tyson: Yeah. We have 2 people that are in what I would call kind of a back office that are your portfolio and care team associates that got started. One, the care team is clients below $500,000 to just get an annual review. And again, usually, this is the client's kid or it's the person that they...because of their pensions or whatever they have, this is the $200,000, $300,000, $400,000, it's all they have. And they get cared for and they'll get access to anybody on the team, but it's a very simple situation.

Michael: And so those clients don't roll...those small clients that get one meeting a year don't roll up to the client advisors? They get supported by a separate care team?

Tyson: Yeah. So, I had made the mistake in my career, getting coached that, here, I think it was like 1,400 households at the time, it was like '07, I think it was. And it was like cut your practice in half and the Pareto thing and your 20% and you're not servicing these other ones well. That was a great idea until I went to church and I'm sitting at church and in front of me is Grandma Betty and her sister, Sue. And her sister, Sue, got sent to the call center and Grandma Betty's got $2 million bucks and she's looking at me saying, "Why'd you get rid of my sister?"

We just simply say, "Hey, we'll bring you on and you're going to have this associate who's going to contact you once a year. If you need anything, you reach out to them". If they think we need to be involved, we'll be involved and help or we may help behind the scenes. They're thrilled that we would help them and I don't trust the other firm down the road that would throw them in A-shares and 3 years later sell them out of the A-shares and sell them another. There's an aspect that I feel like this is a sanctuary to help people. It's just a matter of, how do you do that and still run a business and still add value and scale?

Michael: So, then who else on the team beyond this segment?

Tyson: So, we have 2 people that run marketing. Each senior wealth advisor has basically a support person or either a registered assistant or an executive assistant. I have a COO, and I have a executive assistant. Then we have 2 people in the back office. That's your book keepings and we have 1 intern. How am I doing?

Michael: Okay. And some core just ops support admin function or does that tie to the registered assistants who support each of the wealth advisors and then the portfolio management team?

Tyson: No, we have 2 people that are basically your payroll and your HR and your facilities and oversight.

How A Larger Staff Can Help Overcome Issues Facing Mid-Sized Firms [31:20]

Tyson: So, in 2018, there were 6 of us, 7 of us. So, we've had all this in one location. So, anybody that's thinking they got a team, you got a senior advisor, a junior advisor, maybe 2 junior advisors, maybe an assistant or two, and some of the...you got that 4, 5, 6 people which I think is a lot of firms. And there's stress, there's late nights, you're overwhelmed.

And what I was told and didn't believe, and like everything in life, you have to learn the hard way, is the team that's from 7 to 12 people is hell. It is the hardest thing to do while you're still trying to do the job. You've got to train, you got to let go. You got to manage. But for some reason, when we tipped over that 12, and then you start getting 15, 16, 17, and you get policies and procedures and things in place, it starts running. That's where the freedom's found. That's where I found like, "Oh my gosh, less is more. I can get in my sweet spot". When all of a sudden, it wasn't my... one of the wealth advisors and I were basically marketing with a project manager that would go execute all the marketing. And so you're constantly getting sucked into...

And I love that stuff. I love trying to communicate what we're doing, but not the best use of my time. And so the hardest part in making that leap and Strategic Coach was kind of the ones that kind of spit this out when...they have a concept called 10x your practice. Well, it's not so much the idea that you have to 10 times your practice. It's the idea that if you think of it in terms of doubling your practice or adding one more person, it's probably not one more person. It's like you need to be thinking about how you're going to add the next 3, 4 people. Because if the practice keeps growing, that's probably going to happen anyway.

But I found once you got past... 2 things. One, you have to let go, and two, you need to spend the money before you have the problem. I learned that the hard way. I figured that out now, is I'm constantly hiring people and bringing them in almost before the need is there because once that capacity shows up and that skill shows up, they can go execute in ways that we wouldn't have been able to do had we tried to piecemeal it amongst the senior advisors and the associates. That they like it, but that's not their experience or skill set. And we started bringing in resources from outside financial services in the realms of marketing or my COO doesn't come from the financial services. She actually comes from hospital administration, so why?

Because hospitals are all about caring for people. That's what I was looking for. I can understand finances until the cows come home. I need somebody to come and help me, how do we standardize the care that we're providing? And so getting to this idea that, hey, we got this 20-person team, I sat in purgatory for the better part of a decade, it's feeled like, with my 4, 5, 6 people constantly stressed out and frustrated, wanting to help more people. Knowing these client kids were out there, sitting in meetings I couldn't be sitting in and realizing it was all about trying to find...giving myself permission to invest in the practice to the extent that instead of putting more in my pocket and having more stuff, which wouldn't have necessarily brought me more freedom or more happiness, it bought me things I could think I want to go use and can't because I'm stuck in the office. It was hiring people that gave me that freedom and got us to where we're at.

Michael: With a caveat, it sounds like you were at 4–6 people, as you framed it in purgatory for a while. Then you tried to go through it and went to 7 –12 people and it got worse.

Tyson: Oh, it was horrible. Yes.

Michael: And then as you kept growing, eventually, it popped out on the other end.

Why Tyson Wishes He Had Hired A COO Earlier [35:15]

Tyson: Yeah. If I could do it over again, I would hire my chief operating officer first and let them go hire everybody. Because I was trying to manage it all. Interviewing, overseeing. It was finally when I brought in, and I had to go through 3 of them to get to the right one. It wasn't the first one, or the second.

Michael: So, when did you hire the COO and who did you figure out that you needed by the third that you didn't see in the first two?

Tyson: I originally tried to have the other senior advisor, Luke, who was a great complement to me, take over the COO role. He said no. So, then we posted for the position, hired the person, came in. And great on paper, tons of industry experience. Wrong fit from a culture standpoint.

Michael: How did that show up?

Tyson: Well, basically, she resigned the first time I basically said no to something she wanted to do and it had to do with the...we had an intern. We had an intern come in, was great for the summer. Then it was so good we basically said, "Hey, can we give you a computer and give you some things and whatever time you want to give us?". Because she's at the university. It's about 30 minutes from here. And I kind of heard through the grapevine that she was sinking her roots here. And that little rascal, every Thanksgiving weekend and Christmas break, she'd come back into the office. And then we started realizing come that spring and almost second summer, and in fact her senior year, she tried to adjust her classes in such a way that she could actually be in here full days.

Fast forward, we bring in this COO and we're posting for this next position, or we're talking about hiring this next position, and I said, "No, wait a second. No, no, wait." This was February. "Sarah's graduating in May. She's been here for 2 years. She knows all this. That's her spot that you're talking about". I said, "We can post for other things." And I'm looking at the org chart she's talking about. I'm like, "Yep, we got to hire all those people. But whoa, whoa, no, wait, not that one. We've talked to Sarah about that." And I walked out of that meeting and walked downstairs, walked past through the kitchen going out the door and Sarah happened to be in the kitchen. And I said, "Hey, when you graduate, are you still coming in? Do you still think we're doing this?" She's like, "Yeah."

So, on the way home, I called back to see, "Oh," and said, "Hey, I saw her as I walked out the door, that's still the plan." Well, to her, I undermined her and met me the next day and she's like, "It's Sarah or me," and I'm like, "What?" She's like, "You need to stay out of my kitchen." And I'm like, "Well, what if it's not your kitchen?" And it goes back to she came out of the big city, the COO did, and we're not the big city. And it's like Sarah's dad is the estate planning attorney that I've used for 25 years in the front. She wasn't wrong, the COO. Her response was, "We're not hiring a kid right at college. She's 22 and she's going to move." And I'm like, "Yeah, I understand that, but you haven't taken the time to know who this kid is because no, that's probably not what's happening." And it actually hasn't been what's happened.

So, that was the first one…by the time she was done, other than Sarah, she had flipped the entire team with the exception of Luke. So, in the period of about 4 or 5 years, the entire team turned over in part because the vision became, "Hey, I want to make a greater impact". And outside of Luke at the time, no one else wanted to kind of come and make that greater impact. So, the team was somewhat turning over as different people were realizing that...

Michael: Because you wanted to grow and they just wanted to kind of hang out and get their salary and do their thing and go home at the end of the day and not have to deal with all this growthy stuff?

Tyson: Yep, which is fine. Luke then said it was so bad, he basically said, "Here, I'll do it." I guess I had 4. Yeah, 3 didn't work and 4. So, Luke said he would do it. So, he stepped into that role for about 9 months and then came back and said it wasn't what he wanted to do. I ended up hiring a 65-year-old individual who was in transition. And the idea was he was going to come in for 2 years and kind of help us build the structure that we needed that was missing. And in the process helped me realize that Kim, who was in hospital administration, who then was a stay-at-home mom for a while and was basically coming back 1–2 days a week working in the office. Then when the kids got to a certain age within a year or two, she was in here full time. Was an assistant to me, was done over marketing, and then we hired someone to take over marketing.

And what Kim was doing, and I didn't see it at the time, it was the other COO we hired, was basically taking work, proceduralizing it in ways that it could be taught to other people because all the procedures...the mistake of your procedures and this is a great thing if you're listening to this and you think you have your... I thought for 10, 15 years, I had all my stuff proceduralized. No, I had CliffsNotes of everybody that knew how to do the job write it out. It was nothing that a stranger could pick up and read and be trained off of.

And so what Kim was doing is starting to proceduralize stuff out to train it and build the infrastructure such to then she basically realized, "Hey, there's enough work here, we can hire a marketing person", and presented to me the policy and the procedure and the job description and the work and the salary and all this other stuff. And basically after that third COO moved to Arizona to retire let me realize that we're going to let Kim step into that role for a year for a trial. And as of January of this year, she's taken it over but in the process hired a second marketing person, hired a second person in the back office. We had bought the 2 locations with these hiccups in COOs along the way. But there's a lot that goes on behind the scenes that most people don't see.

But the biggest thing I want someone that's listening to this to know is if you want to grow, it's probably going to take a lot more people than you realize to get you the freedom that you want. And it's going to have some costs in the front end. But if we're in the investment business, the return you get on that investment is worth it in both the quality of people you get to bring in, the difference they get to make to the clients, the ability to get your message out, and the ability to let you find your unique ability and just start working with a greater amount of energy in the areas that give you energy.

Michael: When I'm struck, we've seen a version of this in some of the advisor wellbeing research we've done as well, that there really is a spike in how many advisors are really unhappy at...the crossover point we found was about $225 million under management which revenue wise for most firms is somewhere around $1.8 million of revenue because most of us don't get a full 1% on everything. But when firms run usually that size, something $200,000 to $250,000 of revenue per employee, you're right around 8 or 9 team members, which is exactly in the 7 to 12 people is a range that you were experiencing as well.

We have seen that in our broad-based data as well, that just you...as I joke sometimes, it's the transition where your org chart goes from something that looks like a starfish, right? Everything emanates from you in the middle into a more traditional org chart where there's actually like departments and people who lead departments and a leadership team of the people who lead those areas that work with you at the top if you're the founder/owner and going from the starfish to the traditional org chart is really messy if you're not used to it.

Tyson: Painful. Yeah, yeah. And yet, kind of like taking a bad medicine to fix a cold, these advisors that are upset or unhappy, either you have to shrink yourself back down to your 1 or 2 or 3 people you had that was a part of your career probably. Or you got to take the medicine and hire the people and get yourself to that at next level, which they think is going to make it worse, not better.

How Tyson Started His Business And Grew Through Acquisitions [43:35]

Michael: So, you'd said like, for you, this was sort of investing into the business for your way through this. So, I guess I'm just wondering like, how does that show up from the investing? Did you put dollars in? Did you take your margins down? What did it look like through this phase?

Tyson: So, for that, it's probably easier to go back to the beginning. So, in 1998 I came into the business for a year and a half, was in a bullpen making cold calls trying to...if you bought, I think it was 300 shares of Southern Company back then, the dividend would pay the average person's electric bill. And trying to tie an investment can solve a problem instead of just peddling product. And that was in Pensacola, Florida, where I had gone to college and the first email came across my desk from the family. This was back AOL, the dial up, right? Listened to a fax machine going off and basically grandma back on the farm, literally, her diabetes was perking up and the family was basically struggling with someone needs to move back home or we got to move grandma into a care facility or some assisted living with the fear that if she's moved off the farm, she's not going to be long for this world and she's going to go... that's going to be not fun.

And to the shock of the entire family, the prodigal son basically said, "I'll come up". And the reason why was is that this was back when... Well, one, this was back like you were still...the stockbroker was the person you called to find out what the stock was even doing if you didn't want to wait till the paper was published. This was before everybody had some of these computers and all stuff was what it is today, but the bottom line is I did not like selling. I didn't like the conflict of sitting across from someone trying to discern the interest of what's best for them and me trying to pay my rent. And somehow the idea of moving back home to grandma's was to live for free. And the farm had food, so I could eat for free. And when I moved back, I went into an office that was about 15 minutes away of the same broker-dealer at the time. And there was this 3-man or 3-person, 4-person office, excuse me.

The senior stockbroker was 68. He had his daughter as his assistant. And one day, I went into his office all frustrated and basically said, "Let me see how much money you've made in your accounts." And he kind of looked at me funny and I said, "I'm trying to decide if I'm going to stay in this industry or not." I was 23 or 24 at the time. Well, he prints his portfolio. This is late fall of '98 and he had picked...he had those 20 growth stocks at the end of that tech bubble that was just beautiful. And so you have this wonderful multi-million dollar portfolio that he presented to me.

And he handed it to me and I'm looking at it and I'm impressed seeing the gains, whatever else, and he's waiting for me to give him a compliment and I look up at him and what I said was, "How come you don't have this in a trust with your wife that says a joint account? Don't you know that if you guys pass away, the amount of state taxes you're going to pay is ridiculous?". And I didn't know about a month or 2 before I showed up to the office, he had a client die and they had cut their first ever million-dollar estate tax check to the federal government. And they made a copy of it and he actually picked it up out of a pile of paper and showed it to me. And I was like, "Okay. Well, if you want to give me access to your account, I can go run some planning and come back and I'll plan on how to solve this for you because I got nothing else to do. I don't have any clients up here."

And so I went and showed him what we could do and charitable remainder trust and gift of stocks and so on and so forth. And he's like, "I'm never going to get my wife to agree to this." He's like, "I've tried. She doesn't want to do anything." I said, "Okay, how about I talk to her?" "Oh, she's not going to talk to you." I said, "Why don't you see if she can come in here and let's try?" "One caveat, Michael, you can't talk. If she doesn't want to hear it from you, she doesn't want to hear it from you." So, they came in. I kicked him under the table, I think, only once, but she sits down and she's not happy to see me. It's clear she's not happy with me in the office. And it was one of those things, he's still working, she wants him retired, right? He spent too much of his career in the office. She resents the building or the business and everything.

I'd pick up on all that. But I looked at her and I said, "Hey. How many...?" I said, "You guys have done so well that if you pass away, you're going to lose half of what you have," and that didn't seem to faze her. And I said, "Okay." I said, "Do you have family china?" "Yeah." She kinda looked at me like, "What?" And I'm like, "Is it 8 or 12 settings?" And she said, "It's 12." I said, "Well, 6 of them are going to go to the government." And she kind of looked at me and I said, "You have one daughter. So, let's just assume every left shoe is going to go to the government. When I'm saying half, it's half of the value of everything you have. You have 2 Toyotas. One of the Toyotas is going to go to the government."

And she looked at the senior advisor and said, "You better fix this." And she got up and walked out and we went on to put in irrevocable life insurance and the whole 9 yards. And in the process, I said to him, "Hey, do you have other clients we should do this with?" Because he was so focused on selling the stocks because that's all he knew to do and build the wealth. He never knew how to come back and do the planning. I say a lot to say, how did we get here? I bought that practice out 5 years later. And then I bought...in the financial crisis, I was with a broker-dealer that got bought out by a bank that went under and got bought out by another bank, which was worse. And in the process, purchased 3 practices 6 months one after another in that time frame. Then I did a deal that was going to be a practice that I was going to purchase from bringing somebody in and that was an absolute disaster and lied to clients and lied to me and lied to everybody, it seemed. Go ahead.

Michael: In retrospect, were there red flags that you could have seen to catch that earlier?

Tyson: Yeah. The biggest one was if I have a shortcoming, I'm way too trusting. I took his word for everything. I didn't do a bunch of due diligence. And so this $50 million practice that all of the numbers got practiced on and the check got cut on, when he got in the car the day he resigned, he disclosed, "Oh, only $30 million of it's coming. This junior partner I have is probably going to keep the rest". And it's like, "Junior partner, what the hell are you talking about?" Not everybody is honest and truthful in this world. And you know that, but you just take it for granted. And some of these people are really good people, but they are seeking to monetize themselves one last time and they'll make it sound really good. And they've been salesmen their whole life and you got to be careful and you can't be their savior, right? The finances have to work.

And what was absolutely worse in not doing the due diligence is when I started meeting with the clients and then seeing the mess in their portfolios. And I helped him transition the practice over that I was supposed to buy it and then basically just let him go back on his own in the new broker-dealer firm and work for free effectively for 6 months. And then I had the privilege of ending up in an arbitration about 5 years later when he claimed that we were the ones that was why he didn't succeed because of the deal. He didn't produce the revenues he needed, so the clawblacks all came in and he had to pay back some of the money and he didn't like that and filed for bankruptcy.

It was horrible, and yet like many things in life, the worst things that happen become some of the best education. To actually sit in arbitration and see how one of those things go to realize, "Oh, wait a minute". And we won the arbitration but no one...when I say we, the broker-dealer and I were...but I wasn't at the broker-dealer anymore when this all went through. So, that was a nice $100,000 legal expense that I had to cough up, but it was the best education I ever got on how that whole process works and how you want to avoid that in all ways possible. And a lot of it's just policies and procedures and expectations and doing the right thing for a client. Everybody says that but don't always necessarily do that.

Tyson: I was buying practices to build the practice and I was at that 6 or 7 mark and that experience was so bad, I put the "I will never buy another practice." And I started getting into Strategic Coach and started realizing that part of the privilege of being in the industry for 20 years by the time I was thinking about this, and having the resources and the finances and the ability.

I had the opportunity or I was asked by the broker-dealer of the firm I'm with now to step into a situation. Then we bought another practice and it was just a joy. It was stepping into a practice where the senior advisor was stepping out. The junior advisor had or a client advisor had basically been in the role of servicing the clients for several years that the relationships were there. I was able to sit down with her and basically talk about, "Hey, we have some structure and some systems that I want to put in place, but you have the relationships. And can we leverage your relationship with the portfolio strategies and the planning and some of the things we'll talk about today on this podcast?". And she was considering resigning because she didn't like how everything was going down until I came back and just said, "We're going to sit down. We're going to agree what we're going to present to the client if it's what we think is the best interest of the client. If the client says yes, they give. If the client says no, they don't, and we can move on.".

But it's always going to be what's best for the client, and it's always going to basically be, "But I don't need you to manage the portfolios. I don't need you to pick product. I don't need you to do all these other things, if you want to talk to the clients and we can come in and do the planning.". And it was bigger than everything else we'd ever done, but basically, it was almost entirely A-share mutual funds that they sold at a break point, the million-dollar break points, right? So, it's no upfront load. That was their claim to fame, is the cheap version of asset management.

So, they built a pretty good practice. And they somehow didn't realize along the way the industry got to the point that you can convert A-shares to institutional shares and then bring in a fee. And all of a sudden, the total cost of the client is a pittance of what they thought it would be, much less that there's no tax consequence. And so that effectively doubled the practice. And that was what doubled my headache of, "Wait a second, now you have a second location. You have twice as many assets, twice as many clients, but you don't have twice as many team members.".

Michael: Because the practice you acquired didn't come with a full set of team members to support that integration, but it came with enough revenue to hire them if you wanted to reinvest it?

Tyson: Yep. I have basically made...our revenues have gone from probably 2 or 3 maybe to now 7. And I've probably made about the same. So, 2020 would have been 4, then probably 5 something, then 6. So, that's been this progression. And from 2021 till now, I'm probably netting about the same because I've taken payroll from, I think, a million to two. But the capacity that's giving us, 1, 2 things. I think I've built the team that we can probably get to 8, 9, 10 without having to add a whole lot more infrastructure, but you can't do it if you don't put the infrastructure in place.

Tyson's "Total Relationship" Planning Process [54:55]

Michael: Yeah. So, tell us now about the planning process that's getting built out across this larger expanded base of advisors and team.

Tyson: Yeah. Because I had the team in place and 2 people in marketing and the COO to babysit my schedule to make it happen, we've actually finally published what would be the second book I've written to try and explain this. The first one, I wrote back in 2012 was called "Your World Impact as a Financial Advisor." And it was my realization that, wow, if we can help make these clients' lives better and help them live a better life…and the takeaway was I had gone to a client's funeral, and I had gone to enough clients' funerals to realize that we really impact the world by the job we do. And it has nothing to do with the money. It has everything to do with what they do with the money.

And so I took a stab at that, "Your World Impact as a Financial Advisor." Funny little tidbit and a call out to Nick Murray on this one. So, he was referenced in the book. So, was Bob Dunwoody, and so was Duncan MacPherson, which were 3 people that were influential that I kind of put out there as influencers for me. I think you can have some, you can't have a lot. I had those 3. Well, I had sent all 3 of them a draft of the book. Nick Murray specifically because I was scared to death of his copyrights and he makes it quite well known, "Don't copyright his stuff."

So, found his AOL email and sent it off having no idea where that was going and that was probably Thursday afternoon, somewhere around Friday afternoon, I get this email back and all it said was, "Getting on a plane. Found a printer. Give me an address to overnight my comments back to you". And I'm like, "Huh." And so I responded and that following Tuesday, of the 150 page manuscript that this thing was, I got about 100 pages back marked up with red inks. I still have it to this day saved in my little…

Michael: I was saying I hope you saved that.

Tyson: Oh my gosh. It was like, "Put this in chapter two. This is crap. Expand on this. Never thought of that. That's a good point.". And then here is this little caption where he kind of endorsed the book. And what's funny is the whole time I kept thinking when we put this whole book together, no one's going to read this. Right? But this isn't really a book. And I think I took for granted what I did every day wasn't special or wasn't meaning anything. So, anyway, that ran its course. And I had been encouraged to update it a time or two. Well, going back to complexity, time, growth, being overwhelmed, not being in a good headspace, I never did it.

And this last year, we put together this total relationship. The book's called "The Total Relationship." And in it, we get into what I think are kind of the success paths that we've gleaned over the 25 years that we've applied to this other practice that has taken the revenue from, I think, $900,000 is what they're doing to almost the $2 million that they're doing now without really increasing cost to the clients but increasing the value that we're bringing to them.

I would like, if I could, that Total Relationship book, the audiobook, I believe it is, is like 99 cents on Amazon. It's not about selling books to make money. It was about putting information out there. And we created a totalrelationship.com/kitces where we'll also be putting some resources for the total relationship and then linking it to this episode that you're putting on. But totalrelationship.com has some other resources there as well.

Michael: I appreciate that. We'll make sure we've got links out. So, this this is Episode 382 for folks that are listening. So, if you go to kitces.com/382, we'll have links out for those that want to look more at the the total relationship materials

And first and foremost, in the total relationship process that we basically have is we call it total relationship investing. And what I call it is that too many advisors, and this was Bob Dunwoody's point, if your practice is supposed to be in cash, where should it be, is that these advisors have thousands of positions in their practice because the wholesaler came in. And so the next time they talked to the client, that prospectus was top on the desk, or they have a friend that did this, or this is the new hot idea, or the client comes in and you keep some and you sell some others, but it's just this hodgepodge of stuff.

And total relationship investing is after getting the CFP and then the CIMA, there was the CIMA that I was just like, "Oh, wait a second. Duh." Basically chapter one of CIMA class that I took through Yale was basically, "Hey, no one knows the future, right? So, real returns are unknown. And so now we're going to study expected returns and expected returns start with capital market assumptions. Capital market assumptions are basically people's guesses of what asset classes are going to do in the future.". And all we do and what we encourage others to do is, hey, take a couple and blend them together because everybody has got their bias and any one of them can be wrong. But I feel if you harmonize them, you're probably going to get closer to what's more likely.

Anyway, a predetermined investment strategy starts with a capital market assumption to basically determine an asset allocation and have predetermined portfolios the clients are going to come into. Not what you're going to sell or more importantly, not what they come with.

Michael: Right. So, building models and mapping clients to models that you believe in are the portfolio of choice.

Tyson: Yes. And bringing all of the asset allocation and getting out from selling the pieces of the puzzle. It's giving them the picture because I think too many...the idea of here you have an IRA, and this strategy, you broke your IRA up 3 ways to have this one in fixed income and this one managed by this guy and this one managed by this guy. It's like, "Hey, the world market is the world market. You're not diversifying yourself. You're creating complexity with clients that want simplicity.".

But worse, and more importantly, is I wanted to know when I ran into a client, what their portfolio is doing. When the family is sitting around the table, I'd like them all to have the similar rates of return. And so what we've realized is that the customization of a client's portfolio or the models that we're running is what doesn't go in the model. To which that would most likely be cash because that's either predetermined or that's what they don't want to take any risk with. Instead of, I think, too many advisors trying to blend that all together in asset allocation. And you might have created some safety for the client or you might have put a CD or something that doesn't fluctuate in that overall portfolio. But if it's in the overall portfolio and the portfolio fluctuates, you have the same emotional reaction of the client.

Then what we've found is if you actually keep a separate account and it's a cash account or the safe account and that doesn't fluctuate in value, which is usually money markets or CDs or treasuries, for whatever the need is, and they've got to define that need in the next 1, 2, or 3 years, or identify they make enough money or they have enough money so they don't need to have that type of growth, that all of a sudden, I could take a lot of clients' assets and all of a sudden have the exact same asset allocation because when you start talking about money beyond the 3-year window of time, you're getting into long-term investments. You're getting in long-term investments, that becomes risk and return, and that changes based on capital market assumptions.

Not based on how the client fills out some risk questionnaire that leads to some score that then spits out some model that is static and doesn't take into consideration, what is the PE ratios and what are interest rates and what is the client's need? Because I think going back to appeasing clients into these questionnaires that spit out these models is the client may need to have more growth and have to experience a more volatile ride to not run out of money, but do they even get a chance to be able to have that opportunity but before you spit out a score so they get a very conservative portfolio? But in an interest rate environment that we're in or had been in may not produce the result they need.

Michael: So, help me understand the rest of what's in the total relationship umbrella though. I understand the investing end. We're building the models. We're not haphazardly selling the investment of the day…

Tyson: Yeah. Total relationship is 3 things. And actually, I started with the wrong one. The total relationship starts with what we call the life plan. And it's financial planning as everybody can start with your Monte Carlos and all this other stuff. However, and that's great for stress-testing and guessing the future. But the day in, day out where the rubber meets the road and where I think most advisors fail and where I failed, I'll never forget, I got a phone call from a client. This is early in my career. Most likely they got an A-share. And it was long-term money. They wanted to get investing. They wanted to start.

And a year went by, I got a phone call. The $100,000 they invested that probably didn't grow at the time, they called and spent $60,000 on a car and they need the money today. We can run Monte Carlos that say, "Okay, you're going to buy a $70,000 car every 5 years.". Yeah, you can do that. Is it this year they're going to buy it? Or when's the next time that's coming up? Or actually, should we accelerate because the markets are up? So, life planning to us starts with understanding the client's family, more importantly, how's mom and dad, because we've realized that when it comes to building relationships with people, you call to have the annual review to do the due diligence of the portfolio, but if mom just got diagnosed with stage 4 cancer and you don't find that out, they don't care about the portfolio.

And so our annual review process and the data that we gather in our CRM is, "How's mom? How's dad?". If dad is deceased, I'll ask how old dad was because that's a framing of a client's life expectancy, is how old their parents are. Whether it affects them or doesn't affect them, I'll ask them how they feel about that. Some clients will say every day is a gift because I'm older now than my dad was. Or some people will say, "No, it doesn't have anything to do with me because he was a smoker or whatever.". But are they alive or are they dead? And where are they? And what's their health? And who's in charge if something happens to them?

And then their kids. So, the whole life plan starts with what matters most is people's families, both the family tree above, and then the kids, friends, and family below. Where are they in life and what happens? Because people will take money out or make sacrifices for family more than anything else when the rubber meets the road. And it's just to be ahead of that or know what that is. Then it's obviously their health. Anything changed there because that happens from time to time.

Then we actually track clients' vacations. Where are you going this year? And more importantly, if we're having an annual review, we'll ask, like, how was that Christmas vacation? Did you enjoy it again? Are you planning on it next year? Because people fall into a rhythm and a pattern if you actually care to identify it. And all these patterns cost money. And that's part of the job, right? Is making sure that the number one rule of the total relationship has never put the client in a position to have to sell anything in the markets when they're down.

Well, then we've just got to plan ahead. But it's not planning for the rest of their lives, right? This financial software drives me in bonkers because most of it is if it said in 2023, you're going to buy a house and now it's 2024, it falls off. It doesn't ask you to actually buy the house. And we built it so when we talk about their health or we talk about travel or leisure activities or then their home and home improvements, we're just constantly...anything we're going to do in the house this year? And what we found is they may sacrifice doing the bathroom because they want to take the vacation, not realizing they might be able to do both. So, family, health, travel, leisure, homes, vehicles, your major purchases, things people tend to spend money on that's outside of the normal cash flow that I have found in 25 years, they call us out of the blue, they've spent the money or they need to spend the money, and now we're at the mercy of the market when they knew for 6 to 12 to 24 months ahead of time it was coming.

Michael: So I'll make sure I capture those characters. So, family, health, travel, leisure, homes, vehicles.

Tyson: We have found that captures the vast majority of surprised phone calls that we have gotten when the clients wanted something outside of their monthly paycheck or whatever they're taking, or even if they're bringing money into the account. These were things that people tend to spend money on that they know about in advance. This isn't emergencies necessarily, right?

Using A Customized Deck Of Cards To Help Clients Organize Spending Priorities [1:07:10]

Tyson: And we actually, in the onboarding process when we bring a client on, we have a deck of cards, we give it to each spouse and we make them go through a planning exercise to find out, well, she wants to re-carpet the stairwell, but he wants to take the family vacation, or where are they aligned and not aligned? And can they do it all or not do it all? How do we ought to prioritize it?

Michael: So what are these cards? Where do cards come from?

Tyson: We basically put a card, one of the cards...on one side of the cards, it would basically say, "travel and leisure", on the back of it, it would say, "What is an expected annual budget for travel? Do you have a rhythm of how you live and enjoy travel?". Another card would say "home and home improvements". And that one, when we flipped it over, it would say, "Are you going to retire in place? Are you going to downsize in the future? Do you want a second home, vehicles, and major purchases? How often do you buy a vehicle? What type of vehicle is it?" If you flip the card over, but retirement income or age, are you going to work for a number of years or is it a dollar amount you're trying to retire to? And it's a deck of cards that we have.

And basically, they lay them. The game is if you don't know what the card means to you, read the back of it because it's not what it means to me, it's what it means to them. And then we basically say, "We want you to put the most important card at the top. In the order of how you want to make sure we do these things, what is it?" Taking care of your parents or retirement or home improvement or whatever, education. And so they stack these cards. What's amazing to me is what would normally have taken an hour of dialogue, in about less than 5 minutes, a couple in their head will sit down and put these cards in order and then I just ask them, "Okay", I usually start with the spouse. Why is travel and leisure on top and what does that mean to you?

And then they'll start explaining to us what their life plan is. Different from other planning exercises, but the ongoing part of the total relationship is to be identifying, what do they want to do? Can they do it? And then advocate. That's the biggest one. Advocating they go do it. Michael, can I just keep bugging you that you said you wanted to fix the bathroom or should I take it off the list? Because we have the money. So, what's the deal? Or is it just not something you really care to do?

Michael: So, did you make up these cards over time yourself? Is this a tool or a system you bought or found somewhere?

Tyson: Yeah. I had gotten the idea originally from a broker-dealer's...they had had a deck of cards for a planning exercise. And when we left, I realized, "Nah, that's not how I want to do it". And I started changing the wording and the order to the ways that we want to do it. But the concept being is that we process information at lightning speed in our head. And so to try and flush out this with questions, it's amazing because all of a sudden, there is no objection. They're not asking questions. And if these cards don't mean anything, you just discard which ones don't mean anything to you. But I quickly find out, is the couple aligned in their order? Are they way off? I've had couples find out that one of them wants to go back to college because we're all thinking into the future of what we want to do. And the life plan is to flush out what that is, but it's where the rubber meets the road in the next 12 to 24 months of, do we need to fund it? And I think too much...

Michael: So, they get these cards and they're supposed to prioritize the ones that are important or upcoming or on their mind?

Tyson: Yep.

Michael: And so they're ranking out their top 3 or 5 or whatever it is?

Tyson: Yep, and then explaining them to us and then we build that into our CRM. The cards go away. The conversation continues for the rest of their lives.

Michael: And how many cards are there? I mean, just like how many categories? Are you literally just putting those 6 in front of them that you'd said earlier?

Tyson: Yeah. I believe there's 6 what I would call planning cards and then there's 6 what I would call fear cards. I don't often do the fear cards depending on how the...they don't often happen all in the same first meeting. The fear cards would be prioritize your concerns, and it would be decline in the market or taxes and inflation or outliving my income or taking care of my parents, running out of money. So, that's kind of, "Here's your goals, here's your emotions, and how are we going to come in and help?' That's the life plan.

Michael: It sounds like the driving distinction for the life plan relative to I'll call it the traditional financial planning approach is we tend to project these things in our 10, 20, 30, 40, 50 year Monte Carlo style retirement projections. This piece is very like what's going on in the next 12 to 24 months across the major categories that we should be planning about or talking about or working towards. It's the proverbial short to intermediate term goals that a lot of us don't necessarily spend as much time on because we tend to do the really, really long term goals that we often manage portfolios towards education and retirement.

Tyson: So, we shifted the focus from the latter. We basically do that to get started to help realize what rate of return do they need, those types of things. After that, it very much becomes, "Okay. What can you do? Here's the list of the things you said you wanted to do to the house." And what I found is giving people...part of the philosophy of the total relationship is we're in the permission business. Yes you can, or no you shouldn't. My definition of success is helping someone go on that vacation or go buy that car or do that home improvement. Or the meeting I had last night when she's wanting to downsize, and when do I go get a realtor? I said, "Hey, let's not sell your house. Let's go find this other house you want to be in. Let's go buy it. Let's let you move into it over the period of 3-6 months as you want to tinker and move it in and figure out what fits and doesn't fit. And then you can live in it a little bit. And if you decide you want to stay there, then we can put your other house up for sale.".

But everybody's so in a rush to try and make more money and it's like, "Wait, no, wealth provides freedom to do these things and the life plan helps us... The client tells us what that is." The life plan then feeds that total relationship investing portfolio and those 2 are complemented with what we call the care plan, which is us monitoring and asking the client, "Hey, what's in the bank? Is the cash cushion there? Did you buy the car? Did you take the vacation? Did you get pushed off because of COVID? Is the building happening right now?". And it's constantly trying to identify, what do we need to raise in the next 6 to 12 months? And then putting it into a system that allows us that when the markets...I don't know if markets are going to go higher, I always know if they're not at the all time high, but what we're holding out for most of the time is having a cash reserve that if the markets get back to their all time high, we'll go out in the next 12 months and raise all the cash that the clients have told us they needed, all at the same time, in the trading platform because the models are set up that allows us to do that.

I know advisors run models, but what I think most people aren't doing is they're randomly raising cash for clients as the client calls and needs it. And there's so much more value to be added when all of a sudden markets are at all time high or in the model, this piece is trading at a higher valuation and we can trim it back down and those dollars are going to go fund the cash reserve of everything the clients told us they needed.

Michael: Right. So, the life plan piece is getting into what kinds of cash flows might they want to be funding towards for the short-to-intermediate term 12 to 24 month goals across family, health, travel, leisure, homes, vehicles so that from an investment end, hey, if we were going to rebalance or we know some of these bigger expenditures are coming anyways, and we're looking and saying, "This might be a time we wanted to rebalance or trim the portfolio because we're at all time highs because this asset class has so outrun everything else, that it needs to be rebalanced back, you can say, "Hey, why don't we do the liquidation for the next 12 months worth of additional goals here?". This would be a good time to do it, and a great conversation with clients to say, "Hey, we saw a good opportunity to free up your new car cash now. I know you're not going to buy it for a couple of months, but this seemed like a really good time, so it's there now.".

Tyson: Yes. Yes, in addition to their cash flow. So, if they need $5,000 a month, we'll project that and add them together and raise their 60 grand to make sure there's always this 12-month reserve in place.

Michael: So, you were articulating all these different questions that you go through in sort of the upfront life plan end and the ongoing care plan end. So, how does this then get trained across multiple advisors in the firm? Do you make questionnaire templates or are you a checklist firm? Or is this like a giant CRM-driven workflow machine? How do you actually do this across the firm?

Tyson: Yeah. So, thankfully going forward, it's all in the book. So, you're coming to join the firm, you're reading the book. So, that's part of it. The other part of it is prior to that, as we had gotten started when I was talking earlier about having another associate in the meeting, they're sitting and now we'll have sometimes a third person and I'll say, "Michael, we're going to have our junior associates in this meeting because there's only so much you can learn in a textbook.". And they're there to sit and listen and watch the questions and watch the client's responses and hear it coming out. The CRM has the data fields built out for the family and the kids and the health and the travel and the homes and the vehicles. And that it's amazing how technology is still allowing us to kind of build that tool.

Michael: And what's your CRM of choice?

Tyson: Yeah. So, we had had Salesforce for years until they started building out the financial services cloud that we looked at 2 or 3 times. About 2 years ago, we went through the pain of making that switch, which is very good for us. And partly, that tool is the place that allows us to go harvest or go harness at the account level. This account needs to have $10,000 raised from in the next 12 months. This account needs to have this, this, this because it's from there we pull those dollars when we go rebalance the models.

And in that tool, in the home section, that home section has a little asterisks on it. You hover on the asterisks, it'll show you the questions we expect clients to be asking. How's the house? Any home improvements? Are we still planning on staying it? And we're writing in there what the client said the goal was because they'll tell you, they'll just be like, "I want to live in my house as long as I can, then I plan to downsize and live near my sister", and wherever that sister lives. And we'll type that in. And so the review question will be, is the plan to still live in your house as long as possible and go down and live with your sister? Yes or no. Any home improvements? How's the house?

And it's amazing when you ask those questions too, they'll be like, "You know what? I got to get to the roof at some point." Well, the roof could be 30 grand. And then it's not a lot of money sometimes, but it is when the markets are down or you don't have it in the bank. We ask questions about the client's cash balance. What's the average balance you want to keep in checking? What's the average balance you want to keep in savings? And what's the average balance you want us to keep here? I think the advisor's mistake of not tracking clients' cash balances is when those cash balances dwindle down and you don't know it, their anxiety levels are going up, which means they're going to react even more emotionally to what the markets are doing, especially if it's coming around the time to buy one of these items that had you asked them the question, they would have told you they're buying it.

What Surprised Tyson The Most Building An Advisory Business [1:18:35]

Michael: Interesting. So, as you've gone down this journey, what's surprised you the most on this path and building out your advisory business and scaling it up?

Tyson: How much the clients just want to tell you and then how much freedom you have to go and manage the portfolios when they know you're planning what their needs are. And how much the conversation is not about the asset allocation, large cap and mid cap, and percentages and pie charts and performance. It's all about you're hiring us to worry about all that and we're going to worry about what you need that doesn't need to be exposed to that and that changes. And then the best part is we have a whole policy called the "wow policy" that's like you buy your new second home, you're going to get a doormat with a big K on it for Kitces. Right? And it's within the gifting parameters of cost or the family, you're having the grandchild, we'll go get the name of the grandchild engraved on a frame and send you, you'll put the picture in it…cars…a client bought the Tesla and that was when they were so excited to go buy it, we went and bought them a Tesla hat and sent it to them. There's so many ways then to go emotionally connect with clients because you're a part of their lives.

Michael: So, I like these gifts. Who's responsible for the gifts? How do you make sure everyone's getting a gift? I'm just envisioning some people on the team are probably better gift givers or gift figure-outers than others.

Tyson: Yeah. So, what I just rattled off, automobiles are hats, homes are doormats. Children being born are picture frames, pets dying are picture frames. We've actually sent clients...Mitch, their dog, would be engraved on a doggy picture frame and sending to them to honor the fact that this is meaning something to them. It's like we've just learned and so there's a policy we've really created which is like pets is this, kids are this, houses are this. And to keep it alive in the firm, the team sends an email out. Excuse me. There's one person, Chelsea, on the marketing team of 2 that's responsible for wow gifts. So, you just sign her a task and tell her what the event was. Her responsibility is to make sure it got sent out and her responsibility is to communicate to the team, "Hey, everybody, so-and-so had a child or so-and-so passed away and here's what we did." And even more so when we get back the card or the thank you, that gets circulated. So, you're constantly bringing the energy about that amongst the team to keep their radars up

Michael: I like that. I like that not just that you're doing but you circulate that you did a gift and what it was and the thank you card that came back. So, everyone's getting fired up on the team that, "We're doing this cool thing for our clients."

Tyson: It's all part of that relationship. I mean, if they're family, this is what family does.

The Low Point For Tyson On His Journey [1:21:20]

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

Tyson: A couple. One, I had a...in between, when was it, from 2007 to 2013, I had had a third advisor. Actually, trained up, poured into him, great guy, was doing very well being that client advisor on his way to working towards the senior wealth advisor, getting the CFP and those types of things, and just kept coming back and wanting to be paid more because in the industry he said they're going, "I'm helping oversee this million dollars revenue and I'm only making this." And it's like, "Yeah. Well, first of all, I'm still paying for that practice with after-tax dollars. And second of all, it's like give it time," just time.

And in hindsight, the pain was those client advisors have the opportunity to really engage deeply with the relationship of the client. And when push came to shove, he wanted to go off on his own and he did. In hindsight, I probably should have just paid him more. And I lost a really good friend and a colleague and I lost, I don't know, $36 million of fee-based assets because I had let him for the better part of 5 years develop those relationships. And the agreement was if you leave, you get to send the client a letter that says you get to take them. And we've reworked a little bit about how to try and help the client stay more branded to the firm. But people relate to people. But that was hard. I think both of us, because I've talked to him every now and then, he's still on his own, he's still doing pretty well. But I think both of us realized we probably would have been better together.

Michael: So, what are you doing now to try to have clients be more, as you put it, more branded to the firm? Now that we're saying people will still relate to people.

Tyson: First and foremost, I tend to ask team members when they come in and then ask them on an ongoing basis. It's like, "Okay, what do you want to make for a starting salary? But then where do you see yourself in 3 years and 10 years? And some of them are like...they don't even have an answer.

And to flush out, there are some people that have unrealistic expectations or that's going to be the flight risk or that's going to be someone that may want to try and take something. And there are other people that are going to be happy to service these clients in that role. And they're going to be thrilled to make $100,000, $200,000, $300,000. And we'll never think to try and go make double that if they could take off on their own. I think the other thing is when there was 4 or 5 of us, that was harder to do. Now that the team is bigger, I can look everybody in the eye and say, "You think the clients are actually better served if you were on your own? Are you crazy?". And realize that everybody can make more, but here's how you make more.

And even if you just want to stay in your own role. In fact, for the first time ever, I'm throwing money back into the profit-sharing plan for last year, which will take the...I mean, the match is 6 and the profit sharing, I think we're going to do is 4 to get started. And then that's got cliff vesting too, so that also kind of helps retain because I think people start thinking differently when they're leaving money on the table if they're going to go somewhere. The other part, I think, that's going to help with that is by hiring the COO whose responsibility is to manage the team and treat the team members like clients and to flush out what those concerns and expectations are on the front end. And it's not no, you can't make more, it's how. And these things have to happen to do that.

And we still haven't gotten into the whole non-compete things and trying to lock people up because I'm kind of the opinion if you don't want to be here, I don't want you to be here and I'll help you try and find a home.

What Tyson Would Go Back And Tell His Younger Self [1:25:08]

Michael: So, what else do you know now you wish you could go back and tell you from 10, 20 years ago?

Tyson: I would have hired people. I would have hired the COO faster…building the CRM to be able to track the cash flow needs that we can then aggregate, we pull them into the system to trade them on. I mean, those were just fields that we created on a computer and put data in, and the work that we were doing for years on an Excel spreadsheet to try and do all that was just way too easy for manual error, much less hard to stay on top of versus now it's literally at the fingers of the advisors that are putting the data in.

I wish I had paid more attention to capital market assumptions for 20 years before I realized, "No, wait, that's probably a good guide," because if 3 or 4 institutional firms are projecting 3, 5, 10-year returns into the future and you blend them together, you're probably going to get a pretty good reflection of what institutional money movement is going to be, which has a tendency to drive returns and asset classes. I think I would have gotten involved in writing the book sooner because I just think the junior advisor, I think our whole industry is still lost in the stockbroker/salesman mentality hidden behind the word financial advisor and financial planning. And the industry is trying to create the regulations for best interest. And quite frankly, I feel that this total relationship book we wrote was a bit of a how-to guide to do the client's best interest.

Because when the client's going to get upset, it's because the portfolio is fluctuating in ways they weren't expecting and they needed something. And what I found is going back to your advisor that's upset or stressed out when I was in that place, it was realizing, "Wait, I just need other people to take..." One of the things Strategic Coach says is for everything you don't like to do, God created somebody that loves that. Then you just assume everybody's going to hate it because you hate it. And that's not how it works.

The Advice Tyson Would Give To Younger, Newer Advisors [1:27:17]

Michael: So, any other advice you would give younger, newer advisors maybe coming and trying to build their careers today?

Tyson: Yeah. I think that if you don't have the opportunity to live at your grandma's house to avoid the conflict of interest and live for free and eat for free for a couple years to get started, much less to buy practice, I can't tell you the benefit that I have had of being the apprentice for those years to that senior advisor. I think our culture in general, I mean, history is such that whether it was a lawyer or a blacksmith, you apprenticed underneath somebody that had done it forever. And I think it was both to learn best practices and also learn what's out of date and what doesn't work anymore.

I would implore a younger advisor, and we're doing it here with interns, is to go get a part of a team and go cut your teeth and get experiences doing different things. I think some of that is provided in some of the do-it-yourself firms where they create these call centers, but I think that's the antithesis of what I'm talking about. I think that's just the whole reactionary and you're dealing with constant crisis. The beautiful thing about when you have...our phones don't ring off the hook when the markets go sideways because the clients generally know we have 6 to 24 months of what they've said has been set aside in cash for them. They can see it. And so all of a sudden when they go to freak out that...I think partly that's how I figured out how to do this.

The client would call and say, "Hey, the account just fluctuated. I could have bought a car. I could have bought...". They would tell me what the loss meant to them. And what I realized is if I can identify you need the money, so therefore it's funded, now the loss isn't attached to something and it calms everybody down. But the people getting started out between the college programs that these people can get, the fact that you can pass that SIE before to find out how hard those tests and exams are going to be, I think the CFP and professional designations are just great resources to keep your head sharp.

There's this Kitces podcast that's out there. It's pretty good. There are also these newsletters you put out and emails and updates. I think the one thing that's helped me get where I was at is I never sat there and said, "I know it all". And to be a student of the profession and then be able to teach it to others is just a privilege. And there's not enough people in the financial services space for how many people need financial services. That's for sure.

What Success Means To Tyson [1:29:55]

Michael: So, as we wrap up, this is a podcast about success. And just one of the things that comes up is the word success means very different things to different people. And so you're on this wonderful track of building the firm as you're crossing $800 million under management, and $7 million-plus of revenue. And so the business is in a wonderful place now. How do you define success for yourself at this point?

Tyson: I have that actually written out. Success for me was being asked to be a pallbearer at a client's funeral when he had passed at 60 unexpectedly. Didn't get a chance to be retired. And yet success for me is still sitting with his widow and asking how much money she has in his wallet because she still has his wallet, and she always makes sure...I believe it's 3 20s are in there, and occasionally, she'll borrow one, she'll say, and she'll joke. And the success for me is maintaining the relationships that I have had and yet being able to have others help take care of those and involving me when I need to be involved, and help teaching others how to have those deep relationships as well. It's no longer about assets or AUM.

Sitting last night and I said it earlier, I was sitting last night and she is just beside herself that she wants to...she feels she's not going to be safe in her home and she wants to make that transition. And at the end, she said that... I'll change the name, that "Billy", her husband, who died several years ago, is just still in that home and still talks to her. And in the end, I said, "When we go buy this other house and you move your stuff over there, let's find out if Billy comes with". The privilege of this job is that's how deep these relationships can get. And once they're there, they last forever. It's just amazing. And then to have other people be able to help do that, and then be able to talk to clients' kids and know that at that depth…I was told by a pastor that second to pastors, and second to physicians, there are very few people that are that involved in the end of life phase of life, but the financial advisor gets to have that privilege. And so that's what success is to me, is the clients that we can help make their lives better by letting us do what we do well so they...and wanting to understand them in the present and celebrate what they do and advocate what they do.

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

Tyson: I appreciate you having me on.