#FASuccess Ep 009: Carolyn McClanahan On Using A Complexity-Based Retainer Model To Deliver Holistic Financial Planning

What You’ll Learn In This Podcast Episode

• How Carolyn calculates her complexity-based retainer fees for each client. [6:06]
• Why Carolyn plans to limit the size of Life Planning Partners to 100 client families to ensure its success and high standard of client care. [23:34]
• The ensemble model of Life Planning Partners that allows everyone to interact with clients, choose their work hours, and keep each other accountable. [24:49]
• The revenue-based raise structure that compensates Carolyn’s staff team. [27:45]
• How Life Planning Partners and its retainer revenue structure successfully navigated the 2008-2009 financial crisis. [29:17]
• How Carolyn made the jump from practicing emergency medicine to financial planning, and the parallels she sees between the two. [37:43]
• How the empathy and communication required in medicine can improve our work as financial advisors. [47:18]
• Why Carolyn requires every new client to sign a “client engagement standards” document. [49:02]
• How Carolyn’s new company, Whealthcare Planning, produces software to make life easier for financial advisors and clients to manage plans for aging and continued financial stability. [1:07:01]
• The personality profile screening tool that Carolyn uses to vet prospective staff hires. [1:16:10]

Resources Featured In This Episode:

• Carolyn McClanahan - Life Planning Partners
• Carolyn’s Client Engagement Standards
• The National Association of Personal Financial Advisors (NAPFA)
• Alliance of Comprehensive Planners (formerly Alliance of Cambridge Advisors)
• XY Planning Network
• Ep 001: Rick Kahler on Entrepreneurial Persistence & Building a $200M AUM Practice
• Salesforce
• Angie Herbers
• Fidelity Institutional
• Black Diamond from Advent
• TRX/Morningstar
• Antifragile: Things That Gain From Disorder by Nassim Nicholas Taleb
• Caliper Personality Tests for Employees
• WhealthCarePlan.com

Full Transcript: Carolyn McClanahan On Transitioning From From Medicine to Holistic Financial Planning Using A Complexity-Based Retainer Model

Michael: Welcome, everyone. Welcome to the ninth episode of the Financial Advisor Success podcast. My guest on today's podcast is Carolyn McClanahan. Carolyn runs a very unique advisory firm out of Jacksonville, Florida. While she does both comprehensive financial planning and investment management, she does not charge an AUM fee at all. Instead, Carolyn uses a complexity based retainer fee for her financial planning-centric services, earning nearly $1 million a year stable recurring revenue, while serving 80 clients with three staff members on her team. In this episode, Carolyn, or I should say, Dr. McClanahan, shares how she transitioned into financial planning from being an emergency medicine doctor, the details on how her advisory firm is now structured, and the breadth of those financial planning services that she offers for an average retainer fee of almost $10,000 a year.

Carolyn also shares a unique client Engagement Standards document that she created, which articulates both the exact service standards her firm commits to when working with clients, right down to the speed that phone calls and emails will be returned. But also sets forth the requirements that her clients have to follow just to be clients, including following her investment process, being respectful to her team, and being good clients who return her phone calls and emails in a timely manner. And Carolyn was actually kind enough to share a copy of her Engagement Standards for all the Financial Advisor Success podcast listeners, which you can download from the show notes at www.kitces.com/9 for episode nine. Be certain to listen to the end, as well, as Carolyn shares her latest project for the financial advisor community, a platform called whealthcareplan.com, with tools to help us as financial advisors assess when clients might be experiencing financial cognitive decline in their later years. And so with that introduction, I hope you enjoy this episode of the Financial Advisor Success podcast with Carolyn McClanahan. Welcome, Carolyn McClanahan, to the Financial Advisor Success podcast.

Carolyn: Oh, thank you for having me. My pleasure to be here.

Michael: I'm looking forward to having you on the podcast today, because I know you have an advisory firm that's a little bit different than a lot of other advisors out there, both in terms of the nature of the services that you provide, because a lot of us like to talk about ourselves as being holistic into wealth management. But I think you go a little bit deeper into that than many others do, and we'll talk about that. And also that you have a little bit of a different fee model than others that you actually don't do a pure assets under management model as is so common today. And so we'll explore a little bit of that, as well. So I'm looking forward to bringing some, maybe new and different aspects around building a financial planning practice for all of our listeners.

Carolyn: Beautiful, I look forward to this.

Michael: I guess to kick off, why don't you tell us a little bit about Life Planning Partners, about your advisory firm, and what it looks like?

Carolyn: Well we are an ensemble firm, which means that all clients are clients of the firm. There are four of us, and we split how we take care of clients. So I'm in charge of tax and estate planning, and Carrie does the insurance planning and the projections, the college projections, and any goals, savings projections, and Tim does the investment management. And then Chrissy is the Office Manager and Client Services person. So we work as a team, and it's based on a medical model, really, where every Monday, we sit down and we go through all the clients that we've seen in the past week, and the people that are coming up the week upcoming, and what we're doing for them, and then any calls we've received. So we basically have, it's like medical rounds, every Monday, to review all the clients together. So we have approximately 80 client families right now. Our typical client is the millionaire next door. A lot of them are former do-it-yourselfers who have realized that they've become too complicated to do it themselves well anymore. And they're looking for a fee only fiduciary. And they love our model, which is flat retainer, because it's very transparent. Our typical client is two to 10 million net worth.

Michael: Eighty client families, or so, that are mostly millionaire next door. But I'm presuming then if you're operating on a retainer model that you don't look at this as saying, "We've got an $80 million assets under management practice." Even though it sounds like you have someone that does help on the investment side as part of your team. So how would you describe even the size of your practice? And do you still look at AUM even though you don't bill that way? Do you just talk about it as 80 client families? Do you view it as a certain revenue size? How do you think about the size of the firm?

Carolyn: Well it's based on how many clients we can handle. And there was a study I read a long time ago that the typical financial advisor doing comprehensive planning can handle 40 to 60 clients. And so when I thought about the ensemble model, and I said, "It would be ideal to have three people taking care of all the clients," I thought well, that's 120 to 180 clients. The problem is, I think we do comprehensive planning way more comprehensively than most people. And so our plan, and for us to have the lifestyle that we want, in terms of income and in time, our goal is to stick around 100 client families, even though we could probably handle more.

How Carolyn Calculates Her Complexity-Based Retainer Fees [6:06]

Michael: And so what does the charging structure look like then? Do you still have minimums? Do you set a flat retainer fee? And, "Here's our number, and here's a list of stuff we can do. You buy it or not." Do you a complexity based fee, or you try to match a fee, not necessarily to their assets, but in some way it scales to their net worth and what's involved? How do you set that pricing?

Carolyn: It's a complexity fee. When I started...and one thing that was very important to me is I haven't left any clients behind. We have clients who started with me from the very beginning who are not wealthy clients. And we don't charge them our minimum retainers where they are now. So I went a number of years with our minimum retainer being $5,000. And we got too busy, so then we upped our minimum retainer, for new clients this is, to $10,000. And the way it works, it is based on complexity. And so we have a formula where when we're talking to a client, we say, "How much work is this going to be?" And we do this in our head. We don't break it out for the client because they don't really care. They just want to know what's the bottom line. So for somebody walking in the door, it's $5,000, and anything that adds complexity, we would add $1,000 to the fee. And so we're talking about how many people are in the family? Is it multi-generational planning? Are we dealing with trust? Are we dealing with business planning? Are we dealing with somebody who is very disorganized? And so all of that plays into the formula.

Now assets do matter to an extent. And it's funny because my study group, years ago, said, "We charge for asset management, and giveaway financial planning for free." He said, "You charge for financial planning, and giveaway asset management for free." And that's really... We don't give it away for free, but in our formula, we were basically using the same basis points as a robo-advisor. Because in reality, we don't do complex investment management, we are passive investors. So we use passive equity funds. We do, do individual bond ladders, though. So that is a little bit more intensive. So if people have a lot of assets where we're managing bond ladders, and we're managing big cash flow streams, that fee is going to be higher than somebody who has a simple portfolio where we're going to be using mostly mutual funds.

Now it ends up being, for our retainers, for people who have less than a $1 million, unless they have really heavy planning needs, we probably are too expensive. And we'll refer those out to hourly planners, or to other planners that would more fit their need. The people who are between one and two million, our fees would probably be very competitive with somebody who is doing assets under management. But the depth of our planning is much deeper. People over two million tend to find this to be a bargain.

Michael: So ultimately, do you have some partially blended fee then where there is a retainer for the financial planning? You did mention having a robo-advisor like fee. So is there some retainer base and AUM kicker fee for whatever investments you actually do manage?

Carolyn: We manage 100% of our clients' assets. I don't know any advisor that can really say that. So even their 401k assets. We manage everything. And what I do is I set that initial fee, and then it's set for...so I calculate that in my brain. And I don't say to the client, "Well, 10,000 is for the planning, and 2,500 is for the investment management." I just say, "Your fee is 12,500."

Michael: But as you're setting your complexity target, the size of the asset base that you're going to be managing is at least part of what you have in your mind when you quote them a fee?

Carolyn: Yes, but in reality, it's the smaller part. And again, it depends on what's the complexity of that portfolio going to be? If you have a person with one $4 million IRA versus somebody who has, and I actually have this example, three different trust accounts, an individual account, and multiple UTMAs for their children that equal four million, that second person, the fee I'm going to calculate for the asset management part is much higher.

Michael: And so how do you handle the overall...I'm just curious how you peg these complexity levels. If you're saying you're doing these in your head, do you just look at it as, "This trust is going to be a mess. I'm marking this up three or $4,000." Or someone else comes it's, "This looks pretty simple. I'm just going to mark it up 1,000." Or do you just have this giant list in your head, and it's, "All right, you're disorganized, that's a grand. You got an extra trust, that's a grand. You've got young kids with college, that's a grand." You just start adding them up one at a time, and it adds up to whatever it adds up to?

Carolyn: Yeah, yeah, and I've been doing this for a long time. When I first opened my firm in 2004, I did AUM because that was the only thing I knew, because I had learned about it. It's, "This is how everybody does it. I guess this is how I should do it." And my goal in my first year of practice was to take care of all my friends in emergency medicine, and that was. And then I realized that some of them had money, and I could charge them more because it was AUM based. But they weren't that much more work than the people who had no money. And it just didn't seem right. And that's when I, "Gosh, can I do this differently?" And thank goodness I figured out early on, I'm like, "Gosh, I need to be..." And I had read an article by Bob Veres about the retainer model, and then the Alliance of Cambridge Advisors... I think they're [inaudible 00:12:21]?

[crosstalk]

Michael: Yeah, they're now Alliance of Comprehensive Planners.

Carolyn: Comprehensive Planners, right. And so I had been in a study group with one of their members, and she showed me how they do retainer. And it didn't quite fit my style, but I thought, I'm going to come up with one that works for me that's really based on the work I'm doing. And that's how I came up with that model. And it's worked. And so what I do is, we pay attention to how much time we're spending with clients. It's not hourly, but we do pay attention to how many meeting we've had, what work we've been doing. And at the end of every even year, we revisit everybody's fees. And so if somebody's had a lot going on, then we're going to raise their fee the next cycle. If they end up being a lot simpler, we lower their fees. Most people end up staying the same.

Michael: And when you do that re-upping the fee, are you going through the same kind of list of stuff? "Okay, so we're still doing our complexity thing, but one or two of the trusts went away, so we're going to drop your fee a little. But you added more to your portfolio, so that mental earmark for the portfolio segment is going to be a little bit bigger, because it's kind of a quasi AUM fee, but structure it as retainer." Do you do that full recalculation? Or is it just a little bit more of, it's not really about the complexity per se now, it's just, "We started with your complexity. Are we spending more or less time than we roughly expected for it?" And just adjusting based on time?

Carolyn: It's a little of both. Now the portfolios, somebody's portfolio, if it's changed 200,000, 300,000 up or down, we don't pay attention to that. That doesn't matter to us. If somebody adds a million... Let's say you had a big inheritance, or something, then that would matter. But it really is more about what's going on in their life and their time. So a perfect example, if I have a client who left employment. So they were a W2 employee, and they all of a sudden have become an independent contractor, and now we're doing solo 401k's and defined benefit plans, that increases the fee.

Michael: And as you look at the time, do you try to assign some kind of value to the time? Like, "Hey, we want to make sure we get at least $100 an hour or $200 an hour." And ultimately, you're pricing it all the way back to your time? Or is it not necessarily that direct of a connection?

Carolyn: No, not that direct of a connection. And it really all comes out in the wash. I say to clients, "Some years, you're going to get more than your money's worth, and some years, you're not." And I think the value that they get from it, they really don't care. I mean we have such low client turnover that it's not even... We lose clients through death, or if they marry somebody we don't like. That's true. We just don't lose clients. And I think it really comes down to once they've been and experienced how our ongoing planning...which to me, that's one of the biggest mistakes advisors make. You get a new client in, and you do all this great planning, and you start investing their money, and you don't really revisit the plans.

And so we have a regular process where we...and we've made the process so easy, it's not that time consuming. But we revisit the estate plan, the tax planning, the insurance planning, and the investment stuff, and projections every year. And we do it throughout the year, so we have this huge spreadsheet where we track each part we've done for clients. And we don't make them have meetings. We send them a report, and we say, "Hey, here's what I'm seeing. Here's how your estate breaks down, who's going to get how much money. I checked all of your beneficiaries, and here's the list, and what they're supposed to get. And here's a synopsis of your estate planning documents. We just talked a little while ago, so I know everybody is alive and well, and can do anything. Is there anything you want to change?"

And 90% of the time everybody is like, "Oh, this is great." But 10% of the time they're going to go, "Gosh, so-and-so, I don't really trust them anymore because they're doing foolish things with their own money, and I don't want them to be my power of attorney." And the clients love that because they know we always have their back, and that we're going to look at everything at least once a year, and be proactive with the planning. Whereas most advisors, what they do is sit back and say, "Call me if you need me."

Michael: I'm curious then, do you talk to clients, or even prospective clients about this, how do you explain this fee? I'm just imagining I'm a prospect sitting across from you, and talk through my situation, I say, "I'm interested in working with you. What would it cost?" And you come back to me with, "Thirteen thousand five hundred dollars." And I imagine I'm just sitting there saying, "Where did you come up with that number? Can you explain to me where that retainer number came from? I got a friend, I thought he paid less to you." How do you explain that fee to clients if you're not putting this whole retainer complexity calculation in front of them?

Carolyn: So the first part is, so they have a friend who is a lot cheaper, I say, "Well your situation is very different from your friend's." And we look at what you're charging. We went through an audit last year, and they loved us. I felt good about that, that they didn't have any issues with how we were charging. They were like, "Wow, you do all this for your clients?" And so but we actually go through and we talk about, "Okay, what are the complexities?" And we kind of back test the fees, and make certain that we got it right. And that's what we do when we're adjusting the fees anyway. It's like, "Okay, what have we done with this client the last two years?" And that's how we set it. And so I say to a client, "It's based on all the work that we're going to be doing for you. And you have this situation, this situation, this situation, this situation, and this is what I'm going to charge you to do it."

Michael: And you don't get pushback when you're quoting these ten-plus thousand dollar numbers? Or is the reality you tend to sit across from people who have at least a million or a few dollars where by the time they do the math, it's not that different than what they were going to pay somewhere else, and so they figure that out?

Carolyn: Or it might be less, yeah. Our typical client has come from another advisor. They've always worked with somebody. And most of our clients now are referrals. And I broke it out, I think 90% of our clients are from referrals, and the other 10% is from my work in the press. And the easier clients, by far, are the ones who are referrals, because their friends have already told them everything we do for them. So we already have a great reputation, and they know what they're going to be delivered. And so when they say, "Hey, I want to work with you," they don't question the fee.

Michael: Because they've already decided, "Hey, I'm looking for a high service, high touch advisor. I hear from my friends that you're high touch, high service advisor. I presumably get it if I've got a million-plus dollar net worth that high service, high touch just means it's going to cost me some money, and I've probably accepted that by the time I call your firm and ask to meet with you."

Carolyn: Yeah, and you have to realize that people over two million, we end up usually charging less than what they're paying.

Michael: Right, well if the $2 million client ends up paying a $10,000 retainer fee, your effective cost is 50 basis points. So what is the staffing infrastructure look like then? You mentioned that you've got someone that does investments, someone that supports on college planning related decisions, someone that's providing office manager support. Is that the entire team is simply the four of you get it all done for 80 clients?

Carolyn: And now realize though, there's no lead advisor. We're all equals.

Michael: So you're all directly, interchangeably interacting with clients?

Carolyn: Correct, and so if a client has an investment question, they reach out to Tim directly. If they have an insurance question, they reach out to Carrie directly. If they have a tax question, they reach out to me directly. And they know they can reach out to any of us, and we're going to give it to the right person to answer it.

Michael: So how do you keep track of all that internally in the firm? Is that through CRM?

Carolyn: Oh, yeah, if it's not in Salesforce, it didn't get done.

Michael: Okay, and Salesforce is your platform of choice for managing this?

Carolyn: And but plus, we have those meetings on Mondays where we talk about everybody.

Michael: Tell me a little more about that. That's a standard weekly meeting where we're sitting down a half an hour, or an hour, two hours? How long does it take to get through it?

Carolyn: Yeah, usually a half an hour to an hour.

Michael: Okay, and is that first thing Monday morning kind of deal?

Carolyn: Usually around 10:00, so everybody gets a chance to check their emails, and all that. And then we sit down at 10:00, and we go through the calendar of everybody we saw in the past week, and then we go through everybody that's coming up in the next week. And everybody talks about clients that they talked with, so phone calls that they had of things we need to be aware of. And then we go through our big spreadsheet of... Because we meet every month, our goal is to get through so many projections, or estate plans, or tax plans, or whatever. And so we check our spreadsheet to make certain everybody is up on where they need to be, and we're very good at holding each other accountable for making certain we get the work done. The key for me, and this is something we can talk about when we talk about pains, is I had to learn how to hire people that are very much self-directed and self-motivated, because I am a horrible boss.

Michael: I think that's a common theme to a lot of entrepreneurs and people we've had on this show, is we like doing our thing. Managing people is usually not our thing, that was one of the big dynamics with even going all the way to back Rick Kahler on our very first episode, was that he was pretty candid in saying, "I am not a manager of people. I'm a technician, and I like to analyze situations." And managing people has been a struggle for him throughout.

Carolyn: Yeah, he and I have talked about that. I think we might have had a learning process along the way that we both had to do.

Michael: And so what does it all add up to collectively? Eighty clients paying various levels of retainers. Is the firm's revenue half a million dollars, $750,000? Are you able to...

Carolyn: No, we're a tad under a million right now.

Why Carolyn Plans To Limit The Size Of Her Firm [23:35]

Michael: And so do you ultimately see that continuing to grow? More people on the team, more client families, and it gets bigger? Or is there, at some point, where you say, "All right, given the service we want to give, with the four of us we can get up to about 100 clients." And then at some point you're just going to say, "All right, we're done. If someone dies, we'll go get a new one. Short of that, we're just going to hang out at this level."

Carolyn: Right, that's the plan. Because the thing, again, we work on our strategic plan together. So we have a one-page strategic plan we've been using for years that we adjust. And part of that is what do we want to be when we grow up? And it's really funny, we have our big, hairy, audacious goal that I set back in 2008, and last year, everybody pointed out, "Hey, we reached our BHAG." And we did. And it was just, gosh, it felt so good. And it's, "Where do we go from here now?" And so one of the things that the crew is so supportive is all the work that I'm doing outside the practice. And I had a choice. And I belong to a study group of very large firms. I'm the peanut of the bunch. And I thought, do I want to be like one of these? And one of the things that I learned from my study group is they are all fabulous people. They work very hard, and I don't want to be what they are. And it was very helpful to me to see how big firms operate. Because I think I have the marketing ability that I could grow a huge firm if I wanted to. But I don't like managing people. It's very tough to find good people who are self-motivated to have a Holacracy across a much bigger... It's done and people do it, but it's just not where I want to spend my energy. And my crew is very happy because they have a fabulous job. They're paid very well. They're totally they're own boss. We have a totally unlimited vacation policy. The only rule is that we always have to make certain that the office is covered.

How The Ensemble Model Allows Everyone To Interact With Clients, Choose Their Work Hours, And Keep Each Other Accountable [24:49]

Michael: If a client calls, someone needs to be here to answer the phone?

Carolyn: Exactly, exactly, but the rule is, you've got to get your work done. And so nobody abuses it. And it's a lot of Angie Herbers' work, is where I got a lot of this from. And it really does work. Nobody abuses it. Everybody is very happy, and we get things done, and the clients love us.

Michael: Yeah, we've had a similar policy around that with our team for XY Planning Network, in particular being a virtual team. We're very focused around just, "Are you getting done the work, and the things you need to get done?" We're distributed virtually, so I couldn't even oversee people days if I wanted to, much less their vacation or the rest. And so we deliberately manage it as, "It's an open work day, and an open vacation policy. You are accountable for getting your work done, but short of that, if you want to figure out how to do it from a beach somewhere exotic, as long as you've got an internet connection so you can plug in to get your work done, we're fine with it." And we give them that kind of flexibility. And we do find that they, as long as you hire good motivated people who are excited to be a part of the business in the first place, they don't abuse it. In fact, if anything, our rising concern now is they're so into the business, and there's no use it or lose it style vacation days, we're actually finding a lot of them aren't taking vacation at all. We need to push them to take time off, as opposed to they disappear for a month at a time and you're trying to figure out what happened to them. Which I think is everyone's fear when you have open vacation policies.

Carolyn: And Angie, they did studies on that. And it totally works. And that's the other key important thing to have in a great practice, is setting the culture from the beginning. And when you're setting a culture of excellence, and you're walking the talk, people follow it.

Carolyn's Revenue Based Raise Structure [27:45]

Michael: So I'm curious though, you talked about the firm as kind of full-team environment, you used the label ensemble practice, which it has kind of become the en vogue label for, "Okay, we're truly treating clients as clients of the firm, and we're an entire ensemble working with them." I know for a lot of ensemble practices, that term evolved originally around, specifically, multi-advisor, multi-owner firms. So do you distribute ownership of the firm, as well? Is everybody a partner of the firm? Or ultimately, it's your business from an ownership perspective, they're paid well to do work and be part of this environment, and serve clients as a team, but they're not literally owners?

Carolyn: Well right now I'm 100% owner, but every employee has total access to the books. And actually, we have a formula for how we do pay raises. It's based on revenue growth. And so everybody is treated fairly, and their pay scale is based on what they're doing compared to the Moss Adams numbers. And so everybody... So if we have revenue growth, it's probably the only firm you'll ever see where you get a raise every quarter. So what we'll do, let's say we take in 30,000 of recurring revenue, we take 25% off that for overhead, and then the other 75% is spread across our formula for raises.

How Life Planning Partners And Its Retainer Revenue Structure Successfully Navigated The 2008-2009 Financial Crisis [29:17]

Michael: So two questions then. Number one, if you were to have, unfortunately, some horrible quarter and no new clients came in, and you lost a client or two, and revenue went down for the quarter, do they actually take the hit to the downside?

Carolyn: No, we don't get a raise, but we have enough cushion in our revenue that we could do that. I can honestly say we have never had a quarter where we lost revenue, even through 2008, 2009. That's the beauty of flat retainer, is revenue does not go down.

Michael: And so can you tell me a little. What was that like, through 2008 and 2009? Do clients start coming back and saying, "Hey, I was paying you X dollars, but my portfolio just went down. And if I was with my old AUM advisor, I'd be paying him less now, because it would be billed on the portfolio. I know you do your complexity thing, but my portfolio is smaller now, I should get a break." Did you find that you got more fee pressure, or people tried to bargain their rates during the recession?

Carolyn: I had one person say something. I said, "We base your fee on how much work we're doing." I said, "And we've been very, very proactive about making certain everybody understands what's going on with their goals." And we don't like to talk about your portfolio. We talk about where you are in relation to your goals. And that's one of the beautiful things about this practice, is we focus them so much on the planning of the goals that investment stuff is really, really very secondary. And so I said to that person, "I'm working harder than ever, you should give me a raise." And they laughed, and they said, "Yeah, maybe I should."

Michael: Okay, and that was that, and you just powered straight through on the decline?

Carolyn: Yeah, and well the beautiful thing, and I don't want to say I was smart, but it never made sense to me how advisors sell themselves on managing money when you really can't control the outcome of the market. And so when you set yourself up for trying to make people more money, and you're having them take risks that's not necessary for them to take, then you set yourself up for failure in a down market. So the beautiful thing through 2008, 2009 is our retired, or near retired clients, were very conservatively invested. So their portfolios were down 15%. Their friends were down 40%. Do you think they loved us then? We picked up so many clients at that time. Now our bigger challenge, though, is because we are so conservative, because what we do is we do a financial plan. And we say, "Based on what you're doing, you don't need to take a lot of risk." So instead of letting people take more risk, we have them in more conservative portfolios than probably most advisors would have them in. So our bigger challenge is actually in up markets.

Michael: Right, so the past six or seven years of this raging up bull market, at some point, they say, "Gee, the S&P is up 200%, I don't feel like my portfolio has more than doubled."

Carolyn: Well actually, our clients don't even pay attention to S&P. But they do say, "Hey, when we did our projections, you were using 6% return. For the last four years, I've only gotten four." So one of the things that we started to do in the past couple years is talking about real return. Because everybody's real return actually has been what we've been using in the projection.

Michael: Right, just rates are low in part because inflation is low, which drags down all the returns, but not necessarily your real return, just your nominal return.

Carolyn: Right, and I say to them, "Have we made you adjust your lifestyle? Or has your lifestyle had to change?" And the answer is no. And the numbers are still. And so we've been more cognizant of people, especially with conservative portfolios, of using a 4% return now.

Michael: So tell me a little bit about the rest of the business infrastructure. So your CRM is Salesforce. Is that Salesforce out of the box? Are you using Financial Services Cloud, or some other add-on to it?

Carolyn: Gosh, we've been using it so long. I forget who did this. We had a customized version of Salesforce for financial advisors.

Michael: Okay, the Accelerate templates, or one of those?

Carolyn: Yes, thank you.

Michael: Okay, okay, and then what's the rest of it? So you said there are clients where you're managing assets. You don't specifically charge them an AUM fee, because it's bundled in the retainer. But you are managing assets. Are you with a custodial platform? Are you using one of the portfolio performance?

Carolyn: Yeah, we're with Fidelity. That's our custodian.

Michael: And what do you guys use for portfolio performance reporting?

Carolyn: We just switched to Black Diamond.

Michael: Okay, from?

Carolyn: That was a nightmare. We were on dbCams for years. The nice thing about our clients, they don't even look at the reports half the time. dbCams was fine. But then Morningstar bought dbCams, and so that caused a little bit of pain. Because now they're starting to try to phase it out, and get people on Morningstar Office. And our biggest challenge is we use individual bonds. And it's hard to find portfolio performance reporting software that handles those well. And so Morningstar Office wouldn't work, and we switched. I have high respect for Sheryl Rowling, and we wanted a rebalancer, because we have not had a rebalancer. And so we went with TRX, and I respected her so much, and she had purchased TPX. I don't know if you know about all that. And so she gave us a deal, because I said, "If it works well for us, I'm happy to tell people it works well for us." And so it was a nightmare, though. And then she sold TRX to Morningstar.

Michael: All of your roads keep leading back to Morningstar.

Carolyn: Right, and so we're a year into this, and this is a nightmare. Their service is a nightmare. I thought... And I do not make software decisions. That is Carrie and Tim's job. So I haven't even logged into Black Diamond yet. So we spent the last year getting on Black Diamond.

Michael: Okay, and so how has that transition process been?

Carolyn: The reports are much prettier, but that's been a tough transition, too.

Michael: Just trying to migrate data and cleaning it up? Or trying to configure reports the way you like to have them configured? Or where do the challenge points come up? Just the data migration?

Carolyn: Yeah, and again, I think, I hate to say it, because we use individual bonds, and the way they treat bond data is just not clean. dbCams was, by far, the best for that, and it just killed me that they took such a nice basic piece of software, and messed it up.

Michael: Yeah, I guess that's a sign of the times of evolving advisors. In dbCams heyday of I guess, the '80s and '90s when they were thriving the most, advisors used a lot more individual securities. And it's really just the past 10 or 15 years that we shifted so much to mutual funds, and then ETFs, and less about security selection and more about asset allocation that the focus on individual stocks, or individual bonds just fell away as kind of a feature demand for advisors. So now you're stuck with software that doesn't know how to handle individual bond issues very well.

Carolyn: Supposedly, and this would be a conversation you would want to have with Carrie or Tim, I just hear the rumblings. And they're so wonderful about insulating me from muck that I really don't have any business being in. And so but I hear the rumblings going on about, the conversion could have been a little better.

How Carolyn Got Into Financial Planning In The First Place [37:43]

Michael: So talk to me a little bit about how you landed in the advisory world in the first place. You mentioned earlier you have a background as a doctor. So can you share with us a little bit of that evolution, that story? How did you get in medicine? How did you get from medicine over to financial advising?

Carolyn: It's so funny because I was a math nerd growing up. My nickname in high school was the human calculator. My dad wanted me to be an accountant, but there's no way you're going to do what your dad wants you to do.

Michael: Right, simply because your dad wanted you to do it, that crossed it off the list.

Carolyn: Exactly, and it didn't sound very sexy. So I decided I was going to be an actuary. And I had no idea what they did. And I got to college, and I'm in advanced calculus in the first semester, and I'm sleeping through it because it's so boring. I didn't even know there were Tuesday afternoon classes. And my first test, I made a 95 and didn't study. And then I kept sleeping and skipping, and the next test, I made a 45. And then once you get behind in advanced calculus, forget it. And so at the same time, I had this advanced biology class that I just fell in love with. And I also happened to be an athletic trainer in high school and in college. And so my friends in the Athletic Training Department said, "You need to be a physical therapist." And I thought, this theory crap is not numbers. And so I am going to be a physical therapist. So now it's my sophomore year, I worked for a physical therapist during the summer just to make sure it's what I want to do. And I realized, all they do is what the doctors tell them to do. And I'm like, "God, you've got to work really hard to get into physical therapy school. If I'm going to work this hard, I want to be the boss."

Michael: I want to be the doctor then.

Carolyn: Right, I didn't want to be the boss. I did not want anyone bossing me. And so I ended up going to med school, and I loved it actually. And so I got through, and I worked in the microbiology and pathology departments my first couple of years in med school. It was my part-time job doing research. And so I ended up being a pathologist. I did two years in pathology and then I realized how much I like people. And I had a good friend who talked me into going to family medicine. So I did two years pathology residency, three years family medicine. And where I trained in family medicine, you did an ER track, or a primary care track. They didn't have emergency residency then. And so I did ER track. So I ended up practicing mostly ER, and I did some primary care. Came down here on faculty at UF, and I liked it okay. I mean I didn't like the bureaucracy of university practice, so that was one issue I had. But my husband, who is my boyfriend originally when I moved down here, and then after I moved down to Florida, he said, "I'm in love with you. Can I come down?" And so he moved down.

His parents had died and left him a small inheritance. And I was very interested. I didn't leave my math nerdy-ness behind. All through residency and stuff, I had opened an IRA, and had done my own investing. So I helped him invest his money. This is the mid '90s through '99, and we had done really well, because we were brilliant, right?

Michael: Right, right, you were these stock picking geniuses getting all those stocks that only went up in the 1990s, yes.

Carolyn: Yeah, we were very lucky. And around 2000, I was getting really nervous. I'm like, "Look," and he used to be an engineer, and he hated it. And he said, "I don't ever want to go back to engineering. I want to be a photographer and a track coach." And I'm like, "Well, I'm not going to take care of you. We've got to make certain you have enough money." And I had no intention of quitting medicine, or anything. I liked it. And it was his money, was kind of how I felt about it. It's, "You're doing well, and I'm just happy to have somebody who is a house-husband who is paid for." And so we tried to find a financial planner. And they were all sales shmucks trying to put us in high mutual funds, and they really didn't...because our big question was, "Does he ever have to go back to engineering? Or does he have enough money where he could go do these other things?" And they didn't answer our question. It was all about, "Here's how I'm going to invest your portfolio." And it's, "Well, we're doing a good job with that, and we don't mind turning it over, but we have to feel good about the plan before we're going to let you invest our money."

And so we didn't believe... And I didn't know what fee-only or any of that was at the time. And but I knew these guys didn't make me feel good. So we had a friend who was actually a bond dealer for JPMorgan in New York, who was my husband's friend from high school. And his friend was married to the bond dealer. And she said, "I'm going back to school to get my CFP designation, you ought to take the classes so you can learn for yourself." And I thought, oh, that's a brilliant idea. So I was going to become our own financial planner, and I went, started classes. This was in 2000. I fell in love with it. And I loved the whole idea of financial planning. So I went part-time in medicine, and I worked for a firm that they said they were fee-only, right. They were insurance people who they said they did broker stuff on fee side, but then they sold insurance products. And that was back... And right around that time was when the CFP Board made a rule saying, "If you sold insurance products, you couldn't be fee-only." And but I went to work for them thinking they were fee-only, and their answer to everything was variable annuity.

And so I said, "Gosh, I'm not sure I like this." But I always take the approach of, when you're somewhere that you have to be, learn from it how not to do things, too. And so I learned everything I could from that because I had to get my experience requirement for my CFP. But meanwhile, that's when I was introduced to NAPFA, and I went to a NAPFA meeting, I'm like, "Oh, these are my peeps." And got heavily involved in NAPFA, and they were just so sharing. And it's like, "Carolyn, you've got to escape that environment. It's better for you to go open your practice knowing nothing, than an environment where you're being forced to do not good things for the people you want to bring in the practice."

Michael: And I know right now you are in Jacksonville. Were you in Jacksonville throughout this dynamic, throughout this time? So not a lot of choices on advisory firms to work with, I'm going to imagine, in the Jacksonville area?

Carolyn: Back then, no. And people were not very friendly. Advisors, it's a competitor. And the FPA chapter, back then. Here, it's like night and day now, which I'm very proud of. The FPA chapter here now is great. But back then it was all... My very first FPA meeting was how to increase your annuity sales. And I'm like, "Oh, my god, these are not my people." And that's why I became heavily involved with NAPFA, and then heavily involved in the national scene. And all of a sudden, I'm this name out in the world, and the people in Jacksonville are going, "Wow, how did that happen?" But our chapter... And I never went back to the FPA locally until I had become friends with a couple of them who were good people. And they said, "Please come talk at one of our meetings." And I did, and the chapter had morphed a lot. Now it's a fabulous chapter. Lots of good people in this city. And I was very honored because one of the old timers in financial planning said to me, "Carolyn, you were the one that forced the change of financial planning in this city." Which to me felt like a big honor, because there really wasn't anybody doing truly fee-only comprehensive planning when I started here.

Michael: I'm curious. Do you still feel there is overlap from the medical background and what you do as an advisor? Are there parallels to that? Or not necessarily, because we're still too different?

Carolyn: Oh no, to me, they are totally parallel. You're taking care of people in the same way. You're using all the same techniques we use in medicine, it's just you're taking care of their money instead of their health.

Michael: Is that part of the theme of how you engage clients? Talk about yourself like, "We're doctors for your money and your financial health."

Carolyn: Yeah, I'm not that cheesy. But I approach it the same way I approach patients. And that's why it's so foreign to me how advisors talk to people. It's gotten so much better through the years, because people are really getting training in communication. But in medicine, you use a lot of appreciate inquiry. You make certain you really listen to your patient, and get at what are their goals? What are their problems? Before you start trying to solve their problems, you've got to understand who they are and what they need first. And so to be successful to me, you've got to approach it in a differential manner, you're there to help them.

How The Empathy And Communication Required In Medicine Can Improve Our Work As Financial Advisors [47:18]

Michael: And I have to admit it struck me that there's so much now that's happening in the medical world, I feel particularly over the past 10 or 20 years, of research on the importance of effective communication skills. I know on the medical side, there are even studies, doctors with better bedside manner literally get sued less. And not even necessarily they make far fewer mistakes, but just they're better connected to their patients, and so their patients try to work through problems with them, rather than sue their way through problems with them. I feel there's none of that here in our advisory world, right. We're just trying to figure out whether you've checked enough boxes on the compliance form to reduce the risk that you lose if you get sued for something bad. Rather than, "Oh, how do we actually practice appreciative inquiry and empathy and get to the point where we're communicating with our clients so well that even if a problem comes us, they just want to work with us to get through it, they don't want to sue us to blame us for it."

Carolyn: Right, you're exactly right. And it makes zero sense to me as to why you wouldn't put yourself on the side of the client from the beginning, and learn to work with the client from a place of empathy and a common goal of helping them create a great life. And when they see that you're really interested in them and helping them be successful, and making it clear. I'm glad we're going to talk about our client engagement standards. Making it clear who you are from the beginning, and what it is that you delivery, and living what you say, so they know to trust it.

Why Carolyn Requires Every New Client To Sign Client Engagement Standards [49:02]

Michael: So let's talk about that further. I know this is an interesting thing that you do in your firm that not a lot of other advisors do. You have this thing that you call your Client Engagement Standards. So you can talk to us a little bit about what that is? What is it?

Carolyn: So I have to thank Tracy Beckes, was my business coach that I used when I was doing all this. And she's the one who said, "You've got to do these engagement standards." And now we joke she created a monster, because I make everybody I work with in any project, we create engagement standards before we start. And what it does is it sets the tone for what the relationship will be. And we all come with a set of expectations, and we don't even realize sometimes that we have expectations. And so we project onto people what our expectations are, often without ever telling them what they are. So that creates miscommunication. And so with engagement standards, what you're basically doing is setting who you really are, and what it is you're going to deliver, and what you need from the other person to work effectively with those people.

Michael: So can you give me some examples? What does this engagement standards thing say?

Carolyn: This is on our website, so people can go to Client Forms and look up our Client Engagement Standards. And so the first part talks about our tenets of what we believe in. We believe in comprehensive planning, that it's ongoing. We have a very strict investment process and that we charge based on complexity, not on assets. And that our whole thing is about financial planning, and investments are just a part of financial planning. And then we go through what we deliver. And it's stupid little things like we return all phone calls within one day, and emails within two days. That's it. And that's one of people's biggest pet peeves is, "When is this person going to call me back?" Well there's no question when we're going to call you back, because that's what we say we do, and everybody here has to deliver. If you're not doing that, you don't belong here.

Michael: So you affirmatively commit to certain service standards in your Engagement Standards document of what you'll do for clients?

Carolyn: Correct, yeah, so when we talk about how we dress, how we answer phone calls, what we do for people, everything that we deliver. And the key is though, it's got to come from who you are, and that you know you're going to deliver this. So don't tell...

Michael: If you commit to it in writing, you really better be ready to do it.

Carolyn: Right, so if you know you're horrible about returning phone calls, maybe you don't want to put that in there. But on the flipside, you also have to put in there what you need from clients for you to work with them. And so one of the things that Tracy made me do is say, "With the clients that you absolutely adore working with, what qualities about them do you adore? And likewise, what are the things that drive you crazy?" So one of the things that drive me crazy are people who don't return phone calls. And so we don't hold people to our one-day, two-day standard, but we say, "You must return phone calls and emails within a reasonable period of time." And I tell people, "If I don't..."

Michael: You demand this of your clients. They have to return your phone calls in a timely manner.

Carolyn: Yeah, but we don't hold them to the one-day, two-day standard. But I said, "If I've reached out to you a couple times, and I haven't heard from you, I worry you're dead." I said, "Just send me one email back that says, 'Busy.' And that's all I need to know. And if anything is really urgent, though, you've got to follow through." So we say, in the Engagement Standards, "For things that are urgent, we need to hear from you immediately. If I have to keep bugging you for things, it's not going to work." And we have other things like our investment process. Before a client becomes a client, or even before they come in the door to interview us, and for us to interview them, we send them our investment process and they Client Engagement Standards. And we say, "If you cannot agree with our investment process, we're not going to take you. We're not going to pick stocks. If there's something you want us to research, we're not going to do it." And that sets the tone.

Michael: All of this gets detailed out for clients and it's just, "You're onboard for all this, or you're not, that's the deal."

Carolyn: Yeah, and if they can't sign those Client Engagement Standards, they can't become a client.

Michael: And you literally make them read the Engagement Standards document and sign the Engagement Standards document?

Carolyn: They have to initial every responsibility that they have.

Michael: They have to literally initial, "I initial that I will..."

Carolyn: Return phone calls.

Michael: ...return phone calls in a timely, I'll initial it. "I will take your investment advice." They have to sign off on each item?

Carolyn: Yeah, and we go through it with them. Yeah, I'm sitting there, they're checking it off as I go through it with them.

Michael: Are you okay to actually give listeners a copy of this?

Carolyn: Oh, yeah.

Michael: Can we post it in the show notes?

Carolyn: That's what I said, it's on my website. I'm happy to send it to you, and you can share it with them.

Michael: Okay, wonderful. Then we'll include it in the show notes, as well. So for anyone who is listening, again, this is episode nine of Financial Advisor Success podcast. So if you got to kitces.com/9, you can download it. We'll make sure a copy of the Engagement Standards is in the show notes. Thank you for sharing.

Carolyn: Yeah, yeah, and the beautiful thing about that sometimes you have clients that want to be a client so bad they'll sign anything, and it's not who they are. And so I have to take those Engagement Standards and say, "Look, you're not following this one. What can we do about it?"

Michael: So have you... God, it's like getting called out by the teacher.

Carolyn: I know. Well in fact, it's so funny, just a few weeks ago we had a client come in who is friends with another client. The client said, "Hey, Rich is worried you're going to fire him."

Michael: Because he's not following the rules, and he knows it?

Carolyn: Yeah, this guy, he's a wonderful, wonderful person. He's very, very busy. So we learn how people work, and our rule is we triage stuff. That's another term from medicine. If something is urgent, you've got to get back to me. But if it's something that nobody is going to die if you don't get it done anytime soon, we're not horrible. We don't make people feel bad about things like that. We just have an ongoing list of, "Hey, here's the things that we've gotten done. Here are the things we need to do." And so he's always very good when things are urgent, so he won't be fired.

Michael: That raises the question. Have you ever actually had to fire a client for failing to engage in the Engagement Standards.

Carolyn: Yeah, I have.

Michael: You have?

Carolyn: Yeah, we probably end up firing about one client every other year.

Michael: What was the cardinal sin they committed that put it over the line? Are there some of these that are just more deal-breaker than others?

Carolyn: Yeah, so one is we must always enjoy each other and treat other with respect. And one guy didn't do that. He treated me with respect, but he didn't treat one of my staff members with respect.

Michael: Okay, and how do you break the news that you're firing a client? "Dear Mr. Client. Do you remember the engagement letter that you signed? You're not honoring it," or...

Carolyn: I called him up and said, "Hey, look, it seems like a lot of times you're just not happy with what we're doing. And I want us to be able to work together in joy and respect, and I'm not feeling joy." Because there are clients who are very happy with what we're doing. "And so I'd be happy to help you find another advisor."

Michael: It's an interesting thing to me that one of the themes we've heard from a number of the guests that we've had on the podcast, is this idea of really, really just try to work with the people you enjoy working with, and don't make a lot of compromises on that. And if a client is not a good fit, you just move on and you move them on, and that's that. Which I always feel is it's one of those things, it's easy to say that after you've gotten a certain number of clients and revenue, and not so easy when you're getting started, and you're just trying to get some clients and revenue. So I'm curious, have you always been this strict with clients throughout, or is this one of these things that you start doing over time as the business gets to a certain size?

Carolyn: No, I did this as soon as I learned about it. I started working with Tracy, that was in 2007. And so I wasn't very big then. I had started in 2004, and intentionally grew slowly to make certain I knew what I was doing. And so I implemented these very early in my practice. And Tracy promised me, and she was right, don't stray from it. Because that's just going to garner you more respect, and you're working with clients who value what you do, and understand what you do, and they're going to refer people. And I can tell you, I don't market. We've never marketed. And our waiting list was a yearlong.

Michael: So where did clients come from? You came out of medicine, then you went to back to the doctors you used to know who had some money and said, "Hey, now I'm going into financial advising. Do you want to work together?" Where did you...

Carolyn: No, it was very funny. I'm a runner. My running partner, who had been my running partner for years, is a local business owner. And she was with me when I decided to go back to school. And she was with me when I was going through school. And then she said to me, "We want to be your first client." And they're a local business person, and I'm very active in the running community. So a lot of those people came from them.

Michael: Interesting, so it was a local affinity. A lot of people talk about finding niches where you can work with people. So your niche was working with runners because you were also a runner and just had a shared connection to them?

Carolyn: Well what's so funny, and I actually wrote an article about this for Financial Planning magazine, is I think people, sometime, approach the niches the wrong way. And this works for some people, but for me it really didn't, you focus on a profession.

Michael: I'm going to work with doctors. I know many advisors who, literally, that is there niche. They work with doctors.

Carolyn: Right, exactly, and that might work. But for me, a lot of my clients are doctors. So yes, a lot of my ER buddies came and said, "Hey, I want to be your client." And then once I got into it, they referred friends, other people. The other place where I got clients was from NAPFA, because I was the only NAPFA member in a city of one million to start.

Michael: Oh wow, so just that NAPFA find an advisor leads generation thing where they send people off to your website, or they send you emails with prospects. That was actually a material driver for your business growth?

Carolyn: Yeah, and in fact, when I first started, I was actually working out of my house, in 2004. And all of a sudden, and then I got rent offices where you can go in and...

Michael: Yeah, regus type spaces, the shared office spaces, okay.

Carolyn: Right, I think I used it twice the first year I had it. But then I started getting calls from all these people I didn't know. And plus, it was hard for me to put work away. I thought, I just need to get a real office. So I did in 2005. And yeah, because I was getting a lot of calls from NAPFA people. So that was at the beginning. So the niche that developed for me, it ended up really being a personality niche. It was people who are delegators, who were successful, and were great do-it-yourselfers, which most people hate the do-it-yourselfers. But for me, they're fabulous, because they're well-educated, they know what's going on, but they realized they have become too complicated to do it themselves well anymore. And they were smart enough to know to find a fee-only fiduciary. And then once they learned about retainer model, that really...it's like, "This makes so much sense." Because they always thought it was stupid that they were being charged based on assets under management.

Michael: Even though, partially, indirectly, you set a portion of that retainer fee from their asset levels, but they don't know that, or they're not cognizant of that.

Carolyn: No, they know that, because I tell people what I base the charges on. I just don't break it out. I don't say, "Hey, I'm doing college planning, that's 1,000..." I don't break it out for them. So I say, "Hey, you have a lot of money, and that's more work on Tim, so that's part of the fee, too." But usually, most of...

Michael: But you don't line item out, "You had a $1.2 million portfolio, so $3,000 of your retainer fee is for portfolio management."

Carolyn: Right, I don't line that out at all, and I would refuse to. I'm like, "Take it or leave it." I'm always nice about, I don't say it like that, but they get the message. It's, "Here's our fee. If it works for you, great. If not, I'm happy to help you find another advisor."

Michael: And it didn't scare you, or doesn't scare you that you're going to lose clients by being that adamant or that firm about this take it or leave approach to getting new clients?

Carolyn: No, I mean I guess part of that is...and somebody told me early on, your first three years, it's just going to be bleak, and it was. I was getting clients, but it was such a huge learning process, and people wanted to make certain you were going to be around. That was a big thing. Once you've been in business three years...

Michael: And three years is a long time, 36 months, 1000 days of it's dragging, and it's hard to get going.

Carolyn: Right, and for me, thank goodness, because I worked part-time in medicine my first year in my practice. Plus, we had my husband's money. So I had a nice cushion were I could take risks. For people who don't have that, I don't know what to tell them. I was very fortunate in that way. But I've always gone through my life with plan A, B, C, D. So hadn't my husband's money not been there, I still would have been okay because I worked part-time in medicine.

Michael: And was that part of the actual financial safety net of the transition, that you were literally still taking ER shifts while you were starting to take clients and gradually got more clients and reduced the number of rotations you were doing?

Carolyn: What ended up happening... It was tough for me, because I was practicing medicine all these years, and really, that's a huge human capital in investment. And it's like, "God, am I really going to give this up?" And I became very active, I went to FPA residency, in which I learned FPA wasn't so bad when I started going on the national scene. And then I went to all these NAPFA things. And it was Mark Freeman, actually, who said to me, "Carolyn, nobody is ever going to take you seriously until you quit medicine." So that was in 2005, and the ER I worked for, I was not a partner, I was an employee. And I knew that my revenues to them were pretty darn high, and I said, "Hey, I want a raise." And I said, "If I don't get a raise, I'm going to walk." And they said, "We're not going to give you a raise." And I said, "Bye-bye." And so I cut the cord. At that point, it was mid-2005, I knew I had a good thing going, and I wasn't there yet. And we had savings and a cushion, so that allowed me the freedom to really do it the way I wanted to do it.

Michael: And I know there is a saying out there in the world of entrepreneurialism, well, it's kind of controversial and I don't if everybody believes it, this idea that as long as you've got a strong fallback plan, you may never give it your all. You need the feeling of operating without a net sometimes to really push you forward to do the hard things that are challenging to do when you're starting a business. So I kind of get it. It's hard to fully focus if you're still splitting time. And I guess at some point... Did you tell clients that you were going through that, that you still had one foot in each camp and you were still practicing medicine while you were taking on clients?

Carolyn: Yeah, because a lot of them were people that I knew through the community, and through running, and through the ER. And so yeah, in fact, it's so funny...

Michael: Yeah, at some point you can have a client that actually comes into the ER, and you can really give full service.

Carolyn: It was so funny. I had a client who reached me through Find An Advisor that lived actually in Tallahassee, which is about two and a half hours from here. And one of the hospitals we cover is in Tallahassee. So I usually spent, I did four shifts in Tallahassee once a month. And the group owned a house in Tallahassee that I stayed at. And so actually, this client came to the ER and met me.

Michael: You met your prospect in the ER during your shift break?

Carolyn: Yeah, I was getting off my shift, and I was in scrubs and everything. She wanted to meet me. I'm like, "Well here's the story," and yeah.

Michael: It's a certain interesting version of credibility, right?

Carolyn: Yeah, I'm not telling a story about me being a doctor. It really is true.

How Carolyn's New Company, Whealthcare Planning, Produces Software That Makes It Easier To Manage Plans For Aging Clients [1:07:01]

Michael: So I'm curious if you can share a little bit of some of the other projects you're working on. And you said earlier, you try to balance the time you're spending in the practice, and then the time that you're spending doing other things, as well. Can you share with us a little bit of the other projects you're working on now?

Carolyn: Yeah, and I don't know if I finished that thought for you. We made a conscious decision as a firm that we're not going to grow big. So once we do get to that 100 clients, we are going to cut it off, and not take new clients. And the reason for that is because my co-workers value what we bring to the profession. They're proud of what we've built, and we think we have the model of the future. And so part of what I do, and you and I have known each other a long time, is I take the stuff I've learned from medicine and I educate financial advisors on all those important intersections between medicine and finance. So I've been speaking a long time. So my recent project is one of the things I have been very active in is elder care planning. And so planning for dementia, cognitive decline, and I've developed a lot of programs through the years on ways to help your clients with transitions in aging through driving transitions, living transitions, healthcare decision making, and financial caretaking.

And I'm very fortunate, in the work I've been doing, I've gotten to know a lot of people, and I was approached, and I had great plans to put all this stuff in a book, and the problem is I've been... And you know I've had my house eaten by termites a few years ago, so that put all that on... So that kind of messed me up for about a year and a half of having to rebuild a home. And so I met this guy who is a software developer, and he is an MIT grad, brilliant guy. He was working with the Harvard Psychiatry Department out MGH, and they built a piece of software to identify early financial cognitive decline. So we knew people having problems managing their finances, and I thought, let me test this in my practice. And they're my guinea pigs on stuff. And I said to the guy, "Chris, this is beautiful. The only problem is you're identifying a problem and you don't have an answer." I said, "I've developed all these programs through the years on how to transition financial decision making. Can that be put into software?" And he's like, "Oh my god, that's brilliant."

So we formed a company together that where we built into software all my processes for financial decision making, and transferring it, making sure everybody has all the pieces in place. The family agreements, again, there goes your engagement standards. Family agreements are in place for how things are going to be managed. And so the software has two modules to it right now, and that's the cognitive testing to see... So you'll test a client at the beginning to make certain that they're fine, and then you retest every couple of years. And then meanwhile, the second module is putting their financial caretaking plan in place of if you have a problem, here's what's going to happen. And so the software takes them through their financial caretaking plan, and then you revisit that every couple of years. And so what this does is as you have aging clients, it identifies problems early when it's easy to deal with it, and you already have a plan in place.

And I use behavioral psychology behind this of perfect practice makes perfect. When people are familiar with what's going to happen, they're more comfortable with it. So ideally, once a person has cognitive issues, they've already heard a dozen times that, "Hey, when we identify issues, you're going to turn over your bill writing out to your son," or whatever process we put into place. The financial caretaking, creating these plans, needs to start when people are in their 50s and 60s, long before they have cognitive issues, so it primes their brain to accept the transfer of duties, for lack of a better term, with the least amount of angst possible.

And so the other parts to the software that will come out later in the year are living transitions, and driving transitions, and healthcare decision making. And also part of the software is going to be helping people identify their healthcare mindset, and giving them a better idea of what healthcare costs are going to be. And the same with living transitions. You lay out what's your ideal living transition, and then we actually have a cost module. "Here's how much that's going to cost you." And it's down to the community.

Michael: Is this available now? Could listeners actually go and put their clients through this? Is this openly available for advisors to use?

Carolyn: Yeah, so the financial caretaking stuff is all released in February. And so hopefully by the time people are listening to this podcast, it should be out.

Michael: Barring any last minute technical disasters between now and then.

Carolyn: Yeah, and so that is going to be for sale for advisors, and they can get a free test period, and all that. And then the other modules will be...

Michael: And where would someone go if they're interested to try this out?

Carolyn: It's whealthcareplan.com, and that's with a W, whealthcareplan.com.

Michael: whealthcareplan.com. Okay, and so is the testing for financial cognitive decline going to be in your initial piece, as well?

Carolyn: Yes, and actually we're going to sell it as you can either just buy the financial caretaking piece. Because a lot of people don't do comprehensive living. long-term planning. They maybe do just investments. And one thing people need to be aware of is that the NASAA, the state securities, they came out with model legislation last year of what advisors need to be doing to protect their clients. And this software fits in perfectly to fit the NASAA guidelines. And so a lot of people will probably want to use this, especially if they're dealing with a lot of elderly clients.

Michael: I'm curious. How do you envision inviting the client to this? "Hey, I got a little test for you just to make sure you're not losing your mind." There's probably a few clients that would say, "Hey, I'd love this as a monitoring thing." And then some number of clients, and I hate to say it, particularly us men, we like to have our machismo of saying, "Yeah, I'm not going to take your test to prove that I'm stupid and I'm losing my mind." Even if that's true, or especially if that's true, I don't want to take your test and prove the point to myself or my spouse.

Carolyn: You bring up a great point. It's funny. When I started testing this software in my practice, there was one group that did refuse to take it, and it was men over 70. So you're exactly right. And that's why, the men under, the men in the 50s, they were fine taking it. So that's why we're priming them for the future. People, when they've done things, they're more comfortable with it. So they'll take this test now, so when I ask them in their 70s, they're used to it. They shouldn't mind taking it. So how do we introduce this? Well that's part of our comprehensive planning process, and we say to clients, "We help you plan for aging." Part of that is creating a long-term care plan. And part of that is what's going to happen with financial caretaking. And I count this in the estate planning. So we walk people through everything they need to do with their estate plan. And part of that is who is going to take over things, and how do we prepare them for when they're going to take over?

Michael: And so at least for the folks that are a little bit on the younger end, we can get them through it. For our clients over 70, we may still have to struggle to figure out how we convince or communicate to them that they're maybe having some challenges on the financial cognition.

Carolyn: Yeah, yeah, once it's a problem, it's usually too late to deal with it in the most effective way. So yeah, my plan is prevention.

Michael: Yeah, and I know Michael Finke, Texas Tech, now American College, I think actually did some research about this a couple of years ago, and had found that one of the biggest challenges around financial decision-making capabilities in our later years is our ability to make financial decisions declines in our later years, and our confidence in our financial decision-making ability does not decline in the later year. We get worse, but we're just as confident. So then it just starts becoming disconcerting.

Carolyn: Yeah, and that's exactly what our test is testing for. It tests for over-confidence, and if you're having a problem really being able to identify how to take care of your money.

The Personality Profile Screening Tool That Carolyn Uses For Screening Prospective Staff Hires [1:16:10]

Michael: I'm curious as we come to the tail end of the interview here, as you look back over your career as a financial advisor, I guess about 13 years now since you started transitioning away from medicine, what was the low point of the process of building a business for you? Entrepreneurship to have highs and lows. So I'm curious, where were the biggest challenges or blocking points for you?

Carolyn: My biggest challenge is that I am not an easy person to work with. And because I'm very hard on myself, and that translates into how I am on people. Especially coming from emergency medicine where we bark at each other all the time, I had to learn a totally different style. And so when I started growing way too fast, back in 2007, and I had to hire my first person, my first couple of hires were a disaster. And so it was, I was juggling all of this stuff, working too hard, and not knowing how to hire people. And not knowing how to be a boss. And so that's where I had to do a lot of interior work on who I am, and how I work, and how I work with people, and learn to temper myself.

But the main thing I needed to learn is how to hire people who could work with me. And so one of the best things that I did is I started using the Caliper. Everybody uses all these different tests. Caliper, to me, it's one of the more in depth, and it really identifies people's work style. And so for example, it tests your ego resiliency. We are not allowed to hire people who do not have good ego resiliency. Because I will squash them. And it's just a fact. I don't mean to. But I'm a nice person, but if somebody is messing up a lot, I will say, "Hey, you're messing up a lot." Then if they go crying, I hate that. So I just don't do well with that. So people who have good ego resiliency, people who are... We have it set for the jobs. And in fact, we just hired a part-time person that's Chrissy's assistant, not mine. And then it's so funny because the Caliper people said, "Well, who is going to be working with this person?" We said, "Chrissy." And they, "Oh, good, because she can't work with Carolyn."

Michael: Interesting.

Carolyn: Yeah.

Michael: And so you found Caliper, in particular, was the one that seems to work best for evaluating this for you?

Carolyn: Yeah, yeah, and we do very in depth job descriptions, including the type of personality that needs to be hired for the job. And then we'll interview people. Caliper is not cheap. It's 300 bucks a shot. So we'll interview people, and once we feel good about, "Hey, this person could fit," then we Caliper them. And if the Caliper says, "No," we say, "No."

Michael: But it's also pricey, so where do you put that into your hiring process? If you do it too late, you've already decided you want to hire them, then you're conflicted. And if you do it too early, you spend a huge amount of money.

Carolyn: We do it late, and we're not conflicted. So if everybody says...and in fact, we had somebody recently who was just a fabulous, fabulous person, but there was one little thing that came up on her Caliper. They said, "This person is not going to work." And it was so painful, but I just said, "I've been through this before, and I can't hire. This would not be a good relationship, and I want to be able to help you down the road, instead of destroy you." I said it much more nicely than that. But the Caliper says it's not going to work, we never hire against the Caliper.

Michael: And do you do that process on your own, or do you have someone that you work with that helps you on that?

Carolyn: Oh, yeah, the Caliper people, they're really great about...they know all of our Calipers. Our consultant knows how all of us work. And so they compare the potential hire's Caliper to ours.

Michael: Okay, very cool. I'll make sure we put a mention for Caliper on the show notes, as well, for people that want to check it out. So I'm curious from the other direction, when Rick Kahler was on for the very first podcast, he described a lot of the challenges that he's had over the years as AFGO, another frigging growth opportunity. And I feel when we look back on mistakes that we make, there's kind of two types. There's the AFGO style, "Oh, I did that and that wasn't very pleasant. But looking back, I learned something from it. I've probably grown as a person. Don't know that I would love to do it again, but it shaped who I am." And every now and then we have the mistakes where we look back and say, "That was just terrible. We should just make sure that no one else ever actually has to go through that." So I'm curious from your end, are there any things like that that you look back on your career, and would just, for any listener would say, "Hey, whatever you do, here's the thing you should really try to avoid. Just take it from me."

Carolyn: For me, I've been grateful. One of the things I am very good at doing is paying attention to other people's mistakes, so I don't make their mistakes. So I read a lot, and I follow your work a lot, and Bob Veres. So I try not to repeat other people's mistakes. So I've been fortunate. And I guess my only mistake was my hiring issues, and little mistakes, but nothing that I really regret. I've had lots of learning opportunities, of course. But to me, one of the other reasons that I think that I've been very successful, I've always been very authentic about who I am and what I do. And that to me, has attracted both people I work with, and the clients that I work with who you never have to worry about being anything other than who you are with them. And that just creates great relationships.

Michael: So my final question for you that we ask all of our guests that join us here on the podcast is simply this, how do you define success?

Carolyn: Oh, it's living every day in love, joy, and balance.

Michael: Living every day in love, joy and balance.

Carolyn: Yeah.

Michael: It feels like a tall demand. Every day. Is that something you feel like you're there? You're moving towards?

Carolyn: It's very interesting. And I think this comes from my background in medicine, that people can die any moment. Life changes on a dime. And life is not the destination, it's the journey. So if you're not enjoying every day, and being surrounded by people who lift you up, that you enjoy being around, doing work that's purposeful, then to me, you're missing out, and you're not living. So not every day is going to be perfect. You're going to have poo pap, again, those are learning opportunities. And just stepping back and taking a deep breath and saying, living in the here and now. And so to me, the day I learned that, and the day I learned to focus...you of course have goals for the future, but if you think your happiness is going to happen when you reach your goals, that's totally wrong. Your happiness has to come first. And so that means living every day with intention and purpose, and then you will reach your goals.

Michael: And I guess that also goes to why you're willing to say no to client who don't fit your structure and the engagement standards, because life is too short, and those just aren't the people you want to work with.

Carolyn: Right, right, and we all come from different backgrounds and have different ways of operating, and thank goodness, the people who I can't work with, there are other people out there who can work with them. And it's probably more of a Buddhist philosophy, I'm not attached to the consequences of anything. It's, you try your best. One of my favorite hobbies is the study of complex adaptive system science. I know that sounds kind of nerdy, but it's the unknown unknowns. Trying to plan for everything just doesn't work. And that's why building inner resiliency, and anti-fragility, if you read any of Talib's work, you've got to make certain that you are preparing for whatever can happen, and being resilient.

Michael: Amen, well I think that's a great place to wrap up right there. Thank you so much for joining us on Financial Advisors Success podcast.

Carolyn: Oh, my pleasure. I'm excited that you're doing all this.

Michael: Thank you. Thank you.