#FA Success Ep 331: Getting Comfortable Hiring Advisors ‘Early’ As The Advisory Business Revenue Grows, With Jake Northrup

Resources Featured In This Episode:

• Jake Northrup
• Experience Your Wealth
• Jake’s Account structure, asset allocation & cash flow visual (download)
• Jake’s Client One Pager (download)
• Jake’s Client Mind Map (download)
• Jake’s Life Planning Timeline (download)
• Jake’s Client Task Dashboard (download)
• Jake’s Financial DNA Behavioral Comparison (download)
• 7 Lessons Learned After Building A Fee-Only Financial Planning Firm From Scratch
• #FA Success Ep 319: Competing For Big Clients As A Small Boutique With A Focus On Task Management, With Jim Niedzinski
• Kitces Financial Planning Value Summit
• The E-Myth Revisited: Why Most Small Businesses Don't Work and What to Do About It by Michael Gerber
• First Ascent Asset Management
• XY Planning Network
• AdvicePay
• Miro
• MindMeister
• MeisterTask
• Coggle
• Jotform
• Wealthbox
• Zach Swinehart Website

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

Are you a successful financial advisor, or do you know of one that would be a great fit for the Financial Advisor Success podcast? Fill out this form to be considered!

Full Transcript:

Michael: Welcome, Jake Northrup, to the "Financial Advisor Success Podcast".

Jake: Michael, thank you so much for having me on. I'm really excited to be on and thank you and everyone else that's been involved up to this point in terms of sharing their stories. It's been really impactful on my career.

Michael: Awesome. I'm glad to hear it and I hope we get to talk about some cool stuff today that helps other folks' careers move forward. We'll pay it forward a little bit as we go. You have a really interesting journey and I know we'll be getting into it more on the podcast discussion here in a few minutes. But this phenomenon of as I think about, just figuring out when you're supposed to hire up to start expanding your team when you start an advisory firm and it actually works. I feel like there's this challenge when you launch advisory firm, I think it's really true for any business. First there is the, you jump in wild-eyed and excited, and you go do the thing and you tell everybody you know and you put the launch out there and people give you congratulations and say, "That's so awesome. Good for you." And then, you get through those initial conversations the first month and then reality sets in of, "Oh my gosh. What have I done for myself?" I walked away from my salary and I'm doing this on my own and people are not beating a path down to my door. And there's this freak-out moment that I find that comes for some advisors a month or two in.

And then, we kinda buckle down, say, "Okay, we gotta go in and figure this out." So, we start grinding and trying to work forward and getting clients and getting revenue going and all willing, it starts to work and it starts to get to momentum. And then eventually, you go from this, what have I done to myself moment where you've launched the business and realized you're starting from scratch and you have to get going, to another version of, wait, what have I done for myself? It's starting to work. Clients are coming and there's actually a lot of work to do. And I had a lot of spare time 6 or 12 months ago. I don't have so much spare time right now because there's kind of a lot of clients coming. And maybe I need to start thinking about hiring someone and doing something about this, but geez, I was making so little for so long, the money's finally getting okay again. I really don't want to go backwards on my income the moment that it starts picking up a little bit. And I know you've lived a version of this, you've been perhaps on a little bit more of an accelerated pace than some because you've had a pretty fast growth trajectory since you launched just a couple of years ago. And so, I'm excited to have this conversation and hearing more about how you think about this journey of when do you hire, how much revenue is enough to hire, how do you get comfortable with, I'm finally getting some dollars going and I'm going to go backwards again, as you're just dealing with that hiring reality as a business owner.

Why Jake Decided To Hire Ahead Of Capacity Constraints [06:19]

Jake: Yeah, I'm excited to dive into it and I think the identity of your business…it changed, at least for me, a lot quicker than I was anticipating. And I quickly learned that the skills to launch a firm, initiative, control, grit, just like the hard work, is completely different than the skills needed to scale a firm. And that's delegating, empowering others and training, and that's something that I didn't know I wanted to do when I launched Experience Your Wealth. But I think with any new business owner is you start something, early days is just make it work, get clients in the door, pay the bills. Hopefully you stop seeing the cash balance go down and then you get to that point of, oh my God, it's starting to work. What now? Right? And I'm excited to share a bit about that story.

Michael: I really like just how you framed that up at the start there, that when you initially get started, right, it's just all of that taking initiative, the grit, the perseverance, the grind through. I do it because I want the control and autonomy. A lot of advisors, most advisors I find, we don't start independent advisory firms if you're on that side of the business. You don't start from scratch as your first job in the business, most of the time. You start because you work somewhere else for a period of time, and granted, some of us like just the resources and the structure that bigger firms provide and others of us are like, "I really kind of march to my own drummer. I want to do my own thing, my own way." And often, the impetus, particularly for that cold launch is I want the autonomy. I want the control. So, the launch is all about, I've got autonomy and control and I'm bringing the initiative and the grit that I'm going to get though this.

And then as you said, like, once it starts working, the skillsets that you need start to change really quickly because suddenly it is about delegating, training, empowering others. Suddenly it's about the team that's around you and actually much less about you, which is really hard, either at least just to make that change. And even more so if that's not necessarily what I set out for originally. I didn't do this so I could delegate and train people. I did it so I could help clients. But apparently, now I'm supposed to be learning to delegate and train and have to deal with this.

Jake: Yep. Absolutely. And I think there too, as you step into having a new business, it's always guessing and reevaluating of, "Hey, I love this, and I don't like this as much." And using "The E-Myth Revisited" terminology of being a technician, a manager and an entrepreneur and which of those do you really feel drawn to initially. I think a lot of people were very, very good technicians who might want to get in and be that entrepreneur too. And actually, what I learned coming in and starting to grow in scale was I actually really, really liked the entrepreneurship and the management more than I liked being an advisor. I think that surprised me. And I still want to be an advisor. I still want to be working with clients. But when I think about the percent of my time and energy that goes to clients versus running the business and training, it's a lot higher now on the running the business and training. And that's something that definitely surprised me because when I started out, I said, "I want to work with a certain subset of clients in a unique way and do all of this." And it's just completely changed from there.

Michael: I'm fascinated by that shift. So, just connect for us a little more. What did you think the job and the vision was going to be? And then, when did it start changing into something else?

Jake: So, when I started, I put together a draft business plan and it was great just to do that. I went to a few of my mentors, one in particular, Sean Ericson, I remember he reviewed it in depth, and he said, "This is great. It's so valuable that you did it and be completely prepared to rip this up and for it to change." And my initial business plan had, I think I had 60 clients or so, about 200K of revenue and I felt like at that point, it was enough for me financially and I'm not overwhelmed with clients. I have the lifestyle flexibility as well. And I felt like I would be very happy there. And what I realized...

Michael: I just want to pause on that. 60 clients, 200K of revenue. That was the vision, right? I'm getting $3,000 or $4,000 dollars of revenue per client. I've got 60 clients. I'm presuming that's a, I can handle them on my own. So, 200K gross and your net's probably 80% of that, give or take a little, with a bit of tech, a bit of website, a bit of office and the rest. But most of that drops the bottom line and that was the framework. That was the vision, if I can get 60 clients and get that revenue, that lets me live my lifestyle and do what I want to do.

Jake: Exactly. And I think it's easy to say that when you haven't reached that goal yet. But then when you start to get there, and I truly believe and you don't always want to be shifting the goalpost. You achieve 1 goal, then you go to the next one and the next one and you're never really satisfied. But I think starting out, I didn't want to be too ambitious of I want to grow this to be a $5, $10, $20 million firm. I didn't feel like that was aligned with my personal values, what my wife and I wanted for our family and other things as well. But as you get in and you start working with more clients, you just realize what you love and what you don't. And for me, it was I didn't love the prep work for a client meeting. I didn't love some of the in between. I actually love the strategy and thinking about how to grow the business and bringing in new clients and doing some of the marketing.

And there was a point along the journey, I was about 12 months in, I remember I finally took my first 3-day weekend off in a year or so. And it took me about 4 days just to get back into it. We were working with a subset of clients, which are young families, where their life is always changing. They're having a new job. They're moving. There's an equity liquidation event. And to me, I felt like it actually scared me a bit to have this business completely dependent on me. I feel like there are aspects of my business that I could outsource, but I couldn't outsource the client service to my standards. And so, that's where I started to really think about what is this vision for the firm, going from this solo to potentially a boutique. And that's when I started to open up the idea of hiring actually earlier than I really thought.

Michael: So, I want to hear more about just this moment of, I think as you put it, it scared me to have this business completely dependent on me. Was that from a “If something happens to me, then I'm gone, and these clients won't get served.”? Or is this more on the vein of just “I want to be able to take a vacation and not have to think about client service while I'm on the vacation because there's literally nobody else to service the clients for me.”? Is it just the I want to be able to take a vacation angle to this or was there a bigger or different, I just can't have this business be dependent on me?

Jake: I think it was definitely both. I felt like I owed it to the clients to ensure that there's a team supporting you as opposed to just me. And especially as I'm hoping, I'm not there yet, but I'm hoping to wander into the joys of having kids in the near future and I'm sure as you know and many listeners know, that just completely shakes up your life. You don't have that same time, energy to put into your business when you're a new parent than before parenthood, right? So, for me, I felt like knowing that was ahead of me in my life, I really wanted to figure out how could I create this vision for the business to really fit into my life. So, the idea of having 60 clients with liquidation events and things happening in student loan world and moving and changing jobs while also having a 1-month-old that's crying, that scared me. So, I felt like if I'm able to build a team earlier, I feel like that's more aligned with my longer-term vision in terms of what I want, and I felt that clients would be better served as well.

Michael: So, where was the business revenue-wise when you're having this realization and thinking, "Maybe I need to hire another advisor to support so it's not just me, and I can take my vacations and clients have some longer-term stability?"

Jake: It was about year 2 in. And to paint the picture in terms of where our firm started. So, we started in November of 2019 from scratch. No clients, so no one came with me. No revenue. No AUM. At the end of year 1, we had $81,000 of revenue. So, we had 17 ongoing clients at that time, and we did work with 25 one-time plans. We don't do that anymore, but it was a good way of starting when you have a lot of time.

Michael: Let me understand that just in year 1. So, you actually cleared $81,000 of revenue that came in or you were at an $81,000 run rate by the end of that year because of the clients that were onboard?

Jake: Yep, good question. It was 81 for the year. That was not our ongoing revenue at that point.

Michael: Okay. So then, what happens next?

Jake: So, year 2, it was around September of 2021. At that point, we were around $160, $170 [thousand] of ongoing revenue for the year. So, I'm at the point where bank account balances aren't going down anymore, thankfully. My wife also started a business at the same time, so we didn't have the stability of W2 income coming in. So, I felt like, "Okay, we've at last made it to the point where we can pay the bills. We're not dipping into savings anymore. We're not actively saving for our future, but that's okay." And it was in September of 2021 when we were around 35 clients or so that we hired the first associate, Marie Lovett. She's based in Tennessee. And by the end of year 2, we ended with $180,000 of revenue for the full year. And at that point, we had 38 ongoing clients, and we did 3 one-time plans that year.

Michael: Okay. And then, where did it go next? Bring us forward to where we are today, and then I want to come back again and understand a little bit more about this hire where you were in late 2021. But what's happened since then?

Jake: As of today, we're at 78 clients. Right now, we have about $550,000 of ongoing revenue. So, it's about $7,000 a year of fees. I will spare you the math. I know you can do it in 2 seconds in your head, but I did it for you in advance, Michael.

Michael: I appreciate that. I appreciate that.

Jake: So, right now, we have 78 clients. In terms of the client base, the median age is 37, so we're definitely in the young family range. Average income is around $330,000, so definitely higher income, but not incredibly high-net-worth. And then in terms of net worth, it's around 1.4 million average and a median of around 575 [thousand dollars] or so, to help paint the picture of where we are today.

Michael: Average net worth is 1.4, median net worth if 575. So, you've got a big skew. There's a couple of big people who bring up the average a lot?

Jake: Exactly. We have some clients that are $10 million and up and we have some clients that are negative $400,000 because of student loan debt.

Michael: Student loan debt. Good income, not good balance sheet, but let's work on that. Interesting. And then, did you say you've added more staff since then as well? It's not 550K now with you and your associate. There's more onboard. Is that correct?

Jake: We added a lead planner in October of 2022 when we were around 63 clients or so. So, at that point, I felt like, okay, we have enough revenue to support me, support my associate. Again, the lifestyle that my wife and I were living at that time, we made intentional life decisions that we didn't have a lot of fixed costs. We didn't buy a home yet. We haven't started a family. So, we've kept reinvesting back into the business, so I felt like, okay, with this net income starting to go up, I would rather start to hire staff earlier knowing that a few years down the road, hopefully we'll be in the spot of having a family. And I wanted to feel like I'd rather prioritize building up the team and getting everyone in place earlier as opposed to maximizing profit for the first 2 years. Because frankly, you asked the question, how would that change our life in the first 2 years? And the answer is we could buy a home earlier, but that wasn't as important to us as opposed to getting our businesses in the spot we wanted to be in.

Michael: So then, as of today, you're sitting with, to make sure I'm processing, so 78 clients, $550,000 of run rate revenue, 3-person team, you, a lead, and an associate. And is there any operation support staff around you as well or just the 3 of you and you haven't hired any kind of administrative support?

Jake: It's just the 3 of us, but we do outsource investment management to a firm called First Ascent. So, they're doing our account opening, they're doing trading, they're doing rebalancing. So, we do think of them as an extension of the team, but we're not paying anything for their services. Clients just pay them directly if they want the service.

Why Jake Outsources Investment Management And How He Structures Fees [19:21]

Michael: I got to understand fee structure of how this works that clients are paying First Ascent as opposed to you. So, how does fee structure work?

Jake: So, we're a bit unique where we use an income and net worth model in terms of the annual fee that we charge clients. So, we take 1% of earned income plus 0.5% of net worth and that puts them in 1 of 5 fee structures. So, it's either $5,000 a year, $7,500 a year, $10,000, $15,000 or $20,000. So, we basically have these very wide tiers, and you do the calculation, and if you fall in the $0 to $7,500 calculation, your fee is $5,000. And then it goes up from there. So, we don't charge an assets under management fee. If clients want an investment management, we frame it to clients, "Hey, this is their fee. Here's the value to doing it. You pay their fee directly. If you don't want to use them, you can do your own investments or do something different. That's fine. We'll help guide the recommendations from there."

And our thought process around that is we didn't want to charge an AUM and have their fee be constantly changing. We really wanted to separate financial planning services from investment management. And we felt like, at least from our standpoint, there's nothing wrong with AUM, but things like paying down a mortgage or rolling money in between 401(k) accounts or managing assets, we didn't want to have those decisions impact our fee at all. And we also wanted to structure things as clients' complexity goes up. So, if their income goes up or their net worth goes up, our fee goes up as well. So, if we have a client that has a $1 million net worth and they have a liquidation event, which happens, and they're now at $10 million, we also wanted to feel like our fee went up with them. So, the benefit of the AUM is as assets go up, the fee goes up. So we liked that part. But we also liked the benefit of the flat fee where it's not constantly changing every year. So we kind of married those 2 together and then created this blended fee structure.

Michael: So then, how are income and net worth defined and calculated in this context?

Jake: Income is earned income. So, it's defined by the IRS. So, it's wages, bonuses, RSUs, business income. And then net worth is, we have it pulled into eMoney. It's pretty standard. We're not going super deep into what's your car worth or things like that. But we do include home equity, their investment accounts, their bank accounts. And I think the benefit of having these wide tiers is we don't have to really get specific of, oh, is this included or not. If you're in the range, you have the fee. So that's where we wanted to feel like we're doing it broad enough where we don't have to get really specific in terms of net worth, because I certainly recognize that can be kind of gray. How do you measure net worth for someone.

Michael: Interesting. So, income is earned income. So, they're not getting tagged on investment income, passive income coming through. It's working activity. It's jobs. It's business ownership, businesses you're actively involved in on the income side. I'm just trying to process things like do you get real estate investors or is my real estate income passive or active? I bought real estate for the passive dream, but I still have to fix the toilet sometimes as the landlord. How far down that rabbit hole do you get as you're trying to define this?

Jake: Yeah, that's a great question and fortunately, if we have a client in that situation that was an intense real estate investor, we'd refer them out. So, we have a few people that might have 1 property or 2, but with a clientele that we're working with in terms of income, it's usually business income, W2 and then S corp income. It's really not too complex outside of that. So we're not having to really get into, oh, is this included or is this not. We don't include business value in net worth. We think it's really hard to measure that and we don't want to be trying to go back and forth in terms of the valuation. And I would say this fee structure, 90% of the time, it works really well. There's obviously going to be some exceptions at times where it doesn't fit perfectly into the formula. But when we're explaining it to prospects and talking about how their fee isn't going to be changing every year, and it's very transparent. It's here's the annual fee and you have the option to break it into monthly or quarterly payments. You can stop it at any point. If you want some investment management, that's great. Here's the pros and cons of that. You'd pay this fee. If you want to do it on your own, that's great. We'll help you do it. So, I feel like it really puts us on the right side of the table of the clients, and at the same time, has that mechanism to grow with complexity as complexity goes up.

Michael: I see your point around just how semi-stable this ends up being. Your thresholds are $2,500 to $5,000 thresholds. So, practically speaking, for me just to get from the $5,000 tier to the $7,500 tier, I need to either increase my earned income by $250,000 more than I was earning before, which is not a lightweight thing to do as an ongoing income, or I need to add a half a million dollars to my net worth so that half a percent of that lifts me up the $2,500 tier. So, if you've got clients that are young and upwardly mobile and building businesses and building net worth, they'll get there, at least maybe a tier or 2, but I see what you mean. Clients may not move, even good earning, good saving clients still may not move a single tier for several years.

Jake: Exactly. And I'd say when they do go up, we know about it ahead of time. It happens evenly over 2 years. So, when we think about raising fees for clients, I think it's an easier conversation when we know...when they sign on, they see the full structure. They know as income and net worth goes up, their fee is going up too. I think sometimes that makes it an easier conversation for a formula to help drive it or seeing their progress and their net worth. And clients whose net worth and income goes up are probably going to be happier to pay your fee when you say, "Hey, based on the progress we've had, things get certainly more complex from a tax standpoint, investment, estate. Here's the fee structure. It's going to happen evenly over 2 years, so it's not like it's a big jump to your cash flow either."

We're setting expectations with them up front that fees go up over time. And I do think that a higher income, a higher net worth, there's more time, there's more complexity and fees should be higher for them. But I do think it's an easier conversation and we have had many clients whose fees raised. We haven't had a single client leave us from a fee raise, so I think that's really telling of we're very up front. If someone's at $10,001, we're going to say, "Hey, you're right at that top of the threshold. We're not going to increase your fee this year, but wanted to let you know based on the trajectory that you're going, it's likely going to be here next year." And I'd say same thing with prospects sometimes too. We can usually get it within 80% to 90% of the time what their fee level is, but there has been times where we quoted them the lower amount. They were the higher amount and we said, "Hey, we're going to honor this." Certainly understand we don't want to have to have a client fully disclose all their income net worth. I think there's some guesstimating that goes into it up front. But when you think about this, 5, 10, 15 years down the road, in terms of building that relationship with a client, it's not going to be the end of the world if you were off by a few thousand dollars in year 1.

Michael: It's an interesting way to frame it as well that even if you quote a low fee originally, "Oops, we're off a little bit, you were 1 tier off." Again, it's not like you're quoting them 0 and they're expensive. Maybe you quoted them $7,500 instead of $10 grand. We're going to be okay here in the grand scheme of things...

Jake: Exactly.

Michael: ...that even if you end up quoting a lower fee, you'll come back and say, "Look, we'll honor the quote. But just to warn you, if this is going well and you're building wealth, the fee is going to need to adjust in a future year. But hey, let's go through the year together and see how we feel," because you're confident how they're going to feel at the end of the year.

Jake: Exactly. You got it.

Michael: I think it's striking though, so for a lot of advisor firms, they really struggle with fee increases, if they're not on an AUM schedule, which at least has the glorious simplicity of markets go up on average and the fee recalculates automatically and I just don't have to have these fee increase conversations, that just you seem very, very casual and comfortable with communicating and setting the expectation. Fees are going up over time, as your wealth is building because of our formula. So, you should only be paying us more because you're building wealth and things are going well. But I'm just struck hearing you describe this. You have a very comfortable attitude and discussion around, "Yeah, we just tell them the fee's going to go up in the next 2 years and then we move up the fee thousands of dollars per year as necessary to get them to where they need to be." And that's fine. That's fine.

Jake: Yeah. I think a big part of that too is the confidence that we know that if we have a year to work with this client, we think there's a very, very high likelihood that we're going to show a ton of value in that first year and that they're going to be comfortable with the fee going up. And I think the fact that it happens evenly over 2 years, it's not a huge jump right away, and we're showing them where they are in the range. We're setting those expectations early. Clients are going to remember the value that they get from you. They're not going to necessarily remember the exact fee and when it went up. So, I do think it sets expectations up front, so it makes that conversation a little easier. It's always going to be hard, and I empathize with advisors who they have a minimum fee starting out, and we had this too. We used to be at $3,000 minimum fee and we bumped it up to $5,000. And sometimes those aren't the most fun conversations over time. But when I think you set those expectations up front of, "You're at our minimum right now of $5,000. But as things progress, as your income and net worth goes up," they're going to feel great too. And I think you're not saying, "We're going to charge you more for the sake of charging more. We're charging you more because these are the types of decisions that happen in your life and how complexity grows as income and net worth goes up. And we're positioning our fee structure to help accommodate that for you."

Michael: So, as fees have lifted over time and that inevitable reality, as you noted, the fees we set in year 1 are usually not the fees we have several years in on the minimum end, you've been going back to raise fees even on the early clients as well, like everybody's come up over time? Or did you grandfather some early folks?

Jake: We grandfathered just a few in at our $3,000 level where we just didn't feel right raising them up to the $5,000 level. But most of our clients, there's only a handful that were at that $3,000 to start with. I was very fortunate to learn from other people that came on your podcast and what you shared and XYPN that you don't want to price yourself too low to start. I do think when you're starting from scratch, there's a component of, "I just need to get clients in the door." But I knew at once I hit a certain point, I didn't want to be at 3,000 forever for the minimum. So fortunately, actually going into year 2, that's when I increased it up to 5,000. So those conversations with clients that were at that $3,000 fee going up to $5,000, there was only a handful of them.

Michael: So, how do you handle just fee calculation updates? I'm just envisioning 78 clients is not a trivial number of people to send me your tax return so that I can do the math, and then I need to update the calculation from eMoney. And of course, 3 of the links are broken, so I need you to fix the links so that I can get the number so that I can calculate whether to bill you more. Maybe I'm making this harder than it needs to be. How does this fee calculation work on an annual basis to update and make sure they're in the right tier?

Jake: Great question. I can imagine how it's great in theory, but then when you get to practice, you're like, "How do I do this?" So, for us in our fall meeting that we have with clients, we have a section in our template that says, "Go to eMoney. Pull up the income and net worth." We do use either current income or prior year income, whatever we think is more reflective. And we have the client get involved with that too. And we run a quick fee calculation there at our fall meeting. And from there, we'll know is someone going to be going up a fee level. If so, we're going to add it to the agenda and talk to them about it and set expectations. If they're not, then we know we don't really have to share that. So that's step 1.

And then, step 2 is in December, at the end of the year, we do need to go into eMoney, it's not the most fun process, but download PDFs of all their net worth. Have that for compliance purposes. Have a spreadsheet that does the calculation. So that's not the most fun thing in the world. But I think more from a client communication standpoint, we're having that conversation in the fall after we have a great meeting with them and they feel all the value. It's not just an email that we're sending to them in December saying, "Hey, by the way, your income is this and your net worth, so therefore it's going up." So we try to really be transparent up front with it.

Michael: And then, if you're not managing investment accounts, how do you actually do the billing? Where do they pay from? Because these aren't small dollar amounts.

Jake: We use AdvicePay. And I'd say 90% of our clients will just pay right out of their bank account. And it works for their cash flow. We do have a handful of clients that pay the fee out of their taxable investment accounts too. So, First Ascent helps to process the fee payments. We use AdvicePay to still send that invoice, so it's pretty simple there. I think also the nice part of this fee structure is billing is incredibly easy when you have 5 fee structures and it doesn't change throughout the year.

Michael: Because the only painful part is the December process to make sure that clients don't need to move a tier.

Jake: Exactly.

Michael: And then, are they paying annually or do you break this apart into pieces?

Jake: It's an annual fee that's broken into monthly or quarterly payments. And we give the clients the option in terms of what they prefer there. I would say 80% of our clients do a quarterly payment. So the other 20% are doing monthly from there. We don't have an option to do annual.

Michael: They're only up on 2-year lags and they don't have to raise the fee until they move all the way through the threshold? How do you think about that phenomenon of are there fees you're leaving on the table by not really charging the full 1% plus 0.5% every year recalculated?

Jake: I'm sure I'm leaving some near-term revenue on the table. But when I think about it, of 5, 10, 15, 20 years down the road, and we see the client retention rates to know when you get a client, the likelihood is you're going to get a client for life. And with the clientele that we're working with, they're going to be pretty consistently going up that fee tier. So, we feel pretty comfortable to say, especially with where we are now, we see a lot of clients that are at $7,500 and they're going up that really quickly. So, I'm not too worried about that. I think we're still able to meet our financial goals. We're still able to have teammembers earn what they need to earn. I'm able to pull out what I need to pull out from the business. I think from a client perspective, it just makes it a bit easier to know things go up evenly over 2 years. It's kind of like the AUM, right? Having a $2,500 increase in AUM for a client that it's in their mid-30s, they would have to have a lot of AUM to do that. So, with our clientele that is typically in their mid to late 30s, it can be a pretty big fee increase from a cash flow perspective, especially when they're young families paying for 2 kids in daycare.

Michael: Okay. Then I'm just wondering for the time you've been going into this, you're coming up on 4-year anniversary, just what's retention rate been? Are you getting some turnover of people that are like, "Thanks for the service. Happy I paid your $7,500 but I'm feeling like I'm in a better financial place right now. I don't really feel like I need to keep paying this on an ongoing basis." Do you find people that start falling off?

Jake: We're fortunate where as of last year, our retention rate's at 98%. So, we've had 1 client leave. It was from losing a job and they're getting married, paying down some debt too. But obviously, the numbers are with us in terms of people that engage with us are continuing to engage with us. Now do I expect it to be 98% forever? Absolutely not. And I think if it is 98%, we might actually be doing something wrong, because we're probably over servicing clients too to a certain extent.

Michael: Or underpriced. You can have too high of a retention rate. That signals you might not be charging enough.

Jake: Yup. But also, if we increased our minimum fee to $7,500, $10,000, we might be pricing out some of the clients that we wanted to serve in the first place. Those young families that have kids and equity compensation, they're running around, they're in an expensive season of life. So it's something that we're aware of. And I don't know, I'm sure other advisors have probably felt this too, where you could just keep raising your fee, but also I came from a background in my last firm where the minimum fee was $30,000. And we couldn't work with 99.999% of the population. So, I think at times, there's often that tension between the service that you provide and the fees that you have. And I think it's easy to say, "Let's just increase the fee." But then, I think the human part of you feels like, "I love these clients. I love the work we're doing." So it might be okay that we're not absolutely maximizing revenue for the firm. But if we're still able to hit some of our targets, have our teammates live their ideal lives, there's enough coming in for me too, clients are happy, we feel like that's pretty good. But it is something that we're continuing having conversations about.

Michael: So, now I have better context around the First Ascent piece, the investment piece. So, clients essentially just pay the First Ascent TAMP investment management fee directly to First Ascent. You say, "Hey, we're setting up and facilitating this, but I'm not managering the portfolio," is my word for we're sitting in front of a keyboard actively trading the client's portfolio. "I'm not managering your portfolio. We have a partner that does that and sets the models and does the trades and gets them implemented and keeps you rebalanced. So, if you don't want to do that yourself, you can pay them. We're overseeing them as part of our fee, but we're overseeing them as part of our fee. So you don't have to pay us something separate or additional because if you use First Ascent, we're going to oversee it. And if you put it in the vanguard account, we're going to oversee it. So our work's the same either way?"

Jake: You got it. And we also say, "There's no secret to the formula. We're investing in low-cost index funds." First Ascent does also have ESG portfolios, so some of our clients use that too. But we frame it to them of, "Hey, you can go do this on your own. We'll give you the exact funds to do. But here's the amount of time and effort that it's going to require to do it." And I think it appeases to some of the DIY investors that love this stuff. And they're like, "Great. I don't have to pick up all my accounts and go work with you. That's awesome." However, 75% of our clients do use First Ascent, so I think that is really telling in terms of there's still a lot of value in investment management. There's a lot of people that still want to outsource this. They want that to be taken care of for them. So we have 75% of our clients paying First Ascent an additional fee. But from our perspective, we're thinking that's going to allow us, if they're doing all the investment operations, the trading, the rebalancing, all of that, we can work with more clients and we can be more proactive with our clients and do more planning.

Michael: So, I got to ask again, processing my brain in the investment realm. Not concerned that other dollars or business growth gets left on the table because you're not charging some AUM fee for...you still do have some oversight obligations if you're sub-advising out to First Ascent. You don't have any concerns on that end of whether you could have a component of AUM in there to cover that?

Jake: If we did need to do that, we would need to hire someone probably to do all the trading and the rebalancing and all of that. And it makes compliance more complicated too. I'm trying to run the business as simple as possible. And actually from a compliance standpoint, when you're not doing trading and you don't have discretion and you don't have custody, it makes it pretty easy overall. There's still certainly things you need to do.

Michael: There's less scrutiny of whether your employees might be front-running client trades if you literally don't have the money to trade with discretion in the first place.

Jake: Exactly. And my thought process too is if we can serve an extra 10 clients as a team, because we have less time going to investment management, our financial planning fees are probably more going to make up for the AUM revenue and hiring staff to do that.

Michael: Interesting. And just from the client end, does anybody start raising questions? Wait, I pay you all this money and then I also pay them? I also pay First Ascent? I have to pay 2 fees here?

Jake: It is a little bit, in the prospect onboarding, there is a bit of education that goes into it. But I think it's how you frame it. You say, "Our role is to be your financial planning team. We're doing all these things. We're meeting with you 3 times a year. We're doing the equity comp and all of that too. Investment management is a separate service. We like to think of those very differently. And if you want to do this, we have a team, a relationship, we think of them as our extended investment team, that in working with us, you get access to them." But I think it takes pressure off of, oh, we're not recommending them to get more AUM fee. I'm not saying we would do that in the first place, and I think a lot of advisors are really doing the right work there. However, I think it's less intimidating when you know, oh, I can recommend this, but there's no more dollars that are going in Experience Your Wealth pocket. So, I think it sometimes makes clients relax a bit to say, "You don't have to have a certain amount of AUM to work with us." Or if we are purposely moving pretax IRA money into a 401(k) so we can do backdoor Roth, none of that is impacting our fee.

Outlining The Next 10 Years By Creating A Life Planning Timeline [41:46]

Michael: Now help us understand, what do I get for $5,000 to $20,000 fees? What are you doing for clients to charge this level of fee without assets for 30 something year olds. I think you said your median client's 37. So, what are you doing for 30 somethings for a $5,000 minimum when all the investment stuff goes out to First Ascent and that's paid separately? What do you do for the fee?

Jake: Sure, I'll walk you through our onboarding process. But I'd say number 1 is we start with classic discovery, but for us we do use George Kinder's 3 life planning questions. So, we do have a heavy emphasis on helping clients really articulate, step into and live their dream life and setting that vision before we talk about any money or investment recommendations or financial planning. And 1 unique thing that we do after this meeting is we actually create something called a life planning timeline in a software called Miro, which is this visual whiteboarding software. So, every client has this timeline with about 10 years that are plotted out with a picture of their family in the top left. And then, we have some of these pictures of certain events or milestones or trips or life transitions that are ahead of them that we help them to uncover during George Kinder's questions.

So, for example, we might have a client that's a young family and in the next 3 to 5 years, they might buy a new home or kid goes to kindergarten or they want to travel to this spot and change of jobs. All those different life transitions, we really help them to visualize some of that, because it's so powerful for a client to have that meeting, but then also think about, hey, as a couple, we're looking at this together and moving around what's important. I think that's a really powerful conversation to make sure their life is always leading their money. Their money isn't leading their life.

Michael: And you said this is 10-year windows that you show the timeline for?

Jake: Correct.

Michael: So, why not the...I'm just thinking the traditional, you're going to retire at whatever, is it 60 something and die at 90 something. Most planning timelines I find are a lot longer, if only just to keep clients focused on long-term goals and saving for retirement and such. I'm struck by, I guess I'll say it, how short-term your time window is for the timeline.

Jake: Yeah, that's a good question because the planning that we're doing, in terms of the nuts and bolts of financial planning recommendations, they're definitely long-term in nature in terms of where we're saving and how we're positioning retirement funds and investment strategy. But when you think about most clients, what do they care about, especially young families, we have a values-based niche and we put this on our website, that a lot of the clients that come work with us, they love to travel, and they don't really believe in the whole 9 to 5, work until you're 65 concept. They want to do something differently along the way. They want to experience their money. They want to take a sabbatical. They want to start a business or do things like that. So, the earlier that we can help clients align money with their life, the more powerful the impact's going to be over the long term.

So, I think it's great to say, hey, a client wants to have work optional in their 50s or so. But you probably know it too growing through it, having young kids and working and all of that, it's really hard to think about what you want past the next year or 2. So, even getting clients to stretch their thinking to 5 years, to 10 years, that's a lot of effort. But there's also a lot of value there. So, just creating the vision for the next 5 to 10 years doesn't necessarily mean our planning recommendations aren't long term. But similar to how I started Experience Your Wealth and so much changed in the first 2 to 3 years, I think clients' lives are very similar too.

Michael: I'm struck by that in context that I feel like in many ways, part of the challenge that just financial planning, I'll say in the aggregate, has had in connecting as well with, we'll call it younger clients, "next generation" clients, compared to the industry being boomer-centric for a long time, is that phenomenon that we like to talk about long-term retirement planning and when you're within 10 years of retirement in the home stretch of making the transition, that is the goal that you're staring down. Ironically, at that point, it is your 10-year goal or next 10-year's goal. But when you're talking to folks in their 30s in building career, building business, building family, building a house, all the different things that are getting built and created, life actually comes at you really fast through that time period with a lot of changes and a lot of stress, because you're probably on the edge of sandwich generation at that point. You've got young kids and parents may start to have a few more needs as well, that just getting 5 to 10 years out is actually a lot of work for them. Let's just figure out what we're focusing on over the next few years and make meaningful progress on that, and we'll just keep revisiting as life keeps coming at us.

Jake: Yeah. I love that framing and there's very few clients that come to us and say, a 33-year-old with 2 kids and say, "I want to retire at 65." And if they do that, sure, we'll meet them where they are. But when you start to ask, "That's interesting. What does retiring at 65 mean to you? Why is that important?" You see with when you're going through these George Kinder's life planning topics and questions, there's certain themes. And a lot of that is controlling time. It's travel. It's time with family. It's doing work that they're really impactful for. So, the earlier that you can help clients use their money to support those decisions, that actually might be a lot better for their long-term financial future, because then maybe they're doing work because they love to do it and they're going to work longer. So, there's very little value. We've done it for a few clients, but showing more like a 30, to 40, to 50-year Monte Carlo when you're in your 30s, when it says, "Everyone's going to be a 10, 15 millionaire." But we have had some clients that want that sense of financial security in the future before they can look at near-term decisions, like even something as small as hiring a house cleaner. We had to actually go through that process to get a client to feel comfortable to say, "We're going in a good path of work optional around this age." Therefore, these are some of the near-term decisions that we can do that are just going to improve our quality of life. And I think that's what true financial planning is, is enjoying some of those really important things in your life as soon as possible while not also jeopardizing your future.

Michael: I think it's so interesting because that is not the traditional frame. But I like it. I like it. So, meeting number one, you go through your discovery process, focus around life planning questions and being able to get the takeaways to build their life planning timeline. So, where does the data-y part of discovery data gathering come? Do you do it before that meeting? Do you do it after that meeting? Does it come in a future meeting? When do you get the numbers?

Jake: We get into the nerdy numbers in the next meeting. Don't worry, Michael. We can talk through that. So yeah, first we start with the vision. We get them motivated because asking clients to link accounts in eMoney and fill out a form, it's not the most exciting thing in the world. But after they're doing it from having this amazing conversation, feeling motivated, it's typically a little easier. So, we use the analogy, it's sort of like cleaning out a dirty closet, where the process stinks, but once it's done, you feel really great and accomplished. And that's what we view as the classic get organized meeting, where we send clients a custom questionnaire in Jotform. They fill out some of those about more income figures. Do they have equity compensation. These if, this, then that questions. And they also link accounts into eMoney. We give them the list of accounts and we have a 60-minute meeting with them to help to go through the list, because we're not expecting clients to get the whole thing. But they might get 60% to 80% or so, and then we help them finalize the rest of it.

Michael: And why Jotform? Where did that come from?

Jake: I felt like we wanted to have something that had a lot of customization in it. So, for example, we did work with a consultant to help us create this and I said, "Here's my wish list." I'm finding that in our get organized process. We're missing information over here or we're not getting this. And in Jotform, what I liked is you can build out, if they click this, then there are other things that happen. So, for example, we have a question that says, "Do you have private equity compensation?" And if a client says yes, it says, "Is it administered by Carta?" If they say yes, most clients are, it gives them instructions on how to invite us to Carta. So, we're able to save some time ahead of time by doing some of that and having more consistent get organized process, because if they're saying yes, every single client is seeing the next thing. So, especially as we grow in scale, we're putting less emphasis on the advisor to have to remember to ask the question, because we're building into the system ahead of time.

Michael: And so, that's ultimately what meeting number 2 actually is, is okay, let's pull up the information. We're going to look at what you did fill out in Jotform and where the blanks are. We're going to look at whatever other information you were stuck on and we're just going to try to figure this out right here and now in the meeting.

Jake: You got it. And that's the power, I think, of having 2 team members as well, where we can share screens in Zoom. You can control a client's. And one of us can go log into their 401(k) and get the investment options or the summary plan description and things like that, while the other person is working on other things as well. So, we view that as a working session to help get that closet organized.

Michael: Interesting. So, it's a virtual meeting but you still got 2 people on the call because you're essentially tag teaming, okay, you go find their summary plan description while I'm going to keep talking to them about their prior year tax returns and where to find that, whatever it is.

Jake: Yes. 1 person is leading the meeting, so they have the agenda. They're kind of guiding where we go. And the other person is just helping to implement things or problem-solve or do things on the side too. So, I think that takes a lot of the onus off the client and at the end of the day, we're getting all the data that we love in eMoney and all the statements too by having 2 of us there. And it's 60 minutes. It's really not that long. We're at least setting ourselves up for success for the next meeting, which is the initial recommendations.

Generating A Mind Map With MindMeister To Visualize A Client’s Financial Journey [52:17]

Michael: So, meeting number 3 is initial recommendations.

Jake: Correct. And this is where our team, we use a software called MindMeister, which is a mind mapping software. Have you used that before?

Michael: I have not used MindMeister, but I've used Coggle and a couple of other mind mapping tools over the years.

Jake: So, this is a pain point for our team and if any advisors or fintech people are out there listening, I think it would be great. But where do you store a lot of the pertinent information in terms of onboarding? Because CRM is not meant for what's their income numbers, what's their spending and other details that are pertinent to the financial planning. I think a lot of people use financial planning software for that, which is great. But also, financial planning software doesn't really capture things like what's the details of their 401(k). Is there a true-up? Is there after tax contributions? If they have private equity compensation, what's the details? What's the vesting? Early exercise? 83(b)? Things like that.

So, what we did was say, "I wish I had something at my last firm that I could just pull up and see a client's entire financial life in one spot." So, we just built that custom from MindMeister. So, there's essentially, each client has this big mind map with a picture of them in the center, and there are all of these webs that go around for things like cash flow and things like taxes and equity compensation and life insurance and employee benefits, all the way around. And what our team does, and my team, it's not the most fun process in the world, nothing really talks to each other, it's not very automated, but it is nice where we can build in questions and checklists within the mind map to say, "Okay, this client has RSUs. Are you looking at these questions?" So, our team goes through, looks at all the data from the initial recommendations, fills in that mind map and then we use that to help to articulate the near-term recommendation for initial recommendations.

Michael: So, help me understand a little bit more, what's in the mind map? What are you covering? What are you actually mind mapping out? Is there a standard template or is this literally just a free association conversation?

Jake: There is a standard template that we have. So, every time we have a new client that comes onboard, we duplicate the template, so we get all the sections that we have learned throughout the years. And then, we're able to build off of that. And then, I think the good part with the template is you can start very broad and then you just delete what you don't need. So, in other words, if we're looking at employee benefits, you open up the branches and there's things for health insurance, disability, life insurance and dependent care FSA and things like that. So, it's sort of this checklist that our team goes through to ask questions to be sure that we're having consistent quality service across all clients, there's less dependency on us remembering it and there's also a way for us to document learnings. Even something as simple as does a 401(k) have after tax contributions? Where we have this in the template, so we can ask that, at least prompt the question so our team knows yes or no from that. And that helps to build initial recommendations.

Michael: So, I guess I'm trying to visualize, is the mind map how you're delivering the recommendations? Is the mind map how you are showing the summary of their financial information that you got in the first 2 meetings, and this is just reflecting back what they've got? It's like an alternative to a balance sheet kind of exercise? Where is this in the process of gathering information and producing deliverables?

Jake: It's between...we like to think of the mind map as this is the research report that our team did and with a client we're just going to show the executive summary. And we use that, the research report, to then translate it to the executive summary for a client, which we just use a simple Word document of here's each section of certain financial planning. Here are the most important items. We cover some of those and we also have Miro again, that whiteboarding software. We do have a visual in there that shows them bank account structure and where investments are and how to prioritize savings and things like that. So, we try to create our deliverables, so it appeals to auditory learners, read/write learners, but also visual learners too. So, we don't show clients the mind map. I think they would be completely intimidated by it. But it is helpful for our team, if they ask a question about a certain financial planning topic, we're able to quickly pull that up.

Michael: Okay. So, that still hadn't quite clicked. So, the mind map literally isn't for the client at all. This is your internal reference document for all of the information. You're populating all the client information into the mind map as your internal tool to keep track of all of their financial planning stuff.

Jake: You got it. Yep. We include a link to it if they're curious to see, "Hey, this is some of the behind the scenes." But I'd say 95% of clients haven't gone into it because they don't really care. They care more about what's in it for them and how does this apply to them. But at least what this does for our team, as we're reviewing all of this, we're doing a lot of the planning work ahead of time, where even though we might not tackle their estate plan right away, if they have estate planning documents, we're pulling out here's the guardians and here are the provisions and things like that.

Michael: So, your deliverables coming in to meeting number 3 here, you've got the life planning timeline that you created in Miro, and then a short executive summary document of the recommendations that you're giving them. Is that everything? Does that cover it?

Jake: Yep, that covers it. It's usually a 3-page Word document or so. And whenever we can quantify savings, we absolutely try to do it. For example, something like moving the cash that you have here into a high yield savings account, that's $3,000 or $4,000, or making this, changing your student loan repayment strategy from repay to pay, here's $50,000. So, we do have some of those recommendations and try to quantify when we can, and then with the client, we're sharing our screen. We're using that Miro board, which is a lot of the time as it relates to here's your bank account structure. Here's how much cash we recommend that you hold onto. If you have a bunch of different investment accounts, if they have old 401(k)s or we're recommending opening up new Roth IRAs and things like that, we have this visual tell the whole story. So, we combine that visual with a very, very simple Word document and that's their initial recommendations.

Michael: And so, even though they're loading this into eMoney, you're not coming with eMoney output. You're not necessarily putting eMoney or Decision Center up on the screen. This is all just coming directly down to executive summary document planning lifeline, Miro visuals?

Jake: I'd say for 90% of the clients, yes. There are a subset that are approaching or in financial independence. And I think a that stage, that's where some of the valuable conversations of eMoney come in, similar to what you mentioned earlier, where a lot of the typical clients are 10 years away from retirement. So there is a lot of value in showing the Monte Carlo. From our standpoint, a new client that is 32, earning a really good income, but they're at the beginning of their wealth building journey, showing them a Decision Center to show, "Hey, you're going to be able to retire at 57," they're like, "Great. Can I buy a home tomorrow?" But some of those clients that are approaching financial independence, that's where we have used some of eMoney Decision Centers to better understand when is that work optional or how does buying the 2nd home impact things. So, it definitely depends on the client situation. It is not a standard process that we do for everyone.

Michael: Out of curiosity, just are you willing to share a copy of one of these, the mind map and the planning timeline, just for folks that are listening and wanted to see what this looks like? Because you're doing stuff that's very different than what most of us do in traditional planning tools.

Jake: Of course. I'd be happy to.

Why Jake Uses MeisterTask To Help Clients Implement Recommendations [1:00:30]

Michael: I appreciate that. For folks who are listening, this is Episode 331. So, if you go to kitces.com/331, we'll have links out in the show notes for a copy of Jake's mind map data tracking tool internally and the planning timeline for what they put in front of clients. So, meeting number 3 you framed as initial recommendations. So, I'm presuming that means we ain't done with the planning process yet. There's more coming because we're only at initial planning recommendations. How does this meeting end and what comes next?

Jake: Yep. This is where we get into my favorite part, plug to your Value Summit. This is what I shared there about using a client task dashboard. So, we don't have a "the plan." We do planning and therefore we wanted to create a software that was able to be dynamic, it was able to help clients implement, it was able to be collaborative. So, our meeting 4 is our meeting called the roadmap meeting. And what we do with this is we use a software called MeisterTask, which is a task management software. And we invite each client as their own project, so we'll say, "Here's client one." And we have columns in this project of short-term, mid-term, long-term and recurring. And we plot out some the things that we did in our research report, so clients are able to see this is what's on the horizon, but that's not a next 3 month, next 6 month, next year thing. And we're able to put some of these to-dos into the software and actually assign them due dates, communicate to them in this to help them actually implement the recommendations easier.

Michael: So, this is a client...this is task management, I'm envisioning Trello, Asana, the Kanban board style with different columns. So, same kind of thing, it's just this isn't your internal task now. This is literally client tasks. You're going to roll over your 401(k) or you're going to go get your will updated or you're going to find a new attorney to get your will updated because you got to pick someone first. Those kinds of tasks?

Jake: Exactly. Yep. So, clients are interacting with this. They have due dates. So, we actually know in the next 90 days, we help them agree to what are some of those 2 to 3 priorities and what do you see getting in the way? And they'll assign due dates. So, I think there's more ownership when they're saying when they're going to do something versus us just nagging them via email. So, what we like about this is it's very modern, so there is a mobile app. All of the emails go into, all the notifications in MeisterTask go directly to our email, so we're also recording that for compliance reasons too. But when we think about what's the value of working with an advisor ongoing, we like to think of it as we're helping you do more of this because we're not doing the investment management. We're outsourcing that. We're giving you the tools to make this easier so you have some of the due dates that come in. That thing that we talked about that had 4 steps to it, you're not going to remember it in 90 days from now, but you're going to get a task. Then you can hit View Task and it brings you right in there. So, I think it saves a lot of time on our end of helping to reiterate things to clients. And I also think it just helps clients do more stuff along the way.

Michael: So, I'm noting just MeisterTask, MindMeister, are these linked? Is this the same company? Is there integrations between your map and your task system or is this just coincidental?

Jake: They are similar companies. I think that they're parent companies or something like that. Unfortunately, there's not integration into it, but there's not too much that goes from the mind map where we store information to MeisterTask where we communicate information to clients. So, we definitely are looking for ways that we can make things easier. But we just view this software as creating this roadmap for clients, making the implementation easier, and then also for our teammembers, knowing here are the priorities and here are things that we can pick from in the mid and long-term that are then going to go feed into our meeting agendas for future meetings.

Michael: So, I get it now. This task system is very specifically not just client tasks of things we're going to do for the client, but literally client tasks for the client. They get their own project they log into and do their own thing. Whereas the whole point of the map for you, that's an internal reference document. That's the where do we store all the client information that doesn't seem to fit well anywhere else, so they wouldn't need to talk to each other because one's an internal reference tool and a one's an external client tool or client-facing.

Jake: If they did talk, that would be great. I know, I think Jim came on Kitces podcast a few episodes ago and he talked about using Asana. And he has Asana as internal and external. And I actually connected with him after. I had a great conversation. If we had something like that, that did say, "Client task here, change, go change the dashboard," that would be really powerful for us. But also at the same time, we're not going to have 2,000, 3,000 clients. I think sometimes I get caught in I want things to be automated as possible and make it as smooth too. But when you think about it, if we have a team of 2 advisors and 80 clients, that's 40 clients per person, it's not that much extra work. It might not be perfect, but it does get the job done too.

Michael: So, the whole focus of the roadmap meeting is just setting up the client task dashboard and then this becomes the central place that you're going back and forth with them from that point.

Jake: Exactly. And we have maybe 80% of clients that interact with this on a frequent basis. So, they're communicating in there. They're completing tasks. We have some spouses that will assign tasks to each other, which we always get a kick out of. And there's always going to be 20% of clients that don't use it and that's totally fine. They're going to just do email or call and we completely support that too. But we do frame it to clients up front, show them this in the prospect onboarding and then some of those conversations of, "This is the result of all of our work together." There's a roadmap. It's not just a plan that you're going to do. It's a continuous process of making guesses, evaluating, changing and doing some of the work. So, I have found that maybe showing them this dashboard to a client, they can cling on and be like, "Oh, I like a plan. I like organization. I know what we're going to chip away at."

Michael: And for this client task board, is this also something you'd be comfortable to share a copy of? I know you went into it in detail on our Value Summit last year. But is there a visual or something that you could share just for people who want to get a sense of what this looks like?

Jake: Absolutely. Happy to.

Michael: Okay. I appreciate that. So, then again, this is kitces/331 for Episode 331. So, we'll have links out for the mind map, the timeline and the client task dashboard for folks that want to see more of what this looks like. You can go reference our Value Summit from last December if you want to...December 2022, since some people listen to this in the distant future. December 2022 Value Summit for anybody that wants to go back and see the full presentation from Jake around this. So, Jake, where does your team manage your tasks as a business? Is that still out of Wealthbox because that's your main CRM system?

Jake: Correct. We use Wealthbox pretty heavily for client tasks, workflows, just basic other information for the CRMs. So, unfortunately again, MeisterTask and Wealthbox don't talk to each other. We explored a route of using Zapier to do it, but it was just too complicated. So, for example, if we were following up with a client about if they were going to sign up for life insurance, we'll have a task in Wealthbox to say, "Check in with client about life insurance." And then, our team will then go into MeisterTask, drop them a comment and then they get a notification on their app, and then they get an email about it. And then, our team will say, "In the description of Wealthbox, this is the date, did this." And then, they'll push it to the next meeting. So, when we're prepping for a meeting, we'll pull up Wealthbox to see what our team's working on. We'll pull up MeisterTask to see what happened. And that basically together, forms our agenda.

Michael: And are you still using eMoney's portal as well? Because you said clients get connected in initially. So, is that still out there?

Jake: Yep. We use the client portal for linking accounts, seeing net worth growth. We definitely have clients that use the spending tool pretty significantly, especially when cash flow is so important for a young family. So, seeing how things change. And they also use it for the vault. So, what does a client have for us? There's a login for eMoney and there's a login for MeisterTask. That's it.

Michael: Okay. And you can live with 2, at least it's not more than 2.

Jake: Yeah. We don't want to add too much overall. But also, I think when you set the expectation up front of this is how it helps you and this is the value that it's providing, and this is how we get there, clients are going to be okay with you just have to log into MeisterTask and it saves, you connect your Google account or something else, it's pretty easy overall.

Michael: I know there's also some client tasks tools in eMoney as well. I'm wondering why a whole separate task management system and not working within what eMoney has on this.

Jake: That's a great question. And for us, we felt like there was just limitations in eMoney, at least last time we looked at it, which was 2019. I think it would be great if some of the financial planning software started to add in this task feature. I know RightCapital has some tasks. I know eMoney has some of it. For us, we love the Trello board. We love having clients seeing the short-term, mid-term, long-term, reoccurring, having all of that.

Michael: The visualization of Trello, of...that column style of task management visualization. There's a reason why it's so popular. People like looking at it that way.

Jake: Yeah, and I think it also plays into clients sticking around too. And I know some of the benefit of AUM is it's sticky. I think the retention for AUM is a lot higher than retainer clients. But when they're seeing MeisterTask and they're seeing the path of work that we're working on in the future and we're able to drag things over and add it, I think it's a very natural way for clients to see the value and seeing the journey that's ahead of them. And when we do get into that point of fee increases, I don't think they're wondering as much where are we going, what's the value. So you're involving the client in it and they're also able to shift things around or add topics that are top of mind for them.

Michael: So, what comes after meeting number 4? What's next in the planning process now?

Jake: That's when we get into our ongoing client servicing. So, we meet with clients 3 times per year, once in the winter. So, typically around February and March, once in the summer and once in the fall. And pretty typical to the client service calendar, I know a lot of people have shared we have dedicated topics that we're talking through there where probably 60% of it is consistent across clients. For the fall, we're doing open enrollment and year-end tax planning. But there's also probably 30% to 40%, which is customized to the client. So, we just use a very simple Word document for those. And then, we're putting the action items into MeisterTask after that.

Michael: So, what do you cover in the other meetings for the service calendar, if the fall is open enrollment and year-end tax planning, what are the others?

Jake: Winter, the one that we're doing right now, we do bring up that life planning timeline and show it to clients. And we try to track, this is what's happened. And these are some of the things that you mentioned either last year or in our initial discovery. And we spend a lot more time with clients up front talking about that life planning timeline and what's important to them and what they want their money to accomplish for them. Then we do small cap value performance and that's something that I love. But in the winter, it's definitely about setting the strategy for the upcoming years. So, we look at that. We also have a one-pager that we share with clients. It's not really a one-page financial plan. It's more of a one-page snapshot to show them this is how net worth went up. Here's what your savings rate was and here's why money's important to you and things like that. Or this is what you accomplished last year. So, we like to reinforce the value to them of this is where you're going, this is where you were and then let's set the strategy for the upcoming year. And that's where we dive into deeper things like cash flow projections, like what's coming in, what's projected to go out, where are you going to save, doing the backdoor Roth. Around this time, we're doing a lot of tax preparations, so making sure those are in good place. And then, it's typically 2 to 3 other planning topics, which are customized to the client. But we might be looking at exercising ISOs early in the year, getting new grants or things like that. So, we do have a template for each of those meetings, but it's very much a customized process to a certain extent within each of those agendas.

Michael: And then, that was fall and winter. What’s the 3rd meeting?

Jake: The summer we call the get stuff done meeting. So, it's a very, very simple, here's what's outstanding and let's just have 60 minutes together to, if you're struggling with the estate plan, let's log in and talk through questions there. Or this is outstanding. Let's just do it live. So, it's less about planning, but we found that having that checkpoint, especially with young families where they're just so busy and the implementation's harder, there's not a lot of prep work on our end as a team. We're not asking for too much information. We're not doing these projections. It's more of here are a few things and we're just going to use this live and get stuff done with you.

Michael: So, mostly this is just a pulling up MeisterTask board together and talking through what's going on and what are you working on, where are you stuck and what can we help you with, not necessarily the…a lot of prep materials or deliverables coming in.

Jake: You got it. Yeah. The winter meeting and the fall meetings are a lot more of the strategy. The summer is let's just get stuff done and there will be things that pop up. They might have a home that they now want to buy, or they have a liquidation event happening in equity. So, it's very customized to the client to a certain extent. But we like having those 3 checkpoints throughout the year to be sure that we're having proper touchpoints with them.

How Jake Leveraged Google Reviews And A Custom Website To Drive Firm Growth [1:15:12]

Michael: Then the other question I've got to ask, just in flowing through all of this is where did all these clients come from that you cleared half a million dollars of revenue 3 and a half years into the business? So where are all these clients coming from?

Jake: The first 2 years, our number one place clients found us which is web search. So, that's Google, Fee-Only Network, NAPFA, Media, different places there. We definitely invested very heavily into our website early on, so I think all-in cost was around $8,000 for a custom build in WordPress. And for us, that was the storefront. I really wanted to build a website that told a unique story, it sounded, feel, just flowed different than any other advisor websites too. So, we've been fortunate in terms of really building up our presence online with getting quoted in different areas or getting referrals or getting Google reviews as well.

Michael: So, who did the website? Who did you work with to do this kind of custom website, because I'm presuming it's not one of the industry standard folks.

Jake: I think actually, Zach Swinehart. I think you know Zach. So, what's unique about Zach is when I was reaching out to him and I talked about I wanted to create a different story, something where we don't want to do the 9 to 5. We want to encourage travel, lead with values and he was someone that said "Yes, I love that." So, he was sort of building a website for someone that he would want to work with, which I think was really helpful to have that thinking partner there. Because the way that we structured it was, again, I didn't want to go to networking events, or I didn't want to go try to get to clients a different way. I wanted to drive traffic to the website and then have the website tell the right story. So, for me, it was a big investment up front, but certainly one that's paid off in terms of ROI and clients coming in at the end of the day.

Michael: The website's beautiful. It really is. It's a really nice looking website for anyone who wants to go and take a look. But there are a lot of advisors that have set up their advisory firms and hung the proverbial virtual shingle on the internet and a half a million dollars to not Google search their way to them in the first couple of years. How are you actually getting people to the website, to this beautiful website that so many of them are signing up?

Jake: I wish I had a secret that I'm going to share and blow everyone's mind, but unfortunately I don't. Big part of it was Google searches. So, we do implement Google reviews with our clients, and we have a standard process in terms of how we ask them, how we document it. We talk with our Rhode Island regulator about it to make sure they were onboard with it. So, the more Google reviews you have, the better your SEO goes up. So fortunately, we were actually doing this in 2019 before the new SEC rule came out and we had that specific conversation, wrote it in writing, had a documented process. So that was very fortunate. And I know it's kind of frustrating because some states still don't allow it. So, some advisors might be hearing this and be like, "I wish I could do that, but I can't." So, it's a big bummer.

Michael: Oh, right because you don't have assets under management, so you even though...you'll never hit SEC registration. You live state registration. So, you're based in Rhode Island so this is a Rhode Island regulator conversation.

Jake: The way that we do it is we talk to client, there's a specific time in our process where we ask it, and that's after our...it's the first meeting after our onboarding where we're having a client reflect on how's the relationship going so far. What's going well? What could we do differently? We talk about Google reviews at that point in a very non-threatening way, because it can definitely be intimidating to put your name out there with finances. And we send them an email with the exact same language very single time and we have an Excel document that shows this was the date that we sent it. And this is if a client did a review or not. But we didn't cherrypick. We didn't say, "We're going to only send to this client but not this client over here." Now with the new SEC rules, I think we probably could have done that, but we were doing this in 2019 before the SEC came out and relaxed their standards on testimonials.

Michael: So, the framework here was essentially we're asking every client so we could show we're not cherrypicking. It's just in the standard process. We always ask them in this meeting and then we always send this email and it's always the same email template and we're logging all of that for compliance purposes. So, at that point, just we have a standard process with every client to point out that they can...do you ask them for a review? Do you just point out that you could leave a review? How ask-y do you get for this?

Jake: The language that we use is after they share some of that, we say something like, "I don't know if you're comfortable or not, but if you'd be willing to share your experience on Google, that would be really appreciated. You know how you go to a restaurant sometimes and you see what are the reviews on this place. And unfortunately, in financial services, it's often a big decision and there's often not a lot of times where you get research or other people's experiences. But that being said, we know personal finance is very personal, so if there's any part of you that does not feel comfortable to do this, we'd actually encourage you not to do it. But if that is something that you're willing to do, it certainly helps our business and helps future clients better understand the right fit." So hopefully that wasn't very threatening. You kind of give people an analogy and then you also give them the out too to say, "No pressure whatsoever." We also say something like, "There's this weird compliance rule we have to ask every single client" to make it a little lighter too.

Michael: I'm struck from the flipside of it as well that you do have a super clear segment for who you go after on the website. Just for anybody that goes and looks at the website. The name actually gives you some indication of it because I know the firm's name is Experience Your Wealth. And literally, opening of the homepage, "We help travel-loving young families live a life they never want to retire from." And then, goes further, we aren't your traditional financial planner and you have a whole bunch of core beliefs that are also in that vein. The most important financial decisions you make are in your 30s and 40s. The concept of retirement is obsolete. Build optionality into your financial plan. More money is not equal to more happiness. Experiences are more important than things.

Jake: That was our hope where we first connect with them on values and demographics. But I think it is intimidating at times for people to explore a financial planner. So, when you're connecting with them and saying, "Oh yeah, I believe that about money and I believe that about life and this does sound like my situation," I think it builds an initial foundation of trust. And then from there, we have on the website to say, "Okay, we do have planning criteria. We have greater than 200K of household income to make sure that our fee can be supportive. We have equity compensation. We have business owners. We have student loans." So, it helps clients to kind of screen through and say, "Okay, this sounds like me. and I believe that they're not just going to try to get me to retire at 65. They're going to help to really understand what's most important to me." You likely want to incorporate travel into your financial life, build some of the optionality. So, I think it just makes it a little less intimidating to reach out to a financial planner. And that was our hope.

Michael: And then, I know even you've got fees on here. It says, "Our fees are 1% of earned income plus 0.5% of net worth. The minimum is $416 a month, which is $5 grand a year, or $1,250 a quarter." I'm wondering for so many of us, particularly when we're getting started, again, going back to the beginning, you're starting from zero, it's all initiative and hustle and I really hope some revenue shows up soon, most advisors I know don't do all the things that you did out of the gate. They don't get so specific on who they're going after. They don't talk about their fees because they want to have more flexibility. They don't talk about their minimums. They don't talk about income and other requirements because you're just trying to get revenue in the door. Were you also much more generic early on to get in when you could and it got more specific like this later, or did it start here and you did this from launch?

Jake: It didn't start that specific, but we did the top of the website where it says, "We help travel-loving young families live a life they never want to retire from," that's been consistent. The values and all of that stayed consistent. What we started to add was the income and the planning needs, because what I realized was 2020, it's okay to cast a really wide net when you're starting out. You'll talk to anyone, and I was in that stage. I had 100 people reach out for a meeting in 2020 and only 33% of those were qualified for an ongoing engagement. At that point I'm like, "Don't care. I am going to have this conversation. I'll do this one-time plan and all of that." But then you start getting a little bit more busy, so 2021, we had 100 people reach out and we had 38% that was qualified for an ongoing engagement. So, still a really high volume, and I love those conversations but also my entire calendar was starting to fill up. So, something that we did in 2022 was we added some of this criteria and we added to our scheduling form to say, "I acknowledge the minimum fee starts at this range on a monthly basis and this quarterly. And I’d like to learn more."

Michael: So, they had to acknowledge in the intake form, in order to contact you, they have to check a box that says, "I realize the minimum fee is this?" So, it's basically like a big, "Go away if you don't want to pay this."

Jake: Exactly. So, I felt a little conflicted with it because I love to, even if I wasn't the right fit, I love to talk to people and try to refer them out. But also, I had to protect my time at that point. So, we were still able to meet our new client goals and do it with 50% less of the meetings.

Michael: I'm struck by this journey though. So, the target market was there from the start. Travel-loving young families, live a life you never want to retire from and all the values. That was there at launch. This is who we're showing up for and who we want to work with. The only distinction is you weren't as stringent about how much wealth they had to bring and how big the fee was going to be out of the gate. You had a lower minimum, and you didn't put a lot of the financial metrics so you could take anyone coming in, even smaller clients, as long as they still otherwise fit this niche, this specialization. And then as it got going, you kept the niche. You just started raising the minimums and articulating more of the criteria to screen out the people who really couldn't afford you at that point.

Jake: Yup. You hit the nail on the head there and I think that's pretty typical for what we've seen for other advisors as well, where you feel okay when you're at 50, 60, 70 clients to potentially miss out on someone. But in those first 3 to 6 months where it's scary, it's really hard, you want to, and it's okay to cast a wider net. But for me, in that first year, we did a lot more one-time financial plans and we were okay to do that at that point. I actually encourage advisors to be open to that because it's okay to work with the wrong person on a one-time engagement. But you want to avoid working with the wrong person ongoing and then getting to the point a year or 2 down the road where you felt like you made the wrong mistake. So, we casted, I still think, a pretty narrow net in terms of values and demographic, but starting out I didn't feel comfortable yet to put some of the more qualifying criteria and underlying planning needs behind it.

Michael: I'm struck. Just having the values criteria and the values niche, you said 17 ongoing clients and 25 one-time clients and $81 grand of actual revenue in year one. Those are monstrous numbers by most advisor's standards for first year out of the gate doing only advice fees, not gathering assets or generating commissions to ramp up the revenue. So, I'm struck. A lot of advisors I know will say, "Yeah, I wouldn't even put travel-loving young families. If you're a human being and you have money and questions, please for the love of all that's holy, hire me and pay me something so I can get some revenue going." And your framing was different. You stuck with the niche, just not the financial criteria for the niche. And that seems to be what drove so much revenue and activity in the first year.

Jake: Correct. And I'm fortunate that I've learned from you, other podcasts, guests and XYPN, that I knew going in I needed to have some type of niche. And you can have different layers of a niche. You can have a profession. You can have demographics. You can have values. You can have, it really can go wide. But when you think about building a great website, if someone's going to 3 to 4 different websites that are probably pretty similar, how are you going to stand out to them? How are you going to tell a unique message? I felt like I wanted to build something that I felt like was me to a certain extent and just talk to the clients that I really wanted to build longer term, and then when you connect with them on that values level, and it's okay if someone doesn't have values, it's just for our standpoint, I was pretty open with, hey, this is what I believe about money and about life. And if you kind of believe that same thing, it seems like we're going to go into this embedded level of understanding.

The Surprises and Low Points Jake Encountered On His Journey [1:28:59]

Michael: So, what surprised you the most about building advisory business?

Jake: I'd say for me, really I knew things would change and I felt like I was prepared for it, but I was still blown away with how much things really did change. And for me, what I really learned too was when I wanted to stay solo in the beginning, Brene Brown has a framing that I love. She talks about what's the armor that you wear. And for me, I was actually learning I was wearing armor of perfectionism, control, fear of failure. And for me, that was the reason why I wanted to stay small. I wanted to stay solo. And when I started to uncover that and better understand it and thought, "What's the cost of that armor?" For me it was happiness, it was freedom, it was time and it was money. So, what really surprised me was I knew things would change, but until you get into it, and you start to see it and evaluate it and figure out what you love and what you don't, it's really just, it blows your mind in terms of how different your priorities can be. So, I think it really helps to encourage to new business owners or even people within a firm of always stay flexible. And some of those initial decisions that you have early on, always think, "What would this look like if I had a team or if I changed paths down the road?"

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

Jake: I'd say there's one particular thing and there's more of an ongoing. One low point, it was just the psychological impact of starting a business in November of 2019, my wife also starting a business. We had absolutely 0 income. Fortunately, we had cash saved up in the bank but we basically had our savings going down consistently on a monthly basis, and then March 2020 hit and everyone knows what happened there. So, you can plan for it as much as you want, but until you're in the trenches and you're seeing your bank account balance going down and you're wondering when is the next client going to come in so we can stop the bleeding a little bit, it's tough to go through. You can plan, and I think it builds more empathy with the clients that we work with as well.

So, that was one specific point, but also ongoing, I felt like, to be honest, the last 3 and a half years, my business had more controlled me. It's been a real grind of long nights and weekends. And I love this, I absolutely love it. But also I feel like I missed out on things, like seeing friends and family and pursuing other hobbies. I think I felt like the clock is ticking a little bit because I didn't want to be working this level of long hours before kids came down. So, as you had mentioned a lot about the iceberg analogy, you just see the top, but below that are a lot of struggles that people go through.

Michael: Out of curiosity on saving up, 2 questions, how long did it take before the bank account wasn't going down? And did you have some set aside that you had put out, like a year of spending or 3 years of spending or some other number to be comfortable with this? So, how long did it take before the account started going down and how much of a runway were you giving yourself?

Jake: We were very fortunate, again, that I've learned from others that we had $100,000 in the bank saved up by the time that we went to start our businesses and leave our job. And we identified ahead of time what was our low point, so if it got down to $30K, my wife, Kailey, and I would be like, "Oh, crap. Okay. What do we need to do at this point? Do we need to work another job or have another income?" So, I believe it went down to about 50 or 60 or so, about 6 months in, and then around 6 months, at least we started to get to the point where income was matching expenses, but as I shared a little bit earlier too, we made very intentional life decisions. So, we didn't have a house right now. We didn't have kids yet. So, our fixed expenses were relatively low. So fortunately, we were able to cut expenses and obviously no one was traveling in 2020, so it's not like we were saying no to trips and things like that too.

The Advice Jake Would Give His Former Self And Younger, Newer Advisors [1:33:04]

Michael: So, what do you know now you wish you could go back and tell you from couple years ago as you were getting started?

Jake: I wish I knew more about the armor that I talked about before of kind of being that achiever, perfectionist, why this is, where it came from and what the cost was. I think when I better understood what was this preventing, it just felt like a weight was off my shoulders. And I think I could have been a lot more compassionate for myself. I think a lot of other advisors were hardwired as competitors where we can be focused on the journey and focused on growth and all of that too. And I think I could have just been nicer to myself and learning some of the different tools and psychology that goes into that. I wish I knew that too and I wish I enjoyed a little bit more about the journey as opposed to the destination and really celebration some of those wins and understanding how I'm hardwired as a business owner along the way too.

Michael: Any other advice you would give younger, newer advisers, thinking about launching and getting started?

Jake: I'd say starting off early, I wish I did this. I went through 3 and a half years of getting the CFA designation and I used 0.001% of that now. So, I wish instead of using that time, I really used it to better understand the psychology of money, the stages of change, money scripts, attachment styles, financial therapy. I think all of that is so impactful. So, whether you are thinking about starting a firm or if you're starting your career, the earlier you can start to learn more about that, I just see it so clearly that this is where our profession's going. That would give me a lot more tools early on than being able to value a futures contract halfway between delivery points. So, I think that's really important, but also building upon the baseline of the CFP, but also going that deeper into the psychology aspect, I think, whether you're a firm owner or whether you are an advisor somewhere else, it's just going to help you out in life, but it's also going to help you out with clients.

What Success Means To Jake [1:35:07]

Michael: So, as we wrap up, this is a podcast about success and one of the things I've always observed, just the word success means different things to different people. And so, you're off on this fantastic journey of building what I think anyone would objectively call very successful business out of the gate You're clearing half a million dollars of revenue before your 4th anniversary. So, the business is going well. How do you define success for yourself at this point?

Jake: I'd say number one, being the best spouse, future father, family member and friend I can be. At the end of the day, really remembering what matters. But on top of that, I'd say maintaining control over my time and the ability to work wherever I want on whatever I want, pursue some of my creative passions. But also, something that I didn't think I would enjoy as much of creating an environment where my team can do amazing work, they're passionate about it, they can create their own hours, work from wherever and also know that they're not going to miss a kid’s soccer game because of the work at Experience Your Wealth. And I think that's really impactful for me and something I take a lot of pride in of creating that for other people too.

And then, I'd say lastly is just providing great service to clients and really helping them break the mold of that whole 9 to 5, work until you're 65. And helping them take some of those dreams and aspirations that they thought they had to wait for in retirement and actually helping them do that sooner. So, I'd say it definitely starts with personal, making sure things are good there, goes to my team and then goes to clients.

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

Jake: Thank you, Michael. I appreciate it.

Michael: Absolutely.