#FA Success Ep 337: Becoming An ‘Accidental’ Entrepreneur When Independence Isn’t Chosen But Forced By Circumstance, With Danika Waddell

Resources Featured In This Episode:

• Danika Waddell
• Xena Financial Planning
• Services Page At Xena Financial Planning
• Xena FP - Think Of Me When (Danika's One-Page Referral Sheet) (download)
• Kitces Financial Planning Value Summit 2021
• Mike Zung
• Financial Planning Association
• NAPFA
• XY Planning Network
• KH Design
• Knudge
• RightCapital
• Google Sites
• PreciseFP
• Harvest Time Tracking

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

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Full Transcript:

Michael: Welcome, Danika Waddell, to the "Financial Advisor Success" podcast.

Danika: Thank you so much for having me, Michael. I'm excited to be here.

Michael: I'm really looking forward to today's conversation. And to me, what's an interesting evolution that I know...journey that I know you've gotten to have of how you ended out in a world where you ultimately became an independent advisor and built your own firm. When I look at the...I don't know, I'll call it the traditional archetype of the independent advisor, particular one that goes so far as hanging their own shingle as an independent RIA, it's usually something to the effect of, "I just wanted to see my clients served a certain way, and I wanted to provide them certain services. I wanted to charge in a certain way. And I worked at some other firm. They really wouldn't let me serve my clients the way I wanted to serve them. Or I had this compliance department that was the Department of No, or my leadership just wouldn't let me do the thing or the direction I wanted to do. And so, out of sheer frustration and this bold vision of what I think the future can be, I went out and made an independent firm and planted my flag."

And when we look back, particularly over early years of XY Planning Network and such, we saw so many advisors that kind of joined in that mold. "I want to serve who I want, the way I want, and charge what I want, do it my way. And my old firm won't let me do it. So, darn it, I'm going to hang my own shingle and do it myself." But that's not everyone. Sometimes we find ourselves in circumstances where, yeah, I wasn't necessarily looking at hanging my own shingle because I wanted to be an entrepreneur. Life happened and this was thrust upon me. And I know you've lived a version of this journey, this kind of reluctant entrepreneur where this was forced upon you, instead of being a long-term vision choice journey that you move towards. And so, I'm excited today just to talk about, I guess, this dynamic where maybe you...what is it like when you're not seeking independence to launch your own firm from scratch? It's thrust upon you from life, and suddenly you find yourself in that circumstance.

Danika: Yeah. I definitely do not consider myself a natural entrepreneur. So, you're quite right that I've had a bit of an unusual path to land where I am today.

How Danika Discovered She Was Not Registered With Her State [06:03]

Michael: So, I think to get us started, just share with us a little bit about the advisory firm as it exists today. And then I do want to go back and understand, how did we get here?

Danika: Yeah. So, Xena Financial Planning is the name of the firm, and I launched the firm in July of 2020. So, not quite 3 years in. At this stage, we have just over 40 clients. I think we're at 41, about $275K of recurring revenue, and that's all flat fee. I'm sure we'll talk a little bit more about fees later on. And then our niche is women in the tech industry.

Michael: Okay. And is it you on your own, how are you building a team around you? What does it look like to be able to staff to support 40 clients and $275,000 plus of recurring revenue?

Danika: Right now, it's me as the main advisor, and then I do have one full-time employee who's been with me for almost 2 years. And she's an associate advisor. She's working on her CFP and will hopefully take clients at some point in the future. I do expect us to grow, but at this point we do have some capacity for sure.

Michael: Okay. Okay. So, I want to dig in a little bit more later of just what this flat fee model looks like in women in tech, and what the service offering looks like. But now, so help us understand a little bit more. How did you come to this point of, "I'm going to go launch my firm." And generally, would ultimately spin up a pretty fast growth path, $275,000 of recurring revenue in 3 years is actually phenomenally rapid growth path. But how did you land in this world?

Danika: Yeah, great question. Like I said, it's a bit of a circuitous path, but I'm a career changer. So, I got into the industry about nine years ago. And at my prior firm, I was at a firm for about 4...a little more than 4 years. And it happened just about 3 years ago. So, early 2020, the pandemic was just sort of taking off. And the firm that I was working at was audited by the state of Washington. So, the Washington DFI, Department of Financial Institutions, conducted an audit.

Michael: So, this is just a state registered firm. So, federal folks at SEC, state registered, if you're in Washington, in come your Washington regulators.

Danika: Yep, yep. That's exactly right. So, we were audited by the state of Washington. One of the things that they uncovered pretty quickly was that my U4 was never filed properly. So, they kind of came to the firm and said, "Whoa, we're still in the midst of this audit. But this is pretty significant. And while we conduct this investigation, Danika is not permitted to kind of work with clients," that sort of thing. So, that happened in February of 2020.

Michael: So, I just want to make sure I'm processing sort of timing and sequence here. So, they come in to do the examination. I'm assuming, basically, first thing on the auditor's process is, "Let's pull the list of advisors registered with the firm, and then let's look at who's actually serving clients, and make sure these lists match." And it turns out they don't because the firm never filed your U4, which I guess effectively means the regulators have just come in and said, "Danika, you're operating as an unregistered advisor." It's like you're serving clients, and you are not registered because your U4 was not filed. So, the first thing they say is, "We're still investigating, but for the time being, you can't talk to clients anymore because you're not registered."

Danika: That's exactly what happened. And I had been working with clients for 3 and a half years.

Michael: I was going to say, how long have you been working with clients at this point? So, you're years into clients. And I guess I was going to ask, what the nature of the role was with the firms? As you said, you are career changing, and you're building up. So, were you in a paraplanner associate support kind of role, or were you a full-on advisor? You had your own clients, and then suddenly...

Danika: I was the lead advisor. Yeah. I was a lead.

Michael: So, you're a lead advisor who suddenly is not allowed to talk to your own clients. Awesome.

Danika: Yeah, it was a really stressful experience because as many of us can remember back to February and March of 2020, not only was the pandemic happening, but markets were going crazy. And people were really, really stressed out. And it was a difficult time in that I could see emails coming in from clients, and I was not allowed to respond to them.

Michael: Yeah, now it's connecting back of just the timing of all of this. So, literally, the regulators have just told you, you're not allowed to talk to your clients in February of 2020 heading into March as the world goes bonkers.

Danika: Yep. Yep. It was pretty bad timing.

Michael: I mean, just what was your reality at the...you're going to the office every day, but you basically just have to sit there, and twiddle your thumbs, and coach the other advisors of, "Here's what's going on in Bob's situation," as Bob calls you and wants to talk to you, "even though I'm not allowed to talk to Bob, I can tell you what's going on with Bob," and you're feeding them...feeding other advisors in real time what's the scoop on this client as they take the calls from your clients.

Danika: Yeah, I ended up doing some just kind of operations stuff because I really wasn't...not only was I not permitted to communicate with my clients, but I wasn't really supposed to be doing any client related work at all. So, it wasn't even a matter of like, "Oh, I can do this project and then somebody else can present it," or something like that. I really wasn't supposed to be doing anything client related. So, I ended up just doing some website kind of updates, and those sorts of things that just weren't related to client stuff at all.

Michael: Oh, man. And all of this essentially stems from just, I guess, either the firm internally or whoever they were working with on compliance. Just someone literally did the paperwork wrong or forgot to do certain paperwork to just actually make you an official IAR with the firm.

Danika: Yeah, if I remember correctly, I think they did the paperwork, but they forgot to submit the payment. And so, it just got canceled. And yeah, so that was essentially what happened. It was just an administrative error. These things happen probably more often than we know, but it was not caught for 3 and a half years until the audit happened.

Michael: So, I guess I'm even wondering just the attitude and interaction with the auditors at that point. I feel like I hear that, and I'm envisioning this...the auditors found you have an unregistered advisor, and let the fines begin while we talk about jail time. I know it's not really at that level of gravity, but that's usually, I find, where a lot of our heads go very quickly. It is terrifying if you realize you're actually on the wrong side of a regulator, and just trying to figure out, "How much trouble am I in, and how permanently may this damage my career or not?" I guess, just even wondering, I mean, how were they treating it? It sounds like they were kind of treating it as, "Okay. I think we understand this is...may just be an administrative paperwork issue, and not that you're literally trying to operate an unregistered business. But we need you to sit on the sidelines until all this gets figured out."

Danika: Yeah, it's interesting. I mean, because this was 3 years ago, I mean, my memory of it has faded quite a lot. And I do recall at the time thinking that my career may very well be over. I didn't really think I was going to face anything like jail time. But I did think there was going to be...

Michael: Yeah, I mean, it is...

Danika: ...real ramifications that could be a permanent mark on my record, all this kind of stuff. I really didn't know how that was going to play out. And it was very scary. And it lasted for almost 3 months of this just very uncertain time. Again, the world seemed to be kind of crashing down around me anyway. And I remember at the time thinking like, "Who cares about COVID? My career is basically coming to an end. This is much bigger..." I could barely even think about what was happening with the pandemic because I was so just focused on what was happening, and really unsure about what my future looked like.

Michael: But help me understand, I'm presuming...I mean, just if what this comes down to is, "Oh, my gosh. I can't believe we made the mistake and we forgot to make the payment with the U4." Granted, even I have not lived like the exact details of what this is like going through Washington State's process in particular, because every state's a little bit different. But I'm visioning they come in and tell you this on Monday, so Tuesday at 9 a.m. all the paperwork's in, and the checks written, just like, "Okay, we're getting it fixed immediately. Can you approve us on Wednesday and get this done? Because we all want to be in compliance." What took 3 months to get it sorted out.

Danika: Right. Well, they did actually...the firm did register me immediately. And so, you can go on FINRA or BrokerCheck now and see, February, I don't know, 19th or something of 2020, all of a sudden, I'm registered. And unfortunately, the state said, "Well, we really need to understand kind of what happened here." And I remember at a certain point, I mean, it's been kind of dragging on, and I was getting very frustrated, and I actually called DFI myself and said, "So, if I got a job at another firm tomorrow, I could work directly with clients, right?" And they said, "Oh, yeah. There's no reason why you can't interact with clients in general. It's just that we're in this investigation process. And so, we want you to kind of put a pause on your current clients."

Michael: Which I guess basically I read as at this point it's not actually about you. You got registered so you can go work for another firm tomorrow. This is actually more of...this is a supervisory issue for the firm at this point that the company is...that the regulators are basically saying, "Well, we're not confident in your firm's compliance processes and procedures, since this happened in the first place and they didn't notice. So, we're glad you've gotten registered, you're fine. But we can't let you operate under a firm that wasn't exercising proper supervision until we make sure that there's isn't fire where there's smoke." That this firm doesn't have other compliance issues because I'm sure from the regulator end, sometimes people make honest mistakes, and sometimes it's a total compliance train wreck. And the first thing you find is the first of many things you find.

So, if I'm a regulator, I guess I'm hunting now to find out whether there's fire underlying the smoke. So, then I say, "You've got to pause while we figure this out." So, that's the context of how they put you in the holding tank.

Danika: Yeah. And I think...I mean, this was many weeks into the process when I had that conversation with them, but that was the start of my process of sort of saying, "If I could leave tomorrow and work with clients at another firm, whether it's my own or an existing firm, what's to prevent me from doing that? And how attached am I to staying at this firm?", where I had been very happy up until that point. But I thought, "Is this really where I want to be long term?" And so, that really started me thinking about what my other options were.

Michael: So, out of curiosity, is the firm otherwise still paying...are you still on the payroll trying to operate because they're trying to keep you around? Or is this now already rippling in other ways for the firm? Because I'm sure from their end, they're like, "Well, someone else has to take care of your clients while you can't. Granted it's our follow up, but someone has to take care of the clients while you can't." I'm imagining this starts getting awkward for the firm as well.

Danika: Oh, it was very awkward for the firm, no doubt about it. The way that my compensation was structured at that time was a base salary, and then a variable component that was tied to client work and production basically. So, DFI also said I was allowed to get my base salary, but I could not be compensated for any client work, even projects I had already completed and already delivered. So, yeah, my pay was cut by about 50% while the investigation was happening.

Michael: I guess I never even thought of the indirect...because if you happen to be a 100% salary plus bonus, it's kind of hard for them to unwrap that when you happen to be base salary plus percentage of revenue of clients. It's ironically very straightforward for the regulators to say, "Well, you can't have the client comp part."

Danika: Yep. Yep. And that was pretty painful as well. I mean, I'm very fortunate that my partner makes a very good salary, and we were fine. But that was also really stressful that suddenly my compensation... Again, and this was for projects I had already delivered. I was not allowed to be compensated for this.

Michael: Right, because I mean, just ongoing...clients I built up and brought to the firm one or many years ago, that's just common component of comp for a lot of advisors. So, basically, the firm has cut your comp by 50%, not even necessarily their choice. This is the regulators kind of plowing through on it. But everybody is still stuck in this bucket, which I guess then just makes it all the more awkward for the firm because they're like, "Yeah, we didn't want to cut your payment. Now we're not even allowed to keep paying you what we were while we fix this thing that we accidentally kind of messed up."

Danika: Yeah, yeah. It was just a ginormous mess from pretty much everybody's perspective. I don't think it was pleasant for anybody to go through.

Why Danika Decided To Launch Her Own Firm [20:25]

Michael: No, I would really imagine not. So, I guess, how does this play out? I mean, I'm still assuming at some point you're going through this and you're like, "Okay, but I am registered now. And at some point the firm...we get through this state audit eventually." I mean, at some point the auditors just want to go on and find another firm as well to investigate they don't want to set up permanent shop in your office indefinitely. So, presumably there's some implication that eventually this will come to an end, and maybe hopefully we get to move on again. So, how does this play out where you are also starting to think, "Well, do I want to stay here until this resolves, or do I want to go somewhere else? Do I need to go somewhere else?" How were you thinking through that in the moment as you're trying to process all this?

Danika: I think for the first...certainly for the first few weeks, I was very much of the mind that, "Yes, this too shall pass. We will move on, and things will just kind of go back to the way that they were." And at some point that started to shift. So, probably around 2 months or so into this process, again, it was a very unpleasant period of time, very stressful, very traumatic. Not being able to support my clients through this period, it was very hard. And so, I think it was a bit of a gradual shift. But over a period of a few weeks, I started to think, "Maybe I need to really consider what my other options are here. I mean, I don't know how long this is going to go on. Is it going to take 6 months? Is it going to take 3 months?" Nobody seemed to know. And as I sort of looked around at...I looked around at other firms in the Seattle area, and thought, "Maybe I should just go get another job." And I considered launching my own firm, and certainly had seen a lot of people do that through XYPN and other avenues.

And so, I would say it sort of percolated for a few weeks. And then at a certain point, I just was my...mind was made up, and I just said, "I really cannot remain at this firm anymore." And within...I mean, I gave notice, it was about 10 weeks into the process, and 2 days after, the state came back to the firm and said, "Okay, we're all done with the investigation." And my old boss called me right away and said, "We would be more than happy to have you back. We're so sorry about all this. And if you're still willing, it's not too late, do you want to come back?" And I said, "No, that ship has sailed. This is done."

Michael: Well, yeah, I guess at some point, just once you make up your mind, the reversal of it is just even more tiring and stressful than just, "The ship has sailed. I just have to move to the next stage of life."

Danika: Yeah, exactly.

Michael: So, what had you decided? At the point that you gave notice, did you know where you were going, and what you were going to do next? Or was it just like, "I just can't stay here. It can't continue in this state. I'm going to give notice, and then I'm going to go find what's next."?

Danika: Yeah, it all kind of came to a head over a weekend. And so, over the course of that weekend, I basically went to my husband and I said, "Look, I'm absolutely done, I'm going to give notice on Monday. I'm going to launch a firm." I think I joined XYPN over the weekend. I might have even registered with the state of...not registered, but incorporated with the state of Washington over the weekend. I filed a business license or whatever. And I can remember my husband really...he was supportive, but he said, "Do you think maybe you could kind of think this through a little bit, and maybe take your time?" And I said, "No, I'm 100% convinced that this is the direction that I want to go in." So, I knew I was going to launch a firm, and had already taken some of those first few steps to do that.

Michael: So, I guess I'm fascinated by the shift from, "I'm in an employee model, and I'm fine and comfortable in an employee model," to 10 weeks later, 9 and a half weeks later, "I can't stay in this anymore, and I'm not even going to another firm. I'm just going to launch my own." I guess what I'm trying to understand, what was the shift of, "And I'm just going to go launch my own," instead of simply trying to find another advisory firm? Seattle's pretty dense, there are some other firms around. Some parts of the country are, yeah, there's basically no other RIA within 30 miles of me. But you got some firm density there, so presumably there's at least some choices. How do you end out in a world of saying, "I don't want to go to another firm. I'm going to hang my own shingle even though that hadn't originally been a plan."?

Danika: I think there were 2 main factors that went into that for me. So, one of them was just kind of looking around, and seeing what else there was in my market. And a lot of ultra-high-net-worth focused firms and that sort of thing, very high minimums. And I just was thinking, "If I'm going to make this big change, that's not really the population that I want to serve." And I don't know, there wasn't anything really compelling in terms of other firms to work for. And then the other part of it, perhaps even more significant, was part of my realization, I think, of going through this process was that I just assumed that, you know, working for a firm that's already established is just kind of the safe thing to do. Starting a firm is very risky. But here I was doing the safe, very traditional path of just being a worker bee. And I realized that, "Oh, gee, this is not as safe as I thought." And I just came to this conclusion that I do not want to be anyone else's employee. I do not want my fate to be dependent on somebody else filing the correct paperwork. I want to be in charge of my own stuff. And so, I think I just sort of crossed over this point where it was like, "I don't ever want to be an employee again." So, that was the real driver, I think. It's just… I’m done.

Michael: That's an interesting framing of the established firm is supposed to be safer and stable, clients, infrastructure, service, compliance support, some level of base salary, and going out on your own is supposed to be the risky thing. And then suddenly you're in a realm of, "Or I don't want my fate to be determined by someone else's ability to properly file the paperwork."

Danika: Yeah.

Michael: I think that's a striking shift. It reminds me, Alan Moore used to make a comment like that of how he ended out in an independent realm that was basically the first time he went through a job and got fired, because granted, he's a little too independent minded. So, tough employee. But the comment he basically made at the time, granted, he may have been a little wired for entrepreneurship always. But the comment he made at the time was, "I watched my salary, my income go to zero, and get snuffed out in a moment because someone else made the decision that I was not a good fit for the firm." He was like, "Granted, they might have been right. But just that was terrifying to me that my livelihood can end in a moment because someone else makes that call. It's one thing if I say, 'Hey, am I good fit here? I'm going to move on.' But the fact that they could say that to me, and then my life is now immediately turned and shifted. It was like, I just don't like not having that level of control over these outcomes. I need to be more in control of my own fate."

Danika: Oh, yeah, that was exactly my process. And going through that whole audit experience very much led me to, "You know what, I think it's time for me to do my own thing. And I want to be in control, and I want to know that things are getting filed correctly." And all of the above. So, that was exactly where I was coming from.

Why Danika Chose ‘Women In Tech’ As A Niche [28:35]

Michael: So, as you then make this transition, what was the vision when you were launching the firm? As you've said, now, Xena Financial Planning is focused on women in tech. Was that the vision out of the gate? Like, "This is where I want to go, and this is who I want to serve. And if I'm going to control my own fate, then this is the hill I'm going to die on, the clients that I want to serve." Did you have that clarity?

Danika: Pretty close. It wasn't quite that refined when I first launched. I mean, I definitely knew I wanted to prioritize working with women. But of course, working with women isn't really a niche. And the tech industry is something that I'm very, very comfortable with. My husband works in tech. There's just so much of it in Seattle. So, I had worked with plenty of people from all the big tech firms over the years already. So, I had a lot of familiarity and comfort level there. And it's something that I really enjoy. So, that was part of the initial plan. But I also, when I first launched, had women business owners as sort of another aspect of my niche. And that one ended up just sort of falling away pretty quickly, I think, because I just didn't really...I wasn't as excited about it, to be honest. And the planning issues that come up for business owners and people in tech aren't really that similar.

So, I just found from a scalability perspective, it just made so much more sense to focus on one of those. And women in tech was the obvious choice just because it was something that I was more interested in, I was more excited about, and it just seemed to come more naturally for me.

Michael: So, I'm struck by the comment you made there that the issues weren't that similar. And so, having just one would be more scalable, because just a lot of people that I hear that ultimately decide, "I want to go down to a particular niche, because I can market more focus." I had a women in tech meet-up at the same time as a business owners networking event, and I had to pick one because they were at the same time. And so, I picked one, and that became my one. At some point the marketing time and energy starts to conflict. But I'm struck that you framed this as, "No, no, picking just one was more scalable." So, can you explain that further? How did that hone you in?

Danika: Yeah, I think it's just about having kind of a repeatable process, and sort of knowing what your client is going through. So, a lot of my website, marketing, content, all that stuff is really about answering what are the questions that my clients are asking, right? What are the sorts of things that are on the minds of women in tech? And so, it's very easy for me to come up with a short list because I hear them all the time from my clients. But to really focus on that, and then to create tools and deliverables that really address those needs. And so, when I'm working with people in tech, it's around the tax implications of all their different equity comp. And maybe there's a liquidity event coming.

And all of these things are very different from, say, the cash flow challenges of a business owner. And so, the templates and all of the things that I was creating were just much more targeted to the tech persona or avatar. And that just made it a lot easier to sort of...I was doing a lot of the same work basically versus the business owners who were kind of like, "What sort of retirement plan should I set up?" And just very different questions and concerns from that type of population.

Michael: Well, it is striking me for a lot of firms I hear saying, "It's so hard to scale advice, and I'm struggling with creating repeatable systems and processes for financial planning, because every client's needs are different." I'm like, "Well, unless you pick all one type of client, and then their needs aren't that different." We try to come up with repeatable systems for a very wide range of clientele, whereas as you're noting, if you just pick one particular type of clientele that have the same sorts of problems over and over again, then they all basically need the same thing. And then it gets a lot easier to be repeatable. The options analysis is different, but you can make an options analysis spreadsheet because all of them need it.

Danika: Exactly. I mean, there's always variation, right? Every single company's benefits package is different, and every IPO is different, and all of that. But yes, the spreadsheets, and the templates, and all of that can be the same. And then you customize them as needed.

Michael: I'll give a shout out as well that I was particularly struck just looking at your website, and how you actually present this. So, we'll put a link out into the show notes for this. This is episode 337, so if you go to kitces.com/337, we'll have a link out to the services page for the website. But you click on services, and I mean, for most advisory firms, I find, you click on services, and you get, "We provide comprehensive financial planning, and individual wealth management, and we cover insurance, and estate, and retirement, and taxes. We cover the domains, and we kind of list out the areas." I'm fascinated by your services page. You click Services, and up comes this 3-by-3 grid of pictures, people's faces looking back at you, almost sort of like Brady Bunch style but looking very nice and professional. And each one is a face that's saying, "When should I exercise my stock options? I wish I knew how to negotiate my salary and equity compensation. I need a strategy for managing my RSU income. My company is going public, help. I'm burnt out on tech, can I afford to take a sabbatical?"

And just it strikes me, these are questions that almost any of us as advisors can help with an answer. Bring me a client with these issues, I will do the analysis, I will gather the data. I can provide recommendations, but it's a whole other level of powerful when someone comes to the website, and these are their questions because these are the questions and challenges of women in tech. And you just see the faces of nine women looking back at you, literally saying these questions and it's like, "Oh, these are my questions. And this is what I see when I go to the Services page. Okay, apparently this firm really does serve people exactly like me who are struggling with these exact same challenges. And apparently this firm knows exactly what they're doing, because their services are literally the questions I'm asking."

Danika: Yeah. And I mean, I don't need to tell you about the power of a niche, but I mean, I get people all of the time in a prospect meeting who say, "I went to your website, and I feel seen, you get me." And that is so powerful to just have somebody come in and be ready to go. They just feel 100%, "This is exactly what I need."

Michael: So, where did it come from to do women in tech and women business owners in the first place? Was this you were initially excited for both, and then one just kind of wanes and went? Was this more of a, "I'm starting, and I just need to cast my net a little wider because oh, my gosh, I need some revenue." One of those? Just wondering, where did it come from?

Danika: It was definitely kind of like, "I don't want to be too narrow and exclude people." And I thought, "Well, I'm a women business owner. Surely I can relate to other women business owners, and the challenges that they're dealing with." And that is largely true. But I just didn't feel as connected to that for some reason. The sort of actual financial issues that people are navigating as business owners just wasn't as interesting to me. And so, yeah, I think initially it was very much just cast a wide net and see kind of what works. And the women in tech thing just not only do I find it more interesting, and I find it a little bit...I don't know if it's quite easier, but in many ways just felt more natural to me. But it also just really resonated. Those people showed up, and it was like, "Okay, well, I guess I've got enough of a market here that I don't need to do the business owner thing as well."

Michael: So, out of curiosity, how long did it take to get to that moment? I mean, was that "And 2 years later, I finally took down the women business owners part," or is this more, "Yeah, and 3 months in it was just clear to me."

Danika: Oh, yeah, within 6 months, for sure. I mean, a lot of things became clear to me really early on, because I think just right out of the gate, people however they found the website, people came to the website, they were excited. They wanted to sign up. And I just had a lot of demand kind of from day one. And so, it was pretty quick where I could say...I mean, I don't know if I actually formally took a lot of the language off the website right away, but probably within 6 to 9 months, I lost that whole business owner focus.

Michael: And was women in tech your background as well? I mean, you said you were a career changer. Were you a career changer from tech or something else?

Danika: Kind of yes, kind of no. I'm not a tech person, so I don't...I'm not a developer or an engineer or anything like that. But I did kind of corporate, finance, and accounting, and I did work in several startups that were...I was the only non-engineer basically in a couple of different companies...or maybe not the only one, but I definitely worked at companies that had stock options. And I went through an M&A transaction in one company where we got acquired by Hewlett Packard. And I administered the stock plans. So, it ended up being kind of an interesting background to sort of translate to the work that I do now. So, I did have some exposure, but I don't really consider myself a tech person.

Finding The Right Clients By Giving Other Advisors A One-Page Reference Sheet [38:35]

Michael: Okay. So, you said you had a good amount of demand pretty much from day one. So, where did the demand come from? Was this clients from the prior firm that came with you or were following you? Or is this starting entirely from scratch with new marketing that just got traction quickly?

Danika: There were some clients from my prior firm that followed me. I was not allowed to contact them, of course, but people were able to track me down. One thing that's, I think, worth pointing out is my prior firm was 100% hourly. And so, there was no kind of book of business, or recurring revenue, or anything like that. So, some people did follow me. I want to say maybe a third-ish of the clients that I worked with in the first year, 25% to a third were people that I'd worked with in the past. But a lot were referrals from other advisors, centers of influence. Yeah. And just marketing. Yeah. So, just kind of getting my name out there, got a lot of press stuff pretty early on, and that led to quite a bit of traffic. So, yeah, it was a variety of factors that I think led to some pretty significant traffic.

Michael: So, can you share a little bit more of that? Just what were you doing to actually get other advisors to start sending referrals, actually get COIs to send you referrals, actually get press when you're still getting going in the first few months? What were you doing that was actually making that traction show up?

Danika: Yeah, I'll put a plug in here for volunteer work. So, I have done several years on the local FPA board, including year as president. I'm now on a NAPFA board. And one of the results of that is I know a lot of advisors in the Seattle area, so people know me, they remember me from that time. And because there's so many people in our area that have high minimums, I've gotten referrals for years from other advisors who just don't know where to send someone that doesn't have $1 million or $2 million in investible assets. So, I already had a pretty good network of people that would somewhat regularly send me prospects that didn't meet their minimums. And I basically just parlayed that into, "Hey, I've launched a new firm, this is how I'm working this, this is my new contact information. Send people here."

Michael: Oh, because even if the prior firm was hourly, you were already living in a world where the other firms that have high minimums, to need to send clients someplace, you already had built some relationships to be on the receiving end of those referrals in the hourly world. Now it's just, "Hey, I've got a new firm. It's not hourly, but it's complexity fees for women in tech who maybe don't have a big portfolio yet for you to manage to fit your business. You can send these leads my way instead."

Danika: And when I launched, I actually was hourly, and I mostly did that for just sort of ease of registration in Washington state. But I had the exact same model as my prior firm. So, yes, it was still hourly. And so, that's a very appealing thing for advisors to have referrals that they can send people to. And it's like, "I'm really sorry that we're not a good fit, but hey, here's Danika's website. Why don't you go talk to her?" And so, I was just able to sort of pivot and say, "Don't send me every single person that doesn't meet your minimums. But these are the types of clients that I'm looking for."

Michael: I was going to say, when you're in that early stage, and you also just...you've launched, and you want any revenue coming in. When you were going to these advisors and saying you've relaunched, how women in tech or women in tech plus women in business owners were you focusing then? Were you talking about that kind of niche and focus out of the gate? Or was it, "I've launched my own hourly firm, so please, anything you can send would be greatly appreciated."

Danika: No, I was definitely letting people know what the niche was. And I actually...I have a one pager that I put together that's just...makes it very easy. And I will share that with other advisors and say, it just has some basics about my fee structure, who I work with, the typical types of issues that my clients are facing, what my background and training is. Just a lot of things that someone might be wondering about my firm before they send potential clients my way. So, that's another thing that's really nice is if somebody sends someone to me and it's a retiree, I'll say, "Thank you so much for the referral. But hey, here's this reference page for you to keep on hand. And if you're wondering whether or not to send someone my way, you can very easily determine by looking at this page whether or not they would be a good fit."

Michael: I appreciate your willingness to share that. So, we'll post it to show notes. So, again, folks who are listening, this is episode 337. So, if you got kitces.com/337, and go to the show notes area, we'll have a link out to the one pager, I guess, sort of views for marketing referral purposes.

Danika: Sure.

Michael: All right. Very cool. Very cool. I guess so that starts to drive the advisor referrals, I guess as well as the COIs referrals. I'm assuming at this point that you had some COI relationships, you "just" get to go back to them and say, "Hey, I'm doing a new thing. And here's what it is and here's what I'm doing."

Danika: Yep. Exactly. Yeah. So, I just sort of updated everybody. "Hey, just in case you're wondering, I've now got my own firm," and shared that same one pager with them. And yeah, just sort of rekindled a lot of those COI relationships that maybe I hadn't talked to recently, and that sort of thing.

Michael: Okay, very cool. And then what was the marketing? Sorry, the press. You said you got some good press coverage out of the gate. Where did that come from, or how did that come about?

Danika: Yeah. I mean, that was really just a function of the XYPN and NAPFA emails that I get. I think I get at least a couple a day about potential opportunities to be quoted in the media. And I had a few of those pretty early on. The New York Times one in particular that generated...lots of prospects came from that particular quote, but a few like that. And it was just nice to be able to have...I'm a brand-new business. It's nice to be able to have some of that stuff on your website from the get-go.

Michael: Interesting. So, it's kind of this combination of, "I had been on the board of FPA, so I had a lot of advisor connections there to generate referrals. I had some COI relationships from the prior firm so I could go back to them with the story. Then I'm NAPFA and XY Planning Network member, so I'm getting some media leads from them. That's filling out the press side, so I can put press, social proof mentions on my website." And so, all those different pieces then come together combined with, "And I'm here for women in tech," and a services page that speaks to them really, really clearly.

Danika: Yeah. And I think the website itself is somewhat unique. I mean, there's a lot more interesting websites out there now than there used to be. But certainly when people come to the website, I mean, they have to find it. But once they get there, I feel that many, many people are pretty aware that there's something a little different here. And, "Oh, these colors, I don't usually see pink and purple on and advisor's website." And I do feel like the website generally has a positive impact. People find other content that I put out there, whether it's podcasts, interviews, or whatever. And they're like, "Yeah, I saw something that you put out over on Instagram. And yeah, I really liked what you had to say." So, all of that stuff is really accumulating, and definitely contributes to just...again, I don't know that it's necessarily helping people find me, but once they do, there's lots of ways that people can sort of verify that they like my style, I guess.

Michael: So, was this like a big investment for you out of the gate as you're getting going, you have to stand up a big fancy website with custom design work to be able to tell this story?

Danika: I mean, the website cost $7,500. And I think her prices have probably increased since we worked together, which seemed like a pretty big investment at the time. I probably could have done it myself, or hired somebody for a lot cheaper. And I just thought, "I kind of want to do this right. I don't really want to just put something up there, and then have to redo it in a year or two." So, I did definitely spend more upfront than I probably needed to, but I think it's more than paid for itself.

Michael: And out of curiosity, who did you work with to do it?

Danika: Her name is Karin Haggard, so KH Design, I think is the name of her firm. But I'm happy to share lots...I know she does lots of financial advisor websites.

How Danika Evolved Her Fees From Hourly To Flat Fees [47:35]

Michael: Okay, well, we'll make sure we get a link out to her website in the show notes as well. So, I'm curious now to understand more of the business model fee evolution. Because you had said at the beginning you run a flat fee model that adjusts based on complexity. But then you also mentioned, "Oh, when we launched, we were straight hourly, I guess, replicating the old model and just trying to get things going." So, share with us the fee evolution. I mean, just where it started, where it is now, and what you went through along the way to get from here to there?

Danika: Yeah. I don't even know if I'm done. I mean, I feel like this is a journey that just people are constantly evolving, and figuring out what works best and how to serve their clients and all the rest of it. But hourly seemed like the easiest thing to do for...the state of Washington is definitely one of the more awkward from a regulatory standpoint. And so, really, it came down to hourly or AUM. And I'm not a huge fan of charging based on a percentage of assets. That doesn't really align with how I want to serve clients. And so, I thought, "Well, I'll just start with hourly. We'll see how that goes." And I did that exclusively for a year and a half. And there's so many challenges with hourly.

And in some ways I love hourly. It's like, "Well, if somebody is more complex, you spend more time, you get to charge them more." But it's just so transactional. And I really found there were just too many limitations and went through a lot of different possibilities and sort of came to the conclusion that doing something like a flat fee with investment management included was the direction I wanted to go. And so, I launched that January 1st of 2022. So, we're a little more than a year into offering that as the primary service.

Michael: So, how did that... All right. So, I got a lot of questions. So, what did it launch at when you rolled that out? Let me start there. What was the fee when you went, "Okay, we're going flat fee ongoing starting January 2022."

Danika: Yeah, it hasn't really changed. So, I started it at $6,000 for an individual and $7,500 for a couple. And then that could increase if there was a lot of complexity. In reality, I haven't really done a whole lot of that, but I'm definitely switching my systems up a little bit because the beginning, I was just sort of saying, "Yep, $7,500 for a couple," and then I would get this couple that would sign on, and it was like, "Oh, my gosh, there's so much here. I've way under-bid or under-quoted this fee." And so, I'm having to definitely get more information upfront and quote appropriately. But it hasn't really changed since I launched. So, yeah, that's the flat fee. And then say for the individual, if it's $6,000, that includes $600,000 of assets that I will manage included in that fee. Once it crosses over 600K, it goes to a percentage. And then same thing for the couple, once they cross over 750K, then it goes to a percentage. But there is at least a chunk of assets that are included in the flat fee.

Michael: And so, essentially, once someone has a greater than 600,000 or 750,000 respectively portfolio, they essentially convert into or graduate into an AUM model with you?

Danika: Yeah, exactly.

Michael: And then what is that AUM fee? I mean, I'm guessing it starts at 1% since that's your 600K to 6,000 crossover.

Danika: Yes. It starts at 1%, and then at a million it goes to 75 basis points, and that's it. It's very, very simple.

Michael: Okay. So, I guess functionally, this sort of operates as like an AUM model with a flat fee minimum, but you market it more as a flat fee for services. And if your portfolio grows above a certain size, then we have an additional layer of fees for the additional portfolio management services.

Danika: Yeah. Yeah. I mean, I think...I don't know. We could probably spend all day talking about fees. What I like about the flat fee is that it's predictable. It's very clear. Nobody's wondering, "Is my fee going to go up or down as my portfolio size changes," or whatever. And many of my clients don't meet those thresholds, right? So, some of my clients either have a significant amount tied up in their company stock, or maybe they work for a private company, and there is no liquidity, or something. But many of my clients are well under those thresholds. And so, I think the flat fee just tells the right story about what our services are. And I don't want people to put too much value on the investment management piece. And so, that's why that exists that way.

Michael: So, as you converted into this model, if your clients historically had been coming to you on an hourly basis, were there hourly clients who came and re-upped into this, or is this almost like the hour the clients are transactional and walk away once they're done as you converted this, it's just only new clients from here into the model, and that you had to drive all of that growth since the conversion in January of 2022?

Danika: Many of my hourly clients definitely said, "No, thank you. We've loved working with you, but this is not...this model doesn't work for us, or we're not interested," or whatever. And many of them did convert so it was sort of a mix. I don't know the exact percentage, but I would say less than half of the hourly clients converted over because also if we sort of looked at a calendar year and how many hours my average client was taking, the sort of things that they needed from us, many of them just didn't have the complexity to warrant paying. It was a higher fee than what they were paying, basically. So, it was a mix. I mean, some people definitely came over to the new model and quite a few said, "No, thank you."

But it has been interesting to see, even people that I worked with at my prior firm, and now work with and my current firm. And so, these are people I've maybe worked with over many years. And really they came to the prior firm because there wasn't investment management. That was one of the appeals was like, "No, I just want hourly advice." And to see the number of those people that have now said, "Actually, we do want investment management," is pretty interesting because I think one of the things that is so obvious years after working with people, they still haven't made a lot of the changes that we were recommending 5 or 6 years ago. And it's like they finally said, "Okay, we accept the fact that we're actually just not going to follow through here. And we need your help."

Michael: Interesting. Because after they work with you for a while, the trust builds up on the other end that some clients are really DIY and some clients aren't really DIY. They've just had so many awful experiences with the financial services industry that they don't trust us, until eventually you work with them enough that they do.

Danika: Or what's happened with...I can think of at least a couple different client households where they were DIY-ers when they started working with me. And now they've got kids and their lives have just become much more complex, and said, "We don't have time for this anymore, and we'd like to outsource this now."

Michael: Which I guess is especially powerful when you're working with younger folks who are upwardly mobile in wealth, who are upwardly mobile in careers. It's just like they're...you're not hitting them at peak complexity. It is what it is, I either pay for help with this complexity or not. You might be hitting them earlier in the complexity growth curves. They have enough complexity that they want help, and then their lives get more complex. And it's like, "Yeah, we trust you. And this is getting painful. Why don't you just do more of this for us?"

Danika: Yeah, one of my oldest clients or longest-term clients, I guess, kind of came to me. I think they were in their early 30s. Both worked in tech, had done a pretty good amount of savings, but not a lot of complexity. But that very first year it was... And this was at my old firm. The very first year, it was, "We want to buy a house." And we kind of went through the whole exercise of how much they could afford, and how they would pay for it. And then the next year it was, "One of us wants to start a firm. And what does that look like? And how can we live on one salary?" And then the year after that, it was having a baby. And now I'm still working with them. And the husband just sold his firm. And so, now there's all sorts of complexity around the transaction, and the tax implications, and QSBS, and all kinds of fun stuff. But really seeing the changes that they've gone through, and their complexity has gotten so much more significant over the last few years.

Why Danika Implements A 5-Meeting Process [56:43]

Michael: So, help us understand now what...you've got this core model of $6,000 minimum fee for individual, $7,500 for couples as they add AUM, eventually they hit an assets under management crossover. But for a lot of folks, they don't have much or any assets because they're not liquid yet. But you're charging fees and you're serving them. So, help us understand what do you do? What do you do for this $6,000, $7,500 fee for a client.

Danika: In the first year, our intention is to meet with clients 5 times. So, there's quite a lot of work in the early stages. We do go through the Kinder process. So, we have a pretty intensive process at the beginning of getting to know a couple, or an individual around their values, and what's important to them, and really structuring their whole financial life around that. So, it's not so simple as just kind of plugging in a bunch of numbers into RightCapital, and running some reports and going, "Yeah, this looks good. You just need to increase your savings rate a couple percent." I mean, we really are doing a lot of qualitative work with our clients. But I think a lot of the same things that many other people are doing, we're doing pretty in-depth, comprehensive planning. We're helping a lot with implementation, which I think is somewhat of a differentiator. I mean, I know a lot of people do that, but there are still many, many firms that don't. So, we really are helping people actually take the steps to follow through on whether it's getting life insurance or adjusting their withholding. We do all that stuff with people. So, it's a pretty intensive process, certainly in the first year.

Michael: So, can you walk us through just what is the 5-meeting process?

Danika: The first four are pretty well established, and we try to do those, I'd say, roughly a month apart. So, we first start working with somebody, say, for initial meetings. And the first meeting is definitely just really kind of a get to know you, goals exploration, start of the Kinder process. And kind of getting a high-level overview of where they stand. The second meeting is mostly cash flow. So, we, again, go pretty far in the weeds on cash flow with people. So, that's a pretty focused meeting on that topic. And then meeting 3 is scenario planning, RightCapital. We just started doing private websites for our clients, and that is a huge thanks to Mike Zung, who's been leading the charge on a lot of really cool things that he's doing with his clients.

Michael: What is that? What are private websites?

Danika: I mean, it's like a hub or some kind of centralized location for clients to sort of come to get...all of the work that we're doing together. So, for instance, we use Google Drive with our clients so they can kind of come to this website, and it's a Google site. So, you have to be signed into your Google account to view it. So, it's private in the sense of if it's a site for Michael Kitces, and I'm not signed into [email protected], I can't access it. So, you have to be signed in to your Google account to view your page. And then, there's links to everything that we're doing, our meeting notes, some of the reports that we're working on. There's just a lot of...it's essentially kind of like the one-page plan with a few more supporting documents that go behind that.

But the clients have been loving it. So, we're really...what we do in that meeting 3 is introduce that site, and we basically say, "If you bookmark nothing else, bookmark this page, and the links to schedule, Calendly links are here. Send us an email, find RightCapital, find Schwab." Everything should be pretty centrally located there. And any recommendations we make, any links that we share to other sites, all that kind of stuff. It's all in one place, basically.

Michael: All right. So, I have all sort of questions of this. I'm fascinated by this framework. So, what's the difference between this and just using a client portal from one of the 472 pieces of advisor software to have a portal? My financial planning software has a portal, my investment management platform has a portal. I can buy standalone portals. I feel like soon my portals will have sub portals. There's portals everywhere and you're using none of them. So, what does this do that's so different, or better that you're not using anybody else's portal, you're using this instead?

Danika: One of the things that we hear from clients all the time is, "I had to go through so many of my emails from you to find something." And the idea is that they don't ever have to go through their emails. It's all in this place. And what I find with, say, RightCapital, that's great for certain things, but let's say they want to go to our cash flow worksheet, which lives in Google Drive, or let's say that they want to log in to Schwab, or they want to schedule an appointment with me, and they can't find the Calendly link. All of that would be in one place. So, the portals are great. I mean, I'm a huge fan of a lot of the work that RightCapital and some of these other providers are doing. But at the end of the day, it really doesn't house all of the work that we're doing together, even the meeting notes, right?

So, let's say, for instance, I tell somebody, "Hey, here's this estate planning attorney I think you should contact. They're perfect for your situation," blah, blah, blah. And then they say, "Well, I know you sent me their information, but I just can't find it." "That would be on this website. Here's the link to the estate planning attorney we recommended." So, it really would be everything that they need in one place.

Michael: So, it's like a website page that's a central reference of all the things that they might need, or want to click on, or look up, or come back to.

Danika: Yeah, yeah.

Michael: So, help me understand again the exact setup. So, this is through Google Sites where each...I mean, you're literally...you're making a web page, you're coding a web page.

Danika: Yes, that's correct.

Michael: So, are you just...you're HTML savvy that you can get in there and do some basic design work, and make this work without having it be too time consuming, cumbersome?

Danika: I'm not terribly savvy in that way. And again, Mike has been super generous with me. I mean, Mike's a good friend, but he's sort of shared his version of this with me. And we've customized it to have our colors, and our logos, and our...all of the different things that we use in our practice. So, for instance, we use the software Knudge, which reminds people about things that we have recommended that they do. And so, that's another thing that they... "I know you sent me a reminder about something, but I can't find it." They would also be able to... So, we're sort of customizing to the client, but we have...so we have a template that's just sort of the generic version. And when we create one for a specific client, it takes probably an hour to two hours, depending on how much is happening for that client to just sort of set up the site for them. So, I mean, it's time consuming, but it's not a huge lift.

Michael: Okay, so there's a standard template for the client, or just for any client. And so, you get to design that ones with colors and logos and style and such. And I'm sure section labels, or however you've laid it out. So, then it's each new client comes aboard, "Okay, well, the Calendly links are already pre-populated because that's standard for everyone. But, oh, this is the client's latest financial plan. So, let's actually upload that and link it in." So, you create it, and then it's just like a sharing process the same way that Google is pretty good at controlling access permissions. In the same way I might share a Word doc to someone...or not a Word doc, but Google doc to someone. I can share a Google site with someone the same way so they get it through their Gmail address, link it up, and then they can log in and see it and market.

Danika: Exactly. Yep.

Michael: Interesting. Okay. And so, as you're maintaining the relationship on an ongoing basis, you've got to periodically log in and make updates to their Google Site client pages, like you do new things, or post a new copy of the plan, or roll out a new piece of software that they got to log into, correct?

Danika: Correct. So, unfortunately, it is pretty manual, and I would love to have more of the site that sort of automatically updates. There's a couple of things that are linked to like a chart and Google Sheets. And so, if that chart gets updated, then it will automatically update on the website. But a lot of it is manual and because we've just started doing this this year, I'm not quite sure what our frequency will be on updating. But yes, we will definitely have to go in, at least once or twice a year, and just sort of manually update certain parts.

Michael: Okay. So, I'm sorry, very cool, but I diverted us a little bit. So, you were taking us through the meeting process. Meeting number one is goals exploration. Meeting number two is getting into the weeds and cash flow. And I guess in that context, is there a tech you're using for that, or are you just...tell them to bring in whatever the best estimates are for cash flow? How do you actually get into that with clients?

Danika: Yeah. I mean, we use a Google Sheet that we share with clients, and then we just ask them to whatever system they use, if they use YNAB, or Mint, or some other app tracking system, whatever they might...or maybe they don't use anything, but if they can, kind of try and fill in as much detail. I mean, we do a lot of it ourselves. So, we'll do the mortgage, and their paystubs, and all that kind of stuff. But we're really looking for discretionary expenses from the client. And I mean, cash flow is just one of those things. I think we all struggle with finding a system that works for people, and that's accurate, and all the rest of it. And we're, I'd say, a little bit of a work in progress where we're always learning from different clients, what they bring to the table, and how we can improve on that process. But it's essentially a Google Sheet for clients.

Michael: And so, just sort of...I was going to say a budget layout, but I guess not budgets. This isn't necessarily at the prescribe them a budget recommendation of what they should be spending. This is at the we're just trying to understand where the money literally is going right now. Can you document and record this, and help us understand where the money's going?

Danika: Exactly.

Michael: Is cash flow recommendations then part of the planning process and what you recommend? Is this building up to a budget or spending plan you're then going to bring back to them? Or is this really more functionally about just gathering data to understand as opposed to, "We're going to try to help you make a better budget."?

Danika: Well, I mean, it really varies. So, a lot of times knowing what people are spending and knowing how much they're saving, and we kind of go, "Yeah, this looks great." We get to meeting 3 and we look at RightCapital and scenario planning, and it's like, "Yeah, you're doing a great job. Everything looks really good. And you have lots of options." And other times we might get to that meeting 3 with that initial spending data and say, "Maybe we need to make some adjustments." So, I mean, it really depends on the client situation, but it's certainly...I feel it's critical information to really do any kind of planning work for clients. And then many times, there isn't really a whole lot that the client needs to change. And there are plenty of times when that's not the case where we say, "We really need to adjust something here because this is not a sustainable path."

Michael: So, then meeting 3 is scenario planning. So, I guess at this point, we're looking at, "Hey, you've said you want to quit your tech job next year and start a new business. So, we've estimated the after tax liquidation of your RSUs, and here's what you'll have. And then we're projecting out the scenario, let's look how it goes," and you're just getting, "Let's look at some of the scenarios that you've been wanting to plan around and see how it's going."

Danika: Yeah, exactly.

Michael: So, is that like print a plan and bring a plan in, or is that, "Let's turn on RightCapital and screen share, and we're just going to start doing some of this live."

Danika: Oh, yeah. No, I'm definitely screen share. Let's get into the weeds on this together. Let's really...I really want the clients' participation in this part of the process. And in almost all aspects of financial planning, it's pretty rare that I will show up with something to present, and it's all laminated, and bound, and, "No, no, okay, we're doing this together." So, it's definitely more of the screen share. Let's see what's possible. And then we'll sort of save a copy and say, "This is kind of what we landed on."

Michael: So, then what's meeting number four?

Danika: Meeting four is investments and equity comp. I mean, there are many times when meeting four gets moved around. So, if somebody has a liquidity event happening, or has already happened, we might move that up. Right? So, there's some flexibility in the flow but typically it's meeting four where we get to investments.

Michael: And so, what are you covering in this? I guess even part of it, what's your investment style? Is this teaching them how you invest in what you do? Is this, "We're trying to understand their situation because we do custom investment portfolios for every client." What's the actual investment discussion for you?

Danika: It is very much a discussion. So, like most things, and I say this to people at the beginning of that meeting, I say, "I don't have prepared recommendations for you today because I don't understand enough about your preferences yet to provide those." So, we really...we go through an IPS together with a target. I'll say, "This is my initial recommendation based on your risk tolerance questionnaire, and variety of factors." So, I'll say, "My suggestion is an 8010 allocation," and we'll kind of talk that through. But I'll say, "This is not set in stone. So, if this feels too risky, or too conservative, or whatever, I want us to have that conversation and we will adjust if that is relevant." So, it is definitely a conversation, but I'm not really doing a whole lot of custom portfolio design for people. I would say the portfolios are just very, very simple passive strategy, 100%. It's just not something that I'm trying to differentiate myself in terms of some kind of creative investment strategy.

Michael: So, then 2 pieces I'm wondering on that. One, what are you using for risk tolerance to set that conversation up?

Danika: We use the risk tolerance questionnaire and PreciseFP, which is fairly simple, I guess. I mean, I think it's...I don't know, 10 or 12 questions. I don't really feel that there's a need for these sort of very complex tools that a lot of firms use. But again, I mean, it's a starting point. But a lot of times we'll go through that, we'll sort of say, "Oh, this is your score, and this puts you in sort of a aggressive or a moderate category." And people will say, "Well, I didn't even know what those questions meant." And I mean, you have to have a conversation with people, I feel, to actually understand what...I mean, people interpret them in different ways. And so, to me, the risk tolerance questionnaire is just a starting point for that conversation.

Michael: And then on the investment end, how are you just building and implementing portfolios and models? Is there a TAMP on the back end? Is this software that just automates model management? How do you actually do this when it's only you and an associate?

Danika: Yeah, I do not have a TAMP, or a CIO, or anything like that, or outsourced CIO. I would like to. It's just not something that I really want to spend a lot of my time doing. It's not what I love.

Michael: You so don't like spending the time on it, you'd only spend the time to find the person to do it.

Danika: Well, yeah, you're kind of right there. No, I mean, I...

Michael: Well, it’ll cross over at some point.

Danika: It's definitely on my agenda of things to deal with this year as we are really accumulating more AUM. And it's just...at this point, it's relatively straightforward. But I use mostly BlackRock models with some modifications. I use Capitect for rebalancing, and Schwab as the custodian. But it's pretty simple at this point. But I would ultimately like to either outsource that, or potentially hire somebody that is passionate about investing, and that does want to take that on more specifically, because it's something that I'm fine with at the level we're at right now. But as the business grows, I just don't want to spend 20 hours a week on investments.

Michael: And then what's meeting number 5?

Danika: Meeting number 5 is kind of everything that we haven't gotten to already. So, it's usually insurance and estate planning. But again, it could be moved around a little bit depending on what's happening with that person, or if there's a need for college planning that might jump forward or something like that. But typically something like insurance and estate planning in meeting 5.

Michael: And so, how long does it take to go through this whole process?

Danika: Well, the first four meetings we try to do kind of in the first 6 months. So, that's usually 4 to 6 weeks in between meetings. And then we go to twice a year. So, oftentimes, we don't really get to meeting 5 until maybe 8 months of working together or something. It's pretty spread out. And I kind of like that, I think almost by design. I don't want...I know a lot of people will do kind of like, "Oh, yeah, a new client. We meet with them once a week, 4 weeks in a row," or something like that. I think that's way too fast for most people, and I think they lose momentum. And it can be very overwhelming. And I really like to slow it down, and kind of go through things at a pace that people can really process in between meetings, and we can kind of fold things in to our work as they come up throughout the year, whatever that might be for a particular person, whether it's open enrollment, or other things that are going on in their lives. And I think when you kind of compress it too much, I don't know that it's as productive long term.

Michael: Well, I'm struck just how you frame that. You don't want to do it too fast because you're afraid that clients will lose interest and momentum. I like almost everybody else says basically the opposite, "I have to keep it going at a certain speed because if these meetings are too spread out, clients will lose interest and focus on something else, or they'll lose momentum because the meetings are too spaced." So, I'm fascinated that you think of it in the 180 degree polar opposite of that.

Danika: Well, I think because we're doing some of this deeper work with the Kinder process, and some of these questions that can be quite...it can be kind of intense going through that type of process, and those questions, and all of that. And especially if it's a couple. I mean, it can be intense as an individual too. But when you've got a couple, more often than not they're not...they're different people. So, they don't have the exact same answers. They don't have the exact same experience. And really being able to process, and sort of adapt your...even some of the cash flow conversations that we have with people. I mean, there can be some really significant stuff that comes up and changes that we're recommending. And there's a lot of emotion tied up in it. And I just think if you compress it too much, I just don't think it's as effective.

Michael: Okay.

Danika: Yeah. I'm sure there are plenty of clients for whom that's not the case, but that has tended to work relatively well for the people we're working with.

Danika’s Fee Schedule And The Ongoing Services She Provides [1:17:29]

Michael: I guess I'm also just thinking, for some advisory firms, frankly, there's a business model challenge to slowing it down too much, which is if you bill on assets under management, there's kind of some pressure to get to that portion of the meeting because otherwise, you can't invest, and then you don't want to bill until you've invested. You can't invest until you get through IPS. You can't get through IPS until you get to that part of the meeting. So, that becomes kind of a catalyst pressure unto itself. But when you live in this flat fee model world, or flat fee minimum, at least, you don't have that same level of pressure. I guess maybe if eventually their portfolio exceeds the $6,000, $7,500 amount, the fee will be a little higher when you get to the point that assets are implemented, but you don't live in a world of, "I literally can't start billing and start the advisory agreement until the money moves," because you've got a planning baseline to this that's covering you through the first 1, 2, 3, 6 plus months until they get there anyways.

Danika: Right. Which, I mean, that also seems wild to me that there would be this...I mean, I don't know. That doesn't seem like the right way to go about a relationship with a new client is to be like, "Well, let's just get all your money over here, get it invested, and then we'll talk about everything else." I mean, that really does seem pretty backwards to me. I understand it from a business model perspective, but I'm glad that my structure does not force me to rush into making investments for somebody so that I can start billing when I feel like it's really important to have some of these other conversations first.

Michael: And so, just the nerdy technician in me then wonders, just mechanically, how does billing work until you get up to that point? Is it that they might move dollars earlier and you can bill an account, it's just not advised yet? So, you're not putting them on to a model, or do you build them some other way until they're ready for investments? And then when there's an account, you might move to a billing and an investment account at that point.

Danika: Yeah, I do charge people 50% of the first year's fee upfront. So, if it's $7,500, I believe it's $3,750 on day one. And that does certainly give us the flexibility of like, "Yeah, we are getting compensated, there's no rush to move accounts over. And if we don't get to investments until meeting four, that's fine." And there's really no urgency about like, "Oh, we got to open some Schwab accounts right away." Now like I said, there are times when maybe somebody just inherited some money, maybe somebody went through a liquidity event, and there is some urgency about, "What do we do with this cash?" In that case, we would definitely move the investment meeting up, and still might not happen instantly. I still think there's some things that need to be discussed before we start investing large sums of money. But we can certainly accommodate a person's unique circumstances if we have to.

Michael: And so, upfront fee is just a classic, they cut the check for $3,750 because they tend to have the financial wherewithal to do that for the folks that you're working with.

Danika: Exactly.

Michael: Does anybody actually have a checkbook anymore?

Danika: I think I've gotten one check in almost 3 years, yeah.

Michael: So, then how do you bill it?

Danika: I use a software...a website called Harvest. That is because I come from an hourly world, it's a time tracker really, and so that's how I started to use it. And I love it. And regardless of whether or not I ever need to bill on an hourly basis again, I think I will always track my time because I think it's endlessly fascinating, and also very interesting, it helps really me understand where my time goes as a business owner. I mean, I just think it's kind of essential to really know what I'm doing with my time. But that's the software. And then from Harvest, you can send bills, which I believe uses Stripe as the back end processor.

Michael: Okay, interesting. So, it started for you as, "I live in Harvest for time tracking for my hourly days so that I can actually build the hours that I worked with." Now, you don't work on an hourly basis, but you still like tracking your time with Harvest and you still bill through it. It just so happens that you're not actually billing the time that you track through it.

Danika: Correct. Correct. Yeah. I will always use some kind of system like that, I think, because I just think it's very easy for me to go back and see exactly how much time I spent on a particular client. I have lots of notes about what I was doing, whether it was investment related or something else. So, it's really easy for me to understand where my time is going, how much time I'm spending on clients versus any other business activity.

Michael: Interesting. So, then how does it work on an ongoing basis with clients? What are you doing ongoing? What happens in the meetings and/or between the meetings that you've got this $6,000/$7,500 a year ongoing? And regulators like to ask what we're doing for that.

Danika: Yeah, yeah. Well, I mean, I do track my time. Like I said, I track my time. And for the people that don't have...who haven't met that threshold where it crosses over to AUM, I do still have to demonstrate to the state of Washington that I'm spending that time. So, I mean, I do still need to document what I am doing for people. And I do report that to them at the end of the year. So, I will send them a report that says, "This is how much time I spent working on your situation. This is where all the hours went," and all that kind of thing. But ultimately, after year one, we expect to meet with people at least twice a year. There may be additional meetings as things come up, but sort of a standard 2 meetings. And we have a pretty standard service calendar where we're covering cash flow and tax planning in one, and investment and insurance review in another, or something like that. And kind of more or less updating the plan throughout the year.

Michael: And so, then where does...I think you said you use Knudge. Where does Knudge come into this?

Danika: We started using Knudge, I don't know, maybe a year and a half ago, which is just a software that clients, they can create a login, but they don't have to. And if they don't, they will still get reminders. So, they'll get reminders by text or email. And I think they can customize which type of reminder they would like to get. But it might be even, "Hey, it's April, it's the second half of April. Don't forget to upload your tax return." It might be, "You're due to schedule your next meeting." It might be, "Don't forget to double check that you increase 401(k) contributions." So, those are the sorts of things. And then when people...they get that reminder, they can mark it as complete.

And then I also get either a text or an email that tells me, "So, and so, has uploaded their tax return, or they've increased their 401(k) contribution." So, it's, again, something that our clients tend to love. It's pretty simple, but I think they really appreciate those reminders. And people, of course, love being able to check something off on a list. So, that has worked really well with our population.

Michael: This is kind of like a client task management kind of system, but lives in its own world. So, you're not out of CRM, not off your Google Site. This is like a separate thing.

Danika: Yeah. And so, I mean, I kind of hate to add too many tools in, but it is a pretty simple one. And I mean, people will in a meeting say to us, "Can you set up a Knudge for me about this?" And I'll say, "Yeah, absolutely." So, I mean, they actively ask us to create those for them. And some people aren't really that interested, and that's fine. I mean, that's obviously not a requirement that people engage with that.

Michael: Interesting. So, I guess when you were saying earlier, "We help clients with implementation," this is what you mean, you're setting up tasks for them and nudging them on the tasks? Because I mean, for some parts of the industry, help them with implementation means when they need insurance, I sell them the insurance. And when they need annuities, I sell them annuities. That's the follow through implementation. So, you're not talking about that kind of implementation. You're talking about the task-y, "Did you schedule with the estate planning attorney? Did you adjust your 401(k) contribution? Did you change your withholding?" Those kinds of follow through implementation items.

Danika: Correct. And I mean, taking it one step further, sometimes people will say to us like, "Oh, I went on the 401(k) website and I couldn't find it," or whatever the thing is. And it's like, "Yeah, let's do that together so we can do a screen share." And it's usually very quick, but to actually make sure that people are doing the thing that we recommended. So, I mean, I think the Knudge is a nice way to remind people, but we will actually get on the phone, or get on a screen share, or whatever we need to do to make sure that those things are really happening.

Michael: So, any particular reason why you ended up with Knudge versus just...I see some advisors trying to do this with task management systems, so MeisterTask and Trello and such. Some are trying to push it through planning software tools that at least are starting to create some pieces of this. I'm presuming you sought out or chose Knudge for a reason, or didn't choose the others for a reason. So, what led you there as a solution?

Danika: That's a really good question. I mean, I don't know that the project management tools are quite the way that I want to interface with clients. I don't really want to drive them to yet another. There's already so many systems that we already have. And what I like about Knudge is they don't have to create a login if they don't...they can if they want to see all the nudges in one place, but they can still get those reminders by text or email. They can still mark them complete without having to create any kind of profile. And I do really like their pricing model. I think it's 12 or 13 clients for free. And so, we just tried it. I mean, we used it for a while with a handful of our clients, and just said, "Well, let's just try it, see how it goes." Obviously, it was free, so we didn't have to make any kind of commitment. And people were really liking it. So, it was like, "All right, well, I guess we'll convert over to the paid version."

Michael: So, what do you envision is the capacity overall for the model as you've created? I think you said you're cresting 40 clients now in the model, you've got an associate advisor with you, but you said you do feel like you've got some capacity at this level. So, how do you think about capacity as you're building this?

Danika: I mean, I don't really know. I would probably guess around 60, give or take. But you know ask me in a year or two if that still feels reasonable. But that's kind of what I'm expecting will be capacity. And I do intend to grow. So, I have no intention of getting to 60 and saying, "Okay, I'm done." When I get to that point, I will absolutely...or probably before that, I would plan to hire and expand the team.

Michael: Okay, so that's a kind of a 60 per advisor, and you'll add advisors over time at these levels is the goal.

Danika: Yep. That's my plan.

The Surprises And Low Points Danika Encountered On Her Journey [1:29:00]

Michael: So, as you look back on this journey, what surprised you the most about building your own advisory business?

Danika: I mean, the fact that I'm here at all is definitely a surprise. I did not, as we said at the beginning, did not plan this for a long time. It was not something I ever expected. And to be here, and to see how much my business has changed and evolved, and how much I personally have changed and evolved over the last 3 years is really just so far out of the realm of what I expected. So, that's been a huge surprise to me, is just...I don't know, what I was capable of. I had no idea.

Michael: So, what changed and evolved for you? I mean, I get the business piece. The business changed and evolved, and you personally change and evolve. What changed for you?

Danika: I think the whole process of going through the audit at my last firm, and just that experience where I really had to do some soul searching, and some examination of what do I want in this career, and what am I really looking for? And through the process of then launching, I think it just really unlocked something in me that I did not know was there. I was a very happy and content, kind of financial planner worker at my old job. And now I just feel so passionate and driven and curious, and there's just so much more to learn. And I just...it really changed something in me that I had no idea was there. So, I think the bigger lesson for me was really just around how much we're capable of when we are forced to kind of get outside of our comfort zone. And I don't ever want to stop this part of the journey that I'm on where I'm just growing and expanding and changing. I don't ever want to get to a place of being comfortable again because just the amount of change and development I've seen in 3 years, it's like, "Oh, my gosh, if I'd started this when I was in my 20s, where would I be today?"

Michael: So, what changes that you were...I think you said, "I was a happy worker before, but I'm just so much more curious and energized now." What changed? What flipped?

Danika: One of the things that I did after I launched my firm was I started the Kinder training. So, through the Kinder Institute. And one of the things that you do when you're going through that training is somebody does life plan you. So, you get life planned. And when I went through that process, that really did change something in me where it was like, "Okay, I could just continue on and build this very nice business, and however many clients, and have a good income." And I was like, "That's not enough. That is not enough for me. I know that there is more that I'm here to do. I want to do more." And it just really...it lit something up inside of me that was...I think it was there, but I didn't realize that it was there. And so, really going through the Kinder process I think put me more in touch with that real passion that I feel now that I just never felt before. I mean, I liked financial planning. I thought it was a great job. I think I was good at it, but I feel it's just so much more tied to what I feel my life's purpose is now in a way that it was never anything profound at all in my prior firm.

Michael: So, what was the low point for you as you went through this launch and building over the past couple of years? I mean, I know it was a low point at the prior firm that led you to do this, but since you took that leap and transition, what's been the low point as you've been building through this?

Danika: Yeah. I mean, I was prepared for this question, but I definitely would have said the low point was the actual audit process. But I think since I've launched, the low point was probably realizing how lonely this is. So, I mean, I love what I'm doing, and there's so many things that I would not trade this current version of what I'm doing for anything. But I do find running a business to be very lonely. And I've definitely found ways to cope with that. There's lots of communities that I'm plugged into. I'm in multiple masterminds. I have a lot of support, but I do find this sort of business owner role to be particularly lonely, and something that ultimately I don't really want to do alone. So, longer term, one of my intentions is definitely to work with a business partner.

Michael: So, share with us a little bit more just what you've been doing to cope, as you said, what have you found or done that makes this more manageable and less lonely?

Danika: Yeah. I think just really plugging into the communities that are there already. I mean, they're amazing. And you get out of them kind of what you put in is my feeling. And so, I'll hear people complain about whether it's XYPN or NAPFA or some other community, "Oh, I get nothing for that membership." It's like, "Well, what do you actually put into it?" And so, whether it's volunteering on a NAPFA board, or showing up for conversation circles, or participating in any number of meet ups, or anything like that, I have put a lot into building up my community through those avenues. And I just have so many people in my network now that I didn't know 3 years ago.

And so, I feel very...I just have a lot of resources, I guess. So, there's so many other people I now know who are dealing with many of the same things that I'm dealing with, whether it's business growth, or client acquisition, or any number of things. And so, it's just a really nice place to be. Twitter is another place where I have just found so many connection, really profound relationships that I have with people that I didn't know 3 years ago. So, I've definitely made a pretty conscious effort to cultivate that.

Michael: That you find on Twitter, just tweeting about, as it were?

Danika: Twitter, NAPFA, and XYPN are probably my 3 primary outlets for a community.

Michael: And then I think you also said multiple masterminds. So, where do those come from?

Danika: One of the masterminds I'm in is I think we're all XY. Yeah, all XY people, all at relatively similar stages of business. So, we're somewhere between 2 and 5 years of being established, generally in a pretty high growth mode. That one's great. I'm in one that's just about equity compensation. And so, that's also been really helpful just for being able to rely on other professionals who are dealing with similar problems. Yeah. So, I think those are the two I'm in right now. I've been in others over the last 3 years, and sort of coming in and out of different groups that have served my needs at different times.

Michael: It's interesting you've come in and out of them. I feel like a lot of advisors I hear from say like, "I find my study group and I've been in it for nine years." Once you're in, you're in, and you cannot leave the circle. So, I'm struck by you seem to have a much more flexible attitude around it of, "I'm in when it's valuable for me to be in, and then I'm not when it's not."

Danika: Yeah. I think I'm like that with a lot of stuff around business. I think I'm very... And I don't do this from like a, "Oh, I'm not getting ROI on my time," or anything like that, but just being very practical, and very...I don't know if it's totally about self-awareness, but is this still serving me? And I take that through a lot of areas of running my business where it's like, "Okay, this particular task, or this particular thing, I'm not getting a lot out of this. I don't enjoy it. Can I outsource it?" I mean, I take that to a lot of different areas of how I move through the world where it's like, "This really isn't providing much benefit to my life anymore." So, yeah, I tend to be pretty easy with that sort of thing. And I don't think anyone takes it personally. I'll say to the group, "This has been great. I really appreciate all of your insights, etc., but I think it's time for me to move on."

Michael: So, how do you find the groups in the first place to get going? Because I find for a lot of advisors, "Yeah, that sounds great. I don't know where to find that."

Danika: Like I said, I think both of the ones I'm in now did originate from XYPN. I have been in NAPFA MIX groups before, which I've also gotten a lot out of. I think also the other thing is, if you want a mix group or a mastermind group, create one. There's no reason why you can't. And the woman that works for me on my team, Marianna, is an associate advisor. And she and I had a similar conversation at some point and she said, "Well, I'm not in XY, and I'm not in NAPFA, how do I find something like this?" And she went out and created one. So, she is now in a mastermind with the associate from Meg's firm, and the associate from Scott Frank's firm. And they all work for these really similar life planning firms. And she has told me multiple times, "Oh, my gosh, I don't know what I would do without this mastermind of all these associate advisors were all working towards their CFP. And it's just amazing to have that kind of support." So, if you don't see something out there that's already what you want, create...put something out there, post it on a message board, post it on a Facebook group, "Hey, I want to create a group. Who's interested?"

The Advice Danika Would Give Her Former Self And Younger, Newer Advisors [1:39:03]

Danika: So, what else do you know now you wish you could go back and tell you 3 or 4 years ago when you were thinking about the launch, and terrified of going out on your own?

Danika: Yes. Yes. I often wonder if I had known when I say, "I didn't know that I could do this." I often wonder if I would have done this sooner. Would I have just launched a firm right out of the gate when I was getting into the industry, or would I have really taken the leap much sooner? And I don't know that I would have. I mean, I think in many ways I just kind of had to go through it the way that I did. I don't know if I would have been ready to do what I did any sooner than when it actually happened. But I mean, I guess I would probably just tell myself, "It's going to be okay. And you are perfectly capable of doing this." But yeah, aside from that, I just don't know that I would have...even now, seeing how successful and how relatively straightforward things have been, I don't know that I really would have taken the leap any sooner.

Michael: So, any other advice you would give younger, newer advisors that are coming into the industry today and getting started?

Danika: I think for new people, I mean, I definitely recommend getting involved with the local FPA or NAPFA chapter. That has just been so critical to my development as a planner. And the other thing is really to just find your people, however you can. But if you're kind of doing this in isolation, I just think it's that much more lonely. I never had a formal mentor-mentee relationship, but I would have liked that. But if you can find something like that, I think that's amazing. And if you can't, maybe it's more of a mastermind type thing. But I think finding people that are like-minded, and at a similar career stage, and all of that is extremely valuable.

What Success Means To Danika [1:40:56]

Michael: So, as we wrap up, this is a podcast about success. And just one of the themes that always comes up is the word success means very different things to different people. And so, you're on this wonderful now fast-growth paths with the firm to north of $270,000 of revenue in 3 years. It's just an amazing growth engine out of the gate. So, the business is going well. How do you define success for yourself at this point?

Danika: For me, I think there's a couple aspects to that. One is really about having a meaningful impact. The industry, which we didn't talk about at all, but really important to me to kind of give back, and to move this industry forward in terms of DEI efforts, and just having more representation of different types of people in the industry. So, that's really, really one of my top priorities. And then the other thing that we did talk a lot about is sort of this, I don't know, growth mindset, curiosity that I have now, which I really didn't have several years ago. And I don't ever want that to go away. So, whatever I can do to maintain this interest and curiosity about the world, I just want to stay in that frame of mind as long as I possibly can.

Michael: Very cool. I love that. Obviously, I'm a big fan of the curiosity growth mindset as well. So, I appreciate that. Well, thank you so much for joining us on the "Financial Advisor Success" podcast.

Danika: Thank you, Michael. It's been a pleasure to be here.

Michael: Absolutely. Thank you.