#FASuccess Ep 089: The Truth About Advisor Marketing And The Scalable Delivery Of Financial Advice with Ric Edelman

What You’ll Learn In This Podcast Episode

• An overview of Edelman Financial Services as it exists today. [05:55]
• One rule that all Edelman advisors have to follow. [14:22]
• The valuable lessons he and his team have learned serving clients regardless of net worth [18:04]
• How he structures his compensation to give advisors a strong motivation to serve clients very well. [23:11]
• The main challenge most advisors have—and how Ric’s firm has solved it. [25:24]
• How Ric’s clients hear about him. [29:15]
• Ric’s tips for picking the right niche. [36:32]
• What his practice looked like in the beginning. [37:42]
• Why he says it’s so important to be fee-only. [45:00]
• The reason his robo-clients have the same fees as clients of his human advisors. [54:45]
• The huge value add for clients that Ric says planners don’t fully appreciate. [1:01:43]
• How he views the future of advisory fees. [1:04:25]
• Why Ric doesn’t buy into the typical AUM model. [1:09:44]
• Ric’s thoughts on the Edelman Financial / Financial Engines deal [1:15:22]
• Advice for advisors to be successful in the future. [1:24:26]

Resources Featured In This Episode:

• Ric Edelman
• Edelman Financial Group
• The Truth About Money
• The Lies About Money
• iRebal
• Singularity University
• iShares Exponential Technologies ETF (XT)

Full Transcript:

Michael: Welcome, everyone. Welcome to the 89th episode of the "Financial Advisor Success" podcast. My guest on today's podcast is Ric Edelman. Ric is the founder and executive chairman of Edelman Financial Services, a mega-independent RIA with more than $22 billion of assets under management with 165 advisors serving 36,000 clients across 43 office locations from coast-to-coast. What's unique about Ric, though, is that he started out like any other financial advisor, selling mutual funds in the 1980s as an individual advisor, doing financial education seminars to local elementary school PTA groups to meet prospective clients and just trying to survive. But in the 30 years since, Ric grew an advisory firm that far outgrew his own capacity to serve clients, ultimately building a marketing machine that brought in a whopping 45,000 prospects to the firm last year alone.

In this episode, we talk in depth about how Ric grew and scaled Edelman Financial over time. How they've been able to build a $22 billion firm while staying focused squarely on the mass affluent and not increasing their asset minimums, why Ric is adamant about keeping the firm's minimums as low as $5,000 for a new client, how the firm successfully justifies a fee schedule that still starts at 2% AUM fee, and why he considers it the firm's job to bring in new clients and the role of advisors to simply service those clients rather than being burdened with the time and effort of getting their own.

We also talk about how Ric scaled and evolved the marketing of the firm over the years. From starting out conducting seminars to local PTA groups then getting a guest spot on a radio show that ultimately turned into a radio show of his own, which led him to writing a book, followed by eight more, and now is expanding digitally as well, all with the theme of providing free financial education to those who need it, and recognizing that many will simply be helped with the information, but a few will inevitably reach out to the firm to ask for help and become prospects in the process.

And be certain to listen to the end, where Ric talks about how he'd build his marketing differently if he were starting fresh today, why he sees such an opportunity with Edelman Financial's merger with Financial Engines, and why he believes that most advisors are still grossly underestimating how much the best advice for clients and the advisory business itself will change in the coming decades as medical advances materially increase the typical client's life expectancy.

And so with that introduction, I hope you enjoy this episode of the "Financial Advisor Success" podcast with Ric Edelman.

Welcome, Ric Edelman, to the "Financial Advisor Success" podcast.

Ric: Michael, great to be with you. Thanks.

Michael: I'm really looking forward to this episode today for frankly a few different reasons. One just, you've built this incredible advisory firm of $20-plus-billion under management, which is a hard number for me to even wrap my head around, and have had this amazing trajectory of building the business over the past 30 years, but I also have kind of a unique personal connection to you that I don't even know if you entirely know. Because you're based here in the D.C. area, I was born and raised in the area as well. In fact, I grew up in the town you live in now. And so, you know, the Edelman radio show was kind of ever-present in my world. Even growing up when I was in high school, I would listen sometimes while I was driving back and forth to school and home again.  

And when I went to college and my father wanted to get me kind of educated and acclimated, and it must have been my junior or senior year getting ready to graduate and have to become a financial adult for the first time, my father bought me "The Truth About Money," which was your incredibly popular book then and I think still. And that was my first introduction to anything personal finance. Because I was a psychology/theater major med student back. And as an undergrad, I didn't decide to come into financial services until I was about to graduate. And so I think your book probably was the thing that basically put financial advising and financial services on my radar screen. So I have you to thank for being here in the first place.

Ric: Well, thank you. Considering your role and leadership in this industry, that means a lot to me. So I'm glad I was able to have that favorable influence on you. Yeah, "The Truth About Money" was published first in 1997.

Michael: Excellent. So it would have been a new book at the time. My father probably got that for me in '98 or '99.

Ric: Wow, that's very cool. Yeah, and the book is still out there. So now it's its fourth edition. We're talking about doing a fifth edition. And yeah, that book is one of the most successful personal finance books ever published that won two Book of the Year Awards, it's in its fourth printing, it's over I don't know how many copies, 300,000, 400,000 copies in print all over the world. And yeah, that was a big deal for us, so I'm glad it had a good influence on you.

Michael: Absolutely. It's got to be interesting to be well, now at 20-plus years out from the original publication of the book and still hearing stories of its impact all the way back from nearly day one. It's amazing what happens when you publish things and put them out there and they just continue to circulate for a long time to come.

Ric: It's fun. Occasionally when I'm at a seminar, someone will walk up to me and show me their original dog-eared version of the book from one of the early printings back in the '90s and ask me to sign it for them. And it's just fascinating that the book has meant so much to so many people, and it's really gratifying. So yeah, that's great.

An Overview Of Edelman Financial Services As It Exists Today [05:55]

Michael: So to help get everyone oriented around your business and Edelman Financial, can you just describe for us and give us the overview of the firm as it exists today?

Ric: Sure. Today, we are one of the largest investment management and financial planning firms in the nation. Depending on whose rankings you look at, we're ranked third, fourth, fifth, sixth in size based on assets under management. We have about $22 billion in AUM. We have 43 offices coast-to-coast, 165 advisors serving about 36,000 families. So total, 600-plus employees. This is before we talk about the merger we just did with Financial Engines. So it's a pretty large practice, and we've been on a pretty strong growth trend ever since Jean, my wife, and I started the business back in the '80s.

Michael: So one of the things that I've long been fascinated about for your business, in particular, you know, so much of the advisory space and particularly the independent RIA space tends to gravitate towards increasingly high-net-worth clients. The RIA model often gets a knock because we don't serve mass affluent households, we only serve wealthy folks. And the proverbial "everybody has got $1 million limit" even though they don't, but  that's sort of the word that's out there. And you guys at $22 billion and 36,000 families, like, your average household is $600,000 or so? And that's even after 8 or 10 years of raging bull market. So I would imagine you were $300,000 or $400,000 average household just...

Ric: Sure. And the mean would be a lot lower, of course, would be a lot lower as a result. So you're right, we serve a lot of folks that don't have a lot of money.

Michael: So how do you explain that? Where is everybody off base that the advisory AUM model is viewed as this high-net-worth model and here you are chugging along right squarely in the mass affluent space. The industry analysts usually classify that at about $100,000 to $1 million of investable assets. You're smack dab in the middle and probably even on the lower end by median. And so everybody is saying, "You can't do it and you can't serve mass America profitably and effectively," and here you are chugging right along powering forward to $20-plus-billion under management doing exactly that.

Ric: Yeah, we've proven that that's all utter nonsense. Our household minimum is $5,000, and accounts can be as small as $3,000. So if you've got $3 grand plus $2 grand and an IRA, for example, you can be our client, and we do it profitably. So we've learned that you can do this. And it's a choice, it's a decision that the advisors make. It is not an absolute and concrete that no, you have to have a $1 million client to be able to run a successful practice.  

In fact, there's a very simple reason that most advisors choose only to deal with $1 million clients, because they make a lot more money on that $1 million client than they do on the guy with $10 grand or $100 grand. And it's arrogance. Advisors don't want to waste their time serving people of modest means because they would rather deal with rich folks who can pay them a lot of money, coupled with the fact that the typical advisor only wants 100 or 200 clients. And if you're only going to have, call it 200 clients, then you want… if you want to manage $100 million in assets or $200 million in assets, they each better be $1 million in size. And every time you add a client to your roster, you're one client closer to being full.  

Our attitude has been different. Our attitude is we're never full. It's Mark Zuckerberg's famous line when he invented Facebook. He was asked, "When will it be done," and he said, "It'll never be done." He said, "Software is like fashion, it's never done. You're always reinventing it." And that's our attitude as well. We're never done adding clients. An individual advisor in my firm one day might get done. He might have several hundred clients and his capacity or her capacity is maxed out and they can't handle any more clients, fine, I'll go get a new advisor. I'll get another one. And that's why we have 165 advisors, because about a third of them are done. They are handling as many clients as they and their team can effectively manage, and it would be a burden to them and a quality sacrifice to the client for them to take on another client. So instead of asking that advisor to take on more work, I bring on another advisor.  

And that's been the nature of our growth ever since we started our practice. When I got too busy to handle it myself, I brought on my first advisor, who's Ed Moore, now the president of my firm. And when Ed got too busy, we brought on another and then we brought on another and another, and here we are today.  

So if your focus is on the client, if your focus is on the consumer who needs your help and your attitude is, "I'm going to do whatever it takes to help them," then you'll grow the practice accordingly. So we didn't have a business model of saying, "One day we're going to be a $20 billion RIA." It never occurred to us we'd have 160 advisors or 43 offices. That was a byproduct. The goal that Jean and I had from the outset was very simple, we will help anyone who asks for our help and is willing to take it. And if the demand for our services exceeds our capacity, we'll increase our capacity to meet the demand. People often say, "How big will you get? When will you stop growing?" Well, I'll stop growing when people stop asking for help. So it's as simple as that.

And we've learned that someone without a lot of money can actually be pretty easy to serve because there is a direct correlation between net worth and complexity, for most folks. And I think we all understand this as advisors. The entrepreneur who owns a bunch of businesses and has real estate in multiple jurisdictions and several spouses, current and former, children from a lot of prior marriages, this person has got a pretty complicated life and they've got seven or eight-figure net worth, maybe a nine-figure net worth, and it's a very complicated scenario, very time-consuming to serve that individual.

On the other hand, you take someone with $100,000 in savings, most of it in IRAs or employer retirement accounts, one house, one spouse, a couple of kids, this person's life is not very complicated. They're not changing jobs frequently, they're not engaging in a lot of complicated aspects from a financial perspective, therefore it doesn't take a huge amount of time to serve them very, very well. Meaning, you have a lot of time to serve other people like them very, very well. In other words, I can probably serve 10 people like this in about the same amount of time it takes to serve 1 very rich person. And that means that I can do it profitably... in the long run.  

Michael: So I think one of the questions I often hear around this is just, “what do you do or how do you differentiate the services?” You framed Edelman Financial as an investment management and financial planning firm. And I think the challenge for most advisors, particularly on the financial planning end, is there's just a certain chunk of time it takes to make any plan once you decide you're going down the road of, "We're going to do a plan."  

And so, how do you handle situations of, "Okay, we can take an investment account down to $3,000 or a household down to $5,000," because that's mostly just the paperwork of opening the account, which is getting easier every day as technology gets better, but how do you handle the financial planning end of this? Are you doing plans for every client? Is there some minimum where we say, "Well, you're investment only but we're not going to do the plan for you or we're going to charge a la carte for the plan," or do you just do planning differently than other firms that say they do planning? How do you bridge that gap of the sheer cost to do a plan down to very low net worth levels?

Ric: Well, first of all, there is no cost other than the planner's time, right?

Michael: Yep.

One rule that all Edelman advisors have to follow [14:22]

Ric: There's no other expense. So we simply make a deal with our planners when they join us that if you want to deal with the high-net-worth clients, and we have lots of them, I think we have more high-net-worth clients in our practice than other firms have clients total. We serve probably more millionaire clients than pretty much anybody, I would guess, because of the size of our practice. Our largest client has invested more than $100 million with us. We can handle very large, complicated cases like other advisors can too. We don't particularly target that as a business model, but we can certainly do it and have done it many, many times. People with $10-plus-million in assets. But at the same time, we say to our planners, "If you want to serve that kind of client, great, but you have to also be willing to equally serve the person with $10 grand and treat them as a pro bono case if you want, but you need to do that because it's important element of who we are."  

And so the planners are all willing to do this, and they serve all of those folks equally. Meaning the guy with $20 million is not getting a client experience any different from the married couple with $20,000. Now, the nature of the advice might differ, of course, as their circumstances are definitely different, but the overall client experience, meaning we're going to do the financial planning process for everyone. It's like a doctor saying, "Well, patients who are wealthy, I'll do full medical diagnostics and total testing before I decide what to prescribe them and drugs, but if they're broke and they only have a broken ankle, well, I'll just prescribe a drug without even doing a blood test." That's ridiculous.  

We can't recommend investments to a client or insurance or mortgage strategy or employee benefits or tax structure, we can't recommend those things until we know what's going on, so we have to do the financial plan because that informs us as to what the advice and recommendations ought to be for the client, which doesn't even begin to take into the consideration of the getting to know the client, understanding them psychologically and attitudinally. Most tend to be married, so understanding them as a couple and as a family unit. We need to get to know them in order to be able to give them effective advice. So there are no shortcuts. We're going to spend as much time with them as it takes to be able to get the job done. And if at the end of doing all that all they did was open an IRA for $5 grand, oh, okay, so be it.

Michael: So from the business owner end, your hope or assumption is simply, "Eh, we'll have some that are below average, we'll have some that are above average. As long as it averages out, we're okay as a business even though we don't make the same margin per client if I allocate, you know, "Here's how much revenue we get from a client, here's how much time the advisor gets." I pay the advisor for their time because they're my employee. I'm not going to worry that every client is profitable, I'm just going to worry that advisor's aggregate client base is profitable and that these things average out in the long run?"

Ric: I'm not even worried about that. I mean, I'm worried about whether or not we are serving the needs of that client. That's the only metric by which we judge. As long as the client is getting the advice that they need and the service that they need and the attention that they need, done, let's move on to the next client. I'm not evaluating, "How efficient is your book of business and what are your margins on the overall and how much revenue are you producing?" That all takes care of itself. If you focus entirely on the client and you build your practice all around them, everything else will take care of itself. Because it is as you noted technologically so inexpensive to do a lot of what we're doing these days. That aside from the core infrastructure of office facilities and the salaries for the planner and their support team, everything else is free at that point.

The Valuable Lessons He And His Team Have Learned Serving Clients Regardless Of Net Worth [18:04]

And here's the fun part. We have learned a couple of really valuable lessons from serving anyone who needs to be served without regard to how much money they might have to invest. One thing we've learned is that we're making a big difference in people's lives in a way that you cannot for someone who's already wealthy. I mean, you take someone with 10 million bucks and they're dealing with college planning. The only decision you're making is whether the kid goes to Yale or Harvard. But for the clients that are middle-class, the work we do determines whether or not that kid gets to go to college at all. So the impact we're making in people's lives is massive. It's priceless. You can't put a dollar amount on it. And the fulfillment and the joy we get in being able to have that positive impact on people can't be overstated. That's one thing.

Second, our clients recognize that. They appreciate it. They know that we are devoting time and attention to them that no one else will do for them, except product-based, commission-focused salespeople. And they know what it's like. They've been around the corner. People have been to banks. They've been to brokerage firms. They've been to mutual fund companies. They've been with insurance agents. They know what the experience is like elsewhere and they are thrilled that we're willing to devote the time and attention to them that is normally reserved for the wealthiest of Americans. The level of loyalty is huge.  

And although this person might not have a lot of money, they might have a rich uncle. They might have a wealthy boss. They may marry up. They may win a lottery or an insurance judgment. As they age, they'll probably accumulate more assets, and as they do, they'll likely turn to us. And so in the long run, we've been doing this 32 years, it is selfishly in our best interest to help other people selflessly... if that's not an inherent contradiction. And so it does make sense. And I would argue other advisors that if they're turning people away merely because they don't have 1 million bucks to invest, well, shame on them.

Michael: Well, you make an interesting point around just the shear capacity dynamics that go with, you know, it's a little easier to handle the marginal client that has a little bit less assets and revenue after the first 165 advisors and 36,000 families where the next client that, mathematically, is not a great ROI on that advisor's time is not exactly breaking your business or your P&L at that point. Was this more of a challenge early on? Is this something that evolved over time that you said, "Hey, funny thing, the larger..." For a lot of firms, the larger they get, the more they go upmarket, and you simply came at this and said, "Funny thing, the larger we get and the more we scale, the more we're going to go back down market and try to serve everyone?"

Ric: No, this was our DNA from day one. Jean and I began our practice by doing college planning seminars for elementary school PTA groups. Families that are in their 20s and 30s with young children, not a lot of money, who need a lot of help in figuring out how they're eventually going to pay for college for their kids. And when we started doing these seminars, the first thing people would say to us is, "Why are you talking to us? Our kids are eight years old, go to the high school PTAs, they're the ones who care about college." And we had to help them understand that you can't wait, you've got to start now. That's what long-term planning is all about.

And we started off by serving people who didn't have access to advice from anywhere else. The reason I wrote my book, "The Truth About Money," is that there were no decent books on personal finance available in the marketplace. And the reason we did these seminars is because there was no outlet for people to learn about money. Today it's different, there's a plethora of content available all over the place and some of it is actually pretty good. And that wasn't the case when we first started. And so our attitude was, "Rich people are always going to have access to the talented advisors they need, but the rest of America doesn't. It's the 99% who need us the most, and for whom we can make a huge difference in America." And so it was always part of our DNA to help the people who need the help. And that continues to be who we are.

And here's another nice little piece, our wealthiest clients often tell us that one of the reasons they hired us is because they appreciate the fact that we're willing to serve people who are not wealthy. Wealthy people are not always jerks. That's the stereotype you often hear from a segment of the American population. And there's a bias against rich people in certain circles. But in fact, wealthy people are wealthy because they get it. They understand hard work. They understand delayed gratification. They understand the nature of risk. They understand the challenges of building a business, which is how most of them got their wealth in the first place, and they appreciate the fact that there's someone out there willing to help people at the very moment that need the help. Can you imagine a physician, Michael, who would put up a sign outside his medical practice saying, "I only help rich, healthy people because poor, broke ones are too much trouble?"

How Ric Structures His Compensation To Give Advisors A Strong Motivation To Serve Clients Very Well [23:11]

Michael: So how do you structure terms with advisors to make this work? I think you mentioned briefly, team on salary, including advisors, which as I'm sure you know is not typical for the industry. Most firms compensate advisors either indirectly or directly relative to their revenue, which also I think in practice creates a lot of temptations to move upmarket because as an individual advisor, the more I rotate out my small clients and rotate out my big clients, the more my revenue grows and the more my compensation as a percentage of my revenue grows. Do you still run that kind of model in the firm and just set parameters that says, "Y'all aren't allowed to only move upmarket to larger clients," or do you just not use that kind of comp structure for advisors in the first place?

Ric: Well, you have to understand the nature of how we operate in terms of recruiting advisors and training them and working with them. Our advisors are compensated based on the revenue that they generate into the firm. And they need to be because they need to have a vested interest in the results that the clients realize. So they are compensated for keeping the client in the firm because it is a fee-based practice and there are no commissions. So it doesn't do an advisor any good at all to onboard a new client who's going to leave in a month, because first of all, our fee is in arrears quarterly. So if a client leaves within two, three months, there's no revenue anywhere. So the advisor is not going to make any money unless that client stays for years. That's how the advisor earns a living. And the only way the client is going to stay for years is if the client is having a good experience. So the advisor has a strong motivation to serve that client very well. That's the first piece.

Michael: Do you literally tie compensation to, like, the more years they've stayed, the better you get paid or the more you participate in the revenue or just...

Ric: It's self-correcting in AUM. Because the longer they stay, the greater the account is going to grow in value just because of the investment management doing its job. So it accomplishes what you just said but in an elegantly and automated way.  

The Main Challenge Most Advisors Have And How Ric’s Firm Has Solved It [25:24]

But here's the other key piece that I think is missing for you and for an awful lot of folks who struggle to understand our firm. The number one thing every advisor in this industry wants is the number one thing that no one anywhere other than at my firm, to my knowledge, is able to provide. I have to add Financial Engines. They are able to do it too. But I don't know of anyone else other than Financial Engines and us, which is a big reason we merged.  

Every advisor says that the number one thing they want are more clients. If you look at every firm, they're happy to brag about their technology and their office facilities and the investment management platform and their client relationship management and on and on and on. And they'll help them with marketing materials and they'll give them seminar templates and they'll do all this stuff, but at the end of the day, you're on your own to find a client. And there are so many training programs and coaches who are in this business teaching you how to do seminars and how to engage in networking and how to get referrals from your clients and all this kind of nonsense because it's the number one challenge.  

And because it's so difficult to find clients, advisors are thrilled to say, "All I've got to do is find 100 of them at $1 million a piece and I have $100 million practice, and I can make $1 million a year. End of story." And most advisors would rather find a new product to sell to an old client because that's easier than finding a new client to sell an old product to. Because finding a new client versus finding a new product, the client is a lot harder to find. They're a lot harder to replace. So that's the challenge advisors have.  

And in our firm, we've solved that issue. When we bring advisors into our practice, they have one basic obligation, one rule they have to follow, and that is they're prohibited from engaging in marketing. They cannot go out and prospect looking for their own business. They don't do any cold-calling. They don't do seminars. They're not running ads. They're not appearing in media. We hire advisors to be advisors. It is my obligation, my responsibility, the firm's obligation to generate the clients for the advisor. And therefore, because I'm providing the clients to the advisor, the advisor's obligation is to serve those clients. So the advisor doesn't have the luxury of saying, "Well, Ric, thanks for sending me 10 clients, I'll take these 8, I don't want those 2." Or, "In fact, the 8 that I..."

Michael: That would be a little awkward.

Ric: Yeah. Or, "In fact, the eight that I previously took, two of them are now too small for me so I'd really rather get rid of them." No. If you're going to take any of the clients that the firm provides, you agree to take all of them. And that means what we're looking to bring on these advisors, they have to be like-minded. They have to be genuinely interested and willing to help anyone who wants their help. And if they aren't willing to do that, if all they want to do is serve rich people and a small number of them, we're not the firm for them.

Michael: It's an interesting framing to say that it's the firm's obligation to generate clients for the advisor and it's the advisor's obligation to serve the clients at the firm. For most firms, I think that then immediately it's the next natural question like, "Okay, so where do 36,000 clients come from?" Like, "Give me 36,000 clients, I can do this too." How does the firm get the kind of client growth to feed that many advisors when most advisors are just struggling to get enough clients to feed themselves one at a time?

Ric: I haven't seen the numbers lately, but the last time I looked, we're on pace this year of about 45,000 consumers contacting us asking for our help.

Michael: So, 45,000 prospects that express interest in the firm. It's like they contact you through the website, they email you, something to that effect?

How Ric’s Clients Hear About Him [29:15]

Ric: Or pick up the phone and call us saying, "I would like to talk to an advisor." So how do these people hear about us? What made them raise their hand saying, "I want to talk to someone in your organization?" It's because our focus, going back to those PTA seminars that we did on college planning, Jean and I built our practice on financial education. We began by understanding that there was not only no one willing to serve these folks because they weren't wealthy enough to be worthy of the Wall Street machine, there was also no outlet. There were no radio shows or TV shows or seminars or books back in the '80s and early '90s that enabled people to understand how money works.  

We understand the problem of financial illiteracy in this nation. Mom and dad never taught you a thing about money, you didn't learn about at K through 12, never took a college course on it, and your employer tells you nothing. And that's why Americans don't understand anything about credit and debt, investments or savings or insurance or banking or estate planning, college planning, retirement planning. The financial illiteracy is horrific in this country. And so we began by saying, "We're going to do what we can to fix this, by engaging in financial education activities." And so we started with those PTA seminars. I got me invited onto the radio. I've now been doing my radio show for almost 30 years. That led to my writing my first book because people said, "What book can you recommend?" I couldn't find one, so I wrote one. Now I've got nine of them. Our first children's book comes out in October. That led to TV shows, and then eventually the website once the internet got built up.

And so we are, I believe, the most prolific resource in the advisory field for financial education. We do more of it than anyone else. We'll do 800 seminars this year coast-to-coast. And my books have collectively got more than 1 million copies in print, published in 6 different languages. We have a 16-page monthly newsletter. The list goes on and on and on. Plus, of course, my radio show and my public television specials on PBS TV and so on. And all of this financial education is out there for free, and people, when they get exposed to it, some of them say, "I like this information. I like what they're saying. I like how they're saying it. I've got questions."  

And since I say everywhere, "If you ever have any personal finance questions, feel free to contact us, we're happy to help. No obligation. No strings attached." And so of those 40,000-plus people who will reach out to us, a lot of them just have a single question. They don't want a planner. They don't need a plan. They don't want to hire us. They just have a question about something going on in their lives involving a dollar sign. We're happy to help. And we do it all the time and some of them choose to become clients, which is great, and the rest don't, and that's okay too.

Michael: So how does all of this just compounding media exposure come about? You talked about how you got this started in the '80s and '90s when there wasn't a lot of financial education workshops or radio shows out there. It at least seems like we're in a much more saturated world now. So I understand how it's compounded for you over time, but do you still view this as...could you start this today and do the same thing or would you build it differently if you were doing it from scratch today?

Ric: I would do it differently if I were starting from scratch. I don't believe that what I did can be done by anyone anymore. And that's not an arrogant thing that, "Hey, I'm so good at it, I'm better than you and I could do it but you can't." That's not what I mean. I mean the environment has really changed. Back in the '80s when there was nobody doing any of the above, I was able to contact the PTA president of an elementary school and say, "Hey, would you mind if I came in and did a seminar at your next PTA meeting?" There's no PTA group in this country that would say yes to that anymore because there have been so many bad experiences in the seminar circuits at these free lunch seminars and all this nonsense. I used to do seminars on military bases. The Pentagon has shut that out because there have been so many abuses of people just not doing a good job for military personnel. So that didn't exist.  

When I started in radio, I was invited on to the air. I'm a member of SAG-AFTRA. I'm paid to do my radio show. There are now infomercials essentially. There are financial advisors all over the country doing radio shows and they pay to be on the air. And I'm the opposite. I'm actually talent in the radio industry. So you can't do what I did the way that I did it. It just simply doesn't exist. The platforms are totally different.  

And also, I used to be the only guy out there doing it. I pioneered all of this. I was the first personal financial advisor doing radio. I was the first personal financial advisor writing the kinds of books I was writing and doing the seminars I was doing. Today, seminars are a dime a dozen and everybody's got a book or some kind of platform. And so it's hard to be differentiated the way that I was able to do it for the past 30 years.  

So for all those reasons, Michael, I would not recommend to someone who's starting their practice today from scratch that they attempt to build their business the way that I built mine. Instead, I tell them to do the exact opposite. In other words, instead of being a broadcaster like me engaging in the mass media, I talk to half a million people on my radio show every weekend, instead of trying to do that, I would say instead of being a broadcaster, you should be a narrowcaster. What do I mean by that? There's an advisor I know, you know him too, in Maryland, whose office is across the street from Marriott's world headquarters, and he only serves Marriott executives. If you're not an employee, an executive of Marriott, he won't talk to you. And he knows their benefit program and their stock option program better than anybody because that's what his focus is.  

There's an advisor in Atlanta who only works with American Airlines pilots. I know of an advisor who only works with divorcees, an advisor who only works with executives, advisor who only works with athletes, and so on. It's like the medical practice. My brother recently had thumb surgery and I found out that his surgery was performed by a doctor who only operates on thumbs. It's like you've got to be kidding me.

Michael: Because the other fingers are just too confusing.

Ric: Right. So that's absurd. I was like, "What's next? He's only going to operate on left-handed thumbs?" But that's how medicine has become so specialized. Law is highly specialized. In our industry, we still tend to be generalists.  

So what I would say to you if you're a brand new advisor starting out, you should learn everything there is to know about plumbers. You should go to the plumbers' convention, you should write an article in "Plumbers Weekly." You should become known as the plumbers' guy. And you will have more business than you can handle just from plumbers. Don't serve carpenters or electricians or police officers, just choose plumbers. In other words, find out your passion, find out the kind of people you like to hang with, the kind of interests that fascinate you, and serve that very narrow niche. It's going to be a big marketplace, big enough for you if all you want is 100 or 200 clients, and you'll have a fine practice.

Ric’s Tips For Picking The Right Niche [36:32]

Michael: So I think the fear for most advisors is, how do you make sure you pick the right one, like, the right group to niche with?

Ric: Yeah. Do you love plumbing? If you love plumbing and you love hanging around PVC, and enjoy the sound of water rushing, you should do that. Are you into racing cars? Are you into golf? Are you into airlines? Are you into cooking? Are you into wine? Into travel? Just find your passion and then just focus on how you reach people who are equally passionate, and you'll become the guy or girl who's known as that person. It's affinity marketing, and that's what I would recommend that you do.

Michael: So as you look at the firm and its evolution, I know today you guys are focused in the independent RIA space and you're doing planning investment management. I know you went through a lot of other changes and evolutions over time. So can you talk to us a little bit, like, what did it look like at the beginning? When you first started the practice, what were you doing and who were you serving and what were you getting paid for at the time?  

What His Practice Looked Like In The Beginning [37:42]

Ric: Well, this was back in the '80s, so it was just Jean and me, and it was the FINRA environment. There was no fee-based nonsense. We were selling mutual funds and we were constructing portfolios, building a diversified portfolio using load mutual funds, A shares and then later B's and C's. And when the mutual fund crisis hit in 2003, that's when we realized this was unsustainable. We knew that the revelations by the Massachusetts regulators about Putnam was not going to be limited to Putnam but it was going to be industry-wide. And we were among the nation's biggest users of this. At the time we had about $2.5 billion in assets for 5,000 clients and it was all in these products. And we said, "This is it, we can no longer justify the use of these products with the unconscionable business practices that have just been revealed to us."

And so we spent the next year or two trying to figure out what to do about it, "What should we do to change the advice we're giving our clients and the investment management platform?" And we concluded that the TAMP model was the correct model, that a wrap account is the way to go, and we couldn't find one that we liked, and so we built our own. We called it the Edelman Managed Asset Program. We launched it in 2005, converted all of our clients to that. And we've been doing that ever since. And we became SEC-based RIAs. We moved away from FINRA so that we became essentially a fee-only practice. We can't really call ourselves that because we still do term life insurance and long-term care here and there. And we still have some legacy clients in the old products who we didn't feel was right to move for tax or other reasons. So of the $22 billion that we manage, $21.5 billion of it is all in EMAP.

Michael: And is EMAP all ETFs because you were so disgusted with mutual funds or have you ended out now with a blend or you just buy an individual stocks and securities one at a time?

Ric: It's all passive, mostly ETFs and some smattering of passive low-cost mutual funds. We're big fans of DFA, for example, but we left the active management game back in '03. It doesn't work. Now, we all know the guys who are engaging in active management, all they're doing is spending more money to pay more taxes and incur higher risks without getting compensated in terms of performance results.

Michael: So what was it that so upset you in 2003 about the mutual fund space? Just the bad performance through the bear market decline or...?

Ric: No, no. No, what upset us was the fact that they were lying, that they were engaging in a variety of business practices. In fact, this became one of my books called "The Lies About Money." I wrote an entire book on it. I was so incensed. We identify 25 deceptive business practices engaged in by the retail mutual fund industry, not just late trading, which was the original crime cited by the regulators, but everything from survivorship bias to window dressing. There were 25 of them that I describe in my book: the incredibly high expenses that funds voiced on you, the high level of churning and trading which increases your taxes and reduces your returns, the incredible conflicts of interest that the industry suffers. And so when you deal with passive mutual funds and index funds, virtually, all of that goes away because the funds aren't being operated in that kind of environment.  

And so the DFA model and the ETF model work really, really well, where we have found that, in our view, it offers lower risks, lower fees, lower taxes, lower volatility, and higher returns in the long run. So it's a model that we think makes a lot of sense. When we launched EMAP in 2005, it was pretty groundbreaking. It did things that nobody ever did. For example, a daily rebalancing review. Not that we actually rebalanced the accounts every day, but we studied it every day, whereas most folks were not rebalancing at all. Those few who were were doing it on a quarterly basis, calendar-wise. We were doing it on a percentage basis by studying every client account every single day. That was unheard of in '05. Today, of course, rebalancing is much more common and...

Michael: Now we have more tools for it than we did then. Like, iRebal had just barely launched in 2004/2005.

Ric: Right, right. And so we've always been, we think, cutting edge in our technology being able to do things because it was in the client's best interest to do them. Cumbersome, expensive for us, maybe, but necessary for the value of the client? Totally.

Michael: So in a world that, particularly these days, has become so focused around conflicts of interest, commissions, fee-only, fiduciary, and I know you've been a strong voice around those issues as well, how does a firm like yours think about the decision to not be fee-only because, as you pointed out, you're still doing some term life, you're still doing some long-term care insurance? How do you think through that of holding on to that business and not marketing in the fee-only direction if you're otherwise so close?

Ric: So our thinking has evolved. Our original thought was, and it was due to the experiences we had with our clients, is that if we did not… you know, we are, as part of our financial plan, helping our clients figure out, "Do you need life insurance, and if so how much, and what kind of policy is best?" And if we then said, "Go to your insurance agent and get it," we found that there was often a loss of quality control, because once they're in the hands of that insurance agent, manipulation often occurred. They would end up putting them into a really expensive, variable universal life policy or Lord knows what. And so we said, "We better do the policy for our clients just for the sake of protecting our clients from bad experiences on the outside." So that was our historic thinking.

Our thinking has evolved, and over the next several months, we are going to be eliminating our activities in the world of insurance. We will continue to do the plan, we will continue to do the design, but we have now identified some third-party players who we are confident we can outsource the product to so that we won't be earning any commissions from the sale of the product. And that will allow us to be able to call ourselves fee-only. It's a de minimis amount of revenue. It's like 1% or 2% of our revenue. It's irrelevant to us. And it is equally important, perhaps even more important, that we are able to truly say we are fee-only because that's clearly where the industry is going. We think we're thought leaders and we think it's important that we can say that as well as a message to the rest of the industry. So that's the direction that we are planning to take over the next few months.

Michael: Interesting. So from your perspective, you do see value at least in being the fee-only direction. I mean, do you want to market that and broadcast that as well or do you just think, "Hey, this is where we need to be because we want to trim back our conflicts of interest because that's where the media is focused now anyways?"

Why Ric Says It’s So Important To Be Fee-only [45:00]

Ric: Well, so I'll take the....you said three things, I'll take the middle one, which is that we want to be able to call ourselves fee-only. We want to frankly be fee-only because it is what's best for the client in today's environment. This is very different from the '90s, and it's probably different from even 5 years or 10 years ago. It is important in today's optical world because of the confusion surrounding the fiduciary status. The fact that there are 200 designations now available to consumers. That brokers and big-box wirehouses are calling themselves advisors. That even insurance agents are referring to themselves as advisors in many cases in those free lunch seminars. There's so much confusion among consumers these days, and the government has failed to date to resolve these issues that we in the industry need to help draw a line in the sand.  

The media has done a fairly good job at this with helping people understand the fiduciary question and the fact that there's a difference between an RIA, a broker, and an insurance agent. And because the compensation question is wrapped up in all of the above, it makes sense for us to be able to be bright-lined on this. And since our revenues are almost entirely fee-based anyway, like 99% of it, and since we believe fully and forcefully in the fiduciary standard, there's no reason not to be 100% pure. It'll be simpler, cleaner for us, it'll be an effective message for our clients, and hopefully, it'll help raise the bar for the industry overall.

Michael: So do you see this evolving as a model in the future so that this more effective partnership between fee-only advisors and outsourced insurance folks who actually are just willing to stay in their lane and do the insurance and not sell the client the different thing than what you're recommending them and so forth? Are you finding...I don't know how much you can say if it's sort of not public yet, but are you looking at working with a subset of advisors? Is this like you found a tech company that's just going to do this on an outsourced basis and you're going in a new direction? The insurance industry does not have a great history of being a partner in this regard with fee-only advisors, so what are you finding that solves this problem that other fee-only advisors seem to struggle with in solving this problem?

Ric: So one advantage we have is scale because of our size, that gives us clout in striking deals with partners that otherwise might not be interested in such a deal. If you've got 100 clients, how many life insurance policies are you selling on an annual basis? You're probably not going to get the attention of somebody that you want to get the attention of. But we have some capacity there that others do not. Second, the industry, the insurance industry is evolving. They recognize the challenge. The number of life insurance policies being sold in the country is dropping. The vast majority of Americans are either not insured or severely underinsured. They're not succeeding selling the product the way that they used to sell it. The traditional old-line commission-based insurance salesman who's selling a whole life policy, they're a dying breed as well.  

So the insurance industry itself recognizes this, and so there are people now in very large businesses in the insurance industry who are offering alternative approaches to insurance that didn't exist in the past. And we are developing relationships with these outfits that are making us very, very comfortable that they will uphold the quality control that we insist on for our clients, the sustainment of the client experience to our standards without us having to make money in the process of doing it so that we can remain the independent objective advisor that our clients want from us. And we don't care that we're giving up the commission revenue because A, it wasn't a whole lot of revenue in the first place, and B, it's the right thing to do. And so we're not really worried about it.  

In other words, we've done this for years, and I think other advisors will echo this as well. We've outsourced the legal practice to outside lawyers and the tax prep to outside accountants and the home-buying to outside real estate agents and the mortgages to outside mortgage brokers. We've done all of that for years, it's time now for our industry to do it with insurance as well. I think the opportunity now exists that didn't exist in the past. We're not ready to announce, to answer your question, who we're doing our partnerships with, that'll be coming soon, but we're very comfortable that this is the right thing for our clients and the right thing for us.

Michael: It's a striking thing when you put in that context that, we have no trouble advising on auto and homeowners insurance and then sending it out. We advise on mortgages and then send it out. We advise on tax returns and send it out. We advise on estate planning and send it out. And then we seem to have this focus on keeping the insurance business and those commissions that to me has always sort of been the awkward like, "Yeah, this is how we tend to justify conflicts of interest to ourselves when the revenue is there." And the rationalization for so long was, "Well, there were no good no-load alternatives, so someone is going to get paid. I'm going to help the client implement, I may as well get paid for doing that work."  

To me, it's sort of the ultimate statement of how far the insurance industry has fallen behind, that, maybe when we outsource as advisors everything else and struggle for the insurance, it's because the insurance industry has left a gap for serving advice-only advisors that just need to make sure the products are implemented but don't actually need to be part of the distribution channel. We just want to make sure our clients are served because we're already getting paid from the client directly anyways.

Ric: Yeah, you're absolutely right, In fact, take it a step further. Fifteen years ago, was there ever such a thing as a fee-based variable annuity product?  

Michael: Nope. Like...

Ric: Well, there is today, right?

Michael: ...Ameritas I think had an experiment for a while, but yeah, virtually nothing.

Ric: And so today, these products do exist. And that's the point is that we no longer have to do things the way we did them because now there's a new standard, there's a new opportunity. And it's demonstrative of the fact that planners have to shift and change with the times. And I think you said it really very well, that many advisors are doing what they're doing the way they're doing it out of a conflict of interest that they haven't even admitted to themselves exists. Remember what I said earlier, an advisor would rather sell a new product to an old client than go get a new client? That's the same thing. I've got a guy I've sold him investments, what do I sell him next? Oh, I got it, I'll sell him an insurance product. Well, here's a better idea, go get a new client instead of trying to sell insurance to an old client.

Michael: So I know you're someone that is willing to experiment a lot, is willing to reinvent the business model a lot, as you said here a few times, and going through from how the marketing has evolved to moving away from FINRA and building EMAP and now moving away from insurance and finding partners there. So I know you were also someone who was pretty out there and vocal early on around the so-called robo movement, launching Edelman Online. So I'm curious how much that is now a part of your business or not part of your business, especially when the whole angle of the robo world is, "We'll serve small accounts," and you already serve small accounts. So that's not really the distinguishing factor for you to add a robo to your system the way it might be a $1 million advisory minimum firm to add a robo to their system. So how do you look at that space now and the Edelman Online offering?

Ric: Well, Edelman Online was one of the first robo-advisors. We built it partly because I wanted to see what it was like. Looking at the early entrance into that field, I was curious, "What does it take to build technologically an online offering?" And we found out it's not very hard, thanks to technology today. And interestingly, it does serve a population that needs it. And we were wrong as to who that was. We thought that the robo platform would serve people without a lot of money, who are young and technologically proficient. We discovered that's not the case. The very first account we opened when we launched it, because I was announcing it a lot that we were working on it, working on it, we finally said, "Okay, here it is, it's live, you can use it this weekend," the very first account we opened was $1 million-plus account. I think it was $1.3 million. An emergency room physician opened the account at 2 in the morning. And so, this was a robo thing.

Michael: Tech-savvy, had money and could not meet with you during normal business hours.

Ric: Exactly. Exactly right. And I called him to ask. As a robo, I'm not supposed to call him because there's no humans involved, but I had to. I was like, "Why did you do this?" And that's exactly what he said, "I don't have time to call you during the week, and I really love you guys, and you gave me the chance to work with you online." So we found that the average age of our robo clients was 54. The average age of our other clients who come in and talk to us through humans, 57. There's no difference. It was amazing to us. And so what we found is that these are people who simply want an alternative channel, an alternative means the way that you might buy a paperback when I might buy a hardcover or you might do the audiobook instead. It's the same stuff. You just want your own way of accessing it. And so that's what the robo is.  

The Reason His Robo-clients Have The Same Fees As Clients Of His Human Advisors [54:45]

So the robo is still valuable to us. It doesn't really grow very much because what we've learned is that we offer these folks to work with us through our human advisors. The fee is identical. That was one big difference between us and all the other robos. Most other robos are doing it for 25 bips or less, we priced our robo identical to the rest of our practice, same fee schedule. And the reason we did that was our way of saying to the robo clients, "You're getting the same fee, you might as well use our human advisors and ask them questions whenever you want." And so most of them do that. Although they'll start on the robo, they end up moving over. So every time the robo builds itself up, it comes back down as those assets shift over to my human advisors. And we don't care. We're agnostic. Economically, it's the same thing for us. And it just serves the client. And a lot of our clients spend a lot of time at our client portal online, and others on the online site go to the humans. And so we're happy to serve them however they choose to be served.

The difference is that we were always able to afford it because I've already had my regular business as its infrastructure and the revenue resource and all that, whereas if you look at the true, pure online robos, none of them have sustainable business models. They don't make any sense at all. And I've been widely predicting that they're all going to go broke as soon as their VC dries up, which we're starting to see. Unless they change their model: adding humans, raising their fees, selling different kinds of products, which we're starting to see them do, because you can't survive on 15 bips in this business. There's just no way. And consumers want more than just the asset allocation model that the robos typically provide. So we're not threatened by them. I don't think anybody should [be].

Michael: Yeah, it's fascinating to me that, almost as soon as the robos showed up, there was all this discussion of fee compression coming, fee compression is inevitable. The 1% advisor fee is going to break. And then when you actually look at industry benchmarking for the past six years, the average advisor fee hasn't moved a basis point and most of the robos have raised their fees. And almost every new robo is already launching at 35 to 50 basis points if not higher. One or two of the wires did them at 60 to 75 basis points. No one is matching the original Betterment, Wealthfront robo pricing in the first place.  

And just, it strikes me that, when this gap appeared between what robos charge and what humans charge, the presumption was the humans will lose and the fees will break down. And instead what we're finding is the robos are losing and their fees are coming up to match humans. And then the more stuff they add in...the more fees they raise, the more other stuff they have to do, and then the services end out converging anyways.

Ric: Exactly. In the future, you won't be able to tell the difference between a robo-advisor and a human advisory practice. They're all morphing. Look at Vanguard, look at us, look at Financial Engines, there's a morphing. And all we're doing is serving a given type of client in a channel that the client wishes to be served under. And as long as you can do so profitably and sustainably, you'll survive. And if that isn't true, you will die or morph. And that's what we're discovering happening with the two extremes. So the guy on the robo side, they're going away because they don't have a sustainable model. But also you look on the other extreme on the humans, the broker who sells price and performance as his value proposition, "I'm going to sell you the best stock and I'm going to make you more money than the other guy, and I'm going to do it cheaper than the other guy," he's equally a dinosaur. He's not going to survive either. So the rest of us are going to have this all figured out, and we're the ones who are going to win in this competitive environment.

Michael: Yeah, it reminds me frankly of the start for my career in the industry. I came in right at the tech boom in '99, 2000, and I still remember getting grief from my friends of like, "Why would you become a financial advisor? The internet is going to replace all of you. It's so easy, a baby can do it," right? Because that was the E-Trade commercial at the time, the baby in the crib day trading stocks. And, instead, yeah, E-Trade and a few others are still around serving a subset of direct-to-consumer… self-directed clients that were never going to hire an advisor anyways, and then for everybody else, like, the advisors adopted the internet to the point where you don't even say, "I'm a hybrid advisor because I'm a human who meets with my clients, but I also use the interwebs." It's just the technology we all use to operate and execute our businesses. And to me, we're watching now the robo technology play out in almost the same way.  

I used to joke they brought an operational efficiency solution to a marketing problem. It's hard for firms to grow because it's hard for them to get clients. The robos seem to think like the average advisor gets paid 1% to actually sit in front of their computer and type out the stock trades that their software can do in a couple of milliseconds and didn't understand that's not what we're getting paid for in the first place, that's just an operational efficiency that we all want. No advisor really wants to spend a whole bunch of time doing paperwork and onboarding and trading stuff when software can just make that much easier. But once you turn it into operational efficiency like the communication channel for the ER physician at 2 a.m. who can't come into the office anyways, it just becomes the ubiquitous technology we all use to run our practices, and it's just the next generation of technology that humans use to run the human business.

Ric: Right. And that's what people have to understand is what is your value proposition? What is it that's making you worth it to a consumer? And I find that a great many advisors are unable to articulate the answer to that question.

Michael: And to you, the future of that question is all around these niches and specializations that you can differentiate and narrowcast to your target audience? That's how we're supposed to work through this?

Ric: Well, no, that's how you reach folks, but once you reach them, what's your value proposition to them? And it's not enough you've decided that plumbers are your niche, what are you going to say to the plumber? How do you convince the plumber that you're worth it? That's the value proposition you have to identify. So yeah, you've got to have a marketing strategy. But forget that. If the only thing I had was a marketing strategy, it would have been out of business a long time ago. Marketing can only get you to try the product once, after that the product has to stand on its own in terms of its quality and value. So once you hit the plumber over the head saying, "Hire me," now you have to answer the question, "Why? Why are you worth hiring as opposed to everyone else in this industry?" So what's your value proposition? What makes you worthwhile, unique, different, of value for the money served? And if you can't answer that question, you'll lose.

The Huge Value Add For Clients That Ric Says Planners Don’t Fully Appreciate [1:01:43]

Michael: And what do you see that advisor value proposition being in the future? We're throwing the technology stuff under the bus and the stock-picking under the bus and all the other things we've thrown under the bus, what is the sustainable value proposition as you look at it going forward?

Ric: Well, I think there are a variety of answers that advisors can put forth depending on what they want to emphasize in the industry. I can envision that there are some advisors who can succeed by saying, "I help you zero out your tax liability. And if that's the only thing you care about doing, I can show you how to do that." And okay, that's a value proposition. I'm not sure I agree with it, but I can see someone making the pitch for it.  

For us, we believe that the value proposition is being the resource for the client so that they don't have to worry about this stuff. Most Americans, in our experience, don't have the knowledge to be able to make effective financial decisions. They don't have the time even if they did have the knowledge because they're so busy with their lives and with work and every other aspect. And even if they somehow did have both the knowledge and the time, they don't have the desire. They don't want to spend time with personal finances. It's a chore. It's drudgery. They'd much rather be with the kids or grandkids or gardening or traveling or bicycling or doing whatever it is that they find fulfillment and enjoyment and in life. And personal finance is just drudgery. I mean, a lot of people floss, but I don't think anybody looks forward to it. "I can't wait till bedtime I get to floss.”

And so we realize it's got to get done, but it doesn't mean it's got to be done by me. And so a lot of folks value the fact that their advisor will handle all of these elements for them. Giving them the advice that they need, doing most of the work, being in touch with them as needed to make sure that they're doing what they need to be doing at the time they need to be doing it, and helping them with all aspects of their personal finances, more and more in a life coaching environment, not just a financial planning environment. Because people are not only living longer than ever, they're doing so with a greater level of affluence than ever and spending more and more time in a leisure and recreation environment than ever. And people are wondering, "What do I do now?" And so helping clients with all of these kinds of issues with a long-term relationship knowing that, "I'm going to be with this advisor for decades, not just months or years. I'll probably die with this advisor." There's a huge value to that that I think planners don't fully appreciate how valuable clients perceive it to be.

How Ric Views The Future Of Advisory Fees [1:04:25]

Michael: So I want to come back for a moment on this discussion around fees, fee compression, I guess as I framed it, like, fee convergence. Maybe the robos are coming up more than the advisors are coming down. There's a lot of focus and fixation on fees in the industry these days. And I know you guys are not focused on being the cheapest out there. I think your fee schedule starts at 2% on the first little slice and then graduates down from there. How do you think about fees and fee competition and fee compression in a world where you've got a fee schedule that starts at 2% and eventually gets down to 50 basis points? I know, but the proverbial rule of thumb now seems to be a 1% AUM fee. So are we just all too wrapped up about our fees? Are you eventually looking at a different fee structure? How do you view the future of advisory fees?

Ric: Well, I'll give you several answers to this. First of all, we are very sensitive to fees because we recognize as a fiduciary, there's an inherent conflict because every dollar the client pays us is a dollar they don't keep. So if we're trying to help them grow their assets, we need to minimize fees as best as we possibly can. And yet we often hear people try to criticize us saying, "Oh, Edelman, they charge 2%." Well, there's a reason that our smallest accounts are 2%. It's because it's $5,000 minimum. So 2% on $5 grand is 100 bucks. So before somebody criticizes us for a 2% fee, I'd like to see if they're willing to charge $100 a year to serve a client in a comprehensive financial planning way. So by the time you get to a $1 million client, our fee is highly competitive. As you noted, our fee goes down as the value of the account goes up.  

Michael: Yeah.

Ric: So I get a little bit annoyed when people say to me that our fee is high. No, it isn't. When you compare me fairly, apples to apples, a half a million dollar case to another or a $1 million case or a $5 million case, our fee schedule is very competitive. Especially when you take into consideration one other very important piece, it's not just the advisor's fee that matters. And this is a big canard in our industry. I can't begin to tell you, Michael, how often I've come upon people who brag that their fee is 1% and then they put the client into load mutual funds that charge another 1.5%. Or they charge 1% and they pass along to the client the custodial charges from the independent custodian like Schwab or TD or Fidelity or whoever and they don't disclose that to the client. Or they charge the client the fee in advance based on the investment amount even though that account might drop during the quarter either because of market conditions or because of withdrawals. So we don't engage in any of those games.  

So when you look at the fact that we're using ETFs and low-cost index funds where the total investment charges for our clients are typically about 30 or 35 basis points on top of our fee on an all-in basis, our clients are paying a fee that is highly competitive to what others would charge. But even having said that, most of us in the industry are within a pretty narrow range. Take a typical couple of advisors; the difference in fees is mere basis points. It's not a reason to hire one or another.

Michael: And EMAP is a wrap program as well for you guys, right?

Ric: Yes.

Michael: So you're wrapping trading fees, ticket charges into that as well?

Ric: Yes. And the custodian's fee as well. It's all included. And we're charging it in arrears on the average balance of the account during the quarter, which smooths out both the volatility and deposits and withdrawals so that it works out to the client's best interest, compared to alternative methodologies of charging the fee. So the key is, we have to be able to demonstrate to the client that this is worthwhile. And we have not had difficulty generally doing that. Historically, our clients' retention rate is like 98%, 97%. So our clients join us and they tend to stay forever. One of the leading reasons people leave us is they die. So, are we losing clients or failing to attract them in the first place because of the fee? I would be willing to bet it's probably because somebody else said, "Oh, Edelman is expensive at 2%," without providing the full truth of the situation. We haven't seen much of a concern.

In fact, you said it best, we don't claim to be the low-cost provider. You don't need to be. The real thing you've got to profess to be is the high-quality experience. And as long as you're delivering on what it is the client needs and helping them to achieve their goals, I think clients will pay whatever it takes. And if that weren't the case, there wouldn't be any Rolls-Royces in the world.

Michael: Yeah, the best quote on that I heard from an advisor friend a few weeks ago was, "Look, we're not the most expensive provider out there, and you don't want the cheapest one."

Ric: I saw a sign in a cartoon. It showed a couple of storefronts and one of them says, "Haircuts $10," and the next one was another barber and it said, "We fix $10 haircuts."

Why Ric Doesn’t Buy Into The Typical Aum Model [1:09:44]

Michael: Love it. I am curious, though. I know you spent a lot of time looking forward, looking at the future and how the industry continues to ever evolve. I'm just curious, do you view the AUM model as sustainable? There's so much discussion these days around other types of fee models, retainers, net worth fees, other ways of charging that move away from AUM. Is this in the cards for EFS? Is everybody just overly sensitive about AUM fees?

Ric: Well, I think it's a bigger deal in the industry than it is among consumers, and it's a bigger deal, I mean, a more topical conversation. Because I don't think consumers really fully have given it much thought or consideration. This did evolve out of the old traditional broker model where you originally got paid commission based on the size of the trade, and then it got morphed into mutual funds. Why the mutual fund industry ever got involved in the compensation game never fully understood. Why were they charging 8.5% loads and passing it through to the brokerage firms as opposed to the brokerage firms independently charging commissions? So this game has kind of evolved into the method we now have. And when we all shifted to fees, we just played the same game. We used to earn a comp based on the AUM, so we might as well keep doing it. And we're doing it as a fee now.  

So you're right, it doesn't make a lot of sense. It's not logical. You could argue that the number that we should be billing on is the client's net worth, because, at the end of the day, that's what matters. And my strategy on your mortgage and your estate plan has a huge impact on your net worth, but I don't really get paid directly for it, do I? So we go to great lengths to express to our clients that although the fee is really tagged at the AUM, you're not really paying us a fee based on that, you are paying the fee based on the whole thing, it's just that this is how we count it. It's a metric by which we can all agree. But it's an imperfect one at best. But what do we do? We don't count the assets and their retirement plan at work, we don't count the value of their house and so on. So it is imperfect, it is weird. And if we were starting from scratch, I think we would all agree to do it based on the client's net worth, but that's not where we are. So I think inertia is going to win the day for the foreseeable future.  

And even if we did move over to a retainer model or a flat fee model or an hourly model like lawyers and accountants use, I think the net amount the client pays would still remain largely the same. I don't think the fundamental economics of the industry would be any different. And therefore, it's just, how you choose to do the accounting, which is why I think it's a bigger deal for the industry than it is for the consumer. Because at the end of the day, it's not going to change much in their costs.

Michael: Yeah, I think that's one of the distinctions that to me gets lost sometimes. I see some advisors say, "I only charge in this one account. If I charge a net worth fee then I can attach to all the other assets that they've got and I could charge a higher fee because there'd be more stuff in the denominator when I calculate my AUM fee ratio." But the reality at the end of the day is, if your net worth fee adds up to a dramatically higher number than all the other advisors that charge AUM fees to give the same comprehensive service, the client is just going to pick an AUM advisor who's cheaper. You can't charge a materially higher number unless you can also demonstrate you're providing a materially different service and value proposition. Which means it's really much more about the value proposition and the kind of advice model we're running than necessarily how we're charging it.

Ric: And then you get into a problem behavioral finance. The biggest problem I have with charging an hourly fee is that clients will be hesitant to call you out of fear of being billed. But when we say to them, "We're managing your assets and therefore you can call us anytime as often as you want for any subject of any kind," they're more likely to do it. And so they end up with a better experience because they're getting more help more often on a wider array of subjects because they're not being afraid that we're going to nickel and dime them the way lawyers and doctors and dentists and accountants do. So I'm not sure we want to go there.

Michael: Yeah, conceptually to me, the net worth framing has always made a lot of sense, with the caveat that you don't appreciate how easy and simplified AUM billing is until you try doing billing on net worth where all of those data points are not fed automatically.

Ric: Oh, and go get the house appraised.

Michael: Yeah, get the house appraised. Get their business appraised. If you're going to exclude all of that stuff because it's hard to appraise then you're pretty much down to investment accounts, and you may as well go back to an AUM fee.

Ric: Exactly right.

Michael: There's a simplicity to the billing process that I think we never appreciated in the industry until you try to go do something else and realize how much harder it is to bill. And maybe technology will improve and solves for some of that over time, but  it is amazing how efficient it is that you can take all those account values, calculate your, you know...I mean, the only thing worse than calculating a net worth once a quarter, like, try calculating an average daily balance every quarter the way you can do in the snap of your fingers on an investment account.

Ric: So I think it's in a category of, what do they say the definition of democracy is, the worst political system ever devised, except for all the others?

Michael: Yeah.

Ric: That's where we're at with an AUM fee.

Ric’s Thoughts On The Edelman Financial / Financial Engines Deal [1:15:22]

Michael: So,  you had this huge announcement a few weeks ago of Edelman Financial and Financial Engines and this pairing that Hellman is putting together. So, talk to us about how you view this deal. You did crush $22 billion over the past 30-odd years. It's not like you were horribly hurting for growth or anything. What posed you to a deal with Financial Engines? Because since I know you were pretty active in advocating for this deal.

Ric: Yeah, I've been working on this for the past six or seven years. It's a huge deal. You love the deal too. I thank you for what you wrote about the deal. You called it a brilliant deal.

Michael: I am fascinated by it. Yep.

Ric: Everybody has. We haven't seen a negative review yet. A lot of folks are regarding this, "We're going to turn around in the future and say this was the pivotal moment in the RIA industry that is a massive sea change for the business." Financial Engines is the oldest and largest robo-advisor. People don't know that, that they're the oldest and biggest, $176 billion in AUM inside their robo. And the reason people don't know it is because it exclusively serves the 401(k) marketplace. It's not a retail function. Their retail function, they acquired a couple of years ago, the Mutual Fund Store, that's got $12 billion and 45,000 households. So you add that onto Edelman Financial, and we now have a combined $36 billion or so, with about 80,000 families. Around the country, we now have 120 offices combined, 320 advisors. And that's in addition to the workplace activity.

So on the one hand, you've got this massive workplace business, 750 401(k)s, including 170 of the Fortune 500. Boeing, the nation's largest 401(k), is a client on down, 1.1 million workers use Financial Engines' technology but in a robo environment. And then you've got the retail environment serving individual households in a comprehensive financial planning and investment management way the way Mutual Fund Store, now of course called Financial Engines Advisors and Edelman Financial Advisors. And so you put these two behemoths, these two titans together, and we can do things on an unprecedented scale that no one has ever been able to approach before.

Financial Engines has unmatched technology because that's the platform on which they built their business over the last 20 years. Their technological capabilities are unbelievable. We now have full access to tap into that. That will dramatically improve the quality of the client experience dealing with our technology, our online portal, and our own robo-advisor. The ability for us to do client-facing technological solutions like never before would be incredibly exciting.  

On the other hand, we now dramatically expand the Engines' capability of providing human advisors to those 1.1 million workers that Engines historically had been pressed or stretched to be able to serve. We now double their capacity in terms of the number of advisors. So we are going to be able to deliver our financial education to more people. I mentioned a moment ago that half a million people listen to my radio show every week. Well, I can now deliver a podcast of my show to those 1.1 million workers every week. I can now give my my 9 books to all of those 1 million people. Our newsletter can now get distributed to all of them. And we can now share our financial knowledge and wisdom and advice to huge numbers of consumers who never had it before, dramatically improving their financial literacy and giving him access to advice where they never had access before because they aren't generally wealthy enough to attract those advisors demanding $1 million minimums. So this is going to be huge, absolutely huge.

And as you mentioned earlier, the morphing of the robo-advisor and the human advisor together with the Financial Engines' technology and the Edelman Financial human platform, this is extraordinarily exciting, and it will be a major sea change in the RIA industry. There's no doubt in my mind.

Michael: The thing that fascinates me about it the most is just most of the industry for the better part of, I don't know, 20-plus years of the AUM model has basically built all of its AUM around, you know, if you want to do AUM, you've got to find a pool of assets that's liquid and available. The easiest way to find the pool that's available is, take this giant rollover that they've got coming out of retirement and go after that. And the industry has just been focused on retirement rollovers for a few decades now.  

And there's this interesting challenge that comes up when EFS starts working through Financial Engines, the 401(k) channel, which is the 401(k) channel rollovers work for us because those clients are unattached because there isn't much financial advisor activity in the 401(k) channels today, until you go and start pairing EFS advisors with all of these different clients, and now we get to a world where by the time the client actually shows up as an advisor rollover, they're not unattached, they have a 9-year relationship with an existing EFS advisor. Which is a new challenge for the advisor world needing to compete for new business when retiring clients aren't actually unattached the way they "always have been."

Ric: Yeah, that's a very good point. It also puts further pressure on advisors who do make a living in the rollover business because we are being able to say now, "There's not a lot of incentive for us to do a rollover anymore. We're already earning compensation in the 401(k) because Financial Engines is running the money in the 401(k), so why do we need to roll it over because the assets are already in our books?" So now there's less justification to do a rollover. And that means, by extension, other advisors are going to have to work harder to justify why they're doing a rollover. Because the only reason they're doing it, in many cases, is to generate the revenues off of the assets. In other words, they're not acting as a fiduciary, in many cases, when they're doing it.

Michael: Yeah, I know one of the first questions that had come to me from the media when the Financial Engines deal was announced and this possibility for Edelman advisors working with all these 401(k) plan participants was, "Well, wait, wait, wait, how are they going to handle the conflict of interest rules if  DOL fiduciary or some equivalent comes back where there's all this focus on rollovers?" And the thing that it struck me about the deal from the start is, "No, no, no, if the Edelman advisor is already working with a Financial Engines' 401(k) client in the 401(k) plan and has been for years, there's no conflict on the rollover. There's no rollover."

Ric: Exactly.

Michael: And even if there is a rollover, no fee changes, nothing changes because you're already providing the advice and charging the fee for the advice with the human advisor evolved they just switch where their account happens to be located.

Ric: Exactly. And I'll take it a step further. We can now say to, and we've already had this conversation a lot with many of our clients at Edelman Financial who have said to us, "We heard the news about your merger. Where I work, I've had Financial Engines for years." And now all of a sudden, we can give them advice in their 401(k) that we've never been able to do before but now we can because it's all one big company. And now we can go to employers and say, "Here's another reason you should hire Financial Engines for your 401(k). We now can provide you human advisors to help them with the broad array of personal finances at no extra cost to either you or the employee." How many 401(k) providers can offer that? So the value proposition skyrockets for us and Financial Engines, the value to the client is massive, and it helps to reduce the conflict of interest that has been pervasive in our industry all at the same time.

Michael: So where does this ultimately go? Are the brands being totally merged? Is Edelman Financial going to go away and it's going to be just Financial Engines has this comprehensive service offering as a tier within Financial Engines or do they remain separate companies and separate brands? Where do you see this going over time?

Ric: We're going to answer that question in the next 90 days. We're working hot and heavy on the integration at this point. We're not ready to yet announce what it is we're going to be doing, but plans are underway for those decisions, and the announcements will follow.

Ric's Advice For Advisors To Be Successful In The Future [1:24:26]

Michael: So as you look broadly at the business and how it continues to evolve, like, as someone who's gone this path and built this successful advisory firm at pretty much greater scale than anyone else that's built a financial planning firm from scratch, what do most advisors not understand about building advisory businesses? What is it we're not getting that no one else seems to have been able to come close to the trajectory that you have?

Ric: I think that a lot of advisors are pretty good at being advisors, they're not necessarily pretty good at building companies. It's either not their passion, meaning they're not really trying to do it, which is why they're not doing it, or it's not their skill set, they don't know how to do it. And so they're struggling but languishing in their ability. And with the technological threats, the competitive threats, the regulatory threats, the challenge has been greater than ever. And it's going to get worse, which is why I've said for a while now that over the next 10 years, half of all advisors in this business will be gone.

Michael: That's a big number.

Ric: Well, but the average advisor now is pushing 60, so it's not that...and we know that a lot of young people are not entering the field, they're instead choosing to go into investment banking or PE or some other aspect of the financial industry where they think they can make more money.

Michael: Do you see the headcount in total declining that far in 10 years or you just think there's a giant rotation coming as one generation of advisors whose average age is almost 60 retires out and a next generation eventually gets attracted in to replace them?

Ric: I think we need to raise the bar. We need to change the perception of our industry away from a commission-based product-pushing environment, you know, free lunch seminar nonsense, over to that of a profession like accounting and law and banking. We have to be willing to pay people coming out of college with degrees in financial planning what they're worth. And a lot of advisors and solo practices aren't willing to write a check for $50 grand or $80 grand a year to someone who's got nothing but a college degree. And we have to structure our practices in a way to convey equity to them. Many advisors are unwilling to do it. And so what they're doing, they're not running a company, they're running a practice. And it's a lifestyle practice. They're making good money, they're having a good time, and they're not really creating something that will have any permanence or sustainability or anything that they'll be able to sell in the future.

And all that is fine as long as you don't have delusions of something different. What I find funny is when advisors are running those kinds of practices but at the same time they say, "I'm willing to sell my business and it's worth 10 times more than its EBITDA." They're delusional. They have no idea the realities of the business side of our industry. So advisors need to really make some firm decisions as to what they're trying to accomplish. Do they enjoy their lifestyle and the money that they're earning and the clients they're serving? Great. Is that all sufficient to keep them happy? Fine. But if they have aspirations for something else, they want to grow their business by dramatically adding staff and advisors and clients and they really want to build something that can truly sell a big number to an investor or alternative group, then they're going to have to change their approach to running their business and treating it more like a business and less like the cash cow that historically it has been.

Michael: What surprised you most about building the business from your end? All the changes, all the evolutions.

Ric: Well, I was surprised, frankly, at the relatively low bar. I'm considered one of the top guys in the business. I'm not so sure how good I really am, but when you compare me to a lot of other folks in the industry out there, sadly, it's a relatively low bar because it's a fairly low barrier to entry. Getting that license isn't terribly difficult. The big wirehouses will get you the license within a month or two, and they hand you a phone book and away you go. And we need to increase the level of professionalism in the industry. We need to increase the ethical behavior in the industry. We need to make this industry be what consumers have always hoped it would be and what still many consumers think that it is. So I think that has surprised me a little bit over the years, not always in a good way.  

And so until we do see that, my wife and I remain fully committed to having our organization serve as the oasis, the safe haven the consumers are looking for and need to be able to get the advice that they need in a safe environment that is serving their and their family's best interest. Because although there are a lot of us now more than ever working equally hard at doing this, there's still an awful lot of bad players in the industry focused solely on their own selfish interests. And that's not doing anyone any good long term. So until we get this really resolved, we've got a lot of work to do. And so I'm really glad Michael you do what you do because you're helping dramatically to raise the bar. You're creating a level of awareness and professionalism that hasn't existed in other ways, and I hope you'll keep doing what you're doing too.

Michael: No plans to go anywhere anytime soon. I'm still having fun so far.

So, for the huge opportunities going forward from here with Financial Engines, I am wondering, as you look back, what was the low point?

Ric: In what? With Engines?

Michael: No, for you, just, the career, the business trajectory. It seems like you've, at least from outward end, have had fairly steady compounding throughout, but, I know growing a business that much, you've had to reinvent a lot of your role in the business probably a dozen or more times as the business has grown. So what was the low point for you in all this change and evolution?

Ric: I'm not sure there were really any low points. There are always setbacks or failures.  I've wasted more money than I can count in business ideas or efforts that didn't pan out as we'd hoped. Software that never worked or a bad hire or something along those lines. But you just chalk that up to experience, you determine not to make the same mistake again, and you keep moving forward. Any time you try to do something that no one else has ever done before, you're not going to get it right the first time. And as long as you make sure that those errors or failures are internal, meaning they don't affect clients, then it's okay to make them. And as long as you're always able to make payroll so that your employees can operate in a comfortable, safe, secure, respectful environment, well, the lows that come are just, all they do is make great stories and anecdotes at conferences.

Michael: I know you spend a lot of time on kind of looking to the future and been involved with Singularity University and some other groups, so when you look at that through the lens of our industry, what's the biggest change that's come into the industry that we're not even focusing on or thinking about but we should?

Ric: Yeah, for the past 10 years I've been spending a lot of time researching exponential technologies. And this is one of the reasons I think many advisors are not going to be around in the future, because they are failing to understand the incredible impact that these technologies are going to have on every aspect of life on our planet, and by extension, our industry and the advice that we give to our clients.  

In a nutshell, if I were to summarize it in a single word, its longevity. Longevity is going to change everything. I'm convinced that many financial planners are giving their clients financial plans that are downright negligent, because they're assuming...they're telling their client, "You're going to retire at 65 and be dead at 95." Because historically, that's what we've said to clients for I don't know how long. But that's not going to be the case any longer. Today's clients are going to live to 110 or 120. The technologists are all pretty confidently predicting that if you're alive in 2030, that's 12 years, you will likely live to 120. There are some saying you'll live even longer than that. Well, if you're going to live to 120, there's no way you can afford to retire at 65 and live for 55 years without earning an income. There's no way your money will last. And so the entire linear lifeline is changing.  

We grew up in an environment where you got born, you went to school, got a job, retired, and died, one thing after the other in chronological sequence. That's over. We're now emerging into the cyclical lifeline, where you go to school, you get a job, you go back to school and get a new job, and then you go back to school again, and again, and again. It's lifelong learning. College planning is gone. If you've got a client with a five-year-old kid, you don't have to worry about saving for college for that kid because, by the time the kid goes to college, it'll probably be free. It's already free in so many areas now. My book, "The Truth About Your Future," goes into all of this in great detail. So it's lifelong learning, not college planning.  

It is recognizing that AI and robotics are going to wipe out about half the jobs that currently exist in this country, but it's going to replace them with brand new jobs that are going to require a new set of skills, hence the reason for lifelong learning. And because we're going to live so long, we're going to have to engage in leisure and recreation advice for our clients more so than we have in the past. Because with decades of affluency, you're going to have a huge amount of time on your hand and plenty of money to enjoy it. So recreation and leisure is going to be a huge area of advice for clients along with career planning, because clients are going to have to enter careers that they never contemplated entering, and that's going to be a big thing for advisors as well going forward.  

Estate planning is going to be huge because you're going to have seven generations alive all at once, not just two or three. People are going to marry four, five, six, seven times. Because if you're living to 120 and you have an average life of 30 years with a spouse, you've just got 4 spouses. So, Hollywooders are already doing it seven or eight times. So this is going to become very common as well.

Digital assets is a huge area. I'll bet your clients' wills and trusts don't mention their Facebook accounts or Pinterest accounts and yet we're doing online banking and we're storing our memories online and the wills are silent about it. So advisors have to recognize that the advice they've been giving to clients is antiquated. It's representative of the life clients used to have, not the life that they're going to have, and advisors need to dramatically improve their knowledge of exponential technologies, most importantly and fundamentally, the investment management piece, which is their bread and butter with AUM, because the investment strategies that clients are focusing on right now are, in many cases, completely wrong based on the future that we're going to have. Clients generally do not have sufficient exposure into such market sectors as nanotechnology, biotechnology, AI, 3D printing, bioinformatics, neuroscience, FinTech, EdTech, blockchain, Bitcoin, on and on and on.

Michael: Are you trying to develop ways to overweight EMAP client portfolios into those areas?

Ric: Yes. We launched several years ago recognizing that there wasn't a vehicle for ordinary consumers to invest in this area. I mean, if you look at the typical tech fund, they're all doing the same thing. They buy IBM, Intel, and Microsoft. They aren't investing in exponential technologies other the users who are the developers of these techs. So I went to BlackRock in 2015 and I asked them to build an ETF that invested in exponential technologies. They thought it was a great idea. They went to Morningstar and asked them to build an index. Well, they thought it was a great idea so they did.  

And in...it was two years later in 2017, I think, we launched...no, it was in 2015 we launched it, we launched the iShares Exponential Technologies ETF, which owns 200 stocks, equally weighted from around the world. These companies are either developing or using these technologies to grow their businesses. Now there are probably a dozen, maybe two dozen funds of its type from ARK and State Street as well as BlackRock that give investors, through ETFs or low-cost index funds, the opportunity to get this kind of exposure in their portfolios. And they are still considered niche products. Most advisors I think are still not using them, either at all or sufficiently. And I think that really needs to change in a dramatic way.

Michael: So for a lot of advisors you said, like, average age of advisor is closing in on 60, which means a lot of those folks are going to retire over the next 10 years, so they're perhaps more likely to experience exponential longevity improvements as the recipient rather than as the client advisor at that point. But younger advisors who might be in their 20s or 30s or even 40s and still have multi-decade career time horizons may very well live this with clients. So I am curious what advice would you give to young advisors today that are building firms and starting practices and looking at this 20, 30-plus years into the future trajectory?

Ric: I think what you need to do is focus on the type of client you want to serve, how you want to serve them, and focus on where that client is going, what kind of world are they going to be living in in the next 10, 20, 30, 40 years and basing your advice on that projection of the future, rather than assuming that they will live a life that is the life that their parents and grandparents lived. Yogi Berra said it, "Future ain't what it used to be." And so these advisors, if they're going to be successful in the future, need to look at where the future is going to be. And paying attention to exponential technologies I think is going to help set them apart from others in the industry.

Michael: And does that lead you in the direction of different models as well? I'm struck, if you're not accumulating for multi-decade time horizons for retirement and you're not accumulating giant portfolios for college planning, once again, we're back to some of the earlier discussion that you kind of start dismantling the AUM model if we don't save for these giant long-term goals the way that we have in the past.

Ric: That's quite possible. So if you're not going to be having clients amassing millions of dollars, that means you're going to need lots of clients with relatively small amounts of money instead of a relatively few with large amounts of money.

Michael: Or we end out with the model that's based on income and not assets because that's the thing that remains more constant.

Ric: Perhaps.

Michael: So, as we come to the end here this is a show about success, and one of the things I've always observed is just the word success means different things to different people, sometimes different things to us at varying stages in our own lives. So as someone who's certainly objectively built a phenomenally successful advisory business and one of the largest in the country, how do you define success for yourself?

Ric: Being able to have a positive influence on other people's lives. If we're able to materially help people from the work that we're doing, from the advice we're giving and commentary we're offering, then that's a good day.

Michael: Amen. Well, I hope we get to advance that goal one more step with the discussion today and the work you're doing and the advice you're giving.

Ric: Michael, it's been a real pleasure to be with you. Thanks so much for all your hard work and wish you continued success as well.

Michael: Thank you for joining us on the "Financial Advisor Success" podcast.