#FASuccess Ep 208: Offering In-House Tax Preparation To Supplement Revenue And Enhance Client Retention, With Debbie Freeman

What You’ll Learn In This Podcast Episode

• How Debbie's Firm Uses Meeting Surges To Manage Their Client Meetings [05:59]
• How The Firm’s In-House Tax Preparation Service Is Structured [20:43]
• The Software That Debbie Uses For Tax Preparation And The Firm's Tax Preparation Fees [37:11]
• How Debbie Uses Tax Planning To Build Client Relationships And The Qualifications Required For Advisors To Offer Client Tax Preparation Services [47:19]
• How Debbie’s Firm Made The Decision To Offer Tax Preparation In-House [56:53]
• What Peak Financial Advisors Looks Like Today And Their Core Business Model [01:04:02]
• Debbie’s Career Journey And How She Ended Up In Financial Planning [01:14:58]
• Debbie’s Transition To Becoming A Partner [01:25:06]
• What Surprised Debbie The Most About Building Her Career As A Financial Advisor And The Lowest Point In Her Journey [01:35:50]
• The Advice That Debbie Would Give To Her Younger Self And How She Defines Success For Herself [01:47:04]

Resources Featured In This Episode:

• Debbie Freeman
• Peak Financial Advisors
• Enrolled Agent
• How I Invest My Money
• Implementing Client Meeting Surges To Boost Advisor Productivity And Systematize Client Value
• Kitces Course on How To Review A Tax Return
• Timing Tax Savings With Deduction Lumping And Charitable Clumping
• Citrix Sharefile
• Intuit ProSeries
• Intuit Lacerte
• Bill Coors: "The Will To Live"

Full Transcript:

Michael: Welcome Debbie Freeman to "The Financial Advisor Success Podcast."

Debbie: Thank you so much, I'm really honored to be here with you today.

Michael: I'm looking forward to the discussion on today's episode. What I'm finding is kind of cropping up more and more often is a theme in discussions – in our advisor community right now – which is all these various pressures on our fees and our value proposition. I've been the one who's kind of pounded the table for a while who said, "We're not really experiencing fee compression because, frankly, we can't run at robo-advisor fees with... We're not going to, we don't have the technology, we don't have the scale, and we don't have 100 million dollars of other people's money to build all that technology. The only way we survive is we have to make sure our value steps up to justify the fees that we do charge." And the most dominant discussion I feel like I'm seeing these days is not, "Hey, are you cutting your fees down to compete with robo-advisors?" It's more of, "Hey, what are you doing to try to make sure that you can get the full value of the fees that you charge?" Right? And we're getting into more services and other services, concierge services and value adds, and all these different things that advisory firms are trying to put in to validate the fees that they charge.

One thing that I'm hearing more and more of is that a lot of us have always done tax planning as part of what we do. So much of our advice, whether it's investments, or insurance, or other areas, has always had tax intersections to it. But getting even more proactive on tax planning and, in some cases, outright doing tax preparation, like doing tax returns, becoming a CPA, hiring a CPA, becoming an enrolled agent, in-sourcing and outsourcing, lots of different ways that you can go about it. But I know you live in a firm that does tax returns for clients as a core part of what you do as an RCPA yourself. And so, I'm really interested just to talk about this dynamic of what it's like to be in an advisory practice that's doing tax returns and doing all this tax work for clients. And it's not necessarily an environment... I've seen a few firms that do this that are like the big mega firms. It's like, "Oh yeah, we're going to do tax returns for our clients, we'll just hire 12 CPAs and they'll do that stuff." You're in a much smaller practice, you don't get dozens of people who you get to hire to do this stuff, you all have to do it yourselves and just live with that balance of, "Got to manage portfolios and give clients advice and do financial plans. Oh, and there's this tax-season thing." And so, I'm really excited to talk about what life is like in a practice where you're doing financial planning and investment management and tax returns, in, particularly, what was a crazy year because they kept changing the due date for the tax returns. So you didn't even know when you were done. So what does this look like to have a tax-season cycle within an advisory firm, as a part of what you're doing for clients?

How Debbie's Firm Uses Meeting Surges To Manage Their Client Meetings [05:59]

Debbie: Well, we have had this structure since the firm began in 1997. And I have been part of the practice since 2005, and I can tell you that it continues to get more complex, and the tax season seems to get longer and it really segments your year. And it's important to understand that, if you go this route where you're actually, not only doing tax planning but you're doing the preparation too, that you understand the flow of your entire practice is probably going to change. Things like we absolutely block out our calendar from February 15th through April 15th where we are not holding annual review meetings with clients. Those traditional annual reviews are done for our firm after the October 15th deadline, so we are often – the months of November and December and into January are really when we're meeting with clients face-to-face, doing the comprehensive review of their investments, their financial planning, looking forward to what kind of tax planning we have to do for the next deadline or the next year. And really, February, March, April, and September, and October are strictly related to taxes. And we're meeting with clients and we're engaging with them and having conversations, getting the returns done and filed. But that is probably one of the biggest shifts that I think some advisors might overlook is that it really segments your year in terms of the flow of the work.

Michael: Interesting. Now, the irony to me of this is I feel like we're hearing this starting to come up as a practice-management thing in general to say, instead of having all of your client meetings sort of dispersed throughout the year, a couple a week all year long to get through the few hundred meetings a year, we often have, to say instead, "Hey, what would it look like if we did these meetings in chunks? Like we have a month or two where we do three, four, five meetings a day, every day on end, we go through the whole client base and do a seasonal review of some planning issue, get through all of them. And then, we're kind of done for 2 or 3 months before we've got to go through and do the next round of meetings." I know some people are calling these 'meeting surges'. So, I know if somebody's starting to experiment with meeting surges just as a time-efficiency thing unto itself, it's sort of like time blocking writ large across 1 or 2-month segments of your calendar. And it just strikes me, as you're describing this, that you're essentially ending out in a version of meeting surges as well, but sort of done out of necessity because mid-February, mid-April, and then September into mid-October all just get knocked out because of tax season and tax-filing deadlines. So you end up being forced to do meeting surges around the rest just to be able to accommodate the tax-preparation surges that naturally tie to the tax calendar when you run this sort of structure.

Debbie: Absolutely. And our meeting surges tend to be... May-June will be the next surge of client meetings when we pick up some of those clients that are used to planning in the spring-summer months. That one is less heavy. And then, the big push is the November-December-January timeframe. And that has built-in efficiencies as well. When we're talking about what our macro view is of the markets and the world, it's much more efficient to have that in a 3-month time frame than having to update that part of our presentation 4 times a year.

And our clients get used to the schedule. And they're obviously being touched and reviewed and having discussions with us multiple times through the year, especially if they're a tax-planning client, but it's really great to kind of end the year and know we're hitting that next tax season understanding that they have an understanding of what to expect when we file, we have an understanding of what has gone on during the year, and it gives us time to maybe fix any issues that arise.

Michael: Now, I'm curious as well that...you said, "Having done this for 15 years in the firm," I guess 20-plus years the firm's been around, 15-plus years that you've been in the firm doing this. You made this comment, like it continues to get more complex. I'm just curious about that because I feel like the general thrust of tax preparations, every year the tools and the software get fancier and more capable. So, being an outsider, I have to admit I sort of would have assumed...well, this is getting pretty simple and, all right, I can TurboTax my return in an hour online, if it's not too horribly messy. A lot of my clients are not that bad, as long as I don't have maybe small-business-owner clients, a whole bunch of business entities. So why is it that it's getting more complex, even as the technology ostensibly gets better every year at supporting tax-preparation work?

Debbie: Yeah. And I agree with that. The technology and software are there to make our lives much easier. What adds to the complexity is our convoluted tax code, the constant band-aiding of different provisions within the tax code adding layers. Staying up to date on that...the paycheck protection program is a perfect example, as you know what has gone on with even understanding those rules this week. So a lot of the complexity comes from being able to stay up to date and functional on the different provisions and the changes that are constantly happening.

And then, as our clients' financial situations become more complex, they need higher-level tax planning. They need more of our time to understand what kind of options they have. Anytime we go through a major tax reform, we spend an enormous amount of time educating our clients on what those changes are and how it specifically applies to them. And so, it really comes from the amount of time needed to provide that service in the highest way possible by keeping up on all of the changes to the tax code and ensuring that you're able to apply those principles to the clients that need them.

Michael: So, out of curiosity then, I guess it sounds like it's less that literally tax preparation is getting more complex and convoluted but just the tax planning that has to happen, because we change our rules on a regular basis, gets more complex and more convoluted. And when you're doing...I guess a lot of us say, "We do tax planning," but when you're actually preparing the client's tax return, you may end up in a little bit deeper level of tax planning than what a lot of us do. Because we may only do "tax planning" on investment-related stuff because we manage their portfolio or insurance-related stuff because we recommend some insurance annuity strategies. But if you are preparing their tax returns, everything's on the table. You're analyzing their kiddie tax situations, or you're analyzing their deductions and claiming strategies. Any possible election on the return is something you've got to actually help them decide on whether to elect or not. And you just end up with a deeper level of planning, perhaps because you're on every single page of the tax return, not just the few tax-planning items that a lot of us are involved when...not to belittle the significance of the tax-playing areas we hit but like we usually don't hit everything. And I'm imagining you do, you have to because you're preparing the whole tax return.

Debbie: It's expected, yeah. If they're hiring a firm of CPAs and CFPs, they're expecting a very high level of service on the tax-planning and preparation side. And you know better than anyone that there's no hiding once you have a client's 1040. You can pretty much understand and get a road map of their entire financial picture, and that adds to the planning. So, even if you aren't managing a component of their net worth or you understand that they have a Roth 401(k), it adds another layer of planning to that. "What's your asset allocation in that Roth 401(k)?" "What are you doing with all this cash earning nothing?" "What makes you not sleep well at night if you don't have that much cash in the bank?"

So it unravels so many different layers of planning, it's kind of like a big puzzle and part of the reason why this career was made for someone like me. I get to use the analytical side. The CPA in me gets to dig deep and find those layers and put the puzzle together. And then, the people side of me still gets to have that engagement and have those deeper conversations. And being a CPA and being very much involved in their tax life makes it that much easier and that much more engaging to be part of their entire financial picture.

Michael: Yeah, I've always been fascinated by just how much stuff you actually get to glean when you really go through someone's tax return. We just launched a course on the Kitces platform on how to actually walk through a client's tax return and just spot all the stuff that comes from it. Right? You get to a schedule B and you start looking at interest. Like, "Well, they've said they don't have a lot of dollars out there, but I'm looking at this interest line and there are a couple of thousand dollars of interest." And, "Hey, actually, given how low interest rates are, if they've got several thousand dollars of interest in these rates, there are hundreds of thousands of dollars in a bank account or bonds somewhere. That's a big number." And you just start finding and seeing other things, "Oh, they say there are no other assets, but there's a K-1 from a trust. So, who's the trust from and where did that come from?" And just all sorts of additional things that you find and get to see when you, I guess, not only have the tax return, because we often routinely ask for one in a lot of advisory firms, but when you know how to walk through it, when you actually know what sorts of things to look for to spot additional planning opportunities or maybe things that clients are hiding that are opportunities to advise them on our work with them on. As well as just your additional opportunities to get deeper in value to clients because you see more, there are more opportunities to plan. I guess, as you know, bad news, it gets a little more complex and convoluted and takes more time, but good news, you get more opportunities to add value. And I've always been struck, it's perhaps part of my own bias as to why I'm a big fan of getting pretty deep on tax planning with clients that just...there's nothing like finding a tax-planning strategy that works and being like, "I know a lot of what we do is sort of fuzzy and ephemeral on the value – do retirement planning with me. Trust me, you'll be really thankful in 20 or 30 years from now." There's nothing like, "Oh, and by the way, I saved you $2,722. It's right here on this line. I brought that to you and you saved $2,722. Now, how are you feeling about our working relationship?" There's a concreteness to, "Here are the hard dollars in taxes that you won't have to pay thanks to our work together."

Debbie: Yes. And, going back to the class that you're launching, I got an email on that and I think it's an excellent idea. That is the first place I would push an advisor that's thinking about doing this. You don't have to be a CPA to implement this in your practice, you can become an enrolled agent. There are other ways of outsourcing. But I would encourage an advisor who is thinking about doing something like this to do a class like that and really understand what kind of data mining is available in a client's tax return. And see it engages you. Tax work can be a grind, and you do not want to set yourself up for something that you don't enjoy. So that's a really good way to see if you think that it's part of your practice that you want to implement is to really dig into it yourself and see if you're interested, engaged in it, and then, go to the next level of deciding to offer it to clients.

I have seen advisors kind of jump into this pool prematurely, and they really flounder if they don't like it. Or they take on too much work in the first one or 2 years, and then, they're scrambling to find someone to help them, they're scrambling for outsourcing. And so, it's just a part of the practice that can add so much to the relationship with clients if done properly. But I would caution that you're really ready before you launch it to the world. Because it is a function of time.

Michael: So can you talk about that a little bit more of just what does this really look like in practice if you're preparing clients' tax returns? If I'm the client and I'm engaged with the firm and you're doing tax-preparation work for me as a part of the overall offering, what is the process that you guys actually go through in working with me to do tax preparation this year? What do you actually do and have to get from me and do step by step? What does that look like?

How The Firm’s In-House Tax Preparation Service Is Structured [20:43]

Debbie: Well, the first step is we request at least 2 years of prior tax returns. And I am digging through page by page on those to create a list of questions to discuss at our next meeting. You really need to understand any sort of carryforwards, anything that has gone on that the client may have forgotten about, a K-1 from a private investment. That's really where I'm painting that tax picture in my mind and in their record of all the moving pieces of their tax return.

And then, we get together and discuss what questions I might have, what these underlying accounts are, what these private investments are, is charitable giving a constant, are there strategies around lumping our deductions? So, one year, we're taking itemized deductions, the next year we're taking the standard. It's really we're digging deep into that strategy session.

Fast forward to the actual filing time, the client is typically electronically providing the documents to us. We make it a point to try to turn...

Michael: And so, how do you actually do that document collection when it's time? Is it like you send them a vault that they upload to? Do you have them email stuff over? How does this actually work?

Debbie: We use Citrix ShareFile, so they can send everything securely. I have tried many of the data harvesters. They import the data; they import your W-2; they import your 1099. And every year, I'm disappointed because it's very easy on a fuzzy copy of a W-2 for that software to read an 8 as a 3. And those are the quickest ways to generate a tax notice.

Michael: So, even for the tools out there that are scanning client documents to figure this out, it's not that they're necessarily getting a direct feed from the IRS, if here's all the 1099s and W-2s that have been reported, the software is just literally taking the documents because they are at least a standardized tax form and just scanning the document and trying to do optical character recognition to figure out the numbers that are there? With the caveat that if someone has a lousy printer, your client gets a tax notice?

Debbie: Exactly. And so, I feel very old-school, in this part of my practice, but we are still physically entering in the majority of those documents. Now, we have feeds directly from major custodians where you can import Schedule D information. Which can be some of the most time-consuming data entry if you were to actually put all of their trades into it in a tax software. So we've got those kinds of imports. But we are blazing on a 10-key and it saves me time to quickly look at a client's two W-2s and get those into my tax software, as opposed to having it scanned in by one of these OCR software programs, and then, I still have to review it with an eagle eye to ensure that the numbers are correct.

Michael: Right. There comes a point, if you're going to do a manual spot-check review anyway of all these, it basically takes you as long to manually spot check it as it does to just enter it. Right? By the time you pull up the form, pull up the right section of the return or the software, look at the number on the form, look at the number of the turn to actually have your hand on the keyboard and key in that four-five-six-digit number. That takes half a second. The time was pulling the form, finding the number, pulling the tax return software, finding it in there, and figuring out if they're going to match it. So, if you take all the time to do that, then you may as well just key it in.

Debbie: Key it in. Yeah, exactly. And so, once the data is keyed in and it's gone through our review process, we let the client know that the tax return's ready. At that point, unless they request otherwise, we will try to do everything paperless. They will receive a copy of their tax returns, their summary letter, explanations on the next steps. We e-file absolutely every return that we can. They sign their e-file authorizations and get those back to us, typically via email. We will get the e-file turned around right away. So, once we get through the initial data-entry component, the rest of the process is pretty paperless.

Michael: And so, you get the data from clients, right? I guess they put it all up into a Citrix ShareFile folder. So there will be a bunch of W-2s, a bunch of 1099s, maybe you are able to import the Schedule D information directly from the investment platform. So how long does it take just to get data into the software? Is it 15 or 20 minutes once you've got everything there, and you just have to key things in? Or is it still like, "No, it takes an hour or 2 because there's a lot of items."

Debbie: It depends on the client and the complexity. I would say a standard tax return that we are working on, the entry of those basic documents takes 30 to 60 minutes. What often then takes a ton of time is K-1 entries, understanding state filing requirements often times from those K-1s. So many of my clients have a Schedule C because they're self-employed or they have a consulting business on the side, they have a rental property. So you start adding those layers of complexity. I'm typically not cranking out tax returns that are just two W-2s, and they are on their way.

Michael: And so, what you said, once you get all the data in there, there's a review process. So, can you explain what the review process is and how that works for advisors that haven't lived in the accounting world with tax reviews?

Debbie: Sure. So, let me start off by saying there are three people in my firm, two advisors and one admin. And so, the majority of the tax season is falling on my shoulders. The other advisor in the office, we manage everything as a team. Brian, the founder, is really focused on investment management. He's our CIO.

So, the financial planning and the tax practices are really my babies. Our admin does a great job of helping me with tax season on the data entry and getting clients their documents and ensuring that we have e-file authorizations. But a lot of times I'm doing the return, and I'm also responsible for reviewing that return. And, in any sort of large accounting-firm environment, you've got someone preparing and you might have one or two, or sometimes even three other people reviewing that work, as it goes up the chain.

And so, something that I have really had to navigate is, "How do I complete the return, and then, kind of clear the cache from my brain of what work I have done? And how do I review it objectively and do it again?" And the way that I have found it works best is, when I finish a tax return, let's say I finish a tax return on a Wednesday, even if I'm done with that tax return at 10 am, Wednesday morning, I'm not looking at that return again until the next day. I will go ahead and work on other tax returns. Because I need to clear my mindset. I need to look at this person's tax situation with a fresh set of eyes, without all of the work I've just completed in it. I then have a checklist of all of these items that I've gathered over the years of potential mistakes, things you forget.

When you're preparing a comprehensive tax return like that, there are so many areas that you need to think about that going in without a checklist is pretty haphazard. You're definitely probably going to miss something, especially when you're under pressure and you're busy.

And so, that 24-hour reset is really important. So I can then look at the return as a reviewer and kind of try to critique my own work as to, "What could I have possibly missed?" "What am I not thinking about?" "How does this look compared to the prior year's returns?" All of that is part of a very comprehensive review process.

Michael: So, a larger firm might actually have multiple people that are doing this. Like Debbie's prepared the return, but Bob's going to come in and just basically go line by line through it and compare. What are they literally doing in the review? Is this like, "I'm then going to pull up all the client's W-2s and K-1 to make sure that you keyed them in properly," "I'm going to pull in the prior year returns." Am I spot-checking the math, because I'm kind of presuming the planning software or the tax software does the math? What am I actually reviewing?

Debbie: So, in a traditional accounting firm, you're going to have staff who are preparing the returns. And they're entering all the data, they're looking at it compared to prior years. And they're submitting work that they think is a completed tax return with some open items. A senior is then going to take that return and review it for completeness. They're going to look at the data entry and quickly look at those W-2 numbers. They're going to check the prior year's returns to make sure that we're not missing a 1099. They're going to review notes from prior year's meetings, or current year's meetings, to see maybe what was added or what kind of information we'd gotten from that client in the current year. Then you're going to have a manager, or a senior manager, looking at those returns as well. And finally, you're going to have those signed, either by a manager, senior manager, or a partner, depending on the complexity of the return.

So that is one thing that accounting firms have done well is they've separated those duties and, as you go up that scale, obviously the hourly rate goes up. And so, staff bills this much, and then managers bill at a much higher rate. The majority of the preparation is falling at that staff level.

Michael: So, how long does a review process take for a typical client? If sort of the raw-data entry might take 30 to 60 minutes, but assuming they're not a terribly complex situation...I realize there's probably a long tale of complexity in that for some really messy clients. How long does it take then to go through the review process? Is this still, at the end of the day, just kind of takes me 10 minutes to sort of hit my checklist, and I spot check items and go through them? Or is this a whole other hour or more of reviewing?

Debbie: It's an hour or more of reviewing. You're going through every...you have to be able to justify every number on that tax return. And so, it's a very in-depth review. And depending on the complexity of the client, it can take hours. If you're looking at a federal return with multiple schedules, you've got multiple states. If it's your standard client, a standard family with a W-2 and some 1099s, then that review process is much quicker, 30 to 60 minutes. But I would say if the preparation is taking 2 hours, the review's taking half that time. If the preparation's taking 4 hours, the review is probably taking 2.

Michael: So, at the end of the day, it sounds like, in practice, you're easily ending out at 3 plus hours per client between collecting the data, getting it in there, doing the review, queuing it up for the actual filings? Obviously, there are some, I guess, administrative steps at the end to just actually get it queued up and filed, but you've got to do that so it’s actually prepared, so that is fully on you. So you're talking about 3 plus hours per client sort of thing?

Debbie: And sometimes we get a little pushback from clients sometimes where they don't think it's going to take that long. But 3 hours really is kind of the baseline. And what they forget is the review process. We're digging deep and making sure that it's not just, "Crank out a return and see you next year," it's making sure that we're maximizing our value and bringing up topics with them to help save them money or make changes to their financial picture. So, once we explain it to them, they see our value.

And one other thing that I think is really important to mention is that this is an awesome way to prove your worth, especially with new clients. So I would venture to say that for a very large percentage of our client base, we manage their entire net worth. They're not having two or three financial advisors in their life. And part of that consolidation is because of the services that we offer. They can have it done in-house. One person understands all of these moving parts. But when you get a new client who's maybe apprehensive of handing over their entire net worth to your firm, I have found that going through a tax season with them really proves to them that we add value and we do what we say we're going to do. And like you mentioned before, when you can concrete, put something in front of them and say, "This tax strategy is going to save you $2,500, not only this year but every year that we do this," that's just complete value add to them. And oftentimes, those types of fines and those planning conversations make it much easier for them to trust us on all of the other components of their financial picture, managing their investments and giving confidence in our long-term financial planning. And it helps them even psychologically do what we suggest. So I find it to be an incredible tool for prospects if they don't already have a CPA to come in, go through a tax season with us, and really prove to them that it's time and money well spent.

Michael: So, out of curiosity, what's the tax-preparation software that actually gets used to do this?

The Software That Debbie Uses For Tax Preparation And The Firm's Tax Preparation Fees [37:11]

Debbie: I use Intuit products. So, I use ProSeries and Lacerte. And there are a couple of other big ones out there.

Michael: How do you compare across them? Why ProSeries or why Lacerte? Or even what's the difference between ProSeries and Lacerte?

Debbie: Yeah, they're both Intuit products. Oftentimes, we use ProSeries for as much as we absolutely can. It's easy to use, it can be done on the cloud. Lacerte is kind of the next level. And it's not as user-friendly, there are certain limitations in ProSeries that they just simply don't have the tax form and you have to go elsewhere to get that. And so, Lacerte is kind of our backup for those unique situations.

Michael: So it's sort of ProSeries handles your normal rank-and-file returns, Lacerte is your more unusual complex kinds of situations, clients that have more esoteric stuff that just you need the software that's actually got the weird rare forms that hardly anyone uses, that kind of thing?

Debbie: And you'll run into that with tax software programs. And we've been using ProSeries since I started with the firm, so it's been a long time. It's one of those software and technology platforms in our business that is very difficult to switch. The conversion is hard, making sure you understand how the software is going to work. So, once they get you, it's pretty sticky, unless something goes really wrong or you're really unhappy with the data input. And so, we've been happy with ProSeries. It's definitely met our needs up to this point.

Michael: Yeah, I guess, at some point, you get to, as long as the software still does the math, right, it's pretty hard to get fired from being the provider. Because I'm going to assume that prior-year information auto loads in the current year, carryforwards and carryovers auto load, there's just a whole bunch of stuff like that that makes it really convenient to keep using the tool you're already using, once you start using one.

Debbie: Those prior-year tax returns are at your fingertips. As you can see, you compare very easily to your comps with a single report. It's definitely to our advantage and the client's advantage, in terms of time, to stick with the tax software.

Michael: So, how many clients do you have that you go through this with? How many clients are you actually doing tax-preparation work for?

Debbie: So, we work with about 105 families right now. And we do tax returns for 60 to 65 of those families. And sometimes it's not just a 1040, they might have a partnership return that they need done or a trust tax return or a child's tax return. So it's not just 60 or 65 returns each tax season, I'm usually floating around the 95 to 100 tax returns a tax season. Which doesn't sound like a lot when you're thinking big picture, but when you factor in the amount of time put into each tax return and the education and the planning, it's a significant part of my entire year. I would say 4 to 5 months of my entire year is dedicated to taxes.

Michael: Yeah, and just when I think about your raw preparation time, as you said, is probably 3 plus hours per return...probably averages out closer to 4 because I'm sure there's going to be a few that are just complex beasts that certain clients have. So you might end up with 400 plus hours of tax return, just raw tax-return time. And if I just think about that relative to a normal working schedule, 40 working hours in a classic week, that's 10 weeks almost 3 months if you literally just did full-time nothing but tax return all day every day from when you wake until you sleep. And most people can't necessarily do that because there are some other tasks to do throughout the day and other communication and professional development and management and client questions and all the other stuff in it. So that drags it out further. And yeah, it's pretty easy to see how that quickly adds up to 3 to 4 plus months' worth of time. And we still haven't done ongoing professional development for taxes because if you're going to prepare them, you really, really have to stay up on your CE or you prepare the forms wrong and don't claim the credits right. And that's before you get into tax planning for clients, which then may consume even more time. So yeah, pretty easy to see, once you start chunking it all together, like, "Yeah, that's easily 4 or 5 months of the year just on all of the tax-return work."

Debbie: And it's different. I came from an accounting background; I have my master's of accountancy. So I have that brain and that desire to do that kind of work. But I didn't want to do it 12 months out of the year. And so, this was just such a fantastic blend of the things I like to do and the things I wanted to do with my career that I'm really fortunate that I found something that allows me to be a CPA for a good chunk of the year, but then, I get to be a psychologist and a counselor and a financial planner the other months.

Michael: So, do you charge clients separately for this? Do you consider it part of the overall service? Just when you're spending 4 to 5 months of the year on tax preparation, which is that's a lot of time, that's a lot of work, do you separately charge them for tax returns? Or is it just, "Hey, if you've got the financial wherewithal to meet our minimums and work with us, we include this because we work with some fairly affluent clients."? How does this actually work from a business model and just to make sure that you're compensated for the amount of time that you're talking about?

Debbie: Yeah. For the majority of clients, we do charge by the hour for this. And I think that that is very important to do because it spells out your worth. It would be very easy if this was just part of their assets-under-management fee or their retainer to not quite understand the time and energy that's put into this piece of their financial lives. So yes, the majority of people pay hourly for this work.

Some of our large comprehensive clients have it baked into their retainers. So they're paying a quarterly retainer, and tax prep is part of that. But that's probably only 5 of our clients will do it that way. The rest of them are being charged hourly. And it's grown a little bit each year. I estimate that it's about 4.5% to 5% of the gross revenue of our firm each year. So it's not a huge component to our revenue, but it's an important one. Number one, it's not tied to the market. Number two, it's just a different cash-flow source. And having clients pay hourly, like I said before, really makes them understand the time and effort that's put into that on their behalf.

And I'm careful. I make sure I understand what's out there in the market. So I'm not overcharging and I'm not undercharging. Lots of those general H&R Block type places will charge a base and then charge per form. Or, coming from public accounting, I have a pretty good understanding of what they're charging staff time for. So, to get your tax return done by a CPA with 15 years of experience, we're definitely treating it as a value add and a way to keep the client satisfied with us for a very long, long-term relationship.

Michael: And so, what do you charge in practice? Is this $200 an hour, $400?

Debbie: Exactly. $200 an hour, that was my billing rate for this year.

Michael: Okay. And so, I guess 3-ish hours on average...

Debbie: Basic 3 hours, yeah.

Michael: So I'm going to guess a lot of clients come in the $500 to $1,000 kind of range and really complex ones go up from there?

Debbie: That's exactly right.

Michael: So, as you look at this and how it fits into the business model, talk to us a little bit more about how exactly you see this fitting in and blending in with the business model of it's only maybe 5% of the revenue of the firm. So you're still driving the bulk of the revenue from other sources? It's a big-time commitment for the firm. But as you've noted, you end up way deeper and more comprehensive with clients because you see everything and really get everything when you're preparing the tax returns. So, just how do you think about these dynamics of, "It's 5% of our revenue but it's a much larger than 5% piece of our relationship."? How do you look at this and weigh it?

How Debbie Uses Tax Planning To Build Client Relationships And The Qualifications Required For Advisors To Offer Client Tax Preparation Services [47:19]

Debbie: Well, you just summed it up beautifully. It's such a huge component of the relationship. Not only in building credibility, but it's very hard to want to fire your investment advisor, your financial planner, and your tax preparer all in one shot. And we make the client understand that they are our biggest priority and we are not just going to harvest their assets and manage them and charge a fee, we're also going to make sure that they understand their tax situation and that they're maximizing the law to their advantage and how that correlates into their long-term goals and planning strategies.

And so, it's really kind of like this building of a pyramid where we're...the heart of our firm is this comprehensive planning with the tax focus. And then, we're adding the investment management, and we're ensuring that they have the right bench of financial professionals in their lives with an estate-planning attorney and that they're covered on the life insurance front. And really, it's just such a foundational component of everything we do at the firm. And it makes clients sticky, it makes clients very satisfied. It's just a really good marriage of what we do.

Michael: Can you actually see differences in practice between the clients you have who do tax returns with you and the clients you have that don't? Because I think you said roughly two-thirds actually do the returns with you and roughly one-third do not. Do you see differences in terms of stickiness, retention, like, "The retention rate of our tax-return clients is 5% higher than the retention rate of our non-tax-return clients"? Does it actually show up at that level?

Debbie: It does. If we look at our retention levels, they're high anyway. But when we break that out between retention of tax and non-tax clients, it's 5% to 6% higher on the tax clients retaining us versus maybe losing a relationship that's just investment management or investment management and planning.

And that's really where the relationships come from, right? The more time you're spending with clients, obviously you're spending more time answering more questions and going through more on the tax front than you are a non-tax planning client, just because of the work. But even as a planning client, those relationships are cultivated by time and focus and conversation. And so, it makes it difficult for them to want to find something else when they're...even in a bad-market year, for example, it's less punishing when they know that you're doing all of these other things for them.

Michael: One thing that is striking to me is just the fascinating nature of sort of retention math. If I imagine an advisory firm that has 92% retention rates and you do tax-preparation work and you get them up to 97% retention rates, I think for some firms that doesn't necessarily feel like a huge difference. Anything 90% plus on retention rates is a pretty darn big number. But when you translate that into average 10 years of clients, a 92%-retention-rate firm, clients turnover in an average of 12 years. At a 97% retention rate, your clients turn over in an average of 30 plus years. And so, if you just sort of imagine, what would it look like if all your clients stayed an average of 30 years instead of 12, given what we would otherwise get paid on an ongoing basis? It's like, "Oh, there's a lot of long-term value in this." That quickly becomes a big number, above and beyond just what you get paid for the tax return work itself.

Debbie: Well, and they reach out to you for help with their children. Their children grow up and might need help with college planning or help with their tax returns when they get their first jobs. Or all of those things. And that can turn into long-term legacy-types of relationships. We have multiple families that we're working with different generations. And that's so rewarding, and it's such an honor to get to be part of their lives that way. It really does add value from all angles if you've got the manpower to get it done.

Michael: Yeah, as I say, so let's talk about that for a moment. If advisors are hearing this and are interested in going this route, I guess the first question is, do you have to be a CPA in order to do this and add this to your firm? Or like, do I have to go become an enrolled agent to do this in the firm? What are the requirements for doing client tax preparation?

Debbie: Yeah. In order to represent clients in front of the IRS, you do need to be a CPA or an enrolled agent. So, an enrolled agent is the best avenue to go if you have no interest in making sure you have the education requirements to sit for the CPA exam.

Michael: Which is high. I know, I've looked it up in the past. I think the CPA education requirement now is something like 150 credit hours, including a master's degree. Some advisors are unhappy that the CFP Board has added a bachelor's degree requirement. A CPA license is a full-on master's degree. And not just any master's degree, but a master's degree in accounting with a whole bunch of credit hours in specific areas of accounting.

Debbie: Right. And so, it would be a huge commitment to become a CPA if that's not where you really wanted to be. Plus, you're learning the areas of being a certified public accountant, that might not really apply to your financial planning practice.

Michael: Right, a couple of semesters of audit classes that you probably won't be doing as a financial advisor. But you have to know if you want to be a certified public accountant because audit attestation is actually a big thing for what accountants do.

Debbie: Yep. So, the enrolled agent is done through the Internal Revenue Service. And it's exam-based and you have continuing education requirements once you pass the exam. But that allows you to prepare returns, represent clients in front of the IRS and various state entities. It's really a great way to be able to add it to your practice. Oftentimes, when I have advisors that are thinking about doing this or career changers, I always advocate that they look into the enrolled agent designation. Because it is an advantage, for sure.

Michael: And do you know just what does it take to do the enrolled agent? As we said, CPA is a master's degree and known to be a very very difficult exam. What does it take for becoming an enrolled agent?

Debbie: I'm a little rusty on those requirements. I believe it's a multi-part exam. There's an annual fee, and then, there's continuing education requirements each and every year in order to maintain that designation. I don't believe that there is an education requirement.

Michael: I know there's CE requirements because we had to add enrolled agent CE on kitces.com because there are a lot of advisors becoming enrolled agents that said, "We want our EA credit." Okay, so, I guess, similar, and scoped some other programs, multi-part exam, annual fee, CE requirements. But I guess, at least my understanding, is, "Well, this is more of a, you study for 6 months, and then queue up and take the exam. So, not quite as long as CFP certification a lot of advisors may go 12 to 18 months but not a CPA license, like, "Go get your graduate degree and then start studying for a much larger exam."

Debbie: Yeah. And it's going to really focus on the preparation and understanding of the forms. And it's going to be a deeper layer into the preparation realm than maybe the tax component of the CFP designation, where that's really more planning-focused.

Michael: So, how do you look at this in just the decision to do the tax work yourself versus, I guess, either outsourcing it and finding an external CPA to work with, so you don't have 4 to 5 months of the year kind of wreaking havoc on your life or hiring an associate to do the tax returns and just free up your time to do other planning work. How do you think through, in a firm like yours, keeping this versus expanding the team to do it versus outsourcing it? Versus, I guess, just saying, "Hey, we work with our client CPAs because we want to get referrals from them, we don't do the tax-preparation work at all." How do you think through that balance?

How Debbie’s Firm Made The Decision To Offer Tax Preparation In-House [56:53]

Debbie: Well, up to this point, it has been doable for us to have it all in house. We really love the idea that our clients understand that it's the three of us on the team working for them in all of these different capacities. I'm an email or phone call away. It's sitting in a planning meeting and knowing that your accountant's right there to understand the tax ramifications of a different investment allocation. That's powerful, and we have always kept it in-house because of that.

We are at a point now where we need some help. And so, what we have done is we have found this remarkable independent contractor who is getting her education requirements for the CFP. She's passed the CFP exam. She is an enrolled agent, and she has gone through a tax season with another accountant. And so, we've brought her on board on a part-time basis to help us with the tax planning and preparation side of it. Because I'm getting to the point in my career where I want to focus more on getting clients and spending time with my existing clients. I'm also very passionate about helping people that are navigating major life changes, like divorce or the loss of a spouse. And so, I'm at one of those points in my career, where I want to do more in different veins of the financial planning practice. And so, we are doing kind of this 6-month trial period with an independent contractor to see if that is enough help for us. So I'm very excited to see what this next tax season is going to look like. And then, we'll really be able to decide if we need to add a fourth and truly have a full-time employee. Or if this will be enough to let me stay involved, but I have much more help on the preparation side.

Michael: Because I guess the weird effect for this, if you're an advisory firm thinking about hiring, it's kind of rough to hire a full-time team member who only works 4 or 5 months a year. If you are hiring someone only to do the tax-preparation work in your firm, you've got to find stuff for them to do in the other 7 months of the year. But it's really intensive work, so you got to be careful if you don't have enough depth to do it for the 4 or 5 months a year in an intensive season.

Debbie: And that's exactly why we call it the dating period. It's going to really help us understand if we have enough work for someone full-time. We really love our independent contractor because she's got the planning and the tax experience. But yeah. And a lot of times what you see is financial-planning firms partnering with a CPA firm and they work with each other's synergies, referring each other business.

My business partner tried that in the early days, so in 1997, when he formed the firm, he actually partnered with an accounting firm. And that just really didn't work for them. And we've had these conversations in this industry for 15 years about what an amazing referral source CPAs can be. However, you're also seeing CPA firms bring on planners. And so, they're actually potentially becoming some of our competition.

So you have to find what works for you. It can be a little unbalanced if they're referring you investment management clients, that potentially can be a lot more revenue and a lot more fees over the years than they're generating with tax-prep clients that you're referring to them. And so, there could be some conflict there.

Michael: Well, as you noted, in your context, you're doing a lot of intensive tax-planning work. But from a business revenue end, it's 5% of your revenue. Way more than 5% of your time, but 5% of your revenue. Fine ROI for you because, if you take wealth-management clients and turn them from 12-year average clients to 30-year average clients, 18 years of wealth-management fees kind of obliterates this swing pressure of some of the tax work in a long-term practice. Which is great when you're doing it internally but the bad news, I think as you noted, is a lot of accounting firms are starting to come into the wealth management business because they've kind of realized, "Oh wait, the wealth-management work we refer out is like 20x the fees of what we do internally? Maybe we should do this."

Debbie: Exactly, exactly. And that's the other reason we absolutely will not do tax preparation and planning for anybody that is not a client. We do not have the time; we do not have the capacity, and I don't want to be in the hourly tax-prep business.

Michael: And I'm struck as well that, at the end of the day, as you said, 60 to 65 clients are 100-ish returns, 3 plus hours of return, probably 400 hours of work on returns, and you're charging $200 an hour. So there is $80,000 worth of revenue there, give or take a little. And you could actually...that does get to the point where, even if they've only got limited work to do through the year, you actually have enough tax-preparation revenue to hire a person whose job is to just sit there and do tax returns all year long. You can get a smart whippersnapper young CPA for less than $80,000, in most areas, to sit there and do the grinding work where you just have limited review. And if you can find anything for them to do in the other 7 months of the year, the math works out, "Okay," I guess only because you're just getting to this level, when you're at 20-30-40 clients doing it in 30-40-50-60 tax returns, the math really doesn't add up. You've got to get to some critical mass level before you're even close to that crossover.

Debbie: Exactly. And so, that's why we are at that crossroads with what our staffing is going to look like in the next 5 years.

Michael: So, talk to us a little bit about just the firm overall. You've kind of mentioned there are three of you. Brian was the founder who's kind of the investment guy and the CIO for the firm; you're doing the planning and tax work. There's other revenue because the tax-return revenue is only about 5% of the overall. So can you just talk to us about the overall business of what you're doing there?

What Peak Financial Advisors Looks Like Today And Their Core Business Model [01:04:02]

Debbie: Sure. So, a quick kind of synopsis. Brian has a CPA background as well. He worked for Arthur Andersen out of college, and then moved to Cleveland, Ohio, where he worked for Sterling Limited, which was a family office. And that's really where he got his experience. And he loved the planning and the investment work that they did in that family office. They were doing multi-year cash-flow projections and balance sheets, managing their investments and bill paying, and doing their tax prep. And so, what he wanted Peak Financial to be was very close to that family-office feel, but for clients that aren't worth 50 million dollars. And so, he wanted to bring it to a lower level of net worth.

And so, he was on his own with that accounting business partner until 1999, when they decided to part ways. At that point, he brought on Lorrie, who is our director of client service. And when you have a firm of three people, you're all doing different jobs all the time. And that's what keeps it so interesting and engaging to us. But Lorrie is in charge of all of our client service, she's in charge of our compliance, she helps me with data entry, and she's really just an amazing “face” with our clients.

I spend a huge chunk of my time with clients and client relationships, between the tax and the planning practice, and I'm involved on the investment side as well. And then Brian's really focused on the investment management side. And we're a little unique in that we still believe in individual equities. And so, Brian's doing the research and building portfolios around 20 or 25 individual equity names. Obviously, we still use ETFs and mutual funds where we think it's appropriate. But that takes an enormous amount of time on his part.

And so, when I came on, I was 23-years-old and knew nothing about financial planning. So it took years of me really just kind of being mentored by Brian in all of these capacities of the financial-planning process. And eventually, I was able to kind of "work on my own". And that's when I really started building out the planning practice.

Brian knew he wanted to be a planning-focused firm. When I came on in 2005, he was struggling to get to offer as much planning as he wanted to do because he was so bogged down on the investment-management and tax side of things. So I immediately took over the tax preparation. At that point, he was reviewing my tax returns and probably did so for the first 3 or 4 years. I'll never forget the first tax return that I prepared, at Peak Financial, and getting just like a page and a half of review points. So...

Michael: Oh, there's nothing like that first red ink experience.

Debbie: Exactly. And so, the jobs and the responsibilities have kind of evolved over time. I think Brian absolutely wanted a more comprehensive planning side to our practice. I don't think he quite understood just how powerful and dynamic the three of us could be.

So, now, fast forward to today, and really we still manage the entire practice as a team. It's not my clients and his clients. It allows our clients to kind of choose who they bond with the most, as to be kind of their lead contact with the firm. And Brian's able to focus much heavier on the investment side, which interests him so much. He would sit in front of his Bloomberg screens all day, if you let him. And it allows me to cultivate and really nurture the client relationships from the planning and tax perspective. And then Lorrie works super hard to ensure that clients have everything that they need and that our compliance is up to date. And she really will do anything that's asked of her.

And she's been around since 1999, I've been there since 2005. I was fortunate enough to get to buy into the firm in 2017, and it's just been an amazing roller coaster of ups and downs.

Michael: So, what's the firm's core business model at the end of the day? Is it an assets-under-management model for the portfolio management that Brian drives? And then, the rest of the planning work that you do is bundled into that relationship?

Debbie: It is, absolutely. So, we primarily work on an assets-under-management fee schedule. And the way we look at it is half of that goes to the investment-management component, and half of it goes to the financial planning work. So clients are not typically paying separately for the comprehensive-planning piece, they're only paying separately and hourly for the tax preparation.

Michael: And what does that fee schedule start at or look like?

Debbie: It starts at 1% and goes down from there.

Michael: And do you guys have minimums as well?

Debbie: We do. Our minimum is $500,000, at this point, just because we want to be very sure that we've got the capacity to do what they need on a full-scale basis, as well as that is the right long-term relationship for all of us. Referrals are a little more flexible on that, there's no greater compliment than when a client gives us a referral, so often we're flexible on that.

Michael: So, people that are coming in cold, it's $500,000, but if someone gets referred, then you may be flexible just to not have to turn away someone that got referred in and have that kind of awkward moment?

Debbie: Yeah. As long as it's a good fit, from a relationship standpoint. Especially on the planning side, so much of that work is done in the first 2 years. And so, you really want those relationships to be good fits because we want them to be decades long. That's really what we try to focus on.

Michael: And so, how many clients...or what's the asset base for the firm overall at this point?

Debbie: We are at about 175 million of assets under management and about 105 families.

Michael: Interesting. So, while you've got a $500,000 minimum in practice, your average client size is much higher than that, you're at almost 1.5 million as an average?

Debbie: Yeah, on average. Now, that skews differently. We have some very ultra-high net worth individuals that skew that higher. But we also have clients who have $250,000 of assets under management who are doctors, and we're working with them to get their student loans paid off and maximizing their employer benefits. And so, our client demographic is very broad. If we had any sort of niche, it would certainly be women who have gone through a major life transition. And men, actually. We have many clients who are widows or widowers or have gone through a divorce and have had to completely reset or learn how to manage their financial lives.

Michael: So, I am curious, just as a firm that's taken a pretty hard line on its positioning around charging separately for tax preparation, just why the decision to charge separately for tax preparation but not the decision to charge separately for financial planning when, as you noted, financial planning is a big chunk as well?

Debbie: Well, the assets-under-management fee that we have, our model has always been that. Since I've been in, the business has definitely seen commoditization. And what exactly can you get out there for 25 basis points or 50 basis points? And we just saw a need... going through 2008-2009, we saw the need to make sure that we were adding as much value as possible to that assets-under-management fee. And for us, that just couldn't exist without comprehensive financial planning.

And so, we felt that it was justified, within our fee schedule, to include the financial planning in their assets-under-management fee. Because we had worked hard, at that point, to become very efficient, to utilize a lot of technology to help us be better at our jobs and be more comprehensive for the client. And so, we just decided that investment management, financial planning, are all in at that standard 1% rate, and then breakpoints from there.

The tax preparation and planning, we absolutely want to maintain being hourly simply so the client understands what time and effort goes into that. And that's really how we decided to differentiate ourselves.

Michael: So talk to us a little bit about just your own journey in coming into the industry. Were you someone that always wanted to be in the world of financial planning and went to school and got your accounting degree as a pathway to financial planning? Or did you sort of land here after the fact because these are some of the twists and turns our careers take? What was your actual journey into financial planning?

Debbie’s Career Journey And How She Ended Up In Financial Planning [01:14:58]

Debbie: I definitely had some twists and turns. And, like anyone at 18-years-old going off to college, I don't think you have a very clear picture of what you want to do for the rest of your life. I knew I wanted to go into business. I grew up in a very small town in Northeastern Montana. My town had about 2,000 people. My move to college was a big one. I jumped into a town of 60,000 people at the University of Montana. And I initially had these huge dreams, I thought that I was going to tackle the Asian equity markets. And so, I started my freshman year of college off in finance with a minor in Mandarin Chinese. And I lasted a semester in Mandarin Chinese. It was one of the most humbling experiences and probably hit at such a great time in my life. It was a six-credit course, and I worked my tail off and I got a C. And I think it was probably the first C I had ever gotten.

And so, it was just a very good dose of reality. I reassessed after that and decided that that minor wasn't for me. I was also working to fund my education; I was working 25 hours a week while going to school full time. And so, I switched to accounting and finance. And that was a good place for me for the rest of my freshman year and into my sophomore year. Work, constraints, and then really kind of...I took a step back and I tried to look at it very objectively. And I'm at the University of Montana in Missoula. I'm not at Stanford, I'm not at some school that's known for their finance program. And so, what they are known for is an excellent Masters of Accountancy program.

And so, I decided to drop the finance arm and focus strictly on accounting. And that's really when I started to flourish in college. I was very good at accounting; I was very good at managing my time. I was able to still get through the program in 4 years and work a lot. I got accepted into the master's program, which they typically only take 30 students a year, landed a coveted TA, teacher's assistant scholarship, through that tough year. And ultimately, I ended up becoming the student of the year, chosen by my peers. So it was a fantastic decision for me to focus on accounting and really to maximize my worth at the university that I was at.

After that year, they get you very prepared for the CPA exam. I sat for that immediately. I passed three of my four sections right off the bat. So I hit the ground running. They also have a very good recruitment program, and that's how I landed at Deloitte.

Michael: Okay, so you were Big Four accounting right out of school? Because I guess that's who hoovers up all of the graduating students out of all the graduate-level accounting programs out there are the Big Four accounting firms.

Debbie: Exactly. And I initially...you go into the spring of your master's year and that's really when recruiting starts hitting hard. And I remember telling one of my friends that I just wasn't interested in the Big Four space. I didn't want to work like that. I knew I wasn't interested in auditing, I was leaning towards tax. But I went through the process anyway and ended up liking Deloitte. I specifically wanted to be within a day's travel of Montana, which, as you know, can be hard to travel to and get in and out of. So I was looking at Seattle, Portland, and Denver. Denver just fit my lifestyle, and so that's how I landed with Deloitte. I came...

Michael: And landed with Deloitte in Denver?

Debbie: Yep. On the tax side. The way that my master's program and the CPA exam worked, I started with Deloitte in July, early July of 2005. Which didn't get me kind of on a path with the majority of their other recruits. They often start in May, after tax season, or they start in November, in preparation for the next tax season. And so, I really missed out on some of that amazing large-scale training that Big Four accounting firms are really known for. And I kind of just got thrown into the mix right away.

And it was a very eye-opening experience. I had left a town of 60,000 people to move to Denver. I had an apartment three blocks from my downtown office. It was a big change and a big adjustment for all facets of my life. Very exciting, but my gut just hated the work. I hated feeling like I was working from 6 a.m. to 9 p.m. and the competition of, "Who's there the longest?" And, "How many billable hours did you have this week?" And where some people really thrive in that environment, I immediately saw myself hating it.

And so, here I am in November of 2005, and I remember calling my parents and telling them how unhappy I was. And my parents, they were very blue collar, worked very hard their whole lives, rural. And for them to hear that their youngest daughter had gotten her master's degree and got to go work for this big prestigious corporation, they were a little apprehensive to be supportive that I wanted to throw in the towel so early. But to me, at that point, it just felt like I was miserable and I needed to cut and run.

And so, this was back when everybody was on Monster.com at that point, that's where everybody was finding their jobs. And I happened to pull up "The Denver Post" online one day. And I found a posting for basically an entry-level financial advisor who was specifically looking for, ideally, a CPA. And I just thought that this might be my opportunity.

And so, I submitted my resume via email and kind of felt like, "There's no way I'm not going to get a call for this," I was feeling very confident. And a week went by, and I remember being on the phone, whining to my sister, and she was like, "Just follow up. It's not going to hurt to make a phone call and follow up with them." And so I did. And I got in touch with Brian and asked him if he had received my resume and if he had any interest in meeting. And keep in mind, this is a 23-year-old. So that was a big step for me to make that phone call. And he told me he had never received my resume, so it probably had gone to a junk folder. I immediately faxed my resume in...

Michael: Yeah, because it was 2005, so still faxing these days.

Debbie: Exactly. And within hours, I had a phone call set up with him for a few days later. He wanted to talk on the phone before we met face to face. And I was going through my research in terms of understanding what the firm was about and what they did. And you really only have their website to gauge that. And so, I noticed there were two people on this website. And I'm thinking, "Oh, those are the partners of the firm, they don't list all of their staff."

And so, I go into this phone call and I remember sitting in silence in my little apartment. And I just made a commitment to myself that I was going to be very honest with them. And so, I told them that I had worked for small companies my entire life, from high school into college, and I was used to doing so many different things and wearing different hats and really mattering. And I wanted that again. And that's when he told me that the firm was indeed just two people. And...

Michael: Careful what you wish for, you might get it.

Debbie: Yeah, exactly...and that he would love to meet in person. And so, we met in person. And we still joke, I had braces at 23-years-old; he hired this 23-year-old kid with braces to become the third employee of his firm. The rest is history.

Michael: Very cool. Very cool. And then, what was the transition that...you said you had ultimately become a partner, bought in and become a partner? So what did that transition look like after 10 plus years at the firm?

Debbie’s Transition To Becoming A Partner [01:25:06]

Debbie: Yeah. So, the first few years it was just drinking from the fire hose. It was about adding value where I could on the tax preparation and relieving that pressure for Brian. But it was constant mentoring and teaching from him for a good solid year. I don't feel like I could really do anything on my own for the first 6 months in terms of understanding what goes into the investment management or the financial planning side of things.

And then we went through 2008 and 2009 together. And it was nothing like a crisis to really solidify the relationships within the firm. I think it took that long for the three of us to really become a family. And from that point on, we have been. We have kind of an office policy that you try not to take anything personally, but you ultimately sometimes do. And if we do, we have one day to be upset about it and the next morning is a reset and we focus back on the business. And so, kind of that theme of the office, especially when only working with two other people, has been really important.

So, launching out of 2009, we really understood just how much planning needed to be done for our client base. And that's really when we hit the ground running. It was also probably the point in time where he was starting to review less and less of my tax returns. And so we had a solid few years there where it was very planning and tax-focused and cultivating those relationships and watching the AUM grow.

I had my first baby in 2010. And I remember just being petrified of maternity leave. What was that going to look like for me? What was that going to look like for them? What if they realized they didn't need me as much? There were just a lot of fears there, especially coming from a small firm that didn't kind of get to write their own rules in terms of how they were going to treat maternity leave. And that was quite a turning point in my career, actually the other way, because it really opened Brian's eyes as to how much I did and how many different components of the business I was involved in. And so, this event that had given me a lot of anxiety on the career front, turned out to be really remarkable, improving my worth.

So I returned from maternity leave with just this new sense of appreciation for them for allowing me the opportunity to take some time off and a newfound appreciation for me and all that I was doing for the firm. It was very successful. I had another baby in 2012. We crushed that maternity leave together and really started to build the practice from there.

Michael: What was the difference that maternity leave went so much better in 2012 than in 2010 that you were able to crush it? Because I know this is a challenge point, a fear point, for a lot of firms that have only a few people on the team, that it's a real disruption when a person...

Debbie: When a third of your workforce is gone.

Michael: Yeah. When you lose a third of your workforce for maternity leave. So, how did you actually handle it that made, at least maternally, the second time around feel pretty smooth that you could say you crushed it?

Debbie: The first time around, not crushed it. I had so much anxiety around when I was maybe doing some things with work, I should be with the baby. Or when I was with the baby, I should be paying attention to work. So there was a lot of anxiety around that first go. Coming back from that, and Brian and Lorrie really articulating my worth to the firm, helped tremendously with my confidence that I could take a few weeks to spend with my – not a few, 6 to 8 – spend with my child. And it allowed the second one to be much more fulfilling for me as a mother, as well as I still stayed involved. There's no doubt about it. I cannot say that I just shut off for 8 weeks, I didn't. But what I got better at was delegating my time.

So there was much less anxiety around being an employee, much less anxiety around being a mother. So I was just able to manage my time much more efficiently to where I could still be involved in the firm and contribute and get some of my work done, while, at the same time, feeling like I was much more present and available to my baby during that second time around. And that all stemmed from just having confidence in myself and confidence that my job was going to be there when I got back. And so, it really was kind of this culture in our firm. And both Brian and Lorrie very willingly stepped up and took on some of my tasks, just to even ease that burden on me. So, it was definitely a team effort, and it just went so much more smoothly the second time around.

Michael: So what was the transition that ultimately led to you becoming a partner in the firm?

Debbie: Well, personally 2012 through 2015 was a very hard period in my life. And the way that I dealt with it was to really dive head-first into my work. Because I felt like it was the one part of my life that I could control, and it was oftentimes my escape from some of the things that were going on personally. And I think that was the period of time where I really proved, not only my ability to be a good financial planner and tax preparer, but that my commitment was absolutely there and unrelenting to the firm. And I think Brian, ultimately, decided to let me buy in because he knew just how amazing of a team we've built and what a practice we've built. And he wanted to reward me by giving me ownership. And I'm sure a component of that also is, to him, was to ensure that I would stay around. After that many years of working together and building the practice that you want or that you're always achieving to go for, you don't want to lose a third of your workforce to the competition. So...

Michael: But I know you kind of talked about this is Brian wanted to reward you for ownership, but you did say that you bought in. So the structure was not just for equity as compensation per se, it was, ultimately, a buy-in structure for you?

Debbie: Yes. So, initially, yes, it's been a combination of both. So, the first year...Brian was a big believer in, "You should buy into the firm," he didn't want to just give me ownership as part of my compensation structure. So, that first year we came up with a partnership agreement. We came up with what we thought were reasonable factors based on gross revenue and came up with an equation of how I would buy in each year.

Michael: So you built your own valuation formula?

Debbie: We did, yep. And, since that point, as part of my compensation, he has rewarded me with more ownership. But I have the opportunity and, so far, I have bought in every year since, based on our valuation formula.

Michael: Okay. And so, I guess the operating agreement, or articles of incorporation itself, actually have, not just a valuation per se, but an evaluation formula. And so, you can just run the numbers through some portion of revenue or profits or some combination thereof?

Debbie: We used gross revenue just because you can't manipulate it...

Michael: Particularly as a CPA, you are very cognizant of the ways that profits in a small business can be adjusted by what business owners do or do not pay themselves or run through the business or not run through the business.

Debbie: Yep. And also factored in...we understand what goes on in the industry and what books of business, typically what those are valued at and factored in. But we also had to take into consideration that my work, as an employee, has built some of this valuation. And so, we came up with something that we thought was fair and it's based on rolling 12 months of revenue. And it has worked out well so far.

And then, ultimately, the goal is that when Brian's ready to retire, I will issue him a note for the rest and pay him out of revenue for probably 3 to 5 years. And then, eventually, the plan is that I will own and take over the firm exclusively one day.

Michael: So, functionally, relative to, I guess, going industry rates and multiples, do you view the valuation that you use as being at market rates? Is there a discount built in to recognize that you have contributed to valuation building in the first place but there's a buy-in, and so, you find a discounted value? How does that...

Debbie: It's discounted versus market because of my component that has been responsible for that revenue growth, as an employee, and even now. So we came up with a factor that's below-market rate for that reason.

Michael: What surprised you the most in trying to build your career as a financial advisor?

What Surprised Debbie The Most About Building Her Career As A Financial Advisor And The Lowest Point In Her Journey [01:35:50]

Debbie: There are two things that have surprised me the most. One, what a different lens it has become to actually be an owner versus what it was like to be an employee. I feel like...obviously, I've worked hard in both capacities but it's so rewarding to know, at the end of the day, that a piece of this is mine and I'm working towards my own future goals. And it makes those long hours and the difficult situations easier to stomach because I feel like I'm at a point in my career where I'm working for myself.

And I don't think I recognized that in my young 20s. I can't say that that was ultimately a goal of mine. I didn't have a clear picture of what that would look like for me. But especially now, as a divorced parent, it is just so incredibly important to me to be able to manage my own time, manage my own schedule. And being an owner and working with two incredible people has allowed me to do that. That's really important.

And then, the other surprising piece of it is how hard it is to actually let it go. It's very hard to shut off. Let go of all the things that are constantly rolling in your head with the financial lives of these various clients. There are times that I will wake up in the night, out of sleep, thinking about something, maybe some irrational fear of something I've missed. Or, on the flip side, some really great planning ideas have come to me in the very early morning hours. I've learned to listen to those because, one, I think they tell you, they indicate that you might be too stressed and you need to take a little self-care time and refresh. But two, that's really the time of my day where it's quiet and there's no distraction of emails and text messages and social media. And so, I actually keep a notebook by my bed. And sometimes some really great ideas formulate in those quiet hours.

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

Debbie: The lowest point in my journey was definitely October of 2014. My older brother died by suicide. And everyone who has gone through this experience can understand what I'm about to say. Because you just do not see it coming. You can go over it in your mind again and again and again and maybe pick up some individual signs of things changing. But there was just no indication of it. My brother was an amazing human being. He was a lieutenant commander in the U.S. Navy. He was a navigator on the Hawkeye, which is the only propeller airplane to land on aircraft carriers.

And he just was amazingly good at everything he did. He was super smart, super charismatic, very funny, homecoming king...go back to 5-year-old Joe, and he was just loved and cherished by everybody who got to have him in their life. And to me, I was his little sister. We grew up together. We had a bond that I've learned that not a lot of siblings have. I would almost compare my relationship with him and my sister more like a twin relationship where the three of us spent so much time together, we relied on each other for so much that, when he was gone, and not only gone but lost in such a tragic way, it made me just spiral for quite some time into this place where I questioned everything. What could I have done? What did I do? Was I too distracted by my job? Was I too distracted by my two young children? I'm so grateful that my daughters who are now 10 and 8 were so little at that point because I barely remember 2015. I was in such a grieving spot that my memories of that whole year feel lost. And I'm grateful that they don't remember their mom that way.

But coming from that place, I have developed so much more empathy, so much better listening skills, and a much clearer understanding that you need to...and especially as it relates to our financial planning work, you have to meet people where they are. And some people aren't ready for the very deep conversations about their money stories or how their childhood or their life experiences have developed their biases relating to money. And you have to cultivate those conversations and those experiences. And you have to listen more than you talk. People say that all the time in this profession, but it's very true. This is about them and how you can make their lives better.

And it also really drove me to want to work with people who have gone through similar instances of loss. And once I got over the tremendous sorrow and fear and guilt and sadness, I made a decision that I was going to live my life that made him proud. And it's almost this weird feeling, as if you're living for them. And I've talked to other people who have lost siblings and lost loved ones, and they all kind of echo that you almost feel this responsibility to live your best life because you're sharing that with them. And I believe in that.

And so, out of that darkness has come a much more self-confident, value-driven person. I know myself a lot better now than I did before that. And those types of experiences you cannot replicate in a textbook. And it makes you a much better planner; it makes you a much better person; it makes you a much better friend. And so, I would like to think that I am turning that horrible circumstance into something positive. And to speak about it and not shy away from it, it took me years to not shy away from it. But I don't do that anymore, especially in this profession. This profession is full of very driven, very smart, very competitive people. And you are not immune to mental health issues, stress management, or anxiety just because you have certain characteristics or certain skill sets. And I think this industry is fraught with anxiety and stress. And there needs to be more open conversations about how we manage those things and how we take care of ourselves. And that's why I share my story on that experience.

Michael: I appreciate you being willing to share your story, I think it's a powerful one for others who are going through whatever that dark spot is in their lives. Because, unfortunately, we do have dark stages that come and have to figure out how to work through them and I think, as you put it, figuring out how to turn even a horrible circumstance into something that's positive.

Debbie: And that realization that everybody has their own journey, everybody walks their own path, and it's fraught with struggles and pain. And just because mine incorporates suicide doesn't mean it's any greater or worse than somebody who's dealing with divorce or the loss of a parent. Or it just breeds empathy and understanding that we're all doing the best we can with what cards we've been dealt.

There's an amazing documentary out there done by Bill Coors, shortly before he passed away, called "The Will to Live." And that is such a powerful message of turning just total and repeated tragedies into a fulfilling, happy, well-balanced life. He was at the forefront of understanding that exercise and fresh air can be important treatments and components of dealing with grief, anxiety. And so, if anybody's looking for something that's interesting in that space, I would definitely recommend that they watch "The Will to Live." And you learn so much about this guy whose family is so deeply rooted in the alcohol-beverage industry, what he did for himself, what he did for his employees. It's a great place to start.

Michael: So, as you look back over this journey of the career and building as an advisor for 15 plus years now, what do you know now that you wish you could go back and tell 23-year-old you as you were getting started on this journey?

The Advice That Debbie Would Give To Her Younger Self And How She Defines Success For Herself [01:47:04]

Debbie: I've come to the conclusion that, as we're younger, more things in life feel very black and white. And you live in this space where something is either 100% wrong or something is either 100% right. And I definitely viewed life and my career with that lens as a younger person in this profession. Now I like to say I live in the gray. And with that, I think comes a lot less judgment on the financial-planning side of things. I'm not there to judge how my clients spend their money, I'm not there to tell them how long they want me to plan they live. I am constantly reminded that these are their goals, these are their plans. And yes, I am absolutely there to make suggestions and to disagree with them and to provide alternatives, but I'm not there to pass judgment and I am not there to fit them into this box that I think they should reside in. And I think 23-year-old me definitely saw things in a much more black-and-white way.

Michael: So, as we wrap up, this is a podcast about success. And one of the themes that always comes up is even just the word "success" means very different things to different people. And so, as you built the success of your career, and now as a partner or principal in the firm and the business is going so well, how do you define success for yourself at this point?

Debbie: At this point, for me, success is the freedom to spend my time on the things that are most important to me. After losing Joe, I really had to evaluate who I was and what my values are and where I want to spend my time. And making partner in the firm and knowing that my hard work had paid off in that respect has been very fulfilling. But it's more about being able to have that time to focus on my clients when I'm at work, and then have the balance of the time outside of the office. Whether that's 2 o'clock in the afternoon for a school party or 8 o'clock at night for a dance recital. And so, that for me currently is the definition of success is that I am able to have this very rewarding, fulfilling career, doing things that I love. I'm still able to devote time to my daughters as their mother and to spend time with family and friends, as well as time with myself. That has become very, very important in my kind of self-care after going through some of the events that I have.

And so, for me, success is being able to design my time and my life the way I want it. Now, that doesn't mean there aren't sacrifices. I have definitely whittled down my friendship circle, I understand that it's much more about quantity...or quality versus quantity of time spent. And I just surround myself with the people that I love and I spend my time doing things that I'm passionate about. And that is success to me.

Michael: I love it. I love it. Thank you so much, Debbie, for joining us on "The Financial Advisor Success Podcast" and sharing your journey.

Debbie: Thank you so much. It's really been a pleasure and an honor to speak with you. And I hope that the rest of 2020 goes smoothly.

Michael: Yes. I think we're all rooting for a smooth finish to the year.

Debbie: Absolutely.