#FA Success Ep 280: Overcoming The Pain Of Scaling: When The Second 100 Clients Is Harder Than The First, With Brian Carney

Resources Featured In This Episode:

• Brian Carney
• RiversEdge Advisors, LLC
• eMoney Advisor
• Orion Advisor Services
• Redtail
• DocuSign
• Jennifer Goldman
• Brian Luper of Strategic Implementer
• Ginny Hudgins of Strategic Implementer
• BluePay

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

Full Transcript:

Michael: Welcome, Brian Carney, to the "Financial Advisor Success" podcast.

Brian: Michael, thank you so much for having me on, this is going to be great.

Michael: I really looking forward to today's episode and just talking about the dynamics of what it's like to actually grow and scale an advisory business, there's a journey that most firms go through where it's so brutal in the early years to get clients, we're doing anything that we can to possibly get clients and get it going. And then eventually, you get 20 clients, 30 clients, 50 clients, dollars start getting a little more, decent things start adding up, the pressure lifts a little. You get to 75 and 100 clients and sometimes, the money starts getting pretty good and you hire some admin support around you. For a lot of us, it's like, "Wow, I'm feeling pretty good now, I'm making good dollars, 100 clients is a good base," if you're not growing, you're dying, as the saying goes, like, "Let's keep going, we're going to double it in the next three years or five years," or whatever it is.

Brian: Yeah.

Michael: And suddenly this phenomenon hits where...I think about this...I don't even know if it's...I always think of it as Warren Buffett, I may be completely misquoting this, the saying is like, "The first million is the hardest and they get easier from there." Or I think with Warren it was actually, "The first billion was the hardest." Then it gets easier from there.

Brian: Of course, yeah.

Michael: But in our industry, I find it's a little bit different that even as hard as it is sometimes in getting to the first 100 clients, to the first million of revenue, that for a lot of firms, it actually gets harder when you try to get to 2 million and 3 million of revenue because the whole dynamic starts shifting from it's no longer just get more clients, have more revenue, get more clients, have more revenue, which is what it usually is for the first 100 clients. Now, all of the sudden, it's like, "I got to hire people and I got to train them," and then someone left, I got to replace them, and then I got to give them a career track. And then there's all this other stuff to manage and now apparently, we need an org chart and an HR person and all this complexity starts coming that for a lot of us who just gotten in the business to serve clients and help people, it can kind of hit you like a pretty hard wall. I guess you hit a wall when you go into it. And I know you have dealt with a lot of this in your growth journey. And so, I think I'm looking forward to talking about what happens after you get through the first million of revenue, the first 100 million of assets, and then you try to keep growing and life gets a lot more complex?

Brian: Yeah, it really does. And that idea that the first million of revenue is sort of easy, you don't really have a whole lot to worry about. Your tasks are simple, go find clients, service them, and then go find more clients. And then all of a sudden, you end up owning a business, and then you have employees and you go, "Well, this isn't what I set out to do. How am I actually doing this?"

Michael: "I was just here to help clients and get more clients and help more clients, not just managing things."

Brian: Yeah, I always say that I'm a financial planner that ended up owning a financial planning business. I never set out to own my own firm, I just thought I would be an advisor and just have my own clients. And then all of a sudden, that shift, when you get to that certain level, it has to shift from, "I'm a financial advisor that happens to own a financial planning firm," to, "I'm a business owner that happens to own a financial planning firm." So, that mental shift takes a long time and it is a painful thing to go through.

Shifting From Financial Planner To Financial Planning Business Owner [06:09]

Michael: So, talk to us about that a little bit more. How do you delineate that difference between what it was like when you were a financial planner and what it's like now when you're a financial planning business owner?

Brian: Yes, so I think when I started, it was really hard. I took this job because the recruiter told me it was going to be the hardest thing I ever did and I didn't believe her and I wanted to prove her wrong.

Michael: Yeah!

Brian: And three years in, I was like, "Holy crap, this is brutal." I'm sitting at someone's kitchen table at 9:30 an hour away from my house and I've already worked 60 hours that week. And then I got to a point where I'm like, "Okay, now I got a role, I got some clients, this is going all right, I'm doing okay." And then, you start owning a business, and I think a lot of advisors aren't really equipped to handle all aspects of owning a business. I got to deal with payroll, I got to deal with HR, I got to deal with managing people. I don't know how to manage people. "I got to hire more people. Well, where do I even begin to do that?" "Oh, I have to do QuickBooks too." So, now there's all these tasks that come along with owning this business that you never really thought that you would have to deal with.

Michael: So, is there a particular crossover for you of when it went from financial planner to, "Oh, man, I have to deal with business-y things now?"

Brian: Yeah, I would say that shift happened to us. We set out a goal when we were at 150 million...I have a business partner, his name is Jarrett Morris. And in 2018, we set a goal, totally arbitrary, by the way, to double our assets under management in 5 years and we did it in 18 months. And we were working with some consultants and they started saying, "You don't have the right people to get to you to where you're going." And we're like, "What are you talking about? This person has been here for five years, we love her, she's awesome." And they were saying, "I don't really think she's going to be the one that take you to the next level," or, "He's going to be the one to take you to the next level." So now you have to start really looking at your team of people and trying to make decisions about whether they actually fit where you're going as opposed to where you came from. And I think that is really a difficult intersection to get to.

Michael: So, just to give us context as you started hitting this crossover point, so how big was the firm in 2018?

Brian: We had 150 million under management.

Michael: Okay. And can I ask what was that from the revenue perspective?

Brian: It was about $1 million.

Michael: Okay.

Brian: Yeah.

Michael: So, you're sitting right around a million of revenue, 150 million of AUM. And how big was the team then? Do you recall?

Brian: Yes, so we had three employees, so it was my partner and I, and we had three employees at the time.

Michael: Okay. So, you say, "Okay, we want to double this thing, we're at 150 million of AUM, got a million of revenue, let's see if we can get to 2 million of revenue over the next five years."

Brian: Yep.

Michael: So, it's not like we have to go double right away, 15%-20% a year doubles you in four or five years. So, what were the consultants saying or seeing that they were telling you like your people aren't going to get you there when you had these three employees who had been with you for a while? What was the gap?

Brian: Yeah, I think what was happening is that we were involved in touching every aspect of the business. We were really touching everything, we were doing the plans, we were building the investment recommendations, we did hire a trader along the way to help us with the trading. At the end of 2018, we became an RIA, we left the independent BD world to become our own RIA and we started bringing all the jobs in-house as opposed to having them outsourced. And now we realize that, "All right, we run a really sophisticated high-end service business and we really needed a lot of people who understood financial planning, they knew how to do eMoney, they knew how to handle Roth conversions." We were doing complex planning and we needed staff people that could help us do that so we didn't have to actually push the buttons all along the way.

Michael: Okay. And so, who were the team members that you had at that point?

Brian: We had essentially two client service associates and this trader. That was pretty much our team at that point. And we started getting to a point where we realized, "Okay, we're overloading our two client service associates, we need to hire another one." So, we had a friend of a friend recommend someone and she came on, she had no experience, and we were trying to train her while we're continuing to grow and we realized that we needed experienced people, which just don't come out of anywhere. So, growing from even just adding one or two people, now not only are we touching every aspect of the clients, but we're also doing the training for the people as well. So, it became a lot of work and a lot of hours.

Michael: So, I get it, you've got sort of CSAs that are handling administrative work and a trader, but when you get into the, "Hey, we need to build this eMoney plan and do these fairly complex projections and we want to do a Roth conversion, so we need some..." Well, I was going to say special paperwork but like, "We got to set up the transfer paperwork and the journaling, make sure we do the right dollar amounts, and tied it back to the plan and back to the tax projection that we were doing, which could change a little at the end of the year if there's some gains distributions." You're just getting all that stuff and it's like, "Oh, my CSA doesn't know how to do this part."

Brian: That's exactly right. And the way I would kind of view that is we had people that would memorize how to do their jobs and not know it intuitively. So, if you say, "Do a Roth," they're kind of literally following...a Roth conversion..., they're literally following the process to do a Roth conversion, but not going, "Oh, well, because we're doing that, that means this, we've now changed their taxable income so that does this and that's going to affect their plan." It wasn't necessarily the initial maneuver, it was all the things that came along with it.

Michael: Because...since they didn't have the industry knowledge or the planning background, basically they couldn't see further downstream of the consequences of doing a thing, which means you had to think of everything to do and think of all the follow-through that was going to come at the end. They could do the task but at some point, there's just too many clients to keep track of all that.

Brian: That's exactly right. And at the same time, we're building a completely new tech stack. So, we had just onboarded with Orion and we're trying to build Orion from scratch. And so, now we have that whole animal that we're doing. And then we're doing a new...we're working with Redtail, we're trying to integrate Docusign. So, it was a lot of moving parts going at one time.

Michael: Okay. And so, what was the breaking point for it? Was there like a number of clients, pace of things, what eventually created a breaking point that said, "This has to change?"

Brian: Well, two things, we had a tremendous amount of growth in the pandemic. So, in the year of the pandemic, we had our biggest year by far, which 2021, we far surpassed that number. But we got really busy with a lot of clients, doing a lot of tasks during the pandemic. And then once we realized, "Oh, my God, this is a lot of work that we're doing with all the planning." We're doing tax-loss harvesting for all of our clients in the middle of March and then communicating that to everyone and talking to their accountants about what we've done and it became a lot of sophisticated planning type of work while we're adding new clients, so everyone was getting overwhelmed. And then we had the pandemic, so we have to switch to being...pre-pandemic, 99% of our meetings were face to face. We were real slow adaptors to this Zoom thing, these video conferences, so we're now completely virtual. But after that wave started, we started looking around going, "All right, we now have time to start working on the business and where we think our growth is headed, we need to sort of upgrade the staff that we have," which is a really terrible process to go through, quite honestly.

Michael: Yeah, by just having gone through this journey in a number of businesses over the years, one of the hardest phenomena of being a business owner, I find, is when your business grows faster than your team's capabilities can grow. Anybody who's been in the employee role at some point inevitably has had the, "I wish the firm would promote more from within and not hire so much outside." But if you've lived it from the business owner end, when the business is growing and especially when it's growing fast and just the complexity is rising quickly, you can get to a world of like, "Wow, I think with a lot of years of training and development and experience, in three or four years, this person could totally be there, but I need this solved in six months or something is going to break."

Brian: We kept saying we all feel like we're drowning, all of us, we were just constantly drowning and we were trying to find a way out. And every time, we would start to make some headway, we'd bring on new clients, and I kept saying, "We're growing aggressively in spite of ourselves, our back-office can't really keep up with the growth." So, when that happens, the owners usually step in and start doing the work that they hadn't done before. So, now we're back touching things that we shouldn't be doing, I literally was processing applications at certain points to be able to keep up.

Michael: So, you kind of have this, I guess, moment of realization in Q2 of 2020, the pandemic hit, you're doing tax-loss harvesting, growth is happening, everything's moved to virtual, you got all these system changes. You're now doing account applications yourself just trying to keep up with them.

Brian: Yep. Yep.

Why Brian Decided To Make Personnel Changes To Grow His Firm [16:15]

Michael: And saying, "Well, this isn't working." So, what comes next?

Brian: So, that's when we started reaching out to some of the consulting firms. We kept saying like, "We know what we want it to look like, we have no idea how to do it." And that's really where we got the aha moment that like, "Holy crap, we're a real business now. We're no longer running a financial planning practice, we're running a firm now, and we need someone to help us with strategy and operations." And I think what we found is that my business partner is outstanding in operations and he just didn't have time to do it because he was doing all the planning. So, we're like, "Okay, we need to outsource the operations," and that's when we started looking for consultants to help us.

Michael: Okay. So, where did you look? How do you actually find the consultants that can help you with this?

Brian: So funny because I had a call with someone that we had...we actually reached out to the American College, we got some referrals from them. We reached out to some other friends that we have in the industry and they recommended someone. And then, I actually heard the woman who we ended up hiring on your podcast the day I had my initial call, totally coincidental, and I was like, "Okay, well, this is a sign."

Michael: Yeah, absolutely a sign.

Brian: Yeah.

Michael: So, who did you end up working with?

Brian: We ended up working with Jen Goldman originally. And what I would say about working with a consultant...and Jen was outstanding, she knows her stuff, they do create discomfort, especially for people...

Michael: They come in and they're like, "You have to change these things."

Brian: Yes, and you're like, "Whoa," and they point things out and you're like, "I don't really want to deal with that." And we kept saying that she pushed us off a ledge. We probably would have kept spinning our wheels but she was like, "I'm telling you guys, you need to do this." And we tried to move people and we were like, "Jen, we don't want to let these people go." She's like, "Well, let's move them around, let's find the roles, give them a different seat on the bus and see if that works." And we did that and it didn't work. And she said, "You sort of have no other choice and you know what you have to do, you really need to upgrade your staff and you need to find good people."

Michael: Talk to us a little bit more of just what were you doing in this move them around on the bus phase? Is this all like, "Okay, you've been a CSA but we really need more support in all these financial plans, we're going to have you start doing eMoney financial plan input, let's see if you can fill that seat and see how it goes?" Like that kind of stuff?

Brian: Like that exact thing, like, "Hey, you've been a CSA, we're going to teach you how to do eMoney, we're going to have training sessions, we want you to become a paraplanner, if you will." Right? "We want you to become a CSA on steroids and we want you to build the eMoney and build the template for the recommendations and then walkthrough with the adviser who's running the client what those recommendations are going to be. And you build this the eMoney and you do the planning and enter all the data, and then we'll make it happen." And then what happens is that they have no idea what they're doing because they're not CFPs, so we end up doing it all ourselves anyway. So, it's a giant circle of waste of time and it's not really their fault.

Michael: But you had to do it to be convinced that you really have to make a change? This is like, "In retrospect, it wasn't going to work and in real-time, we had to do that and discover for ourselves that it wasn't going to work?"

Brian: That's 100% what happened, and it really was like, "Hey, we took a shot, we tried it, we really like these people so much that we didn't want to just let them go." And then we realize, "Okay, we need to hire CFPs." And that's when we started to make a dedication to building an internal team of people that can do real financial planning.

Michael: And I guess indirectly, that reinforces the point as well of, look, perhaps you could have signed them up for CFP classes and let them start earning their certification and in 18 months, they might have gotten through the program and then they could really start cutting their teeth as paraplanners and a year or two of experience on that, they could really come up to it. It might have totally worked out in three years but you're drowning at the time, so can't do this three-year journey with you at this point.

Brian: I actually think if we had the time, we could have made it work. Now, I'm obviously super optimist, right? And we talked about, "Hey, we will pay for you to go to CFP, take your classes," and they kind of took some of the classes but not really. They went to the first one and they're like, "Okay, I'm probably..." And they failed their first module and they're like, "Okay, I don't really want to do this." So, we're now forcing them down a road that they don't really want to go down and that's just not going to work long term, it's just a difficult thing to do. Because as we've discussed, this business is complicated and for someone off the street...we hired a marketing person and turned her into a CSA and we're having her talk about doing all sorts of tax-loss harvesting plans and communicating that to a client and she's like, "I don't even know what you're talking about, how am I supposed to deliver this information to a client?"

Michael: So, you try to start moving them around like, "Let's see if our CSAs can do a little bit more of this planning work and give us some relief." You move them around, it's not working, so how long did it take to find that it wasn't working? Was this apparent immediately or was this three to six months or more of trying to make it work before eventually saying like, "I don't know if we're getting there?"

Brian: So, my business partner is a glass half empty guy, I'm like, "That glass is completely full." I'm like, "Dude, we got this, they're definitely going to do it, 100% they're going to do it, I'm super positive about it."

Michael: "Yeah, let's lift them up, it's going to be great."

Brian: Yeah, I'm like, "I'm going to get involved, we're going to help them, we're going to do this, I really want to make it happen." He's like, "I got to tell you, I don't see it but I'm hoping you're right." Well, he was right, I was wrong. That's a pretty common theme in some of these business discussions that we've had. It took three months for a couple of them and we tried to hang on for six or seven months for another one. And it really is a difficult thing, like I said, because it's not their fault, our business got super complicated and overwhelming overnight. So, the question that we always had was, "Do we have the wrong CSAs, or are we asking them to do too much?" Right? Like, "Do we really need a CFP to do that work? Or do we need a paraplanner to do that work?" So, we have battled through that for a long time trying to come up with the right answer for that.

Michael: So, where have you drawn that line?

Brian: Yeah, so we've hired two CFPs and another financial planner since then, she sits for her exam in March and she's been in the industry for 15 years. So, now we've really developed this team approach where we don't think CSA should be doing it all themselves. We think they should be able to load eMoney and they should know the basics about financial planning, they should know how things work and their way through, but they need to have a CFP sit with them and really help them and have the CFP train them so they can grow up to be a paraplanner and then potentially be a CFP if they want to. So, it really took hiring the next level of planners before we realized that, "Okay, this is the right way to do it."

Michael: So, talk to us a little bit more about how you navigated this moment of, "Okay, it's not working well, we need to make some changes." Jennifer Goldman is coaching, "You probably need to let these go," You say like, "No, no, we got this, we're going to put them in some other seats." You try some other seats, it's still not going well after a bunch of months. So, just how do you actually then do this to go from here to there? Did you just start hiring other people? Did you let some of these folks go? Do you get new people on before we let the old folks go? Do the old folks start quitting when they realize you're hiring new people anyways? What actually happen when you got to the point of, "Okay, we're probably going to need to hire some new people and we might even need to let these people go?" What did you actually do to get there?

Brian: It was as if someone took a hand grenade and threw it into our office and then everything blew up, right?

Michael: So, what happened? What started the blowing up-ness?

Brian: So, we started letting people go while we're looking for other people. And that destroyed the culture and then those people quit because our culture sucked and then we're trying to find people and it's taking a while to get them. We're looking for people in the middle of 2020, the end of 2020, and the beginning of 2021. And as you know, it's very difficult to find really good people. We got really lean there for a while and my life was miserable. We went from eight total down to five. We had one person actually say they were resigning and we basically convinced him to stay. If he had left, he was our trader, we were in real trouble because he was so important, he did so many different things in our firm, being able to troubleshoot technology. He's like a Swiss army knife, his name’s Shiv, and he handles so many things and he's like, "I can't do this anymore, I'm miserable." He's like, "I don't even have a job and I'm leaving." And he was our...

Michael: "Just so it's clear how unhappy I am, I'm not even going to something, I just need to not be here."

Brian: And that's exactly what he said. He was like, "I am so miserable, I don't even want to come to the office anymore." And the fact that...

Michael: That hurts a little.

Brian: And this is like the tough medicine that you need, right? So, we go, "All right, we had one problem, we had a staffing problem, now we have two problems." We have a personnel problem and now we have a culture problem. Right? And then one of the people that we were really close to, she was acting...we moved her from marketing to be our operations person again as part of this sort of musical chairs that we were attempting to do. And she's the sweetest person of all time and she wants no part of telling someone that they can't have all Fun Friday because they didn't get their notice in, and then she came to me and she's like, "I'm going to leave too." And with my business partner, I would talk on Teams or Zoom all the time, and I was like, "Dude, I don't even know if we're headed in the right direction anymore."

We had a real come to Jesus conversation with...we actually crossed the intersection so close that we were like, "Do we completely back off and go to a lifestyle practice? Or do we just push through this and really try to fix it and get it to what we think we can be?" And we had some really tough times. I would say that's probably the lowest point of my career. I thought the beginning was hard but sitting there talking to him literally almost in tears because these people are quitting, and I am one of those people that's desperate to be liked. If you do one of those strength finder things on me, I always want to be liked by people. So, to fire people and to have them quit means they don't like me and it tore me apart inside. So, my wife was like, "You're really going through it," and since I was home for all of this, she sees me every day, I come upstairs and I'm just like...I look like I went through a war.

Handling Hiring Challenges During The Pandemic And The Great Resignation [28:18]

Michael: So, I've got to ask, as this thing is kicking off, why did you start letting people go before you're had new people hired?

Brian: Well, in hindsight, that probably wasn't the best decision.

Michael: I'm assuming you had some rationale or plan to it at the time. What led you to say like, "Hey, I think we can start paring down now and then we'll go find the people that we're going to hire up next?" What was going through your heads at the time of how was this supposed to play out for you?

Brian: Yeah, so how it was supposed to play out, Jen referred us to a recruiter who was awesome, right? And he found us a CFP. So, we're in Delaware, he finds us a CFP from Alabama that wants to move back to the Philadelphia area, which is like 40 minutes from our office. And this guy is an absolute rock star. We find him within like three weeks and we go, "Dude, this is going to be easy, we're going to be able to find people, no problem." We go, "We just need one more CFP." He started in July, we posted our next CFP job in November of 2020, and that guy did not start until November of 2021. We totally misread our ability to get this talent quickly.

Michael: Okay, so because the first one just happened to go so well, you were kind of assuming like, "Oh, all of these are going to go quick." So, you started making changes in anticipation of fast hires, and then it turns out the hires weren't fast but the people were leaving and then it cascaded.

Brian: That's right. So, we really thought this was going to be boom, boom, boom, it's going to be real quick. And that old adage of when you run a business, to hire slow and fire fast I do think is legitimate. I think that is a real good way to do it but it is painful and not fun.

Michael: And who did you use to recruit to find people?

Brian: His name is Brian Luper. He is a...he works for a company called The Strategic Implementer, who Jen referred us to. So, Jen Goldman referred us to Brian and Brian found this person pretty quick. So, we're like, "All right, this is going to be easy, now he's going to find CSAs," and we must have interviewed 15 CSAs and we were just like, "Yeah, I don't think that's the type of person that we want, we're going to be in the same boat that we were just in six months from now so we really need to find some really smart people." And it was really, really difficult and really painful. It was bleak because you start having these interviews, you get excited, and then you go, "They're just not a fit, they're just not a fit, their resume doesn't line up for what we're trying to do."

Michael: So, I'm getting kind of a clearer picture of sort of the dynamic now. So, the squeeze comes in in like March/April of 2020. You hire Jennifer Goldman, she says, "You're going to have to make some changes," you guys go, "No, no, no, we got this with the team we've got." So, you change their seats and that runs through June, July, August, September into the fall. It becomes clear it's not working. You say, "Okay, Jen, we're ready to hire," she refers you to Brian. You hired the first paraplanner, it hits in three weeks, and you're like, "Okay, this is awesome, we got this, let's start letting go of a few people, we'll hire a few more, we'll make this transition." You let go of someone to start the process and then you list the next job with Brian and no one's coming through and then someone else is like, "Hey, we're short-handed, I'm not happy, I'm quitting," and then someone else says, Hey, we're short-handed, I'm not happy, I'm quitting too." And now, all of the sudden, things are cascading.

Brian: That's pretty much summed it up except that we actually ended up using another consultant who works with Brian Luper as well. So, we had two consultants going and they were saying, "Yes, you need to fire..." Actually, we ended our engagement with Jen and hired Ginny Hudgens who works with Brian Luper and she was really like, "You guys can't wait anymore, you have to fire these people now."

Michael: Okay.

Brian: We had a call with her and she looked at our staff and had a conversation with all of our staff, she's like, "You need to get rid of this person and this person." We're like, "Ginny, no, we can't do that right now." And then the bloodletting began, and then people started to quit. So, yes, you have that timeline pretty accurate.

Michael: Okay. And so, it was part of the nudge from Ginny Hudgens from Strategic Implementer to say like, "You guys just have to rip the band-aid and let them go, you can start hiring replacements, you've got other people you can redistribute this to in the meantime."

Brian: That's right.

Michael: Except then it turned out the hiring process was slow and the work shifting ended up creating a cascade against you because, all of a sudden, people had more stuff to do and fewer people and hours increase, culture gets unpleasant, all the snowball effects that start coming when you don't get the replacement hired fast enough.

Brian: That's right. And it's really a sad thing as someone who is upbeat as me and really loves to build a culture and have fun with the employees that...now, you haven't seen these people in person in over a year. Well, about a year, right? And every time you call them on Zoom, they look dead inside because they're miserable. And you know it's partly your fault that they're miserable and I hated a job that I was in before, so I know what that feels like and I felt terrible. And to watch that all sort of spiral was really just...it just gutted us and we were just depressed all the time going through it. So, I would say the bottom happens in April of '21.

Michael: So, where are you by then? By then, that's when you're down to five people and Shiv comes in and says, "Guys, I don't think I can do it either?"

Brian: That's right. And then literally the next day...it was either the next day or three days later, the person that we had that was our marketing person that we turned into operation, she said, "I'm out of here." I had a heart-to-heart with her, I said, "I know you're depressed, I know you're sad, I know you hate it here. Stick with us a little while, we're going to make it through. I'm going to find a role for you that's going to be perfect, tell me exactly what you want to do." And she's like, "Thank you so much for saying that," and then she emailed me three days later and quitting.

Michael: She's like, "Appreciate that, but I still can't do it."

Brian: And the worst part was I didn't blame her, I understood exactly why. And that's the worst part about it. You have this firm that we were sort of like an Instagram model, in the sense that everything looked great on the outside, we have growth, we're gathering asset under management, we're winning awards, this whole thing. And behind the scenes, it's absolute chaos.

Michael: Right. So, what turns this around? By April, you're just basically trying to hold the wheels on the bus barely with your hands. So, what comes next? Obviously, eventually, things turned, we're still here, we didn't collapse. So, what came next? Did some things happen that started to turn this around or did you have to spend a while in an unpleasant trough? What happened next at that point?

Brian: We spent a little time in an unpleasant trough and then we started hiring really good CSAs. we hired a young guy who's in his mid-20s from the banking world of all places, he was like a financial advisor in a bank. And he's been an absolute rock star and he's really changed...having him injected into the firm has been incredible. We actually hired a portfolio manager who is taking his CFA classes, and he really started to upgrade our investment platform. So, now we've got some good vibes going, right? We have Mike Levy, that CFP from Alabama, and he's really starting to take over and really start to handle clients and now we have this real team vibe going and everything is going great. And then Mike walks into our office one day and says, "Hey, I'm leaving."

Michael: So, it's coming up and then you get knocked back again.

Brian: Yeah, it's like we think, "All right, we finally are headed in the right direction." Everything's going great, we're finally back on our feet, we're servicing clients in the way that we think we should, and we have our lives back in order and Mike says, "I'm out of here." So, Mike, he got plucked on LinkedIn by a banking trust company close to us. And so, he comes in and we say, "Mike, you don't think we're just going to let you leave, right?" So, we countered and his main issue was that he was doing things that he didn't think he should be doing, rightfully so, he was doing CSA work because we were still short-staffed on CSAs. And so, he gave us two weeks, and on the day that we had a farewell lunch for him, he came in to say goodbye to us and we said, "Mike, you're not leaving."

And we countered and we created a whole new proposal for him. He's actually currently in Costa Rica on a trip that we made him take that we paid for as part of this deal and we saved him. And if you can look at sort of the catalyst that exploded the next part...that was probably in June of 2021. Once everyone knew that Mike was back on board, that culture improved immediately. If we had lost him, we would have been right back to April, right? We would have been right back to fighting for our lives again. And I was on a call with him with clients and he was going through the plan and we got done with the call and it was the day before he was going to leave and I messaged my partner Jarrett and I said, "Jarrett, we cannot lose Mike, he's too good and his personality is such a great fit, he's too good to leave this firm, so we need to keep him." And that's when we stayed up trying to figure out a way to keep him and somehow we countered that...

Michael: Was that a new role? Was that new comp? Was that some blend of each?

Brian: All of the above. It was a vacation, it was making sure you aren't doing things that you don't want to do anymore. And we had moved our 401k person, Erin, who's been awesome, to an operations role to help sort of push work in the direction away from him and help him and he's really thriving now. We hired another Certified Financial Planner again after him and it's really continued to blossom after that.

Michael: So, what got you unstuck out of this trough? Was the reality is just you had been trying to hire throughout the first part of 2021, it just took a bunch of months to get there? Or was it some dynamic when Shiv came in to say he's thinking about quitting, the marketing person came in, that you went back to David Luper and just sort of like pedal to the metal, hires now, must make it happen? Were they already running and it was just going slow? Or was there some shift in the hiring strategy when things were going that sideways for you that then change the trajectory?

Brian: The good news is we stayed patient getting the right people, we didn't force any hires. The bad news is we had to hire another recruiter. We had two recruiters going full time for us and we had...the other recruiter was on sort of a traditional compensation model, I think we pay him like 23% of whatever the person's salary is that they hire. So, in 2021, we spent $120,000 on recruiters. And I think we were being...in a way, in the beginning of the year, beginning of 2021, I believe we were being a little penny wise and pound foolish, meaning I think we've just figured that we could just go hit people up on LinkedIn and they would be ready to leave their job to come over to us. A little naive, of course, but that's where my optimism comes in. But once we really got both of the recruiters going hardcore, that's when we started to see...that's when we really started to see the change happen.

Michael: And who was your second recruiter that you were working with at the same time?

Brian: So, my neighbor is actually a recruiter for Randstad and I said to her...we were having drinks one night at our house and I was explaining to her the misery and I was like, "Do you even know anyone that would want to work with us?" And she introduced me to this guy who was part of the Randstad and he was specifically looking for financial advisors and I think accountants as well and he was the one that found some really sophisticated people for us.

Michael: Okay, interesting, interesting. So, Randstad is a very traditional recruiting firm across lots of businesses and industries. I think their original work was like temp recruiting and that went to mainstream recruiting.

Brian: That's right. Yeah, and he worked for another division...it wasn't actually that, but he worked for another division with a different name, but yeah.

Michael: And so, you spent six figures on recruiters just trying to get all of these positions filled and filled quickly.

Brian: Yes. Yep. And once we know...really, once we hired...the other recruiter's name was Chris. Once we hired Chris, we started getting really high-quality candidates right away. For whatever reason, he had a way to peel people out. And we actually had...now, when we were interviewing people in the beginning of the year, we were talking to 12 people and were like, "We're not really that interested in them." Then we were talking to 5 people and like, "Well, we really liked 3 of these, how can we actually make this all work?" And then I started calling people within my network. So, the last planner that we had, I know a guy who...it's his girlfriend, and I said, "John, is Amy interested in leaving her firm?" He's like, "Oh, man, she just started at a new place. She just started at a new place, she wouldn't be interested." Six months later, he emailed me and said, "She's miserable, can you still use her?"

Michael: Now she'd be interested.

Brian: Yeah. And I said, "Yeah, absolutely," and she's been awesome since she's been here too. So, it is a real tough thing to do is to try to pluck people out of firms that you think are going to be a good fit.

Michael: And just what have you found works there? How are you managing to pluck them out? Or is the reality would be like you basically can't, you just have to wait until they're actually ready to move all on their own and then hope you can get them at the time?

Brian: I think it's a little bit of both. I think the vision that we have for where the firm is going is exciting. We always say in this industry, "If you're not growing, you're dying," and if you're not growing right now at a great time in this business, I think it's a real eye-opener to the people on your team. So, when we start talking to people about where we want to go and where we're headed and the growth that we've had, it gets people excited. We are a younger firm. I'm 42 and I'm the oldest person here. And I think being sort of set in between the baby boomers and the millennials is a really good just demographic to be able to live in. I can work with parents and their kids and I have experienced...I mean, I've been doing this for 20 years now, so now I'm experienced enough to handle very complicated matters.

Michael: And so, that's the vision that you sell. How do you kind of make this pitch to prospective folks that you're trying to hire and bring in? I think all of us are going through this dynamic, if we are growing, it's hard to find good people. And even if you do, you got to make the case that they should take the job with you. So, what is the story that you're telling that's connecting in how you actually get talented people to say yes to your firm over all the other offers they might be getting?

Brian: Yeah, I think the one thing that we do is we talk about how we grew sort of in spite of ourselves, we doubled with a problematic back office, right? Now, I obviously say it in a much better way than that. But now we talk about now we have the ship completely righted, the processes are well defined. We didn't even have workflows this time two years ago. We had Redtail, we use it as basically a contact list. So, now we built the workflows, we did all of that stuff, we improve the tech stack, and now we start talking about the team approach that we think is the right way to go for our clientele. We want our clients to really be working with a planner, a CSA, and then have the investment management team working on them as well.

Michael: So, what's the team headcount today and how is it structured at this point?

Brian: So, it's 13 now. We have three planners, we have three CSAs, we have a head of a retirement plan division, we have an operations person, and two investment guys, a portfolio manager and a trader.

Michael: Okay.

Brian: I hope I'm not missing anyone.

Changing Managerial Strategies To Accommodate Personnel Growth [45:28]

Michael: And so, how do you think about that, I guess, structurally, organizational chart-wise now because that's a lot of people to manage, right? It was one thing when you had you and Jarrett and three people to manage, now 13 people is just a lot of people to manage. So, how has the business evolved just from an organizational chart structure?

Brian: I'm sure a lot of other advisors can relate to this. Jarrett and I are horrendous managers. We're horrendous for opposite reasons. He's sort of like micromanage-y and I'm like, "Oh, you didn't do it? No worries, get them next time." I'm like too laid back, right? Neither are good.

Michael: Okay. So, how do you solve for that?

Brian: I think one of the things that once you get to a certain level...and operations expert is really...or an operations person is really an important addition to a team. So, now we've realized that Jarrett can't leave operations because he's too good at it and actually, once we sort of beat him over the head trying to figure out exactly what he wanted to do, he realized he actually likes it, he just doesn't like to implement it. So, we are sort of your classic visionary integrator situation now. We really are...Jarrett and I are both visionaries but in a different way, he's visionary on the operation side, I'm more on the marketing/sales side. So, we realized we needed someone to sort of bottle up all of our ideas and help us manage through them. So, we moved Erin as a 401k person, hired another 401k person, and made her our operations person. And then we hired a marketing person, her name's Brooke, and she's awesome at her job. So now, we have those two people to integrate on the operation side and the marketing side.

Michael: And so, how does that work in practice for the firm? Does that mean employees report to Erin and not to you and she handles all the management things?

Brian: Kind of, yeah. I worked directly with Brooke and Jarrett sort of manages the financial planning team, but they all feed up to Mike now. So now, the CSAs feed up to Mike and to Erin and we sort of are insulated from the day-to-day operations or the day-to-day management, which is good for everyone quite honestly.

Michael: So, let the people who like dealing with operations deal with operations, and you and Jarrett can do your vision-y things?

Brian: Yeah, I think what we realized in building the firm is that there's certain parts of a job that everyone loves and there's certain parts of a job that everyone hates, and you will just gravitate to doing the things that you like more. You'll spend less time on the things that you hate, you'll just avoid them. I hate doing financial plans. If you watch me do eMoney, you would die, right? It takes me like six hours to do a basic case because I just don't enjoy doing it. Jarrett can do it in five minutes and it's perfect. So, I think really trying to focus on getting people to actually spend time doing things that they enjoy. And when you see something in them like, "Hey, you seem to really enjoy communicating with clients, do you want to be our head CSA for this client?" "Yes, I'd love to talk to that person, I want to be in meetings, I want to summarize that meeting and send it to him." And being able to really get people sitting in the right seat doing the things that they liked the most and try to minimize the awful parts about their job.

Michael: So, I guess, a couple of questions that come to mind from that. So, one, just where did you learn the mindset or the systems to do that? Is that how you're wired? Or was that a consulting thing or a training thing for you to say, "Hey, we got to reconfigure people's seats?"

Brian: Yeah, I think it was both. So, what we realize is that if I don't have an interest in it, I really don't want to be any part of it, right? You can just watch me in meetings. I'm one of those death by meetings guys, like you've got 15 minutes until I can't pay attention anymore. Especially if we're going over an Excel spreadsheet, I'm out. I'm just not an analytical person and if you want to go down that wormhole, I'm out. So, we sort of realized Jarrett doesn't like...so our relationship is built on I'm doing all the things he hates and he's doing all the things that I hate. So, we realize like, "Hey, wait a minute, that's probably a good thing for everyone to be involved in, that's probably a good relationship for everyone to have." So, to have that ability to realize what you really enjoy doing and what you hate and communicate it effectively and say, "Okay, well, we have other people that can do that," it really allows people to stay in their lane. But also, it took getting hit in the face by the consultants too to really make sure we were doing that.

Michael: So, I guess the other question I have is just how you get comfortable handing over that much of the responsibility to folks like Erin and Mike, right? When you were not that...well, not that long ago, you were in everything. The bad news is you're in everything, but the good news is like you know everything is getting done the way that you want to see it done because you're in it. Now all of the sudden, you're moving into this world where key functions of the firm are happening under Erin, under Mike, other people's purviews, if it doesn't go well, this is your baby on the line. And you're not necessarily in there because they are in there, they're responsible for it now. So, how has that transition been? How do you get comfortable with that change?

Brian: So, I just assume if I don't hear anything, everything is getting done. Spoiler alert, that's not the right thing to do. So, we actually now have implemented weekly meetings just to talk about operations and running the business at a leadership level. And we leave those meetings with, "This is what's going on, this is what I'm working on, this is what you need to do, this is what I need to do," and we have clear-cut objectives coming out of those meetings to move the ball forward. And I think that...I'm still involved but I'm just not touching every aspect of it. And we keep a running tally of everything that we talked about, so we know, "Okay, well, we talked about this last week, where does that stand?" We also, at Ginny's recommendation, installed an opportunities meeting. And that opportunities meeting is every Wednesday at 9:00 and it used to take over an hour, now it takes about 25 minutes, the entire firm logs on and we go through all the outstanding cases that we're working on and where they are in the process and where, "Hey, I can't get ahold of this person, Brian, can you follow up with them?" "Sure, no problem." So now, we know exactly what's going on but now it only takes about an hour and a half and it's getting fed to us a different way.

Michael: Interesting. And so, opportunities meeting, everybody is in. Who's in this weekly operations meeting?

Brian: Now it's myself, Jarrett, Erin, and Mike. So, the four of us every Tuesday.

Michael: The four people in the leadership positions.

Brian: Yep.

Michael: Okay.

Michael: And just out of curiosity, how do you even keep track of all this stuff? You said like clear objectives, keep a running tally, I hear you, I mean this with the utmost respect, I'm going to guess you're not the one that's the rigorous note taker and assigning everybody to-dos at the end of that meeting?

Brian: That would be a very correct assumption.

Michael: So, how does that work? How did you make that work for yourself?

Brian: So, that's Erin's role and...actually, Erin just had a baby and she was out on maternity leave and Mike took that role while she was gone, which was really a good experience for Mike, he might disagree with that, to be able to see the inside of the business and all this stuff we deal with. And so, now Erin every Monday, she sends an updated...it's just a Microsoft Word document like, "Here's where we stand with marketing or with hiring," or, "We're going on this issue for this performance improvement plan." Whatever the topic is, Erin now keeps a track of it and updates it every week, so every Tuesday morning, we go through it.

Michael: Okay.

Brian: And everyone leaves that meeting with a to-do list. And it's sort of where we have our big ideas, we kind of flush them out at a leadership level, and then decide whether they actually deserve the air that they're getting.

Accelerating Firm Growth By Leveraging Centers of Influence [54:09]

Michael: So, in the background of all of this is, as you've kind of highlighted a few times, this torrential growth phase is occurring as well, which is in part of what's making this so painful. It's not as challenging when you "just" have to service the existing clients, it's a lot harder when a whole bunch of new ones are coming in because new clients take so much more work than existing clients between onboarding and new plans and building the relationship and all the additional meetings upfront. It's just like much more intensive, so it just amplifies all the pain. So, where's all the growth coming from?

Brian: So, the firm I was at before this, I had a mentor and he showed me...he was really big into the advisor marketing and COI marketing. So, I worked for that company for five years. In that five years, I met with 285 accountants, tax attorneys, and bankers, and that sort of thing just to network. Now, as you well know, that's not the most exciting crew to hang out with a lot, to be talking about taxes all the time. That firm was a life insurance firm, so I was going to all those people to try to sell huge life insurance policies for people that had estate tax problems. Well, all the accountants were like, "Well, you're a nice guy, I like hanging out with you, I like to golf with you, I like to have lunch with you, but I don't have anybody that has $50 million, $100 million, $150 million of net worth."

So then, we were able to go back to them and talk about planning, and saying, "We're actually doing personal planning," and now we started showing them exactly what we do. And we've gotten more sophisticated in this business owner market of really helping business owners. I do think our industry isn't great at helping business owners as a whole. Now, that's a vast generalization, but for the most part, everyone is just kind of waiting and they're like, "Hey, did this guy sell his company? I want to get involved now."

Michael: We like liquidity events of small business owners sometimes more than the actual small business owners.

Brian: Exactly. So, we do start up 401k plans all the time. We don't make a ton of money on them but we want to be a resource for these accounting firms. So, that was really one of the big things that...that really got going and once we got our process well defined, the accounting firms really started to be able to see that and the attorneys really started to see that and really be able to feel comfortable sending complicated cases. I started asking them for their most complicated cases like, "Hey, we like really tricky stuff," and then we started...we talked to them about how you have two brains on their team. You've got this, "I'm the behavioral finance guy," I draw horrible drawings like our friend, Mr. Richards, except his are much better than mine.

Michael: Carl has a lot of years of Sharpie practice, you just got to get the reps in with the Sharpie.

Brian: My claim to fame is I can write and draw upside down. So, people think it's very impressive, which I always say that qualify me here.

Michael: When you're doing that across the table and you're drawing out from the client upside down in reverse, it is pretty cool.

Brian: Yeah, it is, and I actually have people ask me if they can keep the drawings and it always makes me feel great about myself. We really became...we got our messaging very clear about who we wanted, who we can help, and how we can help them. And then one of the things that we did is I actually would invite law firms or I would invite accounting firms and we would do a case study with an actual...with one of their clients and say, "This is what we did, this is how far we go into the weeds with their planning, this is how we help them qualify for the Affordable Care Act subsidies, even though they're worth $4 million," or whatever. We really invited people in and had them really experience exactly what we do. Go ahead, sorry.

Michael: Talk to me about that a little bit further because I'm intrigued by this. So, you take a joint client you've already got with them, or you ask them for a hypothetical client... "Hypothetical," it might actually be a person. You do an existing client, or you take a hypothetical client and say like, "Let me actually show you the planning strategies and the work we would do for this person?

Brian: We've done both but it works better when you have, "Hey, so and so, you referred me this client, let me show you exactly what we did," and we kind of like peel the onion back. Now, obviously, accountants really like to get into the weeds and they want to see all the stuff that we did behind the scenes, they really want to see the guts of everything. You don't want to see laws and sausages being made. Well, they do and we'll show it to them. We'll talk high level and then we'll say, "Let's get into this and really go..." And we just have lunch or we do it over a happy hour, and then they go, "Oh, wow, that's different than what I've seen before, I haven't seen people go to that level of detail."

Michael: So, you'll take some client that was referred to you and I guess since it's literally a mutual client, we don't necessarily have the same sort of privacy issues. You're already doing their tax return, you see all this stuff, so it's like, "You're going to know what we did but let me just talk you through how we actually did it, what our process was."

Brian: Exactly.

Michael: What do you bring to that? Do you literally bring the client's financial plan? "Let me show you the plan we made for them and what we showed them?" Or are you yellow padding out, "Here are some of the things we did," and just talking through the strategies? What do you bring to this case study session?

Brian: I would sort of make the analogy. It's like a football film review, right? Where we have a Telestrator and we're bringing their financial plan up and we're talking about specific things that made us make decisions about a recommendation, right? Oh, well, COVID happened and the market dropped, and that guy sold his business. So, we did a tax-loss harvesting that netted him a $1.5 million tax loss that he was able to offset some income tax with it. That's why we did that strategy and they go, "Oh, okay, that's interesting, I haven't really heard anybody talk about that. If you really talk about planning to those advisors, that's what they care about. I think sometimes the bar is set so low with our competition that they're just talking about investments and we'll go through an entire review and we won't even talk about investments at all. And I think that really lends itself to accountants and attorneys, I think they really enjoy that.

Michael: I find there is a phenomenon for a lot of us in the planning world that we get so used to our planning process and depending on what your marketing is, often when you're talking to prospects, you get compared to other planning firms because they're kind of looking for planning and they search around. They're probably going to Google their way to a couple of other firms that you likely know as well. And so, I found a lot of the time, we put this pressure on ourselves of we know what our planning looks like, we know some of the firms that prospects who search online are comparing us to. And I think sometimes we just forget the average, the true average financial advisor is not in that crew, it's not in your crew, it's not amongst the firms that you tend to vision as your peers.

It's an unfortunate reality for our business but the actual bar is quite low, which means the average is a lot lower than most of us realize. And when all you do is talk to your clients and the people who have sought you out who tend to be seekers and find other good firms like yours, that's why they reach out to you, I find sometimes we get a distorted perception on what the average experience of a client with an advisor is. CPAs and attorneys, though, interact with lots of clients who use lots of advisors, they understand what the average really looks like, which means a lot of things that we in the planning-centric world think are "normal" and table stakes actually are not when you show that to attorneys and accountants that see a more representative sample than we see ourselves.

Brian: It really is a shame and I do sometimes talk too poorly of our industry as a whole. But you're still right, the bar is set so low. We have clients that...we'll have a referral from an accountant and she'll say, "Yeah, he was dealing with this advisor, this client was dealing with this other advisor, and created $157,000 worth of capital gain taxes and never told me so it was all a surprise to me when we got the 1099." We literally will just email them and say, "We're thinking about doing this, what are your thoughts?" And have them a part of the process. It's a better solution for the client, it's a better outcome for the client, and to have that relationship with the accountant goes so far.

Michael: So, how do you set up this case study process? Is it just, "Hey, anytime we get a referral from a COI, we're going to go back to them and show it?" Is it more of, "The first time that we get a referral with a good experience, we go back and do one of these case studies for them but then once we've done it, they kind of get the gist and we don't have to keep doing this?" Or you do have to come back every year or two or three? What's the actual cadence and structure of how you do these case studies?

Brian: I would love to tell you that there's a well-defined process but when you deal with most of these things in my brain, that's not accurate.

Michael: So, Mike is working on a process but...

Brian: Exactly, exactly. And when he says, "We're ready to go," I'll set it all up and make sure that it's a fun time. But what we typically will do is more once we get a complicated case, we will invite not only the referring accountant, but their staff and their team to come in and say, "Hey, we'd love to invite you into lunch and kind of walk through the XYZ client case with your team," so they can really get a better understanding of what we do.

Michael: So, you might invite two, three, five, seven people over to lunch and walk through this case study on your screen. This isn't necessarily just a one-on-one with the accountant who did the referral?

Brian: That's right, and we have the client's approval to do that because they've already given us the authorization to share information with the accounting firm. So, yeah, it's a pretty seamless thing. And we don't spend an hour on it, we basically go through it for 10-15 minutes and answer any questions but I do think that it does help to see what a real planning looks like.

Michael: So, you've got this case study example, which I'm imagining once you get a referral going from someone, you show how well it went, you show what you did, they start seeing how different you are from every other advisor they see because they actually know where the averages because they've seen it, and they'll see you as above average so that starts attracting more referrals. So, is that the whole engine of the machine? Are there other things in what's kicked off this huge growth cycle for you over the past two years?

Brian: No, I also think that the level of sophistication that we've been able to provide to certain clients, as our clients have grown, we have too and our capabilities have grown. And I think once we have clients that go through major liquidity events or they go through major planning events in their life, and they turn to us and we're able to help them and guide them through and provide them a solution, anytime someone's going through anything similar to that, they refer us to their friends or to their colleagues and say like, "Hey, I was going through that same thing." So, last year, we had a client who sold...he was part of a firm, they sold, they had a liquidity event, and he was a senior partner. Well, then he referred the junior partner over to us and we helped her go through all of her planning. She basically called us and said, "Hey, I just want you to do everything you did for him."

And it was a significant client that we were able to help and being able to show sort of your depth and your strength, and I think it really does help that they don't see me pushing every single button along the way. We really tried to educate our clients like, "Hey, if you have a question about this, call Jarrett or call Mike. You know you shouldn't call Brian if you want to go through the cash flow statement on your eMoney." Right? "If you want to figure out...if you want to go play golf, if you want to talk about you feel weird about a decision that you're making emotionally about your money, or you don't understand something that Mike or Jarrett said, call Brian." So, I think it's really being able to let them understand that we have these sophisticated solutions that are really planning-oriented, that have really spurned the growth to really open up the referrals.

How RiversEdge Structures Fees [1:06:51]

Michael: And so, help us understand as well just what are you doing that's so different and unique around business owners? You had said like part of the momentum is you're getting more focused on small business owners. And as noted, a lot of the industry really doesn't actually want to work with small business owners, they just want to work with immediate post-liquidity events with small business owners because that's when dollars are in motion. So, what are you doing for small business owner clients?

Brian: So, I think the one thing that we can all agree on that everyone hates is paying too much in taxes. We start talking to them about tax planning and we start...one of the first dominoes that we have fall with our business owner clients is, are they using their 401k efficiently? Why not? And should they add a cash balance plan? And we start talking about that. We had a couple of dentists in here and we started showing them the projections, the one dentist is in his 60s and getting ready to retire. And we say, "Hey, you could put $300,000 into this plan pre-tax," and he goes, "Why isn't anybody told me that before?" And it's really focusing on relieving the tax part as sort of the first domino that falls. And it's just doing high-level planning, we're really going in and we're analyzing tax returns for people, not the same way that a CPA would, but we're really looking at their tax returns and looking for opportunities to save them additional taxes. We're fixing problems that they've had before, we talk to people...I say we tell our COVID story all the time about tax-loss harvesting because that's the greatest tax-loss harvesting opportunity of all time.

And if your advisor didn't help you through that, that's a problem, they should have been able to help you with that, especially when you start talking about the income that some of these advisors...these business owners have. And then I would say, our desire to help business owners from their entrepreneurial start all the way through their liquidity event and be there for them every step of the way, we have a place for everyone. We have a place for someone that needs advice and can't get it because they don't have any money. So, we just charge them an annual planning fee and we work with them to help them grow, start adding benefits, start introducing them to a team, and then we build a team for them and help them. So, the planning we're doing for people that are doing real planning isn't so special but again, it does come to the fact that a lot of the advisors aren't actually doing planning at all, let alone at a sophisticated level for business owners.

Michael: And so, what does this look like from a business model perspective then? You had said you've got an annual planning fee for early-stage entrepreneur folks, or are you all planning fee-based? Are you also AUM-based? How does this come together?

Brian: Yeah, so we have a hybrid model of how we charge our fees and we have three ways that people can hire us. We have a one-time-only financial plan, sort of like...I call it our MapQuest model. You come in, you say, "I want to accomplish these objectives," and we hand you a financial plan and say, "Here, you go implement this yourself." It's sort of for someone that is a DIYer that will never let someone manage their money, they just want the planning, they want to do a planning checkup, and we just charge a flat fee for that. That fee could be, depending on the complexity, 1,500 bucks all the way up to $10,000. I would say it's probably our average fee is between $2,000 and $3,000 for that. Then we have an investment management-only service.

You leave your job, you have $400,000, $600,000 in your 401k, and you don't want to manage it because you don't know how, you don't care about planning, you just want to have someone babysit your money, we charge an asset-based fee for that annually. And then we have private wealth management. That's annual ongoing planning where we redo the plan every year, we coordinate everything with your advisors, you have a whole team of people, at least typically two CFPs are working on your planning at all time plus a CSA, and then we charge an annual planning fee for that as well as assets under management depending on the size of the account. We typically waive our planning fee at a certain asset level, that's typically $3 million.

Michael: So, in terms of the investment-only model, I'm presuming then that's pure AUM because you're not doing the planning stuff, so it's AUM. So, what does that AUM schedule look like? I'm sure it's got some breakpoints and such but how does that play out?

Brian: On the low end, we would charge...so we're on Schwab platform, we use mostly ETFs, so we get clients to really focus in the all-in cost of their portfolios. So, I think our portfolios, it's like 8 or 9 basis points, the internal expenses. And then we charge somewhere between 1 and 1.3, depending on how much money it is. Once it goes above a million, it gets sort of that standard under 1% type of deal.

Michael: Okay, so starts at 1.3% on the low end, you get to about 1% by a million and tiers down from there?

Brian: Exactly, yep.

Michael: And your all-in cost is not that much higher if the average internal expense ratio is single-digit basis points.

Brian: Exactly, and a lot of times we'll do an analysis and say, "You're at XYZ company and, yes, you're paying 1% to the advisor, but you're also paying 90 basis points in mutual fund costs." And it is amazing how no one...not that they should, but most clients have no idea that that's going on because of those buried expenses.

Michael: So, ironically, we charge similar or slightly more than your existing financial advisor, and we're going to cut your portfolio cost by 40%.

Brian: Exactly, exactly.

Michael: And then how does it work on the private wealth management side? Is that a different AUM schedule because there's also a planning fee? Is that the same AUM schedule and just a planning fee on top for the extra planning work?

Brian: It's typically slightly less. It's typically slightly less depending on their complexity.

Michael: You mean the AUM fee is slightly lower, but then you've got a planning fee?

Brian: Yep.

Michael: And how does the planning fee work? Or where do you set that? How do you structure it?

Brian: So, it's really based on complexity, and we've created a menu for what I would call our regular type of clients. And what I mean by that is retirees, executives, or young professionals, right? We kind of know that if they have two kids, they're 40 years old, they're making $400,000 a year, and they have 600,000, that's going to be...call it $2,000 to $3,000. Candidly, we really struggle with how to price our business owner clients. So, we've tried to come up with all sorts of formulas like, "How many businesses do they own? Do they have a 401k?" And I've even tried to create an Excel spreadsheet that spits out this fee. But what we really do is a lot of times now, when we deal with a client, I say, "Listen, I can't even..." In the first meeting, "I can't even guess how much this is going to cost. Send me all your data and then we'll give you a proposal on what we think it's going to cost." And then me, Jarrett, and Mike...and Mike and Jarrett are typically the ones doing the work, will say, "This is going to take this amount of time, we think we got these issues here, it's going to be 7,500 bucks."

Michael: And I'm just curious, how do you present that back to the client? Are you literally writing formal proposal documents that you're sending out to them? Or do you just kind of follow up and say, "Hey, we analyzed a fee, and here's what it's going to be?"

Brian: Yeah, it's definitely more B, we don't have like a full proposal software. I usually say it's going to be somewhere between $5 and $10 grand because I can get it that close, right? But then I'll come back to them and say, "I was right, it's actually going to be 7,500. Yeah, we spent a lot of time in the beginning of our relationship, Jarrett and I, getting me to not get us hired for less money than we should. I was just trying to get yeses and I was discounting everything like crazy and he's like, "Hey, man, you're not the one actually doing the work, this is a lot of work."

Michael: "Please pick up my fee a little bit what you do on my time."

Brian: At one point, he sort of pounded his hand and he's like, "I'm going to show you all the work that goes into this." I'm like, "It seems like a lot." He's like, "Yeah, this took me like 12 hours to do and we're charging 1,200 bucks for it," he's like, "That's not right."

Michael: So, as you structure this, I get it for some of the upfront work, but is this an ongoing annual fee or just a one-time to do the plan initially?

Brian: If they're an ongoing private wealth management client under that limit, under that $3 million, we will charge that every year and we redo their financial plan every single year.

Michael: Okay. And so, clients maybe $2 grand, $3 grand, as much as $5 grand or $10 grand for a business owner with more complexity. Then they've got an AUM fee alongside it and just at some point, when you're north of 3 million of revenue and by then with breakpoints, you're probably 20,000 to 25,000-plus in advisory fees in the first place, just we waive the last $3,000 planning fee for a 25,000 revenue client.

Brian: Exactly, it's sort of like there's enough revenue there now that our planning team can do that.

Michael: Okay. And just how does that work mechanically? Are you billing the fee right out of portfolios? Do you separately bill the planning fee?

Brian: Yeah, we've gone through sort of a...we've definitely gone through a change with how we did this. We used to do monthly fees automatically debit out of the account and I felt like that was too nickel and dime-ish, like we're charging 1,200 bucks a year at $100 a month clip for someone that has $2.3 million seems a little insane. So, we just do it through BluePay now and we just send them an invoice when we do our planning meeting.

Michael: And so, the client gets an annual renewal fee when you deliver the annual financial plan?

Brian: That's right.

The Surprises And Low Points Brian Encountered On His Journey [1:17:05]

Michael: So, as you look at this journey of how the firm has evolved and the ups and the downs along the way, what surprised you the most about building an advisory business?

Brian: Like I said earlier, I didn't ever expect to be running a business, right? I expected at some point to have a planning firm. But like I said, we're really a business that happens to do financial planning. So, I really underestimated how hard this would be. I thought once I got through those first brutal years and I started being an advisor, getting some good clients, started building that AUM, I'm like, "You know what, this is fun, I'm enjoying this." And going into now running a business, I was really surprised at how hard it was and how many emotions are involved in it. The roller coaster that business owners go through is real. That is real. If you could have seen me back in the beginning of 2021, I was really going through it. But the thing that kind of helped me with, I'm a huge Philadelphia sports fan and the Sixers tanked for a number of years and they kept saying, "Trust the process, trust the process." In sort of channeling my inner Sixer fan, I've realized that you have to enjoy the process of building the business.

And once I had sort of that awakening, I was like, "You know what? This is actually fun, this is an opportunity." It's not awful. it's not like, "Oh, my God, I have to deal with this," it's like, "All right, this is a puzzle and this is kind of like a game I get to play and this is my job." So, now Jarrett and I talk about moving into the future, people say, "Well, what's your number?" We go, "We want to get to $1 billion." And they say, "Why?" And we go, "Because we think it'll be fun to be that big, we think it's going to be fun to grow a firm that large, we wanted to be able to dominate Delaware and it's just a fun thing to do and we're actually really enjoying it." It's not about making money anymore, it's more about the process of building a firm. So, to have that shift, I think...it's sort of a long-winded way to say, to have that shift from, "Oh, my God, I'm a business owner," to, "Wait a second, I'm a business owner," I think was a really surprising turn for me.

Michael: So, what was the low point for you? You had said you've actually been doing this for 20-plus years. So, maybe it's recent or across the whole journey, what was the low point for you?

Brian: So, there's been a couple, there's been a couple that I can really point to. So, when I left my firm to start my own firm, I was broke, and my wife had just left her job as a teacher. So, basically in the span of 18 months, I had just nightmarish things happen. And I remember having little kids and being like, "Oh, my God, I don't have any money to help them." Right? And having that real life, "What am I doing?" And then I decided, "You know what I'm going to do? I'm going to borrow more money to start my own firm."

Michael: That would be the optimism thing kicking in there, right?

Brian: Yeah. When I was getting ready to leave my old firm, I hired sort of like a business coach who is also a psychiatrist. He's like, "Go take a job at a bank, make some money, save it, and then start your firm in five years." I was like, "I don't think I'm going to do that." But I actually would say, in April of 2021 when Shiv decided that he was going to leave and then our marketing person after we tried to save her said she was going to leave, and we went from eight people to we were about to be at three. I said, "What are we doing? What's going on?" People say all the time, "It's not business, it's personal." You can't help it, it's personal. Everything's personal to me. I think that was really the low point where I thought, "Man, we are on the wrong track. We worked so hard to get to this point, now it's all falling apart and I'm not sure that we're going to survive going to...we're not going to make it to the place that we want." When I had that realization that, "Maybe we should totally back off what we had pledged that we were going to do," that was really depressing to me, I felt like a failure.

Michael: And I guess the one ironic saving grace to it, I'm just thinking purely from the business end, at least when all this...or when half the staff leaves and you still so far have the clients, you do have a lot of free cash flow where $120,000 went to recruiters to plug this gap. So, I'm just thinking for a lot of firms like, "Hey, we got to get some growth going, let's spend six figures on recruiting," that would blow out their numbers. But the silver lining of having a whole bunch of people quit is we do have the money to spend on recruiters now.

Brian: No, and I actually think that's really the real reason why we weren't sort of completely despondent about our situation. We go, "Well, people are still hiring us, now it just means we have to do more work until we can find other people." So, I think the thing about owning a small firm, as I'm sure you can relate to, is you don't just get to wear one hat no matter how much you want to, right? One day, you're an investment guy, one day, you might be an insurance person, and now you're a financial planner and now you're HR. So, it's like, "Hey, we're ready to wear all these hats until we survive," but it was a real low point. And without that revenue, that was like our one beacon of hope in the darkness.

Michael: The fact that there were still recurring revenues?

Brian: Yes.

The Advice Would Give His Fomer Self [1:23:00]

Michael: So, what do you know now you wish you could go back and tell yourself about this journey 5-10 years ago?

Brian: I think it's two things. The one thing...I spent a long time in the insurance business, addicted to the commission is a thing. And I think I wish someone had come to me when I was 21 years old and said, "You got to get off the commission juice and get on to the recurring revenue stream faster." Right? So, that going back a little bit. I took 10-12 years of my career doing it the wrong way and it's stressful. I always said, "When you're in that commission world, it's like digging a hole, you finish a case, you get paid, you fill the hole in and then the next day, you grab the shovel again." So, I think that would be the first thing.

The second thing is the faster you can find good people to do the things that you don't like to do where you fully trust them, the better off your life will be. I think there's this real issue with...as an advisor starts to own their own firm, they go, "I'm not ready, I don't have the cash flow to hire someone to help me with this task." "I hate doing X and I know I need someone, but I don't have the money to do it." No, there is an ROI on that money every single time. If you hate doing it, so taking it off your plate will help the firm make more money and it's really difficult to see that when you're going through it and you're a little bit worried about cash flow. I would say that would be the one thing that I wish someone had told me faster, and it's usually better to be overstaffed than understaffed if you have the cash flow.

The Advice Brian Would Give To Newer, Younger Advisors [1:24:35]

Michael: So, what advice would you give younger, newer advisors looking to come into the industry today?

Brian: I think our industry does a pretty bad job of helping young people get started and what I try to get them to...when I talk to a younger person, I try to get them to understand there's a building your book and you owning your clients' side where you're a marketing person first and a planner second, and then there's the planner first and not have to worry about that. So, I try to get them to understand that there are really two sides of this coin. And the faster you can figure out which one that you belong on, the better off you're going to be, and then just get fiercely dedicated to that. There are firms that allow people to be planners and it's really difficult to find. A lot of the industry is just, "Hey, how many clients can you bring in? Oh, not that many? I don't really have a use for you." I think there's a real spot for a certified financial planner that's a really good planning person to help handle and manage clients so that the rainmakers can go find more people. And the faster they can find a good firm to do that, the better off they're going to be.

Michael: And how do you guide them to try to find those firms if they're looking and having trouble finding them?

Brian: I try to talk to them about RIAs because I think you're more likely to find that role at an RIA than you are at BD shop, especially an insurance BD shop. And I don't think the public or even people in our industry really understands the difference between the firms, so trying to explain to them that you really want to go to an independent firm that's doing financial planning, Try to find the largest RIAs in your area to go get an internship with or try to get back connected to those people through your other channels. I think RIAs are the best way for someone that doesn't want to sell to find a role for themselves.

Brian’s Plans For The Future [1:26:43]

Michael: So, what comes next for you guys?

Brian: Well, we are continuing to grow. I think what we realize is that we want to keep growing and we don't want me to be the main face all the time finding new clients. So, I think the way that we...where we're headed is we're going to segment our clients by what they do or who they are, business owners, retirees and pre-retirees, young professionals, and corporate executives. And we're going to...I know a lot of firms niche up and I've listened to your podcast where you have the guy that's an optometry expert and you have the guy that's the Chick-fil-A expert, I'm like, "Man, that's really cool." But for some reason, we keep getting referrals to people that are good clients but don't fit in one box. So, we want to create a platform for everyone to be able to get the advice and we want to hire to that. So, we're going to start building teams, CFP, CSA, and have them specifically designed for a certain group of people where we're going to have Mike work with our corporate executives and we're going to have Shawn help him. And then once those buckets start to overflow, then we're going to backfill with another CFP and another CSA, and we're going to keep doing that the whole time we grow.

Michael: And so, then you might end up with multiple teams because one just focuses on retirees, one just as business owners, one just as corporate executives, and so forth?

Brian: Exactly. Jarrett absolutely hates when I say this, but we're like a real company now, we're going to have departments.

Michael: Oh, man, departments.

Brian: Yeah, where you're going to be the corporate executive department. And we really foresee...whether that's two CFPs and two CSAs or 12, that remains to be seen, that's really going to be dependent upon the growth and the business development side. But I do think we are going to get there, we're going to have multiple teams operating in that.

What Success Means To Brian [1:28:50]

Michael: So, as we come to the end, this podcast is about success. One of the themes that always comes up is just the word success means very different things to different people. And so, you're on this wonderful path for building a successful business, as you framed it, "A real company now." The business is on a good track. How are you defining success for yourself at this point?

Brian: Yeah, I think the way that I define success for me actually relates to our clients too, so it's helpful. So, I've listened to your podcast for a few years now and I thought about this question and how I would answer it, and it actually hit me recently, like a week ago. So, I would answer it this way, it would be to have enough money that you don't have to worry about not having enough money, but also and more importantly, have enough time that you don't have to worry about not having enough time.

Michael: Well, I like that. So, have enough money that you don't have to worry about not having enough money and have enough time that you don't have to worry about not having enough time.

Brian: Exactly. And that means different things to different people, I think that's a translatable and scalable type of idea.

Michael: Well, very cool. I love it. Thank you so much, Brian, for joining us on the "Financial Advisor Success" podcast.

Brian: Michael, thank you so much for the opportunity, it was great to talk to you.

Michael: Absolutely. Thank you.