#FA Success Ep 281: Leveraging Tax Planning To Create Unique Value For Small Business Owners, With Duncan Kelm

Resources Featured In This Episode:

• Duncan Kelm
• Arrow Point Wealth Management
• “Navigating the Tax Implications from the 2020 PG&E Fire Victim Settlement” by Duncan Kelm
• Duncan’s character insurance (download)
• Duncans’ single-page fee schedule (download)
• Duncan’s one-page financial plan (download)
• Holistiplan
• eMoney Advisor
• AdvicePay
• Loom
• ProConnect Intuit
• Upwork
• Fiverr
• LPL Financial
• Claiming The Home Office Deduction After A Work-From-Home Pandemic Year
• “Atomic Habits: An Easy & Proven Way to Build Good Habits & Break Bad Ones” by James Clear

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

Full Transcript:

Michael: Welcome, Duncan Kelm, to the "Financial Advisor Success Podcast."

Duncan: Michael, I'm excited to be here. Thanks for having me.

Michael: I appreciate you joining us today. And I'm looking forward to talking a bit about the dynamics of getting deeper and deeper into the tax planning world in the advisory business. I feel like this has just been a slow and steady, but very strong trend in our advisor space that...we had all this pressure over the past 10 years of the robo-advisors, which the industry tried to make the case like this is fee compression, and we're going to have to bring all of our fees down. And in practice, there's basically been no fee compression measurable anywhere in the advisor space. But the pressure was on to say, "Well, if you're not going to trim your fees, then you better do enough to justify your fees." And I feel like it has led to this sort of value-add pressure, like, "What else are we going to do to justify our fees? What else are we going to do justify our fees? What else are we going to do?"

And for so many firms that's moved in the direction of, "Well, let's do some tax planning, or tax work, or outright tax preparation." Because everybody's got to spend money to get their taxes done. I can point to a hard dollar expense and say, "I did that for you." And no one really likes paying taxes. So, being able to point to, "I saved you this many dollars in tax savings," is a super concrete way to say, "Here's some value I brought to the table." And I know you've lived some of this journey in doing tax planning work for clients, expanding in a tax preparation for clients, getting your enrolled agents so you can go down that road. And so, just excited to talk about these dynamics of, how valuable is it to do tax planning? What do we really do? Where do you draw the line of, "Okay, this is enough value beyond this. I'm just doing busy work I don't really want to do." And how tax evolves when you add it into your advisory firm?

Duncan: So, in my opinion, I think tax planning and financial services marry up perfectly to offering what I would consider a full suite financial planning service. So, you hit on a few of those topics, but I think they're really worth mentioning. First of all, if somebody is willing to pay a financial advisor, they're very likely not doing their tax return on a do-it-yourself tax service. They probably have a tax advisor in some capacity.

Michael: It's a good point. Because if you're delegate-y enough to delegate portfolios, and wealth management, and just the cost that does entail, you're probably not trying to save the last few bucks with TurboTax. I mean, I'm sure there's exceptions. But as general rule, if you're delegating your portfolio, you probably delegate your taxes.

Duncan: Exactly. And if you think about the type of clientele that generally financial service advisors want, high net worth, complicated situations, trust, small businesses, multiple businesses, multi-generational estate planning. All of that hits emphatically on very specific parts of the tax code. So, with us, and what we've done, and what I have tried to create with my tax business, which we keep them separate, and we can get into kind of why in a little bit, we really focus on small business owners. That's the part of the tax code that I would say I am knowledgeable in, certainly not an expert. Anybody who proclaims to be an expert in tax, in my opinion, is very likely full of it. But it marries up so well because it's an introduction to the type of folks that you want to work with on the other side of your business. You can demonstrate value. It's quantifiable value, right? Nobody's ever upset when you say, "Hey, did you know about X, Y, Z? We've got a few more months in the year. If we were to do this, it's probably going to save you $8,000 to $9,000 in taxes." "No, we probably shouldn't do that." Right?

Michael: Yeah, said no one ever. Yeah.

Duncan: To me, it's an easy sell. And then you've delivered value, you've showed a knowledge competency. And then, if you're opening the relationship with tax, which, again, we'll get into this, but that's kind of where a lot of our new business has been generated from, it expands and you're giving opportunities to move beyond that. And whether that's full suite financial planning, assets under management, discretionary investing, all of these things, you kind of get a bite at the apple, usually, if you do a good job on the tax planning side.

How Duncan Approaches Tax Planning As A Value Added Proposition [07:00]

Michael: So, how is this translated for you in practice, or just how far down this road you go? Because I know the challenges for a lot of firms...I sort of think of this on a spectrum. So, at the one end, "We don't get into tax stuff, we don't do that here." The next is, "As I'm giving you advice in other areas, there are at least some tax ramifications to them. And I try to give some advice in those areas. Like, we're contributing to retirement accounts, so we'll talk about Roth versus traditional. And we're managing your portfolio, so we'll talk about capital loss harvesting."

The next stage is to be sort of a more proactive tax planning. "I'm going to buy Holistiplan, and I'm going to plug in client tax returns, and I'm going to try to really identify proactive tax planning opportunities. So, I got to do some additional work, I probably have additional client meeting, but hopefully, I have opportunities to demonstrate additional value." And then you can go even further out in the spectrum of, "We'll just do your whole tax return. We'll do the return, and then we'll have all your tax information since we did the return. And we're just going to package all of the tax planning into the fact that we're doing the tax preparation work."

And so, I feel like a lot of firms...we have this interest in doing more taxes, but where you draw the line on that spectrum is difficult, or everyone seems to have their own opinion about where you should draw that line. So, how far down the spectrum have you gone in this evolution?

Duncan: Good question. And I think, to everybody, it's going to be different. Right? For some people, tax is the bane of their existence. Thinking about tax, or the tax code is nothing they ever want to dream about. So, they're going to be on that spectrum that says, "Ask your tax advisor." We're on the complete other side of the spectrum. So, we do tax returns for clients. Some of them happen to be wealth management clients. We also just have returns that we do for purely tax clients. So, I really liked that third iteration that you mentioned. You had said refer kind of talking about retirement contributions, tax loss harvesting, being phase two. Phase three, the planning piece that you had mentioned, where Holistiplan is involved running tax projections. To me, that's where the eyes light up of the clients.

When I'm sitting in a meeting and we're talking through, "Well, you could contribute some low basis stock to a donor advised fund. And this will marry up nicely with the fact that we're doing charitable distributions from your IRA. And now we can drop your income below the 150 threshold, and you're going to get a stimulus check." Well, they start to get a little excited by that. It feels like they're winning a game, so to speak. A lot of this work takes specific action, though. And oftentimes, I've run into a couple different hurdles along the way. It sounds great in practice, "Oh, make these recommendations either go in and implement it yourself with a tax return, or just tell your tax professional to go do it for you."

In reality, the client will generally mess it up, or a telephone game will come and they won't be able to explain it quite clearly. CPAs and tax professionals have different views on different areas of the code, they may not totally agree, or be willing to put their license on something like 280A Augusta Rule, or something along those lines. So, where we moved kind of to the full spectrum of, "Okay, well, we're going to do tax returns as well." And we've tried to solve for that to the best of our ability. It was, we came up with these planning strategies. And oftentimes, we'd follow up in the new year with kind of our kickoff meetings. And some, or all of them in some instances, weren't even implemented.

Michael: So, give us more context for this, I guess. First just, talk to us about the size of the firm overall of clients, or assets, or however you measure. And then how many are actually engaged with tax services as you're doing tax preparation for clients?

Duncan: Sure. So, on the investment side, that's certainly a bigger business that we've had. We have currently $163 million under management, and does about the revenue you would expect from an AUM type business of that size. Inversely...

Michael: And how many clients is that?

Duncan: A hundred and forty-two households. So, we're close to about a million dollars per household. Obviously, there's outliers there, but that's generally, on average, where we would land. The tax planning side of piece is maybe 15% to 20% of that revenue. Tax credit work is actually just because of certain tax credits that are available right now on par, if not greater than the wealth management currently, that'll change when some of these stimulus things expire, etc. But there's a lot of revenue on the tax credit filing side of things. And then actual tax prep, kind of treat it like milk in a grocery store. And it's a cost of doing business. If we want to implement some of these complicated or strategic tax plans, we probably need to be making sure that we're the ones doing the return and filing return.

Michael: And so, how many returns are you preparing in practice? Are you doing 142 returns for 142 households? Fewer, more? Because you've got tax-only clients that aren't doing wealth management? How far have you gone down the tax preparation rabbit hole?

Duncan: Good question. And I think you might get the perception based on how I just described it as milk in a grocery store. If you're not making big margins on it, maybe you don't lean into it as heavily. We probably do about 55 returns, and have close to 80 tax planning clients, probably. And in some capacities, because I have both these companies, and can kind of move my wages and time around between them, I can offer the tax planning piece as a service to the financial planning side that is very in depth, diving into prior tax returns, looking for tax credits, that sort of thing. And kind of bake it in if we're going to be compensated well enough on the wealth management side.

Michael: So, what determines who you're doing returns for versus not? If you've got 50-something returns, but 142 households, is it just whoever wants it who doesn't already have an existing CPA? Is it, "We try to do it for our top clients as an additional service." How have you targeted who's getting returns?

Duncan: We generally do not advertise that we want to be doing the tax prep work. So, if they ask us, we say, "Yes, we will, and we can." We try and offer, to at least our top 50 households, ongoing tax planning service, and just a resource that they can either talk to myself or the CPA who works for my tax firm whenever they have a tax question, if they want to speak to us, and perhaps not their CPA who does their tax filing. We aim to market it as, "Hey, we're an additional resource. We have knowledge in certain areas of the tax code." It helps that the things we specialize in are small business, and the vast majority of our clients are small business owners, or previously were small business owners. But it's actually not something that we're out banging on the door telling, "Hey, leave your CPA. Come with us. Let us take this over."

We have the conversations. We talk through, "Hey, have you thought of X? Have you thought of this, this, and this," as we do our meetings and our planning. And from there, if they bring up, "Well, my person is thinking about retiring. Would you ever consider just doing it? You have these ideas, and I don't get them from my CPA, or my enrolled agent, or tax planner." That's when we move forward and try and engage. It's a tight dance to walk because, in some instances, we have some really good referral sources that have been CPAs, that have referred business to my partner for a very long time. And now it's, "Oh, you're doing this also? Okay." That's one of the challenges that we've definitely had to kind of work through over the past couple of years.

Actually, as an aside, we're in Northern California. We had some pretty bad fires up here over the last few years, a lot of evacuations. And actually, in my home city, a lot of houses burned. I wrote a book on the taxation of the PG&E Fire Victim Trust. So, basically, I just wanted to do it for the community, and it's also, "Okay, this could be some marketing on the tax side." And I wrote, had it edited professionally through consulting, Upwork, and Fiverr, and those things, book cover, all that.

And I sent it out kind of as a resource, kind of as a marketing tool. It actually can still be downloaded on my website for free. I realized I spent all this time, I was trying to attract clients that I had no interest in. They wanted low hourly tax work one time, they had a quick question. They were folks who didn't build wealth long term, day by day, either through a business, or being highly compensated. They were granted a windfall, and a lot like a lottery, they just weren't the people that we want to do attract and build our company around it. It was a fun thing to do. It was something I'm happy I did, and proud to have kind of written that for my community. But that's an example of, "Ooh, this is going to drive a lot of tax business." And then it was “errrrrr”, screech the brakes. And I actually have 1,000 of these books sitting in the room next to me that I never sent out to a lot of people.

Michael: Because it was people were getting large dollar amount windfalls from the Fire Victim Trust, but they weren't necessarily people who had the mentality of the folks that we want to work with?

Duncan: Yeah, it's what you say when you're interviewing almost anybody, "Find your niche, find what you're good at, and run with it." Right? And we were moving well outside of our niche of small business owners, kind of the backbone of America, something we really love being independent, because we feel we're a part of that. And it was folks that never had a complicated tax return before, but here, here's $2 million, and it's broken into all these various categories of basis of your home, and loss of wages, and disability, and emotional distress, all taxed differently. And they're beating me up because I wanted to charge for my time to have a conversation. And I just...enough of that. After four or five times of that, I started to really dial back the marketing, and kind of go, "Okay. Well, maybe this didn't work."

Michael: Interesting. So, I guess, like a double-edged sword. I mean, you wrote it because there were people who are getting large dollar amounts, which in theory should be good prospects. It "worked" because you got to start interacting with some of them, and there were dollars out there. But then found, "These aren't actually the people I enjoy working with."

Duncan: Pretty much. And if you've been around any of these trust settlements before, they take years to settle. This was funded in 2020 with $13 billion. A lot of that is in Sonoma County, which is where I am. So, a lot of wealth is coming into this area. The problem is the folks that we would want to be working with tend to already either have a tax advisor, a financial advisor. They're already covered. And the folks that really didn't want to be attracting, ultimately, they were the ones that download the book quite often. And actually, I got a little perturbed because I wrote this to try and...for the community, "Hey, this is a resource. Free, take it." And yeah, it's a marketing tool as well. But the amount of other tax professionals and attorneys that downloaded it...I mean, actually, today, I think I had two CPAs download this book off my website, because I get an alert when it happens. It just kind of irks me a little bit that another professional is just kind of grabbing information and leveraging it to charge their clients.

Leveraging Tax Planning To Attract Prospective Wealth Management Clients [19:52]

Michael: So, then help us understand just where you are on the tax spectrum now. It sounds like you're doing the returns, you have a CPA on staff who's doing the returns, but you're maybe not in love doing the returns because you rather do the tax strategy work. But kind of like the milk at the grocery store, there's sort of an expectation that it's there, so you're into the tax returns after all. How do you see this playing out going forward? Where are you hoping to put the balance of it in the future?

Duncan: I think a lot of problems, ultimately, can be solved with cash flow and money, quite frankly. So, my vision of where this would go is ultimately on both sides of the investment piece. That'd be secondary, tax would be first. And it also opens up massive doors to wealth management. We brought in significant amounts of money because we had the door open to us, either with a business sale, or a consult that they were looking for "a specialist" on the tax side, and my name was brought up somehow. Sat down with them, and that resulted in millions of dollars coming in the door.

Michael: So, you actually have clients that are coming for tax first, and getting referred over to the wealth management business, as opposed to, "We're doing tax work for our existing wealth management clients."

Duncan: Exactly. It's a lead-based system that is fantastic, if you can put up with the threshold of wanting or actually paying for somebody else to do the returns.

Michael: And that's ultimately the path that you went. I guess, you were or you are an EA that was doing them, but said, "Okay, I got to hire someone to do them now instead."

Duncan: Yeah. At the end of the day, you can only do so much, and there's only so many hours in the day. And my priorities are my children, my wife, my family first. Business is fantastic and fun, and I'm exhilarated to be working for myself every day. And I like working hard. It's fun for me to work hard when I feel as if I'm getting the benefit, and I'm seeing the growth firsthand. At the same time, if it's something that you truly don't really enjoy, either solve for it or get rid of it.

Michael: And how do you price this? Are you charging separately for tax prep? Are you charging separately for tax planning? Is it bundled into clients of a certain size? How does the revenue side of all this tax work work?

Duncan: Good question. It depends on this level of effort, or scope of the engagement. If we're meeting with a business owner who's interested in kind of this tax planning component, and tax planning piece, there's going to be a set retainer, similar to an AUM fee, that's built around quarterly tax planning. "Hey, we're going to review your P&Ls as we close the books for the quarter. We're going to see where you are on your estimates. And then we're going to be looking at doing X, Y, Z. Maybe your wife has thought about, or your husband," not to be sexist there in any way, but, "your husband has thought about becoming a real estate agent. Well, you have five properties. Can I show you the benefits of him becoming a real estate agent in the next six months? Let's look into this, and then starting to implement that."

So, we have people that are higher touch, similarly to financial planning, or high AUM investment clients that are on a tax planning subscription service. And then it's hourly ad hoc work, either myself, CPA that works on my tax business. We'll handle tax prep, tax forecasting, tax projections. We've been getting a decent amount of folks with equity-based comp from the Bay Area we're a little north of the Bay, about 60 miles, who have a lot of questions about, "Well, what do I do with these ISOs I executed or might execute, and RSUs, and non-qualified stock options, etc.?" We tend to do the hourly work there. But again, I'm realizing more and more just doing it to make a decent hourly rate, if it's not resulting in business in other capacities, or the people that we specialize in helping, small business owners, it's probably better in the future just to refer them, or send them another direction.

Michael: And so, how do you...I mean, do you have plans of how you get more of the tax clients that you want? It sounds like you are getting a good amount of folks that are tax first, maybe wealth management second, as opposed to just doing tax work for existing wealth management clients.

Duncan: Yeah. And I think I'm probably portraying it in a light that's a little gray. We're getting plenty of business opportunities through the tax planning piece. It's the perfect type of people that we're looking for, small business owners. We've done well for a few local small business owners, who then are saying, "Oh, your person didn't do X. Well, maybe my person gave me these things, and it's looking like it's going to save me on some taxes."

I think the biggest selling point is forward tax planning versus retroactive tax prep work. And that's really when the eyes light up of these clients and business owners, is when we're sitting there going, "Okay. Well, if we go forward and do X, Y, Z, this means, ballpark, $20,000 in savings. Are you on board?" They get excited about that, it becomes easier to sell the next stage of services. And we're actually not really pushy on the services. I have my own sales style that I don't think would work if I wasn't in the situation I was coming into this business, which joining a partner and becoming a succession plan of partner and father, actually. It’s a way to sell that my sales strategy to win business and clients is below the value out of the water, to if they're comparing me to anybody else, or they're comparing our firm to anybody else, it's apples to pineapples, so to speak.

Duncan’s Process For Onboarding Clients And Incorporating Tax Planning [26:22]

Michael: So, then help us understand just overall what you guys are doing at this point for clients that you're serving. You've said, overall, you've tried to have a focus with small business owners. Obviously, you're getting a lot into tax planning and tax strategy opportunities with business owners. But ultimately, it sounds like the primary anchor is wealth management, financial planning firm. So, just how does this work in practice, when a small business owner says, "Heard about the firm. Interested in signing up and working with you, Duncan." What do you do for small business owner clients?

Duncan: The first process is downloading the situation. And sometimes that can take two to three meetings, usually asking for a lot of documentation. And what we do is try and get a picture of where is this person. What do they have in terms of assets, and cash flow being generated? And what's their objective? Once we have an understanding of that, that tends to transition into a financial planning engagement, where we do a deep dive. And we like to do a single-page visual that tries to lay out all their assets, and lays out the cash flow and tries to get them to understand, "Here's what needs to be doing what." I call it setting the lineup of a baseball field. And when we download this information from these clients, they may have seven insurance policies, and they've never really thought about it because their next-door neighbor and friend works for one of the insurance firms.

But when you translate it to a metaphor that says, "Okay. Well, first of all, if we do X, Y, Z, this is going to create tax saving. Second of all, we're playing with no pitchers and catcher right now. We've got a couple infielders, and the outfield's stacked. We got to revamp this and set the lineup." When you start speaking in analogies that they can kind of understand, that's, again, when we see the most value for these specific type of clients. So, we might engage with them on the tax planning piece that rolls into asset management, financial structuring of accounts, insurance review, pretty much anything that has a dollar sign in front of it, reviewing it. And then from there, once we have an objective and a driving point, we start to leverage some of the industry software that's well used as a way to monitor, control, and advise on how to move from eight outfielders, and set that lineup in a way that's designed to diversify, and ultimately try and win the game.

Michael: So, walk me through this just a little bit more step by step. I'm just trying to visualize what comes when. So, first meeting, I guess, is just broadly, "Tell us about yourself. And let's get to know you." Are they already a client? Are they still a prospect? Do they bring information to the meeting, or bring papers to the meeting? Are you just talking to get to know them? Where are we in the process?

Duncan: Sure. So, on the clients that are already existing wealth management clients, we already have access to all their tax returns. It's kind of a standard procedure that we either have their CPAs, or we have it because we're doing it. And that would be the start of an engagement. One, if we're meeting with a new prospect, we're going to have them explain why they're in the room. What are they looking for, what are they looking to obtain? We know where either it was a referral, or they heard one of our advertisements or marketing. And we know where they're coming from, but we don't know what the objective is. Once we have that objective, we start walking them through our process. And really what your question is, is, "Well, what's your process?"

The process starts by understanding what they're after, and downloading everything they have. So, if it's got a dollar sign in front of it, we want to take a look at it. Obviously, we are marketing ourselves as kind of specializing on the tax side of things. And that's one of our taglines. We are focused on risk adjusted after tax return. So, trying to market that as, "Hey, that's a benchmark that we need to be focused on." Once we download all that information, we move it into our planning software. We use eMoney. Really like some of the services they have. And where they fall short on a few items, we pick up with other software like Holistiplan, and actually my tax prep software. So, we download all the information. We get it into the software, we start identifying where there are problems, or things that we need to address either on the tax side, the wealth management side.

From there, we define a clear set of objectives by the client. And we explain the deliverables they're going to receive. One of the first deliverables comes from the tax side of the business. And that is me doing a deep dive into their last two tax returns. And based on what they have in their current tax year, plus the last few tax years, I present them 15 to 30 different tax considerations/strategies that we might want to look into. We meet for two to three hours. We go through them in pretty specific detail. And we tag the ones that they want to pursue further. If they have a CPA they're engaging with, we move and start engaging with them, explaining what we're doing, and how we're doing it.

Michael: Interesting. So, let me just pause you there, and understand this. So, initial meeting, why are they in the room? I you know you're referral, but why are you actually here? What's going on? You got something that made you ask for that referral, and come in. So, you're getting to know them, getting initial information. Are they bringing financial documents with them to the meeting? Or are you scribbling down notes as you have the conversation of what dollars, or where, and what they've got?

Duncan: No. Actually, I'm a big fan of digital as often as possible. And because we use eMoney, we try and use it as an aggregator. First meeting, to us, is not about, "What assets do you have? Where are they invested? Let's ACAT them over right away." We are a slow sales process that actually, from start of an engagement on planning, until we finally potentially move assets over, is probably a month-and-a-half process. With four meetings to five meetings in between, to make sure we feel comfortable that we can handle and have a great understanding of their situation, and they are comfortable with our process, and how we think, and how we will be communicating with them in an ongoing and go-forward basis.

Michael: Okay. So, how do accounts then get linked up? After the first meeting, you send them an invite, an onboarding to eMoney? Or is there a second meeting where you walk them through it? Just how do you start actually getting numbers in then?

Duncan: Yeah. It depends on the level of sophistication of the client. If computers are challenging, and you probably know that's a little age discriminating, but we're going to meet with them.

Michael: Comes up for some clients.

Duncan: Yeah, exactly. We're going to meet with them. And we will work with them to either enter it via statements manually, although we prefer to try and link if they do have the ability to get in to these accounts. If they are willing to, we set them up with a portal. We use Loom. I don't know if you're familiar with that software. Love it. We record, "Hey, here's the portal, here's the dashboard. Want to call your attention here. Let me show you how you're going to link these accounts. When you have time, go in. I'll get a notification that you've gone in and linked. If you have any documents that can't be linked, a trust or estate plan you want us to review, insurance products, here's the shared drive that's encrypted and secure. Please drop them in there. We'll get an alert, we'll take a look, and we'll start to digest, and download, and integrate that into the financial plan as we progress."

Michael: Interesting. So, is it literally a Loom video for every new client? Like, "Dear Jenny, so excited to be getting going with you. Here's the portal on how to do it." Or have you made the standard eMoney intro video, and you just get to send the same thing to every new client who's coming on board?

Duncan: Everything's custom. And that's part of the reason we probably only have 142 households. And we'll probably, unless we grow in our advisory practice, or bring on more staff, we'll never go above 200. Because the level of personalization is probably the reason that they were referred, if they were referred, in that meeting. So, everything is custom. And when we're selling the planning piece, it really truly is, "Hey, we're going to look at everything you have, and offer custom advice." You're not going to be getting just templated planning advice. So, that takes time. That's actually one of the areas, again, that's constraints for us, because if my partner and I are the two folks that can really do that type of work, unless we spend a lot of time to train, or get our staff up to speed on it, we continue to get pulled into these type of situations, and it's an ever-perpetuating cycle.

Michael: So, you've done the initial meeting. After the first meeting, they get the Loom video on how to start linking up their accounts, assuming we've determined they're tech savvy enough to be able to handle the Loom video to link up their accounts. So, are tax returns coming in as part of that as well? You're asking them to upload tax returns into the eMoney vault as a part of the, "Let's get you linked up and get your data uploaded."

Duncan: Exactly right. Yep. And we have systems that alert us. And then our team will let us know that it's there. Usually, integrated into Holistiplan, that's where we'll start to do some projections. Generally, I’ll incorporate it into my tax software as well, because I can run specific scenarios, depending on what's needed. I like having it in there.

Michael: And what is your tax software?

Duncan: ProConnect Intuit. And I chose it mainly because it's a cloud-based service. Intuit does a lot of good things. It's probably not the absolute most robust tax software out there. But it allows for virtual and remote collaboration, it allows for DocuSign, and a lot of other things that we try and do to really digitize and move away from, "Hey, here's all my paper statements, and what I did this year. I'll talk to you April 10th, so I can sign my text documents."

Michael: But I mean, this is your tax prep software, if they're actually going to become a preparation client? Or are you using this for planning alongside Holistiplan as well?

Duncan: Yeah, I use it as planning too. So, the way that the service works, because I'm a tax firm, and have purchased a certain number of returns each year, you can actually create returns. And as long as you don't file them, doesn't count against your number. So, I'm able to kind of run scenarios that maybe Holistiplan can't work through.

Michael: You can do more detail...basically, detailed pro forma tax returns. I mean, you don't hit the file button, you're not filing for them, but just you can do the whole return. So, what gets done that way versus using Holistiplan?

Duncan: Holistiplan is really good. You know when we first started talking about what phase are you in? Phase three Holistiplan, I think, knocks it out of the park. So, if you're talking about some unique strategies, or talking about maybe a cash balance plan and want to demonstrate what that would do, or Roth conversions and marrying it up next to the IRMAA bracket, and maximizing that, that's great. When you're talking about exercising ISOs and AMT, I know they're building out some of these features, but it doesn't quite do probably what's needed to be able to capture...

Michael: Yeah. Then you really want to model how that ripples all the way across the return.

Duncan: Yep, exactly right. So, for what I would say the more advanced pieces. And generally, that's the complex situation that a high-net-worth person probably has. We get it in there. We may not use ProConnect tax software. If Holistiplan satisfies what we need it to do, then great. If we need to go further, then we have the return already loaded in there, we can forecast based on last year's return, we can run estimates based on the business doing better. And, "Hey, you know you're under paying right now. Yeah, you're not going to owe a penalty, but how much tax do you want to owe or be surprised with in April?" Right?

Michael: Right. So, you get all the tax information because they're uploading it in the eMoney. You can drop in the Holistiplan. If they've got messier stuff, you can run pro formas in ProConnect. So, I take it then you're doing all that analysis, that's what builds you up to...I'm going to come up with 15 to 30 plus different tax considerations and strategies, write them out into a deliverable. And that's what goes in the next meeting is, "Let me start showing you all the different tax planning opportunities that we see on the table for you, Mr. and Mrs. Client."

Duncan: Yes.

Michael: Or, Mr. and Mrs. Prospect, because they're not a client yet.

Duncan: So, the way I write the deliverable is if they chose to disengage after the planning piece, which we charge for, by the way, and pretty adamant about charging for planning. If they choose to disengage, at least they have a deliverable that cites, "Okay, well, this is kind of what this strategy is referenced as. These are the parts of the tax code that it impacts. Here's theoretically how it would work to a layman. And then underneath it, here's how it works if you are just going to hand this to your CPA or tax professional and say, 'I want to execute this.'" So, it's a big document. Again, specializing in small business, you kind of see some repeat situations.

Michael: But I guess just can you give us some examples? What kinds of things are you getting into? Or how deep are you getting into tax planning ideas?

Duncan: Pretty deep. Sure. I mean, the simplest one that marries up extremely well with wealth management is cash balance pension plan for an older small business owner. They haven't heard about it. They're not aware that it exists. And depending on the actuaries you work with, and we have a couple that we really trust and like in the area, they're able to wait a significant portion to their benefit. Stands up against ERISA. And all of a sudden, they're putting $300,000 into their cash balance, their taxes have been reduced dramatically. They're pretty ecstatic. And we're the ones managing the cash balance plan. So, that's a nice one.

Buy-sell agreements are another area that we kind of dive into, and have attorneys that we trust locally that we know can craft good ones. Well, if they're going to be funded by insurance, we're going to be the ones to pick out those insurance products, and kind of deliver that, and make sure that, those, you have to be careful that you don't take the deductions, or you forego the tax benefits of either disability or life along the way. So, crafting that.

Other ones that become a little more nuanced. Moving your teenager and putting them on payroll. Running a scenario where your wife becomes engaged in the practice, because she's already making above the Social Security limit at her other job. And she's able to then contribute to the cash balance plan as well, in addition to her 401(k). Things like that. And then you couple... I mean, Roth conversions are going to be in almost every one of the tax strategies I put in front of somebody, explaining how those work, and how we can be opportunistic there. Tax loss harvesting. So, that first and second level that you kind of alluded to, as well, that's always going to be in there.

Michael: Right. But a lot of that is, as you noted, the really small business specific stuff, like, "Here's how you put your teenager on the payroll. Here's how you put your spouse on the payroll. You're putting your teenager on because you want to do a Roth contribution. You're putting your spouse on because you're in a jam in six figures with the cash balance plan that's expanding to her." And just all the unique stuff you get to start doing in the business owner environment.

Duncan: Yeah. They're an S-Corp owner, so Tax Cuts and Jobs Act, we have to have an accountability plan. So, helping them understand what the accountability plan, because they've been told that home office deduction has gone. Well, not exactly true, right? I love your blog on this piece. I've actually used it as I was crafting some of this language that I was presenting.

Michael: Excellent.

Duncan: Yeah. So, thanks for that. But those are the type of things. And again, that's why I tell people that aren't small business owners, "Hey, the pricing stays the same. The service is probably maybe not as valuable to somebody who owns an S-Corp, a partnership, or a smaller corporation." So, that's who we focus on, because, again, I have a decent understanding of where that part of the tax code exists, the nuances of some of these unique strategies that can...if done correctly, are totally within the realm of the IRC, and can derive meaningful benefit, and again, quantifiable dollars to Mr. and Mrs. Client. And they're happy about that.

Michael: So, you have this kind of lengthy meeting going through all these different tax strategies. The prospect actually starts tagging which ones they may want to pursue further, "Yeah, put my teenager on the payroll. That sounds neat. I want to look at that further." So, what comes next now in the process?

Duncan: Starts to become a parallel process. And it's usually, at this point, if they are a new client, we will ask them, "Well, how settled do you feel with your tax professional? Are you looking to make a change?" If they answer yes, then it's usually, "Okay. Well, let's talk through what that tax engagement looks like," while simultaneously, "Hey, we've got these assets. You've got this trust that's been around for 25 years. We probably need to look at that. You've got all these various old accounts that we need to either consolidate, remove, because they're not performing the role that they used to, insurance policies, whatever." That happens in parallel now. Where the planning piece has been tax heavy up to this point, it's basically the sell on, "Are they going to become a tax preparation client? Or do they want to engage in ongoing tax planning services?" Decide if they want to at that point. From there, it's picking up on the wealth management side, and really all the other areas of financial planning that really aren't nitty-gritty tax.

Michael: And so, as you then begin down that... So, I guess, two questions. One, at what point have they gone from prospect to clients? Because you said, you charge for planning, you have a strong view about charging for planning. Did I already pay for planning after the very first meeting? Do I get the tax analysis, and then I decide if I want to do a full financial plan, and whether I'm going to pay? When did I actually turn from a prospect into a client who pays?

Duncan: In between the first and the second meeting. So, we have that first meeting to get an understanding of who they are, and if they're a good fit. Right? If they are a couple W-2 high income earners, probably not going to be able to deliver nearly the value in all these things we've just talked through, as somebody who walks in who owns an HVAC company as an escort. So, it's at that point that we say, "Well, we'd love to work with you." And kind of present all these different areas, and strategies, and things. "If you're comfortable with it, here's how our planning structure works." So, we generally do it based on level of effort. And it's really 3 tiers, either $2,000, $4,000, or $6,000. We ask for half of it upfront. And then we will waive the second half if they move over half a million dollars to us for advisory management. Oftentimes, we waive that second half because they end up deciding they want to work with us.

Michael: Interesting. And do you tell them up front, "It's going to be $4,000. $2,000 is payable now, the other $2,000 at the end, but we'll waive it if you end out creating at least a $500,000 relationship with us." Or do you just talk about the planning fee, and then later, when you're getting to the end of the planning process, you tell them, "Hey, if you decide to work with us, we'll waive that second half payment that's otherwise coming due right now."

Duncan: Good question. We let them know from the beginning. We say, "Half is due on engagement, half is due on final delivery. If you choose to work with us..." and actually this is in our single-page fee schedule that every client gets...or every prospect, excuse me, gets in our first meeting. They get that and a slew of other one-page documents that they hopefully can digest easily. They're able to understand, "Okay. Well, worst case scenario, I'm out $4,000. And maybe I found my new financial, and maybe even tax advisor, and then it'll only cost me $2,000." So, psychologically...I mean, we're pricing it like that for a reason. Right? There's a little bit of sunk cost, so they have to commit to what takes a good amount of effort on their end to do the planning. Also, they feel like they're getting a deal or a bargain if they ultimately were there, and had maybe, after the first or second meeting, decided they were moving forward. Well, now they're getting some savings, and they're excited about that.

Michael: And what is this...you'd mentioned a single-page fee schedule. I haven't heard a lot of firms that have created that kind of document. What's the single-page fee schedule?

Duncan: It basically has our AUM tier structure, as well as our financial planning overview. And some of the deliverables that you receive, as well as kind of the tiers, the various tiers, the $2,000, $4,000, $6,000, based on level of effort.

Michael: Interesting. Out of curiosity, would you be willing to share that just for people that want to see, what does it look like to present the fees that way?

Duncan: Sure. Yeah. I have no problem with it.

Michael: All right. Awesome. So, for those who are listening, this is episode 283. So, if you go to kitces.com/283, we'll have a copy of Duncan's single-page fee schedule to see how that's being presented on, I guess, the AUM side, and the planning side, and what you pay in deliverables you get.

Duncan: Yeah, absolutely.

Utilizing ‘Character Insurance’ To Define A Client And Their Life To Their Loved Ones [50:19]

Michael: So, clients, now you have your initial meeting, they decide whether they're going to become at least planning clients. If they say they're going to become planning clients, we get going unloading them in the eMoney, you get the tax returns. The next meeting you do the in-depth tax strategies presentation. At that point, now, they can decide if they want to work with you on a tax basis, "Are you settled with your tax professional? Are you looking to make a change?" At the same time, now you're getting deeper into the financial planning process. Is the next meeting, "Let's present some of the other financial planning stuff for retirement, education, insurance," etc.?

Duncan: I think we're still at the stage, and this is why it takes a month and a half almost, where we are still getting up to speed and learning, starting to try and digest, and maybe start to lay out in the software the flow of an estate plan, or understanding what their objective is. It's actually also the time we start to introduce kind of goals, higher level objectives of what their wealth, or their financial picture should do. And we introduce this item that, as far as I know, we're the only people that probably call it character insurance, but I'm sure others are doing something along those lines. As we're talking about, "What's the purpose of all this? What are we using this wealth, or these dollars for?" We start to talk through, specifically something that I love, and I do personally, called character insurance. And this is...

Michael: So, what is character insurance?

Duncan: Yeah, of course, let me just dangle that out there for a second. It's a process, but it's also psychologically, if they wanted to explain who they were as a person, and their loved ones to know what they stood for, and what was important to them, what would they do today if tomorrow wasn't guaranteed? That's essentially what this document and process does. So, I've had generally, and I mentioned this to you previously, Michael, this tends to be something that a certain subset of clients focuses on. That subset are younger families with young children, or older folks that are in retirement, maybe "in the golden years," facing their own mortality, that have grandchildren or children themselves and want to think through, "Well, purpose, who am I? What is happiness? What is success?" So, what this process does is, one, I kind of explain it just, "Hey, this is what I do." I bring it up to clients because I think it's important. "If you have interest, let's talk more about it. And I'll walk you through how this works." And I don't know if you want me to kind of walk you through the steps quickly on how it works.

Michael: Yeah. Just what... Yeah, please.

Duncan: Sure. Okay. So, the way I do it, and there's no perfect way, I just say, "Look, let's get down to trying to define who we are as a person, or how I define myself into a single page." I don't care what it looks like, if it's paragraphs or bullet points. Mine's bullet points. But essentially, if you had to sum up what are you, who are you as a person, what do you stand for, try and get that on a page. Really hard to do. That's probably the toughest part of this whole process. I call that the Ethos of Me. And it's a living document that I look at once a year. I go through, sometimes things change. I mean, COVID showed us how quickly life can change, and all of a sudden...

Michael: Some priorities change, yeah.

Duncan: Priorities change, work changes. Everything, right? So, this defines who I am. And my first bullet is clear to me because, again, this is me, I'm putting in writing who I am. Being a father and husband are my favorite and most important titles. And then I go on to talk through what happiness means to me, and what sacrifice and success. At the very, very bottom I stay, "Wealth is important. Strive for great wealth in areas of your life, because it can afford you security, flexibility, and duration, not just for status. In fact, explicitly not for status." So, I guess if I shared this, some people may see it and may not jive with what they believe or who they think. But it's just me distilling who I am.

From there, you define the people or the loved ones who are really just...if it's a blank canvas, who would you want to know this about you? So, for me, it's my children. And why I call it character insurance is I'm well insured. Financially, I know how to look for insurance gaps, I can forecast exactly what my lifetime earnings should be, mortgage, debt, etc., and make sure that my wife and children are well cared for, college's covered, etc. So, I've got great life insurance, I'm well insured. But what prompted me to do this was, how do I guarantee that my young children, who are five, three, and one, know who their father was, and what he stood for, if I pass suddenly. And that gets me a little choked up. But that, to me, is really important. Because all the other stuff that I do is great. But again, being a father and husband are my favorite and most important titles. So, if I'm not around, and my relationships aren't there, which is one of my strongest assets, and I'm not holding my children's hand, or picking them up as they're crying, explaining my life experiences, how could I try and get that to them in some capacity if I'm no longer here?

And what I came up with was take the ethos of who I am, take events from the past year, and on their birthday, craft a letter to those children, each one individually. And pick three to four items from my ethos, pick three to four items of topical events in the news. So, obviously, the last few years, we've had tons to discuss. And sometimes politics creeps in there. And at the end of the day, it really is, I want my children to hear my voice as they're reading those pages. And I hope I'm around to hand it to them when they're of age to appreciate it. It's just like buying life insurance, you hope you never have to use it. But I've hopefully...and I'm still in the early years of creating this. I'm hopefully protecting that in some way through these letters, if I'm not around, my children would have the ability to know who I was, what I stood for.

The final piece of this is I've asked some of my old rugby friends, and close acquaintances, my brother, who I trust with my life, that if I'm not around, would they please, at least till my children are of age, have a relationship with my kids, and at least once a year, talk with them, and explain in their own words who their father was and what he stood for. And I gave them access to the letter. So, it's just a shared drive that I upload. And I say, "Hey, here's where they are." In the event crazy stepfather comes in and doesn't want to hear the name Duncan Kelm ever spoken again, at least then I'm also ensuring a little bit against that, that my friends, I've asked them and I know they would do it, would reach out, have a relationship, and state in their own words, again, who their father was. And they have these letters themselves.

So, that's what it is. I bring it up. It's powerful to me. Other people, who, I think, think like I do, get excited about it. And I've had a good amount of clients engage with it, and move forward with that process, as well.

Michael: So, these steps of trying to define ourselves on the page, identifying the people, writing the annual letters. So, you're taking clients through that process as well? I mean, I understand you've done it for you. But you're taking clients through that process as well?

Duncan: No. Those that are engaged in it, I walk them through my process. And essentially, I just tell them, "Look, here's the purpose of it. It's so my family knows who I am and what I stood for, even if I'm not around. If you like that idea, take this process. And if you want to talk through it..." and I've had multiple clients want to talk through it with me. They usually make it their own. And then it's kind of a, "Hey, I'm going to give you this thought process. I'm here to talk through my experiences, and how I do it. And if you want to talk through annually, when we have our meetings, what you've written about, or how this has impacted you and financial goals, etc., great, let's do it." I let the client bring that up, though.

Michael: Okay. So, you're not necessarily...you haven't a made a fillable document, a fillable template, "Here's the three-step process you go through." But you're talking about what you've done, how you did it, the impact for you, and an opportunity for some clients to be inspired to say, "That's powerful. I think I want to do that as well." I'm sure we're going to have a few people who are listening who are going to be doing this as well, based on what you shared as well. Would you be comfortable to share what your one pager looks like for people who just want to see and visualize more, how does this actually work?

Duncan: Sure. I don't mind. Yeah.

Michael: All right. I appreciate that. So, again, for those listening, this is episode 283. So, if you go to kitces.com/283, we'll have a link out for Duncan's Ethos of Me, one-page character insurance, if you're inspired or want to, I guess, try this with clients or try this for yourself.

Duncan: Yeah. And you know what? If anybody is inspired, send me a tweet or LinkedIn. It'd be fun for me to hear that others are considering it or doing it themselves.

Michael: Appreciate that. Appreciate that. So, what brings the planning process to a close for you to where you eventually say, "We've finished the process. It's time for either second half of the fee, or moving into an asset management relationship." Are you a firm that ultimately builds up to the plan deliverable that you provide? Or is this more incremental advice along the way? How does it conclude after this month to month-and-a-half process?

Duncan: Yeah, good question. So, we definitely do meet and present an analysis, and a deliverable that is a financial plan. But really, I had mentioned it previously, a one-page consolidated visual of everything they have laid out. It can get busy, there's a lot of colors going on. But essentially, it's a wheel of risk. And it's setting that infield, outfield lineup. We've got insurance products doing things, and it's showing the taxation of each account, and how money flows. Clients seem to like it. So, they get that one-page deliverable.

Michael: So, is that like a one-page financial plan? Is that an output from a software tool? Where did this come from?

Duncan: I created it. We've created this visual, and then made sure compliance is comfortable with it.

Michael: I guess I got to ask once more, just because you have all these really cool one-page things, are you up for sharing this one as well?

Duncan: Sure. Yeah, absolutely.

Michael: All right. So, we'll include a link out, so kitces.com/283 for...I don't know, I guess I'll call this The One-Page Plan, or The One-Page Visual of just how you lay this out. So, do you not even have the eMoney output plan? You focus entirely on this one page? Or you have the one pager, but then you also have the longer plan?

Duncan: The one page is built into a custom analysis. And an analysis, I'm coming from my consulting deck days, but basically, it encompasses the tax strategy, it encompasses their current retirement situation, their family dynamic. And each step of this analysis, again, we build this custom, is presented in a way that delivers an area that I just mentioned. We do offer the eMoney physical financial planning, because I think we're required to by LPL, to be able to charge with AdvicePay, and do planning fees. But really, what we sell is, "Hey, look, this is a snapshot in time. You know better than anybody else, your life is evolving every day, all the time."

"This is in the software. And we are built to basically be dynamic with this. And the plan is actually the data in the software that we can use, play in the sandbox, model all these scenarios. This is a snapshot in our recommendations. But if you choose to work with us, the financial planning piece doesn't stop. And we use this software when we're making investment decisions, when we're having conversations around restructuring businesses, etc." That's really where we try and close everything out is saying, "Look, this is a living, breathing document. You've paid us for our time to present. Hopefully, you've gotten value, you've gotten these deliverables. But where the real value is, is an ongoing engagement where we're leveraging this living document, so to speak, and using it to make quantifiable statistical decisions in financial and life."

The Surprises Duncan Encountered On His Journey [1:04:12]

Michael: So, what surprised you the most about this path of building an advisory business?

Duncan: Well, I mentioned it briefly earlier, and I will mention it again. My partner's my father. And I came... One, I swore I'd never work with my father, and I would never work in this industry. Boy, do we eat words. I was definitely, the chip on my shoulder, "I'm going to go out and make it on my own." And I actually... You know what? I guess, to my credit, I went out and was pretty darn successful in management consulting. I was doing quite well. I just recognized that 16, 17 hours a day, flying around, and consulting with government entities and corporations, it wasn't the best lifestyle for family life. As well as recognizing that my dad was successful, depending on how you define success. He had time. And to me, right now, time is my greatest asset.

So, being able to move back into this practice, and partner with my father, and ultimately become his succession plan, was a mechanism for me to spend more time with my family, and control my time, while also, ultimately, when we moved and became independent with LPL, create my own vision, move into what I consider the backbone of this country, small business, do it myself, take that entrepreneurial plunge. And be able to build a second business that's tax, and the way I see it, well integrated into the financial planning services. Build software as well. Pursue items of creativity that can be lucrative, or they could be like the book that I wrote, that is a flop and turns out to not be the best.

Michael: Now I'm curious. Just to understand further, just the dynamics with your father. So, you were in your own career. He, I guess, has already been in the industry for a while. So, how did this work? Do you just call him one day and say, "So, I think I might actually want to come into the business after all." Or did he call you and say, "Hey, son, you should really look at coming into the business. We have much better hours than that management consulting thing you're doing." How did that change come about? How do you get going down that path, if you were on your own separate track already?

Duncan: It was me recognizing the opportunity, and asking him. My wife and I, I think we were...no, we were married at the time. We flew up before we had children, and had a conversation, my mother, myself, and my wife, about what this might look like. And from there, we decided that it was the right path for me. We, my wife and I, and my father, and mother also decided that it was going to work for them. And to my father's credit, I mean, I could have been a total bum. And because I'm his son, he kind of would have been stuck with me. Thankfully, it's worked out to...two plus two equals seven here. And it's been an extremely additive and beneficial relationship for both of us. But it was a conversation that I brought up to him.

I also had to have a conversation with my brother and sister, because I perceived it as, "Hey, I don't want to be 10 years down the road, and hearing from both of you that, 'Duncan took the only opportunity here. And where's my opportunity? You're the eldest, how come you got it?'" Fortunately, they're both very successful in their own careers, and they have no interest in financial management or tax. So, it was kind of up to me. And from there, we formed the partnership that was five years ago, and formed our own entity and company two years ago. And it's been great. It really has been pretty much as well as you could script it and craft it. It's kind of how it's turned out.

Michael: So, what changed from the partnership five years ago to the entity two years ago?

Duncan: We left a wirehouse. So, when I joined my partner, Bruce, he's never dad in these conversations but Bruce, he was at a wirehouse. And that was an experience. I'll just say that I'm glad I'm currently independent. And there were catalysts for why we went independent. Mainly to do with kind of the operations within a wirehouse.

Michael: So, what was driving you out? Because I'm presuming if he was in a warehouse, he probably had been there for a while, because most people who are there are kind of lifers there. What changed? Or what made it work for him and not work for you?

Duncan: Bruce was an entrepreneur prior to becoming a financial advisor. And like you guessed, he's been in the career for 30 years. Twenty-eight years of that has been in wirehouses. Prior to joining the wirehouses, though, he started one of the first brew pubs in Northern California. Man, he was about 15 years too early, because he was brewing craft beer back in the '80s.

Michael: Oh.

Duncan: I know. Before it was a thing. It didn't work out, but this is a really neat story. He was doing that for a year. He was the proprietor, he put together investors, and it was just not going well. Basically, a parking lot went in across the way and killed his business. He started working at a wirehouse. He's an MBA from Kellogg, and very sharp business-wise. So, he was doing both. He was trying to start in the industry, while also still running a cash-losing business. He went to all his investors and told them, "I am going to lose money or going out of business. I'm going to sell it. You're going to get a loss. I'm not going to take what I'm owed. I'm going to give you back everything. Me as the sponsor is not going to get anything from this." The reputation that that built for him in our community, and it was smaller then, is the reason he was a success in this business.

They almost uniformly became clients of his in some capacity. He then used it as an opportunity to speak to their suppliers, most of these gentlemen were...I mean, they really were all male, but business owners at the time. And he was introduced from them because he chose to take that hit in the short term, and ultimately it gave him a 30-year career. He got established in the wirehouses. He didn't know any better. It was me coming in with kind of that management consulting, kick over the rocks, and "what the heck is going on underneath here" mentality to kind of, I guess, awaken him to what is outside in the possibility. And the more we dug, the more we realized it was really for us. It scratched his entrepreneurial side that hadn't been around since the '80s or '90s. And for me, I've always dreamed about it, and knew that I would never last longer than I did at a wirehouse.

Michael: Well, because, again, when you like doing things like, "Hey, I made a tax practice on the side. And I wrote a book because it seemed interesting," things that are not easy to do at a wirehouse. I mean, there's other benefits you get for a very large platform and brands, but being creative is not usually as well rewarded in a very large firm environment like that.

Duncan: No. And that's exactly the reason why. And for me, it's tough because I see...I don't know if listeners or you know who James Clear is, but I'm a big...his "Atomic Habits." I'm a big proponent of explore, explore, explore, exploit. So, I love the idea of let's try some things. And if it's driving intellectual stimulation, and I'm excited about it, awesome. And maybe it results in business. But I'm not doing it explicitly to try and drive business. That's kind of how the tax practice has evolved and came about. I like tax planning. Because of that, I started to learn more, get licensed, do these strategies. Okay, well, let's start a tax firm. It's resulting in positive. So, that was, "Let's explore tax. I'm interested in tax. Okay, there's something here. Let's start to try and exploit this opportunity." That doesn't exist at a wirehouse. It's, "We've got the solutions. No out-of-the-box thinking, because we might get sued because of your out-of-the-box thinking. So, please go back to using our tools."

Michael: And so, I think you'd said you landed at LPL. So, why LPL? I'm sure you ended up looking at a lot of different broker dealers if you were making a switch.

Duncan: Yeah. We didn't take the due diligence process lightly. And again, to Bruce's credit, I'm super lucky to be in the situation that I am, and have the partner that I do, because I walked into his office and said, "I can't work here anymore. And unless we have a solution relatively soon, I'm no longer going to be your succession plan." That's kind of arrogant.

Michael: So, you essentially gave him an ultimatum of, "Hey, I'm coming into the business. But if we're going to do this succession thing, it can't be out of wirehouse here."

Duncan: Yeah. And geez, does that sound tough, to be granted this great opportunity, and then basically say, "No, sorry, not going to happen here. We got to do this. And these 28 years that you've been here, no, we got to shift that too."

Michael: And I guess I'm just wondering, now, as you're living this succession plan, and as you said, he's not dad, he's Bruce. I guess, how does that work in meetings in the firm? Do you tell clients it's a father-son relationship? Do you not? You say Bruce, but you also acknowledge, "Our last names being the same is not a coincidence." How is that working for you? How do you talk through the family dynamics?

Duncan: That's a great question. And I think it depends on who's sitting in front of us. He is always Bruce, no matter what, in any of the conversations we're having in business. And we actually say that to the client, or to the prospect. We are a father-son team. There are certain dynamics and positives that come from that. But you will never hear us, other than just mentioning that, refer to each other as anything but Duncan and Bruce. We also treat things pretty strictly business. We have a buy-sell agreement, we have written legal agreements on how each entity needs to perform and do certain things. Probably most father and son teams don't have that.

But again, maybe it's...I think it's both of us. One, it defines that, "Hey, this is a business of family, not a family business." And it also, for me, I struggle a lot with the nepotism, and you've been given all this. That's why work as hard as I do, or as hard as I think I do, to try and be creative, think outside the box, add value in different areas, come up with new benefits to our existing clients on why they should be working with us. Diversify, even, away from the things Bruce is an expert at to truly try and, "Hey, this is additive. You're getting multiple benefits. I'm not just the son showing up," type of thing.

The Low Point On Duncan’s Journey [1:15:57]

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

Duncan: Honestly, it sounds terrible to say it, but I was really just miserable. Doing exactly what I'm doing at my job at the wirehouse, I felt like I took a massive step backwards, which I did. I took a huge salary cut, leaving management consulting, knowing and hoping that it was betting on myself, and Bruce and myself to be two plus two equals greater than four. And fortunately, now, five years into the future, that looks to be true and the case. And we've been independent now for a couple years. We serve almost the exact same clients, the same people. They joined us and came with us pretty quickly. I've never been happier. I mean, I think I told you before we started going here.

I woke up at 3:00 am this morning so excited to get into work. And I mean, yeah, there's a lot of volatility happening, and there's tough conversations, and the business return deadline's in five days. There's a lot going on on my plate. But I wake up so energized and excited. And it was just the inverse. I had a really bad panic attack actually. And the next day I walked in to Bruce's office and said...I think I actually said dad, which I shouldn't have done, but I said, "Dad, I can't be your succession plan. I mean, I'm having anxiety every day. I'm having a panic attack. I'm miserable here. We either need to try and find a different solution, or I can go back to consulting, and that's okay too."

Michael: So, what was so bad that it was to the point of triggering panic attacks for you?

Duncan: The culture of no was what was really tough for me. I was rewarded strongly with compensation and promotions, thinking outside of the box, going...consulting is just a different business, I guess. And what I was tasked to do was take a team into different organizations, find opportunities, fire people, and change things up, be creative. Right? And it was such a culture of, "No, don't do that. No, you can't do that." Perfect example was, I got really excited about a specific part of the tax code that happened with 2017, opportunity zones. And I was jazzed and looking forward to it, and I wanted to release some commentary about it. Write a blog, and just send it to our clients. And I spent hours and said, "Okay, this is going to be value add to them. We're bringing a new perspective, letting them know about this new opportunity." And it didn't even make it out the door, and I was told not to do it again.

And I tried some other things. People wanted to talk about Bitcoin. "Okay. Well, rather than saying we can't talk about it, could I craft something that maybe talks about cryptocurrencies and our opinion about it?" And the answer was just no. And it was...I started keeping a list, and I probably shouldn't have. It's probably what provoked the anxiety. But it was on the high 20s of, "No, no, no," where I'm sitting here, just going, "Well, I've looked at the FINRA rules. This isn't in there. This is just a corporate policy." And it just wasn't a fit for me. Like you said earlier, it's a perfect fit for a lot of folks that the brand brings a lot, or there's banking, or other services that they provide. I just love being independent. I like being able to think creatively, stand up opportunities, go find software that works for our clients, and start leveraging it, and build a business for our clients, not use a turnkey solution. So, I guess my biggest issue was, I like to try and be creative, and I like owning things, and being the owner. And that just wasn't really possible in a warehouse environment.

The Advice Duncan Would Give His Former Self [1:20:01]

Michael: So, what else do you know now you wish you could go back and tell you five plus years ago, when you were just getting started to make the transition into the business?

Duncan: It was a tough mental challenge for me. And I'm big on mental toughness, and all sorts of things, from my Olympic days. But taking such a step backwards...I mean, I was doing quite well in management consulting. I was getting promoted often and getting paid a lot. We're doing better now, and that's great, but to step back into an entry-level position, where I was just the rookie, and people are calling me rookie. And I was leading a team two months before this. Boy, that was hard to stomach, and it took a lot of, "Okay. Well, long term, this is going to be all right. Just keep...get down the learning curve twice as fast, figure out ways to add value." All these things. And it probably pressured me into trying to think outside of the box, because I needed to offer some value other than just being Bruce's son, and Bruce is getting old. That was really tough for me, though, to go from, I guess, having standing in status, and doing well in a career, to basically being just like I was starting a job for the very first time.

Michael: So, what gets you through?

Duncan: Tenacity. I mean, at the end of the day, it's, "Okay. Well, I'm going to get down this learning curve as fast, if not faster, than anybody before. I'm going to look for opportunities. I'm going to start to learn things that these folks that are in these corner offices don't know about, and are of interest to the people that they serve." Opportunities zones is a good example of that. That's a high net worth interest that, okay, you have a really close understanding of something like that, people might want to know that. Okay, that's value add. So, it was, to me, understanding this is a decision collectively made by my wife and I, we knew it was going to be tough. I honestly didn't think it was going to be as hard as it was.

And I really had to fall back on... We haven't really got into this, but I used to play rugby on the Olympic rugby team for a few years. And that's just basically a master's in mental toughness, and long-term planning, and goal setting, and basically grinding and grinding and grinding. And usually we were getting crushed by New Zealand and Australia. So, how to lose gracefully too. I really had to fall back on that longer-term mindset, and trust myself that I was going to be able to ultimately turn this into the right decision. It's so easy to sit here now and say, "Oh, God, yeah, what an easy decision." It was a year of toughness, and pain, and getting treated like a rookie, where you're getting paid a fifth as much as you were, or half as much as you were, whatever it is.

It's the Monday morning quarterback bias, just on your own success in life. And it was tough for me. And the more I think about it, the more...it really was a challenge to kind of get through that tough first step. And we almost pulled the eject button twice, and just said, "You know what? We tried it, it just didn't work." And thank goodness we didn't, and stuck it out. Because, ultimately, it's turned into a career I love in a capacity that I love, where I work for myself and with a family member, and we're building our own success, and we dictate outcome for ourselves. Some people fear that. I personally love it. It just took some tough times to get through, and land ultimately where we did.

The Advice Duncan Would Give To Younger, Newer Advisors [1:24:00]

Michael: So, what advice would you give other younger or newer advisors that are coming in the industry and getting started?

Duncan: I think looking for areas that people you want to work with have interest in, that other advisors are prevented from talking about if they're at certain companies, don't have the knowledge about, or don't have the time or interest. It's pretty easy, Michael, you know, to get complacent in this industry, recurring revenue. You've got certain clients that they don't expect to call more than once a year sometimes, and, "Oh, hey, we did this rebalance." And you're still getting thousands of dollars sometimes. I mean, I got asked at LPL's focus, "What in God's name do you want to own a tax business for? They don't get paid recurring revenue. We do. They get questioned on their fees all the time. You generally don't because it's taken out of the accounts. Why do you want to own a tax business?"

I mean, that's just perspective, right? That's somebody sitting there going, "God, I would never in a million years want to spend and trudge through that to try and benefit on this side, because I've got these basic clients, I get two to three referrals a year. I have a nice living, I'm comfortable." I mean, what I would tell people in my situation or people trying to grow their businesses, look for areas to exploit where the people have gotten fat and happy. And there's plenty of them, as you will know.

What Success Means To Duncan [1:25:31]

Michael: So, this is a podcast about success. And one of the themes always comes up, it's just the word success means very different things to different people. And so, as you're on this path to success now, building the firm, having followed your path to success in management consulting, how do you define success for yourself at this point?

Duncan: It's a great question. I probably don't define it like a lot of people do. I think success is when you look at all you've accomplished in life, and you're able to just smile. And it doesn't matter how small, or really how big that accomplishment is. Being happy with what you've done is success. There's a reason "The Man in the Arena" quote by Theodore Roosevelt is my favorite, and hangs in my office. It's those that try and can be happy with the fact that they went out there and tried. To me, that's the definition of success.

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

Duncan: Michael, thank you for having me. I enjoyed it. And it was a privilege to be here.

Michael: Thank you.