Executive Summary
For many years, the traditional career track for financial advisors has been an 'eat what you kill' model – where advisors must independently find, convert, and manage their own clients. As such, it isn't uncommon for an advisor's first few years to be characterized by long hours, high rejection rates, and low pay. For many, this can be a stressfully prolonged period that typically eases only as advisors build their client base and establish themselves in the industry. However, the scarcity-driven habits that helped them survive their stressful early years may not serve them effectively in their current state. In fact, these habits may even inhibit their growth, making it harder for them to scale their firm in alignment with their long-term vision.
In the 150th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards explore how advisors can acknowledge the psychological habits formed during prolonged high-stress periods and intentionally move beyond them to continue to achieve sustained growth.
When stress arises, especially in the early years, many advisors often do whatever it takes to pull through and build their business. But a scarcity-driven mindset can linger, long after the immediate pressures have faded. This mindset might manifest in subtle ways – like the reluctance to raise client minimums out of fear that new clients won't come, even when capacity is maxed out. At this point, the narrative of survival can keep advisors tethered to past habits, even when logistically, an advisor may be well past that point and their current reality calls for a different approach.
To shift from survival mode to a mindset geared for growth, a first step might be to take stock of the firm's logistical reality: cash flow, client load, and overall business capacity. This can help advisors move from reactive habits to proactive strategies. A helpful question that advisors can ask themselves is, "What would it take to feel secure in this scenario?" Sometimes, a few targeted risk-hedging steps can provide a sense of security. In other circumstances, it may be more helpful to acknowledge the gut-level response to stressful situations – the same survival instinct that got the advisor 'here'. However, getting 'there' – to the next stage of growth – requires noticing, acknowledging, and then rewiring those instinctive responses.
Importantly, it's not just about making technical adjustments; it's more about a shift in mindset. It's the ability to internalize success and recognize that the survival instincts, once crucial, might now be holding back progress. Letting go of those old habits means freeing up mental and emotional space to envision new possibilities for the firm's future.
Ultimately, the key point is that survival strategies, while essential in the early stages of an advisor's journey, may not align with the realities of a growing and thriving firm. Sometimes, internalizing that an advisor has 'made it' is not always easy, but it's a milestone worth celebrating. Embracing this recognition allows advisors to ask the more exciting question, "What comes next?" This shift isn't just about growing a business – it's about building a vision that truly aligns with long-term goals, creating the freedom to innovate and adapt with clarity and purpose!
Authors:
***Editor's Note: Can't get enough of Kitces & Carl? Neither can we, which is why we've released it as a podcast as well! Check it out on all the usual podcast platforms, including Apple Podcasts (iTunes), Spotify, and Stitcher.
Show Notes
Behavior Gap Episode 1093: When The Money Runs Out: Spotify | Apple Podcast- The Body Keeps the Score: Brain, Mind, and Body in the Healing of Trauma by Bessel van der Kolk M.D.
- Kitces & Carl Ep. 147: Preparing An Advisory Firm For The Risk Of A Market (And Revenue) Decline
Kitces & Carl Transcript
Michael: Well, greetings, Carl.
Carl: Michael Ernest Kitces. It's great to see you.
Michael: It is good to see you sort of, because I see you, but not a blue couch anywhere near you, or behind you, or around you.
Carl: It's still upstairs. I need to...
Michael: It has been months. I mean, months...
Carl: I know.
Michael: ...and months and months since the blue couch has made an appearance on "Kitces & Carl."
Carl: It's funny, we've held 3 retreats now at the house. There are 12 people each, and every one of them, they've asked where the blue couch is. And we brought the blue couch down.
Michael: What?
Carl: We include it in the circle so people sit on the blue couch as part of the experience of coming to a retreat at the house.
Michael: Are these advisor retreats?
Carl: Yeah, the Society of Advice, we do these 8 to 12-person, they've all been 12 so far, 8 to 12-person retreats here at the house. And they're like a day and a half. I think the way we gather as an industry sometimes leaves some room for improvement. And so I'm trying to provide those opportunities. So anyway, people have asked, "Where's the blue couch? Where's the blue couch?" And we bring it down and let people sit on it.
Michael: I was saying, like you said, you bring the blue couch into the circle. I'm literally envisioning 12 advisors in a circle with the couch in the middle.
Carl: No, no, no, no. It's part of the circle. 2 people get to sit.
Michael: That seems a little bit less awkward.
Carl: Because we don't have 12 chairs to put. So it ends up being helpful because sometimes we were sitting on a bean bag and sometimes we're outside with river chairs. And so yeah, the blue couch has been helpful. So, next time, I need to bring it all the way down here to the basement studio. So, I'll do that.
Michael: All right. I appreciate that because I'm feeling a little hole.
Carl: But nobody came here to hear about blue couches though.
Michael: This is true. This is true. Someone is listening, saying like, "Will you guys just get on with the actual episode?" So let's get on with the actual...
Carl: We've saved all of our blue couch conversations over the last 6 months for this one. So we got it done. All right. What are we talking about? I think we're talking about something...
Michael: Something.
Carl: ...to do with scarcity or something.
The Toll That The Prolonged Stress Of Building A Firm Can Have On Advisors [02:35]
Michael: Yes. So to me, one of the interesting effects in the journey through into financial planning. And I feel like I have to asterisk that this is starting to look a little bit different for people who've come to the business over just the past few years. I feel like there are more career pathways in now with more salary jobs and stable paths in the past, which was almost all eat what you kill for anyone who's been doing this for more than 15-plus years. Almost guaranteed you came in through an eat-what-you-can-kill kind of job. And so there's a certain self-selection bias that comes from that. But again, almost by definition, if you're an advisor with 15-plus years of experience, you probably spent the first 3, 5, 7 years making absolutely horrible money, constantly in scarcity mode, just trying to figure out where the next client, where the next prospect comes from, how you're going to get to the point where you can actually put food on your table, why you're not making as much money as the recruiter told you you're supposed to make by the 24th month. All the pain that goes through almost everybody starting as an advisor, because it's really rough when you're starting from scratch and trying to build trust to get people's life savings when you have no actual experience. And especially if you start young and you don't even have any gray hair to show. And what's fascinated me is there's almost a PTSD-style effect that seems to come from that journey for so many of us. And I don't use that label lightly for the significance of post-traumatic stress disorder. It is really scarring for a lot of us to go through that much scarcity, that much stress, literally body firing stress hormones continuously of the prospecting, and the cold calling, or the cold knocking, or all the different things that we did, especially in the more distant past. So to try to...
Carl: You're making me stressed out just listening to this, man, because of the memories. I'm like, yeah, the cold calling.
Michael: Yeah, we push down to a dark place because you really don't want to remember and reminisce on it very much until it starts lurking up 10, 15 years later where that scarcity has been so ingrained that we get conversations like...an advisor I was talking to last week who's struggling because he did that for a long time. He took anybody he could. He's a solo with 227 clients. Call him Adam. Adam has 227 clients because he was taught you take anyone and everyone you possibly can because you're just trying to survive and make ends meet. He serves them well. He gets a healthy amount of referrals now. And he's drowning because he has 227 clients, and he's a solo. And so, we started the conversation that often comes up at this stage in the practice. "Have you ever really looked at your client base? I'm betting 80% of your profits comes from about 20% of your clients. You could start to focus in more on clients. You could let go of some bad-fit clients. You could at least just raise minimums so that you're not still taking in everyone when you literally don't have the capacity to serve them anyways." And Adam's response was like, "I can't raise minimums. What if clients stop coming to me?" "Dude, you've been doing this for 12 years. You just told me you got 17 referrals last year. That's not about to vanish on you. You have a very long sizable track record of your business being successful and growing. Your clients know you. You get referrals. You're known in your community. People are coming to find you. Look at any of your own business numbers, there's a very clear, steady trend of the ongoing healthy growth that you're having."
And in continuing the conversation with him a little bit further, it basically came down to, "But I spent so long being terrified of where the next client's going to come from. And I'm still there." By any objective look at the business, he's really not there anymore. But mentally, emotionally, from the same deep down place that a lot of us pushed the pain of the early years, it's still there. Except now it's actually at the point where it's preventing him from making changes that would actually be healthier for the practice, just healthier for him. He's working huge hours. And he doesn't want to hire anyone, because what if all the clients go away? 98% retention rates, but, sure. What if the growth stops? 17 referrals last year. Sure. All right, and so all the things that he could do to actually get his work-life balance back, and we're not even going down the road of letting go of some bad-fit clients, which he should probably also do. But there's some other stuff that comes with that that we don't even have to get into here. I want to talk about just this more fundamental level that it can be so hard early on and we get so fixed into a scarcity mindset because you have to do that to survive, that it becomes really hard to let go of and potentially an outright inhibitor that leads to a lot of very counterproductive decisions in the business because we're stuck on where we were. And even though it's not that scarce anymore, we still run it like it is. So I don't know if this resonates with you, if you've...
Carl: What are you taught? Yeah. Yeah, there's a lot to unpack. That's really, really, really important. I think because this is about so much more than just the business. So it's really interesting to me. I recorded an episode of "Behavior Gap Radio" Episode... What was it? 1093. So now at 1150. But Episode 1093 called "When the Money Runs Out." I'm laughing because I was up running really high in the mountains. I can remember the ridge line I was on and I was thinking about this conversation where, "Yeah, but when the money runs out, when the money's all gone." And I was like, isn't that an interesting phrase that we use? Where does it go? Have you seen it running? Has it ever run out? Super, super interesting. But what that pointed to was just these stories we tell ourselves. And one thing I think that's really, really important is to notice, I think The Body...well, there's that great book, The Body Keeps Score. And if you can start to notice where you feel that thought, so because you'll actually feel it before you'll even think it. And in many cases, you never think it, you just feel scarcity. And if you can start to learn, oh, that's interesting. When I can finally come to my senses, sort of, wake up, I realize I'm feeling a lot of scarcity. I'm worried that the money is going to run out. I've got all these concerns that next time I go... Michael, I found this out the other day, I sometimes still brace in my abdomen, my abs, I brace as if I'm going to take a punch when I go to swipe the credit card. Because there were times, only 3 or 4 times, but 3 or 4 times when the credit card declined, not out of a mistake, but because there was...
Michael: You were maxed out.
Carl: I hit the credit limit. Yeah, and 25 years ago. And I noticed the other day, I was like, whoa, do you still bre-... That hasn't happened for 24.5 years.
Michael: But it's still there in your gut.
Carl: Yeah, so remember, like the body's keeping score. So you may know. So I think there's a couple of things. Number one, the body, like the nervous system and the physical reaction, you may know rationally that you're fine now. And in this case, this advisor we're playing with doesn't even really know that. But you may know, if you sit down with a friend and they actually walk you through the numbers, you've got a CFO or an accountant that can walk you through the numbers and they're like, "Look, you're going to be fine." Maybe it's your spouse. "Look, you know, you're going to be fine." So you got all this, you may have external evidence to the contrary, but you're still feeling that way. Well, that's because you haven't retrained the nervous system. And that nervous system was trained over a decade or 2. So the way that I'm training...yeah.
Michael: I'm even sure Adam isn't aware. As you...
Carl: That's true.
Michael: I meant it like, you may not even know if someone doesn't run the numbers. And to be fair, I think there are some that just, they haven't actually sat down with their own business and numbers to say like, "Well...
Carl: Well, that's the stuff.
Michael: "...I actually built a pretty good thing. This is at a good place."
Carl: Yeah, that's clearly...
Michael: But Adam, I started asking him some of these questions. He knew the numbers, he actually knew the answers. Which to me was like, "So you actually know." But, as you said, the body keeps score. But knowing it doesn't really matter when your gut does the gut clinch thing...
Carl: Yeah, yeah. Don't tell me it's fine.
Michael: ...and just completely rejects what your brain is thinking that maybe there's enough clients that it's actually okay.
How To Identify Old Stress Responses (That No Longer Serve You) [13:14]
Carl: Totally. So I think in the case where you know, I think learning to just ask yourself, oh, where do you feel it? Oh, between the shoulder blades. If it was... One of my favorite questions, and I used to ask clients this, if that feeling was a color, what color would it be? Just start to put some tenor and some texture around the feeling. And then I think really, really important. And again, this is assuming that your rational mind knows you have external evidence to the contrary, that this is kind of irrational thing. Remember that this was a really valuable, this feeling, this drive, this energy, this take anybody, that was a useful thing at one point in your life. Now, differently...
Michael: Nothing wrong to me at all for... We were...it's wired in that way because it was an effective survival trait. It got us here.
Carl: Yeah. Yeah. So I think one of the things that's been incredibly valuable for me is to notice when something was an effective tool, let's say, a mental model tool feeling that has now become maladaptive for where I am now. And in that case, instead of being mad at it, or harsh, or mean, or shame, or blame, or kick it in the teeth, fear, kick it in the teeth, that whole thing, we can turn and thank it. Thanks for the role you've played. This was really, you got me here. And I've been through this with people that would use language like, you got me here. Thank you. And I've got it from here. I no longer need... You've played... You've done your job. And I think that's a beautiful... I'm sure it even has a phrase, a term in probably coaching or psychology circles. But that idea of taking something that was adaptive, really, really good. Hustle, grind, get everything, maybe you could have done it differently. But that's not the point. The point is, it was really effective. It's now become maladaptive and you know it. And turning to it, and I love that posture even, turning to it and thanking it. And then every time it comes up, instead of smashing it down like we do or ignoring it, because that which you resist persists. So if you resist the feeling, it'll just keep coming back. Instead, you say, "Hey, thanks for coming back again. It's actually a great reminder of how valuable you were. And like I told you last time, we got it from here." And then rewire that response. And by rewiring, I mean, literally, you're rewiring a nervous system response. When I pull the credit card out, I'm rewiring the bracing that I was doing.
Michael: Interesting.
Carl: And it's going to take a while. The body needs to catch up. The nervous system needs to catch up with this new environment that we're operating in because it wasn't aware. It was doing a really important job. Bro, this is about to be painful. I'm going to help you here. So that's how I would think about that. Now, it's a whole 'nother subject if you don't know. If you don't know, well, then do all the analysis. What do we use the verb 'Kitces' now?
Michael: Spreadsheets.
Carl: Kitces it.
Michael: Carl said you're allowed to pull out your spreadsheet now.
Carl: Yeah, exactly. Pull out a spreadsheet, Kitces it to death. Understand it. And then you can be like, "Great." And then remember, no amount of reassurance is going to be enough. But it's important to have the reassurance so you can start to rewire this thing.
When Hedging Against Risk Can Help With Getting Started [16:59]
Michael: So it's interesting to me you frame it that way, no reassurance is enough. So I look at this for some of the points where I made transitions like this in my career and even ongoing. So, well, of course, I start because I have to spreadsheet it to death because it's me.
Carl: You.
Michael: Which just starts with, can we at least get clear about what the numbers are, what the growth rate is, what the retention rate is, what the profitability cash flow is, if you're scared of hiring, whatever the thing is? Let's at least get clear on what the numbers are just so we know. And the way that I had navigated this is you look at the numbers. Almost by definition, it's not enough to feel safe. If it did, you wouldn't have the scarcity pit in your stomach awkward feeling that's making you not do the thing that you're probably supposed to be doing in the first place, whatever the number is, by definition, that's clearly not enough.
Carl: Wait, wait, wait, wait, wait, wait, wait. Do you think in that moment, just this is important, do you think in that moment, there would have been a number that was big enough to make you feel safe?
Michael: Well, yes. And that's the question that I ask, that I would ask myself, okay, it's scary to do the launch. What would it actually take? So I guess even to put in context as an example. So when I launched our kitces.com platform, which at the time... It's morphed a lot. The original kitces.com, there was no blog. It was a paid newsletter service. You paid $150 bucks a year and you got 12 long-form monthly newsletters from me, 1 a month with some deep dive topic you could get CE for. And then hopefully, I would show off that I was nerdy enough in the newsletter that I could get speaking engagements. And so the original model, speaking promoted newsletter, newsletter promoted speaking, that was what I launched with in 2008, in early '08. And so everybody knows now with a lens of hindsight what 2008 was. I certainly did not know we were going to have a global financial crisis. But things were already a bit bumpy in markets and the environment in early 2008. But technically, it already peaked because that had come in '07. Early Bear Stearns problems were cropping up. The yield curve was inverted. All the stuff that we talk about was basically saying like, this could be a bumpy year. And here I am launching a business. And so I basically had sat down and said, what would it take for me to actually be willing to do this? Because I just finally got to the point where I was making decent money at the advisory firm. And I was now about to walk away from the bulk of my salary and go part-time with them so I could make this newsletter and speaking business. And the answer I came up with was a year of savings and a hedge against the market crashing. Because at the end of the day, I was like, if I'm running a business that's all events and newsletters, the first thing you cut when the market crashes, first thing many advisors cut when the market crashes is discretionary education budgets. And so I was terrified that if something happened in the markets, my income was going to evaporate in this business that I was launching. And so what did it take? One year of savings and a bunch of put options. I literally...
Carl: Did you really... We talked about this in an episode a little while ago. Did you actually buy...
Michael: I didn't do it in the advisory firm context. I did it to hedge the speaking business.
Carl: Fascinating. So out-of-the-money long put options.
Michael: A little bit, yeah. Well, actually did it twofold, a little bit of long out-of-the-money put options and some 2X inverse mutual funds. Because it was easier to do that than options at the time. A lot of my dollars were IRA dollars. So buying out-of-the-money put options, a little more challenging, retirement accounts. So I could do a small sleeve of put options and taxable accounts, which ironically I bought too short-term. If I'd bought LEAPS [Long-Term Equity Anticipation Securities], that actually would have gone amazingly well. And I might be retired on Caribbean island right now. But I was buying shorter, much shorter options, and most of them rolled before the actual financial crisis fell out. And then I had a bunch of leverage short funds that did very, very well in 2008 and actually made me feel better about how it went. And then I was so terrified of that, I continued to hold them as the market went through the full recovery and they basically reverse-compounded to nothing.
Carl: Okay, let's not get distracted because that seems…
Michael: And I was like, that's fine.
Carl: Yeah, exactly. That's what the point is of them.
Michael: Ironically, I wanted put options I was expecting to not pay off anyways. But it was just like...
Carl: They did their job.
Michael: ...that's what it took. It wasn't particularly financially good deal. I lost, I actually was shorting the market and buying puts in the financial crisis and still managed to not make any money on any of them because the puts expired too early. And then the inverse fund, I held "too long" on the recovery.
Carl: Yeah. But that wasn't their job.
Michael: Yeah. But it meant I was hedged through the scary times. So I didn't have to go back to get my old job for the salary because I was freaked out about the financial crisis. I was like, well, apparently my short fund's going to pay next year's bills if the speaking business falls off. And as it turned out, the speaking business did not fall off. And the inverse fund got obliterated on the recovery. But it did what it was supposed to do. There's nothing...
Carl: That was its job.
Michael: ...there was nothing rational. It was not a good investment by any mathematical standard. But it got me through the blocking point. And getting back to your question, what it came down to was I didn't feel like I had enough. So I said, well, what would it take? And I picked a bunch of stuff. I was like, well, if I did this, it would work. I'm like, okay, that's what I'm going to do, apparently.
How To Develop An Internal Sense Of Security [23:41]
Carl: Yeah. And I think if that works, I think often that may solve a particular, and especially for a particular kind of person, and we've all seen this with clients. If you've got a pretty okay relationship with money and you're pretty, you know, spreadsheet-based, then there may be a certain amount of reassurance that will be enough. But for many people, when I use that phrase, no amount of reassurance will be enough, it means like, look, if you're in that scarcity mindset, you may solve the problem externally like you did, rationally on a spreadsheet, here's the solution, and still feel very scared. And so scared that you may not do the thing. And so in that case, we're just saying there's a different kind of work that needs to be done. You've done the external. You've got the external evidence. Awesome. You're still feeling this way. Different kind of work. And that kind of work is unwinding some of this nervous system scarcity stuff that served you so well for so long and now no longer needs to serve you. And remembering that the body keeps score, that that's going to take a little while to train the body like, hey, it's okay. Hey, it's okay. Hey, it's okay. And I have found the gentler you do that with more grace than kick teeth, kick fear in the teeth. No fear. And that's the macho way to do it. It doesn't really work.
Michael: Yeah, that's never worked for me. More power to people that it does. If that's your thing, cool. But yeah, I could never do the kick-fear-in-the-teeth. I needed to do the, no, I need to actually come up with a way that I will financially be okay if the bad things happen.
Carl: Yeah. And I would imagine...
Michael: … like, the equivalent of buying insurance.
Carl: Yeah. When you felt like, when that fear popped up, you either metaphorically or actually can pull that plan back out and remind yourself, hey, you don't need to worry about that. You've made a plan. It's very similar to the work we do with clients. But yeah, so it's just reminding, reminding, reminding, no, hey, that fear has been part of your life every day for 20 years. You've made a plan where it's not going to be part of your life, but you got to get the body and nervous system on board. So that's what I think was going on there. That's the only way I know to approach it. And I've got a lot of work to do myself. Like I said, I'm still bracing every once in a while with... If a notice comes from the IRS, and that goes back to my dad.
Michael: Because your dad had tax struggles?
Carl: Yeah, my dad had some tax struggle long, long, long, long time ago. But he'd always talk about it. He cleaned it all up, but he'd always talk about it. Or I was aware of it. And so I'll open them. It's taken me a number of them to open like, oh, you're just telling me that I got a refund or you're just telling me... It's just so interesting the stories that...
Michael: They're not coming to you for money. They're actually coming to give you money. But it's still bad.
Carl: Whatever. All I'm saying is, and you can ask my wife too back to whatever advisor's name we're using here, the idea that, what if all the clients leave? And my wife could tell you, "I can't tell you the number of times Carl came home and was like, 'Today is the day 78 people are going to fire me on 1 day.'" And so, it just takes rewiring. And just know that you're not alone, know that it's possible, and we've given you some tools to do it.
Michael: Some. Well, thank you, Carl.
Carl: Yeah, cheers, Michael. That was really fun.
Michael: Awesome. Thank you.
