#FASuccess Ep 393: Taking The Risk Of A Multi-Million-Dollar Succession Loan To Make The Business What You Want It To Be, With Alex Lewis

Resources Featured In This Episode:

• Alex Lewis
• Blackbridge Financial
• Entrepreneurial Operating System
• FP Transitions
• Rocket Fuel: The One Essential Combination That Will Get You More of What You Want from Your Business by Gino Wickman and Mark C. Winters
• Traction: Get a Grip on Your Business by Gino Wickman
• The 5 Dysfunctions of a Team: A Leadership Fable by Patrick Lencioni
• Never Split the Difference: Negotiating As If Your Life Depended On It by Chriss Voss and Dahl Ray
• Delivering Massive Value: The Financial Advisor's Guide to a Highly Profitable, Hyper-Efficient Practice by Matthew Jarvis

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

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Full Transcript:

Michael: Welcome, Alex Lewis, to the "Financial Advisor Success" Podcast.

Alex: Thanks, Michael. It's an honor to be here.

Michael: I really appreciate you joining us today. I'm looking forward to a discussion of what I think of as the other side of succession planning in the industry. There's a lot of conversation out there these days with advisors who own firms and are trying to figure out, "How do I do this succession plan? How do I find the advisor that's going to come in and someday acquire the practice so that I can exit?" But I find we have far fewer discussions with people on the other end of that deal, "I came into the firm, was there for a few years, got to the point where I was ready to buy it, did the transaction, and moved the founder on."

And I know you've lived that journey, and with all the accompanying pieces that come with it. There's the very sizable amount of debt that we have to take on to actually do this transaction. There's the fact that almost inevitably the practices we buy are not quite what we want them to be, and you have to decide, do you want to buy this and make it what you want it to be? Because that just has more cost, and stress, and time, and risk associated with it. I know you've had a version of this journey that you've now lived through with all the ups and downs that go along with it. And so, I'm really excited to talk about what this succession experience looks like from the buyer's end as you come in and take on the debt to do the purchase so that you can then change it to be the thing that you really want it to be.

Alex: I'm excited to tell the story. It hasn't been easy. It's definitely had its highs and its lows. I'm thankful I'm on this end of it now. I did purchase the business in 2020. And if you had told me that right around the corner, there was a massive pandemic coming, I might’ve thought twice, but it has worked out. I'm very blessed to be on this end of it. And I'm excited to share the story with you and everybody else.

What Blackbridge Financial Looks Like Today [05:32]

Michael: So, I think to kick off, I'd like to actually start by having you just tell us about the practice as it exists today so we can understand where we are. And then we'll go backwards a little bit into how we got to where we are today.

Alex: Yeah, perfect. So, as of today, we have 6 total team members. On Monday, we're actually onboarding our 7th team member. So, there will be 7 of us. We manage just over $330 million in assets. We've got, in my opinion, a great model. We try to over-serve clients. I know you probably hear that a lot, but our model is one that when a client calls us, we try to answer the phone and we try to help them and be there for them whenever we can. But that's how the practice exists today. We've grown a lot over the last 4 years. And honestly, I've called the former owner, Reggie, several times for recurring advice, and I'm very grateful to him in the transition process. And it's worked pretty smooth for our team.

Michael: So, how many clients is it across this $330 million of assets and 6, coming up on 7 team members to serve?

Alex: We serve about 415 households. And I use the word about. We define a household as if they're parents with children and they quite literally live in that same household, we bundle them all together as 1 household. So, we have about 415 households.

Michael: Okay. So the, "I opened a 529 plan for your 3-year-old child, I opened the first Roth IRA for the 15-year-old in your house," they're literally in 1 household, so you're treating them as 1 household, I'm assuming by implication. If it's adult children that you're maybe working with in addition to their parents, that would still be 2 households at that point, assuming the adult children are actually out on their own.

Alex: Correct. Yeah. Once they become a legal adult, we do separate them out into their own household.

Michael: Okay. So, 415 households, $330 million in assets, 6 team members coming up on 7. So, can you tell us a little bit more about the team? Who are the 6 people? What roles do they fill within the business?

Alex: Right now, we have 3 financial advisors including myself. We're hiring a 4th, so he will start on Monday. And then we have a paraplanner, and then 2 admins. We're lean, but we've developed, in my opinion, pretty good systems and processes over the last several years. We've become pretty efficient. We do have a process for growth. We have a trajectory of who we're going to hire and when we're going to hire the next person. And so, that's the team as it exists today.

Michael: So now I'm curious. What is the trajectory? Who do you hire next, and when do you pull the trigger?

Alex: Yeah. So, we've done a lot of different capacity analyses. We want to keep our advisor-to-client or to-household ratio below 150. And so, as we start creeping up on that, which if you do the math, we kind of are now, it's time to hire. We don't have firm minimums. I know there's a lot of debates about, should you have a firm minimum or not? We don't. As a Christian, I believe in helping everybody who needs to be helped. That's our mission. One of our core values is just helping others through faith. So, when someone comes, we want to be available to help them. And so, we try to expedite our processes a little bit, try to be as efficient as possible. And so, we're trying to make sure that we keep up with the growth. So far, year-to-date, we've had about 52 prospects.

And I'll say, not everybody is what we call an ideal client, even though we do help everybody, not everybody is "an ideal client." We do define an ideal client a little bit differently. And so, that is who we target. But we do help everybody who needs help.

Michael: And so, how do you define ideal client for yourselves?

Alex: Yeah. We define an ideal client as someone who has a million dollars of liquid assets that we can manage for them. While that is who we target, basically, we don't say no to anybody below that threshold.

Michael: Okay. And can I ask, does revenue sit for the practice overall?

Alex: So, revenue right now, trailing 12 would be roughly $2.8 [million], is where we are right now.

Michael: So, you really do net pretty close to 1% on a $330 million asset base, you're like 80, 90 basis points here?

Alex: That's correct. We do.

Michael: Okay. And so, does that mean clientele is pretty much all individual households just of varying sizes with breakpoints?

Alex: Yeah. We have a client service matrix where we break clients out from, we have A, B, C, and D clients. And we've expanded that here recently where now we actually have G clients as well. And I can get into what a G client is in a second. Our A clients are above a certain threshold, and then B, C, and D. They mean something to us. It does depend on our service level as well. So, if you're an A client, you get a certain service level, B client gets a little bit different. Our A's and B's are who we try to target. And our rate and fee schedule is based on account value size as well, so the larger the account, the lower the AUM fee would be. And that's really the only fee we charge. We don't charge a financial planning fee, just the AUM fee.

Michael: And what does the fee schedule look like? Where do you start? Where do you tick down to?

Alex: Our highest fee is 1.5%, and our lowest fee…we do negotiate the fee once we get over a $5-million threshold for a household. And so, it really just depends. Some clients are in that high-net-worth world where it could be as low as 50 basis points for some of those clients. But overall, it's that average of about 1% is what we use internally when we think about extrapolating data into the future when we're…how large are we going to be in the future? When do we need to hire? We use that internal 1% number to average everything.

Michael: How far up the scale does 1.5% go before you start notching it down?

Alex: It's ironic you asked this. We're actually talking about this together as a team at the moment. So, right now, 1.5% is for accounts less than $500,000. That's the breakpoint. The next breakpoint, it goes to 1.25 up to $750 [thousand], and then it continues to trickle down after that. But it's a discussion we're having in the office. We've actually incorporated EOS, if you've ever heard of EOS, the Entrepreneurial Operating System. So, I'm a big believer in... I do enjoy team buy-in because I am young, this is the only advisory firm I've worked at. And so, as we come up with ideas and listen and learn to how other advisors do things, I like to bring that information back to the team and we talk about it as a team.

And so, again, that is one thing we're currently talking about, is, how do we adjust the rate and fee schedule? And so, it's a good topic of conversation. Business planning is never done, Michael, as you know. It's a constantly changing environment. You have to keep up with a changing market And we're flexible and nimble.

Michael: So, I infer from that, are you guys concerned about whether 1.5% is working for you, that you want to reevaluate this? Or it's been fine, clients are happy with services rendered, and on we go?

Alex: Yeah. It's a good conversation. I obviously listen to a lot of the Michael Kitces podcast episodes, and I hear a lot of different rate and fee schedules. I hear a lot about, the 1% fee is average. Is it going to a retainer model? Is it going to a flat-fee model? So, we're just having those conversations of, where do we think the future of our industry's going? Is it AUM based? Is it a flat fee? How do we start charging for things like that? And so, we're having those conversations as a team, and it's been pretty valuable. We've got differing opinions. Even if you do charge an AUM fee, we've got conversations about, is it a cliff AUM fee schedule? Is it a tiered AUM fee schedule? As in, is it the next dollar that's charged at 1.25, or does the entire fee jump down to 1.25?

And then you go back and you do the math of that. And so, there's just a lot of great conversation. I think that the key takeaway for our team is, everything we do is very intentional. We try to sit down as a team and say, "Why are we still doing it this way? Are we doing it this way just because that's how we've always done it, or are we doing it this way because that's the best way to do it?" And so, that's really what I've learned through the succession plan, is taking what did exist and just putting it under a microscope and thinking, "Why are we doing it this way? Maybe we could adjust it and change it and tweak it and see how that works." And that's one thing our team's not afraid to do, is we constantly do change and update.

Building “Wow Factors” Into A Client Service Model [15:22]

Michael: So now, take me back to the client service matrix. So you'd said you have an A, B, C, D style threshold. So, how do you set where clients fall across the tiers? Some firms do it by assets, some firms do it by revenue, some firms have an even more detailed assessment system across clients and lots of different factors that input into it. How do you guys decide where clients fit within the system?

Alex: Yeah. In my opinion, I think an A client for us is someone who reflects our top 10%. That number changes every year. So, if our top 10%, if the lowest one of those is $2 million in assets, well then that's our threshold. And so, we update that every year. So, next year our A clients, the top 10%, that threshold might change.

Michael: Oh, interesting. So, you kind of have it hard fixed to, it will be a certain percentage of your clients that just represent the folks who are the best overall business fit for you?

Alex: Correct. We used to do this A, B, C, and D model a little different. It was basically anyone who was over a million dollars, we considered an A client and they would get that client service level. But as time went on, we had several households in that, and it just became a little bit of a capacity issue. If 30% of your clients become an A client, are they truly an A client anymore? So, it's time to adjust. Maybe some of those clients are actually B clients. And we sat down as a team and tried to figure out, what does A client actually mean? Is it a dollar amount? And so, we landed on it being a percentage. And so, we do update that every year. A clients, we define as the top 10%, B clients are the next 20%, and C clients are the next 33%.

Michael: Okay. And then, that leaves roughly a third left that fall down to the D client level?

Alex: They do, that's correct.

Michael: Okay. So, how do you distinguish in practice for what you do across this client service matrix? Are they different services they get, or some things bundled in versus not? Is it number of meetings that changes? How do you actually distinguish service levels in a service matrix of A, B, C, D?

Alex: Yeah. I think it's easier if we start on the other end of the spectrum, which is a D client. I will say upfront, if a client calls us and they want help, we're going to give them a callback, most likely that day. It's not like we're underserving anybody by any means. But a D client, the client service matrix is more of, how are we as a team proactively reaching out to clients? And if they call us and want additional, we do that as well. But for someone who we classify as a D client, and right now that's client households under $500,000, we do 1 annual review for those, we do 1 client-wide event for those individuals as well. We call them on their birthday. And so, that's pretty much that threshold.

We meet with them, we do a financial plan for them. It's that financial plan, annual update, pretty basic information. Generally, for us, someone who's in that threshold, that's really all they need, Michael. They don't need an elaborate estate plan, they don't need more than 1 financial plan update per year. So, for us, that works out pretty well. And then as you slide up that scale, you get more client meetings, you get more in-depth planning. And then all the way to that A client where...we go to estate planning meetings with our clients. If they go to their attorney, we go to those meetings. We sit down with their CPAs as well. We proactively reach out to them and communicate with them 4 times per year.

And so, it's just a different level of proactive service. We also try to incorporate what we call “wow factors”. A wow factor for us is something that's extraordinary. For example, if we know there's a client who if it's their birthday or if it's their anniversary and we know that their favorite restaurant is this restaurant downtown, we're going to call that restaurant ahead of time and we're going to make sure that they have, for example, a bottle of wine delivered to their table. And we happen to know what bottle of wine they like because we ask them. So, we get we get their preferences, we get who their favorite sports team is, and maybe we'll take them to a sports team event, and stuff like that.

We've got a couple of wow factors that are really cool. I'll tell you a quick story. It's not a gimmick. We have very in-depth relationships with our clients. And I think a lot of advisors do these things to say, "Well, I need to get them their preferred drink. I need to take them to lunch." And those things are great, but we want to do these things because we truly have great relationships with these clients. So, here's an example. We had a client, this was earlier this year, who her husband passed away. It was a very sudden, it was it was a bad moment, obviously.

Michael: Oh, that's awful.

Alex: I was out of town. But because we're a smaller team, one of the other advisors and 2 of our admins went to the funeral. Client obviously appreciated us showing up. We're there for our client. This client was so distraught, she could no longer live in this house. So, she ended up moving from the house and went to close on a new house. And so, one of our other advisors went to her house closing with her, and we brought her some flowers. And she cried. And she was very excited about someone being there and holding her hand. She didn't know how to go to a house closing, that was new for her. Her husband did that. So, that's when she sold her house. When she went to the other house closing to purchase her next house, we had another advisor go to that house closing. And he's actually an artist as well. So, he drew her a picture of her old house and put it in a frame and gave it to her. She was just amazed at the level of care.

She'll never forget that. That's how you build lifelong relationships, during a transition like this. She loves our team. It's not one individual, it's a team that did that. And that's part of why our succession plan worked so well, Michael, it's a team not an individual.

Michael: So, out of curiosity, how do you systematically get and keep track of all this, favorite restaurant, favorite wine?

Alex: It's not easy to do. For example for some of these A clients, as we call them, I'll communicate with them at least quarterly. And I have a pretty good idea of what they're doing, and when they're going on vacations, and when their anniversaries are. We know all of that information from when they onboarded. We ask those questions. We actually track in our EOS system, that Entrepreneurial Operating System, one of the metrics you can track is wow factors. And so, we track, we want to make sure that we are giving those clients wow factors every single year. And so, we are very active with trying to pull that data and information out of our clients and asking, "Where are you going on vacation? What restaurants are you going to?".

We take notes of when they come into our office, what are they drinking? Is it water? Are they asking for Diet Coke or Dr. Pepper? We take note of all of that, write it down. We do put it in our CRM, which is Redtail. And so, next time they come in, we're not even asking them if they want Diet Coke. It's just going to be sitting there on the table waiting for them to open. And it's stuff like that. They're like, "Wow." It sounds small, but, "Wow, you remembered that I like Diet Coke," or, "Wow, you remembered that I like coffee that's black." It's the small things, and they really appreciate that.

Michael: So, how much of this are things you ask in an onboarding questionnaire versus just trying to capture it in the flow of conversation interactions with clients and being mindful enough to write it down and get in the CRM for next time?

Alex: It's always changing for us. We're always trying to constantly improve and be better. We used to not ask this during our onboarding process, but I would say probably within the last 2 months, we updated our onboarding questionnaire, now we do ask, what is your favorite drink? What is your favorite sports team? What is your favorite hobby? We ask those types of questions and we record that in the CRM. Before 2 months ago, it was simply just asking questions in conversation of, "Oh, what are you doing this weekend? Oh, y'all are going to out to dinner? Okay. Well, let's send you an appetizer." So, it's just in conversation, trying to catch up on those things and pick up on what are their hobbies, what arethe habits, making a mental note of it, and then setting a task to be intentional to follow up and see what we can do to over serve them.

Segmenting Clients Using A Client Service Matrix [25:13]

Michael: So, what else do you do in the client service matrix to just try to vary services by A, B, C, D? I feel like it's a challenge for a lot of firms just figuring out, what do you actually do differently? Because as you noted, you're not going to not take the phone call when they reach out, you're not going to not do the analysis that's necessary to give them the right advice when they ask a question. So, where else have you been able to try to make some distinctions? I'm hearing frequency of meetings and how often you reach out to set meetings. At the A clients, it's the, and we'll even go out with you to your estate planning attorney, we'll sit down with your CPA. Are there other things that you've put into this matrix?

Alex: Yeah, there certainly are. We have different, what we call appreciation events where for A clients, we try to reach out to them specifically and try to do something more focused for them as a group. And keep in mind, this is still expanding. Our client service matrix…we updated this about 5 months ago. So, before this, it didn't quite look like what it is. But this year, we've made a big effort to reach out to clients to take them to their favorite restaurant and tell them to invite a friend, or tell them to...

Michael: And invite a friend. Okay.

Alex: And invite a friend. And invite a friend.

Michael: That’s an opportunity…

Alex: It is. I love to golf. I'll ask someone if they want to go golf. We'll take them, maybe their son, maybe their best friend, and take them golfing for an afternoon. And so it's stuff like that. It's still a work in progress, but it's more of the proactive reach-out, how can we deepen these relationships? And the scope of the financial plan increases with the more assets that someone would have. Again, I don't think someone who has $100,000 needs the same necessarily in-depth plan as someone who has $5 million.

Michael: Well, there's just more stuff going on. There's just more parts moving, and more dollars that could impact it.

Alex: Absolutely. And we utilize services like Holistiplan, for example. In my prior career, I was a CPA. I am a CPA, but I practice as a CPA. And so, we do start incorporating Holistiplan once you get into a certain level of that client service matrix, and we start getting into...we use MoneyGuideElite or MoneyGuide Pro, and they use this Wealth Studios module. So, once you get to a certain threshold, we do overlay the estate plan on the financial plan and start modeling that out and the flow of funds if something was to happen to either one of the spouses. And so, it's a different level of the scope of financial plan, and it's also a different level of how often we proactively reach out.

Michael: So, do you show and convey this to clients, or is this more of an internal document for just your own team's understanding of, “What are we doing for clients, and then making sure that we're tracking and implementing that?”

Alex: It's an internal document for us. When someone comes in, our process is we do an initial phone call, then we have an initial meeting where after that initial in-person meeting, we send them our data gathering form, which is electronic. We use PreciseFP for that. During these conversations, we've had, again, a phone call and an in-person meeting, we have a really good idea of who they are, their needs, and what we can do for them. We have our client service matrix memorized, and when a client asks what's, the process look like? We'll tell them, "Well, here's what you can expect from us. You can expect a tax review, and estate review, etc. We'll reach out to you 4 times a year. We're going to be very proactive in how we reach out to you and serve you in these ways."

And so, we lay out the expectations upfront. I do believe that clients leave because they have a certain expectation, right or wrong, they have an expectation. And if that expectation is not met, then they leave. And so, we asked them, "Hey, what are your expectations?" And I asked them in that meeting, the initial meeting, "What are your expectations of us?" And I want to just make sure that we close that gap. And so, you can expect a certain service level. And so, they walk away knowing exactly what services we offer, what they should be expecting. And so, there's no open-ended questions. And send them on their way, and that they're very informed with what we do.

Michael: And so, then where does the G-tier kick in that you mentioned earlier?

Alex: So, this is actually pretty funny. The client service matrix isn't perfect. You've got the As, the Bs, the Cs, and the Ds. Well, what about that young doctor who, he's got a lot of debt and he doesn't have a net worth, and he doesn't really have any liquid assets. Again, it's still the right thing to do to help them. And even if they don't fund an account with us, we still want to help and serve them. And so, how do we capture that type of client? And we still want to serve them, and give them a great level of service, and call them, and take them, and do these wow factors with them. So, we came up with G, and G stands for growth. And so, what it really means for us is it means that they have the potential to be an ideal client.

We don't want to label them as a D client, we do want to separate them a little bit and say, "Hey, this is a group of people that we still want to pursue and have these very intentional...a service model for them because we want to have a really great long-term relationship with that group."

Michael: And so, how do you handle just the servicing and support of them along the way? Do they map to an A, B, C, or D in terms of services? Or do you just have to make a whole other list of what you do and don't do for them because they may literally not even have an account with you?

Alex: That's a great question. We actually map them to a C client. And so, that's an individual, again, who, if you think about who they are, they probably have budget issues, cashflow planning issues. And so, we do meet with that type of individual twice a year, and we're proactive with making sure that they come into our office. We're an accountability partner for them. Are you paying down that debt? Are you doing the things we talked about that you need to do? And trying to hold them accountable so that they can get to where they want to be. And so, that's what we do for that threshold.

Transitioning From Public Accounting To Financial Planning [32:15]

Michael: Okay. Very cool. Very cool. So now, I think we've got a pretty good understanding of where the practice is. So now, take us back to how you came to this firm and journey in the first place.

Alex: So, I have a very, in my opinion, unique journey. In 2012, I graduated from college, and I actually went into public accounting. My personality is not, and I hope this doesn't offend any public accountants out there, but my personality is not someone who can work 80 hours a week and travel 100 days a year. And that's what I was doing in public accounting. And so, I wanted to take that skillset and instead of auditing organizations and helping these organizations, I wanted to take that skillset and do something a little bit different, help people, help change some lives and see the impact of those results.

I was actually at a homecoming game for the high school I went to, and I ran into a gentleman whose daughter I actually went to high school with, and I've known for practically my whole life. His name is Reggie. And I started talking with Reggie at this homecoming game, and he was also a CPA. And he asked me a little bit about my background, "Hey, what are you doing?" And I told him I'm in public accounting. And keep in mind, this was in 2012. And I was telling him all the travel and hours. And he laughed and he said, "Man, I hate it for you. I also used to be a CPA and was in that world." He gave me some information. He said, "Don't do it for too long. You'll get burnt out."

And he was right. And fast forward about 4 years after that, I actually ran into his daughter. My wife at the time, she played rec league soccer. And she was playing on a soccer game and Reggie's daughter was also on that team. And I ran into her and I said, "I need to reach back out to your dad. Because 4 years have passed and I need to reach out because I am continuing to be miserable working in public accounting." And so, she said, "He'd love it. In fact, he quit the public accounting world, as you know, and he's a financial advisor. He's actually looking for someone to take under his wing because he needs to retire someday." And I thought, "Wow, that's a cool, unique opportunity." And so, I messaged him on LinkedIn, and next thing you know, we had coffee. We had a second round of coffees. And he made me a job offer, and I was ecstatic.

I thought, "Man, this is exactly what I've been waiting for." I didn't know in the back of his mind what he was thinking at this point. But from his perspective, he wanted someone…because our clientele has a certain need for someone who understands a deeper level of tax, because that was his background, he's a tax advisor, and a lot of his former clients in the CPA world came over to be his financial advising clients. And so, they're used to this financial advice that is in-depth tax planning. And so, he was specifically looking for a CPA. It worked out so well. So, he hired me in 2016. What Reggie did for me, I honestly think no human being would've done for someone. He took a chance on me when no one else would. He trained me from the get go with the understanding of if this worked out, I had the opportunity to buy the practice from him and continue his legacy. And what a unique opportunity he gave me.

I knew what was at stake. I knew that if I had what it takes, if I made relationships work, if I worked hard, I knew what was at stake here. And so, I tried to learn everything I could. This is the first and only financial advisory firm I've ever worked at. And so, I learned everything I could. I picked up every book, I listened to every podcast. I tried to figure out, “How can I serve clients?” And roughly in 2018, keep in mind, I had probably worked for him for about 2 years, he came up to me and said, "I think I want to start talking to you about our succession plan. I think I might want to eventually sell the practice to you." And so, eventually, he did. And what a humbling moment.

I can't say that I would have done the same thing if I was in his shoes. And so, again, what that man did for me, I don't think many people would've done for someone else.

Michael: So, when you came on in 2016, it sounds like it was nominally in the direction of, "I'm going to train you and develop you here at the firm, and if this works out, then I've got a succession need in the future and you're going to be heir apparent at that point." But there was no written agreement when you went there and took the job that said “Reggie will sell to me in X years.” This was a proverbial handshake promise at this point?

Alex: Yeah. I would say when he hired me, there was absolutely no agreement. In fact, Michael, when I took the job, I actually took a pretty large pay cut, and I was willing to do it. One, money doesn't make people happy, and it certainly didn't make me happy. In the public accounting firm I worked at, when you looked at the partners who were there, they were all miserable. They did not have the family life, the dad wasn't involved in the kids' life. I was married at the time, and I just did not want that for my life. And so, I was willing to take that pay cut. And so, when Reggie hired me, I knew what it could be, it was essentially mine to earn, it wasn't going to be handed to me. And so, I knew it was an opportunity that was there, but there was no agreement. It was, "Hey, you need to get trained. You have to take all of these tests. You have to get your CFP, and that's going to take a couple years." And if you can do it, maybe one day we will talk about a succession plan. So, from day 1, I knew it was a possibility, but not anything written in stone.

Michael: Out of curiosity, how much of a step back was it on salary, on comp to do this industry career change?

Alex: I will tell you, it was over a 50% pay cut.

Michael: Wow.

Alex: I don't look back. To me, it was an opportunity. I don't sit here and think, "Man, I can't believe I took a 50% pay cut." I look at it as nothing's handed to you, it's earned. If I wanted to increase my pay, I had to get out there, and I had to bust it. I saw this moment as my opportunity. And if I didn't jump on it, I was going to be retiring from a CPA world that didn't leave me satisfied and fulfilled. I saw this as my opportunity to do something different and live a fulfilled life.

Michael: So, what did the practice look like then? I don't know if you recall or remember, I guess by assets or clients or revenue, what was the business when you showed up in 2016 and Reggie was saying, "I'm looking at a potential successor here?"

Alex: Yeah. In 2016, we managed roughly $110 million in assets. And at that point, it was Reggie. He had a junior advisor at the time, and he had an office manager who is the only office manager he's ever had. She's still with us today. She's worked for him for over 20 years, and she's absolutely amazing.

Michael: Wow. That's awesome.

Alex: So, it was essentially the 3 of them. And then they had a part-time secretary that would answer phones.

Michael: Okay. And do you know how many clients it was, roughly?

Alex: It was roughly 110 clients. Keep in mind, in 2016, we didn't keep track as much as we probably do now. So, I have gone back and tried to pull different reports to back into that number, but it's about 110 clients, 110 households.

Michael: So, he had a pretty healthy-looking practice, $110 million of assets, 100-something clients, so average client is a million-ish or so. So, it sounds like that practice was in a pretty good place when you came in.

Alex: It was. It definitely was.

Preparing To Succeed The Firm’s Founder [41:03]

Michael: What comes next? He says in 2018, "I think I actually want to start talking about our succession plan and make this happen." So, what came next to actually start making this happen?

Alex: He and I had open communication from day one, and I would say that that was key. And so, at no point did any of this come as a surprise to me where... I don't remember a conversation of, "Alex, today is the day where we need to have a conversation about the succession plan." But in 2018, we did get into more detail. If you take a step back and think about where we were as a practice, Reggie led every meeting. He was seen as the guy who was leading everything, doing everything, as he should have been. He was the lead advisor and owner. And I was the junior advisor at that point, and I was in these meetings, but I was a silent partner, I was taking notes, I was doing the follow-up and the analysis.

And so, I do remember having a conversation of, "Hey, Alex, eventually, you might be the guy who takes over this practice, and we need to get you leading these meetings." And so, we started in 2018 getting me more involved in leading the larger net-worth clients. So, we had great conversation about getting involved with the larger clients, trying to see me as the lead advisor in the client's eyes. And so, we quite literally would switch seats in the next meeting. I would be in the lead advisor seat and he would be in the junior advisor seat, as it were.

Michael: Because you had a standard setup around the table of literally like, the client sits there, Reggie sits here, that's "the lead advisor seat." The person who's taking notes sits over there. There were essentially the standard assigned seats and you literally switched seats?

Alex: We literally did, yeah. The lead advisor would have a keyboard and a mouse on the table, and we would basically throw everything up on a screen to where clients could see it in the conference room. And so, whoever is in charge of the meeting is sitting in front of that keyboard and mouse. And so, we would literally switch seats the next meeting, and I would be in charge of the meeting, and I would be running the analysis with the clients and doing financial planning, and talking about their investments and estate plan. So, that would be the next meeting. And Reggie was always really gracious about that in that meeting. He would say, "You guys know Alex. He's going to be the future of the practice. I want you guys to get to know him a little bit better."

And so, clients were like, "Okay, this is great. We'll start listening to Alex a little bit." And so, the next year after that, Reggie just wouldn't even be in the meeting, and it would just be me in the meeting alone with the clients. Reggie was still there, he was an advisor. This is probably 2019 at that point. And after the meeting was over, Reggie would come out and say, "Hello, how was the meeting?" And they would say, "Things are going well. It was a good meeting." And they would go along their way. And then in 2020 when I pulled the trigger and bought the practice from Reggie, there was not a single client that was surprised. Everyone could see what was happening. Reggie had conversations with everybody about, "Alex is the future of the firm. You get to work with him for 2 years before we pull the trigger on this." And then when it was announced in 2020, there was not 1 surprise. No client called and said, "I didn't see that coming."

Michael: I'm struck by just some of the, I guess, the language and framing here. So, Reggie didn't come in and say, "Well, I'm going to be retiring soon, and Alex is your new advisor." I feel like if this language is verbatim, he had a softer framing to this, just, "You know Alex, he's going to be the future of the practice." I'm presuming if we just look across the table you're a few decades younger than Reggie, so everyone kind of gets what's going on here. But Reggie's just saying, "This is Alex, he's going to be the future of the practice, so I want you to get to know him better." And you are leading that meeting, and he's still there for the proverbial lifeline. And that was how you set it up and did the progression. So, then 2020 really was the first time anybody said, Reggie's retiring," but they could read it earlier, but you didn't actually say it that way earlier.

Alex: Right. There was never a, "I am retiring." Reggie did not know when he wanted to retire. He didn't know it was going to be January 1st, 2020. So, in 2018, he's telling clients, he says, "I'm not getting younger. I want to go out on top. I don't want to stay in this practice forever and go out on a decline." And so, he told everybody up front, "Alex, he's good. He can do this. Alex is someone that you guys can create a relationship with and not miss a beat. Just take my word for it. Sit in a meeting with Alex and it'll work out." And everyone after those meetings would go up to Reggie and say, "You're right. This has been a pretty good meeting." And it gave Reggie a lot of comfort. He got a lot of valuable feedback before he sold it from clients…"Hey, this is great. Yeah, you picked you picked a great junior advisor. I have no problem with this."

So, Reggie felt comfortable with who he was selling the practice to. He knew it would work out. And I felt comfortable because I knew all of the clients. And so, both of us felt really good about possibly signing some paperwork. And in 2019, I'm not sure what happened. Nothing really happened, just Reggie, I think, he just felt like it was time. He saw the writing on the wall, I guess, just of he'd put his whole life work into this, and he was ready to retire, ready for that next stage. He came up to me one day, asked me to have a meeting with him, and we sat down and he said, "Hey, I'm ready to sell the practice to you." And I thought, "Oh boy, here we go." And that was that. We came up with an agreement, we got it valued. Here I am, at the time, I was 29 years old. And I think in 2020, we managed at that point, I'm rounding, probably roughly $185 million in assets. And here I am at 29 years old with this opportunity in front of me, and I'm shaking, I need to do this. This is my opportunity. And so, we went for it and it worked out.

Michael: So, you're heading in 2020, you said the practice was about $185 million of assets. I'm assuming then if you're running similarly, like you're $1.5 million of revenue or a little bit higher at that point, at the billing rate that you were at. So, that's the chunk of practice that you're buying into?

Alex: Correct. That was about exactly where we were. And think about it, I'm 29 years old, I don't have a net worth. I probably just finished paying off my student loans at this point. And so, Reggie absolutely had other opportunities, and we can get into the weeds of this if you'd like, but someone had heard that Reggie was potentially retiring, and a bank actually came in and started having conversations with him, and they started making offers and having conversations. And Reggie had an opportunity to sell to a bank upfront, cash upfront. Obviously, that's a lower-risk opportunity for him. He could have walked away and his clients would've served just fine. But, I had a conversation with him and he sat down and told me, he said, "No, I told you that you were the future. I told you I would give you a chance, and so I'm going to let you have the chance." And he turned down an offer from a bank, which I promise you, was more money than what I could have paid him.

Michael: Do you know, was the bank offering a better valuation or just better terms in that they would do it all cash upfront, and you were going to have to have some financing contingencies?

Alex: I would say both, Michael. More cash upfront. It was an opportunity for him to cash in his life's work, if you will, at a higher value realistically. I knew that if Reggie was to sell me the practice, he would have to probably sell that at a discount so I could get some financing from somewhere. And not only that, when you pay someone out over 5 or 10 years, it's a higher risk to the seller. What would happen if I'm the new owner and I'm only 29 years old and I take the business and I couldn't do it? Reggie's out of his retirement and everyone else is out of a job. And so, the leap of faith that that man did was immense. And he absolutely could have gone to a bank, but he didn't.

Valuing The Firm And The Mechanics Of The Succession [50:35]

Michael: So, how did you do the valuation? Did you try to come to some agreement about multiples or price, or did you go out to a third-party service to get it valued?

Alex: We used FP Transitions. And I can't speak highly enough of them. Reggie engaged with them, we got a valuation, and they gave us a lot of great information on... There's so many ways a transition could go, there's not a right or wrong answer. You can do cash upfront for a little bit lower multiple. You can spread it out over 5 or 10 years for a little bit of a higher multiple. You can do anything in between there. FP Transitions was great to work with. They created all of the agreements that we signed. You can do an asset sale or a stock sale, so we had to talk about pros and cons of that.

Michael: Which did you go with and how did you decide?

Alex: We went with an asset sale. For us, it was more of the liability perspective. If it was just a stock sale, all the future liability of all the decisions that were made prior to that point, they still existed. That exact firm still existed. And so, at the time, we had a different name. Our company was Boan Financial Group, which is Reggie's last name. So, Boan Financial Group at the time. And so, we changed the name, we did an asset sale. We started Blackbridge Financial, which is who we are now. And that worked out pretty well. Basically, I purchased the assets, the book from Reggie. And from that perspective, it worked out pretty well.

Michael: And can I ask, what was the valuation? Was it like a multiple of revenue, a multiple of earnings? Where did they guide you to set it?

Alex: This is one of those that...keep in mind, this is the only deal I've done. And at the time, I didn't have all the knowledge of all these transitions. I think the transition world, the mergers and acquisition world really picked up after 2020. I feel like everyone left and right now is purchasing an advisory firm. But we did a multiple of production. So, our multiple that FP Transitions came up with was about 2.2. So, I think at the time, that was slightly better than average. I think at the time, I think multiples were going for about 2. And so, that's what we did. And then it was, okay, how do you get financing? I actually went to our broker-dealer, we broker through LPL. I went to our broker-dealer, and I applied for financing and I applied at a couple of other banks.

And given my net worth and zero history of owning a business, it's no surprise that I got denied. And so, here we are again, like, "Okay, well, how do we make this work?" So, Reggie yet again came in to save the day. He owner-financed it. And so, Reggie and I signed a note where I would pay him out of revenue of the firm for 5 years. And that's what we did. And there were some restrictive covenants on that loan. And so, there were things like, if I wanted to hire another team member, Reggie and I would have to have a conversation about that and he'd have to agree to that. And I wasn't allowed to increase my salary, that's another example.

So, here I am at that point owning a pretty large advisory practice, and my salary is about the same as it was the year before. So, those were all challenges, but again, we owner-financed it, it was a 5-year period. I'm happy to say that… 2020 was not an easy year. Had you told me that 3 months after I bought the firm, the market would pretty much crash, if I had a crystal ball, I maybe would've done something different. But I do remember specifically, Reggie came into my office one day and he sat me down and he said, "Hey, we obviously know the market's going crazy. Try not to let this worry you. We're going to work this out. We both want this transition to be a success." And so, I'll say, that is one pro of someone owner financing rather than working with a bank. I think it would've been...

Michael: I don't think the bank would've come and said, "It's a tough market time, don't worry, we'll work this out."

Alex: And so, I know that's unusual for most, and no one's going to say, "We'll work this out." But that certainly helped.

Michael: So, I just want to make sure I understand this owner finance structure paying out over 5 years out of the revenue of the firm. So, was this like a 5-year amortizing payment of the balance of the valuation? Or was this literally a revenue base, like, well, Reggie gets 45% of revenue for 5 years, which if I math out is like 2.2 times revenue, but he's getting literally a percentage of revenue with the ups and downs that go with it.

Alex: It was not a percentage of revenue, it was an actual fixed note. And looking back on it, you're going through COVID, the market is in a free fall. I remember at that point of my life thinking, "Man, I really wished I had pushed a little bit more of considering either a clawback provision or making this a percentage of revenue," because those were scary days, Michael, as you know, I think, and I'm not exaggerating when I say this. At the end of 2020, the business's net income was about $11. It was a very tough time. But you know what...

Michael: Congratulations. You're running a multimillion-dollar practice and made $11.

Alex: Well, the loan was fixed. From a cash flow perspective, that loan was fixed, interest was high. It just is what it is.

Michael: Oh man. And so, I guess, some of these restrictive covenants around not increasing your salary, not hiring team members, was just to prevent the situation where you jack up your salary, yank lots of dollars out of the business, and then go back and say like, "Oh, I'm sorry, I defaulted. I can't make the payments." And someone says, like, "Well, that's because you yanked all the cash out of the business in other ways." So, the covenants were meant to preserve the financial health of the business to be able to make the loan payments, which I guess ironically it sounds like it did with perfect precision and $11 to speak of.

Alex: It was a bullseye. We nailed it.

Michael: Precisely negotiated. Well done everyone.

Alex: It was. It worked out great. Again, those debt covenants really protected Reggie and if I was in his shoes, I would've done at least the same. Here you are putting your life's work in the hands of a 29-year-old, and if he tanks it, if he increases his salary, if he's hiring people and you see that net income disappearing, how's he going to make loan payments? And so, there was a lot of trust there. He absolutely trusted me with his entire retirement. It was quite astonishing that the amount of trust that he put in a 29-year-old.

Taking Ownership Of The Firm Amidst The Pandemic [58:04]

Michael: So, help talk us through more what happens next. I guess I'm still curious out of the gate, no joke, you signed this thing on 1/1, and what would it be? 9 weeks later the world starts ending. So, what is going on? What is going through your head when you've taken on 7 figures of debt and now you watch revenue tank, whatever, it would've been like 20% in March of 2020?

Alex: Yeah, it did. I'll tell you, that was definitely the most challenging time of my life. Lots of sleepless nights. My wife and I, we were starting our family, we were young. I feel like I didn't sleep for the entire first quarter of 2020. First, you're a little bit scared. You just bought a business. And second, COVID hits, and third, the market's tanking. And fourth, what if clients leave because now that their accounts are going down and here's this new guy, he obviously can't manage money because the market's tanking? All these things run through your head. And I still do, I have imposter syndrome where, “My goodness, what if someone finds out that there's other better financial advisors out there?”

And I really struggle with a lot of anxiety, so much so, I even got some professional help. And I'm not ashamed at that at all. I had to get anxiety medicine to help me calm down a little bit. It was a very scary time. No doubt about it. But I'm a praying man. I prayed a lot. I prayed to the Lord, "Hey, make this what it is. This is in your hands, not in mine." And I shot my shot. I did the best I could. And if it worked out, great, if it didn't, I did the best I could. And I will say, by the end of 2020…2020 ended up being one of our better growth years. The first half of the year was rough. The second half of the year...and keep in mind, yes, we did end the year with low net income, but when you charge, the fees don't necessarily hit until the next quarter. And so, I think the last quarter of 2020 ended up being a pretty good quarter for us. And that's really when the growth started to take off.

Michael: So, the market bounces back in Q3 and plowing heavily into Q4. So, your AUM looks great on 12/31, but your billing on that great 12/31 AUM, that's Q1 2021 revenue. So, you get it, but it doesn't show up on the books in 2020.

Alex: Correct. And what I did in November of 2020 because I had seen we're gaining ground on some of these assets, and I saw some of the writing on the wall and I'm thinking, "Hey, this is improving and we're going to make it," I ended up reaching back out to LPL to see if at this point they would refinance my loan. And I got on the phone with them, and I said, "Listen, I made it through 2020. If I can make it through that, I can make it through anything, please refinance this loan." Because I didn't want Reggie to be burdened to me. I just felt a responsibility to refinance it and get him one lump sum check. I don't know. He didn't ask me to do it. He didn't even know I was going to do this. But arguably, I got a worse rate. I think our loan at the time with Reggie was 6% which was reasonable and pretty good. And then with LPL, I think it was about 6.25%. So, arguably, a worse rate, I will admit...

Michael: Not a huge spread, but when it's a 7 figure loan, you feel that, your quarter point.

Alex: If you do the math on that, it turns out to be a large number. But another thing it did was it extended my loan from 5 years to 10 years. And so, I was able to get some breathing room, I think, from a cashflow perspective. And so, I walked into Reggie's office, I think this was November 2020, and I said, "Reggie," and I was getting pretty emotional with him, "just thank you for everything you've done for me. I'm so overwhelmed with what you've done, but here's a check I want to make you whole. And I think our transaction at this point is complete." And I'm pretty sure you could probably pick his jaw up off the desk. But that was a pretty cool moment for both of us, I think.

Michael: So, where was the asset base and client base by the time you got to the end of 2020 and through this craziness?

Alex: At the end of 2020, we managed $235 million in assets. So, we ended up growing a lot that year. We were $185 [million] at the beginning of the year.

Michael: Wow. So, I'm just visualizing. So, as brutal as 2020 was both from the overall market volatility and then the pain of basically zeroing your net income, I'm assuming then metrics were radically different the next year, your revenue is up 30%, you've already paid down almost 20% of the loan on the original 5-year note, and you've just recast the remaining 4 years over 10.

Alex: I did.

Michael: So, revenue's up 30%, and I don't know what that exact math is on your payments, but your payments must be down. They would be down more than half.

Alex: They were. I won't say the specific dollar amount, but this is no exaggeration. Before I refinanced, my monthly loan payment was larger than my annual salary the year before. So, it was a large amount, but it's worth it.

Michael: Wait, say that again. Your loan payment in the business was higher than your entire salary before you did the purchase?

Alex: Correct. So, my monthly payment in January of 2020 was larger than my annual salary for 2019.

Michael: So, how do you get comfortable with that? I've been struck by... I feel like there's a lot of discussions in the industry these days around reasonable valuations, reasonable buy-ins for successors. And from what you're saying, particularly 5 years ago, practices were still largely going for 2X [annual revenue], you bought for 2.2X, you paid a market rate. That's not a deal that screams, "I got the big internal successor discount." The math worked fine, little tight in year one, but the math worked fine. But you have to get comfortable with, "My monthly payment in January is larger than my entire salary last year." So, I guess both before and after, what goes through your head to be comfortable to do that deal? And then, what's it like after you get in, "What did I just do to myself?"

Alex: Well, Michael, there's really 2 things here. I think first and foremost, I trusted Reggie. And I never thought I would need assistance, but I trusted that Reggie's not going to put me out my house. He's not going to let my family go hungry. And there's a lot of trust when you do business with someone, I think, whether a client works with an advisor, whether you're purchasing a practice, you have to trust who you're working with. And so, that was number 1. And then number 2, you have to be prepared. If you saw the spreadsheet I have behind the scenes, here I am a CPA/CFP, and I can spreadsheet with the best of them. I had a spreadsheet that said, what happens if revenue fell 20%, 30%, 40%, what is my break even? I had all of these things calculating, assuming my expenses were fixed, what if my revenue falls, I added in my new loan payment. And I knew that I had about a 36% buffer. That was the magic number. And so, I said, "You know what, what are the odds that the market falls 36% between now...?"

Michael: And then you use most of that decline budget in like 3 weeks in March?

Alex: Oh, yeah. I'm watching the spreadsheet that I did, the margin started falling. And so, I saw, "Okay, production's falling 10%, 20%. Oh, wait, we're getting pretty close to that breakeven number." But nonetheless, I knew I had a breakeven number and I did know mathematically I was going to be fine. And so, twofold, again, I trusted Reggie immensely. And then financially, I was prepared mathematically. I knew there was wiggle room, our book has pretty good margin, I would assume. And it worked.

Michael: And I guess that's part of the driver at the end of the day was the practice had healthy margins because, again, it sounds like Reggie's practice was very healthy, close to million-dollar households. There's a good amount of revenue to manage, you don't need a zillion staff when your clients write a pretty good check per client on average. So, you did have room buffer in the practice before this gets really problematic.

Alex: Yeah. That's absolutely right. We had a lot of wiggle room. And I was really confident in the fact that because we do have, in my opinion, such deep relationships with our clients, and it's not a gimmick when we do things like draw a picture for a client when they sold their house, it's not a gimmick for us. It's, we do that because we love our client and we want to be there for her in a very difficult time. And because Reggie created that culture internally, we continued that. And not a single client left during this transition. And we were prepared. We did another analysis that said, "Well, what if we lost these clients?" We obviously had a list of clients that were on the maybe-they-don't-stay list. And I cannot believe, not a single one of them left through the transition or a down market. They trusted us. It's a relationship. Just like I trusted Reggie, they trusted me.

How Alex Has Adapted The Firm Since The Challenging First Year [1:08:58]

Michael: So, how has the business changed over the past 3 years since you got through this initial tough spot squeeze? So, you get to 2021, you've done the transition, everyone stayed, the last year was harrowing, but now, assets are up, revenue is up, the loan's been recast to 10 years, so cashflow is suddenly much better. So, what comes next on this succession journey after the horrible first year?

Alex: Well, we started growing. Reggie was still an advisor at the time. Our deal said that he was going to work for 2 full years, and after that, we would just negotiate it year by year. If he wanted to continue to work, great. If he didn't, I would respect that as well.

Michael: Did you have to pay him a salary over those 2 years or was that essentially just part of the deal and the transaction in the first place?

Alex: We had a consulting agreement where he was paid a set salary for 2 years. So, we had a 2-year contract, and then after that, if we wanted to renegotiate, we would do that on a year-by-year basis.

Michael: And that was separate from the purchase price for the business?

Alex: It was. It was separate.

Michael: Okay. So, Reggie's still going as an advisor, so paint the rest of the picture for us of what's going on at this point?

Alex: I quickly knew that we needed some more help. Here we are in 2021, Reggie at this point had about 1 year left with me. And I thought, "All right, I need to hire someone to help." And so, again, I'm a huge fan of prayer and I believe that the Lord opens up doors. I'm sitting here thinking about what am I going to do? How am I going to replace Reggie when he actually stops working? And I had, this is actually a client of mine who reached out to me at the time, and we had lunch and he said, "Hey, I'm really interested in your world." And he's a likable guy, but most importantly, he's very trustworthy. He's a hard worker. I've known him, I've served him over the last few years. And so, I thought, "All right, let's give this a shot."

And so, he came in, he got all of his licenses, he got CFP certified, he joined the team. And then we had to do that one more time. We hired another advisor, continuing to grow. And so, we've got a game plan where we're trying to continue the level of service that we've given our clients over the last several years. And as we continue to grow, we'll keep adding advisors to help serve those clients.

Michael: So, you found someone who came in and plowed through all of his licenses, and his CFP certification span like a year?

Alex: It was amazing. So, he got all of his series licensing and insurance licenses done, I want to say it was like in 70 days in total. He is very smart.

Michael: All right. He's a sharp guy.

Alex: Yeah, he's a pretty sharp guy. He did it really quick. I was very impressed. He then immediately started taking the CFP courses. And I'm not an expert on when he got licensed because there is the experience requirement, but he knocked out the test within 1 year. He did. And as soon as he had the experience, he became licensed.

Michael: And so, he came in and ramped up of the span of this year as Reggie is getting ready to dial down and you're suddenly looking at this and saying, "Oh, this is way too many clients for just me?"

Alex: That's exactly right. And so, after I hired that gentleman, I quickly realized, "Hey, this trajectory, it's not slowing down. We're continuing to grow." And this is humbling. And, "Hey, let's do it again. It worked well when we hired the first advisor. Let's hire a second, let's duplicate it." Now, this gentleman that we hired, he was in college. He was a young guy and his mom was a financial advisor. And so, growing up, he knew what a financial advisor was. He actually worked for his mom's practice in college and got licensed. And so, when I started speaking with him, he was fully licensed in college. And so, he graduated and day 1 came into the office able to meet with clients. We had obviously had to train him on how we did our processes and systems, but for day one, he started studying for the CFP exam. And I think within 12 months, he passed his test. And I think because he already had the experience, he was able to get certified within a year.

Michael: Wow. I guess, what else changed? Was there anything else that changed as you're taking over the practice and ramping up and Reggie's dialing down? You've talked a bit about your service matrix and the client tiers. Were those all things you were doing after Reggie, or were those things that were already in the practice I guess when Reggie was still there?

Alex: When Reggie was leading the team, we had what I would call “understood” processes and procedures. And keep in mind, at the time, I think we had, what did I say, like 110 or so clients. And it was fairly simple, it's, "Okay. Well, so and so has a meeting coming up. We know them really well, so we know walking into that meeting what we need to do." But when you're just growing, it's hard to look at a process that's not written down and tweak it and improve it and systematize it. I've done the CliftonStrengths Finder and one of my strengths is I'm a lifelong learner.

And so, just naturally through that, I started reading books of how do we systematize, how do you run a business, how do you put processes in place and make things duplicatable and repeatable. So, I read several books. Actually, ironically, we got the whole team to read these books together. We read...

Michael: Well, what were the books of choice?

Alex: Oh, man, I could go through them. "Rocket Fuel" by Gino Wickman, "Traction." We also read "Five Dysfunctions as a Team," "Never Split the Difference" by Chris Voss. And so, as a team, we started thinking, "Hey, let's create systems and processes and create workflows." We hadn't had workflows before. So, we started what's called EOS, Entrepreneurial Operating System. And if you read those books, you'll know exactly what I'm talking about. And so, we simply started creating rocks where a rock is essentially these mini sprints to get things done to achieve a bigger goal. And so, we knew we wanted to have processes that we could tweak. And so, we had to write them first. And so, we wrote down those processes. We were able to start tweaking them.

Once we finalized what they were, we put them in a workflow. And so, now I'm not involved in having to tell all the advisors, "Hey, don't forget that client has this, this, this and this going on." Now we have a process of 1 person reaches out, gathers data, and then they hit complete, and then it goes to the next person who fills out their next piece, and then the next person, and then the advisor gets triggered about a week before a meeting to go in and review and update everything they need. And so, we've been able to create those processes like that.

Michael: And that's all in Redtail because that was your CRM of choice?

Alex: That's correct. And we started looking at different metrics, like, how many wow factors are we doing per week? How many clients are we onboarding? How many prospects? How many leads? What's our conversion ratio? We started tracking these things. We read together as a team Matthew Jarvis's book, "Delivering Massive Value." And we're not afraid to try something. We've tried it all. We even did the whole surge meeting thing that Matthew Jarvis recommends, and it worked out great for a little bit. And then we just kept growing and clients kept calling when it's that month where you're not supposed to be meeting with clients.

Michael: It was harder by the time you were 3 advisors, 300, 400 clients to keep that going. There's just so many people, some of them are always asking for things outside of surge?

Alex: Correct. Right. So, we had to tweak it a little bit to make it fit our team, and that's okay. I think that worked well for Matthew and his team, but for our team, we created...

Michael: Do you still do some kind of adapted version of surge? Or did you simply go back to 1X, 2X, 4X per year, depending on client tier and spread them out?

Alex: We adapted a little bit. So, what we do now is we created... I love the thought process of just being intentional with everything. So, we started what we call the Ideal Work Week. And so, keep in mind, this is the ideal work week, this isn't every work week. But the ideal work week for us is we don't have meetings on Mondays or Fridays. Mondays are our prep days largely, and then Fridays are our recovery days where we can do a lot of our follow-up. Tuesday, Wednesday, Thursday, we try to be in a lot of meetings. And so, you might have 2 meetings in the morning, 1 or 2 in the afternoon. That is difficult. If you do 3 a day, that's 9 a week just for 1 advisor. And so, it can get stressful. So, I try to block in there a longer lunch. So, I like to go to the gym during lunch and try to clear my head for the afternoon meetings.

And so, for us, that's how we tweaked it. And then July is a little bit slower. We're intentional with slowing down in July, but we don't tell clients they can't come in or we're not going to meet with them until August. If someone calls, we're going to serve them, we'll meet with them. But we do try to have a model work week.

Michael: So, you're trying to manage meeting capacity in essence, like, we'll take, what, 3 or 4 meetings a day, so it's like 9 to 12 meetings a week. On these 3 days, we'll try to keep those full. We don't want to do fewer because then you get a backlog. We don't want to do more because then you drown. And that's the ideal week you try to hold to?

Alex: In a perfect world, that's how it works. Inevitably, we'll have a prospect call and they'll say, this actually happened last week, "Hey, my 401(k) plan's shutting down and the owner needs me to get the funds out tomorrow." And it's like, "Well, we're booked out for the next 3 weeks." So, situations come up where you just have to meet with someone. And so, we squeeze them in, we'll put them in on that Monday or that Friday. It's just part of doing business. There's no black and white. There sometimes is that gray of, yeah, we have a model work week, and that is what we're proactive and intentional with, but life happens and we're there for clients when they need us.

What Surprised Alex The Most On His Journey [1:19:56]

Michael: So, what surprised you the most on this journey of building your own advisory business?

Alex: I think what surprised me the most is this has been such a learning moment for trust all around. The amount of trust that Reggie had in me, I can't say that I would've had in someone else. And I think the amount of trust that our clients had in me was really humbling. I don't know why, I worked hard and people stayed, and it's been an absolute blessing. I'm a big believer in you can only do what you can do. And so, there are a lot of sleepless nights, but I'm just very humbled and blessed with our client base, and that is something I did not expect.

The Low Point For Alex As A Firm Owner [1:20:43]

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

Alex: So, let's go back to where we were in 2022. So, we just finished our transition...

Michael: Reggie's out now.

Alex: He's stopping January 1st, 2023. And so, we're in 2022. 2022 market's not doing well. We have a data provider who gives us a lot of information on how we run models, and they essentially stopped their service to us and they wanted to create a TAMP [Turnkey Asset Management Platform]. And their fee structure changed from a reasonable several hundred dollars a month to 10 basis points. And so, at the time, 10 basis points of whatever we were at the time.

Michael: Oh, $200-plus million. So, that's a 6-figure bill.

Alex: It amounted to a 6-figure bill. And so, I literally called...and keep in mind, I still have this large note. So, what am I going to do? So, here I am. If we want to continue the service, it's, well, do you cut out the service or do you continue to do what clients know? I thought we had to continue the service. And so, our team called all of our clients, and I had, let's just call it 400 conversations of, "Hey, I'm really sorry, we have to raise your fee by 10 basis points." And I hated that conversation. I had that conversation almost 400 times. And we did that and not a single client said no, not a single one.

Michael: How did you explain it?

Alex: We were just open and honest. I think being open and honest is the key here. I called them and I said, "Listen, I do not want to increase your fee." And I said, "But think about where we are. This is our process. This is what we do. This is a huge factor for us. We have to continue this service." And they agreed. They said, "You know what? Hey, let's sign the paperwork, 10 basis points, it is what it is." I think after everyone signed the paperwork, a month later, this organization called me back and they said, "You know what, we changed our mind. We're going to revert back to the old feature."

Michael: No.

Alex: Oh, yeah. Which I didn't know whether or not to be jumping up and down for joy or to be really upset.

Michael: After you did 400 fee increase calls.

Alex: Yeah, I did. And so, I did another 400 fee decrease calls right after that.

Michael: You called everyone back and said they undid their fee increase, so I'm going to undo yours.

Alex: That's exactly right. And obviously, there was a lot of pushback. I guess this firm that was trying to create this TAMP, it just wasn't going well. And so, they went back to their original agreement. And I'll never forget, I had a phone call from one of the individuals at this company and they said, "Well, we're going to lower our fee, but the good news is you've already increased your fees, so you can just keep that." And I thought to myself, "That's obviously just not the right thing to do." Anyway. So, totally disagreed with that. So, the next day, we started calling all of our clients back and just say, "Thank you so much for trusting in us."

But that was a really hard low point, I think, Michael. At that point, you go through COVID, you go through a transition, and now they're changing fees on you. At that point, that was a very, very difficult time of owning the firm, but it ended up being okay.

Michael: So, I guess I do have to ask though, you were talking earlier about whether you want to revisit where your fee schedule is starting at 1.5 [percent] and tiering down, but you did put through a 10 basis point increase that not a single client said no to.

Alex: Right. That's true. Our highest fee went up to 1.6%, and that just didn't feel right. I'm so thankful that it ended up reverting. Just 1.6 just doesn't feel right. I don't know many that charge that much. So, it was a very stressful time. But again, not a single client blinked. In fact, I had several great conversations with clients and they said, "You know what, this is why I go with you guys. This is why I trust you." I had one client say, "You could have kept that fee and you didn't. You called us and lowered it as soon as you could."

Michael: Yeah. I would think the goodwill power of being able to call them back and then saying, "Hey, the cost went away, so we're going to give that money right back to you," is incredibly affirming to the client relationship.

Alex: Yeah, it was. It's been humbling, to say the least.

What Alex Would Tell His Younger Self [1:25:33]

Michael: So, what else do you know now that you wish you could go back and tell you like 8 years ago when you were first starting to come into the industry and having these conversations with Reggie?

Alex: I would say, trust your instincts. Don't be afraid to adapt. People are people, if you have to change something, they understand, just have an open conversation with them. I think our clients have had any change, any transition you can think of, whether it's COVID, fee increases, new advisors, but if you're just open and honest, they trust you that much more. They really do. So, I would say, trying to enjoy the process a little bit more would've been great for me. It's easy to say on this end of it, looking back, I wish I had enjoyed the process more, but you don't know what you're going through until you're through it. But I'm thankful I went through it.

Alex’s Advice For Newer Advisors [1:26:31]

Michael: So, any other advice you would give younger, newer advisors looking to become a financial planner and start their firm today?

Alex: Absolutely. I think there's so much conversation of, should I do it this way? Should I do it that way? The answer is yes. Just start, do something, be a good person. Tell your clients the truth, treat them, overserve them, be there for them when they call. It's going to work out. It's all about trust. You could be the best financial advisor in the world, but if your clients don't trust you, it doesn't mean anything. So, start there. Lean into relationships, network. I wish someone had told me that this industry existed when I was in public accounting. I truly believe this is the greatest industry in the world. You get to help people's dreams come true. You get to see people go from hopeless to hopeful. And so, I say, if you're thinking about this career, for me, it's been the most fulfilling thing I've ever done in my life. So, I would encourage everybody, if you're considering it, call someone, job shadow, give it a go. It's probably going to be worth your time.

What Success Means To Alex [1:27:44]

Michael: So, as we wrap up, this is a podcast about success. And just one of the themes that comes up is just that word success means very different things to different people. And so, you're in this wonderful position now with a very financially successful business that's growing well, the note's getting paid down, the business seems to be in a really good place for you now. So, how do you define success for yourself at this point?

Alex: I think success for me is twofold. If I retire and my wife and kids look at me and say, "Wow, I'm proud of my dad. I'm proud of my husband," and I was there for them, to me, that's success. But more than that, I also think that what Reggie did for me, I feel so strongly about wanting to duplicate that for another generation. The impact it's had on my life obviously has been immense. I can't wait to be on the other end of that and help transition to the next generation and watch them flourish. And so, that's going to be success for me, is watching this grow into something that's bigger than myself and bigger than our team and watching the next generation run with it one day, what an amazing blessing that would be to see it come full circle.

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

Alex: Thanks, Michael. It's been a pleasure.

Michael: Thank you.