#FASuccess Ep 131: The (Nearly) $1B Solo Advisor: Scaling Up Client Focus By Outsourcing Everything Else, with Dan Goldie

What You’ll Learn In This Podcast Episode

• How Dan's Practice Is Structured [05:30]
• What He Does For His Clients [08:40]
• How Dan's Cost Structure Is Set Up [19:05]
• Dan's Fee Structure And What He Does From A Financial Planning Perspective [23:33]
• Dan's Onboarding Process For New Clients [27:32]
• How He Thinks About His Own Capacity Limits [40:46]
• How Dan Has Managed To Grow To Such A Scale A Still Provide A Customized Approach To His Clients [50:33]
• Where His Clients Come From [59:30]
• How Dan Got His Start In the Business [1:07:58]
• Why Dan Decided To Open His Own Practice [1:13:59]
• What Surprised Him The Most About Building His Business [1:18:55]
• What His Typical Week Looks Like [1:26:13]
• What Success Means To Him [1:35:10]

Resources Featured In This Episode:

• Dan Goldie
• Buckingham Strategic Wealth
• Loring Ward
• The Inner Game of Tennis by Timothy Gallwey
• MoneyGuidePro
• The Investment Answer by Dan Goldie & Gordon Murray
• HP-12C Calculator

Full Transcript:

Michael: Welcome, Dan Goldie, to the "Financial Advisor Success" podcast.

Dan: Thank you, Michael. I'm a big fan of your podcast and I really appreciate the opportunity to be on.

Michael: Oh, thank you. I've been really excited about this episode for quite a while now. There's this dialog out there to me in the industry overall, when you're building an advisory firm that after you get started, we all struggle in the first few years, then like eventually hit this point where I've got enough clients, I'm getting some revenue. Okay, I think this business things can work. I'm going to stick with it. And then you got to decide what you're building towards. And there's sort of the split that's emerged where you can decide to stay solo, stay lean. Some people dubbed this like a lifestyle practice. Get a good base of clients, make a good income, keep your life in business relatively simple. And then there are people that go the other direction. Say, "I want to build $1 billion firm and I'm going to build the staff or the infrastructure or whatever it takes. And it may be laborious and I have to reinvest a lot, but I want this vision of building this billion dollar firm." And it's sort of this challenge like do you want to spill to smaller and lean lifestyle firm that might be high-income but doesn't necessarily grow huge or do you want to build towards a $1 billion firm?

And I came across this story of yours where you're a solo advisor with no staff, just shy of $1 billion. And not because you have like two clients that have half a billion each so you just work with the two of them. Like a full bucket just full of clients and approaching $1 billion as a solo. And I said, "This is a guy I have to talk to and understand like what have you figured out that no one else has figured out about how you marry these two things together to try to build towards $1 billion solo firm?" So I'm excited to have this discussion and learn what does that journey look like exactly?

Dan: Well, happy to talk with you. I really don't know myself even. There's certain things about the way I approach the business and approach life. Maybe that helped me out. But I also am very fortunate to be in the San Francisco Bay Area where there's so much wealth that's been created in the last three decades, joining the industry at the right time, in the early '90s, working with Dimensional Fund Advisors through all of their growth right when they started. I mean, I was really lucky in a lot of ways too.

Michael: So maybe just to get started here, paint a little bit of a picture for us of like what this advisory firm looks like of assets and clients and how you're structured and just help us understand the business.

How Dan's Practice Is Structured [05:30]

Dan: Well. So four months ago I joined Buckingham Strategic Wealth, so now I'm a part of a large firm. But prior to that, I had my own business and built that up over 28 years and at the date of valuation to join Buckingham, I had a partner working with me as an independent contractor and together we had about 950 million in assets. And I think between the two of us we had around 350 clients. So it was about 3 million average per client. And most of those clients were mine. I'd say 90% of the money I was advising. And that was our business.

Michael: And so what was the nature of the partnership because you mentioned independent contractor, like is this joint work clients? Is this like a paraplanner of yours that went out on their own? Like what's the nature of this partner relationship?

Dan: Well my partner's name is Dirk Gilliard and he joined me about 10 years ago, and we basically operate independently but we share like a common back-office service provider. And he piggybacks on a lot of the things that I had built up over the previous 20 years before that and invests the same way I do. We advise clients the same way, but he has his own set of clients and I have my own and we cover for each other and support each other as needed. But basically, working independently under one roof.

Michael: Oh, so functionally, like you're two independent solo advisors who split some back-office expenses.

Dan: That's a fair way to describe it. Yeah.

Michael: Which I think not uncommon for a lot of partnerships in the industry over the years. Like some are actually trying to deliberately build multi-adviser firm- shared vision collective thing and a huge number of advisors, simply, it's a way to share overhead costs. It's a way to share office space, which I would imagine is not inexpensive in the San Francisco area. So some overhead things are still easier to split with other advisors even as you both essentially run your solo firms under shared expense structure.

Dan: Yeah, that's a fair way to describe it. And it was good for both of us. We've grown together and been positive all around.

Michael: Interesting. So your solo pieces was it sounds like 850 or 900 million of the space. Not quite to the billion mark, closing in on it with another few years of client growth or market growth, but awfully close to that number.

Dan: Right.

Michael: So help me understand just what the business looks like and what you do. So we backed on these numbers, like your portion of assets is 850 to 900 million, sounds like about 275 of the clients are yours, average client is $3 million. What are you doing for 270 odd $3 million clients? Like what does it mean to be a Dan Goldie client?

What He Does For His Clients [08:40]

Dan: Well, I think I'm doing very similar things to what most advisors who use Dimensional Fund Advisors mutual funds do. Primarily, it's investment management, educating the client about how markets work, building portfolios, rebalancing them, reporting to the client on results. And then also doing financial planning. Nowadays, I guess people call it wealth management. So kind of the overall financial picture for people and helping them make smart financial decisions on balance.

All my clients are individuals. I don't have any institutional clients or 401 (k)s or anything like that. I really enjoy working with families. Most of the families I would say are in the San Francisco area, but there are quite a few spread around the country.

Michael: So you talked about kind of, I'll call it the classic investment management process and then financial planning process. So I want to understand and break each of these down a little bit further because you mentioned like having partners for back-office, working with DFA. So what does the investment side of Goldie Financial look like in terms of what you do for clients when you're constructing portfolios for 275 clients?

Dan: All of the clients are on a portfolio of, I would say between maybe 10 and 15 Dimensional Funds. So the portfolios are globally allocated. They're balanced portfolios tilted to small cap and value stocks. Very typical of all the people that use Dimensional Funds. I was one of the first adopters of DFA funds back in 1991 so I've continued that model throughout my career. I haven't really changed anything. I've used new funds as they've been developed.

Michael: And so do you have us like a standard model that all clients get or standard set of models or just every client get their own customized version of the various DFA funds? Like how do you construct these and pull them together?

Dan: Each person gets a customized portfolio, but I do default to maybe a list of a dozen or so models. But I think if you aggregated all the models across all the accounts, they'd probably be 50 different ones. But most people fall under a handful of them. I have certain ideas about how I think portfolio should be allocated for most people, but everyone is different. And if someone doesn't have all their money with me, I have to account for where the other money is allocated so that I'm doing the right job for them overall. So there's customization for everybody. And Dimensional Funds being like a building block approach, it makes it pretty easy to build those asset classes and structure something that makes sense.

Michael: And so how do you keep track of just managing a dozen models, 50 odd models in total? Like how does all this stuff get implemented?

Dan: Well, I work with Loring Ward as my back-office provider, so traditional TAMP and they keep all those models for me and handle all the trading and the rebalancing. I've created the algorithm for rebalancing and we've created a bunch of, I would say very efficient methods of managing all these portfolios, but they keep the database and they do all that for me.

Michael: So I think when a lot of people think of TAMPs, turnkey asset management platforms, they think of them as like the TAMP has made everything turnkey. Like here's our three models or our five models or our 10 models or however many we have on the shelf. You pick from the models that we've created. And that's the deal. And so, are the models you're using ultimately models they built that you adopted or are you still making your own models and not necessarily outsourcing the model creation to the TAMP? Just the model implementation to the TAMP?

Dan: Yeah, it's the latter. I think I use Loring Ward differently than other advisors use them. You know, I'm a CFA and I enjoy money management and so I build everything myself and create all of the...like the rebalancing algorithm I created and they implement all of it. So I'm basically hiring them to do the work for me. But the thinking part and the creation part, I want to do that myself. And we've worked over the years, I've been working with them for many years and so we've developed efficient ways of getting all that done and having them scale that up to cover all of our clients.

Michael: And so are you actively making model changes as well? I mean, would you characterize yourself as active or passive? Because it sounds like you've got a pretty deep money management knowledge base. I think a lot of people tend to associate DFA advisors as being just purely passive buy and hold. And so are you like intense in the model creation but then passive once you own it, are you still making shifts from time to time? What does the investment management philosophy and process look like?

Dan: It's essentially passive. I'm a believer in Dimensional's approach, how they view markets. So I'm active in creating the model for the person and adjusting the model as needed. Largely if changes occur to the client's situation. I'm not a believer that I can time markets or add value that way. So it's a strategic longterm buy-hold and rebalance type approach.

Michael: Okay. Okay. But you're doing, with your CFA background, a lot more in constructing particular models for specific client circumstances thus you're ending out with all these different models.

Dan: Constructing an asset class portfolio, not traditional active management.

Michael: So what becomes unique to different client scenarios that just that you end out with up to 50 different models across all of these different clients. And I know for some advisors, "Yeah, we customize the clients. Like we have a conservative portfolio and a moderate portfolio and aggressive portfolios. The conservative clients get the conservative one, the aggressive ones, the aggressive ones. We customize it for them." But that often still only comes down like three models or five models. Maybe there an alternative version that's a little more tax-managed, but not dozens the way that you seem to have evolved. So I'm just curious, what else happens from a customized model perspective that you end that with so many different models for clients that get billed?

Michael: I think you have to really think about that to be specific, but certainly, the assets that someone keeps and manages on their own or just any asset exposure they have outside of what I'm doing for them, I feel like I should adjust for that in my portfolios. So that's going to be one thing that's going to drive a different looking portfolio. Someone who gives me all of their liquid wealth. That would be one thing. The exposure to real estate is another question. Do you consider someone's home their sufficient exposure to real estate or do you add that to your portfolio? That would also cause them to be different because some portfolios would have real estate exposure others would not.

Michael: And it sounds like that answer will actually vary for you by the client. Like some of them you will treat their home as part of their real estate allocation. Some you won't. And then you're putting a REIT fund into the portfolio.

Dan: Some people have multiple properties, some people have larger properties, others just rent. You know, there's a whole variety of situations and I feel it's important to customize for each person so you're doing the right thing for them overall. And then the other possible change for people is, I talk to people about exposure to small companies and value stocks and the risk factors that I believe should have an impact on how you build a portfolio and again, being trained in the Dimensional way of thinking and some clients are more or less comfortable with some of these things. Some people want more international exposure, some want less. Some want more small-cap exposure, some want less. That can also affect how you build a portfolio.

Michael: And I guess the irony from the operational perspective is it might be a little bit more operationally complex to have all of these different models for so many different clients, but hey, that's Loring Ward's problem to implement as your service provider. That's not your problem internally.

Dan: I don't think it's that difficult. You have a database and you have target percentages for each asset class and it's all on the computer and the rebalancing algorithm is all mechanical and math-based. I don't think it's really that much extra work.

Michael: And you're using the same core DFA building block funds to route. So I guess the good news is like you don't necessarily have to learn... I'm just thinking it from the client review perspective. My gut thought was like, "Oh man, 50 different models is like I have to keep track of 50 different stories and explanations for like what's going on in your portfolio, what's going on in your model." It's different for you than others because you have got this unique model. But if you're building from the same DFA building blocks, then if the small-cap fund is doing better or doing worse this quarter, like clients still own that. That's actually still the same conversation throughout. It's like the conversation, I guess, still stays pretty scalable because the building blocks are the same for you across the board.

Dan: The investment story is the same for everybody. It's all global passive factor-based portfolio strategy. So that doesn't change. It's just the amount of risk they're taking or the tilts that they have to small value and so forth. And maybe they have real estate and maybe they don't. Those things are simple, just shades of gray. But the strategy is the same for everyone. The overall philosophy doesn't change.

How Dan's Cost Structure Is Set Up [19:05]

Michael: So I've got to ask then, how does this work from a cost structure perspective? Do you play basis points to Loring Ward? Like a lot of TAMPs? Do you pay sort of a flat fee? Like, "Hey, I could have hired these staff members but instead, I'm going to give you a flat fee that replaces my staff member labor costs." How does this work from a cost perspective as you just manage, as a business, the decision to use a third-party provider?

Dan: Well, prior to the acquisition, prior to joining Buckingham, I was paying, I believe it was structured as a percentage of fees. I think they also work with some advisors like as a basis point charge. I think mine was a percentage of fees, but that's all changed now because Buckingham also owns Loring Ward. Buckingham, there's no longer, that doesn't exist.

Michael: Yeah. So I want to come back to that in a little bit, about the decision to go along with the Loring Ward deal to Buckingham and just tuck into Buckingham as it were, but can you tell us or at least approximately like what kind of percentage of fees were you paying to Loring Ward? I'm just trying to think of this in the context of a traditional advisory firm, the overhead cost of hiring staff versus outsourcing it and like what percentage of your fees did you have to pay to Loring Ward to do this work versus what you might've done if you were going to hire the staff internally and try to build it yourself?

Dan: Well, you may not believe this or you may think that I'm very foolish, but honestly, I don't remember. I could give you a ballpark. It might be 15% or something like that. I have always approached this business as focusing entirely on the client and what's best for the client. I think I negotiated that fee split with Loring Ward maybe 10 years ago when I rejoined them in 2009. I haven't even looked at it since.

Michael: Well, there's a certain mental relief of "I pick my service providers and I structure my business the way that I want." And then the whole point of outsourcing is "I don't need to think about this stuff on an ongoing basis."

Dan: Yeah, I give it no thought. It was structured in a way that I thought was fair and it has breakpoints. So as I get bigger, the fees go down, but I said, I haven't looked at it in 10 years, even through the acquisition process, all of the details of that, I didn't look at it.

Michael: Interesting. Because from your perspective, I feel like I'm getting a fair deal. I don't need to sync with this. It feels sorta similar to even the investment philosophy that you have as well. Like we're going to be really hands-on upfront to construct this the right way, whether it's a portfolio for a client or the outsourcing deal with Loring Ward. And once you put in the time to construct in the first place, the whole point is be comfortable where you are and spend your time on better things. So for the client, like, "Enjoy your vacation, stop worrying about your portfolio and from your business perspective of I've got a back-office provider, they're solving the problems I need them to solve. I don't need to keep tinkering with and thinking and obsessing about what this fee and what this cost is. I'm happy with my service, let's focus on other things."

Dan: I think there's a lot of value to that way of thinking. Just focus on what's important. There was a book written in the 1970s called "Inner Tennis" by Timothy Gallwey, and as a former tennis player, I read that book. And basically the message of that book, it was written for beginning tennis players. People, adults who were just learning to play tennis. And his main message was just don't think about it too much. Just let your body hit the ball. If you think about it, his motivation came from his observation of children who were learning to walk or kids who were learning to throw a ball for the first time. They didn't think about it, they just did it. They let their body just go through the motions and they, of course, threw naturally and perfectly.

And that's the kind of thing I'm doing with business is like you make intelligent decisions and then focus on what matters. And to me, what matters most is what's best for the client and making sure the investment solution is right and the financial planning decisions are correct. I don't want to burden myself with all these other things about running a business. And that's a big reason why I have always outsourced to a TAMP is it gets all that stuff off my plate.

Dan's Fee Structure And What He Does From A Financial Planning Perspective [23:33]

Michael: So talk to us about the pricing end of things as well. So two questions. Like what were you, or what do charge clients? Like what does the fee schedule look like? And then how do you handle the Loring Ward cost portion of that?

Dan: The clients pay a fairly standard 1% declining fee schedule. One percent on their first million and then going down from there down to I think 35 basis points at 5 million. Just a steady declining scale. Buckingham has essentially the same schedule I was using for all the years I was doing it. And the costs for Loring Ward, I pay this and the client just pays the fee.

Michael: So then, you didn't think of it as like 1% is my fee for what I do, but then the client is going to pay whatever that comes out to be over there? Fifteen bps or something for what Loring Ward does or I'm going to mark up my fee 15 bps. Since they're taking 15 bps you just say, "Look, this is my fee and I'm just going to chop my Loring Ward cost out of it the same way." The same way you would other overhead expenses.

Dan: Yeah, I just thought of it as an overhead expense and instead of hiring a staff and having higher expenses inside of my firm that was the way I'm outsourcing that and that's a cost that I bear. And actually, the way we had it structured is the fees were actually paid to Loring Ward and then they kept their portion and paid out the rest of me.

Michael: Okay. Well, because when they're doing all of your back-office they're doing your fee billing and remittances as well.

Dan: Yeah, all of that. They did all that for me.

Michael: And then talk to us about the financial planning side and what you do from a financial planning perspective for clients.

Dan: Well, lately I've been using MoneyGuidePro, but that's a fairly new thing. Prior to that, the financial planning software that was available in the industry, I didn't think it was very good and very scalable and flexible. So I tended to use a lot of Excel spreadsheets and just yellow pads and HP 12C calculations.

Michael: So what swung you to MoneyGuidePro in particular?

Dan: I don't think I could point to any one specific thing, but I started looking at it in recent years and it seemed good. I seemed to like it. And then prior to that, when I had ever looked at these software packages... like I said, I didn't like them very much. I didn't think they added a lot of value. So I just did everything by hand.

Michael: And so what does planning look like for clients of the firm? Are you a big upfront plan, big ongoing plan every year or just when you got financial planning questions we'll dig in and you let clients dictate the pace? How does that financial planning process work for you? Because cognizantly, 275 clients could potentially be a lot of financial plans to create.

Dan: I don't prepare the big plans that I think a lot of planners do. I have always approached it as I viewed the client having a need and specifically for that particular need. The big voluminous plans. I remember when I was first getting into business 28 years ago, it was more like a sales document than anything else and it kind of turned me off to it. And a 50-page financial plan to me was stale as soon as it was printed and it didn't strike me as being very valuable. So it's more of a planning process I would say that I go through with clients, like a discussion of different alternatives as things come up for them, keeping the dialogue going. So I think that's probably different than most financial planners in my view of that activity.

Dan's Onboarding Process For New Clients [27:32]

Michael: So then walk us through what a new client process looks like. We've met her once or twice. You told me about what you do. I think it sounds good. I'm ready to have you manage my dollars and do ongoing financial planning with you. So, great, send me the paperwork, Dan. I'm going to sign the paperwork. And we sign off. What happens next? What actually happens for that new client now as they're coming on board to work with you?

Dan: Well, we get all of their assets to the extent of the money they want to have us manage. We get all that consolidated. Most of the money we have at Schwab. Get the accounts open and get the transfers completed. Get all the money over to Schwab. Organize it in as few accounts as possible and then build out the DFA portfolio of funds there based on the investment policy statement that we prepare for the client. And everyone is different though. It's hard for me to answer the question because I have certain things that obviously need to be done. But then it depends on the situation for the client. But I usually approach building the investment portfolio first and then tackling whatever financial planning items they have after that.

Michael: And so do you ever worry from the end of I'm going to build the portfolio of the client, I'm not going to get more in these financial planning questions and I'm going to find out if there's some other financial planning thing that makes me maybe want to have built a different portfolio?

Dan: I've never had that issue that I can recall. We do talk about the big picture of course, but in terms of tackling the planning items, I do that after building the portfolio. I've never had an issue with it that I can recall. I haven't had like go back and change the portfolio or anything.

Michael: Because I guess you're still getting into on the portfolio and just goals and time horizon and sort of the classic things that still get used in the portfolio construction context.

Dan: Well, I think I cover all of the areas of their financial life to build the portfolio and then drilling down as and if they feel they need to with other things after that.

Michael: And so does this happen over a span of multiple meetings? Like is this all done in one meeting up front, do you have like a two or three meeting process of how you walk them through? How does that new client experience look like?

Dan: Well, so another principle of mine is I don't have one set way of doing things. I really believe strongly in customizing the approach for every person based on my perception of what will work best for them and what they've described to me that they're looking for. So sometimes we do everything all at once. If someone really wants to move quickly and they're comfortable with it and I feel like they really understand the process and the philosophy and everything and there's a really good fit. I can remember times where we just had one meeting and then we're off and running and I've had other times where we've met three or four times. Most of the time that I would say it's probably one or two meetings. But even that has changed over time. I remember when early on in my career people would want to meet in person most of the time and now it seems like people want to do remote meetings like through video chats or just on the phone.

Michael: Even for the new client process?

Dan: Yeah. People come from all over the country now. Whereas early on in my career, they were mostly local and now you've got traffic problems in major cities and people don't want to drive and they're working longer hours. So one of my big philosophies is you always adapt to what is best for the client and what the client prefers. And if they want to communicate with me through a video chat, then that's the way we do it and if they want to come in and meet in person, then that's the way we do it. If they want to meet on a weekend, that's the way we do it. It's all about them and what works for them. And what I'm finding is everyone is different and things change over time as well.

Michael: Yeah. I've been fascinated to find that even within our firm as well because we're in the DC Metro area for Pinnacle and similar to San Francisco, pretty horrible traffic if you're trying to get anywhere from anywhere that you have to get a car to drive to and we've seen this uptick of even, I'll call it "local clients" who would rather schedule to meet with us virtually than come to the office and meet in person.

And it sort of gave me this revelation a few years ago, like so many firms we've got like a segmentation structure. Our bigger clients will tend to meet three or four times a year. Our smaller clients, we might only meet with once or twice a year. So I had this moment of realizing, wait, so basically, our service standard is if you don't have a lot of money, you only have to sit in DC traffic once or twice a year, but if you have a lot of wealth, like your time is really valuable to you, those people get to sit in crappy DC traffic four times a year. Like that's good service. No, they pretty much hate that. They don't want to come in.

That's pretty much backwards and I had never really thought about it that way. From our end it's, hey, I sit in my office and do meetings. So my valuable clients, I meet with them more often. I give them more opportunities to sit across from me or meet with me and hadn't really thought of it as much from the client perspective of yes, they got to slog through traffic four times a year to see us instead of only once or twice a year to see us. That's not necessarily positive. It takes like the first 20 minutes of the meeting just for the road rage to wear off in the DC area because it's so bad here.

Dan: Yeah, I think it's so important to really be always thinking about what is best for the client. What is their preference? Looking at it from their point of view, where's the value added? For some people, they might think the best value added is "I don't have to speak to my advisor all the time. They just take care of it for me or it's really efficient. We do it by email." Everyone is different, and I think part of the art and skill of being a really good advisor is being attentive to that and being able to diagnose and approach different people differently.

I learned this actually from my old tennis coach at Stanford University, Dick Gould, who had so many championships over many, many years. He had championships over nearly 40 years coaching. And to me, what made him great among many things. One of the things is like he approached every player individually. And tennis players can have big egos and they can have different ways of approaching things and different temperaments. And he was able to create winners for so long. And I think that was a big part of how he did it is he was able to customize his approach. And there's a real art to that. It's a learned skill, I think.

Michael: So how often do you end out meeting with clients then? Is there a set cadence or set frequency?

Dan: No, there's nothing set. I want to make sure I'm touching base with people regularly, but I try to approach it based on what they want, what they tell me they want, how I perceive what their needs are. Everyone, again, I try to approach them differently each time.

Michael: So when you say you at least try to touch base with them regularly, what does regularly mean in your context?

Dan: Well, I communicate with all my clients every month. I send a monthly, like a newsletter communication, which is really an educational piece. Something about how markets were. Like a reminder of how we're investing in the approach and there are endless topics. That's one way. But that's...

Michael: And is that something you write and create as a CFA guy?

Dan: Yes.

Michael: Okay.

Dan: I've been doing that for 15-plus years now, so.

Michael: Okay.

Dan: That's something I do every month.

Michael: So every client gets the monthly touch on investment related stuff and that that nice reminder like Dan is still here and he's still steering the ship and he's looking out on the horizon and making sure that he knows what's going on right there. I think there is a level of reassurance to clients that's very important.

Dan: Yeah. I try to make that communication something that's usually timely, something in the news, answering questions that I've gotten from people. I try to get a sense of what people are thinking about or concerned about at that particular time.

Michael: Take the questions that are coming up in client meetings and "Hey, if a whole bunch of clients ask me about this then I'm going to write about it in the next newsletter."

Dan: Yeah. Because it indicates to me that this is something that people are concerned about or asking about. And other times it's just reiterating the approach because we do need to repeat to clients many times what we're doing because they don't remember. It's not their area of expertise. So that's also really helpful. So I remember when I started doing that, started writing that letter, the number of questions that I would get and concerned communications and things went way down. It is pretty effective. So that's one thing, but that's not customized to any one person.

Michael: Right, right. But beyond you're sort of customizing it to the client base in the aggregate because you're not just using a third-party commentary, you're writing it and you're writing it based on the kinds of questions you're getting from clients so you know what to write about because it's literally the things you're answering in a meeting. Just answer at once to many.

Dan: I put a lot of thought into those letters and I spend a lot of time writing them and try to make it high quality. I want that to be something...

Michael: And out of curiosity, how long is this? Like is this a couple of pages? Is this like 10-20 pages? How deep do you go on these?

Dan: Two to four pages.

Michael: Okay.

Dan: I'm a big believer in simplicity and keeping things efficient. So usually, two pages, sometimes three, at most four. Trying to get an important point across as efficiently and artfully as possible, I guess. But so I do that and then I try to reach out to people maybe every, again, it depends on the person. Like I try to remember everyone and get a feel for how many discussions they like to have. It really just depends. And people go through cycles where things are happening at some point in their lives and they need a lot of communication. And other times, things go quiet and they really don't need that much discussion. So again, I try to read the situation for everybody and respond accordingly.

Michael: Do you have a sense if there's at least a general average? Like you typically see most clients twice a year or you typically see them once a year, you typically only see them once every two years. It's not much is changing.

Dan: It's hard to say because some people like to meet in person, although that's going down rapidly. Some people like to communicate by email, some people like phone, some people... And there's just different ways of communicating. Like when you see someone, how you define that. Is it just like an email or a phone call that's a touch and there's probably multiple per month because some people email back and forth a whole bunch of times because they've got something going on? Other people, maybe I don't talk to them for six months. I don't think I go beyond six months without some sort of personal communication of some sort.

Michael: Okay. But the six months, that might be a meeting, that might be a phone call check-in, it might be an email, just whatever touching base with that client kind of means in the context of that relationship because different clients clearly have different preferences.

Dan: At a minimum it would be an email to them saying, "Just checking in, let me know if anything's going on" or a phone call message like that or some kind of personal reach out, trying to ask if there's anything that they want to discuss or if anything new is happening. Now, most of the time there's nothing going on and they just tell me that that's the case and then I can check that off.

Michael: And so do you actually use some system to literally track these and check them off? Is there some sort of monitoring process you have around it or you just sort of rotate through the whole client base and make sure we're touching them regularly?

Dan: It's the latter. I keep a list and I remember who I've talked to and sometimes I can go through my email history if I can't remember the last time. I guess suppose I should be more formal about it.

How He Thinks About His Own Capacity Limits [40:46]

Michael: No. Some would say after the first $900 million you may have figured out a system that works just fine. So I guess like a couple of questions I've got here then. Where do you see your capacity? How many clients can you add before you just run out of time in the day, week, month, year to do all these meetings, calls, emails, touches, even with the investment stuff outsourced and some clients still have planning questions where you got to dig in or do something MoneyGuidePro, some of this investment questions. There's just a sheer mass of the number of clients that you've got now. Is there some capacity target or threshold in your view where you just can't take anymore without hiring staff?

Dan: There must be, but I've been asking myself this question for probably 20 years. And I think what's happening is I keep getting better at what I do, gradually, and I keep working with Loring Ward to get more efficient at how we work together. And maybe the biggest factor is technology has just transformed the way that I work. Twenty-eight years ago, it was completely different than today. It was much more time consuming to meet with people. I mean, technology has made everything so much easier and more efficient and I don't know how that will develop into the future. So I don't know. I've been continually trying to get a feel for, okay, do I need to start taking new people? How do I adjust this? And my business has always grown pretty slowly and steadily just through referrals. I don't really market the business at all, so I don't get like rapid growth. Typically, I just get steady streams of referrals and it's the new people coming on that take a lot of time so I don't know where the limit is.

Michael: It isn't a striking point to me that there's so much discussion these days about the need for size and mass and merging and acquiring for economies to scale. And this conversation that's loomed for, well, I guess the better part of 20 years now since Mark Hurley issued a pretty well-known report in the very late 1990s that essentially said that the future was consolidation and mega firms in all the solos were going to get squeezed out. And then I look at firms like yours where you've been a solo throughout and not only are you not necessarily getting squeezed out as a solo, it's just getting better and more profitable and more efficient because all this technology makes it easier to be a solo than it was 20 years ago. Not harder.

Dan: Yeah, that's true. I would have to say it's easier to do it today than what I did 28 years ago. I think it's got to be easier today just from there's so many better tools.

But the other thing I think that enabled me to really be able to handle the number of clients and so forth and do it well is always outsourcing to a TAMP. The leverage power of that is probably the biggest factor in all of them is I don't have a staff of people that I have to manage and that is very time consuming and it's distracting. And I work by myself in an office and I stay focused all day long. It's much easier for me. I mean, you have to have a certain personality style, I'm an introvert so I'm comfortable with that. But it's enabled me to be very efficient and get a lot things done in a short period of time and outsource the stuff to other folks that I don't enjoy doing or where it doesn't add value and I just focus on the clients.

Michael: Yeah, like it's the ultimate introvert's practice of just we're going to keep building with clients and we only have close relationships with and just keep outsourcing and delegating so we don't have to hire and manage people. And as you've shown, you can take that an awfully long way if you just keep doing and iterating and let it compound for a decade or a few.

Dan: Yeah. And I could have continued to do that and I think continued to grow. But what really struck me when the Buckingham Loring Ward deal happened and gave me the opportunity to piggyback on that was that I've got a lot of money and clients relying basically entirely on me and I didn't think that was right. And so just for the best interest of the client to merge with a larger firm and have the protection for the benefit of the client, so that the burden is taken off of me. That was the main motivator was to have a succession plan. And if something happens to me, the clients were taken care of and everything is professionally managed by a large organization.

Michael: So rather than trying to hire a successor and train and develop them or do sort of the classic reciprocal continuity plan deal of, "Hey, if something happens to me, you take my clients." "So I'm happy to see you. I'll take your clients." I know a lot of individual advisors that do that back and forth. Your decision was, I'm going to tuck into a larger firm and then they can drive and support that continuity plan so I don't need to think about this stuff anymore. I know they're there if something happens.

Dan: Yeah. I thought for the best interests of the client that having a larger firm like Buckingham involved with all of their professional expertise and also just having access to a huge team of support. For me, it was nice. So there's a lot of reasons, but that's the main one.

Michael: And so from the business perspective though, you didn't still have an interest to say, "Well, but I still want to hold on to all of my equity that I'm building and growing and what has to be rather sizable profit margin off of the business"? Or were you able to still structure kind of a quasi-independent role where you can sort of do what you're doing, but you've also got the Buckingham backstop? Just wondering for a firm that has such an asset base and revenue base as yours and such a profit margin? I understand the desire for succession. I'm presuming there also still has to be some kind of tension between, "Oh, I can hold onto this fantastically profitable business that I own the equity and that continues to grow and if just deal with this a few more years down the road, it just gets bigger and more valuable." So is that not a factor or not a driver? How do you think about that trade-off?

Dan: Well, yeah, I certainly thought about it. To me, it just seemed like the right time. I'm 55 years old, so maybe I'll work another 10 years. It just seemed like the right time to take risk off the table. It was an acquisition, so I profited well from it and the clients are better off for it too. So it was a de-risking approach for me.

Michael: So a de-risking where you're still there, you still get to serve your clients, you still get healthy income on an ongoing basis, but you took a chunk of dollars off. It's no longer concentrated in the business. You've now got liquid asset dollars, you can reinvest or do whatever you're going to do with while you still participate in at least some upside of just you're still servicing clients and getting paid for.

Dan: Yeah, basically, right now I'm still doing the same things I would have been doing for the whole time I've been in business. I work out at the same office and everything looks the same. You know, the name on the door is different and I have a lot more support and help and I'm adjusting to working with a large organization, but it's good growth. And the main thing is that it's better for the client and it was the right time. And I'm happy working with Buckingham. They're a fantastic group and I'm learning a lot and it's all good.

Michael: So I am curious. I feel like one of the big discussions in the industry these days, particularly around solo advisors, is the need to systematize. You have to systematize and standardize your processes that you can get more efficient and scale and grow. And you seem to have gotten, well frankly, way further than virtually any other solo advisor I've ever seen in terms of assets, number of clients and revenue and the rest and have done it with not particularly systematizing approach. And I don't mean that in a negative or pejorative way at all. As you said, it's all about customization for you and that's part of your value proposition and connection to clients. But I think most people think of customization as kind of the antithesis of scale and efficiency. "Hey, that's what happens when you customize, it gets less efficient. But hey, we're customizing." And somehow you seem to be highly customized and ludicrously productive at the same time. So, what are we all missing that you seem to have figured out in what you're doing there? Yeah, what gives?

How Dan Has Managed To Grow To Such A Scale A Still Provide A Customized Approach To His Clients [50:33]

Dan: I really don't know. I have a background, just my personal background, I've had to become really efficient at doing things and manage my time. But I think probably working with a TAMP the whole time and pushing out as many things to them as possible and always making decisions to be more efficient with resources and time and getting more done with less. I don't really know.

Michael: Are there particular things you've learned or breakthroughs you've had for yourself about just how to be more efficient and more time productive for yourself since this whole burden pretty much rests on your shoulders?

Dan: I just have to have someone to analyze what I do all day to say, "Okay, that's different. That's good." I really don't know. It's this kind of thing like you get a little better every day and you keep working on it every day and after many, many years, you're pretty good at something and you don't really realize what it is that you're doing that's particularly good. I really don't know what to say about that.

I do think it's very helpful to outsource everything. There's so few distractions. Basically, I'm able to just work on my clients and I don't have other issues that drain my time.

Michael: Part of what strikes me as well is relative to the depth of client base, the affluence of client base. I feel like from the discussion you probably meet a little bit less in person with clients than some others may think. For a lot of firms, by the time you get up to clients that have three-plus million dollars. For a lot of advisors, those tend to be like, "Those are my A-clients. I have to meet with them in person four times a year." And your model would break down pretty quickly if you met with that many people that frequently over and over again. But what I'm fascinated by is you're not meeting with those clients as much as some others do or you're finding other ways to touch them. Write a monthly newsletter that goes one to many and that not everything has to be an in-person meeting. Some are phone check-ins and some are email check-ins and you're growing and clients are staying and they're paying your fees.

There's something that strikes me there that maybe our capacity problem for a lot of us is just that we over-service our clients or we put more service burdens on ourselves to keep our clients than what you actually need to do just to serve a client well to the point they're satisfied and they stay and that, that's part of the distinction here is you're finding a better balancing point of what clients actually want that makes them stay as opposed to maybe the ideas we put on ourselves like this client has a lot of money. We must meet with them four times a year without even bothering to ask them, "Do you actually want to meet four times a year? Is that useful to you?"

Dan: Yeah. I've always tried to tailor my services to what people want or what they tell me they want, what I perceive that they want. Like I said, in the very beginning, people used to come in a lot, and as I think back now that you're saying that, I think I was the one who recommended it. Like, "Okay, let's meet every quarter. We're going to meet every quarter." And people would come in and it was sometimes a struggle to get them to come in. Like you have to persuade them to come in. And I guess every time I evolved to letting them doing, what they told me they want. And nowadays, especially again, we already talked about it, but like the traffic and the congestion and time constraints, people don't really come in that much. They would rather communicate in other ways. And so I think it's important to be flexible enough and have the technology capable of communicating with them the way they want.

Michael: Yeah. There there is, to me, just an interesting phenomenon or question of how much of the things that we do to service clients, including meeting frequency in particular because it is very time-intensive and it's not even just the meeting time, it's the prep for the meeting time and the scheduling back and forth and creating one of the reports you're going to create and the rest. There's a whole bunch of ripple effects of how much time and productivity is consumed in the aggregate for our volume of meetings.

And I've always observed the same thing in our firm as well. There's usually this crossover point. I feel like on average it's somewhere around three to five years in the client relationship where you're meeting regularly may be a little more frequently, particularly if it's higher value clients and A-client. And then this point happens where it gets harder to schedule them to come in for meetings, as you mentioned, it starts getting harder and it almost always seems to end out the same place where eventually, the client says something like, "Look, there's nothing going on that I need to talk about right now. So I'm good. I love you, but I don't need to meet with you. if something happens to me, I'll call you and if something happens that you think I need to be aware of, you call me."

And short of that, I don't know why we're having these meetings for the sake of having the meetings. And it takes a couple of years either A, I think for some clients is to build the trust to really be willing to let go and say, "I trust that my advisor will call me if there's something that we need to talk about." Or I think frankly looking back for a few of them, when we push them and say, "Well, the way it works around here is you're our valuable clients and that means you come in and meet with us four times a year." '

Think of all the time that the client tries to be a good client. So you say the way it works is you meet four times a year, so they try to come in and meet with you four times a year. And then it takes a few years of them doing that and maybe not actually finding value in the meetings before they build up the courage to say, "You know what, I just actually really don't want to meet with you that often." Because we told them that's how it's supposed to work. So it takes a while for them to get comfortable saying, "I actually don't want to be serviced that way." Except I think as your model is showing, that might actually be a lot of clients that don't really need to be serviced that way, and you free up a whole lot of time when you start changing your mindset around that.

Dan: Yeah. I think that's fair to say and especially if you've been working with someone for a long time. Sometimes people say to me, like if they're concerned about something, and they'll say, "Well, Dan, I know what you're going to say but I want to hear you say it anyway." And when someone is familiar with how you advise and the responses that you give, you're consistent, which I think a good advisor should be, they know what you're going to say before you even say it. They don't really need to see you. They might want to read in an email or in a client letter that you're saying and you still believe the same thing.

Yeah. So it could very well be that a lot of advisors are pushing too many meetings or too many conversations on people more than is necessary. I don't know. I agree with you. Three to five years. If you're advising someone for that long, you should have their situation pretty cleaned up by then and there shouldn't be a lot going on. If you did a good job, things are pretty quiet, like going to a doctor and they take care of you and then after that, there's just not much going on.

Michael: Yeah. Well, and I feel like what we end out with after a while is just this phenomenon of almost literally like we have a meeting for the sake of having a meeting to find out whether we needed to have a meeting. Because the first thing on the agenda of every meeting for those clients in maintenance mode is like your number one, "Has anything changed in your life recently that we should be talking about?" And we always want to ask that. That's part of the check-in process at the top of the meeting.

And then the clients is, "Nope, everything's good since the last meeting." And it's like, "Well, we've got like 57 minutes left in this meeting. How are the grandkids? Got any trips coming up? Let's talk about your portfolio for 54 minutes. I didn't really want to, but we have an hour meeting and you have nothing else to talk about." And like I could have stayed all this off by just having a quick phone call or an email before that says, "Hey, just checking in, anything you want to talk about and schedule a meeting about?" And give the clients either say, "Yes, I would like to meet with you" or just give the client a chance to say, "Nope, I'm good." So, "Great. Glad we touched base. I'll talk to you again in a few months. Call me in the meantime if anything comes up."

Dan: Yeah, that's exactly the way I approach it. It's like when I reach out to someone if I haven't heard from them in a while, that's the exact approach is, "s anything happening? Do we need to talk? Do you have any questions?" If the answer is no, then that's it. There's really no reason to go further.

Where His Clients Come From [59:30]

Michael: So, shifting tracks a little bit. Talk to us about where you get 270 odd 3 millionaire clients to build this firm up to close to a billion dollars as a solo. Where does all this client base come from?

Dan: Well, it's hard to say. The business has grown pretty slowly but steadily over 27-28 years and it's almost entirely from referrals from existing clients. So once I got that that base started, it kind of just kept going. So I think the keys have been, client retention, keeping people happy and retaining the ones that you bring on and then growing steadily each year. And being in the business long time, that helps a lot because it compounds over time.

Michael: I mean, when you think about it from that perspective, as you said, you've been in for almost 28 years, just on a simple linear basis, like almost 280 clients at 28 years. Like you're still only talking about an average of 10 clients a year. You're talking about an average of not even one client a month, which, a client a month is a healthy, active growth pace. But that's not a blistering overwhelming growth pace. That's just you add one a month and 28 years later, you got almost a billion dollars under management. How about that?

Dan: There's no magic to it. And I've not had any like spectacular growth or any kind of unusual thing that happened to me. I just steadily keep plugging away and maintain the discipline. And I'd say I probably bring on maybe 5 or 10 clients a year, something like that now. Nothing spectacular, but I hope that I attract people that are quality and my quality clients refer me to someone. It's usually someone like them and the fit is normally good. And yeah, so the clients, when the fit is good, they tend to stay, they tend to be happy. So I've tried to be selective I guess on people that come on board

Michael: So I get it at this point, client referrals get a little easier after the first few hundred clients that are reasonably happy and being well served. How did you get it going at the beginning when you started out of the gate and obviously client referrals weren't on the table because you didn't have any clients to refer you yet?

Dan: Well, the first year, and this is going way back, but I met with Alan Werber and John Bowen, the firm name was Reinhardt Werba Bowen back then, it's now called Loring Ward after several name changes. And they, at that time, this was 1991, I met with them and I was just off the professional tennis tour and I was ready and eager to get into the financial planning business. And they were working with this radio personality, whose name was Jim Jorgenson. And he had this radio show on AM Radio, it worked back then, people listened to it and they had this deal with him where they would have these seminars around the Bay Area and present their ideas about investing in Dimensional Funds.

And as part of their attempt to attract me to work with them, they said, "Well, we'll let you do four of these." And so I did those and I probably picked up, I don't know, 20 or 30 clients right off the bat. And that was what started it. And from there I just talk to people I know and serviced those clients and built it up. That was the only real marketing activity I can remember ever doing in my career where I actually purposely did some kind of presentation or seminar or something.

Michael: And so how do you get or bring in the referrals? Like are you an ask for referrals kind of guy or someone that tries to prompt them on a periodic basis? Like how do you just get and maintain this kind of flows? I think for a lot of advisors, like, "Yeah, I got some clients, I feel like I served them well, not losing them, retention is good, but I don't have $1 billion worth of referrals like Dan." So, what is it about your referrals process that seems to work a little bit better?

Dan: I don't know. I don't ask for them. I just try to do the best I can at servicing my client and just wait for them to send someone to me. That's the way it's always worked. I don't have any magical formula. I don't know if I've been any more successful than most people. I don't know. But I never felt comfortable with any kind of approach. And I've had several different strategies, like to ask for referrals in indirect ways, direct ways. I've never felt comfortable doing that. I just try to service them as best I can and wait to hear. And I've had enough referrals over the many years that it's grown. I wish I had a magical answer to give you.

Michael: And as you go this route with referrals, particularly now you're at a point where your average client is several million dollars, have you set minimums at this point? Will you still take anyone that comes in, they just kind of skew affluent because you tend to work with fairly affluent crowds; they tend to hang with other affluent people? Like, how do you keep the pace lifting at the kind of asset base that you're working now?

Dan: Well, for a long time I've had a $1 million minimum and now having joined Buckingham, they've asked me to have a $500,000 minimum. So that's where we are.

Michael: And how do you communicate that? Like, do you tell clients like, "Hey, if you're thinking about referring me, here's my minimum"? When you get someone who's referred, you say, "Hey, just to let you know I've got this minimum"? How does that..?

Dan: It's the latter. Yeah, when someone gets referred, the first thing I do is get in touch with them and have a phone call to just check and make sure there's a good potential fit for us. Like what they're looking for. I mean, I can tell after I talk with them if they have enough money and then if necessary I'll mention it. It usually just comes up when someone asks or I don't know.

Michael: And do you worry about the fear that I hear at least from some advisors, like if I tell them I have a minimum and then they don't meet the minimum, but they got referred to me and their friend does meet the minimum. Like, is this now weird because they couldn't qualify but their friend who referred them qualified? Do you worry about that stuff or just...?

Dan: I don't worry about it. I hear what you're saying and I've probably run into that a few times. I don't recall how I handled it, but I'm sure all of us have from time to time accepted clients below the minimum, but I won't go too much below it. It just depends. Again, I try to handle every situation independently and if I really like somebody and they don't meet the minimum, then that's fine with me. At least when I was running my own business before Buckingham, that was fine with me. I'm pretty casual about stuff. I don't have like hard and fast rules, I guess you can tell. I try to customize it for everybody and just depends.

Michael: Interesting. Well, and again, you aren't particularly having capacity constraint problems. So as long as it continues to work, it continues to work, I guess.

Dan: Well, my philosophy, and it's worked reasonably well over all these years, is I'm going to do the best I can for whoever I'm trying to help. And if I need to lower the minimum to really help someone who I like who I think will be a great fit, I mean, within reason, I'll do that. And the same thing for current clients. I'll bend over backwards to help them in whatever way I can. Even if it's not directly financial services related. You never know what comes up and life is unexpected. Things happen, but if you're a good person and you do good work and people really trust you and they like you, then I think you're going to be successful. It helps to be in the San Francisco Bay Area where there's a lot of wealth, but those are timeless principles that work anywhere.

How Dan Got His Start In the Business [1:07:58]

Michael: And so what was the path for you to come into financial services and build this type of business in the first place?

Dan: Well, I was a student at Stanford and I was a tennis player there and they introduced me to one of the donors at Stanford. And I'm sure it all schools wealthy donors give money to help fund athletic scholarships. And I was on a scholarship. And so one of the things at that time that Stanford did was they wanted all the athletes to develop relationships with some of the donors to help the relationship grow for the university and keep money coming in to the athletic department.

So I ended up developing a relationship with someone who ran a financial planning firm. And over my time in school, I ended up studying economics and becoming interested in finance. And then I had a three-month internship at that person's firm when I was a senior and just kind of kept that going. I ended up actually becoming a registered representative of an insurance company broker-dealer when I was actually on the professional tennis tour. So I actually worked in financial services very much part-time for a while when I was actually playing professional tennis, which is very unusual, but...

Michael: All right, wait, like you're a rep for an insurance BD while you're on the professional tennis tour?

Dan: Yes.

Michael: Are you working with other tennis pros?

Dan: Yes, I was.

Michael: So like that's the marketing route. Like, "Hey, sorry I beat you on the court there, but do you need any help and now that you've lost the match?"

Dan: Yes. One of my first clients was my agent. Some other clients were professional tennis players, that were highly ranked and just other people that I knew from Stanford. I was basically approaching it as this is like an internship. A very low-paid internship. And I'm trying to learn how this business works and I don't know if I want to do this when I'm done playing tennis, but it's the work experience and it's something to do. Because you won't believe it but being on the tennis tour is actually very boring because there's a lot of travel time. So from an intellectual point of view, there's not much stimulation going on when you're a professional athlete. And this was a way to keep my mind engaged and do something interesting outside of the sport. And so I did that. I studied for the CFP exams when I was playing tennis and kind of just built that up and got some experience. And then when I was done playing tennis, I had to quit early due to an injury, then I transitioned pretty easily into the business.

Michael: And so at the point you transition, did you go back in with that insurance broker-dealer? Did you go on your own? You tasted some portion of the industry at that point, obviously, you're now living in an independent RIA world for a while. What was the path as you were saying, "Okay, I think I'm actually going to make this my career"?

Dan: Well, what happened was I got off of the tour, this was in late 1991 and I started interviewing with a whole bunch of different firms. Being a professional athlete, you actually get access to the CEOs of large organizations. So I had a pretty good Rolodex of contacts and started talking with people at different wealth management firms and mutual funds and other people in the financial services industry just to get a feel for what is out there, what I might want to do. And I ended up just haphazardly meeting with John Bowen one day at Reinhardt Werba Bowen in San Jose. They were this at that time, small financial planning firm. And I met with him and he mentioned Dimensional Fund Advisors and the name of Gene Fama and Ken French and names that I had recognized from studying finance at school. And I thought, "I'd really like to meet those guys."

And so I went down to Santa Monica, and fortunately for me, some of them, like Gene Fama is a big tennis fan. So we went out and played tennis and their ideas just sunk in and I thought to myself like, "Why aren't people doing more of this like this?" This was in the very beginning of Dimensional's approach to advisers. This was when they were just opening their door to advisors.

And these ideas they were telling me really resonated in large part because when I was interviewing with these other money management firms, I couldn't figure out why their track records relative to indexes were so poor because these were the best firms in the industry and they had the best and brightest people. They were so impressive. Super nice offices and super smart people from the best schools. Yet when I would look at their track record, I couldn't figure out why their returns were so low because in my world at the time as a tennis player, everything is about competition and result and you get paid based on results as an athlete.

Michael: Right. It's like extreme meritocracy.

Dan: Yes. And so, to me, that was the way that the investment world should work. Like you should be smarter, you should be better, your track record should be better. And there was a real disconnect. And then when I met with the folks down in Santa Monica and they explained to me their ideas about market efficiency and some of the things I was taught at Stanford but just I had forgotten, kind of like a light bulb went on and it made sense to me and I thought, "I can build a business around this. This makes total sense."

And so then I signed up with Reinhardt Werba Bowen as one of their advisors, I guess I was an IAR back then. And that was how I started. And then I did those seminars that I mentioned and eventually had my own firm.

Why Dan Decided To Open His Own Practice [1:13:59]

Michael: So out of curiosity, what led to the point that you decided to have your own firm and not simply stay in IAR of Reinhardt Werba Bowen? I feel like a lot of advisors, that that's a major career crossroad at some point. This decision of whether to stay in an employee advisor model or go out on your own.

Dan: Well, I'm a pretty ambitious person, so I really wanted to have my own shop and being more in control of things. So that's the main reason. When you're in control, I feel like there's less risk.

Michael: That's interesting for me, you felt going out on your own and starting from scratch was the less risky path?

Dan: Well, yes, because I controlled all the decisions. So when you're a representative of another firm, there's a lot of things that they decide that you can't change. And if you're in control of everything, to me, I trust myself, I trust my judgment. So I'd rather rely on myself and if I make a mistake then I only have myself to blame. But there's decisions that I want to be in control of. And it was a long time ago so it's hard to remember exactly. But if you're an ambitious person and you want to be in control and build something of your own, yeah, that's how I felt.

Michael: And so did you come from a family of entrepreneurs where this was the background and this kind of entrepreneurial-ism was celebrated a standard in the first place?

Dan: No, not at all. I think probably that came from being a tennis player and growing up competing. And when you're a professional tennis player, in particular, you're a solo entrepreneur. All the tennis players that you know, they all are basically running their own little business. And they hire coaches and they hire agents and they have cash flows and they run a little business and it's probably that experience. And up until four months ago, I was never an employee of anybody. So I was working for myself. So it could have been that just my experience with the sport and I don't really know.

Michael: Interesting. It's a striking path we had, oh gosh, it was probably almost two years ago now, we had Alan Moore on the podcast and and he had actually made a similar comment around entrepreneurial-sm as somebody who got fired or let go from the first two firms he was at because he wasn't a great fit for them had had said the impression that left on him was being an employee is incredibly risky because your income can just instantly go to the zero in the snap of a finger when the person who runs the firm decides that you're no longer the right fit there and that the entrepreneurial path of building and owning your own business like that was the safe route to him for that that similar, like, "I'm in control of my own destiny" kind of mentality.

And that control, I think for him, similar to you, the de-risking aspect of control was worth more than just the raw risk aspect of what you are going to walk away from a salary and people who pay you and like literally build this from scratch and have all that responsibility on your shoulders as well, which not everyone wants. It's maybe a different kind of risk. But it is fascinating to me just talking to people that have that entrepreneurial mindset to the point of saying, "No, no, no, it's less risky to go out on your own and build your thing from scratch because you control your decisions and your destiny."

Dan: Well, it seems to me risk is all perception, so someone who perceives the risk of entrepreneurship being lower for some reason, it's valid to them. So it's okay. And what you just mentioned, this gentleman saying that it makes sense to me that it's less risky if I'm working for myself. I had my own firm and I have 300 clients. Okay, that's 300 people that aren't all going to fire me at once. And if I'm an employee, I've got one person entirely reliant on that firm. If they decide to make a change or something and then let me go, it only takes one decision for that to happen. So I see his point.

Michael: Yeah. That's interesting the way you frame it. That just you as an employee, one person can fire me and take my income to zero. With 300 clients, it takes 300 people to fire me to have my income go all the way down. I can usually at least do something to not piss off 300 people all at once. Who knows.

So as you've gone down this road, what's surprised you the most about like the path and the experience of building your own advisory business?

What Surprised Him The Most About Building His Business [1:18:55]

Dan: Well, one interesting thing that's unique to me, just because I think in my experiences is that as a professional athlete, to be successful in that world, you have to be very competitive, you have to basically, win to get paid. And so tennis players are largely focused on themselves and they build teams around themselves, especially modern players. And so it's a very competitive kind of dog-eat-dog world. There's not a lot of collaboration going on. And one of the things that struck me immediately when I started working in business is that to be successful in business, it's all about being collaborative and helping other people. And the more people you help, the better you can do in your career. And it was a surprise to me. I guess if I had thought I really thought it through beforehand it would have been obvious, but that was surprising and that was a shift I had to make when I recognized that.

Michael: So was that a hard mentality shift? I would think when you've gone down the tennis road as far as you did to playing at the professional level, that solo competitiveness, self-confidence, I can do it kind of mentality has to get pretty deeply ingrained. Like, is that difficult to strike, to change, to restructure, to retool as you got into the business world?

Dan: It's hard to remember. It was a long time ago, but I do remember very clearly realizing that and then having to work on it. And once you make the change, I think it's easy to keep improving. I don't know. It was definitely a shift in mindset, having been a tennis player for so long and just thinking that was the way the world worked to sing it very differently. But it's the kind of thing, once you see it you're permanently changed. Like it's obvious and it's refreshing to be able to work collaboratively instead of always competing. It's difficult. It's draining to be competing all the time.

Michael: So how has your role changed within the firm over the years, or has it?

Dan: It really hasn't changed much. Are you referring to the whole 28 years I was...?

Michael: Yeah. Yeah,

Dan: Maybe this is one thing that has worked, helped me do what I do is I basically just have been doing the same thing. I just try to keep getting a little better. And one of my mantras is, how did I get better today? More efficient or whatever, but it's pretty much identically the same investment philosophy. It's just getting more efficient, incorporating technology more, getting better at what I do incrementally day by day, week by week, having my own firm as opposed to being a representative of another firm. That was a shift but not a major shift. I'm still basically doing the same type of advising work and I've always worked only with individuals and families just trying to get better at it.

Michael: It strikes me that that sort of continuous incremental improvement, how did I get better I would imagine is another piece that comes to you from the world of training as a professional athlete. So long, similar mentality of continuous self-improvement.

Dan: Yeah, absolutely. I can still hear my coaches that I've had over the years, drilling that into me. Work harder, how much do you want it, discipline, get better every single day. It's all about improving and developing and staying disciplined. So I've applied those principles which are just ingrained in me in my business.

Michael: So what does that improvement effort look like for you? I'm just thinking of this in the context of, so in the professional athlete world, you work towards continuous incremental improvement and you do that by practice, drills, repetition, exercise. There's a physical training regimen that you know if you do in a persistent, disciplined manner builds incremental results in your skills and ability and strength and agility and so forth. So how does that translate for you in the business world? Like, do you get a coach, do you look at certain things in the business like, "I'm going to get 1% better at that every week for the next 12 weeks" and that's my training focus? Does it translate in that concrete of a manner to say I'm going to train as an advisor the way I trained as a professional athlete?

Dan: Well, I've never had a coach, but I do approach things pretty systematically. So I do remember trying to think back, having not thought about this really at all and I do remember thinking back to when I was really learning the craft, I used to read books, any book I could read on financial planning or business communication, presentation skills. Anything that I thought would remotely help me become better as a business person, I would read and study.

Michael: Any books in particular that you recall that were like breakthrough moments for you?

Dan: I don't remember. It was like 25 years ago, 30 years ago, but I can remember traveling on the tennis tour with stacks of books studying for the CFP exam or how to communicate better, how to write business letters. It was a bit crazy. I'm probably the only tennis player that had textbooks, but...

Michael: Well, it's probably why you were able to get clients while you were on the tour. Like you were legit. Like, "Dude, that guy's actually reading a book in the locker room on finances. He's a finance guy."

Dan: Well, it's something you learn. As an athlete, you're preparing and you're training and drilling and just what you had described earlier and you apply that to what we do and well, you got to learn, so you better be trying to get better and trying to improve your knowledge base. And that's part of what drove me to go to business school and get a CFA and CFP. I wanted to be prepared. I wanted to have all the tools necessary and all the knowledge to be as successful as I could be.

Michael: Well, and those are not trivial things of like, "Oh, by the way, I went back to business school and got my CFA and my CFP." It's a fairly intense multi-year training regimen as it were onto itself.

Dan: Yeah, it was probably six years maybe, five, six years. Yeah. But I was relatively young and coming into the industry and I was very young interested in all that stuff anyway, but just to have the credibility and the knowledge to have a strong base to start from, I felt that was necessary.

What His Typical Week Looks Like [1:26:13]

Michael: What does a typical week look like for you at this point?

Dan: It's really hard to say. I work in the same location as I've been working for the last five years. I approach each day independently. I recently moved away from the congestion of the Bay Area, so I live in the Santa Cruz mountains, about an hour from Palo Alto where my office is. So I drive an hour so I work at home frequently because it's a long drive.

Michael: So it's not specific like, Mondays I do office work. Tuesdays I meet with clients. So there's not a specific routine to it?

Dan: No, I just try to set appointments and arrange things just wherever they fit in. I'm thinking about it now as you're asking that question. I've never done that and like certain parts of my life, I do tend to be pretty routinized. Like I like routines. It feels comfortable to me. But as far as scheduling goes and dealing with my time, I've always just been free with that and just arranging things where needed.

Michael: So out of curiosity, any idea why? I know a lot of people who are really successful, particularly in the athletic world and one of the things I hear so often from them is they build their routines and they stick to their routines and that's how they get disciplined to their routines and that's how they maintain the training and achieve the results and just it's striking to me for someone that had so much success as an athlete building those routines that it doesn't seem to have been your goto and building your advisory firm. It didn't stop you from succeeding. Very much the opposite, it would seem, but it's striking to me that you didn't end out, even if just by habit, routinizing more of the business the way your other trainings were over the years.

Dan: Yeah. I really don't know the answer. I haven't given it thought, but just as you're saying that I'm thinking, "Okay, what is it perhaps about tennis in particular that drives more of a reactionary approach to things?" And when you play tennis, perhaps it's somewhat different than other sports, I really don't know, but you know in tennis, to be successful during competition, your mind has to be clear. Like you have to be not thinking about other things. You're just reacting to where the ball goes and you have to react in a split second. And so you learn very quickly if you're going to be successful at that sport that you're just reacting to what your opponent has just done. You're not thinking about it at all. So when you train, so maybe there's something about that where in the brain, you're learning to just adjust on the fly, much like that book I mentioned earlier where they found that tennis players learn best when they're not thinking about other things or distracted. Just let your body flow with it.

Michael: Which to me is very much what you build around the firm. Right?

Dan: Yeah.

Michael: You do outsource as much as possible so you can stay solely focused to be in the moment and react to a split second with clients as you...

Dan: I never thought about it but, yes.

Michael: You didn't build the firm like you're training as a tennis pro, you built the firm like you're playing like a tennis pro.

Dan: Yeah. That's very well said. Yeah. Because when you're training as an athlete, you are doing repetitions and you're building strength and whatever it might be. And then when you're in competition the reason you build all those skills is so that you can call upon them immediately without thinking. That's why you do it that way.

Michael: Well and again, to me, that's what makes it so striking I think for your firm and how far that you've been able to go with it is the depth and volume of what you've outsourced. Most firms out there just in practice, when they get to a certain size, they say, "Look at what I'm paying for all this outsourcing. I could hire these people and save on costs and scale it myself and drive better margins and build it." And yeah, you can do that and you may even get those economic results, but then you have to manage the people and deal with the stuff and make the decisions and you have more things that you quite literally have ownership of and responsibility for and then you start losing your focus.

And to me, what's so striking about what you built is I don't know anybody out there who built even from 0 to 100 million, much less 0 to 900 million who can in good faith say, "Yeah, my role really hasn't changed that much over 28 years. It just got a little more efficient with technology." There's something I think really unique about the focus of how you've truly just kept your time and your role focused on clients throughout and just not getting caught up mucked up in anything else along the way that almost everybody else gets mucked up in at some point.

Dan: Yeah. I think part of the beauty of outsourcing to a TAMP is just as you mentioned, you don't have all those distractions and when you have a staff and a large firm there's just a lot of time drains and emotional drains that if you're comfortable working on your own and really staying focused, you can really ramp things up dramatically. And like you mentioned the costs, like a lot of advisors, don't want to pay the cost of a TAMP and they think it's cheaper to have a staff. I never really considered that. To me, it's all about focus and discipline and perhaps a missing piece that should be factored into that calculation is "Okay, what are we going to lose with all of the distractions and things that come with having a large organization?" The time drain and all that. I mean, once you factor that all in, maybe the cost of the TAMP doesn't look so high. I don't know.

Michael: One, you make an interesting point to just say like from a business philosophy perspective, "I made the decision to use the TAMP a and to stick with the TAMP and it wasn't about the cost, it was about the focus and discipline."

Dan: Yeah. Yeah.

Michael: So as you've gone on this journey, what was the low point for you?

Dan: Nothing really stands out. I do remember, obviously, the 2008 market decline was really emotional. That was difficult. Suffering through that drop with clients.

Michael: Well, and being a solo advisor, I would imagine a whole lot more of those clients were calling or wanting to meet or wanting reassurances all at once. And that's all on your shoulders when you're solo.

Dan: Yeah, that was a tough time. I remember being very stressed, mainly just worried about clients and how they're feeling. We all went through that. I don't think my experience was any different than anyone else's, but we made it through.

Michael: So what advice would you give to young advisors looking to become an advisor today?

Dan: Oh Gosh. Well, the things that worked for me were to prepare, like learn as much as possible. Some kind of an internship or any kind of way to get experience and try to work with the best people you can find. People that you really respect that look like they've done well in the industry. To me it's about like we had talked about the training that one does for sports and how does that translate into business. To me, preparing really well and training yourself really well and learning as much as you can early on, getting your designations completed and not so much to have the initials but to really learn the subject matter.

And I would say, network and speak to as many people as you can that are really knowledgeable. I really got a lot out of those early days working with the folks at Dimensional and meeting Gene Fama and learning from him. And those folks are the leaders in finance in the world really. And I was lucky enough to have an opportunity really young to be influenced by them and be stimulated, academically, to learn more. So I would approach it that way. Try to learn as much as you can when you're starting out and parlay that into something that works for you based on your own individual abilities.

What Success Means To Him [1:35:10]

Michael: So as we wrap up, this is a podcast about success. And one of the themes that always comes up is just that word, success means different things to different people. And so, as someone who's built what I would objectionably call a pretty ludicrously successful business at the size and the efficiency and the scale that you've reached, I'm just wondering, how do you define success for yourself?

Dan: I would say, did I get better today? Every day I try to look at an incremental improvement and I try to look at my whole life that way. Like, was I a better father today? Was I a better husband? What did I do to make my business better? I don't know. I'm always trying to look for ways to improve and maybe service my clients better. Any way like that. And that's a good day. If I did something to improve my health and improve other people. Did I make my clients' lives better, then I feel good about myself. That's what I would say.

Michael: Well, and it strikes me that to me, that very much comes back to the core of what it seems as has built the firm for you. This kind of constant focus on self-improvement such that you can go, 28 years of scaling up to almost a billion dollars and still be a solo and still be able to do it successfully and still be able to be productive with 275 odd clients. And that kind of service mentality you have that ultimately becomes a thing. I think that drives referrals. I think a lot of us say that we have good service. We try to respond to clients' promptly and do those things.

But it strikes me in the discussion here that the way you describe what you do and how you do it comes so quickly back to the client. Even to the point of like, "Yeah, what we do is not meet with our wealthy clients too often because that's not what they want," which is sort of intuitively obvious on the one end and then absolutely not the thing that most advisory firms do. They meet with their wealthy clients a ton because we impose that upon them and maybe that's what they wanted and what's valuable and maybe it's not. And I think we don't always pause to ask that question of the clients the way that you seem to. In a positive way, we're relentlessly focused on what does the client actually want out of this advice relationship and then what can I do to give that to them. That seems to drive a lot more referrals to you than what a lot of advisers managed to generate.

Dan: Yeah, it could be. And I also try to respond very quickly when people call or email me. I've always felt that was really important. Even if I don't have an answer to whatever it is they're asking me, I'll shoot them an email and say, "Okay I'm on it, I'll get back to you shortly." Because I really value quick response even if I don't respond fully right away. That's always something I've worked hard on and I actually feel very comfortable doing some work on weekends. Like to my way of thinking, if I get something done on the weekend, well, then that's something on Monday I don't have to deal with. So to me, it's not a big deal. I just kind of allocate my time as it comes and respond as quickly as I can. So maybe that also helps.

Michael: Well, and you seem to have found a pretty darn productive way to do it given what the firm has grown to.

Dan: And I appreciate that. Thank you.

Michael: Absolutely. Well, thank you, Dan, for joining us on the "Financial Advisor Success" podcasts and sharing the story.

Dan: No, it was my pleasure. Thank you.

Michael: You bet.