#FASuccess Ep 063: Overcoming A Material U-4 Disclosure To Build A $125M AUM Advisory Firm with Kevin Kroskey

What You’ll Learn In This Podcast Episode

• How Kevin got started in the advisory industry. [4:57]
• The conviction that brought Kevin’s life to a screeching halt. [12:40]
• What he did to take control of his career as an ex-convict. [38:39]
• How Kevin ended up on the RIA side of the advisory industry. [48:10]
• Kevin’s tips for setting up and marketing adult financial education classes as a way to get in front of people. [55:12]
• Why building relationships through adult education classes was one of the smartest things Kevin did. [1:05:24]
• True Wealth Design’s fee structure and service model. [1:09:32]
• How Kevin continues to grow his client base. [1:25:15]
• How Kevin gained visibility with recurring exposer in a local newspaper. [1:27:27]
• Advice for overcoming a problematic past. [1:47:44]

Resources Featured In This Episode:

• • Kevin Kroskey - True Wealth Design
  • Emerald Financial Education Classes
  • FMT Financial Education Classes
  • Redtail CRM
  • BNA Income Tax Planner
  • Financial Advisor magazine article on Kevin
  • Strategic Coach - Dan Sullivan
  • XY Planning Network

Full Transcript: Overcoming A Material U-4 Disclosure To Build A $125M AUM Advisory Firm with Kevin Kroskey

Michael: Welcome, everyone. Welcome to the 63rd episode of the Financial Advisor Success podcast. My guest on today's podcast is Kevin Kroskey. Kevin is the founder of True Wealth Design, an independent RIA based in Akron, Ohio that has grown to nearly $125 million in assets under management with 6 employees serving 160 clients built over the span of the past 10 years.

What's unique about Kevin's practice, though, is that he's been able to persevere in building his practice despite what for many advisors would have been a catastrophic setback in his early career. The fact that in his mid-20s, just a few months after his first job at a broker-dealer, he went to prison for 17 months after the law finally caught up with him for having sold ecstasy back when he was in college.

In this episode, we talk in depth about Kevin's journey from starting out as a high school physics teacher straight out of college to switching into the financial services industry by working at that independent broker-dealer in his mid-20s, then finding his entire career and life brought to a halt by his criminal conviction for selling ecstasy, despite the fact that he had already stopped and left that life behind several years earlier, and how he began the process of trying to rebuild a path back into the financial services industry after he got out of jail, starting with a 3-year ordeal with multiple appeals just to try to get a license to become a mortgage loan officer as an ex-con, before finally switching to hang a shingle as an independent RIA.

We also talk about how Kevin actually built his advisory business by falling back on his early teaching skills to begin doing local adult education classes on personal finances, borrowing money with a bank loan and being able to send out 10,000 mailers at a time to get participants into the class, and then slowly and steadily accumulating clients and asset base over time, supplemented in more recent years by trying to further establish himself more visibly in his community, including by writing a regular financial column in a local community newspaper.

And be certain to listen to the end, where Kevin shares his advice about what any advisor can try to do to persevere through the highly adverse challenges that can hit us in life sometimes, and how he handles the situation today when prospective clients sometimes still ask him about a crime that is a felony disclosure on his U4 despite being completely unrelated to the financial services industry for events that happened in his life nearly 20 years ago now.

And so with that introduction, I hope you enjoy this episode of the Financial Advisor Success podcast with Kevin Kroskey.

Welcome, Kevin Kroskey, to the Financial Advisor Success podcast.

Kevin: Hi, Michael. Thanks for having me.

Michael: I'm excited about having you on the podcast today because you have I think a really interesting path. You know, you've built a great advisory firm and are crossing $100 million mark and all sorts of complexities that start coming just in an advisory business as you cross $100 million under management and a lot of staff members and have to make lots of decisions about where and what you're building towards in the future. And I know you're at that crossroad. So, I mean, I think it's a great thing to talk about.

But you also have I think certainly a very different and interesting past than most folks in the business because your career early on into financial services kind of got derailed because you ended up going to jail a year or two into the business for stuff that you got in trouble in in college that came back to you. So I will admit, I don't mean this in an entirely negative way, you are the first person we've had who had a felony conviction on their U4 to come on the podcast and maybe talk about, like, how you get through a setback like that.

Because frankly most people I know, if they had to even just go through that kind of disclosure on their regulatory documents, that would make most people not even want to bother coming to the industry. Never mind that you did it and overcame it and have built a $100 million firm and are growing forward from there. Granted, you have maybe a slightly different path than some other folks who probably won't do exactly that version of entrance into the industry. But, you know, I admire a lot what you've managed to build and overcome. So I'm really excited just to have you on the podcast to be able to share some of that story and path with us today.

Kevin: Yeah, I think it's a positive story. Would you like me to just go ahead and dive in?

How Kevin Got Started In The Advisory Industry [4:57]

Michael: Yeah. You know, I kind of set it up. I feel like we have to get into it a little bit here. So if that's okay with you, like, let's just dive right in of, you know, how you got started in the advisory industry and then maybe a little of where that got derailed along the way.

Kevin: Sure. So I guess growing up, I won't get too far into the family background, but I was a high school physics teacher for one long year. I say long because it was long. I didn't like high school the first time. I don't know what I was thinking trying to make a career out of it. So my mom worked in food service and still does. And she's at the University of Akron so I was able to go back to grad school on a tuition remission. Basically, you know, just pay for books and what have you. And, you know, I just always was good at math and I wanted to go back to school.

And at the time, I was aware that the finance department had an opening for a 9-month contract, and I think the salary was around $120,000. And at the time, I only knew teaching. You know, my parents were all blue-collar and I didn't really have any exposure to what business was. But I had a few teachers that made a really big positive impact on my life so I thought that that's what I wanted to do. I knew I liked math. The same timeframe is kind of late '90s when the tech bubble was going, so it was kind of common conversation and I just had an interest.

So I went back to grad school, went for finance, and needed to get a job and wanted to get one in the industry to at least get some practical experience. Ultimately I thought I was going to go on and get a Ph.D. and become a professor, however, I didn't want to be one without any practical knowledge of what I was going to be speaking about because I generally didn't have real great experiences with those kind of professors when I was in school.

So actually my first job was only for a week. I was hired as an intern at Northwestern Mutual. You know, I was pretty green. I don't think I was stupid, but basically, the message was, you know, write down a list of 100 people that you know. And it wasn't explicitly stated but it was heavily implied that basically, you know, your success is going to be determined on how well you can sell products to these people. So it was literally a week.

And I got another call for an internship at a local broker-dealer. And it sounded more I guess what I was looking for. It was more a back-office role. It was just kind of getting to know the industry.

Michael: Less about literally selling products to your 100 closest friends and family as a 20-something.

Kevin: You know, I just realized, and I always use the phrase I didn't want to practice on the patient. And I use that phrase today when we talk with our younger advisors. But I knew I didn't want to do that because I didn't know anything. And so I wanted to at least learn about what I was going to be doing before I tried to do it. So I took this internship, and I was in grad school full time, and I was working at the broker-dealer for a period of time. That was my first, I guess job, professional job in the industry post-teaching.

Michael: Okay. So you land in a broker-dealer, and, like, what kind of…I mean, what was the back-office job? Like, were you in like an advisor's office in a back-office role or were you actually in like a broker-dealer home office operations role?

Kevin: Yeah, it was the home office. So simple things like, you know, taking investment statements and entering them into, back then it was Morningstar Principia when we used to get the discs in the mail every month. Yeah

Michael: Oh, I still remember being so excited every month when the Principia discs arrived and you got all the updated performance data and you can go around every computer and put the CD in and install it. Like, yeah, the good days.

Kevin: Absolutely. So, you know, it was a lot of just kind of entering in, you know, a prospective client for some advisor's member office, advisory firm's member office that was using the broker-dealer, and just doing some of the basic prep work. And then, you know, hey, we'll go ahead and here's what you had and we'll go ahead and optimize this based on some past performance and look at the Sharpe ratio and the returns you could have once you move your money over. So I didn't exactly know, you know, kind of end to end what was going on, but in hindsight, that's really what we were doing.

And then just, you know, running a lot of life insurance illustrations via quotes. The broker-dealer that I was working at, I think in terms of broker-dealers I think they're a good one. They do have a very heavy life insurance focus to them. So it was a lot of insurance. They were also rolling out an ETF platform at the time and I was just doing some kind of basic grunt work on helping get that off the ground.

Michael: Okay. And what's the timing for this? Like, we're early 2000s, late '90s?

Kevin: Yeah, 2002.

Michael: Okay. So you're getting going with the broker-dealer and I guess getting a feel for the industry and what it's like. I mean, did you have any sense as to where you wanted to go with it or at this point was it basically just, "Its number stuff, I like math, I don't want to teach any more physics, let's see where this goes?"

Kevin: I knew I liked certain things. I mean, I think as you kind of go through life you keep learning more about yourself and kind of really who you are and what's for you. I did like teaching. I didn't like the structure of it. You know, I didn't like how rigid high school was. I went on to teach college later on for some, you know, adjunct classes and, you know, I didn't like that either. But ultimately I just kind of learned that, you know, you're working with people.

And I forget who I heard say this some years ago at an FPA conference but something to the effect that our profession is where the heart of a social worker meets the mind of a business owner. And that's always stuck with me. So I really like helping people. I like getting invested with them and helping them, but I like solving problems as well. So, you know, I learned that about myself over time. But I distinctly remember, I took a phone call from one of the agents, I guess broker-dealer reps, but he was selling a life insurance policy, or excuse me, an indexed annuity, and I was just looking at this rate chart and explaining how this thing worked. And, you know, I hadn't been there all that long, but I could…you know, it was pretty self-explanatory. It was kind of one of those point-to-point sort of products.

And this gentleman, I learned, like, what the commission was that he made on this thing when he…I don't want to make this sound bad but you could tell that he didn't really understand the product. I mean, he's talking to somebody who's been there for probably two or three months at that point. I explained, you know, basically just what the rate sheet said, not much more beyond that and he ended up selling it and placing the business. And when I learned how much money he made for selling that, he just opened my…my opportunity set to, "Maybe that's something that I should explore and get into."

Michael: I mean, I'm thinking like early contracts then because, like, I remember indexed annuities then, I mean, there were a lot of things that were 7% to 9% commissions with, like, 7 to 9-year contract terms. So you're doing the math on that and it's like, "Yeah, that probably feels better than the ops salary I'm making."

Kevin: Yeah, exactly. So it definitely broadened my horizons. You know, I didn't know much. I was still again, very green at that point and only in the business for a couple months. But I think it just showed me another side of the business and just expanded that horizon. I remember that clearly though. I remember that day. I can picture myself sitting at that little cube and looking at my pinned up rate sheet and taking that call. So that's definitely I guess one of those moments that sticks out in my mind.

The Conviction That Brought Kevin's Life To A Screeching Halt [12:40]

Michael: Okay. So you're doing operations work, you've got maybe a little bit of an eye now of what would it be like to be over on the advisor side and kind of seeing the earnings and growth potential, so then what comes next?

Kevin: Well, what comes next is that long journey to get what you described as sitting on my U-4 today.

Michael: Okay.

Kevin: So I can't remember exactly when I started but ultimately, you know, I only worked there for about six months or so before I went away. And I was arrested in May of 2002 and ultimately, you know, for probably about 5 or 6 months, I just…you know, I didn't know what was going to happen. You know, I was arrested for some things that I did, you know, a couple years prior. You know, again, I don't mind, you know, talking about it but…

Michael: I mean, can you just give us the context? I mean, does this tie back to financial services and what you're doing as you're getting started in the industry?

Kevin: No. Well, I guess all I'm saying is…

Michael: What were you getting arrested for? Like, what was Kevin…?

Kevin: Oh, yeah, yeah. No, no, no. No, I've never done anything to get in trouble in the industry. So when I was in my early 20s, I guess the back story, you know, I had what I would call a little rough growing up. I guess in my own opinion, you know, it took a while to kind of find myself and just kind of overcome some physical and emotional abuse that I grew up with in my household.

And I guess without getting all the gory details, the way that I would often describe it to people is, you know, whenever I went away to college…I'm the oldest of three and we're all about 18 months apart. So, I'm the oldest, my sister is the middle child and my brother is the youngest. I was a senior in high school when my sister was a sophomore and my brother was a freshman.

And when I went away to school, I took the brunt of the…we all took it but I took the brunt of it when I was in the household. And then when I went away to college, literally within about 6 months, both my 16-year-old sister and 14-year-old brother had moved out of the house. And basically the family kind of imploded. My 16-year-old sister, you know, had a waitress job. She went out and got her own apartment. She just didn't want to be in the house anymore and kind of subjected to what was going on. And my brother, you know, who was only 14 at the time took one of the family dogs and moved in with one of his good friends, you know, about 10 blocks down the road.

And, you know, without getting in all the gory details of it, I mean, I don't think anybody has the perfect childhood necessarily. We all have things we have to deal with. But it was rough. It was real rough. And, you know, I was very angry, I was very… I mentioned before about some of the teachers that had a big positive impact on my life and that's why I kind of went down that path initially. In hindsight, anybody that showed me love, that showed interest in me, I just responded very well to that. You know, I believe today…I mean, you know, we're all human and, you know, we all may have different or what have you but even the most hardened criminal, there's still somewhere maybe deep, deep inside just somebody that wants to be loved. And I didn't get necessarily…I don't think I got enough of that growing out. Let's put it that way.

And it's interesting. You know, we were having dinner with my mom a couple years ago and she remarked that, you know, "Who was this that made a post on your sister's Facebook page, who was kind of strange?" And she didn't remember who the person was. And I said, "Mom," you know, "That was Brian," who's my youngest brother, "That was his best friend. That's who he moved in with when he was 14." And my mom didn't even remember that he moved out of the house when he was 14. She just completely blocked it out.

So I guess to put everything in context, I think it's not an excuse for me kind of doing what I did to get in trouble or anything like that. I believe in personal responsibility. I think a lot of that is lacking in our world today. But for me, my own personal journey was, you know, my friends were largely my family. And we did a lot of unproductive things growing up and, you know, that continued on in college. And yeah, I was fairly…I had a lot of friends. I guess you could say I was popular. And, you know, it just kind of exacerbated into something that…you know, I didn't set out to be a drug dealer, but, you know, in the late '90s, essentially I was bartending to get through school. It was just before I had that job at the broker-dealer that I mentioned and just knew a lot of people.

And a lot of the things that we would do, we would go out and we would listen to dance music and we would dance and we would take, you know, things to enhance our mood, namely ecstasy. And that's what we did. And for me, it wasn't about being a drug dealer or trying to make a bunch of money or be greedy, it was me about, you know, just being there with my friends who were my family, who showed me love, and we were having a good time. And I'm sure it was a little bit of escaping some of the issues that I was dealing with and some of my other friends were dealing with as well. We all knew was illegal, but I didn't think it was immoral or anything like that. And it was just us about being together and I just happened to the person that had the means to get the thing that was enhancing our mood. And it just kind of blew up.

Michael: So not even just that you were taking ecstasy but that you were the one getting access to it and getting it to the rest of your friends, which means now from the, I guess prosecuting attorney's perspective, you were now selling or distributing ecstasy.

Kevin: Yeah. Exactly right. You hit the nail on the head. Yes.

Michael: And that's what you got charged with?

Kevin: Yeah, I got charged with…you know, we're talking about a learning lesson. So, you know, this was, like, late '90s, early 2000s. For me, ultimately I moved beyond it. I was just sick and tired of what I was doing to my body and I just didn't like the way I was feeling, you know, like, after the weekend. We were kind of like weekend warriors I guess, where, you know, I was in grad school, actually I guess I was still undergrad but, you know, I was doing well in school but on the weekends we would go and do those things and then kind of do it over again on the next weekend. I just got tired of it. I just got tired of, you know, feeling hung-over, what I was doing into my body. I'm really into health and fitness, which is not exactly in alignment with what I'm describing now. And ultimately I just got tired of that and kind of left it behind.

One of the things that I guess helped me do that was, you know, some of the friends that were also involved in, you know, kind of the conspiracy, you know, got in trouble, actually got caught physically with ecstasy pills and I said, "That's it. I'm done and I'm not doing this anymore."

And the thing for me though is, I think you have to remember this. I mean, growing up where you don't necessarily have the family structure that maybe, I don't want to say you should have but you just didn't have the love and support that maybe you needed, and when you're going out to your friends who kind of are a substitute for that, it was really difficult to leave it, you know, in the sense that I was sick and tired of feeling the way that I felt, but, I mean, these friends that I had, and some of them, you know, they're great friends to today. It's not like these were just bad people. These were, you know, a lot of professional people quite frankly in my small group of friends that I had at that time in the late '90s, early 2000s doing this. I mean, they've gone on to be incredibly successful and just completely self-made.

Sometimes when you say the word drug or drugs, you think of, you know, kind of inner city back alley sort of thing. And, you know, I'm not trying to minimize what we were doing or anything, but it wasn't that. You know, these were young professionals that were…we were, you know, going downtown in cities and clubs and, you know, kind of doing our thing. I've had some baby boomer clients of mine that I've shared the story with say, "Well, you know, it kind of sounds like your version of us in the '60s." So I guess that's kind of how I think of it. But ultimately it's not like it was all, you know, rainbows and sunshine. You know, there's certainly a bad side of it as well.

But when I wanted to move past it, it really was challenging because that meant that, you know, I couldn't put myself in those positions and basically be with my friends, who were my pseudo-family. And that was challenging. I struggled with that for years. And, you know, I didn't necessarily want to leave these people behind who were my family, but I didn't want to put myself in that position. So it was really tough to do that.

Michael: But all these separations, like, you were doing ecstasy with friends and helping them get access to it. Some of them are getting busted. You decide that you want to get out of this, which unfortunately means you have to move yourself away from them. Like, this is all still years before when you're at the broker-dealer and you're actually getting arrested for this, right? Like, is there a gap here?

Kevin: There's about a two-year gap. So, you know, I still had those friends but basically, I stopped being associated with the distributing and what have you and using the drug in 2000. And then in 2002, I felt like basically kind the long arm of the law came from my past and just reached me and grabbed me and I got arrested. So it was definitely a surprise to me.

Michael: So even at the point that you're getting arrested for this, like, you had already been out for two years or so and then it came back to you?

Kevin: Yeah, yeah.

Michael: Or that it caught up to you, I guess, and not came back. But then it caught up to you?

Kevin: Yeah. That's when it caught up to me. And one of the things that kind of helped me, jump ahead here a little bit, that helped me get licensing, the prosecuting attorney, I asked him to at least write me a letter and kind of stipulate to that my period of involvement because at that point they were watching everybody and, you know, phone taps and things like that. And, you know, they could tell that I wasn't doing anything. But, you know, it didn't exactly get me off the hook for past deeds. But I did get a letter from the U.S. Attorney. It just said, you know, my period of involvement was through that early, you know, 2000 time period and not beyond. So I don't know how much that helped me ultimately kind of get into the business and get my licenses, but it certainly didn't hurt.

Michael: Okay. So what ultimately, like, what happened from there? So you get in trouble here, you get arrested, like, you ultimately are found guilty and go to jail? Like, what actually happens at this point?

Kevin: So I come home from work one day, and it was literally, like, around the same time that I was presented with a full-time job offer from the broker-dealer. So, you know, I'm in full-time school and they hired me on as an intern, kind of a graduate intern, and then they were happy with my work and, you know, gave me a job offer. And, you know, I negotiated up the salary a little bit and just feeling real good. And I come home and there's, you know, a few Caprice classics sitting outside of my apartment and a few guys outside of my door. And so I got arrested in May of 2002.

Michael: Like, they were literally just waiting for you to come home to arrest you.

Kevin: Yeah. I don't know how long they were waiting or if they were just, you know, knocking, but, you know, there was a warrant out for my arrest, and I got arrested. And you want to talk about a tough period? I mean, certainly, jail is one thing, which I went there. It was inner city jail, which we can talk about that if you want, but that was more than interesting. It was very survival and maybe a little bit animalistic at times. But ultimately I went to a federal prison. But those six months, from the time I got arrested before I knew actually what my fate was, like, "Hey, am I really going to go to jail?" You know, "Is this going to happen to me? I mean, I didn't get caught with anything. I just got a few people saying I did some things and, you know. "

Michael: A couple of years ago. Yeah.

Kevin: Yeah. And so, I mean, I didn't know anything about, you know, the law or how it worked or how conspiracy worked. So that was an incredibly tough time. About a month after I got arrested the first time as well in May, and, you know, ultimately I ended up going to jail in October of 2000, excuse me, 2002. I was arrested in May 2002, I went to jail in October 2002 and I stopped kind of being associated with those activities in 2000, yeah, I met, you know, what is now my current wife.

So literally I meet this wonderful woman and we have this great relationship kind of developing and then it's like, "Well, when do I tell her I'm under indictment?" Not exactly an easy conversation to have. And I told her, I'm like, "I think this is BS. You know, I didn't get caught with anything. Yes, I did this. Not to the extent that they're saying, but I can't see how this is rationally going to, you know, end up with me being in jail." So we kind of went through that journey together. At the same time we were really getting to know one another and fall in love and with this big cloud of uncertainty hanging over my head.

You know, looking back on it, I went and talked to a couple different attorneys. The ones that were kind of more the fiduciary type that said, "Well okay, you know, here's the facts and circumstances. You're going to jail, son, and, you know, the only thing I can do is try to minimize how long." And I didn't like hearing that, so I went to the equity indexed annuity salesperson and he told me, "Oh, you're getting screwed. This is BS. You're going to be okay. Just hire me." And I liked how it sounded. And ultimately it wasn't exactly the right decision in hindsight. But he told me what I wanted to hear and it was exactly the wrong thing.

And ultimately what happened was, you know, I was charged with an amount that was actually several 100% over what I actually…you know, I didn't keep exact detailed logs of these things but, you know, all people have incentives. You know, the prosecuting attorney had incentives. The larger the amount, the better it looks for them and the more it furthers their career. And, you know, ultimately what you're charged with dictates how long you're going to go away. And the...I don't want to say the incentive but the structure of kind of the, if you fight it and lose, I was literally looking at a 15-year mandatory minimum sentence. Mandatory minimum, the judge had absolutely no discretion over that. Fifteen years, see you later. And, you know, basically, I'm probably, you know, just getting out today or thereabout, maybe a couple years ago. Or I take a plea deal and I get sentenced and then hopefully I get a reduction in that sentence after the fact.

And so it was just stuff. I mean, literally, I'm buying books on, you know, modern identity changer. I'm thinking, "Okay, maybe I'm going to go to Belize. Maybe I'm going to do, you know, something." You go through everything because, you know, there's this fear, and anytime that you have this unknown, I mean, it just fills with fear. And this kind of fear was just overconsuming and overwhelming.

Michael: Was the fear like, "What happens to my life," or more proximal like just, "What the hell is it going to be like if I'm in jail?"

Kevin: You know, you can't think about…you know, I'm very much a forward-thinker, you know, kind of typical financial planner. Believe me when I say you're not thinking about what your future is going to be, you're just thinking about what the hell is going to happen to me in there. You know, if I'm in there like a caged animal am I going to be able to survive? You know, what kind of, you know, derelicts am I going to be in there with? I mean, you just don't know so, you know, you think of, I don't know, what was the old show on HBO? Like, "Oz" and stuff like…

Michael: Yeah, like, you think of every bad movie stereotype about prison because that's usually the only version of prison anybody's ever seen if you've never been to prison.

Kevin: Yeah. So, I mean, that was terrible. I mean, I guess to draw kind of a financial planning analogy to it, it's like going through…if you're the client and you don't really necessarily understand the market so well and you see your account go down by 50% because you'2re, you know, all equity, you know, you think the sky is going to fall and it's never going to rebound. And it's that, but we're talking about with your basic freedom.

Michael: So given that we're having this conversation, I'm going to presume you ended out taking the plea deal.

Kevin: We did. In hindsight, I mean, it was a no-brainer, but going through it, it wasn't an easy decision. You know, it was just stuff. I think it was probably tough just to accept it. So I took the plea deal. I, you know, went away on October 22nd, 2002, that was 2002, yeah, 2002, and ultimately I was in an inner city jail in Pittsburgh, PA for about 7 months and then I got moved around to a few different other places and ended up in a federal prison until March 18th of 2004. So it's not like these dates don't stick out my mind as you can tell.

Michael: Yeah. So, like, I mean, when you got there and you went through the prison world, was it as bad as you feared? Was it worse? Was it not quite as bad? Was it just different?

Kevin: So the county jail was terrible. You know, it was inner city, there was probably about 100 people on what they called a pod. There was probably, you know, 5 or 10, you know, white guys, a lot of African Americans and a lot of people that were in there for immigration. And it didn't matter your skin color but there was a lot of street people there. So there really weren't many people to talk to. There was, you know, these, I won't call them gangs but, you know, groups of people that were in there that were…you know, it is a lot of what you see on TV.

I mean, the first time I went and tried to use the phone, and I'm a pretty decent sized guy, I'm, you know, 6 foot, almost 6-1.

Michael: Yeah, you're not a small guy.

Kevin: Yeah. And believe me, I worked out really hard leading up to going in there. I was like, you know, "I better do whatever I can to protect myself." So I was pretty lean and mean going in there. I was about, you know, a little bit more than 6 foot, about 200 pounds and I was pretty cut. The phones that were in there were, like, I don't know, property or perceived property. And I remember calling my family just trying to let them know where I'm at, and, you know, I had this big guy, his street name was Man Man. And Man Man and about five of his friends came up right behind me and said, "Hey man, you're on my phone. Get off my phone." And this was literally, like, first day there.

So Man Man was probably 6-4, a little bit bigger than me. And I'm just thinking, "Okay, you know, spread my legs, brace yourself." I had the headset of the phone clenched in my hand. I figured…literally I'm like, "I'm going to hit him in the head with the handset of the phone." You know, "I've got to stand up otherwise they're just going to pick on me the whole time I'm in here." But literally, that's what goes through your head. And I told him, you know, "No." I said, "You can have the phone when I'm done." And it lasted for about two minutes. We didn't get in a physical altercation but it seemed like it lasted 20 minutes.

And, you know, ultimately I didn't get in any fights in there, but, you know, I felt like, you know, going through everything that I went through growing up with the physical and emotional abuse, and, you know, you go from being this very, you know, angry child to trying to mature. And you're kind of taking some steps forward but, you know, you take some steps back. And I felt like I was progressing as a person, as a human and really maturing and becoming somebody that I really, really liked.

And I felt like I had to regress in there. You know, you'd be sitting down and maybe watching TV and there'd be a group of people walking behind you and literally, I mean, I clearly remember thinking, I'm like, "Okay, if these guys jump me I'm going to kind of turn around and hit them with my right hand and then run over there." Even though I didn't get into fights, I mean, there was plenty of fights that were in there. I mean, it was a regular occurrence. I just tried to, you know, kind of keep to myself and stay out of the way.

Michael: So you went on October 22nd, you came out March 18th of 2004, so about I guess a little under…

Kevin: Seventeen months.

Michael: …a year and a half. So, like, was that the deal? That, you know, you were facing mandatory minimum of 15 years if you fought it or you could take a plea deal for 17 months?

Kevin: So I took a plea deal for 51 months. And again, that was…it's purely based on, it's basically like a little chart. In one column it's like, you know, what's the quantity of drugs you're charged with, how many kind of offenses have you had over your history, and, you know, here's the period of months where those two intersect. And in mine, the quantity, I mean, it just really kind of jacked it up there. So 51 months, which is a little bit more than 4 years, but there's, you know, kind of a dangling carrot of, you know, you can be brought back for sentencing reduction. And basically what the sentencing reduction is, largely it's, you know, hey, if you tell on some people or what have you then you can get your sentence reduced. But I'd been out of it for a couple years so quite frankly I didn't even have the opportunity to, you know, provide a lot of names or something like that.

Michael: Of course, that's sort of like if you cooperate…essentially that, "If you cooperate with us and give us information on other people further up the line then we'll give you a break."

Kevin: Yeah. And for me, it was actually the other way because the upper part of the line were the people that actually got physically caught with the stuff and I was kind of further down the line. And I just always thought in my head, I'm like, you know, "Hey, they're not going to come down, they're going to go up. And, you know, oh, by the way, this thing called 9/11 happened in 2000, these guys are going to be pretty busy and they're not going to worry about little Kevin Kroskey and his misdeeds that he did a few years ago." And I was way wrong on that.

So, you know, ultimately what I have to owe to, my wife Brandy stuck with me through the whole thing. It was incredibly difficult on her. It was incredibly difficult on my mom. It was incredibly difficult on my sister. My brother, sister, and I, we have very close relationships. And my sister and my wife Brandy, she wasn't my wife at the time but were just incredible advocates for me and just kept pestering really the prosecuting attorney that, "Hey, you've got to pull Kevin back, you've got to give him this reduction. You've got to give him this reduction." And they don't have to. You're literally just hoping. And everything up to that point, I mean, even those 51 months, there's no discretion there for the judge. It's like, "Here's the chart and here's what it is."

You know, ultimately, my sister was in California at the time, you know, was flying back, showing up in Pittsburgh at the prosecuting attorney's office, you know, my wife, we're in Northeast Ohio, she's driving back to Pittsburgh. And they just kept, you know, asking and pleading. This is no joke, but the prosecuting attorney when I was going in on October 22nd, he made the comment that...he said, "I didn't know that you were doing so well." Because, you know, it came out that I was in grad school, 4.0 and, you know, I had a decent job. And I just remember thinking like, "Oh jeez, thanks. Not right now."

Michael: Information that would have been useful earlier.

Kevin: So ultimately, and thankfully, I mean, I did get the reduction. And I knew I was getting called back for it, and it was basically the most…because at this point in time the judge did have discretion. You know, it was going to be, what is it going to be reduced to? And there's no more stringent guidelines as far as what it's going to be. And I was in Alabama, and then I got transported to Atlanta, and then I got transported to Oklahoma, and then I got…so basically I got, you know, moved all around because that's kind of how that federal system works. And all I did was, you know, practice my presentation, what I was going to say when I went back for that sentence reduction. And the judge was notoriously very stringent. Apparently, I don't know if this is true or just kind of lore, but, you know, made some of, like, the longest sentencing recommendations in history. And I'm like, "Great."

And so I went back and made my case. When I was done, he looked over to I guess it was a clerk or what have you but he said something, the clerk kind of left the courtroom, came back. And what I had asked for was for house arrest and just to be released. And he granted that to me. And there was other people that were also in kind of, you know, our conspiracy, you know, that had to stay in prison for a longer period of time and didn't get that same reduction. So whatever I said apparently maybe resonated with him. And literally, I guess it was at that…I think it was that day, it was either that day or one other day but, you know, kind of the wheels of justice move slowly. So whatever it took for them to actually process and let me out, I was out within a day. And my mom picked me up and took me back to her house.

What Kevin Did To Take Control Of His Career As An Ex-Convict [38:39]

Michael: So what do you do from there? Like, you were in school to get your MBA?

Kevin: Yeah, MBA in finance.

Michael: You're in school to get your MBA and working at the broker-dealer, and now the clear blue sky, you've just vanished from all of this for 17 months, which at the time was looking like 51 months until the sentencing reduction came through. So you've been gone from this for 17 months, and then one day your mom drives you home and you're back in the world again.

Kevin: Yeah. So I mentioned my wife, you know, Brandy. She was there with me the whole time. So, you know, first, you're just happy to be free again. I mean, I can remember walking down the streets of Pittsburgh with my mom and, you know, it was a March day in, you know, Western Pennsylvania and it wasn't exactly, like, a beautiful day, but it was very beautiful to me. This is no joke. When my mom picked me up that day, in her car, she had a job application for McDonald's because when she was there one day she asked if they hired ex-felons and they said that they did. So she picked up an application for me.

Michael: To work at McDonald's.

Kevin: To work at McDonald's. And, you know, I didn't know what I was going to be able to do quite frankly. I mean, I did a lot of reading. You know, I was pretty well through…I'd I think about a year of my MBA program done. I had a 4.0 at the time, and, you know, I had an idea of what I wanted to do. I just didn't know regulatory-wise how I was going to be able to fit in. So at that time, 2004, you know, real estate bubble is in kind of full bloom and you've got a lot of people that are making a lot of money originating mortgages. And I had some friends that were doing that. And basically, I was able to go there and at least get a job and start working and just doing some of the processing for mortgages and what have you.

I also applied for a mortgage loan officer license. Again, it's not like it's the most, particularly at the time, you know, the old saying was you had a lot of people getting out of used cars and getting into mortgages. And they were doing it just because of easy money sort of thing. So I figured, you know, "These guys are kind of doing this. It's not exactly the highest regulated industry," at least at the time, "I think I'll be able to get a license. I know a lot of people that are doing this and doing well and, you know, I think I've got a little bit more ability than they do. So let's see how this goes."

And ultimately that turned into about a three-year ordeal with me applying, getting denied initially, appealing, having a meeting with what was an administrative hearing officer who actually wrote a favorable recommendation for me and recommend to the Division of Financial Institutions that they grant me my license, which I was then again denied and then I appealed again.

Michael: This is just to get a license to do mortgage loans.

Kevin: You got it. Yeah.

Michael: Okay.

Kevin: So literally, I mean, it took me three years to get my license. So kind of at the same time, I was, you know, just researching, you know, "Hey, can I get back into financial services? Can I get a securities license?"

Michael: Was it even an option for you to go back to the broker-dealer in a similar operations role?

Kevin: No. You know, no. You know, I had six months experience. They offered me a full-time job. I think they were happy with me. They saw some potential. But, you know, it's just…I mean, you know how it is in this industry. I mean, I guarantee you there's a fair amount of people that when they hear the intro that you made, they're probably going to cringe because their mind is going to go a certain way, and they're going to say, you know, "Hey, you know, even if he would be a great team member, it's just not worth the risk for us."

Michael: From your end, does that become part of…the challenge is that phenomenon that, like, it's hard to even get people to give you a chance because from their end they're afraid of the risk of hiring you and having something go wrong?

Kevin: Yeah. And, you know, I don't necessarily disagree with it. I mean, you know, with where we're at now, I mean, if a young Kevin Kroskey…certainly, I have a little bit more empathy for somebody than maybe some other people that I talked to about hiring. But, I mean, you've still got to be careful, you're still dealing with people's money. And even though nothing I did was related to any sort of financial, you know, issue or malfeasance, I mean, I get it, you've still got to be careful. But for me, even just trying to get a loan officer license, I just felt like, you know, nobody was really giving me a chance so I've just got to jump through the hoops.

Michael: So what were you doing in the three-year interim of even trying to get a mortgage loan officer license? I guess, like, this takes you from 2004 to 2007 or so?

Kevin: Yeah. So I was working in the mortgage office but I just wasn't originating. So I was basically supporting an originator.

Michael: Okay. Okay.

Kevin: No, I was doing that. You know, I still did have a life insurance license that I had from, you know, that week that I was employed at Northwestern Mutual. So, you know, I had this idea that maybe that's how I can get back into the business. I'll just kind of, you know, be some sort of specialized life insurance agent or something like that. And, you know, ultimately, you know, I did disclose in a timely fashion the arrest, part because…I guess it wasn't the arrest but it was more the conviction because I was in jail and I really couldn't disclose it. But I got all that kind of sorted through over those years.

Michael: Well, I guess that would be the awkward thing. Like, at the moment you are actually found guilty or do your plea deal and go to jail, it's not necessarily top of mind when you get there to say like, "Oh, I should send a letter back to the Ohio State of Insurance Department to let them know I won't be using my license for a little while."

Kevin: Yeah. Not when basic survival is front and center. No. So yeah, I was really working in the mortgage office and just figuring out, "Where can I fit in?" And ultimately, you know, I had some favorable feedback. The administrative hearing officer that I met with after the first appeal, you know, because I had this two-year window mind you that, you know, not only was I not involved but I had a letter from the U.S. Attorney that prosecuted me saying, "Hey, he wasn't involved. You know, he disassociated himself." So even though the rest and everything seemed very recent because I'd just, you know, gotten out of jail, it really at that point had been about four or five years old. So, you know, I was just kind of going through that process.

And there's nothing I could do. You know, I thought about maybe getting a sales job in some other profession that wasn't regulated or, you know, professional sales or something, but ultimately I was going to have to get somebody to give me a break. And I don't know if I was just dumb or determined, but I felt like, you know, this is where I was meant to be, and I just kept pushing forward for it.

Michael: And so did you eventually successfully get a mortgage loan officer license to be able to originate loans?

Kevin: Yeah. And what I had done, I don't know if it was maybe, you know, two years into that three-year process of kind of getting the mortgage loan officer license, but at some point, I had applied to the Ohio Division of Securities to set up an RIA and be an RIA. And I didn't know what they were going to say, but I figured, you know, "What the hell, I'm going to give a shot." And, you know, obviously, at this point in time, you know, not only…it's probably 2006 and now we're, you know, 6 years from, you know, my actual involvement of doing those things. And, you know, time heals all wounds to a certain degree, and so I just gave it a shot. And they sent me a letter back basically saying that, "Well, we're going to wait and see how the loan officer license kind of plays out here." And I don't know if they specifically told me or did this in kind of a letter form but basically if that was going to, you know, be approved then they would approve the RIA application as well. At this point in time, I'd finished my MBA.

Michael: So another example of, like, the state securities regulator decided, "Oh well, if someone else is going to evaluate your licensing anyways, we'll let them make the decision so we don't have to take the risk on the decision?"

Kevin: Yeah. Exactly right. So it literally took three years because, you know, you go through this and then they deny you, then you appeal and the appeal takes months and months and months, and then, you know, you have this hearing and, you know, then it takes a while, two months to write the recommendation from the hearing officer. And then it takes, you know, the Division of Financial Institutions more months to go ahead and deny me again. So ultimately after the second, you know, denial and my second appeal, I ended up in a courthouse in front of a judge, I'll never forget her name, Hollie Gallagher, who I never met her personally, I just know the clerk, and if she ever hears this, I owe her a big debt of gratitude, but she gave me a shot and approved my license. So it was three years in the making. And I came out of that courthouse that day with, "Hey, you can be in this business." And by proxy, I was able to go ahead and start an RIA firm.

How Kevin Ended Up On The RIA Side Of The Advisory Industry [48:10]

Michael: Okay. Yeah, I mean, how did you even land on the RIA side? Like, just you became aware of it through your life and health license and just looking for options since the mortgage loan officer application wasn't going anywhere?

Kevin: Yeah. You know, I don't know exactly. With some of the product sales at the broker-dealer, I was a little bit turned off. You know, again, I was really green, but, you know, I knew I didn't like something about it. I don't know if I knew exactly what at the time. And I'm not exactly sure how I got kind of, you know, turned on to the RIA thing, but, you know, I was looking at all options. You know, I was looking at the different licenses. You know, what are the regulatory requirements, you know, if you have a felony, what's the time period, and all that. And ultimately, you know, that's the path I went down.

Michael: So you ended out with, like, a mortgage loan officer license and an RIA license essentially coming in succession together?

Kevin: Yeah, with probably a short period of time apart. Yeah, it was in 2007 that happened.

Michael: Okay. So what happens next? Like, now suddenly your world changes. You're actually allowed to originate loans and lo and behold you can start an advisory business because you now have a license that's actually approved.

Kevin: Right. And so now it's awesome because I can start the RIA firm. I have no capital. You know, I'm a young 20-something with a felony on his record, and it's off to the races baby.

Michael: Yeah. So, yeah, like, where exactly do you go from there? Like, good news, you actually have a license so you can now do this legally. Now you have to actually do it as a 20-something with no industry experience and a felony on your record going out to get paid for financial advice.

Kevin: Yeah. And so leading up to that, I took my CFP exam I think in March of '08. So when I was going down this path, you know, I started studying for it. I was probably just thinking optimistically like, "This is going to happen. I'm finally going to get a shot. Somebody is going to give me a shot and this is going to happen." So it's not like I wasn't…I was still learning, I was still, you know, taking all the CFP, kind of self-study from American College. I took the exam in March of '08 and passed at the first attempt. And, you know, I was actually doing some support work for a couple financial advisors at the time as well over those years. So basically some basic plan prep. Again, nothing, you know, that I was working with clients or anything. But these were broker-dealer reps that had a bunch of clients and I was just, you know, putting data into NaviPlan or MoneyGuidePro and doing some of the planning stuff.

Michael: Okay. But you were getting some exposure. You weren't solely supporting mortgage originators for the whole three-year period until suddenly the RIA license got approved.

Kevin: Correct. Correct.

Michael: Okay. Okay. So how do you start a firm cold as a 20-something with a felony conviction on your record? Like, what did you do? Where does that first client come from?

Kevin: The one thing I did have going for me was, I had really good credit. And if you think again back, this is 2007 so this is kind of probably the epiphany of easy credit, right?

Michael: Right.

Kevin: So I loaded up man. I just kept applying for…like, I just wanted some runway. I'm like, "I'm going to go all-in." What did I have to lose? I mean, really, you know, I have to go back and start over again. That was going to be nothing compared to what I'd already been through. So literally I just remember, you know, Bank of America had a $50,000 credit line, which is just asinine to think of today because, you know, I had really no income and no assets. But I had a, you know, 800 credit score or something. So, "Sure." You know, "We'll go ahead and give you Kevin Kroskey this credit line."

Michael: For how much? How much of a credit line did they give you?

Kevin: It was $50,000. Literally just signature. It was a personal loan, nothing collateralized. Again, this is 2007.

Michael: Yeah. Credit was easier.

Kevin: But, you know, I just wanted to buy myself some runway. So it was kind of a hybrid approach at first. So, you know, I was originating some mortgages for, you know, commissions at this point, you know, making some money doing that. I was, you know, in parallel starting the RIA firm. And, you know, I had been building a network because here I'd been out for three years at this point, so I started talking to some people about, you know, helping them, which isn't my natural MO. I'm not, you know, kind of the natural prospector that goes out and can just go to, you know, some event and just drum up business. But, you know, when you have to do it to survive, I mean, you do what you have to do.

It was tough. I mean, I definitely had some lean years. You know, the revenue that I had in 2007, because I really just got going at the end of the year, the very end of the year, I think I had, like, $4,000 in revenue just from doing some project work, you know, a couple, you know, one-time financial plan sort of things. And I was still doing some support work for a couple financial advisors.

But then in 2008, I ultimately started doing some…I purchased, like, a license to do some adult education classes, kind of like, you know, the old successful money management that came on the scene I think in the '80s, where you go and, you know, you send out some mail and do this class at a local university or high school or something like that. And, you know, I had a teaching background. Literally, I'd been studying this stuff even though I didn't have a ton of practical experience. I'd been studying this stuff ever since I was, you know, sitting in jail back in 2002. So, you know, I passed my CFP and, you know, had done some prep work, so, you know, I knew I could help some people. I didn't know what I didn't know as well. So, you know, kind of that unbridled optimism certainly didn't hurt.

But I remember it was March of 2008 and, you know, I'd spent, you know, a lot of money on doing this and I had a bunch of people in the room. And I remember just being so nervous starting this class and like, "All right, you better do good. You better do good because if you don't do good you're going to be bankrupt."

Michael: Yeah, no pressure.

Kevin: No pressure.

Michael: High stakes adult financial education class here

Kevin: But I had a lot of people in the class. This is March of '08 so, you know, the good thing was in a way, we were going through some…you know, kind of the downturn started in late '07 and it was certainly picking up steam in '08 before Lehman in the latter part of '08. But I think because of that, it turned out a lot of people. So I said, the first thing I said was I was nervous. I said this to the group. And I have a couple clients to this day that say that, you know, "When you said that, we could just tell you were very honest and, you know, that's when we decided to work with you when you said you were nervous. The first thing you said in that class."

Kevin's Tips For Setting Up And Marking Adult Financial Education Classes [55:12]

Michael: Very cool. So talk to me a little bit more about just financial education classes. Like, what was the deal? Like, how do you get it set up? What did you do? How do you market it? Like, what's the length of a classroom? What's the setup for doing adult financial education classes as a way to get in front of people?

Kevin: Sure. So, I mean, there's several different, and they've been around a long time so I'm sure a lot of people are familiar with them, but there's different programs that you can license. You know, certainly, other people may kind of create their own. But, you know, basically, you're just sending out some mail, usually around 10,000 pieces of mail and advertising some dates that you're going to hold these classes. Typical format is usually over successive week, so maybe like a Tuesday night, Tuesday night for a few hours per night. And, you know, it's just an extended job interview. And you're going to get up there, teach them about, you know, retirement planning and at the end you kind of offer a free consultation and have them fill out an evaluation form. And a certain proportion of those people will ultimately kind of take you up on that.

And I ended up being pretty good at it. You know, I think the teacher in me came out even though I was relatively young. You know, I knew my stuff because, you know, I'd been studying it. And, I mean, I'm no Michael Kitces but I think I do pretty well and this stuff kind of comes to me. And I think just the achiever in me wants to learn more and has that thirst for knowledge and applying it. So it was just an environment that worked really, really well for me. And ultimately that's how I started building my business.

Michael: Interesting. So was there a particular course that you licensed? Did you just make up your own class? Like, how did you actually get the stuff you were going to stand in front of the room and teach?

Kevin: I don't know if it was '07 or '08, I think it was '07, and I had a conversation with another advisor that was doing the classes in a different market. And, you know, he just had some success with it. He was a former teacher as well. And I said, you know, "That sounds something that seems to be consistent with who I am as a person and it may be a good outlet for me." And so ultimately that's how I got exposed to it. I think some of the larger ones out there that still do this are, I don't know what their name is now but Emerald. I think that was the old successful money management who bought out that and I think Emerald is the name of the provider. There's another one. I think it's FMT. But those are a couple that I'm familiar with.

I've seen others where you get basically some of these insurance marketing organizations that have kind of, you know, taken that idea and just kind of done their own and do that for some of their agents so they can go out and sell commission product.

Michael: Oh, Emerald would like…I mean, was it the whole package? They would give you the thing to teach? I mean, were they even doing, like, the advertising mailers and such as well or just you pay them the money and then you show up in the classroom and teach and do your thing and if you can do a good job teaching you'll get some business?

Kevin: Yeah. That's exactly right. So they'll do the mailing, they'll provide the course books. And ultimately I guess their job is to kind of get people there. I mean, you would handle the registrations but, you know, that's…and then your job is to handle the registrations, you know, teach and then get them to come in and meet with you.

Michael: I'll put a link out for some of these as well for people that maybe are listening and curious or checking out further. So this is episode 63, so if you go to kitces.com/63, we'll get some links out there for the FMT financial education classes and the Emerald classes. If memory serves I think Emerald was one of the things that got bought by Broadridge I believe years ago.

Kevin: Yeah, yeah. That's right. Yeah, that's phenomenal.

Michael: Okay. Yeah. So we'll put some links out to them, kitces.com/63.

So, like, you did it and actually, it worked for you. I'm curious, like, what did the economics of that look like? Like, you pay, like, some fee to license the content, you pay some additional fee to do the 10,000 mailers and then just you see who shows up and how much of your business you get and that's all on you and if it works well you just keep doing it?

Kevin: Yeah. It was about $8,000 I think to run the class. You know, it's one of those things where I don't know who said it but let me say that luck is when opportunity meets preparation. For me, I think I was a little bit lucky but I was definitely kind of trying some things and prepared for it and was successful, kind of, you know, at the whole teaching aspect of things. But nobody else was in the market at that time and the market where I was going. Again, it coincided with '08, which I think sparked a lot of interest, particularly from kind of do-it-yourselfers that were, "What the heck is going on here, and am I going to be okay?" So it was good timing in advance.

Michael: So it was like $8,000, like, for each class? So you go to Emerald and say like, "Here's my $8,000," and they say, "Okay, you've got the session. We'll send out the 10,000 pieces of mail." You'll see what you get. If it goes well then you go back to them and you spend another $8,000 to do another round of it?

Kevin: Right. You know, I did have the life insurance license. Like today I think about 1% of our revenue comes from, you know, basic term commissions. So we're not completely fee-only, but probably we'll be in the not too distant future. But back then when I was just starting out, you know, these were clear retirees, so there really wasn't much of an insurance need. Sometimes I was able to go ahead and, like, replace a more expensive term policy because cost of insurance had come down and you never kind of replaced that. So little commissions like that kind of helped early on.

But basically, I would do another class once I got some money back in because there was a big lag from, you know, you spend this money and then two months later you have the class. And then, you know, weeks upon weeks later you're meeting with people and then you're working with them. And so, you know, I didn't have a ton of working capital and so I just kind of slow growth.

Michael: Well, and I guess, and particularly in RIA side, I mean, this was even what struck me. You know, I started the business on the insurance company side as well and then spent time on the BD side. And so, you know, at the time, like, there were even smaller accounts back then but, like, you know, if you could find someone that would do $100,000 rollover with you in some like American Funds A share that at the time was probably paying 5% upfront, it's like, okay, you know, if you can get a client with $100,000 rollover, like, you do the rollover, you invest the money in American Funds, you get a $5,000 check in, like, a few weeks. It's like, not bad. Well, minus the broker-dealer is great. But, like, it's $5 grand of revenue.

If you get the client to do a rollover into your advisory account as an RIA, 3 months from now you'll get 250 bucks because that's your first quarterly fee on a 1% fee on a $100,000 account. So just, like, the $5 grand upfront versus $250 3 months from now, you know, we can all do the math on what happens when you do that consistently for a long period of time and accumulate some assets and the compounding picks up. And, like, you can build a very robust business in the long run as a lot of RIAs have. But early on, it's just brutal in trying to get cash flow in. And I would imagine even more so when you're $8 grand out of pocket trying to make assets come in so that eventually after a few quarters of billing you've got enough money to reinvest for the next class, plus, you know, put a little bit of food on your table.

Kevin: Yeah. And, you know, I charged really small fees upfront to do plans. You know, I think I started at $500 and then maybe went up to like $950. And, you know, I think it's typical for younger advisors to maybe undercharge initially and then they kind of…as the confidence grows they'll kind of increase that. But that helped. You know, I had enough of those upfront, you know, planning fees to kind of shorten that breakeven and recoup the cost and then, you know, do another class. But, you know, early on it was basically two a year, two or three a year. And then, you know, I did that for a while. The last one I did it was in 2014. But where we sit today probably I would say somewhere around 40% of our clients ultimately came from those classes that I did over the years.

Michael: So did it boil down to sort of a standard thing like, "If we pay our $8 grand and they do the 10,000 pieces of mail, like, we're going to get 100 people, 40 of them are going to end out taking the free consultation, 20 of them will do business with me. Like 10 of them it'll just be a plan but 10 of them will do some assets on average I get a couple million dollars of assets and then just wash, rinse, repeat?" Like, did the numbers sort of boil down that way or was it more wild and up and down than that?

Kevin: I mean, you would definitely have some that would just…you know, it would bomb for whatever reason. So there was a lot of uncertainty there. I don't want to say a lot but, you know, they were for me because there wasn't any other competitor in the market, in my local market at that time for whatever reason, there's a lot right now, so those classes today, I don't think I would do them again. But back then I was kind of like the only one that was working, you know, in kind of those zip codes and I didn't have any competition. So they were pretty reliable. So it was good timing.

But, it was, you know, typically you would get, you know, somewhere around a 0.2%, maybe 0.25% response rate. So you're getting 25 households in a class. And then, you know, a certain percentage of them are going to say that, "Hey, we want to come in and meet with you." You're probably going to have, at least for me, I mean, you're going to have some portion of those that, you know, got all warm and fuzzy during the class but, you know, they fall out for whatever reason and they never come in to meet with you. But those that do, you know, you keep kind of going through that sales funnel. But a certain portion will do plans. And I was happy to do plans for anybody at that time, you know.

Why Building Relationships Through Educational Classes Was One Of The Smartest Things Kevin Did [1:05:24]

Michael: Right. Establish relationship and get paid anything, which is better than nothing.

Kevin: Right, right. Yeah, and in hindsight it was a really smart thing because a lot of those people that, and I didn't know this at the time but a lot of those people that maybe I did a plan for but, you know, all their money was in their 401(k), as it should be, and oftentimes I would tell them to put more money in there and no, you shouldn't put it, you know, in an IRA or a non-qualified account. It's not the right thing to do in your case. But those people came back around and, you know, I made sure…

I remember in'08 when I signed up for Redtail, for CRM, and, you know, I had been around some financial advisors and, you know, I kind of heard some of these people bemoan about, you know, their practices. And it was mostly independent broker-dealer reps that I was exposed to, but one of the things in hindsight that I did I think that was smart was, you know, I saw what these people were doing and what I liked and didn't like about what they were doing, what they complained about and what they would do differently. And I was starting from scratch, so it's not like I had the Titanic to maneuver. But, you know, I had this speedy little cigarette boat that I could go wherever and do whatever I wanted and build the business that I wanted. So I had a lot of freedom. I didn't have a lot of resources. You know, I grew up in Western Pennsylvania and here I am in Northeast Ohio kind of doing this. So I didn't even have kind of a natural network necessarily. But I didn't have all that baggage, all that legacy baggage to not do something or, "This is the way that we do it."

And so ultimately, like, I knew I needed to have a CRM system. I knew I didn't need to have one at that time, but, like, "Look, if I'm going to be in this business I better make it work. I'm going to, you know, act as if. "And so I remember, like, "They have $50 a month. That's a lot of money. I don't know if I can do this." But, you know, I bit the bullet and then soon after that I actually signed up for Constant Contact and I'm like, "Well, you know, I've only got 10 people on my list but I'm going to start sending them stuff. And, you know, over time I think this will work. I'm not exactly sure, but I think, you know, long-term, this is a longer-term strategy, all the classes were more direct response short-term, but I was trying to think longer-term at the same time knowing that, "Hey, I'm going to be successful, I'm going to be in this business."

And in hindsight, that was one of the smartest things that I did. Because I would, like last year I think we had six people that just became clients because I build a relationship with them. You know, they came to a class maybe in 2010, 2011. The timing wasn't right for them but retirement got closer, you know, job change happened, whatever it was, and here I was sending them, you know, content, my own voice every month that they were reading, at least from time to time. And when they had a need, I occupied that brain space and they reached out to me.

Michael: Yeah. You know, it's funny that as much as I hear discussion about evolving marketing for financial advisors and new strategies and, you know, there's always some new stuff that's coming along or at least new ways to do old strategies. Like at the end of the day, you did some seminars in the community and built a mailing list and marketed them on a regular basis, and eventually, they came back. And, like, you just do the stuff that works and it works. It's slow and painful, I'm sure like one class at a time and one prospect at a time,, but the cumulative effort in action still adds up amazingly well to just do some seminars, get in front of people, add them to your mailing list, drip-market them and let them call you when they're ready to do business with you.

Kevin: Yeah. And I think, you know, over time, the more sophisticated you can get with the marketing, is you realize, you know, who it is that you serve best, and you start writing to that person. I mean, I guess that's what really gets me excited about the future is, you know, well, I'm excited about actively building that list again. And not necessarily how we did it before, and I think there's better ways to do it, but building that list and marketing to it and just kind of telling your story and giving good content and showing how we can help people. And, you know, 1% or 2% of those people may need help now but, you know, there's a big portion that don't need it now but at some point, they probably will, and we want to occupy that brain space.

True Wealth Design's Fee Structure And Business Model [1:09:32]

Michael: Right. So fast-forward us a little bit to today. Like what does the advisory firm look like now? You're I guess a little over 10 years into it. Kind of had 10-year anniversary just a few months ago from the original license. And so where does it stand now?

Kevin: So we just hired our sixth team member this week. So there's myself, there's another lead advisor, there is what we call an analyst or you can call him kind of a support advisor or paraplanner, and there's three operations people. And we're actually actively looking to hire another lead advisor this year that would join our team. So that's our team.

We serve about 160 clients, about 140 of those are planning clients and 20 of them are basically AUM-only clients. And we manage about $125 million on their behalf. Again, we're a financial planning firm, retirement planning focused on the pre-retirees, but I guess our core services are retirement planning, investment management, and then tax planning. And we actually have a strategic relationship with a CPA firm where we bundle in the clients' 1040 tax preparation as well.

Michael: Oh, interesting. All right, so I've got a few questions. And I guess to start just, what does the fee structure then look like for you guys? Are you planning fees, are you AUM, are you a combination of the two? Like, how do you charge for what you're doing?

Kevin: You know, this is one thing, it's been the same ever since I set it up. And I don't know what magazine it was, but I remember reading an article by Philip Palaveev, and basically, what I recall him saying, to paraphrase it was, you know, basically firms that had kind of an all-in fee were just doing better. I think he made the analogy as well of people generally prefer that rather than kind of getting nickel and dimed or kind of getting charged for different things like, you know, going…I think I've heard you make the analogy before, like, on the airlines for how you've got to pay for baggage, you've got to pay for this, you've got to pay for that.

Michael: Yeah. Like, I don't appreciate United Airlines more because they make me pay to check a bag. It doesn't, like, make me respect all the work that they do to transport my bag because they charge me separately for my bag. It just pisses me off. It makes me not want to bring my bags, which is actually why they do it. Like, it means, you know, in any other industry except ours, charging a separate fee for something is not how you make people value it more, it's how you make people get aggravated and not do it. Just why insurance has deductibles as well.

Kevin: Right, right. So, you know, I literally, you know, going into it, I mean, I had some knowledge but, you know, obviously I'm still pretty green and so I would read, you know, people like that or, you know, stuff that Tibergien would write and just try to say, "Okay, that makes sense to me. I see that." And so I just try to set my business up certain ways. I knew I wanted to do planning, so our fee schedule starts off at 160 basis points but it tears down pretty quickly. And at the $1 million mark, you know, we're right in line with kind of the industry at about 1%. But what I always like to say to clients is we typically do a lot more for our 1% than what other firms may do.

Michael: Okay. And that's it. You do an all-in AUM fee that starts at 160 bps and scales down as assets scale up with breakpoints, and that covers the financial plans and that covers the investment management, and as you said and that covers the tax plan.

Kevin: Yeah, the tax planning and the… initially, I think it started at $200,000 or $250,000 where as long as they had that amount with us, we would cover the tax preparation, you know, just basically their basic, you know, 1040 and any supporting schedules. You know, not any business returns or anything like that. In hindsight, I think that was a good thing. I didn't start out that way but I think we've been doing that since 20009 or 2010, so pretty early on. And simply because I felt like I needed to have that information and I needed to be coordinated. It's not like I was working with, you know, really wealthy people but, you know, you still get, you know, questions about, "Well, what should my withholding be?" Or whatever it is kind of coming out of it, I mean, some of the things that we were doing on the investment side certainly had ramifications on the tax side. And to me it made sense.

The way I explain it today is, you know, when we do the retirement planning, we kind of start with the big picture of who you are and, you know, what your lifestyle is like and what's important to you and, you know, all that 50,000-foot level. But then we start kind of going down all the way to the micro level of cash flow. And rest assured taxes are related to cash flow. And if you don't understand the taxes, you're not exactly going to understand the cash flow in my opinion. And over time I think you're going to kind of maybe more likely get off track for the big picture plan.

So it was really built out of necessity for me. I think, you know, again I have that science background, you know, I was a physics teacher. It's kind of how my mind works. So, you know, I would see something, I wouldn't have an answer to it, or a client would ask a question so I would investigate. And I just taught myself how to do this stuff over time. You know, I remember buying a license for BNA and just entering in a client's five-year tax return and then, you know, just, you know, creating another case and then, you know, "Let's change this and what happens." And I remember the first time I added in some capital gains, like, "What happens if we realized more capital gains for this client?" And, you know, it wasn't a 15% tax rate, it was like 21.5%?" I'm like, "What the hell is going on here." And I don't know, like, okay, he's got his AMT exemptions, right?

Michael: Facing an AMT or something. Yap, yap.

Kevin: So, I mean, I guess how we ended up where we're at, you know, it's not like there was some sort of franchise model, "This is how you do it," but it was just me kind of pursuing, you know, answers to these questions that I felt were important, that were, you know, being asked by the client and I saw that, you know, it needed to be done as part of the planning. And ultimately it just evolved to, you know, us doing… You know, it's February 23rd today and we probably are having about 110 clients come into our office over the last 2 weeks and over the next few weeks for their tax preparation. And we're not doing the tax preparation but we do the planning part of it, the forward-looking part, and then we have a CPA firm that does the preparation. And we review the returns, you know, certainly handle any last minute items.

But it also makes our financial planning process a lot easier too because now we've got the as-prepared return from the CPA. The CPA firm uses CCH. So we get the CCH file, we upload it into BNA and now we can do our current year projection based on the actual prepared return. You know, the clients don't have to…we don't have to ask them for their W2 or for this or that because we have everything. I think it's really enhanced the client experience and it's really improved the operations for our practice.

Michael: Like, your firm just strokes a check to the CPA firm every year on behalf of your clients for all the tax returns that were done?

Kevin: Yeah. So the way that the pricing is, because it starts…I mean, in the RIA world maybe 160 basis points sounds really high. I know maybe in the independent broker-dealer world or the wirehouse world maybe not so much. But, you know, on the first $250,000 it's at 160 and then it starts tiering down after that. So literally when I set this up I just remember thinking, I'm like, "Well I'm going to be doing planning for people." When I set the fee schedule the first time it's not like I envisioned the tax return preparation, but I just figured that the planning work was going to be bundled in for everybody so I wanted the tier to be, you know, fairly high to start with, but then, you know, tear down pretty quickly as they get some economies of scale.

And ultimately as I, you know, kind of got into the business and got more clients, I said, you know, "I can go ahead and spend, you know, $300, $400 per return." We make it easier for the CPA firm. You know, we try to streamline things for them. You know, we set all these appointments for them. You know, we've kind of got a nice efficient operation set up. So, you know, tax preparation for most CPA firms that are successful is certainly not necessarily the part of the business I think that they enjoy and it's not necessarily a high margin part of the business, but I think the way that we've ultimately worked it out, it's become okay. Long-term I don't know if it's always going to be that way. It's something that we've talked about where maybe we're insourcing parts of it but we're just kind of, you know, leveraging their infrastructure for the quality control.

Michael: Yeah, I was going to ask, I mean, at some point, like, do you insource this? Do you just start doing the math of like, "Okay X hundred…" I guess, well, even how do you structure? Like, you pay a couple hundred dollars per tax return to the CPA firm and they give you a little price index since you're given them a bunch of them and, like, you just get to any tax season and do some math like, "Okay, you guys did 100 returns for us and it's $300 a return, here's $30,000," and that's that?

Kevin: Yeah. And, I mean, we have some clients with a little bit more sophisticated scenarios. Maybe they were executives and now have some consulting income or maybe a couple small entities or something. So, you know, basically I get the list every year, and if I have a client that's, you know, paying us, you know, $20,000 a year I say that we're going to cover their individual tax prep, which is on average I think it was $350 that we paid the CPA firm last year, which isn't too bad for a CPA-prepared return.

Michael: No. Not at all.

Kevin: But, you know, if somebody comes in and…I mean, there were some tax returns I handled up to, you know, $1,000 or so because, you know, what the client is paying us and…

Michael: Yeah. If it's a big client you reinvest in the client relationship…

Kevin: Yeah, I don't want them to feel like they're on United Airlines and get nickeled and dimed.

Michael: Yes. Indeed. Indeed. As a frequent United flyer, I feel very comfortable with making United the whipping post here for all examples.

So I guess at some point when the total fees that you're spending to get all this tax work done adds up to the cost of just hiring your own CPA then at some point maybe you'll hire your own CPA.

Kevin: Maybe or, you know, I definitely see there's a lot of value in the relationship that we have with the CPA firm. I mean, they reach out to us for questions on, you know, conversion and Social Security. And there's not a quid pro quo there as far as…or any sort of formal, you know, revenue share or anything.

Michael: Realistically if you work deeply with a firm like that on that many clients, the odds are pretty good at some point some cross-referrals are going to end out happening.

Kevin: Yeah. And, you know, I think the biggest time cost is just that front-end kind of meeting with the client. So we have our paraplanner right now. We hired him and he had three years prior experience working in a tax office. He has a great interest for it. I've got to tell this story. I think you'll get a kick out of it, but after he was hired he said, you know, "I didn't think I interviewed very well." And I said, "Jared, you interviewed terribly but…" And I didn't tell him this but he kind of looks like you. I said, "Maybe you're a little Michael Kitces Junior."

Michael: Excellent. So, you know, word of advice for any young folks listening. Apparently, like, glasses and a goatee can help you get a job in hindsight.

Kevin: Even have a blue shirt on, Michael.

Michael: Oh, fantastic. Fantastic. Maybe we should start, like, making those available on the website. I'll have to see what we can do there.

Kevin: So we may basically kind of insource that front-end piece. This is something I've openly talked about with the CPA firm because we were close to acquiring about 100 clients from a retiring advisor a couple years ago, and I talked to him. I said, you know, "What happens if our tax prep work basically doubles?" And, you know, he just said, you know, "At some point, it's going to become an issue." And he said, you know, "You can probably just do the insourcing part and maybe even handle some of the simpler returns. Maybe you bring me in on some of the more complicated cases or because business owners that…"

Michael: Right. Because deep down he doesn't really actually want the simpler returns as well. He can't charge much for them and make any profit.

Kevin: Yeah. I mean, I think I don't necessarily want to be in that business, but when you think about it, as an advisor, if we understand taxes and it's playing into the planning that we're doing for the client and we already have the relationship and we know a lot of the things that are impacting the return, arguably we're probably in a better position to do that kind of service work for them. You know, the CPA firms don't want to do that. You know, you've got the low-end tax preparers. And so I don't know, maybe we're situated for that. But I don't want to be in that business as a core business. It would really only be ancillary to the wealth management relationship.

Michael: So out of curiosity, what happens for clients that already have an existing relationship with a CPA when they come in to you and are like, "Well, yeah, great, you do all this but I've got my own CPA. Can I just have a reduced fee since I don't need you to do my tax return?"

Kevin: I almost never have had a conversation in the, you know, probably eight years, seven, eight years we've been doing this. So I always say that, you know, "I'm more than happy to work, you know, with any professional. I just want to make sure that we're all on the same page working for your best interest." You know, and usually, there's not a real relationship there with the CPA. I mean, they see them, you know, once a year. It's all kind of after the fact. They're in, they're out and that's it.

I mean, with the business owners, a little bit different but, you know, even if you…I mean, you know, there's a lot of consolidation that's happened in the CPA industry. And, you know, these firms that you have, I mean, they want to work for large businesses. I even think like a lot of the smaller successful businesses, you know, I've got a few of them as clients but they're not necessarily getting good tax advice, and, you know, they're not really getting proactive advice. So even those people I think are really underserved in that model for the typical CPA firm and good in ours.

Michael: So you're now at you said about 160 clients and $125 million under management. So you have yourself and a lead advisor are I guess splitting the 160 clients with then paraplanner and three ops staff to support? Is that what it looks like?

Kevin: Yeah, that's correct.

Michael: Okay. And then hiring another advisor because you're just feeling at capacity at 160 between the 2 of you?

Kevin: No, I don't feel like we're at capacity at all quite frankly. So last year, we grew…obviously, the market was quite strong in '17, but last year was our best year ever, brought in $20 million of new assets from new clients as well as existing clients. And with the market growth as well, our AUM increased by about 33%, 34%.

Michael: Wow.

Kevin: So we brought on 21 clients last year, and as, you know, anybody that's listening to this knows, bringing on a new client relationship just takes a lot more work than…than it takes to typically service an existing one. Certainly, things may happen. You kind of have to, you know, maybe do more for an existing client in any given year, but…

Michael: Yeah. But the average existing client is a much lower time commitment and workload than the average new client, where you've got to do all the planning work upfront.

Kevin: Absolutely. So, you know, I always want to have a capacity where we can, you know, have room to grow and not just, you know, kind of passively grow and just bring on a handful of clients. I guess what I've been doing over the last few years is I like to say we've been in a slowdown before we speed up phase. And slowing down in the sense that we really haven't…like I mentioned, we haven't done any of those seminars since 2014.

How Kevin Continues To Grow His Client Base [1:25:15]

Michael: Yeah. So where is business coming from now, particularly have your biggest year ever with $20 million in new assets?

Kevin: You know, a few places. Certainly, we've had a fair amount of referrals from clients just passively, you know, kind of coming in. Not any sort of structured referral program or anything like that. But last year I think it was six or seven people kind of came off, you know, the list that, you know, came to classes from years prior and just kind of stayed engaged. So that's where about a third of the clients came from. I think about another seven or eight, I think eight of them came from referrals that we had. And then others, I've been writing a paper, excuse me, an article in our community paper. I live in an affluent community outside of Akron, Ohio and south of Cleveland, Ohio. And I've been doing that since 2011.

And in 2012, I bought an 8,000 square foot office building kind of right as you go into town and right by a large mall right off the highway. So I get a nice traffic count. And I intentionally did this. My wife and I knew we wanted to live in that community. It just felt like home. You know, it's beautiful, it's close to things but we still have some acreage and space and, you know, great schools. So we bought the house and I bought this building and we just started getting involved in the community. And I was already writing an article on that local community paper. My office was in the community next to it. And so, you know, I mentioned kind of, you know, having kind of like a short-term direct response, you know, a marketing strategy with the seminars and then also kind of thinking a little bit longer-term. So those were strategic in the sense that I was definitely thinking longer-term. I wanted to become part of that community. I wanted to get involved in that community.

And, you know, those articles that I've been writing as well, you know, ultimately it took a long time but, you know, people read the stuff, they feel like they get to know you, they build a relationship with you. And we've had some really great clients that have come from that. I mean, even right now we have about $6 million in our pipeline just from, you know, people that read those articles and have a need.

How Kevin Gained Visibility Writing A Recurring Exposure In A Local Newspaper [1:27:27]

Michael: So, like, what do you write about and how do you get a writing gig like that?

Kevin: How do I get it? Well, I pay to be in there. It looks like an article, you know, and I just write it as if it was kind of like I was hired to do it, you know, and I have a small display ad on the side of it. But, you know, it kind of depends. I mean, I don't have like a content calendar and, you know, "Here, so I'm writing about this month," and being incredibly strategic about it because I haven't had time. So a lot of times I'll, you know, get some article or I'll just have a client case and say, "Okay, this one is…you know, that was pretty interesting." And I'll write about this or write about that. So, you know, I try to write about problems that we solve. So, you know, I think it just works. You know, people, "Hey, I have that problem," or, "My friend John has that problem, maybe you should talk to this guy," sort of thing. So I think those are really the best articles that I write.

We use dimensional funds for a large portion of our portfolio, so sometimes I'll get articles from them and just kind of, you know, repaper it and just say, you know, "Modified with permission from, you know, Dimensional Fund Advisors," or, you know, kind of make it my own. But I would do those different things in terms of the content, but I need to get…

Michael: And it's a monthly column you said?

Kevin: Yes. Yeah.

Michael: Okay. Can I ask, like, what does it cost to be able to…I'm going to guess, like, they sort of charge you for the column and that you have to buy some ads for them sort of all in one deal?

Kevin: Yeah. Our community isn't huge. It has a rural feel to it even though it's right, you know, kind of close to everything if you will. So I think there's probably 8,000 or 10,000 people on the distribution list. So it's not huge. But again it's very affluent. And it's been around a long time and it has a lot of good...just wide readership in the community. It says a lot of stuff about, you know, what's going on with the board of trustees or what's going on with the school programs, things like that. So I think I pay, I don't know, $6 grand a year or something like that for that distribution.

Michael: Yeah, which basically comes down to $500 a month to have a column visible in the local paper. Like, pretty modest number for getting ongoing visibility.

Kevin: Yeah. And, you know, I'm writing the content already for my newsletter that I send out every month, you know, through like Constant Contact anyway. So you get little economies of scale there. You can make repurpose it.

Michael: And they don't have any issue with that. That, you know, the column you give them is also the thing you're sending out to your own clients in your email newsletter?

Kevin: No, no, they don't have an issue with it.

Michael: Okay. So as, you know, you're now 10 years out into the business and, you know, growth has gotten to a good level. Like, I've got to ask, I mean, does all the stuff from your past still come up? I mean, you know, again, like is it still an ongoing problem with anybody that wants to start digging around on your past like, "Who is this Kevin guy I might be hiring and working with?" And comes in and says like, "So what's the deal with the jail and the ecstasy and all that stuff you did way back when?" Does it still come up with prospects today?"

Kevin: Yeah, from time to time. Sure. I mean, it's probably maybe a handful times every year. The thing that I don't know and I never will, are how many people may read that and then don't call. So, you know, I'm sure there was a good bit of those over the years. And hopefully, it's less and less over time. But there's always going to be that. And some people are…you know, it's going to affect them differently. Anybody that's had any sort of maybe someone close to them that's gone through something is probably going to be a little bit more understanding, where, you know, somebody that hasn't maybe is going to be a little bit more scared off. But, you know, there's plenty of people out there that apparently are not only more than happy to do business with me but are, you know, really satisfied with, you know, the services we provide and it hasn't limited what we've been able to do.

Michael: You know, I mean, I think that's a powerful estrogen point. Just that, I know plenty of people that I think if they'd gone through that and were facing even just a future of, "I'm going to have to put this on my disclosure so I'm going to have to deal with this from prospects asking in the indefinite future," they just would have left the industry and done something different and not wanted to face those questions coming in from prospects. So it's an amazing thing to me that you powered through it and here you are with 160 clients, $125 million under management. And, like, it just flat out didn't stop you.

Kevin: Like I said, I don't know if it was dumb or determined but it worked out okay.

Michael: No. You know, sometimes a little of each can be very helpful for us.

Kevin: Yeah. You know, I would say initially, you know, I did an article with the Financial Advisor magazine and shared the story in 2012 and put it out there. And I did it because I thought it was a positive story to share and I wanted to tell it. And I also wanted a…it's not like I wrote that article but I wanted to at least try to tell it in my own voice. And, you know, for one, you know, with Google, you know, the internet never forgets. So I wanted to try to tell in my own voice so anybody that may come across something, they would see that and read it and at least, you know, I think get a fuller picture of the story.

You know, when I think about it, I probably shared with you some time ago that I thought about, you know, just really putting it out there more and telling more people about it. And probably starting in our industry but where it goes. And I don't know, I still haven't exactly found I guess what I want to do with it. You know, certainly doing this today I was more than happy to share it. You know, you kind of have, like, a scarlet letter on your forehead or what have you but with more time, I mean, it's been almost 20 years now since, you know, I did the things that ultimately got me in trouble. And, you know, as more time goes by I think more people are comfortable with it and, you know, see that hey, you know, anything hasn't resurfaced in that regard.

Michael: Yeah. Well, and, you know, granted, I feel like most of us have some list of things we did in our high school or college years that were pretty dumb and we're not proud of, granted, some, unfortunately, have more lasting implications than others. And I feel like everybody gets that, like, there's stuff that we do then that's not really representative of who we are as adults well into our careers?

Kevin: Yeah, and, you know, the interesting thing is when you bare your soul and you talk about a situation like that or I think, you know, any tough situation, personal strife, maybe something that you're not exactly proud about that you went through and you share that with somebody, it's amazing just the connection that you will build with people because it's like they'll want to kind of come down and pick you up and almost save you in a way. And, you know, you bare your soul to them and there's a nice bond that's built. And I had that with a lot of our clients, and I'm just really grateful for that and that they trust me and that I've earned that trust over time.

Michael: And so it still comes up every now and then and just…I mean, how do you answer the question when it comes up and someone says like, "So I was researching you online and there's some stuff that happened." It's like, how do you explain this?

Kevin: Well, the first thing I usually do is I just ask. I say, "Well, did you read the article?" And if they didn't then it's kind of a different conversation because if they read the article I think they get a pretty good picture of the story. But, you know, I mean, it's just same sort of thing. I said, you know, it's not an excuse. I help them understand my background a little bit. And, you know, I did everything knowingly and, you know, I take full responsibility for everything I did. But, you know, it's just different. I mean, it took me a while to really kind of, you know, find out who I was and kind of work through some things that I was dealing with. So I think most people can understand that.

Now, whether they want to understand that and whether they still want to work with me are maybe two different things. And that's fine. I get that. But I don't know, it's just, you know, as an advisor, people want to know that not only you're competent but, you know, that you're trustworthy. One thing I rest assuredly say is, "I've probably been vetted more than anybody else that you may be talking to." So I don't think there's any doubt in that. And I say, "It's been 20 years." And I said, "Here's the story and here's a little bit about my background, what I went through and here's who I am today."

And, you know, people want that authenticity. You know, I think we're just starved for that. And anybody that's coming in and, you know, sharing the intricacies of their own personal life with somebody and having a deep relationship with that advisor then, you know, they want some sharing back. You know, it helps form that bond. It shouldn't just be a one-way street. You know, I guess that's one of the things that makes it a little different. I had one thing happen about a year ago where a client referred somebody to me and they found out, the person they referred found out about, you know, my getting in trouble and my client didn't know about it. I didn't share it with him.

Michael: Oh.

Kevin: And that got me thinking because, I mean, he wasn't happy about it. And, you know, we have a really good relationship. And when I asked him, I said, you know, "Jim, how would you prefer that I would have told you?" And he said, you know, "I understand where you're coming from. It's not like you want to lead with it and, you know, have that scar on your head, "Hi." You know, "My name is Kevin Kroskey, I'm a great advisor, and by the way, I'm an ex-felon." But, you know, at some point he said, you know, "You should tell people." That was his perspective and I completely understand where he's coming from. And I've had other people, you know, that I've known for years and maybe when I went to tell them, they know. "Yeah, we knew. We knew a long time ago when we signed up." And so people experience it differently.

You know, Jim got me thinking about, you know, how can I, you know, really tell this and tell it in a way at an appropriate time? And he thinks, you know, it could be my hook. He said it's just a great story. He said, "You've just got to tell it in the right way and it's going to attract a lot of people to you." So I don't know. I haven't found the story yet. I'm uncomfortable talking about it but I haven't really found out how to tell everybody about it.

Michael: Yeah. I know. Or is there like, "So, you know, whenever clients go through their second anniversary with us, we have a certain conversation."

Kevin: It's part of the workflow now, right?

Michael: Right. Yeah, like, "First, you know, six months in, you know, we do an implementation check, and then the first annual review, you know, we make sure the portfolio is well allocated and at the second annual review we tell them about my history, in case they hadn't found it on their own."

Kevin: Yeah. When I've told people, I found a lot of people already knew but, you know, not everybody. The other side of it is, you know, it's not…even though it's obviously a big part of my past and certainly has shaped who I am today, and it's not anything I'm ashamed of. Again, I mean, I take full responsibility for everything I did. It's not like I was a bad person back then and I became a good person. I was comfortable with the person I was back then. I was doing some things that I didn't really, you know, like that I was doing but I still liked the person that I saw in the mirror. I just didn't want to be, you know, doing some of those things on the side anymore.

So I don't know. I don't know. I'm still kind of searching how to best tell the story. But it's something that you don't necessarily want to relive all the time either. I just found that, you know, it's in the past and I don't want to say it's painful to talk about but it's not exactly positive either.

Michael: Was that almost in a way why it's easier to have stories? Like the Financial Advisor magazine went out there, like…I mean, ironically, like, the more that the internet grows and the more it becomes a standard, that people just kind of google any name of anybody they might be doing business with. Like, the more you actually won't have to tell the story to people because they will almost certainly have seen it online before they got to you just because they typed your name into Google when they were thinking about working with and there it was?

Kevin: Yeah. I think that's certainly part of it. I don't know. There's something that's in me where I see this being a bigger part of my future and, you know, not for any sort of like personal gain but just being able to help more people and make a positive impact. I'm not there yet. You know, it's not like I don't want to do it. I think I'm still kind of finding the story how I'm going to tell it. I know the story but how am I going to tell it? And then also, I mean, I'm busy. I mean, you know, we have a growing business. I have a four-year-old daughter, we have another one on the way this year. And so I've got a lot going on. So I don't necessarily have time to kind of go on some sort of speaking tour or something like that either.

Michael: Oh, where does it go for you from here? I mean, you've got a successful firm with $125 million under management and, you know, $1 million-plus of revenue and a bunch of staff members and your best year of growth. You've still got a long time horizon to the business. Like, where do you see all this going from here? Do you have a vision for what you want to build towards?

Kevin: Oh, absolutely. So, you know, one of the things that I remember when it was 2009 having a conversation with a friend of mine that was in the business, so I'd just met him, he's become a great friend, but I just remember sharing how, you know, "Hey, I just want 100 clients. I'm probably going to have on average about $300,000. I'm just going to take great care of them and then I'm going to, you know, probably work less and have a little lifestyle practice."

Michael: So, like, you had this grand vision, $30 million under management, right? One hundred clients, $300 grand each, like $30 million. You'll have more than $300 grand of revenue, you'll net an amazing six-figure income and you'd be done.

Kevin: That was it. That was it. That was my vision in…I actually still have the business plan that I wrote out to do it.

So the things that I've learned about myself over time, a few things. I started a Strategic Coach program last year. You may be familiar. I'm sure you are.

Michael: Yeah, yeah. Yeah, absolutely. Well, I know quite a few advisors who've gone through Strategic Coach and had really good experiences with it. We'll put a link in the show notes I guess for anyone who wants to check it out. Again, kitces.com/63 for episode 63.

So you went off to do Strategic Coach. Like, maybe you can say just for a minute, like, what is Strategic Coach for folks that aren't familiar?

Kevin: Strategic Coach has been around, I don't know, maybe 40 years or so. I know it's pretty prevalent in the industry. But basically, they coach entrepreneurs. It was started by Dan Sullivan, and he probably has 100 or 150 different team members now. But basically every quarter you meet. You go and there's all these entrepreneurs that are in the room. And you're just really working on yourself and on your business. It's kind of a structured program for the first couple years, but I'm in what's called the Signature Program.

And the reason why I signed up for it was I would listen to Dan's podcasts, and I was getting to the point in the business where things were just getting more complex. For the first several years it was just, hey, just neat top-line revenue. Then we got to the point where, "Okay, we need to beef up some operations and I need to actually get a professional hire that's going to work out and continue to build a little bit of capacity." And then things just kept getting more and more complex. And, you know, we have limited resources. We have all these different things that we want to do. And I just found that whenever I listened to his podcasts I just had this clarity about my thinking and I figured, "Okay, it's time to go ahead and commit to this."

So one of the first exercises that they had us do when I was in Chicago for the first class was write down the three things that make you money. And it sounds like it would be an easy question, right? I had a tough time with it. I sat down and I was thinking about it, and obviously, you know, working with clients and helping clients and earning your fee. But I've been in this transition where, you know, I'm trying to go ahead and work more on the business and not so much, you know, be that financial planner and that relationship manager that I always thought I wanted to be. That that was the vision. I like that. I think I'm exceptional at the relationship management, but I don't think it's my unique ability or what I'm most passionate about.

And so what I've discovered about myself is that I think I am a good entrepreneur. I do like working in the business. I do like the strategy aspect. You know, my lead advisor, my right-hand, she spent 10 years at another firm, a very respectable firm. You know, a few good key principles. And she gave me the best compliment I ever received, I don't know, maybe 6 or 12 months into working together. And mind you, I had hired other people before her that never really worked out or I burned out or, you know, some combination of. But she said, you know, "I've never wanted to work so hard for somebody and gain their respect as much as I have from you." And that just floored me. And it's not like she was just saying something to just go ahead and get my good graces, but it was just kind offhand. And it just made me feel great. And, I mean, that's what I want to do more of.

I guess the way that I look at it today is if I can get to this point over the next few years when about a third of my time is working with clients, a third of my time is, you know, working on the business development and marketing side and a third of my time is really working on the business and thinking about strategy and developing the team, that's where I would like to be. So I want to do a little bit less on the client relationship management. I still like being involved in the front-end piece, but I also want to stay involved. I think the analogy I always use is like a surgeon. I mean, you have to operate if your skills are going to stay sharp. So the way that I, you know, write the articles and can do some of the marketing and really help confidently explain how I can solve people's problems is actually getting in there and doing it, and then using that as a real-life case to go ahead and show somebody how I can help them elsewhere.

So that's how we're shifting. I mean, ultimately really kind of trying to build capacity right now even though we have a lot more. What I don't want to do is get back to myself managing 120 client relationships, which is what I was doing before Marissa came aboard. And so I'm down to 50 myself right now, and just trying to keep that freed up, reinvest back in the business right now, build some capacity, and just build a great firm.

Some of the things that I think about, that I want to do, that maybe are a little bit non-traditional or at least being talked more about, I've always envisioned having partners. You know, if I get a young Kevin Kroskey with or without the felony, it doesn't really matter necessarily, but somebody that, you know, is going to be successful or looks like they're going to be successful, I want them to have the opportunity to contribute to the equity of the firm and be a partner in that.

And I want to have a clear path to partnership because even before I kind of pulled the skeleton out of the closet when I was interviewing with some different advisory firms back in, you know, '07 and what have you, there weren't really any good opportunities and certainly no path to partnership, at least as I perceive them. So I don't want that to be the case. And I really want to attract, you know, some people that are hardworking, that are passionate about the work that they do, and ultimately want to go ahead and contribute and be fitting part of our culture and build an even better firm.

You know, we're focusing on the pre-retirees. I want to really get that message out there. We have a few key companies in our local area that, you know, we have a lot of clients at that I want to really, you know, further some niche marketing there and just get the message out, help more people. You know, have that, go ahead and also result in, you know, our team members, you know, furthering their own careers and getting and achieving their own goals and just making a massive positive impact in the world and in our local community.

Kevin's Advice For Someone Overcoming A Problematic Past [1:47:44]

Michael: So any words of advice for maybe someone else who's listening to this and has, I mean, maybe not the same path but, you know, some problematic past, you know, particularly the kind that unfortunately appears on a U-4 disclosure or maybe even just on the internet where things never seem to die anymore? Like, just words of advice for someone else who's maybe got a similar public problem past that's trying to figure out like, "How do I survive or build or grow or make it work in this industry when that's looming?"

Kevin: You know, I think everybody's story is really different, so I don't know if…it could go a lot of different ways. But I guess the way that I would maybe reframe the question is…you know, I spoke to somebody yesterday I was looking to hire for a lead advisor and he's had his own business now for a few years. And, you know, he only had about $7,000 of revenue after about 3 years in. So, I mean, I just related to him. I said, you know, "Hey, man, I was there before. I was on the brink of bankruptcy. I mean, I was able to turn it around. You know, even if this didn't turn out to be what you were hoping it to be, the experience you've had over the last few years has been valuable. The key is what are you going to do with it going forward?"

And I think anybody that's gone through any sort of failure or tough times in their life, you know, it's not the end of it. I mean, for myself, I don't know if it's why I'm built the way that I am, I don't know if, like, going through what I went through growing up just made me kind of a tougher person or, you know, I was kind of genetically predisposed to be this way, but, I mean, I just keep going. I keep doing it. And there's no reason that somebody else can't do that as well. So whether that's, you know, somebody that's in their own business and, you know, maybe not getting the results that they want and they can kind of turn it around, they can persevere, they can find some sort of marketing that is consistent with who they are and maybe a better avenue for them, or maybe that's them finding another place, a firm that is consistent with their values, where they fit in with the culture, they like the vision, and they can go ahead and succeed in that firm and contribute to the equity.

If I were starting the business over again today, I mean, I like what you guys have done with the XY Planning Network. I think it's a great way to get into the business, but I also think, you know, if I were looking out there, I'm not sure if I would start my own business or maybe I would go ahead and start my own business but then parlay that into kind of a more senior position at a growing firm that has a lot more resources and has a lot more opportunity, and that I can go ahead and help create a part of that bigger future. So I guess that's the advice that I would give. I mean, perseverance is, I don't know where it comes from, I don't know how you get it, but if I can do it there's no reason that somebody else can't. I mean, we didn't have any resources. You know, I didn't have a natural network. I mean, I just persevered, and, you know, certainly I'm sure I had a little bit of luck, but, you know, there's a lot of hard work that went into it. So if I can do it, there's no reason that somebody else can't.

Michael: Do you have some, like, daily affirmation quote you just wake up to and look at every morning to keep getting out of bed in those early years?

Kevin: No. Well, I'll share I guess my daily ritual recently. So I get up pretty early in the morning, but usually, I'm up around between 3:30 and 4:30. And I get a cup of coffee. So kind of that's my vice these days. So I get up and then I watch an episode of "The Office," and I just start off the day by laughing and then I get to work after that.

Michael: Excellent. Because every day at work has to be pretty good when the bar you set for yourself in the morning is actually watching an episode of "The Office."

Kevin: I get all my leadership skills from Michael Scott. So it helps.

Michael: Fantastic. So as we come to the end here, you know, this is a podcast about success. And, you know, one of the things we always talk about is that just the very nature of the word success means different things to different people. And, you know, I'm sure it's changed quite a bit for you over the years because for a while I imagine success was just getting out of jail and being able to restart your life. So as you sit here now today and kind of look forward to what comes in both the career and maybe for you personally, you know, at this point, like, how do you define success?

Kevin: For me, it's pretty easy. I don't think it's anything too profound. But, you know, I want to be a great dad. I think I'm reaching that goal. And, you know, my daughter is four and we're adding to our family this year. So I've got many, many years of that ahead of me. I want to be a great husband. All these things, you know, you've kind of got to be present as a precondition to being those things. So I'm kind of a bit of a workaholic but in recovery, and those things are very important to me. So always making time for that and just being there and being present and not having the phone and just really listening and being engaged.

But, you know, health is really important to me. I like to eat well. I like to feel well. I like to exercise. If I look at my StrengthsFinders, number one is achiever. I'm a learner and a relator. The thing that I'm not, I think this is good to know your bottom ones as well, but empathy is my next to last one. So I don't know if I'm…I think an advisor should probably have some empathy but I'm a little bit more robotic.

Michael: Well, that may be why you're, you know, evolving more to the business management into the things than relationship management. Yeah, I'm actually the same way. My top two StrengthsFinders are achiever and learner and empathy is one of my bottom five. And I think that's in part for me why I was more excited to build towards a platform to reach lots of advisors and lots of clients as opposed to just trying to stay in a role where I would accumulate my 100 clients and then work with my 100 clients. You know early on I had a vision very similar to your original business plan. Like just get my 100 clients and revenue and sit tight. And that didn't really click for me either.

Kevin: Yeah. The goalposts are always going to be moving, which I think is a good thing. You know, I have a vision, you know, we have a strategic plan that we work off of now, but as long as I am, you know, being a good dad, being a good husband, that I'm healthy, that I'm happy, and that I'm achieving, learning, and growing then I think everything else is going to take care of itself.

And, you know, I thought about this. You know, I listen to your podcast and, you know, I know that you ask this question. And what I just shared is what I was going to say anyway. But the other thing I thought of, I said, you know, "Hey, man, I just reached the goal. I'm on the Michael Kitces podcast, so it's all downhill from here in a way."

Michael: Oh, you know, you're done. I'm sorry. Sorry. That's a depressing way to end.

Kevin: No.

Michael: Well, I have faith. You're an achiever type so you will keep moving the goalposts. We will find something for you beyond the Financial Advisor Success podcast for you to build towards from here.

Kevin: I appreciate that.

Michael: Well, thank you. Thank you, though, truly for joining us and for sharing this story of what you've been through and what you were able to persevere and make out of it. I think it will be an inspiration for a lot of people. I think maybe a few that have had some similar challenges, you know, need to see that you really can build and rebuild forward and recover from some tough stuff in life.

Kevin: Yeah, tomorrow is a new day. It's all up to you what you do with it.

Michael: Amen. Well, thank you again for joining us here on the podcast.

Kevin: Thanks for having me, Michael.