#FASuccess Ep 392: Crafting Your Specialization When There Is No Standard Playbook To Learn It, With Kristopher Heck

Resources Featured In This Episode:

• Kristopher Heck
• Tanager Wealth Management

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Full Transcript:

Michael: Welcome, Kristopher Heck, to the "Financial Advisor Success" Podcast.

Kristopher: Thank you, Michael. It's great to be here.

Building An Advisory Firm Specialization From Scratch [03:25]

Michael: I'm really excited to have you on the podcast today and get to talk a little bit about the dynamics when we start crafting some kind of specialization to differentiate ourselves where there really is no textbook, no playbook about how it works. I find from the business perspective, those often make some of the best specializations, the best ways to differentiate because if there's really no textbook or standard designation for it, then almost by definition, you have a really differentiated expertise if you can create that because no one else would know how to do it unless they learn it all from scratch. The bad news, of course, is you have to learn it all from scratch and figure out how to get the knowledge because there's no textbook and standard playbook about how this works. And for a lot of us, then the imposter syndrome starts kicking in. "I don't really maybe know as much as they think I know. Are they going to catch me and find out that I'm still kind of figuring out some of the specializations as I go?" And just, I know you've lived a version of this, your particular journeys around the dynamics of working with cross-border clients, going back and forth between the US and the UK. And so I'm excited to talk about this path of how you figure out how to become specialized in a unique clientele like this when you can't just go get the designation that teaches you all the things about how to do this.

Kristopher: Yeah, and it's great that you mention that because that is something I remind myself every day and I remind my business partners and some of our teammates as we're tackling whatever challenge of the day there is. And there's a challenge every day, just like I'm sure in most advisory practices, and we're trying to figure out something really hard. It doesn't seem to have any obvious answer to it. And I just have to remind myself, remind whoever I'm working with at that moment in time, that if it was easy, one of the really big firms would have done this and they would have scaled up and they would have absolutely captured this market. So we should be very thankful that there's challenges and that there is no playbook because that gives us the opportunity to be creative and thoughtful in how we work on behalf of our clients and improve the business and improve our knowledge. Because if there was a playbook, I can guarantee you the big firms would have it.

Michael: I love that. That's a very efficient markets investment view of the landscape. If this was easily exploitable, then markets would have arbitraged it away already. That's how market opportunities work. So we can be successful and differentiate it and even command a premium for our services because we're doing a hard thing that's not easy for someone to just run the playbook, scale it up and dominate that market.

Kristopher: That's a great way to summarize it. That's absolutely it, that if you would all believe in even semi-efficient investment markets, you have to appreciate that your only edge is something that other people don't have because it just didn't exist before. And in the early days of high-speed trading, it might have been faster computers, although everyone can kind of buy faster computers now. Maybe it's something along the lines of if you're trying to run a hedge fund or find very scarce and difficult alpha, that you have some private information because you maybe are a doctor, so you understand drug testing. And then you can understand and interpret the results from a biotech company better than the next person can because you have this special knowledge in drug testing or whatever it might be. And that's exactly what it is in our niche, is trying to create that knowledge and create that edge because the knowledge probably didn't exist before we beat our head against the wall for 3 months to figure it out.

Michael: Well, and it strikes me as well that it reminds me that there are these old models about how professional services firms build and grow. One version is like you find a problem that a lot of people have and you just craft like a really good procedure about how to do it. We help people with this. It's not the most complex thing, but it's solvable and doable and we're really efficient at doing it so we can provide a high-quality solution at a very reasonable price, and off you go on your merry way. But then there's another subset of businesses where you literally hire their brains, their smarts, their ability to figure out how to solve a problem that is legitimately complex and unique. It's like, by definition, there is no known and established answer, and literally, your value is, "We're good at figuring these things out. I can tell you we don't have the answer because you have a problem no one's ever had before. But we will figure a solution out for you because we're good at the figuring out process and we know enough of the dynamics and the context and the nuances and understand enough of the complexity to be able to figure out a good solution." It strikes me that you kind of live more in that realm. You're not paying us because we just have a really efficient process to do the thing that you want done. Part of what you're paying us for is you genuinely live in a place that no one has the answer and we're better at figuring out the answers to questions that people haven't solved before.

Kristopher: Yeah, absolutely. It's a lot like I guess modern Silicon Valley firms that do several acquihires every year where they're going out and finding someone who can build better databases or better artificial intelligence language models or maybe Big 4 consulting type firms where they've went into firms that are having corporate challenges or whatever sales or operational challenges that they're having and chances are that no one has solved that before because who has ever done this? And we're kind of living in the same realm. So very, very different from let's say the "stack it high and sell it cheap" model of perhaps let's say plain vanilla index fund managers is something that certainly in our industry comes to mind. I don't know how you compete with them in plain vanilla index products because they have the scale with a trillion dollars in that particular index and they have the IT systems and the trading and the institutional knowledge of 20, 30 years of doing it. There's only 5 or 6 firms that could compete with each other on that type of scale. So you've got to find something else. It's a little bit more niche and it's something that I know I've enjoyed in listening to your podcast over the years is the emphasis on a niche because I think that is something that every advisor and every advisory firm has to focus on. It's a race to scale otherwise and there's only 1 or 2 winners in that type of space. So you've got to find your own niche and understand that niche better than everyone else does.

Kristopher's Cross-Border Planning Niche [10:00]

Michael: So with that as kind of an overall context and theme that we've kind of set here, tell us about your actual advisory firm. What do you do? Tell us about the business.

Kristopher: Sure. So Tanager Wealth Management was set up 12 years ago with myself and Alex Eichhorn and Jeff Hedges in looking at the challenges of US-UK wealth management. US persons, so US citizens living abroad are taxed by the IRS still and then you're, of course, taxed in whatever country you might live in, UK or Germany or Japan or wherever you might live in. So there is an interesting intersection of 2 different tax authorities in this weird Venn diagram where not everything is as it seems because of the interaction between the two. And we realized that there was no one that was serving this space very well that had their hands around everything. And we were humble and we knew that we didn't have all the answers on day one, but we were going to die on that hill trying. And 12 years later, I'm very happy to say that we've probably not solved every problem, but we've found solutions to many problems that a transatlantic lifestyle will give you from a financial perspective. And then if there are financial challenges, that then leads into perhaps just your own social and home challenges of uncertainty. "Do we have enough to retire," etc.? These human nature questions aren't answered if you can't figure out the complexity of the financial side of your life. So we, in a nutshell, are regulated in both countries. We have offices in both countries and we pretty much exclusively work with US-connected families in the US or the UK, although we do have a small smattering of clients across the EU and other countries. And we're really, really good at understanding that Venn diagram of the intersection of 2 countries fighting over your financial life and then helping interpret it to an efficient solution for your family and give you the peace of mind to know that you can do what you'd like to accomplish with your family's goals and objectives.

Michael: When you say the intersection of 2 countries fighting over your financial life, it's just, can you highlight for us a little bit more, like, what does that mean? What kinds of issues are your clients dealing with in this context?

Kristopher: Sure. So one quick example that comes to mind is if I were in the US and advising a US resident family, you know, you might consider a 529 plan for college savings. Pretty standard solution in terms of gaining a small tax edge on the growth of the money you're putting away to pay for your children's college, you know, 10, 18 years later. Fantastic. But what if the other country doesn't recognize the 529 wrapper and they just consider it a brokerage account? Well, now you've kind of lost that tax edge for having this account. So now what you have is an account that pays 30 basis points to the state you've chosen and you have a limited selection of investment products that may themselves have a slightly higher expense ratio. And maybe that other country, the one that you live in, has in fact decided to levy a penalty on some of the investments inside that account. So you've went from having a tax edge and a pretty, I would say standard type of solution for your households, for your target clients, to actually potentially being a tax penalty for your clients.

Michael: How do you end up with a penalty in that context, just meaning like they're going to tax it and you're sort of paying the wrapper fees of being tax-deferred? Or is there actually a more punitive version of this?

Kristopher: No, there is a punitive version of it. And the IRS levies it as well. The IRS version calls it a passive foreign investment company. So if you were to take and invest in, let's say, a UK mutual fund or a European UCITS III fund or what have you, the IRS would look at that and say, "Well, that's opaque to us. We don't know what they're doing inside of that fund. We don't know if they're just, for example, rolling up all the income and not paying it out so you're not paying any tax on it. So we're just going to tax all your gains as if they were income." So the penalty is generally some form of you don't get capital gains treatment. As again, a generic example, the permutations of tax penalties are way too many to discuss in an hour. But that's one simple high-level penalty. So it works the other way...

Michael: So if I have a tax-favored vehicle in one country that the IRS says, "We're not quite sure how it works over there. We're just taxing all the growth as ordinary income each year. And you can get another country that basically does the same thing, same version to our 529 plans to say, all right, we know how mutual funds and ETFs work. We don't really know how this roll-up wrapper, multi-layer state thing is. So we're just going to take a whack at it as though it's income every year and you can deal with it."

Kristopher: Exactly. That's exactly right. So maybe the other country would say, right, well, we don't know these US mutual funds that are inside of this unusual wrapper. So we're not going to acknowledge the tax benefits of that wrapper because we're not trying to help pay for US college, we're in another country. And furthermore, we don't understand the US investments because they don't report to our tax authority over here. So we're going to treat them all the gains as if it was income, as again, a generic high-level example of that. So now you're getting taxed at, let's say, 40% generically or maybe more, depending on the other country's tax rate, instead of paying no tax.

Michael: And so now you have to start learning, I guess, from the advisor end, I need to know the vehicles on both countries' sides, just to sort of play the local ground game on each side. And I have to know whether those vehicles are or are not recognized on the other country's side and that I'm not creating a scenario where the tax benefits of one become tax detriments on the other.

Kristopher: Yeah, exactly. Or if not tax detriments, at least highly inefficient. We see lots of clients come to us with well-intentioned portfolios from, let's say, large wirehouses in the US that might have a slice allocated to municipal bonds, which is not a bad recommendation if you're in a higher bracket and you live in the US, appropriate tax deductions or not paying tax on those particular vehicles' interest. Fantastic. However, I would tell you that I don't think the UK cares about the sewer system in New York. So you're not going to get the tax break when the interest paid out of that muni bond. So now you're getting an implied lower real rate of interest because muni bonds generally pay a lower rate of interest than taxable bonds. And you're perhaps taking all the illiquidity and credit risk and not getting compensated for it. So you're paying tax and you're probably not getting the right coupon you should have gotten for the same level of fixed income risk for that particular investment.

Michael: Okay. Makes sense. So there's a lot of nuances, I guess, around everything from country-specific investment vehicles or wrappers, such as 529 plans, or even just down to the investment characteristics and construction in one country versus another. My municipal bond is tax-exempt here. That might be a fine deal if I'm here. But if I'm in the UK, that doesn't recognize the tax status. No, I'm just buying a tax-exempt yield that's actually taxable, which is probably not helping me.

Kristopher: Yeah, that's exactly right. So there's almost limitless permutations. And like I said, I'd like to think that we've solved many of those permutations for our clients, as many of us at Tanager have lived a lot of those permutations and probably made the mistake once ourselves in our own personal account. But there's so many that I know we haven't solved them all. There's just too many possible permutations. So we're still working at it, still learning, still changing, still evolving ourselves to be able to learn all the permutations on behalf of our clients. And in fact, the name Tanager is really an homage to Charles Darwin. If you think back to your learnings of Darwin, probably back in high school or whenever you might have heard of him, you traveled on the HMS Beagle and into the Galapagos with some samples of finches that were there with different beak sizes, one to pick worms out of the ground and one to crack nuts and one to eat fruit, etc. When he came back, they were called Darwin's finches. Well, if you fast forward 150 years or so, the ornithological community said, well, actually, they're not finches. Half of these birds fall into a different classification in the animal kingdom. And I will give you one guess what that classification is called. They're Tanagers, actually. So Darwin is an inspiration because he was very scientific in his approach. He was always learning. He was willing to challenge some of the orthodoxy of the time, but also enough to keep us humble that we don't actually know everything right now. We're trying to evolve ourselves. And we'll probably be better at all of this tomorrow than we are today. But we're going to keep trying.

What Tanager Wealth Management Looks Like Today [18:45]

Michael: Interesting. I love the metaphor. I love the business metaphor. So help us understand the scope and size of the business overall. I don't know if you measure by clients or revenue or if assets under management is a relevant metric in a cross-border context. How do we understand the size and scope of what you're doing?

Kristopher: Absolutely. So the firm currently is around $1.1 billion of AUM. In 12 years, I guess, 12 years ago, we started with 0 clients and hence $0 AUM. We have around 630 households overall. So our average client is just slightly less than $2 million. It works out to be around 1.3 million pounds. Our brains are always confused in switching between dollars and pounds regularly. We have about 38 team members, of which 7 are partners. And I would say that we operate in a business model that I think most of your listeners would recognize as a fiduciary, fee-based RIA. We have a percent of AUM model for charging. We don't have any commissions in the business. We're not a hybrid. We don't do insurance or mortgages or any of the traditional commission-type products. We purely have financial planning and investment management and the ancillary services that hang off of that, such as introductions to accountants and estate planning attorneys and cash management and things of that nature for an asset-based fee.

Michael: And what does that fee structure look like? In the US, we often talk about the proverbial 1% on a million style fees as the go-to benchmark. Is that still what it looks like there or is it lower or is it higher? I don't know what the fee structure looks like on the UK side.

Kristopher: Yeah. So we've modeled ourselves on, again, the traditional fee-based fiduciary RIA model in the US that again, yourself and I would imagine all of your listeners are very familiar with. The model in the UK is slightly different. There still are some embedded commissions. There are still much higher fees than what we're charging for what we're doing. And we eschewed that in thinking that was not long for this world, that it will change over time and it's better to already be there as opposed to going and trying to change your business model in year 10 and then change it again in year 15 and then explain to clients in year 20 why you had to go change it again and apologize for the prior 20 years. We said, "Right, well, let's just start with the fiduciary premise. We know we're doing the right thing for clients. We know we don't have any conflicts in the business of recommending this fund or that insurance product, etc. over another because the commission might be slightly higher or lower, etc." And so we really modeled ourselves on those fee-based RIAs from the US that I had worked with in prior jobs.

Michael: And so how does the AUM fee schedule work there?

Kristopher: So roughly speaking, yeah, there's a lower tier below a million that's 1.25%. Then there's a tier up to $3 million that's 1%. And then from $3 [million] to $10 [million] is 75 basis points and above $10 million is 50 basis points. And we don't do first and then next. We tend to just say, right, oh, you have $2 million, that's 1%. So multiply the 2. Bill it quarterly. Divide it by 4.

Michael: Not like the incremental graduated 1.25% on X plus 1% on the next dollar amounts after the first segment. It's just like a cliff. Like if you're in this zone, this is the fee on the whole thing.

Kristopher: Exactly. You know, initially, when we were setting it up, we just thought, well, it would just be easier to calculate to do the fees. Quite honestly, we could just see your AUM on a spreadsheet or on our screen. And then we could mentally just know which bracket that was and multiply the 2 and we could get to what the expected fee or revenue was. In hindsight, sure, maybe we could have eeked out an extra 2 or 3 basis points by doing the graduated bit. But it's fine. It all works out.

Michael: Because I'm just wondering, do you then have to deal with the problem that can crop up or the client's asset base grows a little bigger, they cross the threshold and now they get a little bigger and you end up going backwards slightly because they get the new breakpoint.

Kristopher: Yeah, it does happen that if you graph it, it looks a bit like a sawtooth, I guess, you know, on a saw. So that's fine. You know, that just means that the client's assets have grown or they've trusted us with more of their AUM. You know, these are all positive directions. And again, worrying about the last 2 or 3 basis points is not what we're here for. It's probably not the best business decision, but we've been fortunate and blessed to be growing quite well and quite fast. That's going back and trying to claw back that last 2 or 3 basis points has not been the next biggest priority for us in our journey.

Michael: And do you ever get problems the other direction? Markets are down. They get pumped up to the next higher cliff or do you lock them in if they get too high kind of thing?

Kristopher: No, we don't operate a high watermark. And certainly, the year 2022 was an annus horribilis for most people who were investors. So that conversation did come up a few times. And we did point out that, in fact, most other firms in our industry wouldn't have given you the whole breakpoint that you enjoyed last year. So, yes, it is going back a bit and you maybe paid a slightly higher fee. But you wouldn't have had that break to begin with if we had done the traditional route, as you mentioned, the first and then the next and then the next tiering.

Michael: Okay. So that seems that seems fair. Like, look, we gave you the benefit of this version for all the years that you're growing. So like, "I'm sorry, but that means you do have to have the slightly high first version for the year that the markets got pulled back. You're still doing way better than you would have otherwise. Any questions?"

Kristopher: Exactly. That's exactly right.

Michael: So help me understand the structure of this 38-person team? That's a lot of people. That's a lot of people doing stuff.

Kristopher: It is. It's a lot of people. It's a lot of people. The breakdown of the team has become evident by the necessity of what we need everyone to do. So there's 11 advisors in the 38 team members currently. There's also 10 planners. So we do differentiate between advisors and planners. There are 6 people in the investment team. There are 6 client service people. And then there's 5 kind of centralized support, whether it's marketing or operational or what have you. So that roughly is the 38. And the real challenge is that because we can't just go on LinkedIn and hire someone that knows the job because really almost no one does US-UK wealth management and works with Pershing USA. and potentially Pershing UK or a UK custodian. We end up having to teach a lot of people the job. So we need to build in a good deep pool of talent, which we're very fortunate to have groomed and built and taught and trained and gotten to where we are today by doing that, that we need to make sure that we always have enough staff to do the job that needs to be done, but also to teach and train the next generation that might be coming through in another 3 or 6 months when we hire the next person. And then there's also the challenge of having multiple regulators. You know, we're regulated by the SEC in the US, but then we're also regulated by the FCA [Financial Conduct Authority] in the UK And that means that there's 2 layers of regulations. So it's not just looking at whatever the new DOL rule is pertaining to ERISA or rollovers or whatever it might be. There might also be an FCA rule about UK pensions and how you change those and how that changes every 3 years, it seems. So we have to actually write much, much longer recommendation letters than would be standard if we only had one or the other regulator, which then means you need a lot more planners to kind of crunch more plans and write more suitability letters, as it's called in FCA parlance. So we're probably staffed heavier than your standard RIA in the US of a comparable size with households and AUM, potentially. But it's a necessity from how we need to build and grow and constantly tackle new challenges that no one else knows the answers to. And then also making sure that we're compliant with at least 2 regulators.

Leveraging Separate Advisory And Planning Teams [27:20]

Michael: So talk to us a little bit more about this distinction between advisors and planners or even advisors and planners and investments. A lot of those can get mashed together for firms.

Kristopher: They absolutely can. And there's certainly many ways to skin a cat, as the old saying goes. So advisors are really challenged and tasked with converting the leads that we're generating as a firm, as well as generating their own leads, of course, and then turning them into clients and doing the full suite of relationship management, processes and whatnot that you that you're familiar with and all of your listeners are familiar with. The planning team are a repository for a lot of the great knowledge that the advisors almost universally have themselves of what is the right solution to apply in this particular client circumstance, whether it's a grandparent's gift for a child or general saving for a house down payment in a year or whatever the goals might be of the particular household and understanding, of course, then, oh, this is a US person living here and this is, let's say, not a US person. So we have a lot of clients or spouses of clients who are not US citizens. So you almost need an entirely different solution for them that's just compliant with local laws, regulation, and taxation. And so the planners are a great team that's a repository for that knowledge and support the advisors in getting out the advice and helping to plan what needs to be produced for the individual clients based upon a lot of the advisors' interactions with them. I would say a lot of the advisors have CFP designations themselves, so certainly they know this information. They're not ignorant to it. But just the responsibility of relationship management and managing a book of clients is a full-time job in and of itself. And sometimes you do need help. You do need planners to actually help write the plans and help suggest ideas for solutions for client households. So that's kind of the division. And a lot of our planners may graduate to become advisors if that's the direction they choose to take. So they could eventually be advisors themselves.

Michael: So do the planning team folks have any client-facing responsibilities in this context or is the role very focused on sort of the behind-the-scenes?

Kristopher: So the planning team themselves do not have client-facing responsibilities, but they will join the advisors in meetings, a fact find meeting or annual review or a catch-up one. "Oh, we had some questions about how to, what you exactly meant by this. And we have 2 or 3 different paths. Let's just bounce ideas off you." But they don't have the responsibility of client-facing. So I would say the advisors are the ones who are responsible for that client-facing management and keeping in touch and ensuring that clients' needs are being met and gathering that information that's required to create the appropriate recommendation. As I said, though, a second ago, a lot of, many of our advisors were also planners to start with. And since we can't just go, if you will, hire off the shelf for almost any of our positions, it's good training to say, okay, well, here's the US rules. If we hire, let's say, a UK person who's had some experience in the UK industry, here's the US rules that you need to overlay into that new Venn diagram in your brain. And if we hire a US person who maybe moved over to the UK or was a trailing spouse and their spouse moved over here for a job or what have you, and we're training them on the UK side of things. So here's the UK half of the Venn diagram you've got to lay on your existing US knowledge. And then again, several of those planners do graduate into becoming advisors if that's what they like to do.

Michael: So how from like a slightly more practical level, how literally do 10 planners stay coordinated with 11 advisors? Meaning is this like a team environment? Every advisor has an assigned planner or like planners assigned to this 50 clients are your clients that you provide support on across multiple advisors? Are they just a shared resource? Whoever grabs the next question off the queue answers it? How do you actually manage the coordination with this sort of separation of division of labor?

Kristopher: Yeah. We don't operate a pod structure. We decided that it would be better to have a matrix again for the learning and sharing of knowledge and processes and reinforcing that base knowledge that's needed to be creative to solve the next problem we don't know the answer to. So the planners will generally be assigned to client households alongside, of course, the main advisor, but they're not one-for-one with all the advisors' clients. So, you know, planner A might have 10 clients in common with, you know, advisor 1. But then planner A also has 10 clients with advisor 2. And so the planners in their own development and career progression get to see different styles and different abilities and capabilities and understand what maybe the best practices are, because a lot of the challenge of being an advisor in my mind is understanding how to relate to the person across the table from you or people across the table from you. You know, on day 1, the prospects don't know you at all. And maybe they've been hurt before by a prior advisor who was slightly less scrupulous or less of a fiduciary. And you have to know how to kind of see the human behavioral signals and relate to them. If you have a let's say, generically, a software engineer type client, an engineer mindset, sitting across from you, you know, maybe don't talk about the weather and the flowers all day long and sports teams. They probably want to dive right into how you're going to solve the dual US and other country tax problems they have that they haven't quite been able to figure out yet themselves or why they can't open a US brokerage account because they don't have a US address anymore. They want to perhaps dive right into that. And then generically, maybe there is someone who's not an engineer mindset and maybe they want to build that rapport first. And if the planner only works with an engineer advisor, then they're not going to see the other side of it. Or if they only work with an advisor who's better at the software skills, then they're not going to see the engineer sale process or relationship-building process. So we've been intentional in creating a matrix of how the planners and advisors work together and coordinate for the common clients, but not have a dedicated one-for-one relationship.

Michael: So how do you handle just think like the proverbial multi-headed boss phenomenon or like, "I'm a planner and advisor number 1, advisor number 2 both come to me like I got big client meetings tomorrow morning. I need I need you to wrap up this analysis." I'm like, "I can't do both of your things at the same time. You both have a meeting tomorrow." I find those challenges often crop up in sort of matrix-style systems. So how do you guys handle that when you've got this planner-shared resource approach?

Kristopher: So we do have a partner who's in charge of the planning team, and we also have a partner who's in charge of the advisor team. So in terms of, let's say, doing year-end reviews or KPIs or gauging how someone has progressed or not progressed throughout the year, there is a dedicated manager at the partner level who's looking at each of the teams and they are soliciting feedback on how, let's say, each of the team members has fulfilled their KPIs or not fulfilled their KPIs or what growth is needed in what areas or suggestions for improvement or even praise. This is what this person does great. Keep doing more of that. You know, and that's how promotions happen as well, is when there's nothing left to work on at that level, then maybe you're ready for the next level that you want to achieve. So really, it comes down to understanding, okay, I do have a manager. "I'm a planner, I have a manager," or "I'm an advisor and I have a manager and I need to work well together with the member of the other side of the team." But ultimately, there is a partner in charge of each group to control the interactions and to make sure that everything is accomplished for the benefit of the client.

Michael: And what do you know... What kind of KPIs do you measure in the context of planners? In advisors, we're usually looking at revenue growth, new business brought in, client retention, there's some fairly typical metrics on that. And when you've separated out the planners, what are their KPIs? Like, how do you actually evaluate them?

Kristopher: Yeah, well, I will say straight off that I am not the partner in charge of all the planners. This is not my day-to-day job in terms of managing the planning team and their KPIs. But I do know that they're judged on, again, just like any team member of any business, growth from A to B, beginning of the year to end of year. These are the goals we set out for you. We wanted you to take charge of writing letters of authority to clients' preexisting pension plans. Great. You tackled that. You built a better process. You've improved upon how we did that. And you've you've learned how to interact. That built a few blocks of knowledge with the pension community. So now you're one level smarter than you were last year on pensions. Maybe this year you look at how to tear apart the pension structures and understand all the different technical details of the structure and the fees and the rights of the member. How do they take money out and what can they invest in, etc., and understand how that shapes the recommendation that we're ultimately going to make. So the planners are really judged on how they're growing and progressing and building their own knowledge, as well as contributing to the common culture of the company. And beyond that, I would have to defer to my partner who is in charge of the planning team.

Michael: And how long does it take someone being a planner before they're able to move in the direction of becoming an adviser? Is there a standard career track or is it specific to the individual about just how they're how they're progressing, whether they even want to go that direction?

Kristopher: Well, I would say it is specific to the individual. We have had some people that came across and were advisors previously in the US. We had one person who joined us from one of the big wirehouses and had a fantastic experience over several years and had moved here and gotten married and started a family, etc., but didn't at the time know much of the UK interaction. So it was really a function of, okay, well, there are some gaps in your knowledge. You probably would be okay with the relationship management. You're probably good with the US knowledge, given where you had come from and what you had been doing previously. But we're going to assume that you know zero about the UK and the UK interaction with the US. So maybe you need to do a year tour of duty just to pick up as much technical knowledge as you can on the other side of the pond. And once you've done that, you know, along the way with lots of check-ins and support and ensuring that you're on the right path, then you can be an adviser because you had already been one in the US. So that's one example of a person that's come through and their time was probably a year, might have been a month less. I don't remember exactly, but it was around about a year that they spent on the planning team just to pick up that UK side of knowledge. And then others, you know, this is a good career path in and of itself. I would say that being a planner and working on the technical side of planning knowledge is a fantastic career path in and of itself. And it's not a place that you're ever going to be bored with. I guarantee you something will change tomorrow and you don't know it. So you get a chance to learn and solve a new Rubik's Cube every year. So we do have some people that are on that path of probably being planners. And that's great also. On average, I would say, yeah, it's probably 1 to 3 years, maybe 2 to 3 years of time in the planning team. But a lot of that is also determined by their experience before they came to us.

How Kristopher's Firm Develops And Transmits Its Niche Expertise [39:20]

Michael: And it's going to help us understand a little bit more just how you teach all of this, right? Like, how do you teach a lot of stuff that may not have a standard textbook or curriculum? And I don't know if there is a UK equivalent of the CFP designation and you can give them some structured learning. Just share with us a little bit more how you create this as a learning path when you're trying to do this for, as you know, multiple advisors over time systematically because you're a growing firm and it's basically impossible to hire anyone who actually has this knowledge and experience pre-existing.

Kristopher: Yeah, I would say that that's part of our secret sauce is ensuring that you hire fantastic people that are both knowledgeable and intelligent and hardworking, but also selfless and able to teach the next person who comes behind them through the door behind them. It is tough teaching. It is a large piece of what we focus on in thinking about the direction of the firm is ensuring that we have the processes and the building blocks in place that we can teach the next person we hire because we just keep hiring. We're blessed to be growing. So we're always looking to hire another person to fill in the gaps here or there or whatnot. So we do have an internal tool where we post our own wiki, if you will, with videos and kind of an internal blog that lays out procedures on how to do something or explains what an UTMA is to someone who maybe had worked in the UK previously and has never heard the phrase UTMA. So this is what an UTMA is. And this is how it's similar to this particular, let's say, UK construct of a kids brokerage account. Fantastic. We also have it as part of the KPIs that you are responsible for participating in teaching the person sitting next to you. We encourage lunch and learns. Why don't you write up a topic on how US insurance interacts with UK taxation and whether that life insurance trust works for UK legal frameworks that the client lives in and do a half-hour lunch and learn? Fantastic. Teach all of us about this. I don't know the answer. Great. You get a bonus point for doing that. So that is encouraged and part of the culture.

Michael: Interesting. Interesting. And so I'm just envisioning now that you've been doing this more than a decade, there's just this very sizable, ever-growing, ever-refining internal wiki of articles and videos and explainers that that you all have created for yourself that then becomes part of your teaching manual.

Kristopher: We're actively building that out every day. A lot of it is still in the heads of the partners and the people who've been here for 10, 12 years. But we're actively trying to get that down on paper or into the ether, such that it's more of a permanent repository of knowledge so that we can train the next person and the next staff member and team member that joins us. So I wish it was all written down and in the repository, but we're getting there. We're putting the pieces in place.

Michael: And where do you draw the line just when you're getting this far into, I think, like a lot of these cross-border tax issues that you were describing in particular, you know, how's a 529 plan get taxed in the UK? You know, is this euro vehicle going to be a PFIC to the IRS? Where do you draw the line between being financial advisors that know and are savvy on tax things versus being accountants doing the tax work more directly? I mean, do you actually do that as well? Or do you... Is there still some point where you say, this is beyond us. You need to go out to a tax attorney.

Kristopher: Absolutely. No, that's a great question. And we come across that line all the time. So we are not accountants. We do not do clients' tax returns. We're not qualified to do tax returns. We work with a lot of great partners, probably 70 or 80 accountants in particular that are good at US-UK cross-border tax. So that's that's fantastic. And yeah, you just have to know where that line is of saying, well, this is what we've seen before. And unfortunately, there's a lot of gray areas as well. So we do have to be careful not to step on a landmine and say something that might be taken as tax advice when we're not tax advisors. But say, "Well, this is what we've seen. In 10 out of 10 client cases, this is how it's been interpreted, so this is broadly the rule. Let's have a meeting with your accountant."

You know, nowadays with with video calls, it's generally pretty easy to set up a phone call much quicker than it had been pre-COVID. If there's any good to come out of COVID, it was probably the acceptance of video calls that now we can just snap, have a video call, and talk about something with an accountant or lawyer and the clients in the room, etc., no matter where we all are. And so that is a key thing, though, is to just know where that line is and say, "Right, we think this is the right answer. And this is generally how 529 plans, for example, have been interpreted." But there are dissenting opinions on that as well. And here's the dissenting argument of that. And we won't make that determination for you. Let's talk to the person who's going to sign the bottom of your tax return and say that they prepared it and let's ask what their opinion is. But here are the 2 opinions. And then here's the path traveled after each of those 2 opinions. So then we know what the decision will be once the actual decision is made of it. Does it do A or B? We know what to do after that.

Spurring Growth By Nurturing COI Relationships From The Ground Up [45:06]

Michael: So take us along this growth journey. You said you launched about 12 years ago, basically starting with no clients and no assets. Now you're you're north of a billion dollars. So help us understand just how this growth has worked, where these clients have come from. Is this all organically one at a time? Were there mergers and acquisitions along the way? Like, what was this decade-long path to a billion?

Kristopher: Yeah, we started with zero clients. There was no clients on day 1 and not many clients on day 2. As I'm sure any of your followers would know, if they've set up their own RIA, not having had one previously at a wirehouse to carve out. I would say that the journey has been really, really interesting and a growth opportunity for everyone that's been on the bus taking this journey. There are days when it's certainly hard and challenging and there are days when it's exhilarating and amazing. There's not too much that would be different, I would say, than a standard RIA in terms of how the business has found clients. We talk to accountants and estate planning attorneys and we talk to people who do insurance and mortgages and get referrals from all of those professionals in the same sphere of cross border wealth management professions.

Michael: Is that mostly talking to folks, it's even where are you guys primarily based? Is this mostly in the US and you're picking up folks that know about the UK? Or is this mostly in the UK and you're picking up folks that know about the US or are stationed in the UK from the US?

Kristopher: So currently, 36 of our 38 team members are in London and 2 are in Philadelphia. And we're growing the Philadelphia office. We've seen fantastic output and growth and demand for that. So we're hiring someone else currently and going to keep growing our US presence on the ground in the US. But most of the team are in London and that's probably going to be the case for some for the foreseeable future. So we're talking to people. There is, again, a niche of accountants and lawyers and insurance professionals and mortgage professionals that work with US expats. So we network and work within the same realm as again, someone in New York might do looking for clients in New York City. You talk to your local accountants and lawyers.

Michael: So proverbial centers of influence kind of marketing, but it's UK accountants and attorneys and insurance and mortgage folks who work in that expat space already that that becomes your go-to.

Kristopher: Exactly. Although I'd say it hasn't always been this way. I would say that the one thing about our growth trajectory, which you might be familiar with, having been in the industry yourself for some time, is you have to mirror your business. On day 1, the Big 4 doesn't want to talk to you. You'd be lucky to get coffee with them on day one. They have other people to refer to and get referrals from. And you're just a person with a laptop and a mobile phone. So you're probably not getting Big 4 referrals on day one. So maybe you need to go meet all the independent accountants in the space. You know, who's around the corner that has a CPA after their name? Maybe you need to go meet all the attorneys who have just left a big firm and set up their own shop and, you know, you're all the same size. All of you have set up just recently or have only been in business a couple of years. You guys should build your own network and refer to each other and lean on each other through the good and the bad of setting up an entrepreneurial endeavor such as this.

And then fast forward 10 years, maybe you are big enough, maybe just through going to industry events and networking and webinars and seminars and all of that, that maybe in year 10, you know, the Big 4 know who you are. And in fact, you can get referrals from them. Certainly, you still nurture and you still love all the people who have been on the journey with you. And now there's just more people in the bus to get that chance for an opportunity to take a referral and improve someone's financial life. But the mirroring is very important. And I think it's something that we had to learn early on was getting a lot of doors closed in our face because who were we? We had no clients on day one. But again, 10 years later, you're probably known at that point if you've lasted 10 years and had some success. So that mirroring is very important. And certainly, I still value and treasure all the relationships across the independent space of people we met along the way. And they're some of my best friends and still great professional contacts to this day.

Michael: I like that framing that's a mirroring concept. Look, if you just hung your shingle and you're going out as an independent, go find other people in your related professions of accountants and attorneys or whatever that space is for you. Like, go find those versions of people who also just went out on their own and on their own shingle because they probably don't have a lot of preexisting relationships. They're at a similar stage and relatability of their business to where you are. I guess the bad news is they may not have as many clients literally because they're getting going as well. But the good news is, again, they don't they don't have preexisting relationships. They may even be more invested in yours because you're both at a stage where if I give you 2 clients and you give me 2 clients, that was really meaningful for both of us. That's a big deal in the first year or 2.

Kristopher: Absolutely. And even the prospect calls that you might have and you say, all right, this person came to me, you know, they have $10,000 to invest or something. They're not quite ready or really need the full wealth management service. They probably need a pat on the back and they probably need some guidance and a torch through the woods to see the path. But what they really need is an accountant. They really need someone to do both taxes for them in the US and in the other country. So actually, even though you can't take that person on, that family on, at this moment as a client because they're not quite the right fit for where they are and for the services you provide, they might be a great fit for that accountant or that lawyer. You know, maybe the prospect just graduated from grad school and got married and had a kid and bought a house. So the assets are quite light and the plan is quite simple. You know, work more and raise the family and they might, however, want an estate plan now that they have a child. So maybe that's really, really important to refer them on to a lawyer to help write the "what if" scenario document. Maybe they need someone to just do their taxes for them because they have a new child and they're working and peddling as fast as they can at their job or jobs. And they don't have time to figure out taxes for 2 countries. That's a great referral to the accountant. And then they probably will come back to you 3 years later after they've settled a bit in the new life environment that they found. But you've earned a lot of goodwill in those 2 or 3 years with the accountant and the lawyer you referred them to and with the prospect because they really needed and wanted those services at that moment in time and maybe didn't need or want your service at that moment in time.

Michael: So I guess I'm wondering in that context, what's the actual strategy or I guess the actual tactics of how did you get these doors open and build and develop these cross-referral relationships? I feel like a lot of advisors struggle with cross-referral relationships and feel like they send out a lot more than they get back from a lot of attorneys and accountants out there. So how did you all go about building these relationships and really turning them into mutually beneficial relationships? Because it sounds like your referral flows are a lot more bidirectional than a lot of advisors seem to get with this strategy.

Kristopher: Well, it certainly does take time. I will say that. And it's not the only path. Referrals are fantastic, both from external professionals in your network, as well as, of course, from clients, which is the ultimate compliment is to have a referral from an existing client that you've done a good job, and here's my friend who's in a similar position. So we have done lots of webinars and marketing. And prior to COVID, we did seemingly endless seminars and just really talked to anyone that would have us. We'd speak at any events that was of interest to US, UK, transatlantic families.

Michael: So webinars and seminars wasn't out to other centers of influence. That was you all trying to reach expats more directly.

Kristopher: We would do both. But a lot of it was us directly, maybe working through, let's say an alumni club of this particular university has a branch in London. And so go speak at their event and sponsor the drinks and the canapes. And you get 30 minutes to say what you do, shake some hands, have a drink and socialize and maybe talk about baseball. You don't necessarily have to talk about finance all the time with these people. It is also about building relationships and enjoying the journey. So we did lots and lots of seminars, certainly pre-COVID, and then they're starting to pick back up now. But pre-COVID, there were lots and lots of seminars. So it's not just professional networking. There is kind of a direct-to-consumer, if you will, angle to this. And, you know, there's no two ways around it. You know, building an RIA business is a lot of shoe leather. You do just have to get out there. You won't find an accountant or a lawyer that will just give you 20 clients and jumpstart you. That's probably not going to happen for most people. Bless you, if it did. That's great. But it didn't for us.

Michael: So as you tried all these channels, what ultimately proved to be the biggest driver for outcomes? Just a billion dollars in 12 years is a lot of client movement. So what worked? What gained traction and caught fire for you?

Kristopher: It was "horses for courses." At different stages, different things worked. On day one, there was a lot of search engine optimization and looking through LinkedIn ads as they had existed 10, 12 years ago, you know, through professionals that would see those ads and targeted advertising that way. That was a high impact, although...

Michael: Interesting. LinkedIn ads, because I guess expatriate location, London is actually the kind of thing you write in your LinkedIn profile. So you could very specifically target on LinkedIn like you're a business professional with the right title in the right city with an expat label in your profile. Get quite targeted to them.

Kristopher: Yeah, and it was it was very good early on. It's tapered off quite a lot. It's not quite as effective. There's a lot more advertising on LinkedIn now than there used to be back then. So our ROI on that spend has plummeted from what it had been. But there's still a lot in search engine optimization and getting keywords out there. You know, if someone in the United Kingdom is searching for the term PFIC or passive foreign investment company, chances are they're an American. Why would anyone google that term that's specific to US tax? And it probably means that an hour ago, your accountant told you you had some and it's a tax penalty. So you went home and you Googled it and said, oh my God, it is a thing. And maybe our name popped up when you did that as someone providing solutions for that.

Michael: Right. So just take something your very narrow target market might be googling for and make sure that they find you there because that's a very esoteric topic and very well targeted.

Kristopher: Exactly, exactly. So, yeah, you start with some of those and then you, of course, networking with like-minded independents in the niche and just really, lots of shoe leather, lots of getting out there and spreading the word and, you know, asking for the opportunity to help improve someone's life. Because, again, we might not know the answers on day 1, but 12 years down the road, we've built a big library of answers. And it's all through the hard work of the team members and getting out there and trying to find the next family we can help and the next solution that we can solve.

Setting Business Development Goals For The Firm's Advisors [57:30]

Michael: And it sounds like from your description of advisors earlier that business development has become fairly distributed for you across the firm. So it's not just centralized marketing or founder expectations. And anyone who's in an advisor seat has some business development expectations.

Kristopher: Certainly, yeah. There is an expectation of business development. I would say that it's… we're, again, lucky and blessed that we've had enough organic growth of demand for our services. There's not many firms that do what we do, and certainly not many that do it for as long as we have done it and with the scale that we are doing it on. So the business does come to us, but we don't want to get lazy. You know, we do have to still get out there and attend events and shake hands and build relationships and network and ensure that we're still generating that business. So there are targets and KPIs for business development.

Michael: Can you share a little bit more there of just what kinds of expectations you have? Sounds like your advisors also have a pretty healthy client relationship management load as well. So how do you think about, like, what are reasonable expectations and capacity between business development and how many clients you can handle?

Kristopher: That's the eternal question. You know, if I had the answer for that at 100% certainty, I would be a very, very wealthy man. We generally target on the order of 75 households per advisor as a good number. And some of our advisors are over that and many of them are under that. But that's a good target of saying, "You can provide a meaningful service to 75 households, given the infrastructure that we have around you, from the investment team to the planners to the client service team, to the centralized support and the software and fantastic technology we use and the custody partners." You could generally have 75 households and manage them pretty well and have a pretty good standard of living for yourself. So if you're over that, then maybe your business development goals are less emphasized and it's more about client retention and perhaps seeding the next advisor to come along with 3 or 4 of your clients that you find is suitable to hand off to them. Whereas if you have 0 clients, then yes, there's absolutely a business development discussion to be had. You have 0 clients and you don't want to have 0 clients. We don't want you to have 0 clients. So here's some leads. Here's some seminars to attend. Here's some webinars to speak at and be the lead speaker or the guest speaker on these webinars that we're running and then hopefully generate some interest on the back of that. So, again, the goals will be different depending on what stage of their own business development that each of the advisors is in. But I would say that if you can have, you know, $10 million, $15 million of net new assets in a year, that's a pretty good year for most advisors generically. We've certainly had advisors do a lot better than that in any given year. And we've had some years where that doesn't get achieved. But that's a good benchmark.

Michael: Okay. And again, I think you said earlier, your average client household is a little under $2 million of assets. Obviously, average is average. There's a range around that. But if I'm thinking about that properly, then it's like an advisor's 75-client household capacity might be like $140 million to $150 million asset base. And if they're bringing in $10 million to $15 million dollars of that new assets, you're kind of talking about like half a dozen new clients, give or take a little in a particular year. Am I like anchoring those numbers properly?

Kristopher: That's about right. This is one of the instances where at least my brain switches back to pounds. And I think 100 million pounds, which is around $125 million. currently at today's effects rate is a reasonable book of business for a mature advisor who's done well. And certainly, you can you can do more than that. That's fine. You can have less than that. That's not terrible either. But 100 million pounds is a good rule of thumb of what an advisor's book could be with 75 clients and have a good lifestyle, as well as a meaningful professional life that will generally get satisfied after, you know, 6 or 7 years of that type of growth with some market movement as well. So it's not unheard of in our business for an advisor's book to go from 0 to full in 5 or 6, 7 years. And that's why, again, we emphasize teaching, learning, knowledge, repository, and bringing through new talent to make sure that we have a pipeline of talent that's there and able to be the next person up.

Michael: Right. Right. So I'm curious as well, with so much of the, it sounds like the engagement, it's often like a tax or a legal issue that sparks someone saying, "Oh, I probably need more professional advice for this job that shipped me overseas." Do you ever think about bringing more of the tax and legal internal then and making that part of the breadth of services at Tanager?

Kristopher: We've certainly thought about it. But I don't know, at least at this stage, if we're ever going to consider it seriously as something to insource. I find it's probably better to outsource it because of the specialized knowledge and niche expertise that's required to do the taxes for 2 countries and understand the tax compliance, let alone tax advice, proactive advisory work on tax as an example. And the same exact discussion around estate planning. Again, it's not to say that we don't understand estate planning or that we don't understand tax. We certainly have a good handle on it. But I would not want anyone currently on the team to go fill out a client's tax return or write their will for them.

How Kristopher Got Started With The Cross-Border Planning Niche [1:03:36]

Michael: Okay. So what was your path to going this route in the first place? I don't talk to very many advisors who wake up one morning like, "US-UK expats seems like a great place to to build a business."

Kristopher: Yeah, well, it was very personal to me. I had worked at iShares for about 10 years, both in San Francisco and in London. And as we were bought by BlackRock from the prior firm called Barclays Global Investors, I really looked around and just had a good bit of soul-searching to understand if I wanted to stay in the ETF space. I had done it for 10 years, plus a year or 2 prior at a data provider firm. And understand if maybe that was the right time to change tact. And so I did a hard self-assessment of what I knew. Well, I thought I knew investing. I thought after beating my head against the wall and receiving some well-intentioned, but perhaps incorrect advice on US-UK tax and financial planning from people I sat next to or friends or what have you, that I knew a little bit about how to be an expat and what the investment and tax and planning challenges were.

Michael: Because you were actually placed in the UK with Barclays as part of this. Okay.

Kristopher: Yeah. I was in London as the takeover happened in 2009, 2010. And I said, well, I don't know if I want to do ETFs anymore. I think I decided I don't. I just wasn't energized by working in the ETF industry anymore, having spent 10 years doing it and working with some fantastic people that have really went out and seeded the rest of the ETF industry, whether it was Goldman's ETFs or JP Morgan's ETFs or BondBloxx ETFs. You know, there's there's iShares alumni at all the other ETF providers nowadays. And I said, well, maybe I'm young enough and maybe I have enough experience, enough energy to set something up on my own. I have a desire to be entrepreneurial and I still have the energy. I don't want to set up a new business when I'm 75. That's maybe too old for me, looking at it as a 32-year-old or however old I was at the time. So I said, well, I know investments. I know the tax challenges. And no one was able to provide me with some sort of optimal balance of tax planning, financial planning, investments, goals planning. It just, it was not available anywhere. So it really started me on the path of saying, right, well, maybe I should set up my own RIA. And if I can just find 50 households over 5, 6, 7 years, well, I can pay the rent and I'll have a nice living. And that'll be fantastic. And along the way, I found some other like-minded people to set up the firm. And, we said, right, this is a great idea. There's really no one doing it the right way. Let's let's do this. And so we did. And so Tanager was born in 2012 with 0 clients and a lot of energy and a lot of ambition and perhaps not quite realizing how hard it would be to set up and run a business from 0. But that's how we came. That's how I came to this was given my background as both in investment management, but also as an expat myself, that I just didn't see any solutions I really liked out in the marketplace.

Michael: So where did these partners, co-founders come from? How did you find your like-minded co-founders?

Kristopher: Yeah. Well, one had come from a prior firm I had worked with and was a fantastic guy. And as we both were talking one day, we said, well, maybe we could set up something that does something similar. And he had a background in in transatlantic lending and mortgages and wealth management as well and had a fantastic career doing that with a lot of great knowledge and expertise and and successes. And the third partner was an American himself who similarly had worked in wealth management for many years and worked in the transatlantic space and had worked with US brokers and RIAs, etc. And was probably in a different space in their career, looking at more transition and a longer-term way to hand off clients. So the 3 of us said, well, this is fantastic. I think we have the 3-legged stool. Let's let's have a go at this. And it was really fortuitous and lucky that we had all known each other in various capacities and decided that working together was better than not working together. So let's let's roll the dice.

Michael: So what was the division of labor? Did you carve up, you do this, I'll do that, or are we all kind of coming together, say, let's all we're all going to try to build our books of clients and we can share some overhead expenses because it's a startup. What was the vision as you were coming together of who was going to do what and what you were trying to build?

Kristopher: So we were intentional with building an enterprise from day one and whether or not that would succeed, we didn't know. But we were intentional with that, let's say, a 10-year goal in mind. And so myself, I'm the chief investment officer and I do have client responsibilities as well at the firm still. But in the early days, I had a lot of the client responsibilities in the firm. My other co-founder, Jeff Hedges, had his own book of business at Raymond James at the time and had worked with a lot of transatlantic families, but was at a different stage, a slightly older age than myself, and was really looking at how could he have a lasting legacy and ensure that the clients who, at this time, a lot of them are his friends and close, close colleagues, had a safe place to land if he were to retire one day. But I think he had this burst of energy also that it rejuvenated him and gave him the energy to really lean into building something together. And our third co-founder, Alex, is really the chief operating officer and kind of the cultural standard bearer of the firm. I hate to say that he's just done everything else because it doesn't do a service to how much he has done. But he's really taken charge in terms of building out the team and ensuring that a lot of that teaching and learning and culture-building has happened in the firm, as well as the duties of a chief operating officer and CEO type of figurehead. So he's really done everything from marketing to, on day one, opening accounts to setting up our email at Google to everything in between. So, yeah, it was really the 3-headed hydra that came together with energy and blind ambition and hope to set up this firm.

What Surprised Kristopher The Most On His Journey [1:10:15]

Michael: Very cool, very cool. So as you've now lived this path over the past decade, what surprised you the most about actually building a billion-dollar advisory firm enterprise?

Kristopher: There's been a lot of surprises. We don't have enough time for all the surprises, but also that's the fun. I would say that one of the bigger surprises has been that clients may be wary at first, but they really do want the solutions and the peace of mind that you can offer. And they do want to trust you, even if they've had maybe a bad experience with a professional advisor in the past, they do want to trust you. There's a reason why they're sitting across from you. They do want to hand over some of the responsibility, if not all the responsibility, certainly some of the responsibility of managing the family's assets and building a plan and making sure everything works for them and is pulling towards achieving the goals that they want to achieve. And that means that you really have to be confident in yourself and the service that you're offering, because, if the clients really do want it and they do need it, then you should be confident that you're doing it well. And that's not to say that you shouldn't keep learning and changing and be humble but do have some confidence that the client does want your service. And it was hard to get over some of that self-doubt in the early days when you have no clients and the phone hasn't rang for 3 days. You know, that's that's a challenge. And you've got to get over that self-doubt.

Michael: What I would presume only compounded when you pick a specialized…of a target clientele and service need, as you did with cross-border expatriates in the UK. Like, you know, you feel like you get self-doubt about whether you can do the business plus self-doubt about whether clients want to work with you plus self-doubt of like, am I even giving the right advice or screwing up some legal issue I missed in one layer of the Venn diagram? I feel like there's a there's a lot of layers of self-doubt. You can cry in there at the same time.

Kristopher: It is. You may not want to peel back that onion because you might start crying. So just be confident and you can do it and you will find the answer. And you're absolutely right. We went through all those emotions regularly in the early days.

Michael: So where did the confidence ultimately come from for you?

Kristopher: Well, I think having other people around. I think it would be an entirely different discussion to set up and run a business yourself as a solo person with absolutely no one around. Then having 2 other great people to set up the firm with and then hiring the first employee and the first new advisor and the second employee and building the team around that. Having people to lean on is fantastic. And I think everyone should set up their business at least with one buddy and not consider doing it on their own. I think having each other, you're just able to blow off some steam and and reassure and encourage each other to keep going. So that's really important.

The Low Point For Kristopher On His Journey [1:13:08]

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

Kristopher: I guess there's different low points, right? There's local minima and maxima if you think back to your calculus in college. In the early days, having zero clients or just a handful. And the phone doesn't ring for a week. What's your motivation to get out there and go make it ring? And you have to find that motivation, whatever it might be. You know, certainly for me, it was very much an interest in solving the challenges. I like the Rubik's Cube of solving the next challenge. And I was just excited to go find another problem to solve and another person to help. But you got to find something to just get out there and keep moving forward. In the middle days, I think the lower points are you find yourself just doing everything and maybe not enjoying it as you thought you might that, you know, if there's 3 or 4 or 5 people, you're still opening accounts and you're still opening accounts and you're still typing in the ACH or the wire transfer, you're still doing literally every single thing that needs to be done. And maybe you're not enjoying it because you just hit a wall. So you've got to hire well and delegate at that point to just get out of that.

Michael: Was there a particular wall moment like that for you?

Kristopher: I think there definitely was. After we brought on our first advisor, who's now a partner, named Dave, he was a great relief to have someone in the office that had a lot of US knowledge. He had worked for 14, 15 years in the US as a financial advisor in the Boston area. And he had solved a lot of US problems already and really was the first person to just have to learn the UK overlay. And I think that took a lot of the pressure off of at least the solving of the Rubik's cubes because he had a lot of great knowledge coming into the firm. I think after that, our first assistant who could do things like just simply answer the phone and reply to emails that came in that we weren't taking…getting distracted every hour by answering the phone twice or replying to these emails at the end of the day when you're probably tired, our first assistant was great to just take some of the pressure off of the minutiae.

Michael: Do you recall how big was the firm when you hired the first assistant? It's hard for most of us when you hire the first staff member. You know, it takes a pretty big chunk out of your income take home, which isn't a big number yet because you're still getting going. But like, you know, you had to take your net income divided by 3, 3 partners and the assistant's is coming out of that. So do you recall how far along did you get before you were ready to make that first hire?

Kristopher: Yeah. There were 4 of us and then we hired our first assistant. And she was great, she had been an executive assistant previously and understood basically how to run a business. She told us how to run the business and was fantastic to let us get on with investing accounts or dealing with a custodian's error or our error at the custodian or finding the next client or doing this annual review meeting or prospect call or whatever it might have been, she was really invaluable in just telling us how to run the business. And that was fantastic to do that. But there were 4 of us at the time.

The Value Of Developing Sub-Niches Over Time [1:16:28]

Michael: So what else do you know now that you wish you could go back and tell you 10 plus years ago as you were first getting started with the wisdom of experience you wish you could have told yourself previously?

Kristopher: Well, I think one of the things I didn't quite appreciate back then, but I know that you've been a big disciple of and proselytizing this is find a niche and find a niche of a niche and keep digging a niche hole, like just find people whose middle names start with B who are dentists and live in this particular zip code, like go get all of them as your clients, go own them, get all 8 of them. And that's a great niche. And then you will find how that radiates out and builds out from there. But finding a niche gives you the ability to focus and to solve problems that are unique to these people where they immediately see the value of. And there's no longer an argument over fees or let's have a second meeting or a third meeting. It's where do I sign? And that's the value of the niche is you get that straight-through processing much, much quicker.

I would also say be authentic, as I mentioned with the planners and the matrix early on, I would perhaps try to say what I think the prospect or client wanted to hear, but maybe just wasn't authentic coming from me. I have a bit of an engineer mindset and I probably prefer to work in that manner. And I think I'd probably come off a bit robotic if I'm trying to make lots of small chit-chat or talk around the houses. It's just not me and prospects and clients in the early days saw through that, I think, for me. So just be yourself, be authentic. You are who you are.

And then lastly, I would say, think longer term and do the right thing. Don't worry about what happens tomorrow. You've got to have a plan for 5, 10, 15, whatever, you have to have some sort of plan longer term and you have to think that way or else you can't possibly achieve any of the milestones along the way. And if you're always doing the right thing, then those two combined are what really build value for your clients and for your business. And I think that guiding principle was something I felt early days. But I don't know if I really believed it. I was still thinking, "Okay, great. How do we close the next client? What do I need to do to get the next client," and maybe deviating and taking some clients that weren't taking on board things that weren't necessarily right for the firm longer term? You know, clients didn't quite fit, but you just need a client on day 1.

Michael: So I'm curious, you made a comment around you can start with some kind of niche and then and then you kind of explore it and it evolves from there. Has Tanager's focus evolved and shifted for all of you over the past 12 years of doing this?

Kristopher: I think what we've found is, you know, generically work in the transatlantic space of expats and people repatriating back home or maybe British people moving to the US who have UK pensions etc., that we've just found the next niche that's slightly adjacent to it. So despite the common thread of everyone having some sort of US connection and having some sort of international connection in their financial lives, in their personal lives, what we found is, okay, well, maybe the financial professionals are slightly different from legal professionals. And here are the 4 key differences that mean something to that group, but not to that group and vice versa. Or here's the entrepreneurs and here's the challenges they've had with with the GILTI [Global Intangible Low-Taxed Income] taxes that were introduced a few years ago that really no one else cares about unless you're an entrepreneur living abroad. And here's something that technology executives at big American tech firms really need to know that probably doesn't apply to the entrepreneur or the private equity executive. So it's more about finding the niches that are adjacent and learning more about them. So you keep digging new niches and finding new veins to mine.

Michael: My brain goes to this analogy. It's kind of like you keep zooming in further. Like you took a picture, US, UK, transatlantic folks, and then you've got that picture and you zoom in further. And now it's like, well, now that I've really been looking at this, wait, there's 3 or 4 different groups here because I've got the finance people who are expats, I've got the legal people who are expats. I've got the entrepreneurs living abroad. It's like I don't really have one business of transatlantic expatriates from the US to the UK. I have 3 subversions of it that I could get even more focused, I could get more nichey on. Am I thinking about that well, that it's not like you left it to a new different adjacent thing. It sounds more it sounds more like you went deeper into it and they started segmenting themselves even further.

Kristopher: Yeah, the first 10 chapters of the training manual are common. And then each chapter after that is a specific sub-niche or sub-sub-niche and understanding how that's applicable. Buying into a partnership at a law firm is a different planning challenge to understanding lots and lots and lots of stock options at a technology firm. They're just 2 different things. And they don't really apply to the other one. But the other person doesn't care about your expertise in stock options if they're a lawyer. And the person at the tech firm doesn't care about understanding partner loans and how the tax implications are for 2 countries. They probably just care about stock options because that's what they get half their compensation in.

The Advice Kristopher Would Give To Newer Advisors [1:22:00]

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

Kristopher: I would think the best advice anyone could get is and this is probably broadly applicable to any career path is really just understanding, working hard, and finding something that you really enjoy doing, find puzzles that you like solving. Early days for me, it was perhaps programming. I started off as a programmer and moved into the exchange-traded fund world and found that new and different and exciting. And there were no rules written just yet back in those days, to moving to a new country and learning all about the intersection of another country with the prior country and then learning all about how to solve those challenges. Just find something that you're really interested in. If you're not interested in it, you're not going to have a great career. You might be able to pay the rent, but you're not going to have a great career and you're probably not going to enjoy it. So if you are interested in being an advisor, find that space. Do you like the investments more? Do you really want to dig down into the 10th level of how ETFs gain incremental alpha through securities lending inside their portfolio?

If you don't like that, then how about financial planning and cash flow planning and understanding pensions and understanding the differences between defined benefit and defined contribution. And how much can you put into a DB plan if you're 40 versus 50 versus 60? And "How much tax will that save a client today?" etc.? And if you don't like that, go learn about insurance. Maybe you really like learning about all the bells and whistles attached to insurance policies, but find something that you really like doing and then just learn as much as you possibly can, even to the detriment of your social life, perhaps in the early years, go work 60, 70 hours and just get really good at something. And that then leads into a much bigger window afterwards where you can go do lots of different things. But you'll always be challenged and hopefully always be enjoying what you're doing.

RIAs As Tech And HR Platforms Monetized With Financial Expertise [1:23:55]

Michael: So what comes next for you on this journey?

Kristopher: That is a constant discussion in our partner meetings here at Tanager is what comes next. We're currently working on our next 5-year plan, having accomplished our 10-year plan. And so, we're blessed to have continued growth, organic, and really looking at what other opportunities there are in terms of new locations, whether it's across the US or in the EU, you know, on the continent or for inorganic opportunities that might come across our desk. But really, it's continuing to work on the challenges that have been here since day one, which is that ultimately an RIA business, an RIA enterprise, I should say, is an HR and technology platform that you monetize with some financial expertise. So you have to keep building out that platform, whether it's teaching and training and manuals and helping grow other team members or whether it's building on that next piece of technology that enables solving the tax loss harvesting that you need for concentrated stock positions in client portfolios. So we're really just looking at how do we keep building out that platform of solutions, which really boils down to technology and HR is what we found.

Michael: Fascinated by that framing. An advisory firm, make sure I got that right, an advisory firm is an HR and technology platform that you monetize with expertise.

Kristopher: In finance. Yep, that's it.

Michael: In finance. I really like that. I really like that.

Kristopher: I have to say, I can't take credit for that. I did steal that from someone at Barclays Global Investors in the early days who described BGI not as at the time still the world's largest asset manager, about $500 billion or so of assets at the time, but that BGI was a technology platform that monetized the technology through index funds and some quantitative alpha products that we had for institutions. And I had never heard anyone in finance say that before. I had never heard that. But a lot of people at BGI thought that BGI was a tech platform.

Michael: Interesting. But since this is ultimately advisory firms or service businesses and knowledge businesses, you frame this as this is an HR and technology platform. We have to get good at attracting and developing and retaining talent that becomes your distinguishing firm or like platform solution, platform value.

Kristopher: That's exactly right. Unless robo advisors take over the world and you can truly scale and have a million clients with no humans, unless that can really happen, which I am not convinced it really ever will, then you're going to have some bottleneck as a human who has the relationships and has some of the expertise in working with clients. And so therefore you have to be an HR platform to make sure that you're always building and growing and also weeding out some of the challenging people over time.

What Success Means To Kristopher [1:26:48]

Michael: So as we come to the end of this conversation, this is a podcast about success. And just one of the themes that comes up is the word success means very, very different things to different people. And so you've built what clearly is a wonderfully successful advisory business enterprise as you're crossing a billion dollars of asset management, setting the new 5-year plan, having conquered the 10-year plan. So the business is in a wonderful place. How do you define success for yourself at this point?

Kristopher: Oh, that's a tough question. I think for myself, success is really, it's a few parts to it, but one is always constant growth and challenges. Each stage is different, requires different skills, approach, mindset, resources. And you have to embrace that change. You know, I'm not a surfer, although I have tried surfing when I lived in California and I can appreciate kind of standing on the board and the waves always moving under you and you've just got to try to stay on top of it. And if I was a better surfer, I'd probably have a better analogy. But that kind of fits the way the earth is just moving underneath of you. And you've got to keep moving with it and changing and evolving. And also, hence why we named the firm after Darwin, who obviously came up with natural selection. Also, I think success is building something that lasts. And it's not just a quick buck. I mean, wouldn't it be nice to make money? Sure, we do need money to live. It's a money world. But wouldn't it be nice to build something that lasts and outlasts you and have whether it's a brand or a name or just an entity and knowing that you've touched the lives of many, many people, that legacy is great to think about and hopefully something that we're all as a team building towards. And then lastly, I guess just enjoying the ride and the people that you touch and that you work with. I can't take all the credit for this firm. There's, as I said, there were co-founders and they're still with us, and lots and lots of team members since, and lots and lots of clients have joined since. So really enjoying the ride and the people that you touch. If you're not enjoying the ride or the people around you, then you should change it. So I think success is enjoying that ride.

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

Kristopher: It's my pleasure, Michael. Thank you very much for having me. It's been really great speaking with you.

Michael: Absolutely. Thank you.