#FA Success Ep 252: Navigating The (Non-Linear) Growth Path To $100M Of AUM In Under 5 Years, With Kyle Moore

Resources Featured In This Episode:

• Kyle Moore
• Quarry Hill  Advisors
• Kyle's Tweetstorm on Launching His Firm
• XY Planning Network
• Twenty Over Ten
• FeeOnlyNetwork
• FP Transitions
• Limitless Adviser
• New Planner Recruiting

Full Transcript:

Michael: Welcome, Kyle Moore, to the "Financial Advisor Success" podcast.

Kyle: Great to be here, Michael.

Michael: I'm really looking forward to the discussion today and just talking about what the growth journey looks like when you go out and start your own firm and start building a client base. And I think, in particular, the non-linearity of it. You had this wonderful, I guess tweetstorm I'll call it that you had put out a couple of months ago, talking about your journey over the first couple of years, and had talked a lot about the non-linearity of growth. I think sometimes there's this vision of if you hear of a firm that's like, "We've got this great client base with 50 clients, and we've been running 4 or 5 years." It's like, "Oh, that's cool. So you got basically a client every month, and after 4 or 5 years, you had 50 clients." It's like, "No, that wasn't it at all. We had gotten no clients for six months. And then we got seven clients in a month, and it completely drowned us. And I worked 82 hours. And then the next month, we had none again. I completely freaked out that we were going out of business." And it's like, "Oh, yeah, it's..." doesn't really move in a straight line. It's really not linear at all, as much as we wish it was, and we draw it in a straight line when we make business plans and projections in our head.

And so I know you have lived a lot of this non-linearity firsthand, been running the firm for 4 years, crossing over $100 million, which is just an amazing growth trajectory in less than 5 years. But kind of as noted already, it wasn't exactly a straight line in getting to $100 million in less than 5 years.

Kyle: Exactly, yeah, it was feast and famine, all kind of packed into these little sections. Each year has a different story to it.

What Kyle’s Firm Looks Like Today And His Three Main Channels For Growth [04:16]

Michael: So share with us a little bit of this journey of growing your firm. I think probably to start, maybe just paint a little bit of a picture for us of the firm as it exists today, just so people sort of will know where the story has landed. And then we can talk a little bit about what that journey was like along the way in getting there.

Kyle: Sure. Today we've got five people in the firm. I just took on a partner who left one of the wirehouses to join me. We'd been in discussion about that for quite a while. And then we've hired two people recently. So now we're at five. Currently at about $165 million under management, mostly AUM fees, we have some retainer as well. And I think our total amount of clients is 137 households at this point.

Michael: And it sounds like a portion of that was what you had created organically, a portion of that is what your partner brought in leaving a wirehouse to join.

Kyle: Exactly, yeah. And his transition is not even fully complete yet. So we started the transition basically at the beginning of June. And there's still some clients that are probably going to come over that just haven't yet. But yeah, he definitely had a client base over there that he brought with him.

Michael: So just so we have context for the growth journey you've had in the years coming up to this, of the 137 households, $165 million under management, about what portion of that was your growth, your journey before you would take on a partner to come in?

Kyle: Right now I'm the lead advisor on 77 households, and I believe it's about $108 million myself. And so whatever the difference between that is, is what Bjorn brought over. And again, his transition is not done yet. We're still not out of the woods yet.

Michael: Understood. The partnerships and mergers and transitions take time, which I suspect we're going to come back to in the conversation in a few minutes.

Kyle: Exactly.

Michael: So you had launched back in 2017. We're under five years out. Four and something years out. You're sitting here at this number of more $100 million and with roughly 75, 77 clients at 108. So just where does $108 million come from in 4 years of hanging a shingle, starting more or less from scratch?

Kyle: It's some places that are somewhat predictable, but others that you never really imagined it to start. It's basically been three different avenues. When I was at the prior firm I was at, I was working with a guy named Joe Pitzl who's an unbelievable financial planner. I know you know him well, Michael. But we grew a lot at that firm in a short period of time. And I was kind of seeing that people started finding us through online channels. And so when I left there, I thought that could be a potential source of new clients. It was a trend that was starting. If I want to find a plumber, or something like that, I'm generally going on Google and looking, searching for one.

So I thought, if I can just become findable for people who are looking for what I'm doing, and if I can locate myself in a saturated market, where people are looking for what I'm doing and in close proximity to where they are, then I think this could work out. And so local search is definitely one of the big ones. It took a little while to get recognized by Google and to get started showing up in some of the search terms. But that's a big one. Another one obviously, is a personal network. I was pretty fortunate just to have a good personal network and clients who really have advocated for me and referred me to a lot of friends and family and whatnot. And then the last one was the more surprising one, and that's more content marketing. In 2017, I just knew I needed a blog, I knew that was good for SEO, Search Engine Optimization, if people aren't familiar with the acronyms.

So I started blogging, and I didn't know what to write about. So I just started writing about client situations and things that I saw that were commonly misunderstood. And one of those was capital gains. The way that capital gains tax and ordinary income tax interact in our tax code. I think it's a pretty commonly misunderstood thing, the way those two things interact. And so I wrote a blog post called "Can capital gains push me into a higher tax bracket." And for whatever reason, Google decided to pick that up, and it started getting hundreds of views a month and thousands...at its peak, it was getting about 18,000 views a month. And then I started creating other blog posts that were linking to it to kind of get our target market kind of moving along through our page.

And so that was more surprising, and it just sort of worked out very well. But we started getting inquiries of people going through IPOs, or dealing just with capital gains situations, calling us and asking for help, or emailing us and wanting to schedule a time to talk about their situation.

Michael: Sounds like driving primarily off this one blog post that went particularly viral, or I guess not really viral, because it's not getting shared, but particularly Google-searchable. It just started driving activity.

Kyle: Exactly. I linked another post to it called, "What do you do when your company goes IPO?" Stock compensation is a niche of ours. And so a lot of people who find that original posts end up going into the IPO posts, and then contacting us. And it's about $10 million of our AUM is from that, but it's a disproportionate amount of people who've actually become clients through that channel, compared to the amount of people who contact us. A lot of people, they think we're CPAs and are looking for just some sort of tax advice only. And so they're not always the best fit for what we're doing. But it's created a huge amount of traffic, and it's something that I may try to capitalize on moving forward, but just haven't yet.

Michael: So I want to understand a little bit more about each of these three channels, getting findable locally, personal network, and then content marketing. So let's actually start on the personal network side because I feel like, for most advisors, that's the most common way that we get started when we launch firms, we go to our friends and family. Some firms out there actually require you to bring the list of your friends and family in order to start with the firm. It's the place we tend to naturally go, but for a lot of us, that's a difficult path to go because there just may or may not be a lot of opportunity there. It's for a lot of people really hard even just to bring up the conversation of talking to your friends and family and personal network like, "Now I'm a financial planner, and I have my own firm. And you've known me for a long time in a completely different context. I have to convince you to be comfortable with having me manage your life savings." Like that's a tough transition.

So where did you go in your personal network? How did you tackle a personal network? What did you do to get people in your personal network comfortable working with you when they may have known you from a prior life or way back when before you were a financial advisor and they didn't think of you in those terms?

Kyle: That's a great question. I started interviewing with the Morgan Stanleys, Merrill Lynchs, and whatnot, and I had a pretty attractive resume for people like them, because I had already...I had played professional golf for four years, and I had raised money to do that. So they saw that, "This guy can go into his network and raise money." And so to them, I seemed like a good fit. But for me, I just didn't want to do that. The whole raising money to play professional golf thing was very uncomfortable for me. And I couldn't imagine myself going to friends and family and trying to get them to become clients. So I didn't want to go that route. And I was very fortunate to have found a job at a firm where I could come in as an apprentice. I didn't have any business development responsibility, I could learn how to be a financial planner, get my CFP, just learn how to serve clients the right way, and do a great job for them.

But I did find, after I got my CFP, I got probably the best experience you could get in the first four years of someone's career. I just got a lot more confident, I got confident in the fact that I could do a great job, and a lot of other people out there are underserved when it comes to whatever their advisory relationship is. And so I never was the type of person who was going to my friends and family and trying to get them to become clients. It just sort of started happening naturally, especially once I started my firm. I was fortunate that I had one client who is an investor in my professional golf, who was sort of a mentor to me, and he gave me a lot of advice when it came to...he said, "Hey, I don't know what this wealth management space looks like, but here's what it should look like." And I listened to him. And ultimately, he kind of really started to trust me, and became a client.

And then, through people like that, they become advocates for you. And then they start referring other people, or friends of yours. I'm 36 now, so friends are starting to get to a point where they need help, and their careers are taking off, but they've got young kids, and it's just busy. And I'm the first person they think of. It just sort of started happening naturally. What I tell people is, "If you're not the sleazy salesperson, and people think you're smart, and they trust you, and you know a lot of people, then it's just going to happen pretty naturally." And so we're finding that with Shelley who's been working with me for a year and a half now. That's happening with her now. It just sort of starts to happen in our world if you're a good person, and you're reasonably sharp and people can kind of see that.

Kyle’s First Job In The Industry [13:45]

Michael: Talk to me about where you got started and how you got started, because you had said you were talking to some of the wirehouse big firms. You didn't want to go there. You took, I think, as you framed it, like an apprentice job with no business development. So what was that job? And how did you find it?

Kyle: Good question. I realized I didn't want to go the pure wirehouse route where I just was on my own and had to go bring in clients. I felt like I don't know what I'm doing. I can't imagine after three months of training that I'll be confident in actually handling someone's life savings. So I ended up interviewing with this company called Baird, who is sort of like a wirehouse model, but just a little bit better. And I got offered by them, but they didn't really have a team for me to work on. We were set on moving back up here to Minnesota where my wife is from, and I just got into full panic mode, really. I was like, "I don't know what I'm doing. I don't want to work for one of these places. I just want to learn, I don't want to have to go get clients." And I just started googling people, emailing any advisor in the Twin Cities that would talk to me.

Fortunately, there was one...I haven't ever met her since this email exchange, but she just pointed me to the Financial Planning Association and their career day. And so it was through the FPA career day here that I ended up getting an interview with a company called Intelligent Financial Strategies at the time, Joe Pitzl was there. And they ultimately ended up hiring me. And so we moved up. And I was able to learn from them, his two partners at the time. They ended up splitting ways about nine months into me working there. And so I had sort of a career crossroads right away. But it was fortunate enough to go with Joe to start the new RIA with his brother's CPA firm. And so I had four years of really hands-on great experience with Joe going from that one firm to kind of just starting a new one with his brothers and taking some of the clients with him. So when it comes to experience, I didn't have business development responsibilities, it was just as hands-on as it could have been. So I got to see everything.

Michael: So what was the job when it started? I'm assuming they weren't literally hiring for financial planning apprentice, although maybe they were. What was the gig when you signed up, when you took it originally?

Kyle: It was just called Associate Financial Planner. So it was an entry-level job. I think they were mostly interviewing new college graduates. I was 27 at the time of interviewing and 28 once I started. So I was a couple years older than probably everybody else they were interviewing, but it was definitely an entry-level financial planning position.

Michael: And just for an entry-level salary?

Kyle: Yes, I think my salary was $40 grand when I started.

Michael: So, how do you even process that? Because I'm sure some of the big firms are probably throwing similar or higher numbers at you, it is just like starting draws to go get clients and build your book of business. What took you in the direction of, "Nope, going to take a flat salary, and go that route instead"?

Kyle: Well, I think if there's one thing that I did well in my career, it was always making decisions based on what would get me to my end goal the quickest, rather than get me paid the most. I wanted to get the best experience. There was another firm, bigger multifamily office here that I also got a job offer from that was...at the time, I think it was $53,000 was the offer for them. We had our first child on the way.

Michael: I'm sure it'd be a difference.

Kyle: It felt like a big difference for me, especially having a kid coming. But one of my mentors just said, "Hey, don't worry about the money. Go to where you think you're going to learn the most." And that was just excellent advice. I could not have gone to a better place, I don't think. And so even though it was less money, to me it was a launching pad.

Michael: And so what was it about the role that made this lower salary role so much more appealing as, "This is where I'm going to get to learn"?

Kyle: I could tell that the partners were...they're both young guys, they've taken over a retiring advisors practice, and then they had grown it a bunch since then. And I could just tell that they were really good. I didn't know anything, but I could tell that they knew what they were doing. And that they knew how to do great financial planning. Their investment process, I could tell, it was in alignment with what I was kind of looking for, as well. And so I thought, "I really want to learn from these guys. And I think this is my best opportunity to learn as much as I can." The first job, I didn't have any...it wasn't in client meetings or anything, it was a lot of behind-the-scenes stuff. But then, once the firm split apart and I went with Joe, then I was in every client meeting. And that became very attractive to me to go with Joe and be in every single client meeting and see kind of the master at work, and glean as much as I could from just being there.

Michael: And so what was the journey of the role? Did it change and evolve over time? Obviously, you're not still there now, but just was it changing and evolving? You didn't like where it went? You just did it for a while and said, "Okay, now I'm ready to do my own thing"? How did it morph?

Kyle: We grew, I think...this was a crazy growth story. Joe brought, I think, maybe only $18 million under management. It wasn't his choice to kind of split the firm apart, and so he felt very badly about it and about the position it put me in, but they were great. They were looking for other jobs for me and trying to help me get my next step, because it just didn't seem like either of them could keep me. Fortunately, at that time, my parents, and then one of my mentors became clients. And that was about $15,000 of revenue or so. And I said to Joe, because I could just tell...I knew Joe was an all-star. And so I was like, "I want to learn from this guy. Wherever he goes, I want to go." And so I said, "Hey, pay me $25 grand. My wife's a nurse, she could pick up a shift, and we can make it work. We got these $15,000 of revenue that would come with us. Your risk is pretty low. And you got me coming with you. I want to be with you, I want to learn from you."

And so I think that brought him...it put him in a tough spot, because he didn't want to pay me that. They ended up paying me similar to what I was making before, but that kind of, I think, got him to talk to his brothers about having me come aboard. And I think they were grateful they did, because we did grow really fast, and they needed me. I was a full-on associate, I was in every client meeting, I was doing all the...we didn't have an admin at the time. So I was doing all the paperwork of the meeting prep and follow-up. Pretty much had my hand in most things. And just was really a support to Joe. Joe was growing the firm, I was allowing him to do that, or doing the best I could to allow him to do that. And then we got to a point where Joe couldn't really...he was maxed out, he couldn't really...we grew to over $100 million in that period of time, probably less than 3 years, I think we grew to over $100 million.

Why Kyle Ended Up Leaving A Reliable Position To Launch His Own Firm [20:36]

And we were there celebrating at a bar. I think we kind of all were out just celebrating the milestone. And Joe had said to me, "The next $100 million is yours, Kyle, you're going to be lead advisor on the next $100 million." And I was ready, I was ready to kind of step into that role, too. But for whatever reason, I think maybe because I'm a little bit just wired differently, it didn't excite me the way that sort of growing the firm excited me in those sort of first couple years. Just having a steady stream of clients in someone else's business. He probably would have made me a partner down the road and whatnot. But it just didn't excite me in the same way. And at the same time, XY Planning was really taking off. I had a couple guys in my mastermind group that had started their own firms. And it just excited me, it was something that I loved listening to the problems they were facing, and I kind of wanted to have those problems too, as crazy as that sounds.

And so we got to a point where I ultimately told Joe I wanted to start my own firm, and I think it was a...it was definitely a pretty selfish decision, honestly, because I had a great situation, Joe had invested a lot in me. We had a great relationship. He was the best boss I could have had, but I still wasn't happy. So it was definitely a situation that I think is not very common. Even Bjorn, who's my now partner, I remember a phone conversation with him. And he said to me, "I would really think twice about doing this, Kyle. I think you're probably going to starve, and you're leaving an ideal situation that pretty much any associate advisor would love to have." And he really cautioned me about making that leap. And for whatever reason, I wasn't going to be happy unless I did it. And so I ended up making the leap.

Michael: What was the itch you had to scratch? As you said, you're in a firm that added $100 million in 3 years, who turned to you and said, "Next $100 million's your clients," by most advisors' perspectives, it's like the adviser equivalent of “being made”. And you were like, "Meh, I think I'm going to go start over from zero again."

Kyle: I wish I could tell you. There were some things. We were a wealth management firm - financial planning, investment management within a CPA firm. There were some things that bothered me about the CPA culture. I think they've since kind of sorted that out, but at the time, we were kind of just flying by the seat of our pants. And Joe's brothers were partners in the firm, but they weren't really directly involved in it. And so, for whatever reason, what I said to Joe when I left was, "You're the best boss I could have imagined. I'm still not happy, I still kind of want to be my own boss." So it just shows you it wasn't anything he did. It was just sort of the way I'm wired. And I think it's the way Joe's wired too, because when we did all the personality assessments, we kind of came back the same on everything, on our Kolbes and on the DISCs. We were pretty similar in a lot of ways. And I think it just made sense, "Oh, Kyle wants to be Joe." They don't really need two Joes in that firm. So it just felt to me like, I want to kind of do what Joe did and do it for myself. It wasn't a rational decision by any means. It was definitely kind of an individual quirk that I had, but it was something that I followed.

Michael: So what was the launch plan? What was the transition plan to...how do you actually do this transition of, "Okay, but seriously, I've been working in Joe's firm, and have all these clients that I'm involved with, and doing all this stuff there. And now I'm going to go out on my own." Is that a cold break? Were there any clients that came with you? How did you hang your shingle? What did this transition look like when you actually make the mental decision, "Okay, I'm walking away from this"?

Kyle: It was a little bit of a mess because I wasn't planning on doing it. The sort of impetus to it was becoming a lead advisor, I now have to sign an employment agreement. I probably should have signed this employment agreement a long time ago when I first started with the firm, but I think Joe was like, "Oh, I need to get this done." And it was a very fair agreement, but it was the type of thing where if you sign it, it makes things a lot harder to leave, if you ever do leave. In hindsight, there was nothing unfair about the agreement, but it was just, "Do I really want to sign this?" And so I was not ready to leave. It was not something I was planning on doing. But it sort of put me in a place where I had to really decide, and I ultimately decided to leave. And so Joe's incredibly gracious. And he made the transition easy for me. I think about five or six clients maybe came with me. And he made it very easy for all that to happen. And it was as amicable as it could be with...I'm sure he didn't really express this, but I'm sure I hurt his feelings quite a bit in making that happen. But I think he probably saw himself in me in a lot of ways. And he would have asked himself, "How would I have wanted this to happen if I were in Kyle's shoes?" And that's how he handled it.

Michael: So when you went on your own, did any clients and revenue come with you or get to come with you? Or was this just a completely cold start for you?

Kyle: I think it was about $32,000 of revenue that came with me. And then that was five or six clients, or six or seven, something like that. Small amount of clients, but it was...if you look at the XYPN benchmarks, I essentially was starting in year two of all the people who start cold with no clients, it might take them a year to get to $30,000 revenue or so. So I, fortunately, had a little bit to start, and then I got a couple of good clients right away once I started the firm, because the clients that did come with me wanted me to succeed. And so I think they didn't like the idea of having a financial planner whose business would collapse, and so they ended up referring a couple people to me that, right away, I grew very quickly over that first 12 months, where I think the forward-looking revenue after the first 12 months was probably $200,000 or so. I don't know the exact number, but it was definitely up in that range. And so it wasn't a complete cold break. But we definitely grew pretty quickly to start.

How Kyle Was Able To Ramp Up His Practice So Quickly [26:48]

Michael: So talk to us a little bit more about that. Where did $170,000 of new revenue come from in the first year? That's a very big, fast growth number.

Kyle: The one client, he was one of my golf investors, a couple of his buddies got together and they all...they're kind of unique, they've managed their own money, they basically have run their own hedge fund for many years, and made quite a bit of money doing that. Dodd Frank had really kind of closed or it ruined their trading strategy, closed some of the inefficiencies in the market that they otherwise were able to exploit for a while. And so, right at the time that I was starting, they were winding down their business, and so they needed a lot of planning. And so I helped. And I had no clients, so I was able to help quite a bit with a lot of their planning. So one of them had a million dollars with me that became $3 million, then it became $10 million. And then they referred a couple people to me that were just in their network who were retiring. And I really love retirement transition planning, I had helped them a lot, even on some project basis, not necessarily managing money, but I was able to demonstrate to them that, "Hey, I'm not just kind of a newbie anymore. I actually know what I'm doing. And I'm saving you a lot of money here in how you're going to structure some of these withdrawals."

And so I think I was able to prove myself pretty early, and that invited a bit of referrals. So I got a client with 5 million and then another client with $6 million all in that first year. And the AUM billing rate was not...it's 50 basis points on those people is what I was charging, or I still am charging on those people. And so very good clients right away. All of a sudden, I'm making a lot more money than what I was prior, even though I just kind of started this new business and wasn't sure it was going to work out. And so that gave me a lot of confidence. And it gave me the ability to kind of double down and reinvest in the firm and continue to grow.

Michael: So I guess getting back to that earlier comment just around the non-linearity, it sounds like, at the end of the day, just one key client, one key connection ended out being sort of a super referral channel that brought a number of other large clients who brought big dollars. They, in turn, referred some people downstream from theirs. And it sounds like a big chunk of that revenue, ultimately, traces back to one key relationship that was able to drive a big chunk of growth.

Kyle: Exactly. I tell that to everybody. I say, there's no firm that grows quickly that doesn't have someone like that. At Pitzl Financial, we had some clients at Target headquarters, corporate people who were huge fans of Joe, and he did amazing work for them, and they just referred so many people to us. And you just don't grow quickly unless you have a person. There's always one or two clients who are raving fans of yours, and they're very well respected by the people around them. And so their recommendation makes it very easy for these other people, so they don't have to do the research themselves. And this one client, that's what he is for me. He's very well respected. People, they say, "Okay, if you're using this guy, one phone call, I'm hiring you," they don't need any convincing. And so I saw that at the prior firm that I was at as well.

And I think, sometimes it takes a little while to find that person. For me, we basically have two clients like that now. And if it weren't for the first one, things would have happened a lot more slowly for me, and I was very fortunate. Then from there, there hasn't been a referral from them in quite a while now. But it gave me the base that I needed to reinvest in other ways and other ways to grow. And it's worked out pretty well.

How Kyle Upped His Local Search Game To Get Found Online [30:27]

Michael: Very cool. Very cool. So I get now the dynamic that one of the big growth channels for you was kind of this personal network, friends and family, colleagues realm where a key relationship or two can quickly amplify itself. So talk to us now about the second channel, I guess, that you mentioned, which was getting clients online. I think you'd put it like 'becoming findable'. Because there should be people in my dense metropolitan area who were looking for me, so I'll just make myself findable so they can find their way to me. Which I feel like it's something a lot of advisors say. I almost feel like it's kind of the dream for a lot of advisors. Like, "I'll just hang my shingle, and then people will come find me and give me money." It usually doesn't work out that way for most people, unfortunately. So I'd love to hear more of what did you do in trying to become findable online that has actually contributed to outcomes and client growth in this journey?

Kyle: Well, it took a little while, but I used Twenty Over Ten for a website. They had an SEO package. I think, at the time, it was $1,000 or something like that, where they just give you some basic education, help you optimize your site a bit. And then you obviously have to do a bunch of work too. They can't go get backlinks for you. But I knew, "Okay, if I have regular solid content on this site, if I get positive backlinks through whether it's getting quoted in the media, or just being...if somebody is going to list my firm on their website, I'm paying for it. It's like Fee Only Network, or FPA, or whatever it is, if I'm getting no other value from any of these organizations, at least my firm is linked to from their website." Even like yellow pages, things like that. So I want as many sites that have high domain authority to link to me.

Michael: Interesting. So even just joining organizations and platforms like Fee Only Network, just to literally get the link back in their directory.

Kyle: Exactly. Yeah. You can look at your site in Google Analytics, you can see who's linking to you, who's not. If you have solid websites who link to either your blogs or your website, then Google's going to look at your website differently. One thing that we did recently... By the way, nothing I do is ever original. If I have one talent, it's that I can find the people who are doing things well and have things figured out, and I can copy them pretty well. So guys like Taylor Schulte. Taylor is just unbelievable when it comes to modern marketing techniques and whatnot. And he loves it. And I've been fortunate enough to just glean a bunch of things from Taylor. And so I listen to what these people have to say, and then I implement it and see what works and what doesn't.

One thing that was Taylor's idea was sending clients a link to rate you on Google. You obviously have to send it to every single client. There are some compliance issues with that. But if you do it in a compliant way, then anybody who interacts with you can rate you on Google. That does a lot for your firm, if you have positive ratings. But also, you invite negative ones too. And we have one negative one on there from someone who...actually, that's a whole longer story, but it was about six months of just very stressful experience, where they rated us negatively on all these different... It's someone who we decided not to work with, and they just kind of went on a mission to try to destroy us. So there's good and bad with that, too. You're taking a little bit of a risk in putting yourself out there.

But there's things like that that Google really likes. And so if someone's searching for a financial advisor near me, you're going to show up if you have a lot of those analytics.

Michael: So that was it, made a website, got backlinks, and people show up on your website with a bunch of dollars to work with you?

Kyle: Pretty much. You obviously have to have a great website with good messaging. The industry awards, and getting quoted in the media really help just in terms of establishing credibility. So that's something I also worked pretty hard on was, "Hey, I haven't even been a CFP that long. I look like I'm 12 years old. I need whatever I can to establish some sort of credibility." And then that creates the pipeline. And obviously, again, I'm in St. Paul, Minnesota, there is pretty high awareness of financial planning, I would say, in the Twin Cities. MPR, Minnesota Public Radio, talks about financial planning quite a bit. So there's a pretty high awareness here. If I were trying to replicate this, and I were in rural Minnesota, or in Timbuktu, Nebraska, it's a lot harder. It's not going to work as well, you have to have another strategy. But I located my office in a specific place that I thought would be most central to anybody who is looking for what I'm doing. So there was a lot of different things, a lot of small things, I would say, small decisions that I made to optimize all of those things. And I think they all pretty much kind of...there's a Lollapalooza effect where they all work together to create a nice pipeline.

Michael: What are they searching for that they find you?

Kyle: I want someone to find me if they just type in "financial advisor St. Paul," financial planner St. Paul," "fiduciary advisor Twin Cities," all those types of terms. I have different domains that I've purchased that will link to our site. Anybody who's searching anything related to "help me with my money," I want them to find our site. And then on the site, we obviously have sort of enough descriptors on there so that the right people are the ones booking calls with us, and we get quite a few people who may not be the exact right fit, but we'll refer them to any number of advisors that we think are a good fit, or the XY Planning Network or something like that.

Michael: So this is for you very heavily built around, just literally, like local geography-based search. This isn't necessary like you're optimizing financial planners for golfers, or something, given your golfing background. This is very geographically based, like "financial planner St. Paul" is the kind of stuff that you're trying to optimize around.

Kyle: Yeah, I think, that's only going to work for so long too. It's not going to be forever that we're going to show up on the first page of Google for those search terms. Some of the bigger firms are probably going to just squash us. I know Taylor Schulte is dealing with...he wrote about in his newsletter, he's dealing with a negative SEO campaign on his site, which people create all these random pages and have spammy backlinks to his site that he can't control. The bigger firms are going to hire people to try to squash us. And I'm not optimistic that we're always going to have the ability to show up where we show up in search. So there's going to be other avenues, I'm looking at LinkedIn right now, of different marketing strategies that hopefully we can hone by the time that happens.

So local search is definitely...the timing was very good for us. But I don't know what the future holds in that. And I do think more niche-based marketing is going to be the way forward. And our primary niches are retirees and people with stock compensation. And so I think we'll probably start doubling down on that. And fortunately, in the Twin Cities, also, we have a lot of executives, a lot of Fortune 500 companies. So there's a decent market for that. And LinkedIn might be the best avenue for us to explore that, rather than search terms for people with stock compensation through Google. So those are all the things that I'm thinking about. And I'm the one that's primarily in charge of marketing here.

Michael: I’m struck as well, to me just "financial planners St. Paul" to me, ultimately, that is a niche, just a local geography-based niche, right? You can have a niche of all the people who want retirement planning advice within 10 miles of my office. Truly, I think that's a valid niche unto itself. A lot of firms don't necessarily do much to build or optimize towards that the way I think you have ended out doing just with really optimizing around local SEO. So at least if someone really is in the St. Paul area and wants a financial planner in the St. Paul area, you actually will come up at the top of the Google search, because at the end of the day, most people won't click further than two to three down on the list. So you're at the top of that list or you're not.

And I will say even, we've seen this indirectly in some of our advisor marketing research as well, just through the Kitces platform that the number one ROI that we found for marketing strategies, just of what advisors have reported that actually worked and the revenue they got relative to the spend they put into it was SEO, primarily local SEO. Just actually being well optimized for at least if someone searches for financial advisor and the name of your town, you actually come up as a financial advisor in your town.

Kyle: Here's what I'll say about that. In the same way that I have these clients who are now passive investors, but they spent their whole career exploiting an inefficiency in the market that happened for 20 years. And then eventually that inefficiency closed. I would say right now, local SEO is sort of an inefficiency in the financial advisory space. I don't know how long it's going to last. I don't know how long we're going to be able to show up there. I do think that it's going to become way...it's harder now than it was four years ago when I started. And so the more people that are trying to do it, the more competitive it's going to become, and the harder it's going to be. So for someone who's starting down the local SEO track right now, it's probably still a good time to do it. But it's just going to be harder and harder.

Michael: Just, for better or worse, the more...there are usually more than three advisors that exist in any particular town or zip code. So yeah, at the point that "everybody" is actually paying attention to their local SEO, that space is getting crowded, consumers really still only pick on the first few. And so at a minimum, it may take a lot more to get to the top of those rankings, to stay at the top of those rankings in the future just as competition for local search heats up a little bit more. But I suspect that will be quite regionally varying for a long time, or just some advisors happen to be in towns and areas that either don't have a lot of competition or just don't have a lot of competition that understands the internet. And the opportunities there, and maybe untapped. In other towns, you may find there's already a bunch of advisors that have done this and really heavily optimized, and it's going to be hard to break into the rankings with them.

Kyle: Exactly.

Michael: So one channel for this is personal network. One channel for this is building around local SEO. And then the third that you've said is content marketing, which it sounds like is the one you're envisioning more focus on in the future. Friends and family have been good but a little bit more passive, it finds you, local SEO has worked well but may or may not sustain the same way in the future. I think you had said, focusing more into executives, the stock options is more likely where you double down from marketing going forward. So talk to us more about just that strategy, that approach.

Kyle: So it's tough. I do think that content marketing is a great way to go, that the more focused your niches, the better. Like Adam Cmejla, he started out working with white coats that basically spanned from dentists, optometrists to doctors. Now he's niched down to optometrists, and not only optometrists, but those who are going through a private equity acquisition. So the more focused you can be, I think the better with content marketing, and so it's something we're trying to figure out. I obviously put in the work of writing the blog post, but I got a little lucky in terms of what that created for us. But it opened up my eyes to the possibilities of what you can do with establishing some sort of credibility in a specific area, publicly.

How Kyle’s Growth Path Played Out [42:09]

Michael: So talk to us overall about just how this growth path has come together in practice. You started with a little bit of revenue in breaking away from Joe and hang your own shingle, as you said, you at least kind of got to start as though you're in year two, instead of year one. You got a big initial jump in the first year because of some of the personal connections network and having one or two folks kind of turn into super refers that drove a lot of activity. How did these channels play out over the subsequent couple years, though? When did the growth come and where was the growth coming from?

Kyle: To start was that a lot of it was personal network, and then local search. And the first year was gangbusters. I really grew a lot in that first year. So 2017, and then the beginning of 2018, pretty heavy growth in both of those areas. And then at the end of 2018, I hired a client service associate to kind of support me with all the administrative type stuff. And all sudden hired this person, it was I think a $50,000 salary or so, but all sudden stopped growing. And it was trying to figure, "I just hired this person." And when you start out too, as a business owner, you get to a point like, "Oh, man, revenue minus expenses, there's $200 grand there. Now I'm making $200,000, I can't believe it." But then you got to hire somebody. And then all in, you need bigger office space, you need to buy a computer, you need to buy a desk, you need to buy everything. And then on top of that, you have to pay this person, and you have to provide benefits and whatnot too, or at least I did. And so now all of a sudden, it's like, "Oh, I'm not making $200,000, I'm making $115,000."

Michael: I was going to say, where was your revenue when you decided to make the first hire? Because that's the hardest hire for basically anyone and everyone. It's when your income takes the biggest step back and your headcount goes up by 100% because you go from 1 to 2. So what was the threshold for you when you actually decided to pull the trigger on that?

Kyle: If you remember, at the end of 2018, we had about a 20% decline in the markets. And so I think before I hired her, forward-looking revenue was about $300,000. But my expenses are always much higher than I think the average kind of XY Planning Network member is, just because I have had a pretty nice office, wanted to look very presentable and have credibility and whatnot. And so I probably spent a lot more money than most people do in order to do that. But then the markets went down by 20%, our total firm portfolio, if you look at the asset allocation, it's pretty aggressive, it's 80% stock. So I felt that pretty hardcore there right after hiring her.

And then we started growing a bit more again in 2019. But that hire wasn't working out for me. There were some trust issues there, making mistakes, and then covering it up and whatnot. And ultimately, nine months later... That's an awful thing too. You go from, here, I'm an associate planner, then I start my own firm without having been a lead advisor before and now all of a sudden, I got to hire somebody and I'm a manager, and I have to tell this person that they no longer have a job with me. I used to sleep great. I used to have full nights of sleep, never had trouble sleeping. But then becoming a business owner, now there's all these reasons to just have my mind spinning when my head hits the pillow. And that was one of them, having to having to let her go was super hard for me. But I knew it had to happen.

But then fortunately, shortly after that, I hired Shelley. She was introduced to me by somebody else, and she's a financial planner. She had her CFP back in the '90s but then she stayed home with her daughters for a while, and then she got it back right as she joined me. And right after Shelley joined me, we had the pandemic also. And so 2020 was very slow as well. Revenue went way down, obviously. And then nobody was asking to work with us, there was no new client inquiries, hardly at all in 2020. So here we go, the pandemic happens, all of a sudden I'm not drawing any income out of the business for that whole quarter in the summertime from June to October, just because we got to make sure everything is okay. So we were living off of a home equity line for a little bit.

Michael: Ouch. That at a point where you’re already 3 plus years in, and $50 plus million into the business and still eating that level of a pullback.

Kyle: Yes. Exactly. I wanted to make sure there was some money in the business. I had made the mistake early on of just pulling out too much money, and not leaving enough in there. And so for a while, just because of the way hiring worked out, and some of those dips in revenue, even though I was taking on some clients, revenue was not going up. And we were experiencing some declines. And then every quarter, it seemed like I didn't have any money left in the business. And so from there on, I decided, "Okay, we're going to..." Shelley was undercompensated, so I had to get her paid what she deserved. But fortunately, at the end of 2020, really around September, October, it was just like the floodgates open.

And all of a sudden, everybody who was either dissatisfied with their advisor through the pandemic, or doing things themselves and really realizing, "Hey, we really need some help." Just tons of inquiries. We started taking on people, and then it just doesn't relent. So we took on 25 new clients in a 6-month period from October to March. And then all of a sudden, the markets are recovering, and then some. And lo and behold, boom, we hit $100 million. It happened very quickly and suddenly, just the combination of the markets' growth and all of these new clients that we were taking aboard.

Michael: Where did business start coming from when the floodgates reopen? Was this referrals started getting underway, your blog post started firing up, just did local SEO suddenly start catching fire and everyone was searching for "financial planner St. Paul" again?

Kyle: Honestly, it was all three, and it's still all three. We have a waitlist now. Bjorn is basically handling all new client inquiries at this point, because Shelley and I just have so many new people that it's hard for us to really give everybody the attention they deserve. We want to make sure we don't sacrifice on that. But existing clients are referring people. It was high IPO season. So all these people that are finding us through our blog are reaching out and, boom, they've got $3 million of ISOs that they need to figure out what to do with. And then local search as well. That's been huge. So it's really been all three that have got us to where we are right now.

Michael: So what do you attribute to just the near zero slowdown, and then the sudden explosive turnaround? What happened? Why did it swing so much?

Kyle: I think it was the pandemic, honestly. I don't know. Obviously, when things are unstable, people don't want to make decisions with their money. They kind of just get into protective mode and sit there and wait things out to see how things are going to play out. So we had very few people reach out to us in the midst of scary parts of the pandemic. But I think that was a triggering event for a lot of people to say, "Okay, either our advisor is giving us terrible advice," or, "Hey, I really don't want to be the one responsible for this for our family, the numbers are getting too big." And so we've had a number of people like that that have never worked with an advisor before and all of a sudden realize, "Hey, we really need some help here."

How Kyle Knew When It Was Time To Hire Help [49:58]

Michael: I'm wondering again, just as you hit these waypoints along in the journey, what was the threshold when you decided, "I got to actually hire an administrative associate and make a $50,000 hire"? Was that a revenue threshold? A number of clients of just, "Oh my gosh, I'm working too many hours"? What got you to the point of saying, "I'm ready to make this investment"?

Kyle: For me, at the prior firm, I spent a lot of time doing the administrative work. And I got pretty good at it in some ways. I'm not detail-oriented enough to not make mistakes in there. But I did it enough, I knew how to do it, but I didn't want to do it. And I didn't want to have to do that here as well. It was just taking time away from the higher revenue, higher-value activities that I should have been doing. So I think it wasn't really a revenue number, it was more, "Hey, how much time does this all take, and I want to get this off my plate." I think some people decide not to hire and just kind of stay, they want to do everything for a smaller amount of clients. I would rather only do the things that I like to do.

And so that was sort of always a goal of mine. That's why I wanted to have a team of three, that was sort of my intermediate goal was 100 clients, $100 million under management, team of 3 where I'm the lead, I have an associate who does a lot of the prep and follow up, and a lot of client service, administrative person who does all the paperwork and other client service type things. And I'm doing strategy mainly, strategy when it comes to financial planning and investing. And so that's kind of what I always envisioned my role to be. And I needed to hire people to do that, I needed to get those things off my plate once those things were becoming too burdensome for me.

Michael: And do you recall just where was, I guess, either client count or revenue at that point, just how big of a financial hit was it for you when you got to the point of saying, "I'm going to pull the trigger on this"?

Kyle: I don't remember exactly. But it was maybe $250,000 in revenue or somewhere around there. But I remember I was working with Arlene Moss at the time, who's the coach through XY Planning Network. And I remember saying to her, "What if I hire this person and I stop growing?" And she just kind of quipped back to me, "Well, what if you don't hire this person, and you keep growing?" And so that was the dilemma. And I kind of had kept our lifestyle in a way that it didn't feel like a huge financial hit, because that money wasn't really mine yet, you know? I guess the forward-looking numbers were lower than what I had thought they would be. But it wasn't really like I had to take a financial hit myself. You know what I mean?

Michael: Not sure I follow. How so?

Kyle: Let's say the forward-looking numbers were $200,000 would be my share of revenue minus expenses. I might have looked at that number and be like, "Oh, man, that'll be so great." But then also realizing I need to hire. Now it ended up being a much lower number because I was hiring this person. It wasn't like I was living off $200,000 and then all sudden, I had to take a huge step back.

Michael: Okay, because you're still in growth mode. So you can get like, "Last year, I made $150,000. This year I'm growing so much, I could be up to $250,000. But I haven't gotten the $250,000 yet, because I haven't actually lived it. I'm just doing my forward projections. So if I do my forward projections, and I am reinvesting and hire more staff. And instead of clearing $250,000, I'll get $175,000 or $200,000 after these expenses. It's still more than I made last year. I'll still be equal or higher because I'm growing enough to cover this. I won't be up as much, but I don't actually go backwards at this point."

Kyle: Exactly. Yeah, I think what people who don't run a firm maybe don't understand is what shows up on your tax return is not your actual income. My biggest tax return year, I started the firm in 2017, so very low taxable income that year. 2018 was my highest taxable income year. 2019 into 2020 were both fairly lower than that 2018 year. 2021, it might be a bit higher this year. But we've pretty much held constant with our...we did buy a bigger house, but other than that, we've pretty much been spending the same amount of money. But moving forward, it should be higher.

Michael: But it's not growing as much just because you're in that phase where every time you grow and add revenue, you have to hire a team in order to support it, which means they end gobbling up most of the revenue growth.

Kyle: Exactly. Yep, exactly. But I knew I had to do that, because I wanted to grow to a certain point. So you have to sacrifice income to grow, if you want to grow your team. You can't just pull everything out. The new clients and new revenue that comes in is going to get allocated towards somebody's salary or some. Right now, Bjorn and I, we're looking at new office space, that's going to be pretty expensive. Then we have to furnish that office space, that's going to be very expensive. There's a lot of other things, as you grow, that you have to pay for. It's not cut and dry between just revenue minus expenses anymore.

Michael: And so do you ever get to a point of just saying, "I'm doing a lot of growth and work for my income, and not actually go up? Why do I keep doing this?"

Kyle: That's exactly where we're at right now. I would say, with Bjorn joining me, we're kind of in that small giant phase that you talked about in one of your posts. I forget when you wrote that. But we don't have a ton of households. We've got very high revenue per household, and we're going to be very profitable moving forward. With our team of 5, we probably can handle another 50 households, I think, with our service model. So do we keep hiring and reinvest that profit in growing the firm? And obviously, the profit margin on any subsequent clients with new advisor teams is going to be lower than what it is right now, where we're actually the people servicing and leading the relationships. So we're in kind of a quandary where we're not going to probably make any more money than what we're going to be making moving forward. But do we want to hire more people to provide career tracks and build the enterprise value of our firm?

Why Kyle Decided To Take On A Partner [56:06]

Michael: So then talk to us a little bit more about where Bjorn, your new partner, comes into this equation. It sounds like you were already on a good growth path for what you were doing. You were doing some of the hiring, you were adding the capacity that you needed. So just where did the decision to partner come from? How did this come about?

Kyle: Bjorn and I had been in a mastermind group of St. Paul Financial Planners basically since I moved here. I think 2014 maybe is when we started that. And so we'd known each other for a long time. We lived down the street from each other. He was working at Ameriprise at the time, and then he moved to RBC. And we just became good friends and became kind of unofficial partners, I would say. Here I was on my own. I think there was some grass is greener type thing watching me do what I was doing for him. But he would be my first call when I had an issue that I was dealing with, or I needed some advice and vice versa. So we sort of had this unofficial partnership, we saw things the same way, we invest the same way, same investment philosophy, same financial planning philosophy, we're reading all the same things, and just kind of running parallel practices.

And eventually, he called me and just said, "Kyle, I'm going to leave, I'm going to go independent. And I can start my RIA right down the street from you, do the exact same thing as you, and just kind of run parallel still. But I want you to consider partnering with me, I want you to consider what it might look like if I leave and join you." And honestly, it was a little bit like, "Uh," I didn't want to tell him no, even though my first initial thought was no, because I just felt like I got a good thing going. I needed to be convinced to this. I wasn't looking for a partner. But over a lot of our talks... For me, if there was a person that I would partner with, it was going to be Bjorn. He's someone I completely trust, I think very highly of him. I knew him very well. There's going to be no surprises. And on top of that, we have the same exact philosophy on how everything works.

But still, this is my baby, and I'd have to relinquish some control. And I had to really think about whether we were going to be better together or apart. So I kind of had some stipulations, "We need to figure out what you're good at, what you like to do, and what I'm good at and what I like to do. And if there's any overlap there, then it might not work. You have to be good at things that I'm not good at, and you have to like to do those things also." And it was over the course of about a year and a half that we just had all these conversations every single week. So even if you agree on everything, there's still so many things to work through. But it became I got more and more excited about it. And it was sharing some of these responsibilities with somebody, but also not just anybody but someone who I really trust and someone who is very skilled in ways that I wasn't and I'm not, and likes to do things that I don't like to do. And so it became a no brainer, really.

Michael: I'm struck by the way that you...just the way that you framed that, that it was, "Let's make the list of all the things that you're good at and make the list of all the things that I'm good at. And ideally, we want these lists to not overlap, to be separate and distinct."

Kyle: Exactly.

Michael: Because I think there's a tendency for a lot of us, even and perhaps especially when we're thinking about partnering of just like finding someone else who's just like us and kind of mirrors us and can amplify us. But to me, you're sort of highlighting the opposite. It's an opposites attract kind of formula, it's not, "Who can extend and do more of what I'm doing," it's, "Who's the opposite and can do all the other things that I don't want to do, which usually means I do things that they don't want to do." And that's a great complementary fit.

Kyle: Exactly. Otherwise, we were going to be in these situations where neither of us wanted to do the thing that needs to get done. And you get burned out doing things that you don't want to do. You kind of have to like to do what you're going to do every day in order to not get burned out. And so for me, I love the marketing side, I love writing and client communication and things like that. So even, recently, Bjorn got a tough email from somebody who was maybe not convinced of coming. He wrote out an email and gave me the draft, I rewrote it. And he was so great. He was like, "Oh, my gosh, your email was just so much better than mine. I didn't change a thing, I just sent it right to him." And then there's things on my side where it's, we use Orion and Eclipse for rebalancing, and I can get it to 80%. But I just cannot...I'll fall asleep trying to get it to 100%, to do all the things we want it to do. Whereas he just dives right in, and he's got all these suggestions right away, and it's just a huge relief for me that he's skilled in that way. And he can take all that stuff off my plate, all these things in our firm that were really subpar. And clients wouldn't know it, but internally, I just didn't feel great about them. But he's able to come in and right away make everything right.

Michael: So just how do you get comfortable with...you've done all this stuff as the sole driver for so long. And now suddenly, you have to share in all these decisions?

Kyle: There is some challenge to it. I think I've had somewhat of a healthy detachment from some of these things. If he comes in and he says, "Hey, the way you're doing this sucks, you got to do this differently." I'm able to really listen and try to understand. And in most cases, he's right. And in other cases, I might fight back a little bit, just because I do think the way I've been doing it is better. And not because I'm tied to it just because it's the way I like to do it. We really value excellence, and we want to do things the best possible way. So I think because we have that shared value, both of us have pretty thick skin when it comes to disagreeing with each other, or just kind of hashing it out. So we'll kind of just banter for a bit about things, and neither of us are offended. And neither of us take things personally, it's just we're both trying to do the best thing. If I had less respect for him, it would be different, but I respect his opinion 100% and I think that all the changes that we have made when he's come over have been for the benefit. But in some level there is some challenge there where it's now all of a sudden, I have to get used to the fact that I'm sharing decisions with somebody, and I can't just do whatever I want anymore. So there's some challenges to that. But it's all been positives in my mind, it really hasn't been an issue at all.

Michael: So just what was it at the end of the day that led you to decide to say, "I'm going to pull the trigger, I think I actually do want to be a partnership now, just have a partner and be a two-owner business instead of a one-owner business"?

Kyle: I played golf competitively for a long time, which is an individual sport. But I also played a lot of team sports growing up. And what I found about myself was that I loved the individual aspects of golf. But I had the most fun when I was on a team. And I played on the college golf team, high school golf team, I just loved the team aspect of that as well. And golf is kind of unique where you had both of those things. So one thing Bjorn said that was...I was pushing back on him in some of early talks, I said, "Hey, I think you probably can make more money just kind of starting your own RIA. And going straight over from RBC, why do you want to do this?" And he said, "I just think it'll be a lot more fun, I think it'll be a lot more fun to be together than to be by myself." And I agree with that, it is a lot more... There's been a lot of challenges that we've had to face in him coming over and joining us. But it's been a lot of fun. It's really nice to just have someone to share in those duties with rather than kind of being all on your shoulders.

Michael: I know there is just kind of a loneliness aspect for being an advisory firm founder, being an owner in general. One of the most striking things, we did a study on advisor well-being late last year. And one of the things that we found was that advisors leading teams report greater loneliness than advisors who are solo.

Kyle: Absolutely, I can see that.

Michael: Which is kind of a striking thing, right? The classic definition of loneliness is not having anyone else around. So you would expect the advisors who have teams feel less lonely, because they have teams, but there's this isolating effect that comes from being the business owner, having all the decisions on your shoulders. The teams are teams of people that you manage, which means you have to manage them, which creates a certain level of distance that there's...particularly when you've got a team, many or most of your challenges in your business relate to managing people and managing teams, which means the one people you can't talk to about it are the teammates, because they may be the problem, or the challenge that you're facing, which means you end up with no one to talk to.

And so we saw this phenomenon, the loneliest advisors are the ones that are managing teams. And the way around that is either you partner so you actually have another person at that owner level that you can have those conversations with and break the loneliness, or you find a study group, a mastermind group, or join an organization, join a membership association, a FPA or a NAPFA kind of group just to find that community. We see that even within XYPN people form their own study groups within the organization, just trying to stem a little bit of that loneliness. And I think some do both, they take on partners, and they join study groups.

Kyle: Exactly. Yeah, I could totally see that. It was just myself and Shelley before Bjorn joined us, and we hired two more people, so I didn't have a big team before that, but I could definitely see the dynamics at play. You think about in "The Office," the show, Michael Scott, he was always trying to be one of the team members, but he was the boss of the office and never really could get included. There is a dynamic there, it creates some sort of isolation.

The Biggest Challenge That Kyle Faced When Bringing On A Partner [1:06:55]

Michael: So what was the biggest challenge for you then in going through the merger? We painted this lovely picture. We were so wonderfully aligned on everything that we had conversations and came together. I'm sure there are still speed bumps that come up along the way. So what were the biggest challenges in figuring this out and making it work?

Kyle: Oh, gosh. At first, I guess before the launch, we had to get on the same page about how we were going to get...how ownership was going to be distributed. And when we first started talking about these things, my practice was smaller than Bjorn's. And then we basically doubled in size over this past year. And Bjorn grew too, but now, all of a sudden, it would have been me paying Bjorn money to get to equal partnership, and now it's him writing me a check. And it was kind of funny, I was doing some valuation stuff. I was kind of valuing my practice at a higher multiple than his because it's already an RIA. So instead of using 2 times revenue, I would say 2.25x. And Bjorn was at 2 times revenue. Even if you just increase the multiple slightly like that, you get some pretty drastic differences and numbers. So we had a call with FP Transitions, and I said, "Hey, let's just have a call with these people and see what they say," thinking that they probably were going to support my point of view and do a valuation for us. They were really nice, but they basically said, "Hey, you guys just need to go get a beer and hash this out yourselves. Kyle, the way you're thinking about this is wrong. Bjorn, you're right." And after the call, I just texted Bjorn, and I said, "I bet you loved that call. Didn't you?

Michael: But what changed? What were they saying that you were thinking wrong about it? Because, classically, RIAs got some higher valuations than firms at broker-dealers that have been out there for a while, that's not exactly a new thing. So what were they telling you you weren't thinking about right that you needed to rethink?

Kyle: He basically said, "You don't have any enterprise value right now, you're just one advisor. If you're going to come in and get purchased by a bigger firm, they're just paying you for the revenue. They're not paying for your brand or anything like that. And so your revenue basically should be valued at the same multiple as Bjorn's. But you did start an RIA, and you have a bunch of expenses that went into that. And so basically, you got to figure out what's the...put a number on some of the goodwill and put a number on what it took you to start the RIA, and then just have a number, and then value the practice as the same multiple." And so that's what we ended up doing, we just came up with a number that we both felt good about. But for me, there's definitely the endowment effect that I was being captive to.

Michael: "But I made my baby, so it has to be more valuable."

Kyle: Exactly, exactly. And I think I had some argument. The pipeline that I've been able to build through those three marketing channels we talked about, is pretty good. That's worth something, but how do you value that? And again, I would have to hire another advisor to really tap that. And if I were more intent on just maximizing my business worth, I would have hired another lead advisor, and I would just take the profit on those clients, rather than bringing on another partner, and sharing the equity. And it kind of came up with something that we both felt good about. And it'll be kind of a five-year payout type of situation based on what the values are at the end of September.

Michael: So this valuation at the end ended up being a multiple of revenue, which you guys use the same valuation, but then you had just a separate kicker value on the firm on your end for the dollars you'd put into building some of what you built already?

Kyle: Yeah, so we use two times revenue for the revenue differential between our respective practices, and then just $100,000 as a number for, "Here's what Kyle did, and here's what I'm going to pay you for that."

Michael: Kind of just like the payment for buying into the additional layer of infrastructure that you did build, because you build independently as an RIA, which means you actually did have to create some of that infrastructure.

Kyle: Exactly. Yeah.

Michael: So I'm struck as well, just you're talking about this in terms of revenue differential. So it sounds like the path or the end goal was you wanted to treat each other as 50/50 partners, but you weren't bringing books that were 50:50 equal size. So basically whoever has the smaller firm is paying the larger firm to equalize the two so that you can be 50/50 going forward, even though you weren't 50/50 coming in?

Kyle: Exactly. Yeah, I think we had kicked around a lot of different things about how to structure that. I was intent on I want to view this as a firm, not as individual siloed practices. And I think that was something Bjorn had to maybe adapt to a little bit in terms of how he was thinking about things because he comes from more of the broker-dealer type world. And so, we had to come up with valuations and wanted to get to 50/50, that was kind of a goal. I said to him, "I'm not a details person. I don't want to think about expenses, who's paying for what and who's splitting what. This needs to be a partnership and it needs to be something that we're not haggling over things like that, and with unequal representation and ownership." And so the easiest way to do it, and maybe somebody else might have done it differently, but the easiest way to do is just try to get to 50/50. And if we grow and continue to grow, we'll have the ability to add other partners and whatnot as well. But yeah, that's the way we decided to do it. And not to say it is the right way.

Michael: Interesting. So where does it go from here?

Kyle: We're in a really good spot, and we have a lot of decisions to make. And it all comes back to how big are we going to grow? Looking for office space. How much space do we need? We need to sign at least a five-year lease. So we need to look out for five years. If we want to provide career tracks for the people who are with us right now, is Shelley going to move into more of a lead role? Or do we need to hire a lead advisor if we keep growing? We have all these decisions we have to make, and we're not super clear yet on what we want to do. And so we're still taking on new clients. Bjorn's primarily the lead advisor on those clients. But we're really trying to figure that out. Fortunately, we've both managed the business very well, to the point where we have a lot of profit that we can reinvest, or moving forward, we will. And then that might entail hiring, and then we got to figure out who that's going to be. And then we got to figure out marketing strategies to continue to grow, and then provide career tracks for people.

I remember, at the XYPN Accelerate, I don't know if you remember that, Michael, I think it was 2018 or 2019, you guys talked about even at XYPN if you didn't keep growing, people were going to leave. If there's no opportunities for people, then they're going to leave. And in order to provide opportunities, the business has to grow.

Michael: Yeah, that's one of the crossroads that you get to just once you decide to grow a firm beyond yourself, and you start bringing other people on. There are a lot of firms out there that grow to a really nice revenue level and a really nice income level, and just kind of hang out there, like, "I make good money, I don't really need to complicate my life anymore and create a bunch of turmoil and change. I'm good here, enjoy how I spend my time, taking good dollars out, I'll be able to retire. I'm going to go focus some of my energies in other parts of my life, kids, or hobbies, or family or whatever else." But once you start taking on team members who have their own goals and career aspirations, they need a place to move up, and there's no place to move up if you're not growing, so they're only going to move out. And if you want to hold on to them, yeah, you get to a point where your only choice is you have to keep growing. It's why I've always said that that capacity crossroads where you hit your capacity enough to decide if you're going to grow the firm on yourself is so important, because it really sucks if you accidentally get on that treadmill and didn't realize you were doing it and didn't mean to.

Kyle: Exactly. I want to be intentional. And we are at a scary crossroads, because we love... Our team of five is just unbelievable, we have a really awesome team right now. Every person, I want to be able to provide them the career track that they want. And we can at this point. We're profitable enough that even if we don't grow, we can provide everybody a career track that they want to be on. The issue is moving forward. It's if we want to continue to grow, then that means additional hires, and it means additional responsibility for us. And it is scary, because you're basically signing up for something that it's a train that you can't really easily stop, you got to keep on moving that train if you're going to continue to grow. Otherwise, you're going to hire wonderful people who just, "Hey, there's not much room for me here. I'm going to go somewhere else."

What Surprised Kyle The Most About Growing His Business And The Low Point On His Journey [1:15:09]

Michael: So what surprised you the most about building your own advisory firm?

Kyle: I remember getting a beer with Joe after having...maybe about a year and a half into it. And I just told him, I was like, "I'm so sorry." I just said I'm sorry. "I didn't realize all the things you were going through. I didn't realize all the decisions you had to make and what it was like to even have an employee who you were responsible for and had to develop and train and provide income to, a salary to." And so there's just a lot of those responsibilities. I think you don't realize what it feels like until you're on the other side. It's sort of like having kids or getting married, you don't realize what it's like until you actually do it. So the hard thing, I think you captured it really well in your...what was it? The wellness survey that you did, what was that called?

Michael: Advisor wellbeing.

Kyle: Wellbeing, yeah. I think you hit the nail on the head a lot with the advisory, or the independent firm owners. There's just so many things. You've got compliance, you've got software, and everything's changing all the time, there's never a steady state, you're always changing something, there's always something that doesn't work very well, that you need to work through, but there's no great options. Whether it's a CRM or a rebalancing software. And if you care about efficiency, there's always going to be things that bother you. And then, HR stuff, too. It's coming up with a career path, and objective points for people to meet, and tying income to that. And it's something that people who join you are not going to join you, unless they feel like there's a vision there, and they can see that path moving forward. So it's sort of never ending. There's no shortage of things to do, you have to get really used to tasks being left undone. It's not like you shut your laptop at the end of the day, and you've done all your work that you needed to do. There's always something to do, you just kind of have to get used to that.

Michael: So what was the low point for you on the journey then?

Kyle: Probably March of 2020. I care about investment philosophy a lot. I'm the type of person... I've heard before that a financial planning meeting goes well if you never talk about investments. And I think that's hogwash, I think you have to talk about investments every time you meet with a client, even if you only use a one fund portfolio, you have to talk about investments, because you have to reaffirm to the client why their strategy is best for them, and why it makes sense and aligns with their goals, and why it's the most prudent thing, and it's going to give them the best outcome. So you have to do that every time. We did a good job with that. So that wasn't the issue.

It was more, I just hired Shelley about six months prior or four months prior. She was getting paid less than what she should have been paid, or could have been paid elsewhere. And then revenue just takes this big dip. We had kind of the one-year target for what she would be paid at the end of the first year. And I think she was kind of dejected about that, knowing that revenue was not going to hit our benchmarks that we had set. I was dejected because all sudden, I was taking no money out of the business. And there were no new clients coming aboard. 2020, just from a business standpoint, was a challenge. It's like, "I would have done this differently, I would have done that differently." And you don't see the end of the tunnel, it's easy to get kind of pessimistic, and be like, "Oh, my gosh, are we ever going to grow again? Do these marketing channels even work anymore?"

You're always second-guessing yourself. And it was a lot of sleepless nights. And Shelley even said to me, she's like, "Oh, well, you don't have to pay me right now if you don't..." And I was like, "No, of course I'm going to pay you. I'm the one that has to take the hit." But that just shows you the type of person she is. But it was hard. There was a lot of stuff like that. And on top of all the business challenges, you have to be there for your clients, and you have to be proactive, and you have to be that rock for them while you're also dealing with all the challenges that come with the business.

Michael: And so what would you have done differently? You said there were all these things that you were second-guessing and wish maybe you had done differently. Are there actually things you would have done differently now looking back at what happened in 2020?

Kyle: Not in hindsight, no, hindsight is 20/20. I would have told myself, "Hey, buck it up, you're going to double in size over the next 12 months, don't worry about it." Obviously. That's the way things turned out. I didn't know that at the time it was going to happen. But at the time, it was... My plan when I let go of my first CSA, my plan was...I hadn't grown as much as I thought I would after hiring her. My plan was to build up a nice cash reserve, really just focus on the current clients I had, and do the work myself, just kind of work a little bit more myself and not hire someone immediately. It turned out I got introduced to Shelley who is just a phenomenal person and who was the type of person that you just hire. Whatever you do, you make it work.

And so at the time, obviously, I'm like, "Oh, man, the timing was so bad with that." But you got to take it on the chin to get the right people. And I absolutely have no regrets about that. But I'm not going to lie, at that time it was like, "Man, would have been nice to just kind of be by myself and have build up some cash so that things don't feel so on the brink," but I was just being a little hard on myself, I think.

What Kyle Knows Now That He Wishes He “Knew Then” And The Advice He’d Give To Newer Advisors [1:20:25]

Michael: So, anything else now that you would go back and tell you from a couple of years ago when you were launching? What do you know now you wish you could communicate back to yourself when you were making the decision to split off from Joe and hang your own shingle?

Kyle: Obviously, when you start out, you take on a lot of clients that you shouldn't, you have a scarcity mindset, you take on anybody with a pulse. I probably would have niched down a little earlier. I'd have been more selective about who I was going to work with, because we have a great business now. But if you want to really run the business well, you have to have a certain type of client, they can't be too different from each other. Otherwise, you're just dealing with all these different planning areas that you can't possibly have expertise in on all of them. So I would have been a little bit more focused on who I was going to work with. But other than that, everything's worked out so well, way, way better than I would have ever expected. So I think, maybe being a little bit easier on myself and having a little bit lower expectations would have served me well, just in terms of my own well-being at that time. But I couldn't be happier. I couldn't be happier with how things have turned out. It's been way better than I ever could have imagined.

Michael: I am struck by that comment of just if you want your advisory firm to run efficiently, you need clients who aren't too different from each other. There's so much discussion these days about how hard it is to scale advisory firms, because of the breadth of service work that we have to do for clients. And I'm just struck. A lot of the challenges we have in scaling up advice firms, it's not because clients have such a breadth of demands, it's because we choose to take on clients who have such a breadth of demands. And that's a decision or an outcome of the decision to not get clear on our ideal clients, or a niche, or a focus, or specialization, or whatever it is, just the firms that I see that have some of the best efficiencies have what I call very repeatable expertise. They got awesome at a thing. And they just tracked clients who want that thing, which means they get a premium rate. And it doesn't actually take as much time to do because it's their expertise. So they don't have to look up and research a whole bunch of stuff.

Kyle: Exactly. You can't be an expert on everything. I think we've done it reasonably well. There's obviously things we would have done differently with some clients that we've taken on. But at this point, I'm very comfortable when somebody comes to us, and it's an area that I'm just not that specialized in. I easily will refer people to...we refer a lot of people to other advisors, and I wish I would have done that a bit more earlier. But I still think now a lot of our clients are similar to each other. We've done fee raises, we've parted ways with some clients. I've probably been more ruthless than other advisors have been, or other advisors are comfortable being just to get the business in a good place. But it's all very challenging stuff, and you got to really talk yourself into it and have some accountability, because otherwise you just will take the easy road, and you'll have a business that's kind of a mess.

Michael: I was going to say, how do you get yourself to doing that. It's one thing to say, "I'm going to refer out more prospects and raise my fees and make all these changes," we can certainly make the case about why they're good on paper, that's totally different than actually seeing client you've been working for a long time and telling them you're raising their fees significantly, and that they may no longer be a fit for the firm. So how do you actually get over the hump to do that?

Kyle: I did the Limitless Advisor program a few years ago. And that was really helpful in just kind of gaining the confidence to, one, be able to communicate those things that are the right thing for the business. It may feel like just a tough thing to do. But you got other advisors around you who are doing all the same things and making these drastic changes in their business so that they can live the life they want, but also have the service model that their clients deserve.

I was fortunate to go through the program kind of as a more of a nascent firm. There's other people there where it's like, "Hey, they've been doing this for 30 years, and it's kind of a mess." A CPA refers them a $30,000 SEP contribution person, and they've got that on the books. And that's it for this client. And they've got 400 of those. I was able to kind of avoid some of those compounding errors in terms of running the business by getting into some coaching programs early, and kind of doing things the right way and correcting errors relatively quickly. So, having that accountability, I think, super important, but also having templates, templates for people who've done this before. What's the messaging? How do you communicate that? Those are very valuable.

I think the Limitless Program was $12 grand at the time. I did a fee raise that year that more than covered that. I had some clients that I undercharged. I was desperate for their business, and I gave them a discount. And later, I had this conversation with him saying, "Hey, I gave you a discount, I shouldn't have done that. I got employees, I got to..." It made it very easy to do it, too, after the pandemic when I needed to pay Shelley more, and I was staring down the barrel of this decision that I made a while ago that was not optimal. And if I just corrected that, it would take care of some of that, take care of getting her some more income. So it becomes easier when you can tie it to things like that.

Michael: So what advice would you give younger or newer advisors looking to come into the industry and start a firm today?

Kyle: Starting a firm... On some of the XY forums, the Facebook group actually, so a lot of people who are not a part of the network yet, they ask, "How do you know if you should start a firm?" And most people, I would say don't do it. Most people, if you can find a good work situation like I had, then that's really valuable. I'm just kind of a psycho when it comes to jumping ship from something like that. But a lot of people start their own firms because they can't find a situation like that. And so they kind of make that decision because wherever they want to live, there's not really a firm that does that type of thing. And it's a challenge, it's not easy to do it, and you have to be willing to wear a bunch of hats, you have to be willing to develop yourself in areas that you're very weakened that you need to grow the business.

Michael: And so for the people who actually do want that because they don't want to suffer down the dark wilderness road of launching your firm, as you did, how do you find those jobs?

Kyle: It's tough. There's always good firms hiring, I think, on the FPA career board or a CFP career board. I think NAPFA has one. So there's a lot of firms that are hiring and growing. It's not always easy to find them though, unfortunately. I wish our profession had a lot better opportunities for people looking to get in, but it seems that people have to sort of snake their way into finding it. And I had to do that myself. And maybe it's gotten a little bit better now. But I think like New Planner Recruiting is great. I always refer people to New Planner Recruiting, who want to get into the profession. So, fortunately, we do have things like that now, but we're still a pretty young profession, I would say.

What Success Means To Kyle [1:27:35]

Michael: So as we wrap up, this is a podcast about success, and just one of the themes that always comes up is the word success means very different things to different people. So you've got this firm on a wonderful path to success, you're crossing...well, you were crossing $100 million in less than 5 years, and now even higher and faster with the merger. So the business is certainly in a good place by any objective standard. But how do you define success for yourself at this point?

Kyle: I said in that tweetstorm about just some of the joys of being a CFP at the very end, it's such a rewarding profession, where you can make a really good income, you can have autonomy, you're doing incredibly meaningful work for people that you care about. From a job standpoint, any other achievement that I have would be helping other people kind of be successful in their own right, career-wise, in terms of people we hire, helping them become successful, and maybe even ultimately, partners in our firm. But family-wise, gosh, it's all about relationships. So even the partnership that I'm in, we get along well, it feels good to have a partner that I get along well with and that we enjoy each other. Having a solid marriage, being there for your kids, not spending a ton of time away from them is important to me. And so I feel like I'm in such a good place. I'm so thankful and grateful for everybody that's kind of helped me get to where I am now. I feel like, in a lot of ways of, I have all I need at this point.

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