#FASuccess Ep 137: The Evolution Of How Financial Advisors Solve Client Problems Across Industry Channels, with Lou Tranquilli

What You’ll Learn In This Podcast Episode

Resources Featured In This Episode:

• Louis Tranquilli
• Tranquilli Financial Advisor
• Redtail CRM
• CopyTalk
• Riskalyze
• Trust Company of America
• RightCapital
• Delegated Planning
• Financial Services Outsourcing Solutions (FSOS)
• MarketCounsel
• TD Ameritrade Sells Out NextGen Advisor-Client Platform By Replacing 84% Of Its NTF ETF Lineup
• Nicola Sutton
• Angie Herbers
• Lifescapes Professional Coaching with Pam Duda
• The Investment Center
• Best Practices For Elite Advisors
• E-Myth for Financial Advisors
• Lou's articles on starting his advisory board

Full Transcript:

Michael: Welcome, Lou Tranquilli, to the “Financial Advisor Success” podcast.

Lou: Michael, it’s a pleasure to be here.

Michael: I’m looking forward to the podcast discussion today because you have this career that, to me, is kind of the quintessential career of the experienced advisor. That you started out in the insurance realm, then you were in the broker-dealer realm for a while, then you were a hybrid for a while, and now you’ve gone to an independent RIA. And I think we talk sometimes in the industry about this evolution of advisors from products to advice and as the channels have converged, we all know about the growth in the RIA channel. But you have actually lived it sort of every step along the way, and have been building business in each stage along the way over 25 odd years. And so, I’m excited today just to talk about the evolution of the advisory business as someone who’s actually literally lived each stage of the evolution of the advisory business.

Lou: I’m excited to do it. And I really appreciate the invitation because it’s enjoyable to talk about. And it’s always good to reflect on it, and hopefully look forward, of course, to the next 25 odd years.

Lou’s Firm Today: Tranquilli Financial Advisor [00:04:03]

Michael: Absolutely. So, let’s start by painting a little bit of a picture of where things stand today, and then we can talk about the journey and all the trials and tribulations of getting from there to here. Tell us a little bit about the advisory firm that you have as it exists today.

Lou: Sure. So recently I left what would be considered a hybrid world and started my own RIA on October 5, 2018. Of course, there was plenty of preparation that went into getting to that date, but I manage just over $100 million of assets and about 110 advisory clients, and really just focus on some niche markets along the way, but I also came out of a general practice.

So as it stands right now, and I think this is part of the evolution as well, I have an office that I own in beautiful Clinton, NJ and it’s a great office that I am in with an intern for the summer. I have a virtual assistant located in Ohio, and that is the makeup of my office at this point, which is very different than what I thought it was going to be just a few short months ago. But with technology and the proper implementation of technology, it stands as me in the office with an intern, currently, a virtual assistant in Ohio, and we’ll be bringing someone else in.

Michael: So I’m curious there. Particularly, you said this isn’t what you expected. I’m cognizant that, when you were making this transition from the broker-dealer world and setting up your own firm, kind of walking away from a lot of the infrastructure that’s at the broker-dealer, you had all these choices of what technology you were going to use, what office you wanted to be in, and more significantly perhaps what staff you wanted, what staff you needed, and what structure you were going to need in order to do this…it sounds like from 9 to 12 months ago when you were brainstorming, “Okay, I’m going to make this shift from broker-dealer to RIA”, versus what it’s actually become is not what you expected. What were you imagining it was going to be when you were doing your business planning to make this shift?

Lou: Well, the bottom line is, I thought it meant more people, Michael, because, in looking at the broker-dealer world and the inefficiency of how I thought I’d needed to operate – I only used third-party money managers as an advisor, so for each third-party money manager I would incorporate into a client’s account, I would have paperwork for that money manager, I would have paperwork for the broker-dealer, and I would have paperwork for the custodian. There were so many people involved in the relationship. I thought that’s what I was supposed to have – that I was supposed to bring those people into my office and make sure that I could process all of this paperwork and these documents and then store them somewhere and make sure compliance was taken care of. So I thought I was going to have to staff up. In making the change and implementing the technology, it opened my eyes to the fact that the efficiency can be there, you just have to sit down and really think it through.

Michael: Interesting. So you figured that the amount of paperwork you lived with on the broker-dealer side to handle account openings, account transfers, engaging third-party money managers and the rest – the broker-dealer obviously has some infrastructure to support that. So hey, if you’re going to go out on your own, you’d still have all the paperwork, but you wouldn’t have all the broker-dealer infrastructure, so you’re going to have to hire yourself some staff. And then instead, you just didn’t? How is the technology so different where you are now, from where you were before that suddenly made this staff need disappear?

Lou: Sure. And I won’t say it disappeared, Michael, but I will say it was significantly reduced. So yeah, I had hired a few people and had them in the office. I had a compliance officer, a client coordinator, and a marketing person in the office. I brought them all in with the intent of growth (and I still intend to grow), I had everybody’s roles – I felt like they were well defined – and I got into the process of running client meetings, processing paperwork, and of just running the business day-to-day. And I do have a business manager. That’s someone who’s also a part of the equation here. And I was getting into the process of working through Redtail and working through Copytalk for notes. I’ve got Riskalyze, which isn’t necessarily completely automated from the standpoint of risk questionnaires, but easy enough to send an email out to someone.

How Lou Benefits From Trust Company of America’s Custodial Technology Services [00:08:58]

The key, Michael, for me, was that I chose to go with Trust Company of America as the custodian. I would tell you that I interviewed everyone, and just as the process was finishing up interview-wise, I made the decision to go with Trust Company of America because of their technology. Well, just as I was wrapping up, E*TRADE purchased them. And that really was a moment of pause, because I’ve been through some sales, and you said we’ll get back to the beginning of the career, and we will, but I’ve been through some sales of insurance companies that I worked with and it never really worked out awesome, I’ll say, for Lou Tranquilli. That’s all there is to it. So I was nervous about that. However, after a very good meeting with the people who are in charge at E*TRADE Advisor Services, I continued on the path.

It was the key to the kingdom in that their technology is doing everything they said it would do. They’re so efficient. Now, it may not sound like a big deal to others, but it’s an enormous deal to me – I was promised DocuSign and the ability to open up accounts through DocuSign for the longest time as part of broker-dealers and that world, and it just never happened. And it couldn’t happen, because of the fact that I was working with so many different custodians and so many different money managers. I felt like that was the right thing to do for clients in allocating, so I couldn’t make it happen. Well, now it does happen. So what used to be – if you can imagine – 3 or 4 inches of paperwork, that just doesn’t exist any longer. And it’s a matter of a few clicks of a mouse and a DocuSign email delivered to a client.

Michael: So that DocuSign electronic-based account opening process at TCA was kind of what sealed the deal for you and they’re actually delivering on it?

Lou: They are delivering on it. Yes.

Michael: Are you literally down to zero paper? Are there still a few things that need a wet signature and that you’ve got to move around, or are they really at the point of being all electronically queued up and DocuSigned, and then it’s up to the custodian to get going?

Lou: The only paperwork I have printed out...we’re in July here, so the only paperwork I have printed out in the last three months, Michael, is for someone who doesn’t have an email address. That’s it.

Michael: Okay. That would still be the one caveat to the DocuSign electronic signature clients.

Lou: So yes, the answer is yes. It wrapped it all together.

I left RightCapital out as the planning software that I use as well – it integrates with E*TRADE. So all of these pieces have synced because the custodian is able to do it, and it has significantly reduced the need for someone delivering paperwork to the end client. There’s really no other way to put it.

Michael: And then suddenly you don’t actually need a staff member to be a coordinator on this paperwork that doesn’t actually happen, because it’s all electronic and e-signed.

Lou: Correct, and downloaded into Redtail Imaging. I don’t print anything out at this point. It’s rather remarkable.

Michael: Well, I’m noticing that a lot of the tools you have here are tightly integrated with each other as well. I believe Copytalk lets you do mobile transcriptions, and I believe it can automatically link all of those notes directly into Redtail?

Lou: That is correct. That’s exactly right.

Michael: And then Redtail integrates with Trust Company of America, and RightCapital is integrating, I guess, account aggregation information from Trust Company of America. So you’ve got all these technology pieces that are linking to each other.

Lou: That is correct. It’s as if one day the sun came up, Michael. The sun came up and it all fit together beautifully, and it just reduced the need for staffing up. Now, admittedly, I’m looking to staff up at some point, because I want to continue to grow.

Hiring a Virtual Assistant and the Challenges of Finding the Right Staff [00:13:15]

You and I have talked about some of the people I’ve worked with, and I’ll bring them up a little bit later in the conversation. You’ve met them – you know them through the business; they have talked about building the business and how to build it correctly. I’ve paid attention to a lot of people along the way; I’ve also not paid attention to a lot of people, which has only slowed me down. But I’ve got a lot of really great people who have been behind me along the way. But right now, the staffing – I’m excited about the virtual assistant, or remote assistant. I’m excited about the person who I’ll bring in the office here who will be part-time. It’s great to just be connected to the clients directly because I have freed up hours of my time during the day with the implementation and integration of the technology.

Michael: And out of curiosity, where did the virtual assistant come from? How did you find a random person in Ohio to do your virtual assistant work? Is this like a firm that does the outsourcing or a personal connection?

Lou: Well, that is a great question. I became frustrated, Michael; that’s the best way to put it. And instead of getting angry...

Michael: So you sent up a signal flare and they thought in Ohio...

Lou: I did. I launched up a flare and I thought…angry moment…and I became angry – not angry, frustrated – because of this. I did have some staffing issues. And admittedly, I didn’t always do the greatest job of hiring. It was a challenge for me. I’ve seem to hit on a good streak of interns, but the staff itself…it’s been a challenge. And I’ve spoken to professionals, many, some really great people who I know and want to bring up as part of this. But the fact is that I struggled with the staff because I was trying to create a position in an office that was comfortable and that was relaxed, but that was also very professional. So in doing so, I also think that maybe I gave the wrong impression along the way of hiring.

Anyway, I became frustrated with the staff and the lack of being here on a consistent basis as I expected them to be. So I did a very simple thing. I searched the internet for remote assistants. And, Susan Chesney, who is a CFP in Colorado – I just happened to land on her page and had a conversation with her. She mentioned working with remote assistants as a CFP. I reached out to her, which is something I do all the time (and we can get to that later), and I found this really professional group of virtual, or remote, assistants. And I think we, as advisors, could take a lesson from this group of people. The first two I contacted, Michael, couldn’t take the time to work with me. They were at capacity. However, they said, “But we know someone really great who you can work with, and here they are.” So, no competition, if you will…

Michael: Interesting. So you started with Sue Chesney’s Delegated Planning services, and then they referred you to someone else who could be a virtual assistant because they didn’t have capacity at the time?

Lou: That’s correct. That’s exactly right. So I ran into this group of virtual assistants and they referred me down the line until I landed with FSOS, which is Stephanie Platt and her husband David. Really excited for that next part of staffing, if you will.

Michael: Interesting. And FSOS is also, I think, focused specifically in the industry, Financial Services Outsourcing Solutions?

Lou: That is correct. And that was something that was important to me. I wanted someone very focused on the financial advisor planning industry.

Michael: You didn’t want to have to explain all the stuff about, “Here’s how our regulated industry works, and here are the certain things you can do and you are not allowed to do.”

Lou: Correct. That is correct.

Michael: Okay. All right, very cool. And for folks who are listening, we’ll have links to all of this out in the show notes if you want to find your own virtual assistant through one of the teams here. This is episode 137. If you go to kitces.com/137, we’ll have links out for Delegated Planning and FSOS and some of the rest.

So it sounds like for you the drive for a virtual assistant was a little bit different. It wasn’t just a matter of, “Hey, I want to hire someone but I only need someone part-time and I don’t want to have to deal with office space. Let me find a virtual assistant.” It sounds like it was more of, “I’ve tried to hire people, it doesn’t always go well, why don’t I just find a firm whose job is to do this for advisors like me for however many hours I need, and they can deal with all the rest of the stuff. I’m just going to hire their firm and then I don’t have to hire the people and manage the people. And the rest – they can do that, because they’re my contractor.”

Lou: Yes. So far, so good. We’re just getting started, but I’d love to come back someday and give you an update on it. But it is a relief that, and I jokingly say, I don’t get a, “dog ate my homework, car didn’t start, it’s really cold outside, I’ve got tickets to the Kenny Chesney concert.” I’m not hearing any of that kind of thing.

Michael: So you started with a client coordinator, but you kind of backed off to this virtual assistant role. You also mentioned that you launched with a compliance officer. So has that also changed now? Because I know for a lot of folks, particularly transitioning from broker-dealer to independent, this murkiness of, “So what’s compliance really like when I have to do this stuff and I’m my own compliance officer, because I don’t have the broker-dealer’s compliance expertise?” Help us understand, what did you launch with and where is it now?

Lou: That’s a great question. So, I did launch with a compliance officer. Stepping back, going through the process of making the decision to become an RIA, I really felt strongly that a compliance person was an important role for me, again, with the impression that I had to staff up and find this person who could really run that part of the business because it’s always been such a fearful endeavor of dealing with compliance. So I did launch that way. I hired someone to project-manage, which I cannot recommend enough, the process of becoming an RIA. And she project-managed the move along with the compliance portion of it. I launched with her, but then got into the process of actually going through compliance and hired MarketCounsel to write the documents, and the IAM agreement along with all the other documents to form the entities involved with Tranquilli Financial Advisor.

So, I hired MarketCounsel to do that work, and then took the compliance software that they have and just, on my calendar, on Redtail, put a reminder of when certain things needed to happen. So now, come the end of the quarter, I have to ask whomever it is who’s working for me, or with me, that I need their compliance documents. I send an email out, they send them back, I complete it. It’s time-consuming, is really what it comes down to. And it’s not something that I will continue on with forever. However, with the integration of E*TRADE and their capability to deliver 13F reports and client information en masse, through Excel spreadsheets that can go to the SEC when I have those requests, I just felt comfortable that it’s something I could and wanted to learn. And that’s part of who I am in this journey as well; I constantly want to learn.

So before I go back and bring an outside firm or someone who will be working with me and can handle parts of the compliance role, I want to understand the mechanics of it better before I go out and seek someone to take that role, or a large portion of that role, away from me.

Michael: But it sounds like ultimately...well, let me ask, how many hours a week, or hours a month, do you find yourself spending on these compliance tasks now?

Lou: About two a month.

Michael: Two a month. Okay. So you hired a full-time person, then had this realization like, “Oh, thanks to MarketCounsel software and its integrations with Redtail, I have a full-time person and I can do this work in two hours a month; I probably don’t need a full-time person on this anymore.”

Lou: Correct. Yes, exactly right.

Michael: So I guess that means the other interesting kind of news, and effect, from this transition was that you are now way more profitable than you’d expected to be in making the transition? Because you thought you were going to need these 3+ staff members, and now you didn’t need the compliance officer, you’ve kind of scaled back and “partial virtual assistant”-ed the client coordinator, and the raw staff overhead has ended out much leaner than originally projected?

Lou: Much leaner. I will say for now, but the answer is yes, Michael. That’s an easy answer. And it’s had a positive impact. I really think anyone listening to this, and I know there are many people like myself who wait for the link to show up, if you’re a half a billion dollar office, if you’re $1 billion, if you’re bigger than that – I really believe these pieces that I’m working with apply because I plan on getting there, and I believe the pieces and what I’ve learned, and sharing it with you and with everyone listening, I think they’re relevant to all of those different levels that you get to. It’s a review, if you will. And the willingness to personally agitate yourself, to stir it up and say, “I can learn this, and I want to learn this.” And I think in learning it, I’m better today than I was even six months ago, because I do have a deeper knowledge of what it means to be compliant.

Lou’s Process of How He Selected TCA As His Custodian [00:24:19]

Michael: And so the other thing I’ve got to ask about this kind of standing up and going on your own as an RIA is…just talk to us a little bit more about the decision to pick Trust Company of America. I think most people who’re breaking out these days tend to end out talking to what’s basically known as the “big four’: Schwab, Fidelity, TD Ameritrade, and Pershing Advisor Solutions. All talk the talk about, “We’ve got lots of technology and we’re increasingly going digital” and all this stuff. I feel like lots of folks say this. Some may deliver on it a little bit better than others. But what was it about the conversation with TCA, or what they did or showed you, that took you to them and not to one of the big four?

Lou: Well, I interviewed the big four. My former broker-dealer relationship, the hybrid broker-dealer, they were a Pershing office.

Michael: Okay. As are most BDs, Pershing or Fidelity’s clearing. So, yep.

Lou: So I had some knowledge about working with Pershing, and they’re a great organization, but my knowledge came down to this. I knew I wasn’t big enough for them. That’s really what it came down to. I know they really like the $1 billion-plus offices. And I respect that. They know what their market is and they know where they want to be.

Michael: Yep. Since Mark Tibergien took over, they really said, “We’re going after the large, professionally managed firms. Either they’re $1 billion, or they’re getting there pretty quickly with all the multi-advisor ensemble infrastructure to do and build in that direction.” As you said, they knew who they were going after; they’re serving that market. More power to them, but yeah, I get it. If you’re breaking away with $100 million, which is still a fantastic number and a hell of a living, that’s not Pershing’s sweet spot right now on advisor solutions.

Lou: That is correct. So I talked with Schwab...and I don’t mean to disparage anyone – Schwab is a great company; nice people and everything else – I spoke with a few reps who work for them through the RIA channel. It was a mixed review. TD Ameritrade – I did receive really great feedback from TD Ameritrade. What happened there was the change in their offering of the ETFs – and I’m just going out of memory – just as I was making the decision, I just thought, “Oh, boy, this is leverage.” And again, back to having been through the sale or through the business for a long time, through 27 years and seeing the changes, that was just a use of their leverage against the advisors, in my opinion. In my view, that’s what it looked like.

The positive side of this is the conversations with then TCA now E*TRADE Advisor. The conversation with them was in their office. It was very professional. However, it had a level of comfort, which is the way I like to work with clients – very professionally, but with a conversation around everything: the personal, the professional planning side of things; it suited me. And I really believed in their technology, as well. They illustrated their technology to me, I thought, in a better way than the others, and the capabilities of integrating with RightCapital. I’ve worked with eMoney as well, with Riskalyze, and with Redtail. And they put those pieces together in front of me and explained how they really can make the office work at being a financial advisor – smooth and efficient.

Michael: And out of curiosity, only because you said you spoke to Pershing, Schwab, and TDA – was Fidelity on the radar screen as well? Were you talking to them too?

Lou: I did not speak with Fidelity. And that actually was due to the fact that I had interactions over the course of the years and they just didn’t work for me. That’s all.

Michael: Okay. It’s one of the interesting things about the business of being a vendor to advisors. We’re all in the relationship business, right? It’s what we do with our clients. We try to establish and form these really long relationships with clients where we work with people for 5, 10, 15, 20 years. And the funny thing about relationships is, when you’re in a relationship with someone and they slight you, you don’t forget that stuff for a really long time.

Lou: Did somebody tell you I’m Italian? Is that what it was?

Michael: No, I think it’s a fairly universal phenomenon. This relationship focus that we have with clients, I think we tend to expect the same thing from our vendors. And so, “Hey, I had some bad experiences with that firm X years ago” – it carries forward. Or, “Hey, TDA changed up their NTF ETF platform, I don’t trust that they’re not going to sell out their advisors again. I just don’t want to go near them.” That stuff has such huge and lasting impact.

I was giggling a few weeks ago at the news, the rumor hit that Vanguard might, at some point, go into the RIA custody business, which they were actually in and did back in the late ‘90s and early 2000s. And as soon as the news hit that Vanguard might go into the custody business, out came all these people who said, “Well, I worked with Vanguard custody and they left me high and dry in 2003, so I don’t trust them.” It’s 16 years ago! I get it, I’m worried about that stuff too, but it’s kind of a different company now than it was 16 years ago.

I think there is this interesting phenomenon in the advisor community that when you’re in a business where people trust over multi-decade periods of time, it means they also remember what you did 10 and 20 years ago, and that stuff lasts with you. And it strikes me because, to me, not all the vendors in our space, I think, are always mindful that, “Hey, that marketing initiative or that PR statement that you made that sounded good right now but that you’ll probably change in a few years,” advisors will hold that against you for the rest of their careers. We just don’t forget this stuff – I think we get really sensitive to it because we’re in such long-term relationship businesses.

Lou: Our work, professional designations, everything that we want...all the layers, the names that we want to add on comes down to long-term trust, and we have to be able to trust.

The Transition Lou Made From Broker-Dealer to RIA [00:31:25]

Michael: Interesting. So you made this transition to an RIA. It’s not nearly as staff-burdensome as you’d expected because you found, essentially, better technology you could use on the independent side than at least what you had at your former broker-dealer. So you got all the staff savings. What else has turned out differently or kind of surprised you of what you expected independent life to look like when you were looking at it from the broker-dealer side, versus what it has actually turned out to be?

Lou: The reception. I would tell you the reception I received from clients – it’s been exceptional. I believe through podcasts, podcasts like Michael Kitces and others, through media, the fiduciary rule – whether in place or not in place, just the conversation of the fiduciary rule – these have increased the awareness of the clients who are looking to work with someone like me or other advisors. So, the reception by the clients has been exceptional. And that’s been welcomed.

Because even with strong relationships, and I’ve had really great relationships with other professionals, with the clients, of course, I was nervous. Are they coming with me? Are they bailing out? Is this their opportunity to say, “I’m hitting the eject button” kind of thing? Well, it didn’t happen. They came along. And in sitting down and explaining why I made the choice that I made for the clients, and I did make this choice, Michael, for the clients, that’s where I started. I wanted to be able to present to people what I believe is the best relationship that I felt I could present to them. So I went with that approach, and it’s been really a great reception.

And it’s not all easy, or anything. I don’t want it to sound that way, but in explaining it to them, their awareness out in the world through information channels has reinforced the decision that I made, but also reinforced the relationship even with all the challenges of the paperwork that we had to do when I made the change.

Michael: Interesting. So all this media buzz over the past three years or so since the DoL put forth its final fiduciary rule – that was when the media really started running with it, and putting “fiduciary” out there in the general media world – that three years now, batting that around, first with the DoL fiduciary, then with SEC’s Regulation Best Interest, and even state fiduciary rules (you’re in New Jersey; New Jersey is even actively debating a state fiduciary rule right now), you are actually finding in practice, it’s now in the consumer discussion enough that when you point out, “Hey, I’m actually switching to the RIA side and I’ll be in a full fiduciary position with you,” that actually mattered to people. They understood what that meant and received it well.

Lou: It did. I have to share, I had a meeting here at the office. Every now and then I hold a meeting in the morning with some of the COIs who I work with, just to get together and talk. I buy a light breakfast and everything, and we chat. I announced to them that I made this change, and if there were six of them in the room, four of them knew exactly what I was talking about, one of them had some knowledge, one had no idea. But most of them knew exactly what I was talking about and congratulated me on the decision. So I’ll say this is a point of encouragement for those listening to get out there and start talking about it.

Michael: How did you break the news to them? Because I know for a lot of people looking to make these kinds of changes, it’s scary to go to clients and basically say, “Hey, I used to have this big broker-dealer firm behind me that I guess you may (or may not) have known directly,” because some BDs have more consumer retail presence than others, but at least, “You knew there was this big firm out there that I was anchored to; now I’m going to hang my own shingle, Tranquilli Financial Advisor.” I know there’s a lot of nervousness from some advisors saying, “Are the clients going to be comfortable to stick with me when I go from, ‘I used to have this big firm that I was a part of,’ to ‘now it’s just me’?” Was that an issue, or not an issue? How did you explain and break the news to them when you’d been with your broker-dealer for a long time?  They were used to you being there, and all of a sudden you’ve come out and said, “Hey, I’m making a big change. You’re going to have to do a ton of paperwork, but let me tell you about it with a great spin.”

Lou: Yeah. Well, I won’t call it spin. I will say that it was just an honest discussion of why I made the choice that I made. And again, back to the level of experience, I wouldn’t suggest an immediate jump into the RIA world without more infrastructure, without more knowledge. I was able to really talk to them, Michael, about why I was making a choice. And  I will say the ultimate impact on them was virtually nil, and only an improvement because of having one place to custody assets. But how I presented it to them, how I announced it to them – it started with, I had to do the resignation from a broker-dealer dance before I could announce it to anybody.

So it was a harrowing three or four days of phone calls, emails, follow-ups, “I need you to come into the office. There is some urgency to it.” And that part was not super fun. That’s all I can tell you. But I did announce it with confidence. And I think that was important, that my relationship with them was intact, that I had plans in place. I did explain it to them when they came in – the why, the what, and the how. And because I had credit, if you will, of trust, I used that credit of trust with the clients and they took it well. There were some hiccups along the way, service-wise, for clients with old statements being crossed over to new statements, so that needed more explanation over the course of the 90 days after becoming an RIA, but the initial announcement was, “Business as usual with Lou Tranquilli in charge of the entire business, rather than, a third-party entity.”

Michael: And so, that was kind of how you framed it to them? Like, “I’ll just have more control. I won’t have to answer to a home office, and what I do for you – I can make the decision.” Was that part of the framing or the talking point?

Lou: Yeah. Of course, that was part of the conversation – the framing, the warm reception here at the office. And just that, “I’m a professional. I’ve got a lot of experience, and have had a lot of experience in this world”, and “This is the next natural progression of the business and you’re part of it, come along!”

Michael: So you have this firm at over $100 million under management that you’re able to run incredibly lean with a tech stack that you probably still measure in the thousands of dollars per year when you can get revenue close to $1 million on $100 million of AUM before you maybe take out some third-party manager costs. And you’ve got this really lean staff. So, how do you look at this from a business or a margins perspective? Do you look at profit margins and manage to profit margins, as you look at hiring decisions and where to go from here?

Lou: I have to because, and I promised you when we discussed me coming on here to talk about the career in this, I made mistakes in the past, Michael. And I think that’s the cautionary tale. And I’ve got to give credit…this is where I’ll give credit to some people. I’ve been lucky in that my business manager, Flory Cook, has been a wonderful friend and confidant for many, many years. She was helpful in making decisions and pointing out when I didn’t get things right. Nicola Sutton, who has been a part of my office in the past, and who I know you knew from my broker-dealer, was an amazing help with the growth of the business. There were business coaches in there, Hellen Davis of Indaba was one, if you want her website, and then consulting conversations with Angie Herbers.

So I’ve had all these wonderful people who I’ve listened to, and who I didn’t listen to. And each time – and I’m getting to your answer about hiring staff and what it means to the bottom line – each time that I have not listened and they’ve said, “You need to think about this” and I’ve said, “No, I like that person” or “I think they fit” and “I’ll pay them, I’ll overpay them, because they’re so talented or came from a large organization,” and I’ll think working with a small organization like mine should be so easy, I’ve gotten it wrong. So it’s, “Hire a personality, not a person,” that I’ve heard from more than one of the people who I’m referencing. So I’ve fallen in like with the people.

So it’s not about the bottom line. I’m willing to pay, I’m willing to tweak whatever is less on the gross revenue, the profit margin, to bring the right people in. I’ve got to slow down and make sure that I slow the hiring process, and really be sure that I’m bringing the right person in without concentrating on the bottom line revenue number, but instead concentrating on what is right for Tranquilli Financial Advisor that will lead to the best that clients receive for what they’re paying for.

Michael: So can I ask, what does the profit margin of the firm look like at this point when you’re running this kind of lean, solo, technology-leveraged practice?

Lou: Sure. It’s in the 63% range. I just went through a process of having the business valued because I’ve purchased a few financial advisor books along the way. I would say it was a simplistic valuation, but it was effective, and that’s where it came out.

Michael: Interesting. Because I know this is the challenge and I imagine it probably ties to some of the hiring struggles that you’ve had in the past, that when you run a highly profitable solo firm and, as you said, you’re running 63% profit margins because you’re doing the advisory work and you participate in the bottom-line profits as well, there are more than enough dollars to hire a person if you find a neat person to hire. Which I would imagine is both freeing on the one hand for the business – like, find an awesome person, got plenty of free cash flow to invest in them – but the bad news is, it also it makes it very enabling for impulse hires who may turn out not to work out well, because you’re saying something like, “I’ve got more than enough dollars at the bottom line; this person seems good, I can afford it, I’m going to go ahead and hire them.” And it sounds like that’s been part of the challenge for you, just trying to figure out how to really vet and identify who’s the right fit, and who’s going to contribute to the business.

Lou: Without question. I’ve spoken to business owners in all areas, and I’ve met with financial advisors all over the country. A favorite thing for me to do is to go visit financial advisors randomly. I don’t even know them. I’ll call them and say, “Can I stop in and see you? I’m a financial advisor in New Jersey.” And it is, without question, the challenge that each of us have.

And part of the staffing that I would like to bring in is the Certified Financial Planner graduate. I would like to do that, but it’s tough getting into New Jersey. I know there’s a good program here at William Paterson University in New Jersey; I haven’t met any of the graduates from there. I don’t know if they’re headed for New York City (I’m about 50 miles from the city), but I’m interested in that program. I think it’s great. The XY Planning Network, I have to give you a plug, because I like what you’re doing there; I want to meet those people and have that mindset in my office. So yes, I’m looking for them. It’s certainly not all about me. It’s just about doing things in what I believe is the right way. And I think I have plenty of time to work – I have four kids, they’re all going through college, so I’ve got a lot of time to work.

Michael: So that’s where all the free cash flow goes for the next few years. Okay.

Lou: You are a smart planner, Michael. That’s just right.

Michael: So then help me understand from the flip side. You’ve got this profitable firm, you’ve had some challenges in the past because the profitable firm made it easy to hire a person who then maybe turned out to be a little bit too much of an impulse hire for the person, and maybe not the right personality, and who didn’t work out. So, I guess for lack of a better way to frame this, how do you control yourself at this point not to go right down the same road again since, if anything, it sounds like you’ve got even more free cash flow than you did before, because it turned out your staffing needs were lighter once the technology and the compliance dust settled? So, having done this for 20-plus years, how do you manage yourself around trying to figure out who’s the right next hire?

Lou: Well, the thoughtful answer is this. I have people that I can rely on to go to. And while I’ve mentioned them and they’re important to me, I haven’t relied on them enough. I think every advisor needs to have those people, those confidants who they can go to – other financial advisors – and ask, “How do you get it right? How did you find this person who has been with you for 20 years?” So even though this is a small firm or a small business, we’ll call it, I am going to make it a big business in the hiring process, Michael. So they won’t interview with Lou Tranquilli. They will interview with me and others who are people I respect and trust who I’ve already named. They will talk with them and they will go through their process of discussing. So I’m willing to take the smallness out of hiring and instead make it a bigger process.

Michael: So basically, leverage outside consultants who can help you vet people, make the decisions, and try to figure out who’s the right hire that will be the right fit for the business, rather than relying on your judgment, which unfortunately hasn’t always worked out for you as hoped.

Lou: No, no. And I hope you don’t mind me being so open about that, but I can share, and I’ll share the successes along with the failures. It’s a big part of the iceberg illustration. There are a lot of things that go into being a good financial advisor and planner and professional, and some of it is the tough part of it like this.

Lou’s Early Days in the Insurance Industry [00:47:27]

Michael: So I want to shift tracks a little bit. You’ve got this firm today that’s sitting at a fantastic $100 million that you’re managing largely as a solo with lean staff support and great technology leverage. You have this great profit margin. So take us back to the beginning, because I know you didn’t even start in the AUM gathering realm, you started over on the insurance side. So take us back to the starting point now so we can understand the journey of how you go from insurance agent to independent advisory firm with $100 million under management.

Lou: Sure. I’m smiling as I respond, because it’s the “long and winding road” – I can’t resist saying. I started off in the insurance business, life insurance sales, disability, in 1992. I had a friend of mine who was in the business. He worked with a company, they’re gone now, Provident Mutual. They were out of Philadelphia. They were a really great, small insurance company, with only about 600 reps at the time but really very, very successful insurance people. I was lucky enough to be recruited into a small office that had some very talented people in it, and they were insurance salespeople. And it was the Monday night phone calls, Wednesday night phone calls, Friday morning meetings, people clapping – the whole thing.

Admittedly, I did like that work in that it was important work. Unfortunately, I had written some insurance early on with claims I had to deliver as well. So I understood the business and the impact that it could have on people. But it was a sales job. That’s all there is to it. You’re selling, and every day if you weren’t finding somebody new to sell to, as the saying would go in the office, you’re out of business every minute you’re not calling somebody. So it was a grind. And I just got into it. And I studied for the LUTCF, if you recall that designation.

Michael: Yeah, absolutely, from The American College. Yeah.

Lou: That’s right. I love The American College. I eventually accomplished my CLU, Michael. And forgive me for stating this – in 10 months, I completed my CLU.

Michael: Wow, you powered through that. Okay.

Lou: I powered through it. Well, my two oldest sons are only 14 months apart. They would wake me up at 5:00 in the morning. They’d go right back to sleep and I was up. So I figured I might as well study. So yes, I grounded out for 12 years in that work.

Michael: So I guess I’ve got two questions then. First, as you came into the life insurance business – and as you said, a pretty direct sales job, that was the gig – did you know that’s what it was coming in? Did you come in to do that? You were all excited to say, “I want to sell life insurance because I can make some good money at it, and this will be my future?” What got you to that first life insurance sales job, to begin with?

Lou: Sure. They were open and honest, believe it or not. They did not tell me that I was going to have one of the 1,000 titles that were given at the time. But they said, “No, you’re going to sell insurance, and you’re going to sell life insurance and disability insurance. It’s a really good job. You’ll get your Series 63 so that you can sell mutual funds and variable life insurance.”

Michael: I was going to say probably more of the variable life insurance than the mutual funds, with the thinking of the industry at the time.

Lou: You bet. And if I can just say this, I’ve been lucky all my life, and I really was. I started in the business just as the universal life policies that were illustrated at 12%, 15%, and 17% fixed interest rates were all blowing up. So, thankfully, I was witness to that going on, which, of course, I didn’t want anything to do with because I wanted to be good at my job. So I saw all that happen. And I saw what happened to people. And that was unfortunate, of course. So early on, I actually witnessed the power of the job that we all do, and I was determined to get better at it, if it was in the insurance field, to get better at it, but to continue to learn. So, I was hired for a sales job and selling insurance. And fortunately, Provident Mutual was a really, really nice start.

Michael: So then how did you literally get going and get clients? Were you just cold-calling out of the gate? You stayed late on Mondays and Wednesdays to catch people when they were home for dinner, and just cold-called and you were able to make it work? Or were you doing other things trying to get clients and survive in the early years?

Lou: In the early years it was...they called them red tops. They had a red streak across the top. I sat down and I beat that phone up, Michael. That’s all there was to it. Fortunately, because of my background – I come from a very blue-collar family – because of that there were a lot of people who I knew in the “blue-collar world” who wanted someone they could talk to, that they could trust. And I wanted that person to be me. So I was fortunate in that I had an advantage; I had some people to call who weren’t family members, who were people from other walks of life. And I wasn’t calling up and saying, “I’m a financial advisor now.” I was calling up and saying, “I want to talk to you about life insurance.”

Michael: You had a natural market – the holy grail. You had a natural market.

Lou: I did. That was, again, back to being lucky my whole life, it was a lucky break. And I also worked on it, too. I started the LUTCF almost immediately, at the insistence of the people running the office. They said, “This designation, this training, is just really good for talking with people about the things that you are going to be able to talk about.” Obviously, those things now are still relevant, but they’re not things that I talk about at the level that I did then. It’s a much higher level now. But that was really, really great advice getting started that way.

Michael: Yeah. And for people who maybe aren’t familiar, the LUTCF was kind of the early entry designation for life insurance agents. It was the Life Underwriter Training Council Fellow. It was sort of the entry-level professional designation for insurance agents to start really learning more about the insurance business. It was the professional side. You got sales training in the office because everybody did sales training. It was the professional side of, “Here’s the construction of life insurance products and how they work, here’s how they’re priced, and here are the underlying mechanics.” So you could actually understand the stuff and the way the business came together. And then the people who wanted to go deeper beyond the LUTCF would go and get their full CLU designation, which sounds like you followed through on and did as well.

So you found some traction in the life insurance world between some cold-calling, going back to the natural market in a blue-collar world that you’d come from, you were getting some life insurance sales – so how did it progress through the first couple of years? Were you actually making pretty good money out of the gate? Did it still take a while? What did that progression look like in the early years?

Lou: Oh, it was decent out of the gate. It was the career path I think a lot of people who I’ve heard on your podcasts in the past have taken, and I would imagine had welcomed a walk down memory lane, as I am right now. But for the first few years, it was a bare-knuckles job. And bare-knuckles means you pick up the phone with one hand, squeeze tight, unclench the fist and put a finger on the phone and dial, kind of thing. It’s the way I had to do it. And failure was no option.

I think one thing, if I can teach any advisor who’s out there who aspires to do this, who’s in college now, is you cannot go into this work and think, “Oh, I could always go do whatever it may be.” You have to think, “No, I’m dedicated to this and I’m going to see it through.” And I know it’s lean. I know it’s difficult at the beginning. It’s an entry-level job, if you will. Take it that way. Even if you’ve got a great education, “I am going to stick with this, because if I can make it,” or “when I make it,” I should say, “Through three, four years, I am now a professional at this work and I will only be more successful.” So I did take that approach. And that’s just the determination that I’ve had, and I think that I apply to all things I do.

Michael: Oh, and it is an interesting dynamic. There’s always the famous story of  Cortés burning the ships when he came to the New World. If everybody thought retreat was an option, that they could always get on the ship and sail back to the Old World, they weren’t going to necessarily put everything that it was going to take to survive and succeed in the brutal wilderness of the New World. So if you burn the ships, everybody really has no choice but to get really, really focused on how they’re going to make this work.

And I think there is a real dynamic to that, in starting in the business here where, even for people who are very good, it’s so rough in the first few years, just a lot of no’s and a lot of rejection, and not a lot of income yet while you’re getting going. Even if you’re going to do well in the long run, it’s really hard in the early years. And if you give yourself too easy of an out when the going gets tough, you’ll probably take it. And you have to come in with a “failure is no option” mindset, or you won’t maintain the perseverance to power through when the inevitable difficult times come before you get to the years that usually turn out to be pretty good, but only much, much later.

Lou: Well, it becomes the greatest job in the history of mankind, Michael. That’s my opinion of it at this point. Like I said, I’ve listened to your podcasts for years now and genuinely enjoy them, and I really hear the same thing over and over again, which is the joy and pleasure of sharing the story, the method of operation, the challenges, the victories, because there is such a love of the job by the people who are doing it. It really gets to that. You just have to get there. And it’s not easy. If it were, as you know, everybody would be doing it.

Making The Switch From Insurance Sales To Broker-Dealer [00:58:57]

Michael: So you started out at the life insurance company. You came in to sell life insurance, you were ready to do it, you found some traction enough so that you were making some dollars and stuck around. So what came next? Were you just on that track with pretty much no change for ten years? Did you start iterating a shift in what you were doing? What changed next?

Lou: Sure. It’s part of the story of working with the insurance company. As I mentioned, Provident Mutual, they were a progressive, small company. They hired two people, and I wish I could remember their names because they deserve credit, they hired two people to run their broker-dealer who came in and they said, “This is a third-party money manager and this is going to be the future of your job.” That was about 1995, and I sat down and I thought, “Man, they don’t know what they’re talking about.” But they did know what they were talking about. And it started off with just a few...SEI and a few others that were out there and available.

Michael: I’m trying to think of who would have been available then.

Lou: Managers Choice.

Michael: Oh, yeah, Managers Choice. Was Lockwood on the platform at that point?

Lou: Lockwood was on the platform. And they were not part of Pershing at the time, they were their own deal. There were one or two others. And I did pay attention after a little while. They said, “Okay, you’re not going to make that 4.75% commission on the mutual fund sale any longer, you’re going to go charge a fee, and you’re going to do this.”

Michael: And you were sitting there like, “Let me get this straight. So I can get 50% target premium on my next VUL sale, or I can get one-quarter of 1% in my first quarterly billing three months from now on this third-party money manager thing.”

Lou: Right. And this is a good thing.

Michael: And this is supposed to be a good thing.

Lou: So initially, I resisted, but after they presented things as they saw them – and they saw them very, very well – I really did appreciate it, and I still appreciate it, and I started to build it. I didn’t admittedly get involved fully, but I did start to get involved.

Michael: Okay. And so, was there a shift, a light bulb moment, something that drove you to the point of saying, “Okay, I’m going to do this, I’m going to pull the trigger”?

Lou: Sure. So I had worked with Provident Mutual. They were purchased by Nationwide, and I thought, “No way.” I’d been doing this for 12 years, Nationwide came in and said, “You’ve got this requirement,” which was significantly higher than the requirement that Provident Mutual had.

Michael: Oh, in terms of requirements for writing company product?

Lou: Career production and all those terms I never want to use again in my life, but I will here. So they multiplied it significantly, and I just thought, “No way. No way. I’m finding an independent broker-dealer or independent channel to go to.” The RIA channel at that point, that was 2004, they didn’t really exist. I know they existed but...

Michael: Yeah, it was minuscule back then.

Lou: That is correct. So that wasn’t any kind of option for me anyway because I hadn’t built what would be an RIA business. I had built a commissionable business.

Michael: So help me understand where the practice stood by 2001/2002 when Nationwide bought Provident and imposed these higher requirements. Was the problem for you just, “Oh my God, those are crazy high production requirements, I’m just not going to hit those numbers” or was it a more of a, “Hey, I’m actually starting to do more of this third-party money manager stuff. I really kind of like it. I don’t want to have to go back and spend more time trying to write more lives on the insurance end, because I’m actually growing more of my business on the money manager end?” What was it that made the new Nationwide requirements such a turn-off that you started looking elsewhere immediately?

Lou: I wanted to be done with the sales job, Michael. You did get it – it was a matter of me just looking at it, saying, “No, this is not the way I want to do this anymore.” And by the way, I am fully on board with the sale of life insurance, disability insurance, they’re excellent and everything else, and they’re so necessary. My time spent in the business was time well spent. I realize that now. But you asked, where did the practice stand in 2001/2002? On the precipice of failure, man, because I had spent all this time selling life insurance and now I was going to break that relationship. And any renewals that came along with that were gone. If I went to sell clients more life insurance or replace it, Nationwide would send people looking for me. I didn’t want to be looked for. So I had to start over, for the most part.

Fortunately, I had built really good relationships outside of just client relationships with COIs. They were a big help in getting me started back up with the broker-dealer and away from insurance, getting into assets under management, and then from there, really getting into the planning discussions.

Michael: So in the late ‘90s as Provident had this BD and there was someone internally starting to beat the drum, saying, “Hey, you should check out this third-party money manager thing, this is going to be the wave of the future,” were you starting to build an assets under management money manager base?  Or did they just plant the seed, but you weren’t actually doing much of that yet – you were still primarily writing life insurance and then realized, when you were going to make a change, “Oh, crap, I’m going to have to walk away from the insurance and the trails and the rest?”

Lou: I think that’s the exact line I used. The answer is I started to build. I left the insurance world with approximately $4 million under management. Not a lot for the time that it could have been.

Michael: Forty grand a year at 1%  – it’s something. It’s better than cold zero. It means some BDs will probably take your call because you’ll show up with a little bit of revenue.

Lou: “So, with a little bit of work, we can get you up over $50,000 a year of GDC.” So I thought, “Great, I’m on my way.” You can hopefully hear my laugh and smile that it was a funny time. My wife was nervous, to say the least.

Michael: I would imagine so. So did she tell you like, “You’re nuts, why are you walking away from the insurance company?” Or did you tell her there were production requirements and say, “Look, this just isn’t going to happen, we’ve got to make a change?” How did that conversation go? Because spousal support is a pretty big deal when you’re making these transitions.

Lou: Well, spousal support is a big deal, and I’ve had it the whole way through because, Jackie is my wife, she didn’t really – sometimes I’m joking when I say this (somewhat), but I still don’t know if she knows exactly what I do for a living. So she was nervous. It’s part of the equation, back to that iceberg illustration of what goes on behind the scenes. It’s difficult to explain to your partner exactly what you do, and how you do, and how you have to do it along the way, and the changes that you have to make, because there are so many people with, if you will, a “steady job” that this work and the disruptions that you have can be very confusing. So she pretty well thought I was nuts. She thought I was nuts when I went and started an RIA. But that’s okay. A little bit crazy is okay.

Michael: So the one thing I’m wondering about just this transition. So you said at the beginning that you went in for the life insurance sales job, and they were pretty straight with you. Like, “This is going to be life insurance sales job.” You went in and did the deal. You did it for 12 years or so. And so you went in taking the life insurance sales job and by the end, you said essentially you were leaving because you wanted to be out of the sales job. So, what changed over the 12 years that you were happy to go into this gig but by the end, you were happy to leave and make the transition away?

Lou: Well, I continued to seek education. And in doing so, it really led me to the planning side of things – the understanding that it’s not about selling someone something. It’s about sitting down, let’s go back to those blue-collar people who I started off with, and good people who needed someone they could talk with. It’s about talking with someone who says, “I don’t want to work anymore. What does that mean to me, that I don’t want to work anymore? Can I do this?” Well, you can’t answer that question with a life insurance policy. And as much as the insurance companies would love you to answer with an annuity, you can’t answer with that either. It’s more complex than that.

And that was of interest to me because of my desire to continue to learn. I was just interested in, “How do I become a better version of me for people as they continue to go through life?” And of course, the referrals that you get from clients become more and more complex. So I just had a desire to be better at the job and to advise rather than sell, and to get paid for the advice that I would give.

Michael: So you decided to make this transition. You’ve got your $4 million of AUM to bring along. So what was the process like then, of trying to find a place to land? Did you know what the independent broker-dealer world was? Did you know what you were looking for? How did you find where you were going next?

Lou: I said, “I’m leaving,” and then I went out and started looking. You get the phone calls, and I had been recruited. One was a local broker-dealer, an independent broker-dealer. They were local. They seemed like nice people. And after speaking with a few independent broker-dealers, the one that was local ruled the day. I felt like I could get in my car and drive paperwork down there and do the business I needed to get done quickly, because we still didn’t have the internet to rely on at that point. (I’m going to sound funny old when we get done with this – I’m not that old!) But the bottom line is we just didn’t have the internet and certainly no phones to text message on or anything like that. So they were local, and I felt like it would be smart to work with someone who was local and to do business as efficiently as possible, if you’re catching up on a theme of my method of operation.

Michael: Yeah, it’s a striking thing to me that sometimes we don’t realize how much the industry has moved in a relatively short period of time. That today when you look at what broker-dealer would you affiliate with or what platform would you affiliate with overall, it almost immediately comes back to, “Well, who’s got the best technology to make my practice efficient?” Right? As you said, the tech demo from TCA was one of the key things that sold, that closed the deal. And it wasn’t that long ago that the primary way you chose your broker-dealer or your platform was, “What’s the quality of the local branch?” and “Do you like the local branch manager?” Because everything was local. It’s all local paperwork and local people and local management. And so it would just come down to who had the best local presence of offices, facilities, and managers who would hopefully support your practice and not be a pain in your backside?

Lou: That’s right. That’s right. Their compliance department was very good. And I’ve respected that the whole way through. So I chose them and spent 12 years with them.

Michael: And so what broker-dealer was that? Where did you go?

Lou: The Investment Center in Bridgewater, NJ. Just about 15 minutes from my office.

Michael: Okay. So what did it look like when you got to The Investment Center? So you show up like, “I’m now in the independent broker-dealer world. I’ve got my $4 million of assets and $40,000 or so of GDC, and I’m not selling insurance anymore.” So what was the plan? What was the business plan? What comes first, or next?

Lou: All right. So I think, and for those in the RIA business who want to hear this and the journey and everything else, this is really where I’ll say the awakening comes. I realized I liked the AUM model, and I like all the models that have to do with doing the best job you can for your clients. How’s that? So, some charge by the hour, the retainer, the AUM. I’m a fan of doing it right for the clients. Just to sweep, get through that part of it. So I liked the AUM model because I did like the recurring revenue. I thought it gave me the opportunity to stay focused on the clients, to build the business, to do it in a way that is giving them advice if they call up for whatever it might be.

After a few years at The Investment Center and in building the structure of my office, I was fortunate enough to go out. And I have hired some good people along the way. I don’t want to make it sound like I haven’t.

Michael: Yeah, they weren’t all strike outs.

Lou: No, no, no, no, no. As a matter of fact, when I’ve hired well, I’ve hired very well, Michael. And I will say that I sat down with a business coach, Hellen Davis – I mentioned her earlier. She was my first business coach, a wonderful woman who really had an enormous impact on my career and my life. And she presented to me the idea of building a proper business plan. I did it. I listened to her. It was really an enormous help. Fast-forward a few years, I’m starting to staff up now. And I’m feeling like this is going in the right direction. I started a study group…

Developing a Business Plan [01:13:57]

Michael: Sorry, let me pause there really fast. Just, you had someone who pushed you to build a “proper business plan”. So what did they have you build? What did that look like at the time? What was the grand vision that was suddenly laying out for the first time for you?

Lou: Okay. So, “Who do you want to be?” First, you have to start with yourself. Who would you like to be? Well, I would like to give advice. I have this knowledge from all these years in the business, I have this knowledge of financial products. Now I’ve got taxes under my belt; I’m not a CPA, but I can have a conversation. Estate planning – I went through multiple estate planning training programs through the insurance companies at the broker-dealer. I’d go to independent meetings or seminars and listen in. So I started with the fact that I wanted to give people advice, because I had all of these pieces in my brain that I could now share with very successful people, with people who were trying to be successful. So I started there.

She was insistent that I get away from thinking in a sales mode. “Think of the client first. Always think of the client first. If you do that, the clients will come, and oh, by the way, they’ll bring their friends.” She was right. So I really get that independence.

Michael: So what did that mean in practice? I’m going to assume when you were at Provident, you were like, “Oh, no, I never think of the clients first, I’m all about my sales.” We all try to be mindful of this. So what was the mindset shift of what that really meant for you, when she said, “Don’t be in sales mode and think of the clients first?” What did you stop doing or start doing differently?

Lou: Thank you for clarifying that. So what she meant is that at Provident, it was very clear what my job was. My job was to sell life insurance. And if that meant solving an estate planning problem, that’s how I did it. So I was, if you will, a problem solver rather than an advice-giver at that point.

So the shift became, “Put yourself in the shoes of the client. Who do you want that to be, that you’re speaking to? What do they need? Are they business owners? Are they Wall Street executives? Are they small business owners, big business owners? Do you want to run 401(k) plans?” So she wanted me to define who I wanted to be to the people who were sitting in front of me. It took some doing. It took some back and forth to really work through that and start to define as an advisor what I wanted to present to people. And it did. It took some time, because I still had to earn a living. It was a challenge to say, “I’m going to step back and work on the business rather than in the business” kind of thing. But I did it. And I’m hopeful I’m answering your question.

Michael: I think you have an interesting framing for it. That when you’re at the life insurance company and you sell life insurance, well, your job is to be a problem solver. Ideally finding problems where life insurance is the solution to the problem. Which is fine, if you actually are good at staying focused on that and just solve the particular problems that life insurance legitimately solves. I think the challenge for some people is that when you get paid to sell life insurance, and life insurance is supposed to be a problem-solving solution, you run into the classic, “When your only tool is a hammer, every problem starts to look like a nail”, and you try to sell for a wider range of solutions and problems than you probably should.

But you have an interesting framing that, even reflecting back, because I started on the same path. I started out on the life insurance side of the business and then moved to the advisory side. And I kind of had a similar experience. That the starting point was like, “Here’s the thing you sell, go find people who have this problem and sell this thing to them.” And my challenge and frustration was that I would meet people and they would have problems, just not the problem of the thing that I was there to sell. And I was really bad at selling it to anybody no matter what their problem was. I was like, “Well, I found them, they have other problems, so I’d like to implement some other solutions with them for other things that they need.” And it was like, “Well, okay, but that’s not going to qualify your contract for career production.” So that didn’t last very long.

That was what, I think for me as well, started shifting the mindset and the focus of...when I went down the journey and shifted from life insurance company to independent broker-dealer. For me, it was basically, “Look, I want to give people advice. I’m really aggravated that I’m only supposed to come to the table with one tool or one primary tool and I’m supposed to fix everybody’s problem with that one tool. I’d rather have a much bigger toolbox so that I can just sit across from anybody no matter what their problems are and find something in my toolbox that actually solves whatever problem it is they have.”

And that was what took me from the life insurance world to the independent broker-dealer world. Like, “Okay, now we have a thing with a big platform, a whole bunch of tools, so I’ve just got to sit across from anybody and do a financial plan and they’re going to have some problem for which I can pull some tool out of the toolbox and solve whatever the client needs first,” instead of just, as you put it, that sales mode of finding someone who wants to buy the thing I’m selling.

Lou: So yes, I had that epiphany, who I wanted to be, and started down that path. When I moved my office to Clinton, I hired another business coach, Pam Duda. And she was really great. She walked me through the book of business and said, “Okay, tell me about each of these people. Let’s profile them. Let’s start to really get to know who they are and see who it is that when you’re walking down the street in Clinton, you’re really glad to see that person. And let’s start to talk about how we talk to more of them.” I worked with Pam from a coaching standpoint. But back to the really great hires – I made a really fantastic hire, Michael, and you have met her. That’s Nicola Sutton, now part of a team for a large asset manager. I hired her and she took the work that the two business coaches put in place. She took that work along with the different thoughts I had about, “How do we build this out more and bigger,” and she put the pieces in place to actually find those people. And I always give her compliments.

How a Marketing/Business Development Manager Helped Grow the Firm and Establish a Niche [1:20:44]

Michael: So she was hired as a marketing person, a marketing manager?

Lou: Yeah, marketing business development. Yes. Because it wasn’t only marketing, it really was about developing the business and moving those COIs and telling this now mature, intelligent story of someone who could really get into complex planning and discuss many different areas that COIs needed help with explaining to clients. I’ve said time and again, I was running when I hired her, and she was rocket fuel for the business once I hired her.

Michael: Okay. So can you talk just about what kinds of things she did that suddenly, rocket-fuel grew the business?

Lou: We sat down and, whereas the business coaches were always focused on the personality, or the book of business internally, she, being the individual creative person who she is, said, “Well, here’s how we go find those people.” The classic, “Just define who it is you want to work with, really refine it, and then go find these people.” So she took that and we worked on it thoroughly, and she executed her plan to help Tranquilli Financial Advisor grow. Which, if you’d like numbers, I’ll certainly give them.

Michael: Yeah. What did it look like?

Lou: Well, I was a $17 million AUM business when she reached me. By the time she left a few years later (she was hired by my broker-dealer, which I was very happy for her that that was the case – it was a great advancement for her), I was well over $55 million. And that was three and a half years later.

Michael: Wow. $17 million to $55 million in 3 and a half years is a huge growth curve. So help us understand a little bit more about what she was doing or what changed. You said she really helped you focus and refine who you were going after and where to find them. How were you defining your target clientele at that point? Were you forming a niche? Were you just kind of defining a target client? Who did you decide you were going after, and what did that look like at that point?

Lou: Sure. It was niche marketing, and it was focused specifically on divorced women at the time, which I know has since become more of a market for other advisors. I really like to be respectful, and I wanted to work with them because I really did enjoy the process of helping during a situation that was very, very challenging. She helped me refine that message, and also be a professional in working with them, to respect and understand who I was sitting across from and how I could be helpful. So that niche market was very important. She also worked diligently in relationship marketing to help the COIs understand the clients who should be working with Tranquilli Financial Advisor. Really, really important impact on the business.

Michael: So COIs at this point, centers of influence, were divorce attorneys and accountants who were seeing divorced folks. Was that kind of how the referrals started getting set up?

Lou: Sure, that was part of it. And also, we organized meetings in my office, I’ll say quarterly, for four or five professionals with the intent that they would meet each other and help each other in their businesses. So we’d have CPAs in here, real estate agents, really excellent source of client referrals. So we would put together these...

Michael: What were you doing with them, or for them? Like, “Hey, folks, come to my lunch and we’ll just network?”

Lou: “Come to a breakfast at 7:30 in the morning. I promise you’ll be back at your desk by 9 a.m. We’ll give you coffee and a light breakfast and you’ll meet some other professionals who I know who are good at their job.” And that’s just how we approached it.

Michael: And so any other professional in a related or adjacent field who was looking to grow their business a little was like, “Sure, I’ll go to Lou’s breakfast thing,” and then you just start building a network of people.

Lou: That is correct, yes. And it’s very professionally helpful for them because now they have people who they know and can refer to, and it’s very professionally helpful for me because the COIs have met in my office, in a really comfortable setting, and met other professionals who helped to grow the business.

Michael: Okay. Interesting. So you’re getting clearer on focusing on divorced women. You’re starting to tell a story around, “Here’s our ideal client who we work with,” and then you’re just trying to get in front of as many COIs and other professionals who you can network with so you just get known as, “Lou is the guy who works with women going through a divorce?” Was that essentially the focus and the strategy?

Lou: Well, that sums it up well. Yes, is the answer. I read voraciously, and put a few things in place that I’ve read about. And part of it was how you can be efficient in your efforts to meet COIs and build a professional network, which comes out of the “Best Practices of Elite Advisors.” That was the Oechsli book. Basically I took that book and put it on the table and said, “Okay, let’s start working on it.” And “E-Myth Financial Advisor”, that was part of it, too. And just asking, “How do we go about this? What’s the most efficient way to do all these different parts of marketing and meeting and everything else?” We applied them and they worked beautifully. I didn’t argue with the success of their suggestions and just kept going with it.

Michael: Interesting. So it always strikes me – and I don’t mean this to sound belittling at all – but I feel like sometimes there’s this painful, desperate search to try to find the next big marketing thing that works, the next big strategy that works. Like, “What’s the next new hot thing?” And your strategy just really came down to reading some books by experts who have written about this and just actually doing what they say, and the stuff works.

Lou: Right. Why argue with success? I think the best way to put the latest and greatest that you were just stating is the “shiny new thing.” Don’t always be running for the shiny new thing. Pick your spot, know who you are, and then get to work on it. And apply it as it should be applied to you. I’m not trying to be any one of the industry giants, I’m trying to be the very best that I should be for the people I work with. And I deliver value for that, and I can be effective. I should know more people, and I will know more people to work with, because of all this history that we’re going through, but also the reflection and the willingness to do the things that you know work. There’s no reason to fight with it.

Michael: Yeah. Well, I love how you put it, that you’re not out there trying to build and create this industry giant thing necessarily, you’re just trying to be the best at who you work with and doing the stuff that matters for them.

Lou: Every day.

Michael: I love that framing.

Working with COIs and How Their Referrals Help The Business [01:28:44]

So what came next? You’re now finding your way into this divorce niche and getting some resonance there. Were there particular things that you were finding that were working for you and starting to gain more traction than others?

Lou: Well, sure. You stated it earlier and it was accurate. I have become known as the person to reach out to. Obviously, everyone who walks through the door isn’t a prospective client. I do give up my time to someone who is in a fragile state, in a challenging time. I will give that person time to come to the office and I will provide them with explanations. And the very good news is that I’ve gained clients from it. And that’s really great.

There are probably more clients I didn’t get. As a matter of fact, there are definitely more clients I didn’t get or who didn’t become clients, prospective clients who did not become clients, many more than did become clients, but my personality and willingness to help them, I think, was important to the COIs who were referring them to me. And I will give those people the hour they need to understand the different elements of going through a divorce. I’ll hopefully maintain that go-to status as that person because I’m willing to give up my time to help in a time when it’s required. And then, of course, that shines a positive light on the COI and helps the person along as well.

Michael: So that’s an interesting kind of framing and point that you raised there. That on the one hand, it sounds like you had a pretty clear acknowledgment, “There’s a certain type of client, even within the divorce realm that I work with and who is a right fit for me.” I’m presuming that kind of just ties to available assets or dollars or something that determines that they can pay you enough dollars to make the business work for you. But you would still meet with everybody who was getting referred in, so that you maintained your relationship as the go-to, and you maintained a good relationship with the COI. The people who were getting referred to you – were they in your niche still, not necessarily everybody coming in off the street? Or were you not getting other folks coming in off the street, because you were already known for your divorce thing – was that why people showed up?

Lou: No, I still continue to receive referrals from a number of different places. This is where the relationships with the COIs come in, in that they’ve come here, they’ve heard the conversation with a broker-dealer (now an RIA) and understand how I do things. I have given demonstrations of RightCapital, Riskalyze, and explained the custodial relationship.

I do have to make sure I acknowledge something right now because I think it’s important. I have a women’s advisory board that Nicky Sutton and I put together as part of Tranquilli Financial Advisor. So again, I talk about all the parts that I did get wrong, but that’s been the greatest thing I’ve gotten right, Michael, is that I started this study group…

How Lou’s Advisory Board Has Focused and Grown His Niche [01:32:13]

Michael: Yeah, can you talk a little bit more about what this women’s advisory board is?

Lou: Sure, sure, sure. The financial advisor study group was really great, and then the women’s advisory board – I wanted to understand what I could do to deliver information in a way that people...not the way I wanted to deliver it or I wanted to say it.. but in a way they needed to hear it and needed to receive it. So we put together a group of clients and non-clients. There are six members of the advisory board, and I want to say we’ve been meeting for five years, I think. We just had a meeting not long ago. And their insight on things like my logo, Michael, I had a few designers draw up my logo…

Michael: What was wrong with your logo?

Lou: Yeah. I put the logo in front of them and said, “Here it is. What logo do you prefer?” And they picked the logo. But it’s about things like that. It’s that piece of the business that is so important to me. Even the name of the business. I’ve listened to your podcast, I’ve heard the marketing people, I’ve heard, “Get away from naming it after yourself” and everything else. Well, my last name is Tranquilli, and to their point, “No, that’s the name. That’s a name that if someone is interested in working with you, I think you’re going to take a level of interest in hearing it.” So I stuck with it, and I appreciated that.

But there are so many other parts of it. We were talking about referrals to other clients. They referred me to clients, of course, but they also gave me confidence in the way I was delivering and offering financial advice. I knew that with their knowledge of how I would deliver it, that I was doing it in the best fashion I could. It has been invaluable.

Michael: So how did this advisory board get picked, or created, or established in the first place? How do you put something like this together?

Lou: It’s a good question; I’ve had it time and again. The way you put it together is you sit down with whomever it is that you’re working with in a marketing capacity, or in a coaching capacity, and explain who it is you’re happiest to see when they walk through the door or, like you said, walking down the street if you were to run into them and they were to show a genuine interest in your business, in you. And you start there. Of course, I think good clients are representative of who you’d like to work with moving forward. So it really is a matter of going through different clients. And fortunately, it wasn’t a challenge, if you will, to get to the group as it is because I had so many great choices. It was really more of a challenge to say, “Who is not going to be a part of it?” because there are so many.

Michael: So is everyone on the advisory board a current client then?

Lou: They weren’t when it started, but they are now, is the answer. I did not specifically sit down and say, “I want to do this.” They didn’t have to be clients, they had to be people I knew professionally and respected and, again, who showed an interest in my business. Two of the people who I started with, so 33% of the advisory board, were clients at the time; eventually the rest also became clients. And I will let you know that on LinkedIn, there are some articles that I wrote in the past that are about the advisory board and how I  started it.

Michael: Okay. We’ll make sure we get a link out to that as well. This is episode 137, so if you go to kitces.com/137, we’ll have some links out for Lou’s articles on starting his advisory board.

The one other question I do have to ask, just particularly from the context of the people who joined who were not clients, just help me understand how that conversation goes. I know how it would go with an existing client – something like, “Hey, we’re forming an advisory board to get better feedback from the people who we work with. We’d love you to be on the advisory board to give feedback about what we’re doing for you.” It’s pretty straightforward for a client. They kind of have a self-interest because they’re already being served, and they would like to be served better and give their two cents. But how does that work for a non-client when you’re going to them and saying, “Hey, I’d like you to be on my advisory board even though I don’t actually work with you in the first place?”

Lou: Certainly, it has to be a strong relationship with someone who I’ve spoken to in some business capacity. One of the non-clients is a real estate agent and we crossed paths with some people who she had sold to or purchased from, or helped purchase homes locally. So I knew her, and she knew me. We had this tangential relationship where we knew of each other. And at one point, I just said, “How about if I buy a cup of coffee and we get to talking?” So we did. We probably spoke for six or eight months about work, and our different challenges at work. And when the advisory board was being put together, she was front and center as a non-client who I thought, “All right, so this is somebody who doesn’t know the way I do business.” And...you asked how I presented it, that’s how I presented it.

The other person is a technology person. I went to both of them and said, “You don’t do business with me, so I would like to hear from you. How do you do business with the people you work with?  Or, how do you perceive that you would want to do business with someone like me?” And that was really helpful, not only to me, but to women on the advisory board because they could feed off that outside perspective of not having sat down with Lou and gone through the process.

Michael: So you put together the advisory board, you formed this niche. It took you relatively quickly from $17 million to $55 million as you became known as the person. Now, as you said earlier, you’re just over $100 million. So were there other milestones that came during the journey along the way, or has it largely been, “Hey, once we find our thing that works around this niche, we’ll just wash, rinse, and repeat on the niche,” and it just compounded its way straight on to $100 million?”

Lou: Well, I mentioned earlier, I have now purchased three other advisors’ books of business, Michael. So the niche led to a very strong base of being with an independent broker-dealer. It allowed me the possibility of saying, “I think I’ve built a structure that can handle additional clients, additional assets under management,” because, as I mentioned, I used third-party money managers. So I was looking for advisors to purchase. I did go to the broker-dealer directly and made it known that I wanted to make that happen. I started  very small. I’m fond of saying that “you paint the closet.” If you’re painting a room and you don’t know what you’re doing, you can start in the closet where nobody will see your mistakes. I purchased a $1.5 million book of business. It was small, but it was someone who wanted to retire. And when I say he wanted to retire, it was August 1st, and by September 1st, he wanted to be in Florida.

Michael: So like, “See them now, get it figured out, I’m gone in 30 days.”

Lou: That is correct. Yes. Now, don’t forget, I’m busy moving everything onto Redtail, and doing everything else, all during this whole conversation we’re having. He shows up with three milk crates that look like they were from maybe 1968, when I was two years old. I don’t even know when they were from. We had to wade through those and work through them. We ended up with some really, really excellent clients from that book of business. So that was the first.

And then another advisor with a $10 million book of brokerage business, that was an interesting purchase. We had to go through conversations of how I work and how he worked. And that also went very, very well. I converted about $8 million of that brokerage business over to my model.

And then the latest purchase was from an advisor with just under $20 million of assets under management. I’m in the process of paying for her business over the course of the next few years. So that was the exponential growth from the efforts in the office and then externally through the purchase from other advisors. And I’d like to continue on with both, and even create one additional niche to work with.

Michael: So as you look back at this journey over 25 odd years from insurance agent to broker-dealer into the hybrid side and over to full RIA, what surprised you the most about trying to build your advisory business?

Lou: Oh, it’s a lot of work. And again, I want to give all the proper respect I can to the guests who have come on before you, because I’ve really enjoyed hearing their stories and the way they work. I think they would agree, you choose the way that you’re going to work. Sometimes you feel like you’ve chosen wrong, that you made the wrong choice in how you do it, because of the shiny new thing, that the grass is greener, or whatever parable you want to apply. But it’s out there and you just have to be dedicated to finding the people who are right for you. And that may be the engineer for one person, that may be the doctor for another person, that may be a divorced person for another. I think you have to seek that out.

And that’s been the challenge always. I appreciate the compliment that you gave me before, about reading Oechsli’s book and “The E Myth”, and then doing what they said. But there are also a lot of things I didn’t listen to along the way, one of which was to pick a niche. Go do it. If you’re young, or if you’ve recently graduated from school, find those recent graduates who you can work with, and build a base with them. Find a market that works or a niche that works for you, and go with it. And enjoy it. It’s enjoyable.

Michael: Did you ever have fears or concerns along the way, as you focused on your niche, of the clients you weren’t going to get because you were focusing into a niche?  So they’re like, “Oh, well, Lou works with divorcees, I’m not a divorcee so I’m not going to call Lou anymore?”

Lou: Well, how about if I answer that with this, Michael – I know there have been people who have not called me because they think I only work with divorced women. And, it’s okay.

Michael: One hundred million dollars later, it doesn’t seem to have been a deal-killer for the business.

Lou: Not at all, and that’s okay. I’ve even had other professionals like the COIs express concerns about, and again, respectfully, marketing to women. They don’t want to see me as marketing to women, they want to see me as a resource. Fortunately, after that was expressed to me, I took it to heart and went back to the people who I work with and said, “This is the feedback that I received and I think it needs to be contemplated, considered, and appreciated, actually.” Because how do you get better other than by hearing some honest feedback from others? I took that concern and made sure that we were presenting advice to the people who needed the advice at the time they were sitting in the office.

Lou’s Difficult Decision To Leave The Insurance Business [01:45:07]

Michael: So what was the low point for you?

Lou: I want to say 2008, of course, but...what was the low point of the last decade or...?

Michael: The whole journey?

Lou: Oh, that’s a really awesome question. Okay.

Michael: Twenty-five years of ups and downs?

Lou: Sure. Sure. And I cannot wait for the next 25 years of ups and downs. I mean that, too. This is the greatest gig ever – I just love what I do. So I will answer it with…the break from the insurance business was not easy. Those who have been in the insurance business, and you are one of them, know what the “top of the table” is. And I was top of the table. I never made it to Court of the Table, but I was top of the table. And that was a hard break. I worked through a brokerage out in Utah when I ultimately left Provident Mutual. I didn’t work for them, I worked through them. And I had my rep who was very good at his job. He called me up and he said, “Where did you go?” Yeah, I told him what I had done. I said, “I made this break.” I said I was Cortés burning the boats. And he was very disappointed, Michael, as you can imagine.

But I stuck to it. The low point was a series of years, frankly, in making the decision to cut the cord from that sales job and become truly an advisor to clients. There were four or five years, Michael, of concern. I have four kids, like I said, and I have a wife. Like everyone else, we have bills and all those things that come along with being a person. And my business manager, Flory Cook, who’s a wonderful human being – I’m so blessed to have her as part of this journey – she questioned me hard with the numbers. Like, “Look at this. This is what it was, and this is what it is. Are you insane?” But I stuck to it. And now I really feel good about not only where I am, but where I’m going as well.

Michael: So was there a particular turning point after you made this transition, and Flory is reminding you how nuts you were; was there some transition point or moment where you were looking and saying, “Okay, I think I’ve made it, or I think I’m going to make it” or, “The patient is going to live!”?

Lou: Yes, is the answer to that. The patient will live. I sat with the study group, and I had written down my goal of $100 million. I was admittedly not confident, Michael, of getting there. That was at the beginning, and I was not confident because, with all the background things we’ve talked about, I couldn’t conceive the thought of $100 million under management. I was at $7 million or $8 million or $17 million at the time.

Well, I started by hiring Nicola Sutton, as I mentioned, and from there, once I built a niche and saw it and felt it, I then put together the advisory board and knew I was going in the right direction. I would say three things over the course of a year and a half’s time; I thought, “Wow, this is the right way to do this. I’m going to get there. I’m going to get there.” And from there, I’ve been extremely confident in the approach, even when somebody calls up and says, “No, I’m not doing business with you because I’m not paying you to manage money or write a plan or anything like that.”

For the business plan moving forward, I do have to take some time as this new RIA entity; I have to understand compliance, as I said earlier. I think back to one life insurance remnant, if you will, which is, “If you’re not growing, you’re dying.” I do want to grow – I do. And that’s where it’s going. I do want to find those advisors who are looking to retire. And I now work with clients all over the country because of purchasing other advisors’ businesses or because clients have moved.

I think from here I have to focus internally on the infrastructure, because I don’t want to grow and not take the time to be sure that I am working with the people who are already clients and perfecting the client experience that they have with Tranquilli Financial Advisor. That is key to the future. Perfect how I’m doing it now as much as I can, because it’s always under construction. It’s never done. We can always work 24 hours in this job, always. I know everybody listening knows what I’m talking about there. So it’s to perfect the client experience so I can then replicate that through who knows how many households, that CFP hire who I mentioned, and those external, efficient, virtual or remote assistants and remote companies that are out in the world. There’s so much talent out there. I want to go find it and build it from here out there.

Michael: So, as we wrap up, this is a podcast about success, and one of the themes that always comes up is even just that the word “success” means different things to different people. You built this successful firm over 25 years to $100 million under management, a 63% profit margin, but how do you define success for yourself at this point?

Lou: Well, I would say a good night’s sleep, Michael, and the way that I’m doing business with the people who choose to work with me, and really doing as good as I can for them. The success is in the fact that I can lay my head down and know that I have had a conversation with someone who needed the advice and I delivered the advice to them or could direct them to someone that could properly advise them. I feel very successful that I am willing to say to someone across the table from me, “I’m not the person who you should be doing business with, but I know the person you should be doing business with and I’m going to get you to that person.” So from a business standpoint, the lack of a need to look across the table and say, “I’ve got to get this person as a client.” Instead, it’s, “I’ve got to get this person here or to the right person.”

And then personally, it’s the peace of knowing that I take good care of a nice family and I’ve got really good friends. I’ve got friends in the advisory business, and I just love that. That’s a success to me. That I have other financial advisors who I count amongst my very best friends.

Michael: I love that framing at the end, of just getting to the point in your business where you can say, “I don’t need this client. I don’t have to get this client to the point that I’m going to push to work with them even though they’re perhaps not really the right fit.” That, at the end of the day, there are so many clients out there, there are so many opportunities out there, there are a lot of other advisors. It’s okay just to send someone who’s not a fit to another advisor for whom they’re a better fit, and wait for your next at-bat to get the client who is the right fit for you.

Lou: Yes, sir.

Michael: I love it. I love it.

Well, thank you, Lou, for joining us on the “Financial Advisor Success” podcast.

Lou: Truly a pleasure to take a walk down memory lane. I hope it’s helpful for those who have been there and for those who are going there as well.

Michael: Well, amen. Thank you. Thank you for sharing the journey.

Lou: Pleasure.