#FASuccess Ep 007: Matthew Jarvis On Building a Highly Profitable Lifestyle Practice by Age 35

What You’ll Learn In This Podcast Episode

• • Why Matthew has intentionally kept his firm small to protect his lifestyle, while still enjoying well-above-average profits as a solo advisor. [6:50]
  • The service model for Jarvis’ clients, including how many meetings they have a year, and the resources they give clients. [8:57]
  • The exact technology that Matthew and his team have invested heavily into, in order to efficiently run the firm. [21:30]
  • How Matthew uses a retirement guardrails approach to create spending recommendations for his clients, and the simple one-page update he gives them at every meeting. [24:30]

• Why it’s important to clearly illustrate for clients what will happen to their portfolios when markets drop - and how to do it simply. [27:50]
• How Matthew got into the financial planning industry before he even graduated college. [36:37]
• How to get accountants and attorneys to refer clients back to you. [54:01]
• The criticisms of lifestyle practices in the industry, and Matthew’s response. [1:08:50]
• Why Matthew places so much emphasis on investing in his team, despite (and actually, because of) his plans to keep it small. [1:13:07]

Resources Featured In This Episode:

• Matthew Jarvis - Jarvis Financial Services
• Matthew’s Spending Guardrail Report (PDF)
• Academy of Preferred Financial Advisors
• Episode 002: Love-Affair Marketing and Amplifying Your Successful Business with Ron Carson
• Redtail
• Fidelity
• Black Diamond from Advent
• TRX/Morningstar
• Becoming a Rainmaker: Creating a Downpour of Serious Money by Matthew Oechsli
• Million Dollar Producer from Tom Gau
• Behavioral Investment Counseling by Nick Murray
• The Game of Numbers by Nick Murray
• Excellent Investment Advisor by Nick Murray

Full Transcript: Matthew Jarvis On Building a Highly Profitable Lifestyle Practice by Age 35

Michael: Welcome, everyone. Welcome to the seventh episode of the Financial Advisor Success Podcast. My guest on today's podcast is Matthew Jarvis. Matthew runs what most financial advisors would call a lifestyle practice. He has two staff members who support him, serving 150 clients, takes off more than 80 days each year for vacation and travel and to spend time with his kids. Yet despite that admirable work-life balance, Matthew has what most would consider to be an incredibly profitable and successful financial advisory firm. He manages almost $115 million, generates nearly $1 million of gross revenue, and the business earns with a whopping 54% profit margin. Oh, and Matthew is just 35 years old.

So in this episode Matthew shares how he built his advisory firm from taking over his father's not very profitable advisory firm in the depths of the financial crisis to getting more efficient and serving clients because the firm had to after downsizing staff in the financial crisis to the breakthrough he had after trying and not succeeding with multiple different sales and marketing programs from financial advisors, until he finally found the Academy of Preferred Financial Advisors in 2011 which helped him systematize bringing on $10 to $15 million in new assets every year since. And be certain to listen to the end where Matthew shares his strategy for time blocking how he maximizes his personal productivity, which in turn allows him to maximize the number of days he can spend out of the office.

And remember, if you want to check out any of the resources mentioned in this podcast, including a one-page retirement planning spreadsheet that Matthew shares with and uses with his clients, you can go to www.kitces.com/7 to access the show notes. That's www.K-I-T-C-E-S.com/ and the number 7. And so with that introduction, I hope you enjoy this episode of the Financial Advisor Success Podcast with Matthew Jarvis.

Welcome, Matthew Jarvis, to the Financial Advisor Success Podcast.

Matthew: Well, thanks for having me, Michael, I really appreciate it.

Michael: So I'm excited to have you joining us today with I think is a little bit of a different story than some of the advisors that we've had on the podcast so far. Some of them built some pretty cool businesses, some very large businesses, and one of the discussions that has long been rampant in the advisory world is this whole idea of "Is it necessary to grow? Should you always grow? Can you just build a practice that's meant to support your lifestyle?," some people literally call them lifestyle practices. And your business very much looks like, I think, what a lot of people would call a lifestyle practice. And so I think it's a fascinating story to share with advisors about what a well-executed lifestyle practice looks like.

So can you take us through a little? Paint a picture for us of your advisory firm of Jarvis Financial Services.

Matthew: Yeah, I'm glad to. And like I said, I'm just a little bit nervous. I just got done reading your Success Podcast of Ron Carson, who of course brings in more money each month than I think we manage in total. So a lifestyle practice indeed. So I'm the sole owner and primary practitioner of Jarvis Financial Services, investment advisor in the State of Washington. Not the capital, but the state, like Seattle. We just finished the year with about $115 million under management, which our ADV will reflect that shortly. I've got, of course, myself, I have a full-time office manager, and then I have kind of a part-time back office person, which I'll talk more about that later. And he's just moving more to full-time this year so that I can take more time off work.

Like you mentioned, I have a lifestyle practice, which means last year I took off 83 days, not counting weekends. So that's like 187 altogether. So I managed to not work more days than I worked.

Michael: Took off 83 workdays, plus the roughly 100 days of Saturdays and Sundays for 52 weeks a year. So I guess if we look at it from the other end, there's roughly, what, 180 days left or so? So you actually are working three or four days a week?

Matthew: Yeah, correct, when you average it out. Earlier in this year I took my family to China for three weeks. Well, I guess in 2016. So sometimes it's blocks of time. But it's never Fridays, and it's a lot of other days gone, too.

Michael: Okay. So certainly I get it from the lifestyle end of a business. That you're just working a couple of days a week, and then the rest of the time enjoying your life. So talk just about the metrics of the business. $115 million, that's a pretty healthy size number. Are you charging about the typical 1% AUM fee? Is this a million dollars of gross revenue, give or take a little?

Matthew: Yeah, we're basically a 1% AUM fee, so 2016 we were just about a million dollars of revenue.

Michael: Okay. So that's for you and a full-time office manager and a part-time kind of support advisor role? And then some, I'm sure, business overhead expenses, as well.

Matthew: Yeah, we definitely have business overhead expenses. For me to be able to travel like I do, we invest really heavily in technology and invest pretty heavily in that one and a half people I have. They're paid really well because they're very good at what they do.

Michael: So for a million dollars of gross revenue, do you look at this from a profit margin end and manage to a certain profit margin for the business?

Matthew: I don't. I watch carefully kind of my expenses. Last year, let's see, 2016 was about a 54% profit margin, if you include my revenue in there. For a true profit margin you'd have to back out what it would cost to replace me. Total money that leaves the company and comes to me I guess is about 54%.

Michael: Wow. So like 54% on a million dollars of gross revenue. So that's quite an income for taking off 83 workdays over the past year. Right? Do you do that down to how much money you make per hour or per day at that point?

Matthew: Yeah, I actually do, I track all those things mostly just to keep myself honest. So revenue per day for the company is about $5,300, and then income to me is about $2,800. For whatever that's worth, it's sort of just a fun figure to look at.

Michael: Well, it is, and I think it helps frame dollars based on number of days, number of working days, and what that looks like.

Why Matthew Has Intentionally Kept His Firm Small To Protect His Lifestyle [6:50]

Matthew: Yeah, I definitely like to think if I worked more days I would make quite a bit more money. But at this point, for me, I've intentionally picked a lifestyle over the money. Not to say that I don't make a pretty substantial income.

Michael: Well, yeah, I was going to say, and I was saying that, taking home a 50-plus percent profit margin on a million dollars of revenue while taking off 83 weekdays of the year, plus weekends, not wanting to put your full time into it, that's a pretty good, healthy dollar amount that's adding up to.

Matthew: Yeah, and for me especially. We're in a suburb of Seattle, but not an affluent suburb by any means. Neither of my parents had college degree, so I didn't grow up with any kind of money. And so this is more money than I knew existed in the world, let alone the amount I would be making.

Michael: And so what does the client base look like? This is easy to manage on limited time because you've got five clients who've got $20 million each and that's how we get to $100 million? Or what do the clients look like that support this asset base and the practice that you're serving?

Matthew: Yeah, so we ended 2016 with 154 clients, so it comes out to about $750,000 average nest egg. They're all retirees, so it's people basically that have been really good about cranking money into their 401(k) plan, kind of mid-level management, that type of thing.

Michael: I was going to say at a $750,000-dollar average account size, you're squarely in what at least the industry would call the mass affluent folks, those people at...well, it usually gets broadly defined as $100,000 to a million, but I think it's an interesting frame. You're not moving in ultra-high-net-worth circles where every client brings tens of thousands of dollars of revenue so you only need a couple of clients to make the math work up, but you're grinding it out with some reasonably affluent folks who have saved well for their retirement. But again, as you said, the $750,000-dollar average, we're not talking about multi-multimillionaires here necessarily.

Matthew: No, they're definitely well above kind of average American, but they're not...again, most of them just had mid-level management jobs and were really good at saving money.

Jarvis Financial's Service Model [8:57]

Michael: So what does the service model look like for them? Even just with 150 clients, when you're aiming to only work, what, 150 to 200 days in total? There's only so many days you're going to see these folks. So what does the servicing look like? Do you at this point just see them once a year to check in because that's all they need? Are you more intensive and you just meet with them a whole lot during the days that you're working, but you just don't work a lot of days in total?

Matthew: Yeah. So with our kind of A and B level clients, which is about 104 of the 154, I meet with them two or three times a year, unless they've said, "Matthew, I just want to see you once a year and I'm good. You take care of things." But most of them, we're offering them appointments two to three times a year, pending no major life event or craziness in the markets.

So when I'm meeting with clients I meet with a lot of clients. And that was part of what got me to taking more time off work, is I started grouping my appointments together. So the quarter would begin, we would take care of billing and statements and all of those things, reconciling accounts. And then for the next four to five weeks I would cram in as many appointments as I could so that the rest of the quarter I could focus on strategic level things working on the business. And then I got to a point I thought, "Well, if I'm not having meetings during these weeks, I don't necessarily need to be around." That's how I got to taking more time off.

Michael: Do you still kind of manage it like that, where you get intensive meeting periods after quarter closes where you're doing billing and then you're doing quarterly updates and meeting with the clients that want to meet in that quarter intensively for the first four to six weeks after the quarter closes, and then the second half of each quarter is lighter for you?

Matthew: Yeah. And I have to, right? Like you mention, with the number of days I take off, I've got to be very intentional about that, getting those appointments in. And also for clients, if I sort of just let it spread throughout the year and a client calls the day after I left for China for three weeks with my family and they say, "Hey, can I come see Matthew?," and they say, "Well, he's not going to be in for a month," that would be a problem. But if they just met with me before I left and they know they're going to meet with me in six months, usually it's not a problem.

Michael: So you're proactive about the meetings in part so that they can't come back to you later and say, "Hey, I tried to call you and you were gone for a month because you were traveling." You can say, "Well, I called you a month ago and offered you an appointment and you declined it, so I'm not going to feel guilty that I was in China."

Matthew: Yeah. That's right.

Michael: Do clients know that you travel as much as you do, that you may or may not be available all the time? I feel like for a lot of us as advisors it feels like there's this pressure I would be afraid to be traveling incommunicado that long. That if clients want to reach me and they can't, they're going to be upset. If they want to reach me and they can't because they find out I'm on an extended vacation because I'm making so much money off of them, right? If you want to be really cynical about it. That that could turn into a negative. Do you feel that kind of friction, do you ever worry that clients will start asking questions, like, "Jeez, I feel like I pay Matthew a lot of money and he seems to take a lot of vacations, I'm going to reevaluate this relationship"?

Matthew: It's definitely managing expectations. When we went to China for three weeks, I was almost totally out of the pocket because of Internet and different things. And so we warn clients about that, we said, "Hey, I'm going to be gone for three weeks. Colleen will be here and Nathaniel will be here, but I'm going to be gone." But otherwise, no. I have my cell phone and I have my e-mail. We've got really good systems in place for making sure that clients' needs are always met, whether I'm in the office or not.

Michael: So tell us a little bit about what that infrastructure looks like around you. So 150 clients, I guess you said you're meeting with your As and Bs two or three times a year, at least if they'll cooperate. As we all know, some clients, after a while they get comfortable with us and they don't even want to come in and meet anymore. So I'm imagining you've got probably 200-plus meetings to spread across the days that you're working, but then you've got this team around you. So what do your support team actually do? What do you still do and what do they do in the practice?

Matthew: Well, my goal is that I only do things that only I can do. Which is sort of a cliché to say, but it definitely is a target to work for. So for example, when I'm having appointment weeks, and I can look actually over at my desk right now and there's case files set up for every client who's coming in this week with any paperwork that's needed. If we need a new copy of their driver's license, that's noted there. Any files, anything, handouts I want to use with them, all of that's lined out. So sort of like the doctor, I can, 10 minutes before they come in, pull open their case, look at my memos from the last meetings, know exactly what I need to do. So I spend an hour meeting with them, but I only needed 10 minutes before and 10 minutes after to handle my portion of that appointment. Which is how I can get so many in when I'm working.

Michael: So how many do you block in together when you're working? What do those busy weeks look like for you?

Matthew: So it's usually about four appointments a day. So four appointments a day, three to four days a week, until we get through them. And then it will start to taper off on both ends.

Michael: And so you just kind of go out to clients like, "Hey, I got 9:00, 11:00, 1:00, and 3:00 two-hour slots. Let me know which one you want. Here they are for the quarter"?

Matthew: Yeah, usually the way it works is I'll send out a blanket e-mail to all the clients, if we hadn't met with them just recently, saying, "Hey, I want to get together and meet with you now that the quarter has ended and I want to talk about these three things." Maybe it's estate planning, maybe it's long-term care, maybe it's tax planning. "Please e-mail Colleen," who's on that e-mail, "and tell her when you're available." And then she works through with them all to get them all on the calendar. And then she keeps a list of anybody she didn't get a hold of so I can give them a call and just check in with them.

Michael: Okay. So you'll at least try to do a check-in call with anybody that you can't get in for the quarterly meeting, so you're effectively touching the clients quarterly?

Matthew: Twice a year, yeah. Because, again, we try to...I'll do appointments every quarter, but I try to get the bulk of the clients kind of in the spring and in the fall. Because they travel in the summer, people are gone in the winter. We have a lot of snowbirds. Because we're in Washington, a lot of people go to Arizona and they're not around.

Michael: There's a quarterly meeting rhythm for the business. But not every client you're trying to bring in every quarter, some of the Q1s and some of the Q2s. But between the two you try to talk to them all on the first half of the year, and then repeat Q3 and Q4? What does it look like from the growth, sort of the new client perspective? Because for most advisory firms once people are on board for a while, it gets a little more routine, it's a little easier to manage, there's more things the staff can do, new clients tend to be a little more service-intensive, more meetings to get everything up to speed and go through some kind of initial planning process. So are you even taking on new clients at this point, or what does growth look like for you?

Matthew: Yeah, great question. We still are taking on clients, in case there's any prospects listening to this podcast. We are, however, very particular about who we take on, so we have a very solid minimum at $500,000. It means that the universe sends me a lot of people at $450,000 to test my resolve. And we refer all those away, we don't make exceptions.

Michael: No compromises on "I'm $450,000, but I promise I'll be a good client"?

Matthew: Yeah, really not. And I guess a lot of people kind of question me on that, if that's legit, but it is. And I could take on lots of $400,000-dollar clients, but when I look at that I think, "All right, that's going to eat away into my time with my family, my lifestyle time. Am I really willing to give that up?" And for me the answer is "no." If you come in with $400,000, the answer is "no."

Michael: So is there a way that you set the $500,000? Is it just like, "I'm comfortable with this is a round number"? Or did you do some kind of internal cost accounting to say, "Hey, clients about X aren't very profitable to us"? Or do you do it off your time, "It takes this many hours for me to service a client. So if you're not at least $500,000-dollar assets and $5,000 of revenue, then you're not advancing the value of my time"? How do you set those thresholds?

Matthew: Yeah, that's a good question. I wish I could say it was something as scientific as that. When I first set up a minimum it was $250,000. And if I'm going to be really honest, Michael, I got the courage a few years back to raise it to $500,000 and I haven't had the courage to raise it past then. And that might kind of sound kind of silly, but that's kind of where it is for me.

Michael: No, I hear you. For so many advisors I know, almost everybody it seems in the first few years goes through this process of raising their minimums and kind of raising their minimum requirements for clients. And I think sometimes it's because we start getting the business known a little and we start getting a little more referrals and stuff coming in and just there's more flow, so it's okay to say "no" to some people because you're still getting enough clients and growth to make it work. And for the rest of the time I think for most of us it's just I got to get enough clients and growth so I feel the courage to go to someone and tell them to their face, "No, I'm not going to take you because you don't have enough money." And just it takes a while to build up to that, to build that resolve.

Matthew: Yeah. And it would be easy for someone to listen to this saying, "Well, Matthew makes a lot of money, of course he can set a high minimum." But I set high minimums before I was making anywhere close to the kind of money. It really was a leap of faith to say, "All right, I'm not going to take anybody below $250,000." That was really hard to do.

Michael: And so what was the dynamic for you the first couple of time you didn't have the total income you still wanted and someone came with $180,000 and they were pretty young and they were still saving and you're like, "Well, maybe this may or may not be a million-dollar client someday, but right now they're $180,000 and I'm just saying 'no'"? What goes through your head?

Matthew: Back then it was, "What's my wife going to say when I didn't take on that client and I'm trying to explain to her why we keep pouring all the money back into the business?" It was tough. I like Nick Murray's work a lot, he talks a lot about making deposits in the universe, however you want to frame that. That every time you turned away a client who's not going to fit, one is lining up for you. And whether people buy into that or not, that keeps me going. So back then it was every time I said "no," I thought, "All right, there's got to be a 'yes' out there for me."

Michael: And so that whole Nick Murray Game of Numbers and all that stuff of just "I'm going to accept there are some people I'm going to turn away because I'm just moving on to the next one"?

Matthew: Yeah. And then it got to the point where I was making a little bit more money, still a lot less than I do now, and I said, "All right, well, this is the kind of practice I want to have. I don't want to have 500 clients where I can't keep track of them and they're at 50 different mutual fund companies and I'm scrambling to try to figure out up from down." I said, "We're going to really just streamline this, we're going to just do one thing really well. We're not going to offer mortgages, we're not going to do long-term care insurance, we're just going to do one thing really well and refer out everything else."

Michael: And that kind of formulated for you around investment management for retirees, that's the focus at this point?

Matthew: Yeah. And it kind of always has been. Like I said, where I live in the suburb no one other than retirees has any money. And I say that with respect. It's just there's not tech wealth in our suburb, there's not people with money other than retirees.

Michael: Right. Just the subset of people who managed to live a moderate lifestyle and earned a little more than they spent and saved and just compound that out for 30 years and you might get a half-million to a million-dollar 401(k) and that's your client.

Matthew: Yeah. And kind of in my experience those are sort of the nicest people to work with. They're obviously diligent savers. They know enough about money to save money, but they don't have so much money that they think they need sophisticated things. They don't come in asking for hedge funds and bizarre alternatives. They just say, "Hey, how much income can I take and can you make it last 30 or 40 years?"

Michael: Yeah. I have to admit I've long leaned that way, as well, even in practicing across some clients. I enjoy working with those households from, I kind of found it from a couple hundred thousand dollars up to maybe a few million dollars where there's enough dollars at stake that it feels like the advice is meaningful and impactful and I can have a material impact on their outcomes because there's enough dollars at stake for the advice to have some impact. But not so much dollars that that kind of attitude shift that starts to happen like, "Well, I feel like I'm so wealthy I should have more fancy things that you're not doing for me and I don't enjoy it." I know there are people that do those clients and they're very good at them, but I don't enjoy those clients personally, I have to admit.

Matthew: Yeah, I like the intellectual challenge of it. And I've worked with some really large clients and it's fun to do those complicated estate planning and tax planning things. But as far as my bread and butter, that's not where I want to be.

The Technology Matthew Uses To Efficiently Run His Firm [21:30]

Michael: Tell me about kind of the technology infrastructure around the business and how you built it. What are the tech tools that you're built on?

Matthew: Yeah, our tech tools now, last year we switched over to Redtail for our CRM. We had been using Junxure for several years, which anyone who uses Junxure knows that it's pretty intense. The impetus for our change is we wanted to go into the cloud, and Junxure's cloud version at that time was a whole different platform. So we thought, "If we're going to learn a whole new platform, we're going to look at all of them." And we ended up settling on Redtail, which has been great, we really love it.

Michael: Was there a particular feature that just pulls you over to the Redtail side, or just the whole experience of it? Junxure certainly has a reasonably robust cloud solution now, so I'm curious just what leads you to make the Redtail change, as opposed to just staying on the Junxure platform. Which, granted, it's new, but at least it's semi-familiar.

Matthew: Yeah. The cloud version we looked at, and that was, again, about two years ago now, was quite a bit different than the desktop version. So it was going to have a learning curve. And so as we compared their cloud version of their software to what Redtail was offering and several others, we just really liked to simplicity of Redtail, we liked how easy it was for the team to view things, to see what other people had done, we liked how it recorded e-mails. There was a lot of features that just really resonated for how we practice.

Michael: So Redtail is the CRM hub, then what does it look like on the portfolio performance reporting side?

Matthew: We custody with Fidelity through their IWS platform, which is for RIAs. So we have all of our assets with one custodian, which was very intentional, we wanted that to be easy. We used Black Diamond, which now belongs to Advent, for all of our performance reporting. So we generate quarterly performance statements for the clients and send those out so they can see what's going on. That also generates our billing that we feed into Fidelity. And then currently we use TRX for our rebalancing software. But as I'm sure you're aware, MorningStar just bought TRX and the prices went up substantially. So we're in the market for a new balancer software.

Michael: Okay. But I know there's some rebalancing tools built in around Advent's Black Diamond capabilities. Is that not appealing at this point or you like the feature set of TRX, just not the new price point for it?

Matthew: Black Diamond does have trading tools, and Fidelity has some of their own trading tools, as well. The last I looked, which was recently, neither of them has household level rebalancing. So if you have a model that will assign the same five holdings to all five accounts instead of doing it across the household.

Michael: Okay. So you can't do the asset location capabilities the way that TRX and iRebal and some of the others can?

Matthew: Yeah. TRX is incredibly robust when it comes to household level and asset location optimization.

Michael: The virtue of founded by Sheryl Rowling is a CPA financial planner. So God bless Sheryl, leave it to a CPA financial planner to make a really tax-robust rebalancing tool. She did a great job.

Matthew: She did a great job, she's a brilliant, brilliant person when it comes to that stuff.

Matthew's Guardrail Approach To Making Spending Recommendations [24:30]

Michael: So Redtail on CRM, Black Diamond for portfolio performance reporting. So at least for law advisory firms, kind of the third pillar is financial planning software. So do you use a financial planning software platform, as well?

Matthew: So this might sound blasphemous to most people, but after a few years of realizing that all of our clients were retirees, we started not to see a lot of need for a lot of the financial planning software that was out there. Part of it was that it generated too much for most clients to comprehend, right? It would generate this 50-page report and the client would look at it and say, "All right, but can I retire?" "Yeah, you can," or, "you can't," right? And when you're a year out form retirement, there's not really anything to model. We're just going to say, "How much do we think we can generate in income through various market cycles?," but it's not like we can make any big lever pulls when you're a year out. You're either going to make it or you're not.

Michael: Right. The lever pull is either you're going to make it or you're not. And if you're not, "Well, tell me how much longer I got to work until I can make it, and then I'll come back to you and pull the trigger."

Matthew: Yeah. And I wouldn't take that person on as a client. If they wanted to retire with unrealistic expectations, we're going to say, "Hey, we don't command sinking ships, you're going to have to find somebody else." Which is a tough conversation to have.

Michael: Do you actually say that to them, "We don't command sinking ships"? It's a good analogy.

Matthew: I try to be more graceful than that. With prospects, usually we can steer them away before we get too far into it. But, for example, a client, if they say, and this happened last year, a client said, "Matthew, you told me I could take $5,000 a month, but I really need to take $7,000." And I said, "Well, we just can't do that, your portfolio can't handle $7,000, it's going to run out and I don't want to be there when it runs out. And so if you can't stay with $5,000, you're going to have to find a new advisor." And they said, "Great, I'll find a new advisor." "Okay."

Michael: So how do you figure out whether they've got enough to spend, right? At the most basic level that's at least a question we're trying to answer with the planning software, we could debate whether sometimes we answer it too arduously with a 50-page plan for a "yes" or "no" question. But presuming you've still got to do some kind of evaluation to figure out whether their expectation is realistic in the first place. So how do you come to that conclusion? Are you building your own tools in Excel that do this analysis? Do you just kind of have your own rules of thumb or targets about how you figure out whether someone's spending is reasonable relative to their assets?

Matthew: Yeah, let me kind of take that in two spots. When I'm meeting with somebody we get a real firm handle on how much money they're spending now, which we just strictly look at it on a basis of how much money do you take home. If you're taking home $5,000 a month, then your lifestyle costs about $5,000 a month. "Here's your Social Security, here's how much a portfolio of your size can generate," and those either match up or they don't. Then if they don't, it's sort of on the client, not me. They've got to figure out how to get their lifestyle in line with what they can do.

Michael: And when you talk about targets, like, "Here's how much a portfolio at your size can produce," how do you come to that number? Do you guys build income-producing portfolios with dividends and interest and you just "here's the number we can invest, this is what you can spend"? Or are you a kind of safe withdraw rate style kind of spending targets? How do you set that number?

Matthew: Yeah, so we're more in the safe withdraw category. We use kind of the dynamic safe withdraw distribution rates, which I know you've written about quite a bit, there's been several white papers in the journal.

Michael: Guyton's rules.

Why It's Important To Clearly Illustrate To Clients What Will Happen If The Market Drops [27:50]

Matthew: Yeah. Guyton is a big guide for our approach. So we say to clients, "All right, your portfolio is at half a million dollars. Mathematically historically we know we can take about this rate. Just keep in mind that we have these guardrails in place. When your portfolio goes down, we're going to reduce your income until the markets recover." And we really hammer that home so that when the markets do go down, they're not saying, "Wait a second, I thought I could take this much forever."

Michael: And so you're kind of preparing them for that. What sorts of numbers do you set for them? Are you literally kind of applying Guyton's sort of methodology, "We're going to start you at a withdraw rate around $5,000. If your withdraw rate climbs above $6,000, it means your spending is outpacing your portfolio, so we're going to cut your spending by 10% to get you back in the zone," and execute it that way?

Matthew: Yeah. So probably my main one is the white paper that Guyton wrote back in 2006. Now I've got several improvements since then, but we use his conservative numbers. And then we print for clients, we have sort of a one-page guardrail illustration that says, "Hey, we started this when your portfolio was a half-million, and that equals X amount of month. And if your portfolio falls below $450,000, then we're going to have to make an adjustment." And so we really try to paint it out in crayon for clients. And once they get their mind around that, again that's why we don't have a lot of planning software, there's not really much to model there. Your portfolio is what it is relative to your distribution rate, and that either works or it doesn't.

Michael: Well, and I know I've written on the blog many times over the years and lamented that a relatively simple dynamic retirement strategy, "Show me my retirement if I'm going to retire with a half a million dollars. But if the portfolio ever falls below $450,000, I'm going to cut my spending dynamically," not a single financial planning software platform can actually illustrate that. The most basic of, "Hey, maybe I'll just cut my spending if the market crashes. If the market doesn't crash, I won't cut my spending," so it's a dynamic rule and you can't illustrate it."

Matthew: Yeah, that was my experience, as well. So the planning software would generate, like I said earlier, 50 pages of paper, but then again the client would ask just what you did, "What happens if the market falls 20%? I'll cut back my spending." And we could argue whether they will or they won't, but that's kind of their expectation. And that was difficult, if not impossible, to show with most planning software. So I just do it in Excel.

Michael: So you show it to them in Excel, and then it sounds like you built some of your own kind of illustration tools about how to make the point, a one-pager of how they've been trending over time?

Matthew: Yeah, it's a one-pager. In fact, we have it for every client meeting, whether they're taking income or not. And we look at them and say, "Here's how much income, here's where you are relative to the guardrails." That way we can warn them. And we have spreadsheets that warn us. We look at all the clients and say, "Hey, wait a second, this guy, or this gal, is getting close. Give them a call and warn them." In January when the market was falling so rapidly last year there was four or five clients we called and said, "Hey, if the market keeps going down, you're going to hit this lower guardrail. Just sort of be prepared for that." And luckily the markets turned back around, but we were ready for that.

Michael: So how are you actually tracking that? Is there some downloading/exporting process? I'm envisioning, "Okay, I've got a bunch of reports in Black Diamond that show me account balances, I've got an Excel spreadsheet that has a bunch of threshold targets. How do I actually know when A crossed B?"

Matthew: Yeah. I'll send it over to you, Michael, you're welcome to share it with people. I'll just pull out client information. But basically we download...

Michael: Sure, we'll put it in the show notes.

Matthew: Yeah, no, I'd be glad to. I wish somebody would have given it to me so I didn't have to make it. My office staff, they'll download every client's total portfolio of value and just drop that into the spreadsheet for everyone all at once, and then it will highlight red or green or yellow where people are at relative to their income.

Michael: So you get a household export from Black Diamond that's just client names and dollar amounts so you can easily import it or copy and paste into the spreadsheet, and then just a bunch of basic conditional formatting cells that just say, "Hey, you're above or below these thresholds"?

Matthew: Yeah, yeah, basically. And they're actually pretty simple formulas once you know how to do conditional formatting.

Michael: Okay. Well, very cool. So for those who are kind of newer to the podcast, if you want to see the show notes, this is episode seven with Matthew Jarvis. So if you go to www.kitces.com/7, the number 7, you can get the show notes. So again, www.kitces.com/ and just the number 7.

Matthew: And I think on that note, Michael, one of the big intentions I have in my practice is to make sure that we're only doing things that the client feels adds value. Right? So it would be great if we did five different financial planning softwares and we had these reports, and my staff and I might feel like that's a real value-add. But if the client is just throwing them in the garbage on the way out, that's not a value-add, that's just a time-waste for everybody. So that's why we really simplified it. It makes our job easier, but the client can really look that and say, "All right, I understand what the next bear market means, I understand what my portfolio is doing."

Michael: How do you figure out what's valuable? Right? I feel like that's a simple thing to say and a hard thing to execute. Are you doing client surveys? Do you sort of ask this feedback? Do you just check the dumpster after ever client meeting and see what people threw out on the way out? Like, "Well, seven people threw that report out, we're not making that one anymore."

Matthew: It's a little bit of all of it. I have a guiding principle that I got from a client, he was an engineer and he was high level management and he said, "All of your PowerPoint presentations, all of your reports to me have to be in crayon." He said, "If it's anything more than crayon, I don't want to see it because I probably won't understand it." And this guy was a really intelligent guy. So that's kind of our guiding principle, "All right, if it's not in crayon, a client is not going to get it." But I do kind of got if I show a client a handout in a meeting and I say, "Hey, do you want to take this home?," and they say, "You know what? You can shred it," that's sort of a gauge for me that that's not really a useful tool. But if they say, "Hey, can I have that?," even after I've scribbled all over it, "Oh great, would you like us to send this to you more often?" "Yeah, I'd love to see it every quarter. In fact, this was way more useful for me than anything I get from Fidelity or your other reports, I just throw those away." "Oh, well, okay."

Michael: Well, I suppose that's a really interesting way to frame it, just a test for maybe all advisors out there. So for whatever materials you give clients, at the end of the meeting ask them, "Hey, you want to take that home or do you just want me to shred that here?" And if they all keep saying "shred it," that means it wasn't actually valuable and stop producing it. If you offer it to them and they always say, "Yeah, I want to take that home with me," that's a good report. Because I'm even thinking back in terms of our practice. There are definitely some things that we regularly produce for clients where, if I think about it honestly, usually at the end of the meeting they're like, "Hey, yeah, this was great, can you just shred this for me because I don't really need to take it home?" Yeah, if we actually tracked that and asked, I think we could actually strip a few deliverables out that probably aren't really that valuable.

Matthew: And for me the gold standard on that is if they bring it in with them. So if it's something I mailed them and they bring it voluntarily into the client meeting, that's kind of the gold standard. I'm like, "All right, if they thought this was valuable enough to keep and to bring into me." Unless they had a big question like, "Matthew, what in the world happened last quarter?" Barring that, that's also a big gauge for me, if it's actually useful for clients.

Michael: I like that. It's just thinking with intent of, "Let's actually look at clients' behaviors. What reports or deliverables do they want to take home with them at the end of the meeting? What reports or deliverables do you mail to them that they're so excited about they want to bring in to talk about?" That's truly valuable, and the other stuff you got to at least seriously question about whether it's meaningful for them if they use it in the meaning, but then they ask you to shred it at the end. Or you mail it to them and just you presume they see it, but no one comes in excitedly asking questions about something you mailed them. That might be a hint.

Matthew: And that's where our guardrail spreadsheet, and I'll send it to you so you can post it, but it's just a one-page thing that shows a wavy line representing their portfolio, it shows a top guardrail and a bottom guardrail and like four dollar figures. And people just love that, it's like the best thing we've ever come up with. Like I said, it's super easy for our staff to generate. I think a lot of people who listen to your podcast are probably going to be insulted by how simple it is, but I'm telling you just clients love it.

Michael: So awesome, so we'll make sure the guardrail spreadsheet is posted. Again, for those who are listening, www.kitces.com/7 to get the show notes, including the guardrail spreadsheet that Matthew has offered to share.

So, Matthew, take me back a little. You've got certainly a pretty amazing practice today, 150 clients, 2 staff members, a million dollars of revenue, 50-plus percent profit margins. So how long did it take you to build to this point? How long have you been in the business? How old are you? Where are you in the grand scheme of your advisory career?

Matthew: I have a lot of clients that ask me how old I am and I always try to joke and I say, "Hey, that's not polite to ask how old someone is." But I'm 35 and I started in the industry at the end of 2003.

How Matthew Got Into The Industry Before He Even Graduated College [36:37]

Michael: Okay, so you started like straight out of school like I did, you were 22. So how did you start?

Matthew: So my dad had been in the industry since 1990. He started as a life insurance, which that's all there was back in 1990, or mostly.

Michael: Life insurance sales to a good old stockbroker who eventually transitioned to funds.

Matthew: Yeah, so he was a life insurance guy. And of course this is family lore, but he decided that he didn't want to just sell things for a commission, just sell life insurance, so he quickly branched into kind of what back then would sort of be considered wealth management, assets under management. And he'd always wanted me to join the practice. I really had no interest, I was still very young at the time. But he talked me into it, and so I joined him, like I said, when I was 22.

Michael: So were you a finance or business major or something in college and came out and joined the practice?

Matthew: So if I was to be totally honest, I hadn't graduated college yet. Which, again, kind of questioned my Dad's decisions of bringing me on. I did night school for years and years after that to get my degree, but he was just really excited about the idea. I think sort of in his mind if I came on board, that all these problems he'd had trying to bring on new clients and run a business, that those would go away, that I would somehow solve those magically. And let me assure you, that wasn't the case.

Michael: Because he was hoping to delegate things down to you so that he could focus more on the business or more like he was just actually hoping that you would have the idea about how to break through on marketing and growth?

Matthew: He hoped I would have the idea. And I mean that with all due respect. He was really great with clients, he had more integrity than anyone I've ever met. But just the prospecting, he was very introverted, so the prospecting was very difficult for him and the running of a business was very difficult for him. Of course I had no idea how to do either of those either.

Michael: So what did the practice look like in 2003 when you showed up?

Matthew: So we were about $250,000 of revenue and at the time Dad had three full-time people, including me. So there was not much money to go around, it was pretty meager.

Michael: Not much left coming out to him at that point. And was he already an RIA or was he still tied back to the insurance company that he'd been with originally?

Matthew: He had changed broker-dealers several times, but at that time he was with a broker-dealer that was owned by an insurance company. So he was probably the only guy there that was doing any kind of assets under management, everybody was still doing all front-loaded commission.

Michael: Back in 2003 most of the insurance broker-dealers were still very heavily insurance and a little bit of mutual fund sales was the broker-dealer side, but not a lot of AUM-looking advisory businesses.

Matthew: Yeah. In fact, in family lore he talks about when he got his securities license, when he got his Series 7, they told him he couldn't be in the agency office building anymore because they didn't want to have anybody in the building that was securities licensed. So they said, "You can keep writing our insurance products, you just can't be in our building." So he got evicted.

Michael: So he got barred from the insurance agency because he got a Series 7?

Matthew: Just from the building. They had no problem collecting their override, they just said, "You have to go find your own office space."

Michael: They were happy to take his override money, they just didn't want him associating with the others and risk giving them ideas or something.

Matthew: I guess. I guess. Anything other than an insurance product, right?

Michael: So is your father still involved in the practice? What does that look like today? Because it sounds like it was a dad practice, not it's a Matthew practice. So when and how did that change?

Matthew: Yeah, so we limped along together for about five years. So in 2008, I've got all my revenue numbers here, we had $311,000 of revenue. So we really hadn't gone anywhere, and then of course the financial crisis was starting. And Dad ended up with some...

Michael: Particularly brutal when you're three full-time staff members and there's not a lot of margin and you watch the top line revenue go down in a bear market.

Matthew: Yeah, there was no margin already. So the market starts crashing down, Dad ran into some health issues kind of unrelated to the business that basically forced him to retire right as the financial crisis was getting in the depth of things. So here were all these clients calling, they're saying, "Hey, yeah, the market is down 30%, 40%, 50%. I want to talk to Nathaniel." And I say, "He had to retire."

Michael: "He had to retire."

Matthew: He had these terrible health issues. And it did, it forced him to retire at that point, it was the worst time it could ever happen. Somehow I managed to only lose two clients in that process, which by some miracle.

Michael: So where were the other staff members at this point?

Matthew: So about that same time we laid off...it ended up just being me and one other staff person. Because we didn't have any revenue to begin with. And so as the revenue was falling, so Dad retired from health issues, we laid off the other staff person, and it was just me and my office manager. And we said, "All right, well, let's make this thing happen."

Michael: That must be kind of an interesting force transition right there. The practice had your dad plus three, then suddenly it was you plus one. And it was surviving. So I guess indirectly does that already make a statement about being overstaffed in the prior business when you could downsize essentially two staff members and you were still serving the clients?

Matthew: Yeah. That old saying about necessity is the mother of invention, we're just like, "All right, there's only two of us now, there was four of us. What are we going to cut out?" And there was all these things we were doing, all this busy work that didn't seem like busy work at the time, but we just didn't have a choice. Right? She and I, my office manager, we were working 60 hours each a week. And we were like, "All right, we just have to cut things out, we just have no choice." And that's when we started becoming really intentional about, "All right, what's really adding value and what are we just doing because we've always done it?"

Michael: And were you still under the insurance broker-dealer at that point?

Matthew: We had just changed to a new broker-dealer that wasn't insurance-based, but it was still very much a broker-dealer.

Michael: Okay. So as you're going through that process, what got cut? What were the sacred cows, "Hey, we always did it this way until we just don't have the people to do it, and now all of a sudden we're getting rid of it"?

Matthew: There was a lot of reports that we used to make, we used to make all these spreadsheets by hand that we thought were critical. Because in the mid-2000s, or even late 2000s, there weren't a lot of account aggregators. And so we were making these account spreadsheets by hand to show clients what all their investments totaled up. Because they were in all sorts of different places.

Michael: Their total net worth, like, "Here's your consolidated view of your household"?

Matthew: Yeah, we were doing it in Excel manually.

Michael: So did you transition to something else or did you just say, "It's a digital world now, they can look up their accounts online, we're not going to produce this for them anymore"?

Matthew: We systematized how we produced. We said, "All right, we're not going to do this for C&D clients." At the time we still had dozens of what I would now call D level clients that weren't doing any kind of reoccurring revenue that had bought a mutual fund way back when or an annuity. And we said, "Hey, we can only serve"...we really said, "We can only serve people that have reoccurring revenue." And everyone else we sent this really nice letter to saying, "Hey, you can call the mutual fund company directly or you can work with us at $250 an hour," which was really hard to do, too.

Michael: Is that even more terrifying? You're taking a time period where the market has crashed and revenue is down and you're scrounging for your survival and you're like, "Hey, I got an awesome idea. Let's fire a bunch of clients." Granted, they're D clients, but revenue is better than not revenue. Was it just one of those "I just can't see all these people anyway, so I may as well let them go and be kind about it and not just try to hold onto revenue when we can't possibly have the time to see them"? Or was there something else going through your mind to get you to pull that trigger?

Matthew: It was a lot of that, it was looking and saying, "If this person only generates $100 a year in revenue, if we do simple math, they cost us $700 a year." I don't know, I'm just kind of making up numbers right now, but at the time we had those numbers. And we said, "All right, anybody who doesn't generate at least this much we're losing money on." Which means either we're working for free or, as you pointed out in your blog post, Michael, our A clients are subsidizing these clients. Which, again, either way you look at it is not fair.

Michael: So the starting point was just, "Take my overhead expenses of the business, divide it by the number of clients, that's how much it costs me to serve a client. So if you don't bring in that much revenue, we have to cut this client because we're literally losing money with them across the business"?

Matthew: Yeah, that's correct. Now again, we can make a business case for incremental cost versus fixed cost, but that's basically what we did. We just divided it by the number of clients and said, "Anybody below this level we're losing money on. And we're already losing money as a firm, so we got to cut this somehow."

Michael: And it's an interesting exercise for any advisors listening who've never done that. You just take your total expenses for the business, ideally including some reasonable allocation for your own salary and work in the business. Take the expense of your business, just divide it by the number of clients, and just do the math of, on average, what is it costing you to service a client and how many clients do you have where the revenue doesn't even match the overhead cost to serve the client.

Matthew: Yeah, and I do that still every year. So that year I did it in desperation. Right? I was just trying to survive. But I do that, at the end of every year my team puts revenue by client and we look. It's always kind of a fun exercise to see how much revenue you're top 50 clients make versus the rest of your book. And usually the top 50 make more than the rest of your book combined. And it's sort of that old 80-20 rule, right?

Michael: So you get through '08, '09. So by the time things, I don't know, kind of stabilized by maybe 2010, what does the business look like at that point? Dad is out of the picture, it's you and one person. You've done some trimming, or you've eliminated some D clients that you couldn't service anyway or whose revenue was below the cost structure of the business. So what does it look like at that point?

Matthew: Yeah, so 2010 there were still just two of us, myself and an office manager. We ended 2010 with $336,000 of revenue. So we were sort of back to where we were before the financial crisis started, and we were just lean and mean, but marketing was still this whole puzzle for us. We were doing tons of different marketing things, seminars, I was signing up for every program I could find. I'm glad to rattle them off, but I guess I don't want to embarrass people whose programs didn't work for me. But I was throwing money at everything.

Michael: Yeah, I'd be curious here what you tried either that didn't work or that did work. Obviously to each their own about kind of the sales process and styles they find, so something that doesn't work for you may work for someone else. But I think it's valuable just to get perspective on at least what didn't work for you and why. Maybe someone else who's like you can save a little bit of time and effort or dollars not buying something that's not going to work for them.

Matthew: Yeah. Well, I'll go through my list, I'll take full credit for it not working. So I guess with that disclaimer. I did Bill Good's marketing system for a while, which cost me a fortune.

Michael: So that's guerrilla marketing?

Matthew: Guerrilla marketing, I think. I don't even know if it still exists. That was really expensive, that didn't help me at all. It drove up my mail costs like crazy, he's all about mailing stuff, it seemed like, every week. I did Peter Montoya's fancy brochures, that didn't work for me. I did Matt Oechsli's Rainmaker Institute, that didn't work for me. I bought probably every paid seminar program there was, I probably paid and used and none of those worked for me.

Michael: And was there even a common theme of what doesn't work? Was it like, "I'm trying this and it's just not resonating, it's not my style"? Or were you trying it and like, "I just can't make this work. I don't know if it's my clients or my geography, but it just won't work"?

Matthew: Well, that was sort of the maddening part about it, right? I'd sign up for these programs and they would parade all their great people out that had done millions of dollars of production, and I'd do it as much as I could and I would just see no production from it. And it was just driving me crazy. I don't want to sound kind of a high and mighty thing, but I felt like I really wanted to have sort of a fiduciary angle, even if I didn't know what that word meant back then. I wasn't trying to sell an annuity or a front-loaded mutual fund, I really wanted to feel like I was bringing value and not just trying to sell somebody.

Michael: So you're churning through, I guess, a pretty wide range of the industry's business development programs, right? So Bill Good and Peter Montoya and Matt Oechsli. And so did you find anything that ultimately clicked?

Matthew: Yeah, so in 2011 I somehow came across Million Dollar Producer. Though they've changed their name, they're called Academy of Preferred Financial Advisors now, it's Ken Unger and Tom Gau. And I don't remember how, I think a wholesaler told me about it. And I looked up Tom Gau and he was in a suburb of Oregon that's demographics were pretty similar to mine, and here this guy is doing a couple million dollars a year of production. And I thought, "All right, if this guy can do it in a suburb like mine, all I got to do is copy him and it should work in my suburb." And sort of out of desperation I signed up for their program.

And again, as family lore goes, I used the last of my credit card limit to pay for the program. And I went to their first meeting and I thought, "All right, if Tom Gau tells me to wear pink suits and purple underwear, that's what I'm going to do." And I did their program word for word, and then kind of the hockey stick success took off from there.

Michael: I first remember reading about Tom Gau because he was in Malcolm Gladwell's Tipping Point, I think. They talked about kind of the case study of how his business grew. I'm kind of fuzzy, it's been a while since I read the book. But my recollection, he was one of the natural salesman/persuader or charismatic people. In Gladwell's books there were the connectors that introduced people, the mavens who are just the knowledge experts, and then the salesman/persuader people. And Tom Gau was the quintessential salesman/persuader person. So I guess he built and systematized it into this Million Dollar Producer training program?

Matthew: Yeah. He worked with Ken Unger, who they were business partners, to build it into a program. So Tom is very persuasive, but he's also incredibly brilliant at the trade. He's got to be one of the smartest guys I know in the industry. Michael, yourself excluded from that. He's very, very bright and he knows how to communicate it to clients in a way that they understand.

Michael: So what did he teach or train you on that created this positive breakthrough for you? What was the epiphany moment like, "Oh my god, I should have been doing this all along"?

Matthew: The biggest breakthrough, I think, was they have this thing called the financial action checklist that's basically a one-page financial plan. And prior to that I'd been using all sorts of different financial planning programs to make these big plans. And he said, "Nope, just do it in one page." And I thought, "Well, it can't work." But I thought, "All right, I'm going to do it." And as luck would have it, a month or so later I got a referral of a client that had about a million dollars, which was more money then I'd ever seen a client have. I said, "All right, well, I'm going to give this a try. I'm going to do a one-page financial plan, there's no way it will work." And I did it and they loved it and they signed up as a client that day, and from there I'm like, "All right, I'm going to use it with everybody." And that's all I use to this day, is kind of a one-page financial plan.

Michael: And I got to ask, what's on the magical page that makes millionaires give you all their life savings? What's the magic?

Matthew: Well, really it's just about keeping it simple. I've landed monster clients that had gone to billion-dollar RIA firms in Seattle and they said, "Boy, I liked yours because I could understand it." But it's just one page. It's restating their goals, whatever they said their goals were. There's a couple annual goals. There's a section for retirement income, tax planning, risk management, and portfolio. So basically four sections, five if you count goals. There's just bullet points, "Here's what we do. If you were a client of ours, we would move your bonds into your IRA account so you're not paying ordinary income tax on the bonds in your taxable account. We'd recommend you do a Roth conversion. We'd rebalance your portfolio to whatever." It's really simple stuff. People that listen to this podcast would scoff at it. But clients, it makes sense for them.

Michael: This is primarily about helping you sell and close when you get a person in the room, you walk them through this one-page financial plan process and you can get them to come on board, but it's still up to you to prospect and figure out how to get people in the room in the first place, or were they helping you on that side, as well?

Matthew: They show you everything that Tom was doing. So how he marketed, his newsletters, what he was doing in his client events, what he was telling prospects. Basically it's just like, "Here's what we do," step by step. And for me it really resonated because it wasn't somebody telling me what they thought I should do or what they thought would make a good financial planning practice, it was Tom saying, "Here, this is exactly what I do. In fact, here's a video recording of me doing it. Just do this, it works." I said, "All right, great, I'm going to do it," and it worked really well. I still do basically the whole thing to this day.

Michael: So what's the growth been like since then? You did it and people are throwing gobs of money at you? What did the growth trajectory look like over, I guess, what, five years now or so that you've been involved in the program?

Matthew: Yeah. And again, I don't want to sound like I'm a show for this, I just wish I would have found it years earlier. Prior to the program I had brought in about $2 to $3 million a year of assets on a really good year. The year I signed up I converted $5 million of non-fee money I had into fee money. Which I had a story for all that money, why it shouldn't be fee, and I went to the client and said, "Here's kind of a better way, here's how we're going to do it," and they converted. Then we brought in $10 million on top of that. And then we've been bringing on $10 to $15 million every year since then.

How To Get Accountants And Attorneys To Refer Clients Back To You [54:01]

Michael: And so where are they coming from now? How are you finding $10 to $15 million of client prospects at this point?

Matthew: At this point most of my pure prospects come from I teach a class at the community college two or three times a year, just a one night financial planning. It's part of their continuing education, so it's a non-credited class. And I teach it for three hours, I spray them with a fire hose as hard as I can, and then I say, "Hey, if you thought this was too much for you to try to do yourself, give me a call, you can come in and meet with me." That's kind of where my pure prospects come from. And then it's a ton of referrals other than that. Once we really systematized our planning and could really show clients where we're bringing value, the referrals really picked up. And then we really started leaning on other professionals in our area, accountants and attorneys.

Michael: Classic center of influence referrals. So how did you get that going? I know a lot of people that have said, "Yeah, I've met and done networking meetings with accountants and attorneys for years. I send them clients, they never send anyone back. This kind of sucks." Is it something that you found from Million Dollar Producer that helped you figure out how to do that and make it work, or just something that you've discovered on your own about how to actually get referrals to come in from them?

Matthew: Yeah. I kind of stumbled across this accidentally. Because you always hear in the industry about centers of influence, and then people would parade through that said they were getting a lot of referrals, then you would find out it was their brother that was the CP, right? I remember several times that, "Yeah, you should be able to get referrals from accountants," and then it's like their brother is the accountant. "Well, okay, I can't duplicate that."

What I discovered on accident is, as we've all experienced, we send a lot of referrals to accountants and attorneys and they never refer anyone back primarily because they're not thinking about it, right? They're just focused on drawing up estate plans, doing tax returns. But if you can find professionals that are close to retirement. So my biggest referrals, I have an accountant and an attorney that the two of them send me the bulk of the referrals I get. Both of them probably should have retired a few years ago, but retirement is top on their mind. So every time they see a client, they're kind of looking at the client from the lens of, "I wish I was retired. Are you ready to retire? You're not? You should talk to Matthew."

Michael: So your angle is not just talking to the accountant and attorney about "hey, send me your retired clients," you went and actually tried to find an accountant or an attorney who is close to retirement themselves?

Matthew: I didn't at first seek that out, but then I realized it as I started looking and seeing, "Am I getting referrals from anybody?" And I was only getting it from ones that were close to retirement and it kind of made sense. I had that aha moment and said, "Well, of course that's who's going to refer to me." Because the 30-year-old accountant or attorney, the retirement never crosses their mind. And the clients aren't bringing it up to them because it doesn't seem like the right situation. But the accountant or attorney who's in their 60s, they're thinking about it all the time for themselves.

Michael: So it's just naturally top of mind for them.

Matthew: Exactly. So instead of me trying to beat top of mind into these accountants and attorneys, I want to find someone who's already top of mind.

Michael: And I guess the flip side is they all know you as the retirement guy with the half-million-dollar minimum because that's what you push out there?

Matthew: Yeah. And then I would start sending them, every time I would do a financial plan, this financial action checklist, I would make it generic and I would send them a copy and I'd say, "Here's this client we met with and here's how we were able to help them." And we always have a section about income tax, "How do we improve your tax situation?" Which we make sure that we find a way to improve everyone's tax situation. And the accountants and the attorneys really that resonated with and they thought, "Wow, here's someone. I've got 100 financial advisors calling me telling me that they'll increase performance, here's one guys who's saying here's how he's actually saving his clients money on taxes."

Michael: It's not even about the strategy, per se, it's the one-page deliverable you're creating that explains the value you created that kind of emphasizes the point and actually gets the referrals flowing?

Matthew: Yeah. Because, again, just like most clients, most accounts and attorneys can't distinguish one investment model from the other, right? And me sending them a MorningStar report about how many five-star funds we use is the same report they're getting from everybody. But if I'm telling their client to use their required distributions for their charitable contributions so they don't get hit by the Medicare surtax, they're thinking, "Oh wow, I don't have any other advisors that are doing that for my clients. This guy has got it figured out."

Michael: So where does it go from here? You've kind of highlighted this practice where you're taking off 80-plus weekdays a year, plus your weekend time and the long vacations. But you are still adding clients and growing $10 or $15 million a year, as you'd said. So is there some point where the revenue is just high enough or the client load is just high enough and you say, "All right, we're done. Until someone dies, I'm not taking a new client to replace the dead person"? Is there an upper end cap on this?

Matthew: I suppose at some point there might be. Right now there's not because we do have clients that die. All of our clients are retired, so they're taking income, so we lose a lot of money each year in monthly distributions. But I also always want to have the courage to fire a client if they become difficult. And my staff has that ability, too. Last year they came to me, my office manager came and said, "Boy, this client, she's really a pain and I dread every time I see the phone caller ID with her name on it. What can we do about it?" I said, "Well, if it's that big of a problem, we're just going to fire her." And it was a client that had a million or a million and a half with us at 1%, so that was a lot of revenue, and I said, "Great, let's fire them."

Michael: How do you have that conversation?

Matthew: With the client or with the staff?

Michael: With the client. Like, "Hey, thanks for your million dollars, but I'm going to be terminating you." What does that look like to fire that client?

Matthew: So Nick Murray in the back of his book Behavioral Investment Counseling, it's his blue one, he has a template letter that basically says, "Hey, I realize that I just can't serve you the way that you need, I'm really sorry. It's just not fair for me to keep you as a client because I just don't think I'm doing a good job for you." And so you just take all the blame on yourself. And mine says, "Hey, I know this is going to be hard, I've got some people I can introduce you to. You can go to the CFP website and look for a CFP. And we're going to refund last quarter's fee just as a gesture of good faith. And we wish you well."

Michael: So it's basically like dating, you just start it off with, "It's not you, it's me"?

Matthew: I know, isn't that terrible? Yeah.

Michael: And you, "Well, it works in the dating world, I guess it's a tried and true methodology at that point," right?

Matthew: Well, there's always this concern of what if a client that you fire gets angry, right? What if they decide to file a complaint against you? Even if it's ungrounded, now I've got a complaint on my U-4. So I want to make that as delicate as I can.

Michael: Or in a world of smaller towns, word gets around.

Matthew: Yeah. Or especially when they know other clients. Right? Let's say that my best client had referred them to me, or it's their sibling or a family member, that can be awkward. And so you've got to handle it really delicately and you've got to be ready for what that referral source is going to say when they find out you fired their friend.

Michael: So we'll make sure we link out to Nick Murray's Behavioral Investment Counseling, as well. It sounds like you're a fan of most of Nick Murray's books. So we've mentioned Behavioral Investment Counseling, I think we mentioned Game of Numbers, so is Excellent Investment Advisor also on your list here?

Matthew: Oh yeah, I've got all his books and I read his newsletter religiously. He's like my financial spiritual leader. You're like my technical expertise leader, he's like my spiritual leader.

Michael: Excellent, excellent. We'll make sure we get a link out to his website materials, as well, in the show notes.

So I'm curious more though about how you see this evolving from here. So I get we can keep adding a handful of clients a year because we're going to lose a couple a year because they fire us or we fire them. Or I've got to imagine just, we certainly see it in our practice, when you work with enough retirees, death is a non-trivial cause of client attrition. Not a huge number, but greater than zero. So is that kind of the goal now, "Hey, I just want to add a handful of clients. We'll take in $5 or $10 million a year to replace $5 or $10 million of withdraws, plus outflows, plus client terminations. And that's it because I don't want to go back under 80 free weekdays of vacation time"?

Matthew: Yeah, pretty much. Each year we sort of, I hate to say, lop clients off the bottom, but we refer those out to other people so that we keep kind of a set number. Because I'm sort of at this tipping point where I say, "Well, if I start bringing on more clients or started taking all the clients that try to come in, I'd have to bring on another advisor," right? I feel like I'm kind of at the max of what a solo practice can do and I don't want the responsibility or the headache of having another advisor. And maybe I'm cutting myself short on that, but I think, "All right, I'm already making a great income, why would I add the headache for probably the same amount of income?"

Michael: And we covered this actually on the blog last year. When we got last year's round of benchmarking studies that look at advisor compensation and take-home of advisory firm owners, there really is this trend now that's emerged in the industry. Which is the most profitable solo advisory firms...not necessarily you have to be purely alone, it can be you with maybe some support staff, but just one lead advisor and not hiring any more. The most profitable solo practices like yours end out with the same actual take-home pay as partners at billion-plus-dollar advisory firms. And that you have to actually get materially north of a billion dollars under management before you tend to see a material lift in the earnings per owner.

Because the whole growth from basically $100 million to a billion you're reinvesting for staff, you need more advisors, some of those advisors eventually have to be partners or they're going to leave, so you have to dilute ownership a little bit or you're not going to be able to keep good people. And just there's that hall that there are people at the other end that are like, "Hey." You build a firm as it grows from $1 billion to $2 billion, the money starts lifting up and you've built an asset with the small asterisk and "P.S." And it may take you 10 or 20 years of grinding just to get from $100 million to $1 billion. I get it on that end though.

Is that the future from here, that just we're going to sit around 150 total clients? As more folks come in that are a little more affluent, we'll rotate some C clients out every year and refer them out. Or, I guess, if you get enough, maybe you'll lift up that minimum beyond $500,000 and just the future of your practice is you and two staff members and 150 clients of just growing wealth over time?

Matthew: Yeah. And you kind of allude to a good point. Financially the solo model that we've got, I feel like we've got it dialed in really well and it's a big jump before we could get to a more profitable practice. But then you've kind of got this stagnation going on, right? We're turning away a lot of business. My two staff people, although it's only two, I really don't have anything else to offer them, right? They're getting paid quite a bit above kind of the average, at least according to the benchmarking studies, but there's not any progression past that. So if they start to get bored, then I don't have anything more to offer them. And then if I start to get bored, right? Even though it's a money machine, how many times do you want to pull the lever? So definitely are some downsides to this model. Profitability is not one, but there's definitely downsides.

Michael: And is that just not a concern for you? Are you just saying, "Hey, if one of my people wants to grow beyond that, I'll cross that bridge when I come to it and that's that"?

Matthew: Yeah. When we did our off-site meeting, we do an all-day off-site each year, and I said, "Hey, everybody gets"... They all get performance pay, everybody is getting a slice of the action. So I said, "Hey, if you guys want your bonuses to grow materially, we're going to have to figure out how to bring on more clients or we just sort of stay with the gig that we've got." And everybody said, "Yeah, we really like the gig that we have, let's not mess with it." "Okay, great." Now next year they may not say that, next year they might say, "Hey, I want my comp. to really go up this year." "Well, okay. We're going to have to figure out how that happens."

Michael: So do you worry about that from your end, as well? You said it earlier, I almost feel like it may get lost in the conversation, like you're a 35-year-old guy. A lot of the people certainly that I know that have built lifestyle practices, it's something they did in their 50s or their 60s because the income of the business is pretty good and they got a zillion clients they've accumulated over the years. So like, "Yeah, I'm just going to work with a subset of the A and B clients I really like and I'm going to let go of the rest." And you can make the practice really lean and you can make a really good income at it. But it's a simplification process that they go to after they'd been doing it for 20 or 30 years. Whereas you're 35 and you're already there.

So, I guess, what drives you in that direction? Is this, "Hey, I've got family, I want to spend time with family," or, "I want to see the world and I'm just going to do it while I'm young and healthy and can see the world"? What leads you to building a lifestyle practice at 35?

Matthew: Well, it was sort of when I looked and said, "Boy, the next big jump in income is going to be a ton of work." So I kind of felt like that lever couldn't move any further. So that's when I really started converting from a growth practice to a lifestyle. I thought, "Well, if I can't push my income up any higher without a material increase in effort, why don't I increase my lifestyle dramatically?" So it was sort of just the next outlet for, "How do I want to measure success?" So I went from measuring it from new AUM and total assets to, "I wonder how many days I can get off in a year and still deliver a super high level of service to my clients?"

Michael: And you literally track that?

Matthew: I track all of it. You pick a year, I can tell you how many days I worked, what my income was, what the revenue from the firm was, what our AUM was. I've got graphs. I'm a real nerd with that stuff, I like to just see it all.

Michael: Well, I think it's striking that a lot of firm owners track revenue, AUM, assets, expenses, maybe number of clients. Some of those are, we'll call them, the classic practice management metrics, maybe down to profit margins. But having a place on your spreadsheet where you track the number of days I didn't work, that's kind of a unique KPI, unique key performance indicator of your business, to actually put that as a metric and say, "Not only am I going to track it, but my goal is to make the number go up over time."

Matthew: Yeah, it really was. Again, if I go back, we talked about earlier years, 2008, 2009, if I had two weeks total time away from the office, that probably was on the high side. And now I'm spending a lot of time with my kids, a lot of time pursuing my hobbies. Because, again, I just don't want to go through the headache of taking my practice to the next level. And again, maybe I'm selling myself short and I'll probably get some e-mails and phone calls about that again.

Matthew's Response To Criticism Of Lifestyle Practices [1:08:50]

Michael: Yeah, just I'm curious on your take for it. This is, I think, increasingly these days kind of a wide debate in the industry about, I don't even know what the right word is, the appropriateness of lifestyle practices and whether you're doing a disservice to yourself or your clients because you're people can't move up and your clients may not have continuity if something happens to you. What's your response to people who are critical of lifestyle practices?

Matthew: I totally get where they're coming from. I feel like I sort of do the industry a bit of disservice every time I turn a client away. Right? Because maybe they say, "Well, you know what? I'm not going to bother trying to find a financial advisor, this guy or the last two guys just told me 'no.' The robo-advisor, I didn't really like the idea, but at least they'll take me." So that's an issue.

I had a performance coach for several years, this guy, John Barron, he's really good. But we finally had to part ways because he was really saying, "Hey, if your practice isn't growing, it's dying." And I said, "Well, I get that, but I don't want to grow it any further." And he says, "Well, then it's going to die." And we sort of had to just agree to disagree there and part ways. So people that are critical of lifestyle practices, I get that and I share those criticisms.

Michael: Do you worry at some point the practice starts dying? I feel like it's kind of a strange juxtaposition for you because we're talking about it as a lifestyle practice and you've got this KPI you track of how many days you didn't work, which is just awesome to actually track and measure that. But at the same time you have said you still seem to be adding $10 to $15 million a year net, I guess your growth gross is probably higher. Because if you net at $15 million, that's after a couple clients leave or get fired and some clients do with withdraws.

Matthew: Well, $15 million was our gross, so you'd have to net back out of that. And I haven't done the math on that yet, that report is not as easy for me to get. So our net is going to be around $10 or $8 million.

Michael: But you're still growing and moving forward. And frankly, that's not a trivial number, right? Like $10 million at 1% is like, "Yeah, we're sort of running a lifestyle practice. Oh, and we added $100,000 of new revenue last year without needing to do any hiring." So there's clearly still some growth going on anyway. Does the path just become, "Hey, well, we'll always eek higher, it's just maybe the net worth will creep up a little over time and we'll keep rotating some Cs out and we'll keep rotating some others in," and that's the path forward?

Matthew: Right now it is. And I guess I want to stress, as you keep mentioning, my 83 days number, I don't want people to feel like I'm being lazy here. If you can steal one of my clients away by better service, than you deserve them. We deliver really solid service to the clients we have, we're just really intentional about not taking on more clients than we can serve and still letting me take those days off.

As far as where we go from here, I just signed a coaching contract with Stephanie Bogan. Which I'm sure you know Stephanie, you covered her article. I'm kind of looking to say, "All right, where do we go from here?"

Michael: Yeah, we were recently speaking together at AICPA's PFP Summit event and catching up a little.

Matthew: Yeah, and I was drawn to her because, of course, she sold her consulting business to Genworth years ago and said, "All right, now what do I do?" And then she moved to Costa Rica, which is sort of exciting. I don't plan on leaving the country, for any clients that might stumble across this podcast. I'm going to work with her to say, "All right, well, what is next?" Because I am only 35, retirement is a long ways away, I've got young kids.

Michael: And so in the meantime just the client base slowly accrues to higher numbers anyway just from the organic growth. Is there a point where you say, "I'm not really going to do that college class anymore because I don't actually want any of the clients that are going to come from it if it works"?

Matthew: Most of the people that come to it I refer to other advisors I know in town, maybe like one or two I'll meet with. And again, a lot of it's just so I can still have that courage to let go of clients that are difficult and so I can still look at these numbers and see the revenue growing. I'm sort of just obsessed with that chart that I've got. If that line isn't still going up, then I'm like, "Something is wrong." Even though it's big numbers, I'm still like, "Well, I still got to be doing something to keep this thing moving." It's sort of just in my blood.

Why Matthew Invests So Much In His Team Despite His Intention To Keep It Small [1:13:07]

Michael: Well, and so I guess that's part of this still. You are still growing, just much more controlled and maybe a little bit less about growing the number of clients and more just about growing the amount of revenue from the clients?

Matthew: Yeah, yeah. And just the quality of the practice. And we haven't talked about staffing much in our podcast so far, but I really invest heavily in my staff. Not just what they're paid, but the quality of their work. They all have unlimited paid vacation, they all have unlimited tech budgets. Now they're smart enough to not abuse that, but I want their quality of life to be really good. I don't want them to have to deal with difficult clients. We talked earlier about firing a client, any time a prospect comes in, if my office manager says, "Matthew, I don't have a good feeling about that person," then great, we say, "Hey, it's just not a good fit." I just don't mess around with that. I really take good care of my people because they take good care of me.

Michael: So as you look back over your career of just about 13 years now since coming into the business, so any particular turning points that you'd reflect back to say, "I'm so thankful I did blank, this is the thing that just turned it around for me"?

Matthew: Well, I'd have to go back to the Million Dollar Producer. The thing, again, when I signed up for that, that really just sort of gave me, as much as it kind of gave me the tools, it gave me the confidence to be like, "All right, this actually is working for someone, it can work for me." Because prior to that I was still just terrified, I couldn't figure out what was going wrong, I couldn't figure out why we weren't able to grow. And then that gave me the courage to do it. So that was a huge turning point, that I knew what I want to do, I believed in what I was doing.

I haven't mentioned it yet, but I'm also diligent at mastering the trade. So my reading pales in comparison to yours, but I read at least a book or two books a month, I read every blog post you do. I spend a lot of time getting at the top of my trade just so that I'm confident that when I sit across from somebody and they say, "Hey, what about this?," I can give them the answer and I don't wonder and I'm not afraid of it. That was a huge turning point for me.

Michael: So for you, kind of the designation to the education is kind of a confidence thing for you to feel like you're competent to have that conversation with the client?

Matthew: Yeah, because it's the confidence thing. By the time I got my CFP and I took the class, I don't feel like I learned anything from the class, I had that kind of dialed in already. But the confidence to say, "Yeah, I'm a CFP and I have a bachelor's in finance." But then also learning what to do when you don't know the answer, right? So a prospect comes in and says, "Oh, I have incentive stock options, do you know how to handle those?" "Oh yeah, I do, just we're going to have to do some research on that to get you the exact numbers. I don't want to give it to you on the back of a piece of paper. So is it okay if I get back to you on that?" And they say, "Hey, that's great." And then I go and I look up your blog post on incentive stock options and figure it out.

Michael: Any advice then you would give advisors coming into the business today? And as you look back of, I don't know, things that you did that went well or things that you did that are like, "Whatever you do, don't make this mistake that I did." What's your advice to someone who's coming in today or maybe just has hit that wall, like where your father's practice was back in 2007 and 2008?

Matthew: Well, for someone brand new in the industry I would say definitely find a system or find somebody you can work with that you're 100% confident in what they're recommending, both for the quality of the advice and that you truly believe whatever you're recommending is in the best interest of a client. And I know that's getting a lot of talk right now because the fiduciary standards, but you got to look at yourself in the mirror and say, "Is what I'm recommending the very best thing that thing that this client could do?" And if it's not, then you need to fix that. If you think they're better served somewhere else, then you should either tell them so or make your practice such that you believe that they're not better served anywhere else.

For people's whose practices are stagnated, which mine was for several years, I'd really look and say, "What are we doing that's not really adding value?" Because when your practice has stagnated, you're not sitting there saying, "Boy, we've got all this extra time, what should we do with it?" You're saying, "I don't know how we're getting through the day right now. I'm already working nights and weekends." And it's a matter of looking and saying, "All right, what are we doing that's really not adding value?"

The other way to do that is to force yourself. I forced myself to start taking Fridays off, that's how the sort of lifestyle practice started. I had read about an advisor that took Fridays off. So like, "Great, I'm going to take Fridays off." And the first couple of months it was terrible because I thought, "How am I going to get five days of work into four days?" And then necessity became the mother of invention and I figured it out, and after that I never had to look back.

Michael: Interesting. So the advice for someone who feels like there's just not enough time in the day is just literally schedule yourself to get done what you're doing in less time and you'll be amazed to find what you can actually figure out for yourself once you force it?

Matthew: Yeah. And time block, as well. I talked briefly about how I do my appointments in a chunk, that was a Tom Gau thing. Do your appointments in chunks, then your whole office gets in a routine of, "All right, this is an appointment week or an appointment month." And everyone is in that routine and everybody is thinking appointments. And then that gives you a month or two months to then work on your practice. So you're not going on a day from you have one meeting during the day, and then you're trying to prospect, then you're trying to run your business. Just block those things together. When I'm doing appointment weeks, I don't do any prospecting, I don't meet with COIs, I don't worry about strategic things for the office. Just appointments.

Michael: I've adopted a similar time blocking methodology, I actually wrote about it on the blog a year or two ago. For me Mondays are purely internal team meetings, that's kind of the dominant force for me. Tuesdays, Wednesdays, and Thursdays are when I do all of my client meetings or consulting meetings or traveling on the road for speaking engagements. And then Fridays I schedule myself back home, that's when I do Weekend Reading, for anybody that follows Weekend Reading on the blog. I really do usually put those things together on Friday mornings after getting caught up on all the reading for the week. And then Friday afternoon is kind of decompress, check back in with the team, is there any project for the week that need to get wrapped up, because I got a couple hours on Friday afternoon once we post Weekend Reading. But just having that weekly rhythm.

And it doesn't always work perfectly, sometimes you have to make an adjustment for an unusual client situation. But trying to be committed to it, it's amazing how often you really can make it work and stick to it, and it's a really powerful technique for just regaining control of your time.

Matthew: Yeah. And I guess this will be a little bit random, but I think it ties in. After every client meeting, I type up a memo. Now some people dictate those, but I type faster than I dictate. And it just has kind of my high points from the meeting, and then action items for my staff. So there's almost never an action item from a meeting that's for me to take care of. It's, "Colleen, send them this form," or, "Nathaniel, rebalance their portfolio," or, "Send them this reminder." And that way when I type that up, then I just send that, I e-mail it to both of my staff members, and then it all gets taken care of. And that's been kind of our system for handing that off. And then when the client comes back in in six months, I can look and say, "Oh, here's what we did last time and here's what was important to them." Because frankly I can't remember it otherwise, but it really increases the quality of the service.

Michael: So as we wrap up, I want to wrap up by asking the question that we ask all of our guests at the end of the podcast, which is about success. So by, I think, any classic measure you're running a really successful practice, it's got a healthy income, you've also got what most people probably call a very good work-life balance as a lifestyle practice. But I'm curious, from your perspective, how do you define success?

Matthew: That's a tricky one. That's one I've thought about a lot over the last few years. I used to define it just by gross income and new assets under management. Those were my big measurements, right? And that's what I would look at. "What's my take-home pay? What's my profitability?" Now that my kids are 11, 8, and 6, I spend a lot of time with them. So I measure success there. That sounds a bit cliché, but I really do. I measure my impact in the community, there's a lot of things in this town that have my name on them because we were a big part of it. So I measure success there. But really, and again I don't want to sound cliché, it's, "Are we bringing value to the client?"

I read, I think it was maybe in one of your blog posts, where you talked about a client getting your bill and being excited to pay it. And that's really how I measure my success. I want clients to feel like when they get our quarterly invoice and they see that we deducted $5,000 from their account, they think, "Boy, that was money well spent," and that they're not saying, "Boy, jeez, am I getting a good deal? Should I go to Vanguard's robo-advisor and get a better price?" They're saying, "Hey, Matthew and his team are worth every penny, maybe more."

Michael: I feel like that's a good place to wrap up right there. So thank you, Matthew Jarvis, for joining us on the Financial Advisor Success Podcast.

Matthew: Yeah, thanks for having me. And again, thanks for doing this, Michael, I really appreciate it, it's really an insight into the industry.

Michael: Well, thank you, I hope it's food for thought for some folks.