One Insurance Agent’s Transition To Fee-Only RIA, In Just A Few Months…

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When I Grow Up - Becoming A Financial Advisor To Help People With Money

Most adults I talk with still have no clue what they want to be when they grow up.  I was lucky enough to figure that out pretty early in life.  As a new college grad, I knew I wanted to help people with money.  Financial Advising seemed like the perfect fit.  After interviewing for a position as a Financial Advisor with Northwestern Mutual, I was offered the job and excitedly accepted.  My income would be based on how much business I brought in - the sky was my limit.  I was confident I could do anything, but also extremely ignorant (although I didn't realize the latter).  As a Finance graduate from the University of Florida, I thought I knew everything.  Throw hard-headed and competitive on top of that and you had me in a nutshell (at 22).

When I began training for my new job, I found myself confused when the major focus was sales - particularly life insurance sales.  But it made sense that risk management should be the foundation of any good financial plan.  Over time, I became more comfortable in my new role and maintained my confidence.  Mark Twain once said, "All you need in this life is ignorance and confidence, and then success is sure."  Well, that was me.  And Mark was right on one level, but I suppose it also depends on your definition of success.  Mine has changed over time.

Luckily, at this point in my career, I was surrounded by great people who kept me pointed in the right direction.  I learned a great deal in my (almost) 9 years with Northwestern Mutual - I confirmed that I loved financial planning and I believed that I was in the best spot for building my planning business.  I learned that most my competitors were doing something similar: primarily selling insurance and investment products.  Financial Planning was the free add on.  My mind was made up that I was in the right place.

A Time to Reflect On Being A Commission-Based Insurance Agent

As I approached my ninth year, burnout began to settle in.  From a business standpoint, I was operating a primarily commission-based sales operation.  At this time, I felt it was the best model for providing financial planning to my mostly Gen X & Y clientele.  But something was missing.  I read a great book called “Effortless Marketing for Financial Advisors” by Steve Moeller, which prompted me to solicit feedback from several successful non-client physician business owners.  Most of my questions centered around their experience dealing with financial advisors.  Here are a few of their answers:

• “Most advisors are salesmen out for the dollar. There is tremendous conflict and it’s difficult to take their advice.”
• “I have trouble listening openly when my advisor begins talking. I always run their advice by my CPA and/or attorney.”
• “Myself and many colleagues have had several bad experiences with financial services salesmen. We have developed a level of skepticism for the industry.”
• “The ideal arrangement would be working with an advisor in a fee for service arrangement. More like a consultant - if that existed.”
• “I have not been happy with my experience working with financial advisors. But physicians tend to be skeptics.”
• “Transparency is a big deal. There is none in financial services.”
• “Advisors push whole life and managed investments but let stuff like 529’s, budgets, debt & cash management fall through the cracks.”

Their answers were quite an eye opener for me.  I began asking myself if I was the typical advisor.  Ultimately, I began questioning my professional purpose and transitioned into a period of introspection and prayer.  Around this time, I was also doing a ton of reading on different financial planning models.  Michael Kitces kept popping up in my Google searches so I started reading his stuff on Nerd's Eye View.  The fee-only financial planning model was especially intriguing to me, however my clientele was not going to support an AUM model.  One specific article - Three Financial Planning Business Models To Effectively Serve Gen X And Gen Y Clients - opened my mind to alternatives like the monthly retainer model.  One specific (guest) post from Michael's blog, written by Alan Moore, was quite inspirational.  It appeared totally within reason to create a great fee-only planning firm with limited resources, while working with young professionals.

After much thought, research and prayer I came to a conclusion: a move was necessary if I wanted to build my vision of a great financial planning business.  Ultimately, I made the decision in May of 2014 that I would begin the process of creating my own fee-only RIA.  I would provide financial planning primarily using a monthly retainer model.  I just had to figure out how to make the change.

My Timeline To Transition To Fee-Only

In writing this, I pulled up the original spreadsheet I created: "Transition Checklist" - from May 2014.  It was very helpful for me to lay it all out there and work through my list of To Do's.  In fact, I really enjoyed the process of transitioning and creating my new firm.  It has been a huge challenge and I am very happy with my move!

Here are several highlights from my Checklist:

• May - Share my idea with my father in law (this was a difficult step for me - he is a very successful businessman and is also extremely direct. I knew he would tell me if he thought I was crazy. Luckily he didn't.)
• June - Email Kitces (He was fortunate enough to share his consultant recommendations and info on XY Planning Network - a group of renegade advisors just like myself that he and Alan Moore had recently formed - which I joined soon after. Thanks Mike!) [Michael's Note: You're welcome, Daniel!]
• June - Review existing employee agreements with my attorney
• July - Research health insurance alternative options for my family (I used to be uninsurable for individual health insurance but, thanks to ObamaCare, I learned they no longer required medical underwriting. I would not have been able to start my own business if it wasn’t for this.)
• July - Seek feedback from mentors
• July - Complete Profit & Loss projections for the new business (these were extremely close to what is actually panning out now!)
• July - Complete business plan
• Aug - Finalize my business financing (I did not want to dip into my own investments, so I secured a business loan to cover startup. Luckily, I secured it personally because I later learned the state of KY would shut me down if the loan had been through the business.)
• Aug - Share my intent with Northwestern Mutual (They were extremely supportive!)
• Aug - Begin XY Planning Network membership
• Aug - Finalize staff plan (I employed 2 people at the time and had to let one go and keep the other. It was very hard to let someone go who had been a great employee.  Jen, who stayed with me, has worked for me for several years.  She is fantastic and I wouldn't have been able to make the transition without her help!)
• Aug - Hire compliance consultant, Jim Cullen of Financial Planners Assistance (FPA), and begin the registration process with Kentucky (This was before XYPN began covering the compliance cost of creating your RIA)
• Aug - Hire web design firm and other design help (Hired a local firm called Harris and Ward to help with my website and used 99Designs for my logo.)
• Aug - Work with Attorney & CPA to create business entity and answer my questions
• Aug - Secure office space (Paid a deposit to hold an awesome spot I lucked into 500 yards from my home! I have put 2k miles on my car in 6 months... Crazy!)
• Aug - Finalize software lineup (WealthBox for CRM, PreciseFP, Arkovi for social media archiving, Message Watcher for website archiving, & Guide Financial - all provided with XYPN. As well as MoneyGuidePro, Google Apps, Quickbooks Online, Freshbooks, Blueleaf account aggregation, TradeWarrior for rebalancing software, ShareFile, ScheduleOnce for online appointment-setting, EchoSign for e-signatures, Spanning for online backups , GoToMeeting, LastPass, MailChimp, & LaserApp for form filling)
• Sept - Push timeline up (was Jan 1 2015 and I pushed it up to Nov 1 2014 - things were progressing faster than anticipated!)
• Sept - Meet with KY Dept of Finance for their RIA Interview (they were great!)
• Sept - Finalize investment management plan (I decided to manage assets for clients in house using SSG for my custodian and DFA plus several other fund companies. I would separate investment management and financial planning fees.)
• Oct - Setup new office & sign lease (furniture, utilities, moving, decorating, liability insurance, & office equip - we are 99% paperless and operate 100% in the cloud so not a ton of tech and hardware)
• Oct 31st - Last day with Northwestern Mutual
• Nov 3 - Approved by KY to operate new RIA. Game on!

Under the Hood - Expenses Of My Startup RIA And First Year Revenue

As you can see from my timeline, I decided to secure a nice office space and have one full time employee.  I have no regrets, however, it’s a large chunk of my expenses.

All in, my startup cost was about $20,000 (50% of this was office expenses).

Average monthly expenses are around $8,000 and break down as follows:

• $5,500 for staff & office expenses
• $2,500 for everything else

My current monthly revenue is around $13,000.  77% from Financial Planning fees and the remainder from AUM fees.  10% of the Financial Planning revenue is generated from my hourly arrangements, and the remainder is from my monthly retainer fees.

The income gap of not taking money out of the business for myself in the first year has been tough, but I plan to begin paying myself a salary this December (Merry Christmas!), and have been (and will continue to be) living on personal cash reserves until that point.  Startup cash is a HUGE deal.  We were fortunate enough to have plenty of cash once I secured my business loan.  I learned the importance of cash reserves during my time at Northwestern Mutual.  Going into that startup experience as a new advisor, I had $0 cash and had to use credit cards to get by from time to time.  Even though I was single and had very low expenses, that time of my life was incredibly stressful financially!  I learned a lot about what NOT to do! But you live and you learn.

As of June 1 2015, we have 63 clients, many of whom transitioned with me from Northwestern Mutual into my new fee-only model.  We took them on as follows:

• Nov - 23 new clients
• Dec - 18 new clients
• Jan - 9 new clients
• Feb - May - 13 new clients

Based on our current time spent per client and the type of clients we tend to work with (Gen X & Y Physicians & Medical Residents), I feel confident we could manage 120 total clients at our current efficiency level.  I decided not to charge up front fees because I was worried about becoming backlogged from the transition.  This turned out to be a good move.  We are still working to knock out financial plans for all of our clients and should be caught up by August.  This has caused us to be busier than it would seem based on our P&L.  I do plan to begin charging up front fees for financial planning in the next few months once we get through all our of transitioning clients.

Goals for 2015

• Provide exceptional service & advice to our clients and seek their feedback on improving our service
• End the year with 90 clients
• Roll out new planning service for middle income families - more robust than Learnvest but less intensive than what we are doing now
• Roll out a charitable initiative tied to new business

Long Term Vision

I love helping people take control of their money!  Along those lines, I have big expectations for my business.

• Build a regional firm with 10k clients
• Give $1 million away through my business to causes improving financial literacy
• Create a job market for young financial planners (no eat what you kill!)

Marketing As A Financial Advisor - What Flavor Kool-Aid Am I Drinking Now 

I am all-in on Inbound Marketing as a financial advisor.  I believe it's a more natural and comfortable method of growing your clientele than traditional marketing (Outbound Marketing).  The internet has made Inbound Marketing possible.  Today, people can find everything about anyone or anything with a quick internet search.  Why not embrace this by putting out fantastic free content and messages targeted specifically at your niche, give them time to soak it up and get to know you, and let them contact you when they are ready?  To me this seems so logical.  It definitely takes a significant amount of up front work and will not grow overnight, but I have jumped on this bandwagon and am starting to see a trickle of success!  The best part is once momentum kicks in, the time commitment is far less than a traditional sales model.  Plus new prospects are far more informed and typically ready to sign up.  Listening to The Social Media Marketing Podcast and The Smart Passive Income Podcast has helped me learn inbound marketing from pros.  I have also joined a program called The Startup Camp put on by Dale Partridge.  I believe it's important to learn from industries outside of my own.  Dale is doing big things all driven by inbound marketing but in a totally different industry and I am all about it.

I am a big fan of niche marketing as well.  There are so many unique aspects about my niche that I can learn and use as a differentiator.  For example, my niche is young physicians and residents.  They tend to have tons of student loan debt therefore I have committed to learning everything there is to know about student loans.  Many of our blog posts are about student loan strategy like re-finance or loan forgiveness programs.  Physicians tend to talk with their colleagues and word spreads much faster that we are the go to guy for their profession.  If you are interested in niche marketing, again I suggest reading Effortless Marketing for Financial Advisors.

Creating a well oiled machine takes great systems and processes.  We document every single process and procedure in our Google Docs.  I love Google docs because it works like a Wikipedia page for my firm.  Anyone with access can update a single document, and several people can be updating that one document at the same time.  It's continuously auto-saving and is stored in my Google Drive.  We link to other relevant documents, websites, spreadsheets and folders so that it's extremely functional.  When we begin to hire, we will share these documents and use them to speed up the process of delegating new tasks.  We also use Google Docs with clients to prepare financial plans.  The final page of every plan we do is a checklist of action items which was originally produced in Google Sheets.  At the conclusion of our meeting, we share the Google Sheet file with the client so we both can update it together over time.  It's always auto saved in our Google Drive (cloud storage).

I am very excited about building the my business.  I recently read Succession Planning for Financial Advisors and it helped me understand the difference between creating income for advisors vs creating equity in your business.  It also helped me learn the basics of how acquisitions work.  The “eat what you kill” model doesn't allow for equity creation which makes it impossible to build an enduring business.

My New Role With Clients As A Fee-Only Financial Advisor

Today, my work with clients feels transparent and straightforward.  I feel like I am working on the client’s side of the table.  It is simple to explain our services and how we get paid.  It is challenging to quantify the value we add, however, I believe putting emphasis on this area is great for the profession, my business and ultimately the clients.  It forces us to be held to a much higher standard.

Today, I worry about existing clients and making sure they feel they’re getting their money's worth.  There is a clear cap to the number of clients I can take on before I must hire another planner.  I am now far more in tune with financial services expenses and the commissions that clients are actually paying for their various accounts.  I spend a significant amount of time digging into our clients’ finances and preparing custom financial plans.  People choose to work with me based on fit and cost/benefit.  I feel extremely confident in competitive cases and I make an effort to work more collaboratively with our clients’ other advisors.

Today, I tend to cut to the chase and work with serious clients only.  Our clients appreciate our advice and want to take steps to improve.  Implementation can be more challenging with certain clients, but we are delegating to other advisors & salespeople more and micromanaging less to help get things done for our clients.  We will live or die based on the value we bring compared to the fee we charge clients.  My clients are literally my business!

New Challenges As The Owner Of An Advisory Firm

There are many hats to wear as the planner/business owner.  I am the compliance officer, manager, owner, planner, marketer, HR and bookkeeper - just to name a few.  Over time, I will begin delegating but for now I am learning to balance tasks - and it's been tough!

Northwestern Mutual was great about creating study groups and encouraging mentorship.  I believe it's important that I build this back into my business.  However there aren't many planners going down this path yet (especially in KY - we're behind the times).  XY Planning Network has been great.  I would also like to create or join some type of study group or mastermind group.

The Financial Planning Profession presents its own challenges.  Many consumers and firms say it's extremely important if not the most important financial service.  Many consumers say they are working with a financial planner.  Most advisors and planners say they actively provide financial planning to their clients.  The Certified Financial Planner designation is probably the most recognized in the industry.  But in the grand scheme of things, very few financial services dollars can be attributed to financial planning services (which would indicate most people aren't actually working with a planner).  Plus the government is trying to step in and mandate that advisors hold themselves to a higher standard.  This to me is a unique dynamic and challenge in itself.  I'm excited to see how it all shakes out!

Reflecting on My Prior Role As A Northwestern Mutual Insurance Agent

My practice at Northwestern Mutual consisted of somewhere in the neighborhood of 350 clients.  I would meet regularly with 150-200.  Most my time was spent in meetings with current clients, prospective clients or centers of influence, while my staff handled most of the rest.  Primarily, I was working to get referrals and close cases.  I focused on adding enough new clients and closing enough cases to produce at my target level.  Solicited referrals were essential for survival in this model.  The few big cases I had every once in a while were great, but then I would worry they were going to “drop off the books” and cause me to pay back commissions.  There was no obvious cap on the number of clients I could manage.  I spent a good deal of time on marketing and prospecting and spent very little time on digging into client's actual finances.  Our financial plans were somewhat boilerplate, but far better than what people were doing on their own.  I had plenty of clients that thought they knew everything and would not listen to what I told them.

We would create a financial planning analysis for everyone we dealt with and could produce one in 1 hour if we had good facts.  Sometimes, the products we sold would make or break the deal.  We were very passionate about the products.  I was very cognizant of the commission schedules on various products and services, but I regularly told myself it was not going to affect what I sold.  The total expenses my clients paid for financial products and services were not usually my top priority, and explaining how I got paid was sometimes challenging and seemed to confuse people.  There were plenty of services I could offer outside individual insurance and investments (or refer out and still make money).  We had a fantastic support network, education was a big emphasis, community service was encouraged, and families were important.

Occasionally, I felt temptation to sell higher commission products.  Over time, I began to recognize there were many conflicts in my business but I did my best to avoid them.  Most of the time, we stuck with term life and long term disability insurance plus maybe some brokerage investments or small managed accounts.  Northwestern Mutual began to push financial planning more than anything which I thought was great to see.  They were upgrading technology and coming out with new programs all geared around financial planning.  The Northwestern Mutual acquisition of LearnVest falls right in line with this push.  Most colleagues were beginning to agree financial planning was extremely important.  Some were beginning to charge for it.  I took a hard look at their fee based financial planning program towards the end of my time.  It really prompted me to further research suitability vs. fiduciary and ultimately I didn't feel comfortable wearing two hats.  The fiduciary question was beginning to come from clients and prospects as well.  Early on, it was more annoying than anything.  I didn't understand what the big deal was.  If they didn't trust me, they shouldn't work with me.  But over time, my perspective changed.

My Experience - What's Worked Well In Breaking Away To Become An Independent RIA

Some tips on what has worked well - at least based on my experience - that may be helpful ideas for you too:

• Several people suggested that I pack my bags at the firm and leave in the middle of the night. Ultimately, I decided to share my intent early with Northwestern Mutual.  I felt it would best for my clients and I wanted to show respect to people that were great to me at Northwestern Mutual.  As a result, the transition was very smooth and respectful on both sides.
• Brand new clients are great because we start from scratch and establish new expectations right away. We love PreciseFP for new clients.  Their system allows us to gather facts electronically and transfer it to MoneyGuidePro.  I would LOVE for them to integrate with WealthBox CRM and keep hearing it’s in the works.
• We recently began seeking discounts for services our clients regularly use. For example, we have discount codes for several of the student loan refinance companies.
• The monthly automatic credit card billing system we are using through Freshbooks is working well. It's not cheap - in fact we chose to pass on other much cheaper alternatives in favor of better service and ease of use.  Freshbooks helps us worry less about billing.
• Certain types of people love the retainer financial planning model. It seems this model resonates best with the youngest generations (definetely Gen Y and many Gen X).
• I am glad we included hourly business as an option. It works much better for the project based work.  Also we are able to fill in gaps with working on hourly clients.
• SEO was on the very top of my list! We are in the top 3 and usually #1 when you google Lexington KY Financial (Planner, Planning, Advisor, & Adviser).  I was able to jump to the top by simply creating a solid website with a focus on keywords, linking and blogging.  The best linking (getting people to link to your site) has come from sites like NAPFA, XY Planning Network's "Find An Advisor" pages, and Fee-Only Network.  Google loves them and by linking to me, Google loves my site.
• People are starting to seek us out - crazy right? I believe the niche and inbound marketing is beginning to gain momentum.  We focus on the young physician and medical resident niche.  Most the content we create is tailored to this crew.
• We are competing very favorably when going against other advisors!
• As I mentioned, cash is king. The business loan was essential!  Personally, we scaled back our expenses and this helped.  My awesome wife is super supportive!  We talked about it a lot and I made sure she was on board with everything before moving forward. (I highly recommend this too)

Failing Forward In The Financial Services Industry

Some lessons I learn as I have grown in the industry, and made the transition from Northwestern Mutual included:

• During the transition, many of my Northwestern clients wanted to understand the cost comparison of one vs. the other. I started going down that path with several of them and, luckily, I realized pretty early on that it was not working.  Instead, I began to work on revisiting their expectations of me and allow them to share their ideal engagement.  I then explained to people what great financial planning should look like and how my new business would help them better meet their goals and expectations. Basically they wanted me to sell it and I had to pump the breaks and go back to the financial planning process.
• Fewer clients transitioned from my Northwestern business than I had expected, but those that transitioned were my best clients.
• I probably transitioned too quickly, but my personality would not allow for anything else (when I have my mind made up, it’s over).
• You can't teach an old dog new tricks. It's been challenging to change how we work with many of our long time clients.
• I probably chased old clients for too long and took on some I shouldn't have. New clients are proving more efficient to work with than my transition clients.
• Balancing all of the hats is challenging. I am excited to delegate and focus on my strengths as our bottom line improves.
• Family is important to me. My to-do list does not end so it's been a challenge to balance work and life.  I am learning how to focus on what's most important, cut out at 5:00pm no matter what, and not take work home.
• Bookkeeping and accounting (accrual accounting) has been a bear, but I'm getting the hang of it. I hope to delegate some of this accounting/bookkeeping responsibility soon!
• Blogging is not easy! I originally outsourced my content writing but that didn’t work out.  It's not something you build overnight (or even in a few months).  I am now writing consistently and enjoy it more than I expected.

Being Respected For My Financial Advice

Becoming fee-only changed my business but not exactly in the way I expected.  My opinion about products and services hasn't changed.  What has changed, though, is my respect for the process of giving others formal advice.  It’s challenging to give the advice process the respect it deserves.  People are quick to share advice without thinking twice about it.  There is an overabundance of advice.  Becoming a fee-only fiduciary has helped me become a better advice provider.  How?

• Influence is powerful. I am more aware of the influences in my life that may affect the advice I provide clients.
• Transparency frees. For me, the best model for providing maximum transparency is fee-only.
• Embrace imperfection. In a perfect world, the fiduciary vs. suitability issue would be irrelevant.  But nobody is perfect.  My imperfection is better suited in a strictly fiduciary model.

Please share questions you may have about my transition in the comments below - I am happy to help!