#FASuccess Ep 149: Managing Capacity And Ensuring Continuity For Clients By Selling Without Retiring, with Susan John

What You’ll Learn In This Podcast Episode

• What Susan's Practice Looks Like And What She Does For Her Clients [06:37]
• How She Sets Up A Cash Plan For Each Of Her Clients At The Beginning Of Every Year [16:29]
• Her Onboarding Process For New Clients And What Her Financial Planning Process Looks Like [34:09]
• What She Delivers To Her Clients And How She Times Her Planning Fees [46:39]
• How Susan Structures Her AUM Fees And Where Her Clients Come From [1:03:13]
• Why Susan Ultimately Decided To Sell Her Firm [1:10:22]
• How She Set Up Equity Compensation At Her Firm [1:19:04]
• Susan's Involvement With NAPFA And The CFP Board [1:23:09]
• What Surprised Her The Most About Building Her Business, Lessons She Learned, And What Success Means To Her [1:28:08]

Resources Featured In This Episode:

• Susan John
• F.L. Putnam
• eMoney Advisor
• BNA Income Tax Planning
• The Challenges Of Integrating Advisory Fee Schedules And Billing During A Merger Or Acquisition
• NAPFA
• XY Planning Network

Full Transcript:

Michael: Welcome, Susan John, to the "Financial Advisor Success" podcast.

Susan: Thank you, Michael. I'm just delighted to be here.

Michael: I'm really excited for today's conversation that, I think you wear a couple of interesting hats. You've had a fantastic career as an advisor who's building a firm up in New Hampshire and I guess fairly rural New Hampshire at that, when I think a lot of firms build in dense metropolitan areas. And you have also been someone who I think is just particularly and very admirably active in the profession overall. You've been through leadership cycle with NAPFA. You're going through leadership cycle with CFP Board right now and have had a heck of a year to be in the lead as all the new standards are rolling out and fiduciary rule, this, that, and the other thing is rolling through. So excited to talk about both I think building an advisory firm and how you find that balance between the work you do in the firm and the decision to give back to the profession.

Susan: Great. Thanks. It's been a very interesting year, as you pointed out. I feel like I have two full-time jobs right now. And they're both labors of love. So sometimes it's difficult to figure out where I'm going to devote my energy today.

Michael: Yeah. Yeah. So maybe just to get us started, can you tell us a little bit about the advisory firm as it exists today? So when you're wearing your financial planner hat, what do you do and who do you do it for?

Susan: Sure. I actually started the firm in 1995, and on April 1st of this year, I sold, merged my firm, Financial Focus, with F.L.Putnam Investment Management out of Wellesley, Massachusetts. And I wouldn't have planned to do that in conjunction with my work with CFP Board.

Michael: Yeah, like, "Sure, let's merge our firm the year we're doing the chair cycle at CFB Board," because life wasn't boring enough already.

Susan: Right. And actually, I hadn't been planning on doing anything like that, but we had internal succession plan going for a couple of years. And the last three years in a row, we restarted the five-year plan every year. And we just were not able to hire the people that we needed to make it happen.

I live in a pretty rural area of New Hampshire. And although I think this is a great place to live, not everybody feels that way, and especially younger people I guess want to be in a more metropolitan area, and just happened to meet these folks actually at a TD Ameritrade event. And they were kind of in the same boat. They wanted to add financial planning to their investment business and were unable to find the kind of seasoned advisors they needed to get that group off the ground. So it was kind of an accidental happening. But you know when you find the right partner, you just know it? The culture just meshes perfectly, and we both have something to contribute to the new organization, so pretty excited about that.

So my position at F.L.Putnam is the managing director of financial planning. And since that's new to the firm, we're just starting the financial planning process right from the beginning with some new advisors that they've been able to pick up and with the Financial Focus staff that came along.

What Susan's Practice Looks Like And What She Does For Her Clients [06:37]

Michael: Interesting. Interesting. So maybe to start just, can you at least paint us a little bit more of a picture of Financial Focus or I guess the Financial Focus portion now within the firm of what that business looked like? What were you doing for clients? What kinds of clients did you serve?

Susan: Sure. So we are in a rural area of New Hampshire. It's a beautiful area, lakes and mountains, and pretty much a resort area. So we have a lot of people here in the summertime, and a lot of snowbirds go away in the winter. And it's also a very big retirement area. So 15 years ago when I would tell people my average client age was over 70, they would gasp in horror and say, "How can you make a business of that?" But it was a constantly replenishing supply of retired people coming in for financial planning, and most of whom had some very specific needs. So we focused a lot on health and wellbeing and values of people, what values they want to pass on to their family, as well as their wealth, retirement planning, first and foremost. I'd like to say that I've never missed a retirement paycheck. And that's a pretty satisfying thing to say after nearly 30 years.

Michael: So with a client base that's got an average age over 70, there's so much discussion out there in the industry these days of, if you've got an older clientele, you have to form relationships with their children and grandchildren. Are you in that realm of trying to do that? Because a lot of firms talk about that and their average client age is 50-something or 60-something, your clients are right there in 70-something. Is that a dynamic for the firm or are you just in a camp of, "Well, there's a lot more 70-somethings around here in resort town, New Hampshire, so we're just going to go get more 70-somethings?"

Susan: No, the type of planning that we do, we get pretty involved with the family very early on in the relationships because of the age of the parent. Usually, the kids live someplace far away. They're concerned about their parents. Especially if one of them passes away, they're concerned about the survivor. They would like to be closer but their lives are someplace else. And so they are really interested in who the parents are working with, and they want to make sure...they check us out pretty good. The kids check us out better than the parents did, I would say. So in some cases, actually, we're into the third generation now. So that's pretty gratifying as well. But I will also say that we don't always like the kids as much as we like the parents.

Michael: So sometimes those kids don't work out, and that's okay.

Susan: That's okay, yes.

Michael: So what does the typical client look like? I guess like assets or size or revenue. I don't know how you tend to measure them.

Susan: We kind of look at them in asset size. And I would say probably they have a net worth of somewhere between $2 million and $10 million. That includes the real estate here, which a lot of the...lakefront real estate is very pricey. A lot of people want to retain that cottage, the family cottage for generations to come. And we kind of have an expertise in that. And we have some clients that are bigger than that and we have some clients that are smaller than that. But I would say probably that's our sweet spot. And typically, the portfolios are anywhere from $1 million to $5 million or $6 million. And usually, there's some other kinds of assets out there. We don't have any sales tax in New Hampshire, and so we have a lot of people who are collectors of stuff, whether that's automobiles or antique furniture or fine art or even pianos.

Michael: Interesting, interesting. And so, I guess, at least before the merger into F.L.Putnam, because I want to come back to that in a bit, what's the, or I guess, what was the overall size of the firm of assets or number of clients?

Susan: Yeah, we had grown to about $350 million, and I would say we had 250 clients, client relationships. Yeah. Some of them being family members of the original clients.

Michael: Okay. Okay. And so that's a pretty sizable client base. So what does the team look like for you in serving 250 clients?

Susan: Okay. So we had four CFP financial planners on staff. We had interns from time to time, some from local colleges, some looking to gain experience for their CFP, usually one in the winter and two in the summertime when we have more people around. We have two support people, one person that totally takes care of all of our filing: electronic and otherwise, and we have a COO.

Michael: Okay. And so relative I think to a lot of firms having, if I'm kind of counting right, that's like seven or eight total on staff, including you, and more than half of them are CFP professionals, so what did that look like in terms of how clients were served? Was this like, each of the CFPs had a segment of 50 to 70 clients? Is this one giant group that all works as a team for all 250 clients? How did you carve up the way the clients were served with a team of CFPs?

Susan: Yeah, we really work as a team, and so we always had two advisors on each client. We were at the end of being able to do that without another person here. So, one person was the lead advisor. And it really kind of depended on what the client's particular hot buttons were. If they were estate planning, people that fell more into my bailiwick, if they were just retiring from jobs and had all kinds of stock options and things like that, there was another person that had expertise in that. So we just kind of divided it up based on what the client's highest interest was so that the person that had the most skill in that area was the one that was their primary advisor.

Michael: Interesting. So it wasn't just like, Susan plus one of these four people as a team on every client. There were clients where you weren't either of the people on the team?

Susan: Correct.

Michael: Okay. And I've just got to ask, does that get confusing to kind of keep track of like who's who and who's the two on each particular client or did you tend to have certain clusters? Like, if person A is the lead, person B is always their associate or their second chair.

Susan: No, it really just depended on who was the best fit. And sometimes we would swap that out. So in the old days, that would have been really difficult to keep track of. But now with the CRM that we have available to us, it's a lot easier to be able to do that sort of thing. It's easier to see who's on the team. We always have a staff meeting on Monday morning and talk about what's on our plate for the week so that everybody knows about that. And once a month, we sit down and we do kind of a portfolio review and talk about where our group of clients is that we're reviewing for that particular quarter, where they are in the cycle and what sorts of things we're thinking of doing for them and why.

Michael: So that's an interesting structure. And you said that's monthly that you were sitting down as teams just to talk about where clients are in the cycle and what you're doing for them coming up?

Susan: Yes. Yeah, exactly.

Michael: So was that firm-wide or team by team would go like line by line on every client to say "what are we working on?"

Susan: No, that was firm-wide. That was firm-wide. So everybody has some knowledge of almost everybody that was a client of the firm. And that served us very well because people would...we have people that drop by the office and bring us cookies. That's pretty cool.

Michael: Well, that's a good reason to show up in the office every day.

Susan: Exactly. But they always knew they had someone to talk to. And people would know who they were.

Michael: And so what kinds of things were you talking about for them as you were just looking at what's coming up for clients? Was this a structured like, "We do these meetings every year," or, "We do cover these things" or are you a firm that's more just reactive to clients, whatever they need coming up, and we've got to figure out client by client what their big issues are?

Susan: No, we're pretty proactive. That was one of the things that was really important to me when I first started in financial planning. I worked with a firm that billed by the hour. And I found that to be very difficult because people were always worried about having the meter running. And so they wouldn't talk to you about things, they would just do them. And then it would be very difficult and more costly to undo the thing that they did if they just picked up the phone. So that was one of the things when I started the firm, I wanted to be very proactive with clients, and I wanted to be able to set things up so that we could do that.

How She Sets Up A Cash Plan For Each Of Her Clients At The Beginning Of Every Year [16:29]

So at the beginning of every year, we do a cash plan for our clients. We do the same thing whether they're adding to their portfolio or they're utilizing their portfolio for their living expenses so that we can target exactly where the money's going to come from to make their paycheck or where they're going to deposit it to keep their portfolio balanced. And we've found that to be extremely valuable. It also gives us an opportunity to talk to the clients about any special events that they have coming up, any needs that they have for their family or their kids. Are they helping kids, grandkids with college education? Do they have weddings coming up? It just helps us help them set up budget for the year.

Michael: Interesting. It sounds like this is very granularly focused. Like literally, "Do you need $5,000 a month this year or $10,000 a month?" Like, "Oh, you need $8,000 a month, but then you need a $10,000 bump that's going to come this summer because you're going to help pay for the grandchild's wedding." Sort of that level of granularity about what exactly are the monthly inflows or monthly outflows going to be for you over the next 12 months of this year?

Susan: Exactly. That's exactly it. And then what's the best place for us to take the money from to meet those needs? So we have a number of clients that do a lot of charitable giving. And so we've got more tools now than we used to have before. So we look at whether we can use some of their required minimum distribution to fulfill those charitable goals. And beyond that, do we have appreciated stock that we can use or are we going to use cash this year? Or now, are we going to bunch them one year one way and do it the next year another way? So a lot of it goes into that whole cash flow management. And clients really feel secure knowing that their paycheck is going to be there and that we know what it is.

Michael: Right, right. And I guess that just very literally gives you a lot of flexibility as you sit down and look at this every year to say, "Okay, bad market last year. So this year, we're just going to draw off from some bonds and cash so we can let the market recover," or "This year, hey, we're kind of winding down the brokerage account. You're down to mostly IRAs, so we're going to figure out how to coordinate between your IRAs and whatever is left in your brokerage account." So just very adaptive year by year when you get down to mechanically literally, "How are we going to generate the cash to go out to you every month?"

Susan: Yeah, it is a very mechanical process, but it involves a lot of discussion with the clients about what they're doing and what their goals are. And it's very satisfying work, actually.

Then in the fall, every year we do tax planning, and we're just starting to do that now here, October and November, for each client. Just looking at where they are as far as their taxable income is concerned, where their capital gains are. Is there something that we can do between now and the end of the year that's going to improve their income tax situation?

Michael: Interesting. And for these meetings, I guess both for the cash planning early in the year and then the annual tax planning in the fall, are these in-person meetings with clients? You have every client come in and go through these conversations. Is this like a phone call, an email, a worksheet that you send them, like, "Fill this out and let us know where your cash is going and we'll make sure it's ready?" How do you actually do this interaction with clients?

Susan: It depends on the client. We use all of those tools that you named, actually. Some people would...they don't feel any need to come and visit us at all, and other people would like to see us every month if they could. So it just really depends on a client's preference. Surprisingly, a lot of older people now are not so afraid of email as they used to be. And so they'll willingly communicate that way with you, too. And we do a lot of work on the phone, too. It's really nice just to touch base with people. And oftentimes when you get into a conversation on the phone, they'll tell you things that they wouldn't tell you in an email. And that just adds a little more to your knowledge of what their real needs are.

Michael: And I'm just going to imagine in practice, there's a dynamic as well of, early on with clients, this probably tends to be more in-person because you're still figuring out the relationship and kind of the needs and the dynamics. And at some point when you've been doing this with clients for 5 or 7 or 10 years and everybody knows what the whole routine is, then it's just like, "Yeah, it's just like last year, Susan, but we need a check for the wedding in the summer." And that's the whole thing. It's like a brief conversation or an email because you've got the gist for them at that point.

Susan: Exactly, exactly. Yeah, exactly.

Michael: So it's an interesting structure that for so many firms I know that live in this world of generating retirement income distributions for clients, that I have to admit, I don't know very many, few that have a very rigorous structured process of, "Yeah, we're actually going to connect with clients at the beginning of every single year around, 'What are your planned cash flows for the year?'" I think we tend to just get on autopilot. We send out the regular checks, whatever they were, because we set that up when we met with them originally. And then when stuff changes, someone calls someone, and we check in and we say like, "Okay, you need more now," or, "You've got a thing coming up." But it's not necessarily an annual process the way that your firm has structured it.

Susan: Yeah. Well, when most of your clients are living off their portfolios, it makes you take a little different look at it. So we've been making the retirement paycheck here for close to 30 years and I just found a more structured approach works better, have never missed on somebody's monthly check. But some people don't want it monthly, some people are perfectly happy to have it quarterly, but just every person is different.

Michael: I was going to say, is it monthly for all of them? Do you have some that are quarterly or less often? Do you have any that are more frequent, that they want it every other week just like their old paycheck used to come?

Susan: Yeah. No, we don't do that. Monthly is the most common, but we do have some people that would prefer to get it quarterly.

Michael: Okay. And then when you do tax planning in the fall, are you a firm of CPAs that are doing tax preparation as well? Are you in the planning only but we don't prepare camp? What's the nature of tax planning for your firm?

Susan: Yeah, we used to do tax preparation as well, but as time goes by, it got more complicated and we decided that we really didn't have the skill set to do the best job for our clients. So we work with our clients' CPAs. If they don't have somebody that they like, we have three or four different people, depending on the level of service that they need and the sophistication of their taxes, that we like to work with. So we actually help them put together their tax package to go to their tax preparer. So we help them gather up all the information that they need about their charitable gifts, their property taxes, their 1099s, all that kind of stuff and put it in together in a package for their tax preparer. So, since most of the people travel during the wintertime, I would say probably at least 40% of our clients travel during the wintertime, and the tax preparer often needs somebody to answer their questions. So we usually have all the information and we can get back to them pretty quickly.

Michael: Interesting. Interesting. I guess I feel like you're kind of in-between relative to I think a lot of other firms. You're not preparing the returns hands-on at this point, but you are pretty hands-on in actually calling together like, "Here's their 1099s, here's what the charitable gift distributions were," and queuing up all that information literally directly to the CPA and telling the CPA, "If you've got questions, don't call the client, they're in Florida call us."

Susan: Right. That's exactly it. And that's worked out pretty well most years. And for most clients, of course, you always find somebody that's got an extraordinarily complicated return and we don't have all the information there, but we do know who to go to to get it.

Michael: Interesting. So I am curious, if you were doing the tax preparation and then stopped, how did that go? Because for a lot of firms I know, once they start doing tax returns, they kind of feel like they're compelled that they have to keep doing it because otherwise, clients will be so unhappy that they used to provide the service. They don't provide this service anymore. How did you get to the point of saying, "We're just not going to do it," and then actually break the news so that you don't lose clients who say, "Oh, well, I can't believe you're not doing it anymore?"

Susan: Yeah, it wasn't as hard as you would expect, really. Once we told them that just, "Things are changing too rapidly. It's getting more complicated all the time. We would rather devote our time, the energies to doing X or Y for you than putting numbers on a page. So let us help you find somebody. We'll coordinate it all for you." And it really was not a hard transition at all. I can't remember a single client that squawked about it.

Michael: Which I guess raises interesting questions about whether we overrate the relative importance of trying to be that all-in-one shop that does the tax returns in the first place.

Susan: Yeah.

Michael: So were you charging them separately for it as well or was it also part of your like just one bundled fee on the portfolio?

Susan: It was all part of one bundled fee, yeah.

Michael: So I guess you were getting clients that say like, "Oh, well, if you're not doing my return anymore, are you going to cut my fees?"

Susan Nobody did that.

Michael: Interesting.

Susan: Yeah, nobody did that. They were all happy to work with someone else. And we helped them find people that appreciated the fact that we were putting the tax package together. So there was a lot of additional work that they didn't have to do in their office.

Michael: So I guess functionally for them, you get to frame it a little bit more, it's just a service shift, like, "We'll still help you 'prepare' your tax return," I've got air quotes on "prepare," "We'll help you 'prepare' for preparing your tax return the same way we always have, we're just not going to be the ones that punch the numbers into the software and sign off on the final return. We'll help you find a CPA that does that. But we'll make sure it's not more work for you because we'll still prepare the information."

Susan: Exactly.

Michael: So it's just like, it's an interesting midpoint, to me, between trying to bring all the work in-house and just saying, "Hey, I'll refer you to a CPA because we don't do the tax returns here."

Susan: Yeah. Yeah. And that's paid off in spades for us too because we've had a lot of referrals from the CPAs that we work with, because they like having it all come in one package. So they usually refer their messiest clients to us. But making order out of chaos is something that all financial planners do.

Michael: Yeah. Well, and I do know a couple of firms over the years that have built better relationships with CPAs by, frankly, just being better at other advisors in the area at preparing that information and sending it over to the client CPAs. Most of us, if we're managing portfolios for clients, we've already got reports from our performance reporting system that shows not only performance but also realized gains and losses and original cost basis. And you can send that over to your client's accountants rather than waiting for it to come along in the 1099s with the custodian that may or may not have had all the cost basis track since they originally bought it. Because if they go back far enough, it was before cost-basis tracking was automated, and just saying like, "Hey, we already have these reports, let's just queue it up to the accountant. We can even send it over to them before they get the 1099s and start showing value as an advisory firm, here's how we work proactively with our client CPAs."

Susan: That's exactly it. That's exactly it. So a couple of other things that we did and we'll continue to do is, on a regular cycle, we review different aspects of our clients' lives. So for example, this last year, we had a focus on estate planning because there were a lot of things that could be done this year that would be of great value to a number of people. We've done a lot of decanting of grantor trusts and save people taxes on $1 million or more of securities that we're not going to get a stepped-up basis on the second death. So that was a really big effort this year, and it's paid off big time for our clients.

A couple of years ago we did a big focus on insurance. And that one actually took us two years because it covered a lot of different areas, long-term care as well as life insurance and even homeowners insurance. You'd be surprised how people decide they're not going to spend that $250 for their overhead expense, right? All of a sudden they've dropped it, and not a good thing.

Michael: Particularly if the mortgage is paid off, so no one's there watching, grabbing that money from escrow to pay the homeowners insurance. You've got to actually make sure you keep the policy on that paid off house.

Susan: Exactly, exactly. So we have a cycle for things like that. And then every once in a while, we'll have some special focus on one attribute or another. We noticed that most of the problems that we had with email viruses and things like that actually came from our clients. Imagine that.

Michael: Yep.

Susan: So we had a big client event and had a couple of speakers come in and tell our clients how they could be safe online. And it dramatically cut down the amount of errors that we were receiving.

Michael: That's an interesting framing. Just, you want to cut down on how many wire fraud attempts happen from your clients' email accounts to get hacked, do a cybersecurity education for them about how to not get their emails hacked.

Susan: Exactly.

Michael: Interesting. So these, like cycles you do, I guess you...it sounds like you basically end out with like a theme for the year. Like, this is the estate planning near, so just every single client meeting we go through in the coming year, yeah, we'll do our cash plan at the beginning of the year and our annual tax plan later in the year, but we're also going to have a focus on estate planning as, I guess either within those meetings or another meeting of the year, as just the focus meeting for the year. And this year's focus is estate planning?

Susan: Exactly, exactly. And usually, if there are any updated documents to get, we will work with their attorneys to get copies of their current documents if we don't have them already. People that go from state to state in the wintertime, it's really interesting, they really need to have two different healthcare powers. They need to have one for where they live in the winter and one for where they live in the summer. And oftentimes they forget about that. And the surprises can be pretty unnerving.

Michael: Yeah, especially when you've got such a heavy client base of snowbirds of summer in New Hampshire and winter [crosstalk 00:33:24]...

Susan: Somewhere.

Michael: ...south or so.

Susan: Yeah.

Michael: Interesting. Interesting structure. And so you just set these annual focus items of just gut feeling like, "Hey, here's an area I think we haven't touched on for the clients in a while, let's make this the year of estate planning, insurance," whatever it is?

Susan: Exactly. So we look at kind of regulations that are coming down. If the SECURE Act pass, we're going to be really looking at beneficiary designations on retirement plans and other things. So sometimes the legislative initiative dictates what our focus is. And other times it's just something that we haven't revisited for a while.

Michael: Well, I guess it's an interesting point from a firm-wide perspective as well that when you make like, "This is the year of estate planning," then the good news from an overall team environment with lots of different advisors in the firm is everyone's going to have all these conversations at the same time. So when you inevitably get the scenarios where there's something weird and a particular advisor has never seen this situation before, it's a top-of-mind issue for all the advisors in the firm because we're all doing estate planning meetings with our clients all year long. And you can even train for that or have meetings around it internally just to prepare or gear up for the focus.

Susan: Right. And any time something interesting really pops up, we'll just extend our Monday morning meetings another half an hour or so to have a discussion around whatever the issue is and what our plan of attack is. And oftentimes that involves more than one person extending their knowledge base a bit to deal with the problem or trying to find a real expert if it's a very gnarly problem, trying to find a real expert that can help us and help the client get through it.

Her Onboarding Process For New Clients [34:09]

Michael: And so what does it look for new clients coming on board? You said you've kind of got this focus around values and health and wellbeing as well as, as you're talking about here, just lots of the blocking and tackling of what we do in planning itself. Your tax situation, your estate situation and where your retirement income paycheck is coming from. So if I'm coming on board to or I guess I was coming on board to Financial Focus as a new client, I've met with you, I've said, "Hey, sounds great. Really like the way the firm sounds, let's work together. I'm ready to sign your agreement to come on board, Susan." What happens next? What does that look like for a brand-new client?

Susan: Yeah. So we have always done what we call a financial planning snapshot. And we've charged a flat fee for that. Depending upon the level of assets, the minimum fee was $3,500 and the maximum was kind of $15,000, just kind of depending on the level of the sophistication of the materials and so forth, where we actually review everything.

We do a financial plan right from the get-go and really get to understand what the goals of the client is and address where they are now and what things they might do to make things better or to make it easier to reach their goals. Or sometimes we have to tell them that their goals are not reasonable and they need to throttle back a little bit. But it gives us a chance to get to know people and to get to know whether it's going to be a fit for a long-term relationship, or maybe they're better off doing a little self-implementation or working with somebody else. Maybe they're not a good fit for us. I always wanted to have long-term relationships with people, and leading upfront with financial planning always served us very well. From there, people could self-implement, they could come back for a review within the next 2 years for 50% of whatever the fee was, or they could join us for portfolio management as well.

Michael: Interesting. So even clients that said they were coming on board, technically, you're not coming on board for an ongoing wealth management relationship and investment stuff and the rest, when you say yes, the yes is just, "We're going to do a financial planning snapshot. It's a flat fee between $3,500 and $15,000." Obviously, by then you probably quoted them an exact fee. But it's, "We're going to do a financial planning snapshot. It's going to be X dollars. We're going to go through this process over the next couple of weeks or months, however long it takes, and then we'll decide together whether we want to keep working together."

Susan: Exactly. Let's date a little before we get married.

Michael: Okay. Is that literally how you put it to them? I was kind of curious. It's probably a good line. Yeah.

Susan: It depends. It depends. But it really worked out well, because life is too short to work with people when you don't like each other. It's not a good fit. So why put yourself through that if you just feel that it's not going to work out. So this gives us an opportunity to see if it's really going to be a good fit for the long-term.

Michael: So did you ever get in situations where clients are like, "Look, I'm interested in working with you ongoing, but I don't want to pay a separate fee. Can't you just take my dollars and we'll work together on an ongoing basis?"

Susan: Maybe 2 or 3 times in 30 years. Whenever I brought a new advisor on, that was always a question, "Well, what do you do about this when it happens?" But it really didn't happen that often. And our reputation got to be that we did the planning first. And that was just the way we did it.

Michael: So at some point, that's what you're known for. If they don't want to do all that planning stuff, they probably don't get referred to Financial Focus in the first place.

Susan: That's right. But now under F.L.Putnam, which always was an asset management firm, we do take people without doing the planning first.

Michael: Okay. Because that's a firm where they, right, really just be coming for the investment management, and you've got to actually convince them the planning stuff has value because it's not necessarily what they were seeking out in the first place.

Susan: Yeah, I know, which is a hard thing for me to wrap my mind around, frankly. But that is the way it is.

Michael: So what do this financial planning snapshot look like? What did you do? What was the process for going through that with clients?

Susan: Well, we would gather all of their investment information. We'd look at their estate planning documents, their insurance. We talked to them about what their expenses were. For some people, it was the first time they ever had a really good look deep dive at what they were really spending. And look at their other sources of income and actually do a financial plan for them. So at a minimum, we gave them a balance sheet and a five-year cash flow projection. We looked at their income taxes, is there some way they could be doing something better? And we looked at their portfolios. Some of them had pretty good managers and we really couldn't improve on that. And then other times we found lots of things that probably should not have been in portfolios.

Michael: Right. And so was that a meeting to just do all this data gathering and talk about this and then the second meeting where you presented the plan?

Susan: Pretty much. But sometimes if it was a really complicated situation, it often involved more than one meeting.

Michael: Okay. And is this built in financial planning software? Are you a firm that kind of writes all your own plans? Some combination of the two?

Susan: I've never found the perfect financial planning software. I don't know. This might be before your time. There was one called Planman. And that had the most flexible data entry and the most accurate tax projections of any software before or since.

Michael: That is before my time, Planman.

Susan: Planman, yeah. It was a company called Sterling Wentworth. And it was great. But of course, it got bought by somebody else and they killed it.

Michael: Yeah, yeah, sometimes someone buys something just to kill it.

Susan: Yeah. So actually right now, we're using eMoney. And we find that to be able to address the wide variety of needs. I like the cash flow features of it. You can also do some fairly in-depth estate planning on it. So that seems to be the best one, in my opinion, right now. Although we usually have some add-ons if we'll use BNA Tax Planner or...

Michael: For doing those multi-year tax projections, you'll use BNA Income Tax Planner?

Susan: Right. Or just to test some hypotheses. It just works. It's a lot easier to work with than to try to do it in financial planning software for just looking for changes in the taxes.

Michael: Right. And are there other tools that would kind of round out that suite of what you were using to produce plans?

Susan: That's pretty much it, although it depends on what we get into with some clients. For example, we do a lot of work with clients looking at continuing care communities. And every one of those communities is slightly different in the way that they either offer you a rebate, or they have different levels of rebates and then they have different levels of fees depending upon the rebate that you're looking for at the end. So we actually had to develop our own spreadsheets to look at those kinds of things. So from time to time, we'll have something that comes along frequently enough that we will develop something on our own. But I really don't like to do that. We've got some mathematically-inclined people in the group here, so I feel pretty safe doing it. But you're always...if you're within a reasonable range of certainty, that's about the best you could do.

Michael: Yeah. That's an interesting domain to be in, just doing that level of detailed work on continuing care retirement communities. I feel like that's one of those areas where a lot of us say we're focused on retirement planning and working with retirees, and more and more retirees are ending out in continuing care communities if they can't age in place in their home, yet not a lot of firms are actually literally modeling out continuing care retirement communities upfront payments and rebates and ongoing payment obligations and actually trying to help clients due-diligence their CCR fees.

Susan: Well, yeah. And you need to look at their financial situation too, because a lot of them are way out there as far as...we found a few that have some fairly substantial Medicare liens against them, and not really a great idea to put a lot of your hard-earned money into one of those that could go belly-up just because the government reaches in and pulls back some money.

Michael: Oh, so you don't just mean...when you say you have to look hard at their financial situation, that's not just the financial situation of the clients...

Susan: Not just the client.

Michael: ...to go to the CCRC, that's like due-diligencing the CCRC to make sure that they're not going to be a business that fails.

Susan: Exactly.

Michael: I was going to ask like, does that worry you, to have to make that individual CCRC assessment about whether this facility is going to go belly-up in 5 or 10 or 15 years? That feels like kind of a weighty decision.

Susan: That is a weighty decision. And we're not able always to make that. But usually, you can find something that will raise a red flag. And if the red flag is raised, it's usually worth looking at another facility in addition to that particular one.

Michael: Right. Well, at worst, just find things that don't have red flags, you probably materially improved your odds? Even if you don't have to handicap the exact failure rate of a particular community.

Susan: Exactly.

Michael: So you'll go through, I say I'm coming on board, we do a data-gathering meeting. You said you were even diving into cash flow as well. Is that like, "Fill out this form with where your spending goes?" Are you doing like eMoney account aggregation stuff to try to figure out where their money goes? How do you get through that?

Susan: Well, we're looking at their brokerage statements and we're looking at their tax returns. And you can get a lot of information from just that. And then we ask them about other sources of income that they may have. So I was talking about the collectibles earlier on. So we have a few clients that are car collectors, and they own mostly older type Model Ts and exotic Buicks and things like that. And part of their financial plan, their retirement plan, is to sell one or two of those cars every year. Now, that doesn't usually show up on your balance sheet or your retirement income schedule, so where is this other source of money that's enabling you to live this well? And then you find that, in fact, they've got these collections.

Michael: Okay. So you're, in essence, just trying to make sure like, we can usually see pretty easily net outflows from existing assets, and just start doing the math like, "How much money disappeared? Well, it adds up to this. Did you realize that appears to be what you're spending on an ongoing basis?"

Susan: Well, right. And if they're spending $30,000 or $40,000 on property tax, then you know they must be getting some more income than what their portfolio is showing.

Michael: Right, right. Interesting. But you're not necessarily trying to get them to go through and say, "Fill out this 17-line item budget of where your money goes in these categories on a monthly basis."

Susan: No, I usually find that you can get more information from conversation than from asking them to fill out a form.

Michael: Because you just start observing, hey, there's a bunch of dollars going out, and then they start trying to explain where the money went?

Susan: Exactly.

What She Delivers To Her Clients And How She Times Her Planning Fees [46:39]

Michael: Okay, okay. And so you get through this plan snapshot, and is this a professionally bound delivered kind of plan? Is that how you serve it up for clients?

Susan: People usually like some schedules. We do a lot of planning on a big screen in our office with people. So it's kind of a hands-on deal. So we can model different scenarios for them if they want to take a look at something else. And then we print them whatever schedules have the most meaning to them. Then at the end of it, we do a summary that has all of our recommendations on it with the pros and cons of each recommendation and the reason why we suggested number one.

Michael: Interesting. So let me just make sure I got that. So the summary is like, "Here's what we recommend, pros and cons of what we're recommending," and a justification like, "Here's our rationale of why we're recommending that this is the path you should go forward on."

Susan: Exactly. We actually do that. Every time we have a client meeting, you can have a lot of...or even a detailed conversation on the phone, you can cover a lot of information in a short period of time. And people's recall, including mine, it's not always what it should be. And so committing it actually to writing and sending the client a copy, either by email or by snail mail, just kind of seals the deal, reminds them exactly what the conversation was about. And then we've got it in our files. If we have a question ourselves, did we do this or why did we do this, we've got the information there.

Michael: And it's literally just a standard template that I guess you fill in?

Susan: Yeah, it's just a very simple template in a...we figured the less verbiage, the better. So it's as succinct as we could possibly make it.

Michael: So if you're doing the planning work heavily interactively on a big screen and then the post-meeting takeaway is the summary of recommendations, pros and cons and the rationale, the why, does that mean you actually don't give them the formally printed, "Here's The Plan," capital T, capital P, the whole big printout thing? That doesn't really exist in your process?

Susan: No, that doesn't really exist in our process. So we add whatever schedules, through our interactive planning with the client, are applicable to the recommendations. Sometimes it's a lot more than just one schedule because it'll involve cash flow and tax and portfolio. So we give them...

Michael: So schedules are basically like segments of software output? "We're recommending this tax recommendation, and on Schedule A," no pun to the taxes, like, "On Schedule A, attached to our recommendations is our BNA tax analysis. But I'm not necessarily giving you a whole giant plan, I'm just attaching the tax analysis that goes with the tax recommendation."

Susan: Right, right.

Michael: Okay. So it's kind of a like supporting appendix of schedules for just, "Hey, if you wanted to check our math, here's where the math came from. But we're only printing the math for the things that actually tie to recommendations."

Susan: Right.

Michael: I've got to ask, when you have clients where you're charging, I guess $3,500 minimum fee up to $15,000, do you get any concern that clients aren't walking away with more of a deliverable at the end of that process?

Susan: Well, no. Really, they have what they need. A lot of times they don't need a lot of verbiage, they just need some action items. And this makes it really easy for them to do it. If they're not staying with us, it makes it really easy for them to do the things that are going to improve their situation. And if they are staying with us, then we have a really ongoing relationship where they're getting a lot at different times. So no, I've never really been concerned about that. I don't think a bound book is a deliverable, is necessarily where the value is.

Michael: Yeah. Well, but it's a striking thing to really gets the point of living that. I know a lot of firms that will insist, "Yeah, I get it, the big printout isn't necessarily what clients need," they just use it as a doorstop, "After leaving my office anyways, but we still make it, but we still make it and give it to them." Whereas you seem to have moved on or moved away from that, which I'm going to presume also saves a decent amount of time by just literally not having to produce the booklet and the printouts and formatting and all the things that we get into if you're going to produce the physical plan printout.

Susan: Yeah, I don't think anybody would fire me over formatting.

Michael: And so, they go through this process. Do you charge them the planning fee upfront? Do you charge them planning fee after they get the recommendations? How does it actually work for timing of the fees?

Susan: Okay. So we charge them 50% upfront, and then after we complete the data gathering, we charge them another 25%. And then once we've delivered the plan and they've signed off on it, we've delivered the planning, I should say, and they've signed off on it, then we send them a final bill.

Michael: Interesting. So what led you to a three-part charging mechanism? I don't see that very often.

Susan: No, it just made sense to me. You want enough money upfront to keep them engaged in the process. And if they're not engaged in the process, then probably you want to discontinue the relationship right away. And we've done that a couple of times, where people came in and they were all excited and they paid the 50% upfront, but you just couldn't get them to give you the information that you needed to really make any effort. And so we've disengaged and actually given them a refund. So that gives you a way of figuring that out really quickly.

Michael: And you will give them a refund if they say yes but then they never even get to the data-gathering meeting or do anything with you?

Susan: Absolutely.

Michael: Okay.

Susan: Yeah. I live in a really small community and you can create ill-will very easily.

Michael: So if they do it, they pay, if they don't do it, like, "It's all good. Here's your money back because you just didn't want to move forward. Call us back if you decide you want to pick this up again at some point."

Susan: Exactly.

Michael: Okay. So, 50% upfront, and I guess once you go through a data-gathering meeting and they make another payment, now we kind of know they're committed and now they're in?

Susan: Right. And then we want them to be satisfied at the end. So we have them actually sign off that we did everything that we said we were going to do. I probably should have said that usually, after the initial meeting when we're just introducing ourselves and finding out about them, we then send them an engagement letter that tells them specifically what we heard them say and what we're going to do for them.

Michael: Oh, interesting. So where does the engagement letter come?

Susan: Right after the initial meeting. So we have an introductory meeting where we just talk about what their goals and objectives are and how we might go about addressing those. But mostly, we just want to listen to them and answer any questions that they have about us.

Michael: And so then you'll send a follow-up engagement letter that summarizes like, "Here's what we heard, what you said you're trying to achieve, what you're worried about. Here's what we will do, here's what we would charge."

Susan: Right.

Michael: And then they essentially just get back to you like, "Yep, looks great, let's move forward" or nope, or do you typically have a follow-up meeting like, "Meeting number one is about you, meeting number two is about us?" I know a few advisors that kind of adopt that structure...

Susan: That's not a bad idea.

Michael: ...in their sales process. Do you do a two-meeting process or just we do an introductory meeting. We send you a follow-up engagement letter and...

Susan: And the contract with a return envelope. And usually, they stop by within a day or two and drop the contract off, or sometimes a week or so later, and we get going.

Michael: It is a striking thread to me, though, that you do a lot of just, every time you're having these conversations, writing it up, documenting it and sending it off to them, whether it's the plan after calls, after your intro meeting with them, that I guess that's just part of the style and culture for the firm? Like, "We will document and send a follow-up to the client with what got said" is a routine matter?

Susan: Right. And especially when you're dealing with older people, I think it's really important to do that, because you know their son in California is looking over your shoulder. So it's a good idea to do that. And it saves a lot of problems and a lot of headaches, and it reminds people what their responsibility is, too. Financial planning is really a partnership between you and the client, and they have their responsibilities that they have to keep up with you.

Michael: And you don't find it too, I guess just challenging, time-consuming that you do...you guys have a good number of clients at 250 clients. That's a lot of follow-up emails just to re-commemorate every single conversation with, "Here's what we said, and here's what you're going to do, and here's what we're going to do." Is that a challenge of just the time it takes to commemorate all these conversations that way?

Susan: Well, it doesn't take that long. We're not writing a paper, we're just making an action item list or a reminder, "This is what we talked about and this is what we said we'd do," or, "This is what we talked about and this is what you said you would do." And when we're doing the initial financial plan, of course, that covers all the different areas of financial planning. And sometimes there are some sub-areas in there, too. But that's really what they're paying for is, "Here are the recommendations, here are the pros and cons, and here's why we think this is the best course of action."

Michael: And for the clients who then go through this planning process and say, "Enjoyed this, Susan, this was great, I'd like to keep working together, can you help us implement all this stuff," so, at that point, they transition from being the upfront financial planning client into the ongoing relationship client?

Susan: Correct.

Michael: And so what does that look like in terms of how you charge for services and fee structure? Are you still doing a planning fee for them or does the planning fee entirely go away and we're just on an AUM fee now?

Susan: Yeah, we do an AUM fee, but we've done it a little bit differently. And how we've done that is that we calculate it once a year. We round it to the nearest 100, we divide by 4, and that's what it is. So we're not doing it every quarter based on AUM, we're doing it once a year based on AUM. And that way we know what our cash flow is going to be and they know what they're paying us exactly. And we had always collected our fees in arrears, but as we merged with F.L.Putnam, they collect their fees, like most people, in advance. So that was a little tricky negotiation towards the end of last year is trying to figure out how you switch from arrears to an advance.

Michael: Yes, that's one of those areas, I find, that is so rarely discussed, even including firms that have gone a long way through the due diligence process. Just that actual conversation of, "How are you going to merge your billing processes?" Because it's a hard thing. People don't think about it, if you bill in arrears and they bill in advance, that means if you're going to convert to their fee schedule, the only way you get there is clients have to get essentially double-billed. Like, "At the end of this quarter, I'm going to bill you the last fee for my firm in arrears and then the first fee for the new firm in advance. And going forward, you'll be back on the regular schedule again. But you're going to get hit for two fees in one quarter if we're going to switch you."

Susan: Yeah. And that was a very important conversation that we had with each and every client at the end of last year and we decided...so we knew the merger date was not until April 1st, but we decided we'd switch the billing so we could do it at the end of 2018 and at the beginning of 2019 so it at least was in two different years.

Michael: Oh. You literally straddled the years? Like, "We're going to bill your Q4 2018 on December 30th, and then we're going to bill your new in-advance fee for 2019 on January 2nd of 2019?"

Susan: Exactly. That's exactly what we did.

Michael: Interesting. Which I guess, strictly speaking, also helps a little bit from the performance reporting perspective that you also straddle the fee across two different years as well.

Susan: Well exactly. And when you think about it too, it kind of made sense to them. We're finishing up here and then we're going to go forward. So it really worked out. I have to say, 98% of our clients signed up to go with the new firm, which just kind of made me really, really happy, as you can imagine. It just was pretty an extraordinary number, I think.

Michael: Yeah. Well, and for most of us, if you get down to the last 2%, pretty much I'll have 2% where if they don't stay, you don't actually feel that bad.

Susan: Exactly.

Michael: And those are usually the ones that don't stay. So it's like, "Oh, darn, Bill didn't send his letter back."

Susan: Yeah. And we got a few of those back, too.

Michael: Yeah, "Oh, shoot, Bill actually did send it back, all right. I guess we're going to have to do this for a few more years, all right."

So this kind of once-a-year calculation, does that create any concerns or stress around just the timing? Your revenue for the year is rather sensitive to whatever the market did in the fourth quarter, kind of queuing up your fee or you just kind of assume it averages out?

Susan: Yeah, everybody had a different renewal month depending on when they came in.

Michael: Oh, okay. So they pay annually, but you don't do it calendar year annually, you do it annually to whenever it was that they joined the firm.

Susan: Yes.

Michael: Oh, interesting. Okay.

Susan: So actually, during the market downturn, we had some pretty stable cash flow because we had different people renewing every single month. So it never really hit us very hard. We didn't take a big hit in revenue, which when you have a big downturn like that, it's actually a lot more work than when things are going along great. So we didn't have to make any changes in staffing or service levels or anything for our clients, and it just worked out well.

Michael: Interesting. But I guess the one challenge if you're doing this when clients renew, you're basically always in billing. I guess the good news is that also means you've got cash flow coming in every month, so you don't have to deal with what a lot of firms do, which is three months' worth of fees and then three months of negative outflows while you pay staff and make payroll until three months from now you get the next big influx of cash. Good news, your cash flow stabilizes, bad news, you're always running a billing process.

Susan: Yeah. But it wasn't that big of a deal because we're not calculating it every month. It's already been calculated once a year. We're just sending the bills out. And so, it did really stabilize the cash flow. We had monthly cash flow and didn't have to worry too much about always going out.

Michael: Interesting. And clients generally still pay out of their investment accounts? You're still invoicing an AUM fee out of an investment account?

Susan: Right, for the most part. I think we probably had maybe about 20% of our clients that actually preferred to pay with a check. And we accommodated that and haven't had any collection problems at all.

How Susan Structures Her AUM Fees And Where Her Clients Come From [1:03:13]

Michael: Okay. And how do you structure AUM fees themselves? Where do you set fees for the, I guess kind of holistic service if you're bundling the planning and the investments all into one?

Susan: Yeah, basically, we had a $4,000 minimum fee, annual fee. But for some people that are family members, when we have some of these legacy clients, when we have family members, we didn't have a minimum fee for those additional people. They just were part of the family billing. And basically, we billed at a rate of 75 basis points for just about everybody. But we also had a maximum fee as well. So we had a maximum fee of $50,000.

Michael: Oh, interesting. Okay. So just, hey, at some point, the relationship is large enough, like, "I'm not really going to spend that many more hours with you, we're going to cap it here?"

Susan: Yeah, yeah. And that worked really well. Yeah.

Michael: But it's, and not to be critical of it, $50,000 fee is a hefty number. That's a $6 million or $7 million client at 75 basis points. So you're not serving million-dollar clients and capping it at the fee for a $2 million client, you're serving to clients that are $1 million to $5 million and capping it at the fee that would apply for $6 million or $7 million.

Susan: Right.

Michael: But beyond that, you didn't do a whole bunch of graduated breakpoints. It's 1.2 for this and then 1 for that and 0.8 for that. It was essentially just a flat fee schedule for you?

Susan: A flat fee schedule, yes.

Michael: But with a $4,000 minimum.

Susan: Right.

Michael: Okay. And so, where do clients come from? That I think, particularly for advisors not in dense metropolitan areas, it sometimes gets even harder for building client base. You had a very sizable $350 million client base in fairly rural areas of New Hampshire, granted, a lovely tourist area. I know you're up near Wolfeboro, which I've been to before. It's beautiful up there. But where do clients come from? How did you grow and build your business in New Hampshire?

Susan: Well, I started out really the traditional way with centers of influence: life insurance agents, CPAs, and estate planning attorneys. I joined the state Estate Planning Council and met a lot of people that way. And the most amazing thing, though, is, after the first couple of years and onward, the majority of our new business has come from existing clients, referrals of existing clients. And it's really interesting because we have clients in 17 states, and they've all had some tie to this area one way or another. We have ended up with a bunch of clients in Florida because we have some snowbirds there and they like us to come and visit them. So if I find you a few more clients, maybe you'll come down this winter, right? Yeah.

Michael: Interesting. And do you ask for referrals? Do you nudge them for referrals? Do you bring-a-friend events to introduce them to the firm? How do you actually get referrals to come in? Because I know a lot of firms that will say like, "Yeah, we do cool things for our clients as well, but we don't have $350 million worth of referrals coming in."

Susan: Yeah, but we do ask them. We do ask them for referrals. And you have to ask for the business. And you don't have to feel bad about doing that. If you like what we do for you, please tell some of your friends. And that's always worked out well. I can remember the first client event that I did, and I thought, "Oh, my gosh, what am I doing here? The only thing these people have in common is me." And I was really scared to death, but it turned out to be a fabulous experience. And so we've done one a year, at least one a year, sometimes something pretty extravagant. I used to rent series of ski houses up in Vermont and in Maine and invite people up for the weekend. So people would show up Friday night and we'd have some grab and go kind of dinner for them.

Michael: Well, that's intense. And you are covering it? You are paying for their entire weekend to stay and ski?

Susan: Well, and not only that, Michael, but I got to be the chef for the weekend.

Michael: All right, so you're going to get really intimate with your clients when you're not just breaking bread with them, but making the bread for them as well.

Susan: Exactly, exactly. So they could go off and ski on Saturday, and then they'd come back and we'd have a really nice dinner, and we'd have a couple of speakers for dinner. And we always had a limit of the number of people that we could take, limited to the number of beds, of course. So first come, first serve. And then we did that for 10 or 12 years, and we never had an empty bed.

Michael: And limited to clients? Clients and prospects?

Susan: Clients and friends.

Michael: Okay. Interesting. And how many people would you bring out for this?

Susan: I think the most we ever had was 52.

Michael: Well, that's a big number when you're getting ski resort space and passes. You're spending tens of thousands of dollars on this client event?

Susan: Well, the fellow that owned the ski houses actually was, in fact, a client. And so it was kind of a quid pro quo.

Michael: So you found a very good economic arrangement for it.

Susan: Yes, indeed.

Michael: Interesting. And so I can imagine like, once you're getting that deep and intimate with clients, that's certainly a different kind of relationship than what a lot of us end out with when you're actually going to do a weekend getaway and much less with dozens of clients at once.

Susan: Yes.

Michael: You said you had speakers as well, so who comes and speaks in this?

Susan: Well, I did learn that having an estate planning speaker was probably not a great idea when you were trying to have a fun weekend, so that one didn't work too well. One year I had some oil and gas people come in and talk about oil and gas investments. And that was right on the heels of Enron. So that actually turned out to be pretty interesting. And a lot of people were interested in that sort of investment that was a little non-traditional. I've had people come and talk about real estate. I've had people come and talk about socially responsible investing, just market in general, long-term care insurance, just anything that was timely.

Michael: Okay. All right, interesting. And did that drive a lot of referrals directly?

Susan: Well, got a lot of people interested. Sometimes you can't really measure what exactly it was that got somebody to tell their friend to come and see you.

Why Susan Ultimately Decided To Sell Her Firm [1:10:22]

Michael:  So talk to us then about this decision leading up to deciding to sell the firm. You had mentioned that you were trying succession plans, had a couple of restarts along the way. Can you talk a little bit more about just the dynamics of succession planning and trying to facilitate a succession plan on the firm?

Susan: Yeah. So I have one person who has been a really long-term partner of mine from year two, as a matter of fact. And without her, I don't think any of this would have happened. And so, as a gift at one point in time, I gave her a 10% interest in the firm, was kind of a bonus, a stock bonus. Then as we had other planners join us, we designed a succession plan that would have gotten me out in five years of ownership. Even still, I have absolutely no interest in retirement. I don't know what I would do. I love this more than anything else. But we just could not find...we needed to find a couple of investment people who were just at the point where we really couldn't take on any more clients without a deterioration in the service that we'd been providing. And none of us wanted to do that. So it really was hard to find somebody. We had a couple of really great candidates, and they said all the right things, but for some reason, they ended up going to New York or Boston.

Michael: Interesting. So you were trying to find an outside advisor who would come in and essentially want to take on leadership of the firm, potentially expand the capacity, run the team going forward, and that would be the successor path.

Susan: Exactly. But that just didn't happen. So as I said, it just was a happy accident that we met the people at F.L.Putnam. We had a little bit of exploration, visited each other a few times, talked about our client relationships, what was important to us, what was important to our employees and what our vision of the right firm was and found that we had really a lot in common. And timing just happened to be what it was. But, yeah, no, it...if I had set out to search for somebody with a description, I don't think I could have found as good a partner. It just was a pretty amazing experience.

Michael: And so, was it an ever...tongue-tied. Was it ever an option or consideration to have just the other advisors already in the firm become the succession plan to buy it out or they weren't interested or you just didn't see that as a good fit, you wanted someone external to come in?

Susan: Oh, no, they were all part owners, too. They earned as part of their compensation every year, they would get a stock bonus as well. So there were four of us that were owners of the firm. I'm still the majority owner, but there were four of us. But we just knew it wasn't going to work unless we could find one or two other people with a different skillset than what we had.

Michael: Because the concern was that you were at capacity overall?

Susan: Exactly.

Michael: So like, "We need another advisor, increased capacity, and we want to transition Susan's ownership. So we're going to try to find an advisor who can join the firm, increase capacity and take over ownership." And you couldn't find someone who would check all of those boxes [crosstalk 01:18:44]?

Susan: Exactly, exactly, yeah.

Michael: And sounded like, did you have people you found and started with and it didn't work out or were you just literally searching for years and just couldn't find anyone?

Susan: We just literally searching for years and just couldn't find anyone.

Michael: Interesting. So where did the advisors come from that had joined the firm as is? And you found some people over time.

Susan: Oh, I did, yes. One was working for American Express back in those days. And I met him at an Estate Planning Council meeting. And over a few years, I persuaded him that there was another way. It took me a few years to convince him, though. And once he did join our firm and embarked on the CFP courses and discovered that there was a better way to serve clients, it just worked out really well. The most recent addition was actually seven years ago, which I can't believe it's been that long. And I had, again, been looking for a long time, searching and searching and happened to look in the NAPFA website and saw, lo and behold, here was an experienced person looking for a job in New Hampshire. It took me about 30 seconds to pick up the phone.

Michael: You're willing to come to the state, it's close enough, we'll make it work.

Susan: Exactly. And he actually was in Oregon. And after 15 minutes on the phone, I knew he was the guy we were looking for, flew him out here for an interview, and he joined our firm and became part owner and still here.

Michael: And so do you view the dynamics of hiring, recruiting and finding successors as being even more difficult now that you were able to, at least slowly attract some advisors in the past, but it's become harder now or do you just kind of chalk it up to bad luck, just couldn't find one that fit but, but couldn't keep waiting to search?

Susan: No, I think it's really hard. I think it's really hard not just in our profession, but in all the professions. I know law firms that are looking for estate planning people and they can't find them. Everybody wants to be an M&A for a big firm in New York. I know accounting firms that are having a difficult time finding people. It's just really a hard time, unless you're in a metropolitan area, to attract the people that you need. And yet we sit here and we have an absolutely fabulous quality of life, and you would think that that would be attractive to some people. I try to remember what it was like when I was in my 20s and 30s, what was I doing and what was my thought process, and at that point in time, I was off for the great adventure. So I guess I can't blame them.

Michael: You've got to convince them that the great adventure is the White Mountains.

Susan: Exactly.

Michael: Yeah. And so, in this world where, as you said pretty directly, you don't want to retire, "What would I do if I wasn't doing this," what was the impetus or the motivator for you to do or say...I guess either to find a successor or then to ultimately do the sale to F.L.Putnam if the successor wasn't going to work out? What's the motivator to transition the ownership if you're not actually looking to dial back?

Susan: Well, I think it's an obligation that you have to your clients. I have, since day one, had a succession plan. Since the very first day I opened the firm, I had an agreement with another person. And it was a reciprocal agreement in those days where if something happened to one of us, the other person would either take over the clients or find the clients another advisor to work with. And we took that very seriously. We had a written agreement and we even funded it with insurance. But you know what? I think it's an obligation,

Michael: And this was just another small-to-mid-sized advisory firm that you had a reciprocal agreement with?

Susan: Right, right. And when he subsequently sold his firm and retired, then it was time for me to start thinking more seriously about what the succession plan was going to be.

Michael: I guess when your first succession plan retires, it's [inaudible 01:23:34] succession plan.

Susan: Exactly, exactly. But I just really feel it's an obligation that you have to your clients. Here you are deeply involved in their lives for playing a very important role in their peace of mind, I think you owe it to them to have a succession plan.

Michael: And so if it wasn't going to be fully driven internally, so just external was the only option left at that point.

Susan: Right. And just as I was on the verge of signing up with somebody to do that, I just happened to look into this. I'd rather be lucky any day, this really was a good piece of luck.

How She Set Up Equity Compensation At Her Firm [1:19:04]

Michael: You did mention, though, that some of the other advisors had some small equity stakes as well because it was part of their compensation. Can you talk about how that works for making equity part of compensation in a firm like yours?

Susan: Yeah. So I took the unusual step of being a C corporation, which, yeah, worked really well for me because we could adjust our profits accordingly from year to year. Of course, an end game that doesn't work out so well unless you have somebody that's willing to buy your stock, which that's a long persuasion that nobody ever buys, no matter who they are.

Michael: Well, I was going to say, I'm assuming F.L.Putnam at the end of the day still did an asset sale for the clients' goodwill?

Susan: Exactly, exactly. So we're still...we're working on an allocation that is not as favorable as I would like, but in the scheme of things is still the best thing to do. So actually, as a part of their compensation, I would sell stock back to the company, and it would be bonused out to them as part of their salary. And they would pay tax on that. So they've got a good basis in their stock holdings. And we kind of did that on the basis of after five years, 2% a year. And that was the plan.

Michael: So as time goes, they're essentially...you're not just purely gifting shares to them, they're taking a portion of their compensation and they're buying shares 2% a year increments after a five-year waiting period, I guess obviously if they want to do it. And they pay for it out of their salary from their cash flow. You sell shares back to the firm or over to them in order to do the transitions.

Susan: Exactly.

Michael: Interesting. And the idea was because you specifically wanted to dial down your exposure? You wanted to give them more of an equity stake in the firm? What was the driver for that?

Susan: Ownership really does get your attention. And they really did express an interest in eventually taking over the firm. And that was our plan internally. But it just, as I said, we were just at a tipping point where we just could not have enough incremental growth with the current staff to make that work. And we just needed to do a couple of different things.

Michael: So it was essentially a capacity issue and a difficulty growing capacity that became the driver for finding an external sale?

Susan: Right.

Michael: Interesting. And how did you end out being a C corp in the first place? Is there a further backstory to that? I'm just curious. Don't see that come up very often.

Susan: Oh, I know, I know. There weren't very many lean years, actually. I had the good fortune to be able to take a few clients with me from my previous arrangement. Although I wouldn't say I was actually drinking champagne. I didn't have any really bad years. And it seemed to me that at the time, then I could make the most adjustments. And the tax situation in the state of New Hampshire was such that was not a bad way for me to go. And I wasn't thinking of the end game back then. I really wasn't thinking of the end game back then. And that was 30 years ago. You could call it a mistake, but I would tell you that it served me well for 30 years. I'm not disappointed with it.

Michael: Well, and it does actually make some of those employee ownership pieces a lot easier to implement and facilitate with the C corp than it does when you're doing it with an LLC and updating your operating agreement every year as the relative percentages start changing. So there's some administrative costs and simplification along the way there, I'm sure.

Susan's Involvement With NAPFA And The CFP Board [1:23:09]

So talk to us a little bit about the dynamics of volunteerism. I know you've been active with NAPFA, including with the board and as a chair. You're now on CFP Board's board of directors as well and going through the chair leadership cycle there. So how do you look at being involved with these organizations, or as I think you absolutely put it earlier, figuring out where to focus your energy between volunteering and your firm?

Susan: What we do is so important for people. We really transform people's lives. And it's always been a goal of mine to try to figure out how we can add more people into that mix. And I'm really heartened by a lot of the new business models that have come along. Your subscription business model with the XY Network I think is absolutely fabulous. We did something here that we called Smart Start that was a fixed fee, but it was a quarterly fee for people with income but no assets. And usually, they had a lot of debt, too. So was geared towards specific advice for paying down your college debt and choosing the benefits package at your firm, that kind of thing. But it just is so important to get farther down and to really help people make better decisions. You see so many examples of where somebody could have just done something a little bit differently and they would have had a totally different outcome. And I just have always been driven by that.

My dad was what they called a debit agent, is an insurance agent that would go around to visit the people and collect the weekly or the monthly insurance premium. And sometimes the premium was like 52 cents or something. And he was the only financial person that these people ever saw. And I can remember well as a young girl helping him count the money out from these different envelopes that he would put them in, and sometimes they would be a little short and he would take money out of his pocket because he felt it was so important for people to have this life insurance coverage. It was the only asset that they had really. And that really struck a chord with me. And it's been formative my whole life, how to help people make better financial decisions.

And once I found NAPFA, I was like, "Okay, I'm home now. This is really great. What can I do to help make it better? And what can I do to advance the mission?" And I've always found my involvement with these groups, I always learn more than I give. And I've always come away feeling extremely satisfied that I've been able to have some small influence, whether it is helping somebody not make a decision or to avoid making the wrong decision. And maybe just advance the profession a little more towards being a real profession. And I find a great deal of satisfaction in doing that.

Michael: And so how do you think about balancing time and energy between what you do in the firm and what you do externally?

Susan: This year, I can tell you it's been very difficult.

Michael: Aside from sometimes, life just throws some curveballs and you have to deal with them.

Susan: Well, that's it. And that's also something I learned when I was young. You take the opportunity that's in front of you and you do the best you can with it. And sometimes that involves a lot more work than you had envisioned. But you do what you have to do to make it happen. And I'm absolutely excited about my new duties at F.L.Putnam. We're having some really great conversations using actually the CFP Board's new Roadmap to formulate our financial planning process at F.L.Putnam. It has all the meat there that you need to really get people involved. So that's pretty exciting there, too.

And this year is kind of the 50th anniversary of financial planning, and we're working on doing some very interesting things. Implementing the new Code and Standards is a really big deal. And I'm so happy to be a part of that. That started, actually, in 2015, before I began my board service there. And to see that come to fruit is just very exciting.

What Surprised Her The Most About Building Her Business, Lessons She Learned, And What Success Means To Her [1:28:08]

Michael: Very cool. So as you look back at this journey overall in building the firm, what surprised you the most about building your own advisory business?

Susan: That I did it. It kind of took on a life of its own. I think we all find that at some point in time. It just took on a life of its own. I never set out to build a firm of that size. What I wanted to do, in my previous firm, I was sort of the road warrior and I didn't spend much time here. And most of our clients were far away and a lot wealthier than the local people here in town. And I just wanted to stay home. And I didn't want to bill by the hour. And that's all I really wanted. I wanted to stay home, meet some local people and change some lives. I didn't manage money at the beginning either. I just farmed that all out. And then it got to a point where people wanted me to do it, so I had to figure out how to do it. That was a whole different thing.

Michael: So what was the model early on? Did you actually start with hourly and then decided you didn't like it? Were you just doing flat planning fees, pay me a couple thousand dollars and I'll give you the planning advice and then you can implement wherever you want until they said, "Will you please just do this for us?"

Susan: Yeah. Well, that was pretty much it. So I actually did a flat fee for doing a financial plan, just like we did at Financial Focus. And the price of that ratcheted up over time as the clients got bigger. And then I would help with the implementation. I would go meet with the attorneys with them, I'd go meet with the CPAs with them, I'd do whatever it took to help them get the recommendations that they accepted, implemented. And I charged them separately for that sort of service.

Michael: Okay. And so, at what point did you make the transition to say, "You know what? I'm just going to do the portfolio stuff myself?"

Susan: Oh, when people were going off with the recommendations and doing things, implementing themselves, then they'd stop at the first person that reduced it to "sign here," and often that was not really good result for them. So I kind of, kicking and screaming, got dragged into it and hired somebody from a brokerage firm that knew how to do all the back-office stuff, because I didn't have a clue how any of that worked. A lot of my NAPFA friends helped me big time figure out how to do that. And learned how to do due diligence on mutual funds, which is primarily what we had to work with then. I was too afraid to do individual securities. I didn't have the education to do that. So as time goes along and lo and behold, you have $350 million under management. And that's a whole different thing than where I started.

Michael: Wow. Yeah, that's quite a journey and a shift in the business model over time. So are you still...did you become more hands-on with the investments as you did it over the years or did you end out outsourcing that instead? What did it look like as it evolved for you?

Susan: Well, as it evolved, I outsourced the things I didn't feel comfortable doing. I like individual bonds and not bond funds. So I outsourced the bond portfolios. I still do that because I don't find that to be particularly my bailiwick. I think bonds are more complicated than stocks. And I outsourced individual securities where I thought that was better for people than having mutual funds and getting the annual capital gains surprise until 2008, when it all fell apart and most of our managers did something that was not part of the mandate that we had given them for our clients. So I fired all of those, learned how to do security selection and got rid of a lot of very interesting things that found their ways into clients' portfolios and just changed the whole structure of that at that time.

Michael: And so for the past 10 years, you've primarily done this internally?

Susan: Yes. Yeah. Yeah, so we still use bonds and mutual funds and individual securities and ETFs, and we've divided up the due diligence responsibility among the planning staff. And we rotate that so that everybody...we have a process, and we rotate that so that everybody has their time at being the person that's responsible for international mutual funds or whatever it is.

Michael: Okay. And what does a typical week look like for you at this point?

Susan: Oh, you don't want to know what it looks like right now. How about what it should look like?

Michael: Yeah, what do you plan to work at towards in 2020, once you're through your chair year and not in the transition year of selling your firm?

Susan: Yeah, I think we'll still have our Monday morning meetings. We all get a lot out of that. We know who's going to be here during the week, what clients are coming in, and any particular problems that we're working on. Typically, Monday is kind of a workday. I like to see clients on Tuesday, Wednesday, and Thursday. Either that or work on specific parts of financial planning. We're going to be having a weekly financial planning call for the planners' group, which is now going to be nine people at F.L.Putnam to talk about whatever items have come up in their client group. So we now have offices in Wellesley, Mass, Portland, Maine, Providence, Rhode Island, and Wolfeboro, New Hampshire. So we'll be doing a lot of this online or on the phone, and then just continuing to work on developing our process. And that will be mostly what I'll be doing for 2020

Michael: And developing process is like, how are you going to do this planning process you've been doing now that there's nine advisors in multiple locations?

Susan: Right. And some of the people that they've subsequently been able to hire in the other offices are quite experienced individuals and they have a lot to contribute. And so I imagine that we're going to not just stick with the Financial Focus process, but be able to improve upon it. That's one of the things I found about the Roadmap being so valuable is you can look at that and you could say, "Okay, what are we doing now to fulfill this part of the process? What are we doing now and what could we be doing that's really a best practice? How can we make this better?" And I'm really looking forward to going through all of that with the group.

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

Susan: Oh, there was a low point, too. There was a low point where it just had gotten to the point where I had totally reached capacity. I had had another associate who left. None of the clients left with him. And I was totally...

Michael: Good news, we didn't lose any clients, bad news, I have to serve all of them and we're down an advisor.

Susan: Exactly. That was kind of a low point. And I almost sold the firm. I had somebody else that wanted to buy it and I almost sold the firm. And I'll tell you, there was a moment where my hand was poised over the contract ready to sign and a little bird tweeted in my ear and said, "This is not the right thing to do. Just stick it out." And I did. I stuck it out.

Michael: Oh, wow. So you were through negotiations and down to a potential final phase?

Susan: Absolutely, yeah.

Michael: So what pulled you back?

Susan: I had even told all the clients that we were going to do that. Then I had to tell them that I wasn't going to do it. That was very interesting. Let me tell you, they said to me, "Well, thank God, we were really worried about that."

Michael: Oh. So, what pulled you back from it?

Susan: I really don't know. I think it was more of a culture thing. After going through the negotiating process, it just didn't feel as comfortable as it first did. And I thought I was selling myself short and probably doing a disservice to my clients.

Michael: So what advice would you give to younger or newer advisors coming into the profession today? What do you know now you wish you could tell you from 20-plus years ago?

Susan: You know where I really got a lot of help was just going to primarily the NAPFA Conference, although I occasionally go to other things as well, but the people that you can network with there, it's just amazing. My significant other came to a couple of conferences with me and he said, "Gosh, you guys all like each other. You share and you help each other along." And that's really true. I think this is...we are a helping profession and we help each other. How many clients do you need really to have a thriving practice? I think you can do really well even in a small environment. You just need somebody that you can call when you have an issue or a problem. And we get a little bit away from that networking, and I think it's a good thing to have.

Michael: Yeah. So make sure you join NAPFA and go the conference.

Susan: Go. Go to a conference.

Michael: So as we wrap up, this is a podcast about success, and one of the themes that always comes up is just the word "success" means different things to different people. And so, you've had what I think anyone would objectively call very successful business run, building up to $350 million under management and having a sale and getting to continue doing the work that you enjoy doing along with it. But how do you define success for yourself at this point?

Susan: I define success for myself the same way I describe it to my clients. I want them to sleep at night. And success for me is being able to sleep at night. I go to bed knowing that I've taken care of everything that I need to take care of. I go to bed knowing that I have enough. I have enough for my own needs, and I know that my dogs are going to wake me up in the morning and take me for a brisk walk, and that will keep me physically fit. And to me, that is success. Enjoy what you do, enjoy it all along the way, and do something that gives you pleasure and gratification. And that to me is success. And I have been so satisfied with this career. It's why I don't want to retire. Really, it's very fulfilling.

Michael: Yeah. Well, I love it. I love just the enough mentality of living with what you've got,. Enjoying what you've created and being able to do it with clients for as long as we can.

Susan: Exactly.

Michael: Amen. Well, thank you, Susan, for joining us on the "Financial Advisor Success" podcast.

Susan: Well, thanks, Michael. This has been a lot of fun, and I'm sure I'll see you out there someplace this year.

Michael: I'm sure we will cross paths sometime soon.

Susan: Okay. Take care.

Michael: Thank you.