#FA Success Ep 328: Turning Senior Housing Guidance From A Non-Discretionary Value-Add To A Pay-For-Value Service, With Thomas West

Resources Featured In This Episode:

• Thomas West
• Signature Estate & Investment Advisors
• Lifecare Affordability Planning
• Reverence Capital Partners
• Tamarac Unified
• Goodwin Living
• eMoney

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Full Transcript:

Michael: Welcome, Tom West, to the "Financial Advisors Success" podcast.

Thomas: Happy to be here, Michael.

Michael: I'm really looking forward to the discussion today and talking, I guess, at a high level as I would think it around the kinds of value-added services that we try to provide to clients in today's environments to differentiate, to stand out, to retain. And I've always been fascinated with, I'm just going to call, a subset of firms that create this thing that starts out as a value add, which to me is just sort of a nice way of saying, "We do it as an extra thing for clients, but we don't charge them for it. We just do it because it's a good service, and it's good business, and either brings in more clients or it makes them stickier." So, we get compensated indirectly from the richness of the client relationship, but we don't charge for the thing.

Thomas: Right.

Michael: But every now and then, I find there are firms that can go this direction of creating value-add services, and then it goes so far and they get so good at it, it actually becomes a thing they charge for. It goes from being a value-add service to just being a valued service that you can actually charge money for, which opens the door not only to doing it for existing clients but also doing it for other people out in your community who then may become clients because they're attracted by the service. You've done a version of this in what, to me, is frankly a particularly messy domain for most of us, as advisors, which is helping clients when they or their family members start going through situations like Alzheimer's, cognitive decline, and a whole bunch of health, medical, lifestyle, housing, and other changes that all start coming up in that moment. I'm excited to talk about this interesting intersection of sort of value-added service that even becomes valued services and going deeper into an area of Alzheimer's and cognitive decline that most advisors tend to kind of back away from a little because, here, there be dragons, and just how you got to a world where you decided to go deeper on this instead of backing away. How did you even get going in this direction?

How Thomas Was Introduced To Health Care Financial Planning [05:51]

Thomas: Sure. Well, I think that coming into the financial services industry feeling a little bit like an outsider back in the day, in the early, mid-'90s, probably is a good place to start. So, my personal story was, I get engaged and married at way too young of an age right out of grad school. And in the early '90s, I can't find a job in my profession of choice. And John Hancock, the mutual life insurance company, was one of the places that was calling me back for gainful employment, simultaneous with me running out of money and moving into my in-laws' basement. And while I'm trying to find my real job, I guess I'll suck it up and do cold calling for long-term care insurance.

But when I sort of developed into this area of expertise, what effectively I learned was a few things. One, it turned out that I was a pretty good insurance salesman. Even though it was a miserable existence, I was good at it, and I was, in fact, able to make a little bit of money. But in the early '90s, I was discovering, before the market had been sensitized to knowing even what long-term care insurance was, a lot of families that were interested in being solicited by a semi-annoying 25-year-old were people that already had some medical issue that they were concerned about. The market had not figured out, "Listen, we underwrite." So, I was meeting a lot of families that they already had a diagnosis that, at this point, they want to go and they want to see if there's any possibility of having future costs insured against. And even though we had been trained in our sales training to try to vet, "Don't go out to meet people that are uninsurable," sure enough...

Michael: Yes, I remember my insurance days, these are the people you're supposed to stop talking to because they're not insurable once they've already had an event.

Thomas: Sure. And I don't know that I had the most auspicious start, but I think that, maybe this is the same as your start, but we used to call, when you're in touch with households where one was insurable and the other wasn't insurable, we call those one-legger appointments. And I ended up being the master of the one-legger appointments. And what really that involved was going out and meeting usually with a couple, sometimes one of the spouses was a caregiver for the other spouse, the primary problem that they want to have solved isn't insuring themselves, the healthy spouse. They're looking for some assistance for the ill spouse. And the sales technique back in the day was usually an algebra problem, "Well, given all of the expenses and resources and mindshare and family effort it's going to take to take care of the ill spouse, we should have the long-term care insurance in place for you as sort of a backstop."

But that stunk. I was good at it, but I didn't feel like I was really meeting the client at the place where they're really looking for some differentiated value. I was sort of plugging up a plan C gap.

Michael: I remember those sales in the early long-term care days. Well, I was a little bit after you. I was doing it in the very early 2000s. But a lot of those conversations, "You're the healthy spouse, but if something happens to you, then you're both in trouble really quickly, so we need to cover you as the healthy spouse, or ideally, we need to cover you with a really big indemnity policy that pays enough in daily benefits that, if you get sick, there's actually enough to cover both of you so that you can both get care if the early spouse goes down." And out came the Unum policy.

Thomas: Exactly right. Exactly right. And I think that there were a few sort of characters in this group of early clients that were real pivotal in, I guess, the story of my success and evolution, which were some of these one-legger appointments. Because in order to make those particular sales, I had to spend a lot of time getting to know folks. I certainly had to spend a lot of unexpected time becoming more comfortable in the room with somebody with dementia. At 25, I had no family experience with any of that stuff at all. And there's a few stories I hope we get to, but one of them was this appointment with a lady named Mary. She's taking care of her husband, and they were over in Bethesda. And what she really was worried about was the family is going to be getting together over the holidays, and they're going to see the symptoms of her husband. And she was mostly anxious about, "I want to protect him. I'm interested in making sure that they think I know what I'm doing." That was sort of the main area of concern that she's got. And she thought, and I framed from a selling standpoint, well, maybe taking the step with you doing your long-term care insurance could be part of your messaging to the family of, "I'm trying to pay attention to stuff, and I've got it." That was sort of a pivotal point of the sale.

So, I don't know anything. I'm asking, "Well, where are the resources that you've got for your husband and whatnot?" Well, she doesn't really know any. So, I got this idea of the Alzheimer's Association. That was really the only name that I knew in this particular diagnostic space, with no family experience. So, this is a true story. I knocked on the door of the Alzheimer's Association. I said, "Hey, I'm a long-term care insurance salesman." I'm just imagining the expression of the person on the other end of the phone, right? "So, I'm this long-term care insurance salesman and learning to know more about Alzheimer's. And can you help me? Where can I get some resources and the rest of it?"

So, there's a program director. Her name was Betty Ransom. I became great friends with her afterward. But her immediate response, Michael, was, "We got to get this guy out of here. The last thing we need is a long-term care insurance guy hovering around."

Michael: Hovering the Alzheimer's folks. Let's be clear. Let's put the really sales-y people to the really vulnerable seniors.

Thomas: That's exactly right. So, she sensed me. She's like, "Great. And I've got just the thing for you, Tom. I'm going to let you sort of co-host a social working group that we've got, meeting at a local church, about family in grief around the holidays with dementia."

Michael: So, I'm going to guess, 25-year-old long-term care insurance agent, she gave you this to set you up to fail.

Thomas: Listen, I didn't know anything about anything. So, I go into this thing, and it was so traumatic. I had to go home. I couldn't go back to the office. I was in a fetal position. It was PTSD. By the way, it was extremely effective. And evidently...

Michael: Hey, this is real life for some people and what they're going through. Good life-changing lesson moment.

Thomas: Right. I thought so. I was unprepared, and truth told, I was so unprepared for that particular sort of workshop session that they had that I don't remember to this day too much about it. I think that what I came away with was there was an enormous amount of families dealing with this stuff in real-time that wasn't getting a whole lot of recognition. I think that there was a lot of messaging that was coming out around things we can't talk about, different aspects of what we're being challenged with in social circles. We can't talk about it in professional circles. And it started at least a degree of curiosity in me, which was along the lines of, "Well, how much of this is going on sort of all around us?"

So, I took the experience back to the long-term care insurance sales manager, and I said, "Well, look, what is out there outside of long-term care insurance and the financial services industry…can help out with anything?" And he's like, "Well, there's not really a whole lot. If you're in the insurance world, mostly what we do is we prepare folks for the possibility of needing help ahead. We don't really have anything in what you can sell for a commission that sort of adds to things." So, he drew a circle, basically, it's 2 circles. He says, "Here's health care," and then he had a Venn diagram circle of another one, "and here's money." He says, "Tom, you got to operate at this sort of overlap. So just keep making your phone calls, keep going out and trying to find more prospects you're able to convert and get this, what amounted to be a big long-term care insurance book, sort of set up." And I went back to Mary, and I told her about the grief around the holidays thing, and she thought that that was sort of a big value to her.

What came out of it though was she sort of pivoted, and she said, "Listen, is there anything else that you can do? Because I haven't met anybody in financial services that's taken this kind of interest. Is there anything else that you can do for me outside of this long-term care insurance?" I said, "Look, I don't know anything about anything." So, I go back to the sales manager guy. "All right, we already did the insurance. Is there anything else that's sort of out there?" He drew another circle on the bottom, underneath the money side. So, it was health on the top, money in the middle, and on the bottom, it was family goals and planning and whatnot. You'd sort of extend that little overlap area. He says, "Okay, once you've handled the money as it relates to future health care planning, you could," if you go down education and CHFC or CFP or those sorts of things, "you could start getting into financial planning and live in this space. So, you can work towards overlapping there. And for a smart guy like you, Tom, you might be able to learn about the Swiss army knife of problem-solving everything for your clients," which, of course, was variable universal life insurance, which I was...

Michael: We are in the late 1990s.

Thomas: Right. And I was inspired. He said I was this smart guy, so it had to be a good anchor on the rest of my career. But what really came out of it was sort of a realization that this is kind of a blind spot. And there was a point where I took the 3 circles that were on top of each other and I kind of realized through these conversations with Mary that the idea of typical financial goal planning and whatnot, she's not thinking about any of that stuff. "What were previously the financial goals he had?" "Well, standard living and take care of the kids and maybe college planning." But she's expressing to me stuff that only involves keeping her husband safe, staying at home, staying together, those sorts of pieces. And everything that I knew, at least in the early '90s, about the typical hierarchy of priorities that you do all yourselves for, then I was using SunGard as a financial planning software, that's not what she's talking about at all.

So, it occurred to me that it was more of a 3-circle Venn diagram, and I think that the blind spot that I saw, which was really changing in the direction that I took my career, was that spot where it all overlapped, which is what are the health care decisions that require a financial response and confident decision making on a family level across both health care and money. And I was staring at it for a while, and I'm asking questions, "Well, who's responsible for being in that spot?" Because I go back to my sales manager, "Okay, well, I can do the money and the family planning, goal planning stuff, and I can do the money and health care. But as soon as health care intersects with family, it's a blind spot." And then all of a sudden, financial advisors move from being active guides to bystanders, and they're not in the room, and they have to react to whatever the new reality is that the family is discovering through their diagnosis, through the period of care that's sort of projected, and we, all of a sudden, have to wait to be order-takers to say, "How is this going to impact just a little bit of what we do at that point?"

Michael: I think that's a really interesting framing to me, just sort of this phenomenon that we pride ourselves, I find in the advisor space, we're planners, we look ahead, we plan ahead, we project ahead, we provide the recommendations to navigate the things that may be coming at us around whether that's growth or managing risk or all the different pieces. But when you actually get to those moments, our toolsets become very, very thin or nonexistent, as you framed it, "I can do planning for money and family, and I can do planning for money and health care. But when you get to the overlap of family and health care, I'm usually not in the room." I get told by clients, "I know we had that plan that we talked about a few months ago, but it was kind of a bumpy holiday season. My kids came out, they're really concerned about what's going on with their dad, and whether we can take care of him on our own. And so, I've decided I'm going to be moving across the country so that I can be next to my oldest, and they can help watch over and manage my husband." And also, yeah, all the planning stuff we were doing, it changed in one family holiday gathering...

Thomas: Yep, that's right. No, that's exactly right.

Michael: ...that I was not in the room for, but now I'm getting told, "Yep, the whole plan is turned upside down now because our lives is making a change because of what happened in the health and family aspects." And yes, there are money repercussions and consequences and outcomes to that, but I think you make a good point that most of us, advisors, are not in the room when that family conversation happens. Because it doesn't start with money, it starts with health care and family, and they let that drive. And then the money shapes around it, which I would argue is a pretty good way to prioritize the family, but it means we're not in the room when stuff actually gets decided and determined, even though that's really weighty moment for financial advisors. It's not planning per se because it's not planning for the future, it's real-time, but they're advice moments, and we're not there, necessarily.

Thomas: When I'm having this conversation with Mary, she's a good client, I move very quickly into, "Okay, we're going to do this financial goal planning stuff." And she had, I think at the time, around $600,000, $700,000, which is a good portfolio back when we were starting.

Michael: Yeah, that was a good client then.

Why Thomas Was Inspired To Focus On Health Care As A Niche [21:14]

Thomas: Yeah, it was a good client. And the mystery of the blind spot for Tom deepened because I go out at Mary's dining room table, and her husband is at the dining room table, smiling. I think my introduction to actually being in the room with folks with dementia, it actually was easier with his particular set of behavioral symptoms because he was just smiling and happy. I think that if it was something where he had more dramatic behavioral symptoms, I might not have been as comfortable being such a dementia newbie. But the conversation with Mary around the table was I built, at the time, what I thought was the coolest financial plan forever, "This is why you need to manage my money." And I did, at the time, I thought it's something that was pretty innovative. It was anticipating changing costs. I recalculated liquidity.

"You're going to be needing to hit money at a faster rate. I anticipate it. Listen, as long as your husband is alive, he's going to need help that you got to pay for. As long as you're paying for help, you're going to have a big itemized medical expense deduction. And the itemized medical expense deduction is going to wipe out all your income tax liability for anytime that he's alive. So, on January 1, you've got a very different tax planning variable than you have moving forward. You got a bunch of municipal bonds. You won't have to pay taxes." So, I got super nerdy. I was sort of flexed into it.

So, Mary, who's a really smart lady, I think she's a government professional, she wasn't uncomfortable with numbers. She said, this is my other telling moment, she said, "Tom, I'm going to let you manage my money, but I can't pay attention to any of that stuff at all. So, just to give you a frame of reference, and I believe your plan is good, and the reason I'm going to let you manage my money is I can tell you believe your plan is good. But as sort of a frame of reference, my goal this morning was remember to eat lunch." So, coming back to what I thought was the way to meet my client where they were in this particular chapter, well, that didn't work. And I had to spend a lot of time, which really developed in sort of a passion project and how my work...I ended up being on the board of the Alzheimer's Association, I ended up doing a lot of work with when the Alzheimer's Association merged to the Capital Area, and they decided to be more of a fundraising for research.

They didn't do a lot of the programming for stuff, and I wanted to stay with as close to sort of boots on the ground, taking care of families, so I moved into an adult day center, did some leadership stuff there. And then I closed out a lot of this leadership and board and advocacy stuff actually just last year where I left a 10- or 11-year run with a big life plan community in Northern Virginia where I wore a bunch of different hats. Part of the reason that I spent so much time there goes back to aspects of that lunch with Mary, Mary telling me that all she wants to do is remember to eat lunch, because the way that we're trying to communicate with clients about getting them to accept the CTA that will improve financial outcomes, all of the tools that we had from a communication standpoint, remember, most of us in financial services come out of either a sales history or an analytical history. Those of us that are pretty good, we have skills in both, but none of us are social workers, none of us are nurses. And that's the only way you're able to communicate with the Marys of the world.

Michael: I'm struck. The story and the dynamics you tell, I think, around Mary are really powerfully illustrating just the place that some clients really are, particularly when they're in the sorts of moments of dealing with family members that have serious health issues as they're aging. I know a lot of us, as advisors, tend to suck something to the effect of we work with delegators who don't want to manage the portfolio so that we can manage it for them and they can do other things in their lives, travel the world, or enjoy your retirement, or more. But to get it done at Mary's level, you're literally talking about...I've never seen an advisor's website that says, "We'll worry about the money so you can worry about your husband and remember to eat lunch."

Thomas: Right, right. And by the way...

Michael: That's what got the business. She trusted you enough that you...she trusts that you can pay attention to money so she can pay attention to her husband and whether she ate lunch that day. And that's her reality for, I think you said, at the time, a $600,000 at the time, which is a $1-million+ client today.

Thomas: Sure, sure. And I think that one thing that I always said, if I go back to talking about long-term care insurance, I had a love-hate relationship with my sales managers in that chapter of my career, because one of the pieces that we kept on going back and forth with was, if your long-term care insurance prospect ends up being uninsurable, there's nothing you can do about it. Well, what happens if my long-term care insurance client makes a claim? What do we do? Well, we send it to claims. Well, what can I do about it? Well, you really can't do anything about it. Throw your hands up in the air. It's all act of God.

Michael: Go get the next new client.

Thomas: Yeah. Why don’t you get back on the phone? Why don’t you use it as a cautionary tale about how your next sale should go? This is terrible. But there's also an aspect of we can throw our hands up, there's nothing we can do, but there's always some early messaging in my career with people that wanted to focus me to get back on the phone, is you really can't see any of the stuff coming. I remember I’m in my 20s. The oldest baby boomer in the '90s was just turning 50, okay? And you're projecting forward, really, nobody can see this coming. It's going to be a total mystery that nobody can anticipate an aging America where folks have to make compromised financial decisions because of health care. That's going to sneak up on everybody in the middle of the night, and it's going to be a big surprise. And I kind of rejected that just because of the weight of demographics.

But going back to Mary or families like Mary, the rest of it is just think about how tough it is to make decisions about money in that circumstance, because you don't know how long somebody is going to live, you don't know how sick they're going to get, you're having a hard time accepting the reality that you're living in, to begin with, so what you probably try to do is you try to wait for more information to present itself for you to react to so you can act with more confidence. And of course, that's just this rolling procrastination monster that you only know how it ended up after somebody dies, and it handicaps folks in the middle of a vulnerable decision-making chapter.

You've done a good job talking about stress and the cortisol loss and analytics going out the window and executive function and cognitive issues, but really if we're trying to sort of map out who is the guide that can actually speak health care to guide the family through the financial aspects, and I would offer, there isn't one. It isn't anybody's job. And I think that when you're trying to look at what are the true norths or sort of the compass readings that I've tried to shape my career around is the market is going to force that question to be answered. And those of us that have the capacity to sort of bridge those worlds, I call them sort of internally 2 tribes. There's a tribe of the senior housing and healthcare world, and there's the tribe of the financial services world. They don't speak each other's language, they don't trust each other, but they're both giving clients guidance on how to navigate this particular chapter of their lives that's never coordinated.

And it feels, to me, like trying to evolve different business models or different offerings that you'd be able to access the Marys of the world or her family sort of where they are and still maintain a fiduciary standard and a business model that's profitable. That's the windmill that I'm tilting at, because the demographics say, "That question will be answered." But that's kind of the space that I continue to sort of play around with different approaches.

How Thomas Translated His Long-Term Insurance Experience Into His Business Model [30:10]

Michael: So, help me understand how this moves forward to the business world that you have today. So, I get you're living this in the long-term care insurance agent context where you can have these conversations, at least distinguishes you as long-term care insurance agent, but at the end of the day, you're paid for long-term care insurance sales. I know your model has since gone far away from those roots. So how did this start to shift and change from the business model perspective?

Thomas: Well, I think that, at the time, there weren't a whole lot of different business models. There was the insurance and the commissionable world, the BD world where your comp is embedded in either transactions or buried in a product. And I was fortunate in the sense that I was a successful enough insurance producer that I really didn't have to go too deep in my career in that BD and commission investment world. Because I'm trying to find, "Okay, what's the puzzle piece of the investments that are going to fit Mary?" Well, I don't want to lock stuff up, so anything with a surrender period, that's terrible. I know now enough about how to manage a portfolio because of liquidity and taxes, and I need new constraints on volatility, I know that I'm going to have to find something that's a little bit more customizable. Look, you can't just slam somebody into a model when they've got those kinds of particulars.

So, what ended up happening is, everybody's career ends up having a little ray of sunshine of luck, I ended up becoming affiliated and ultimately becoming an advisor, and I'm now a senior partner at a big RIA called Signature Estate & Investment Advisors, SEIA. And the big differentiation in RIA land all the way back when I started was this non-discretionary piece. And what non-discretionary meant for me, and what it means for everybody else, is the investor is not giving the advisor full discretion to put them into a model. It usually means that they're checking with them on individual transactions. They're maintaining some shared control. Euphemistically, we're sharing the baton from a decision-making standpoint. But what I wanted, Michael, back in the long-term care insurance transition days is I wanted the option to customize and tailor portfolios based on what these realities were that seemed to be very household specific and why I didn't want to do a model. And if I needed non-discretionary to do that sort of tailored stuff, that's where I started.

So, the insurance production was good enough that I was able to move right into percentage of assets managed, and I kind of skipped the whole BD world or commissionable investments. And I moved from commission insurance right into fee RIA. And it probably took, as did you or a lot of our listeners, a few years to get rolling fees up to the point where they were meaningful, but I had this insurance production that sort of subsidized that along the way.

Michael: Meaning you still had trails on old insurance policies that were becoming...

Thomas: Yeah, and I was still selling some. Yeah. The retail long-term care insurance, which we can spend an hour talking about that, the history of that, but retail long-term care insurance hadn't blown up yet in terms of sort of a new offer. So, it was still part of my portfolio that I was bringing to the clients, but really what I was looking at is I was experimenting a lot with how do I play around with portfolios using these particulars. And then it's like a lot of us. If you specialize on something really hard, then all the easy stuff is easy. Well, can you just do a plain old 401(k) rollover to an RIA? Uh… yeah. That's how the growth of that really started.

Michael: All right. So, what was the timing? So, when did you make the transition to the new firm to do this switch?

Thomas: I was probably loosely affiliated with SEIA in the early to mid-2000s, I think, formally around, yeah, about mid-2000s. And then I transitioned to becoming a direct employee on a partner track in 2015, and then I've grown the practice to where it sits right now. We've got a pretty big team and a lot of different business channels that I'm certainly fortunate to be able to have developed, but that speaks a little bit to the timing.

Michael: So, help us understand what the advisory business, just overall, under SEIA looks like today. And I want to come back more to where this long-term care, elder care offering sits. But help us understand the advisory practice under SEIA today.

Thomas: Sure. So, I'll start with SEIA as an RIA. We're a big operation, where I think we closed the year at around $16 billion. We've got somewhere between 15 to 20 partners and advisors that are doing a lot of the heavy lift. It's funny, you should ask, what's SEIA look like? Well, the thing that hasn't changed is non-discretionary has been sort of the firm brand. I think if you look at the ADV, maybe it's 90-ish plus or minus percent of all of that work is non-discretionary. But we've got a good TAMP, and we just accepted in the 4th quarter of last year some private equity money for SEIA to be sort of a landing spot for what we're expecting to be a player in the mergers and acquisitions world. So, we have Reverence Capital Partners as sort of a new investor as of the tail end of last year, and we're just at the chapter of how all of this stuff is going to be integrated and how other firms might be coming into the SEIA fold. But that's sort of the hot-off-the-presses changes that we're working with.

Michael: So, so many advisors, particularly in the RIA fee end, are discretionary with almost 100% of the business or literally 100% of their business. I know many that will essentially say, "If you're not ready to delegate investment management to us, then you're just not a good fit client for us." So, help me understand why non-discretionary as the chassis for this, and then I want to understand some more just how it actually works.

Thomas: I really like our value proposition on the RIA side of things. I think it sets up for how are we attracting do-it-yourself advisors that just want maybe some coaching, or maybe they've got...before we started getting into direct indexing or cool features like that, sometimes people didn't want to hire a discretionary advisor because of concentrated positions or the models weren't specific enough because of ESG, or I hate ETFs, or I hate managed funds, whatever it ends up being. So, I think the early value proposition was, "Hey, listen, as long as it can be held on a Schwab or a Fidelity platform, we can sort of play ball with helping to manage around that." And a lot of the research department that starts off with, like a lot of firms, a model portfolio, sort of a short list of "Here's our top 3 or 4 funds or ETFs or alternatives in different sectors."

And one thing that's interesting with SEIA, which makes it I think a little bit unique, is we're a real decentralized firm, meaning, the DNA of the firm was on a practice level as compared to a home office level. A lot of the financial planning and the portfolio stewardship happened at the practice level. If we're going to be looking backwards, I would probably say that SEIA ended up having probably a little bit higher payouts and a little bit more responsibility to do the non-discretionary stuff in the practices. So, it required a little bit more pencil and paper and calculators and modeling from the advisors, and we weren't doing a lot of stuff. We were throwing stuff to sort of the home office research cloud to kick out what the recommendations were. We were doing a lot of the work at the practice level, which is probably part of the reason my practice, staff-wise, is a lot more built out than other practices of the same size.

My snapshot for the practice is I looked today figuring that it would come up, I think, we've got a book of about $570 million, plus or minus. But I've got a staff of 10 right now, because we do a lot of the work sort of on our end. And I think that, like every business, SEIA is evolving, and it's changing. And I'll adapt to change as we go. But that's a little bit about how it works. We push a lot of the analytical horsepower out into practice or service teams as compared to housing them in the headquarters.

Michael: So, what does staffing look like? I guess 2 questions, how many clients is it across $570 million of assets? And then what do the staff members do?

Thomas: Probably, say, about 250. It's less than 300 clients right now. And if you're going to do a snapshot of the staff, it's 4 CFPs, outside of me. It's, in addition to me, 4 CFPs, 3 registered associates, but one of the registered associates, which gets back to this health care side of things, I hired directly from the senior housing and healthcare industry. I hired somebody that was in the business development world from...she worked at hospice, she worked at assisted living, she worked at life plan communities. And we'll get back to it, but as it relates to staff, she adds a different kind of flavor to this health-money-family sort of cross-up. And then we've got a marketing person that helps out with social media, and so on and so forth. But that's basically the way the staff works.

Most of the work, in terms of what they do, 3 lead advisors that are doing a lot of the client work. The client work is usually a balance between regular updates on an eMoney plan, sometimes with extra heavy flavor and modeling from this health care side of things. And we're concurrently...all right, I forgot one last professional. I do have an investment specialist who we hired as...she used to be a researcher for SEIA at the home office. So, she's a CFA-level 3 candidate right now, but her expertise is to go narrow and deep into a lot of individual investments and alts, and she's got a fixed income background, which is playing nicely with the way the market is going right now.

So, only other comment in terms of how we're working is big high believer in teams. We don't do a lot of work with just 1 person in the room, whether it's bringing in sort of a more junior associate advisor and try to get them as many responsibilities from a relationship management standpoint or a loop closing or a CRM follow-up. That's how a lot of our day-to-day operations are going.

Leveraging Non-Discretionary Assets To Create Customizable Financial Plans [42:26]

Michael: So, help me understand a little bit more just how the execution of this non-discretionary model works. Because I think, for so many advisors in the discretionary end, for better or worse, we're so used to, "Yeah, I decided I want to make an investment change in our models, or I want to do rebalancing, so we have it all loaded up on a central technology. We hit the good old rebalancing button, do a review of all the cued-up trades, make sure that everything is in good order and that nothing is getting traded that shouldn't get traded." And then it executes, and nobody has to call a client, nobody has to go check in on this. It happens once across the book or whatever segment of clients are in that model. So, I'm just trying to envision, how does it work when you've got 250 clients and $570 million of assets that are almost all non-discretionary?

Thomas: So, there's sort of 2 ways to describe it from a practitioner standpoint. The first one is we want to imagine non-discretionary as a spectrum, which is, imagine full discretion on one end of the spectrum and then anything that's not full discretion going all the way down to client is making every single investment decision themselves, and basically, the advisor is a conduit. If you're going to be going through from full discretion, which again most of us know, and you're just moving a little bit away from that, imagine there's a space with limited discretion, which is, I'm going to let you guys automate, like the rest of the industry, decisions around a certain kind of set of transactions. If it's rebalancing or raise money for fees or drive liquidity out of a fixed income or cash-like decision, you can go ahead and do all that stuff without checking with us. But anything that's concentrated position change or you got to swap out a manager, or something along those lines, that rises to the level of needing to get back in touch with the client.

Then, as you're moving down toward sort of full client autonomy, remember, this is a huge bank of clients that what I really want is a catered menu of choices, and I want...and I'm just going to super generalize it, "Show me the stock, show me the ETF, show me the managed fund, and show me an alternative. And give me the pros and cons of each, and make sure that each of those choices are curated in a way that I can't really screw up as the investor if I choose one or another. But I'd like the idea of a choice and how does it fit in with the rest of the portfolio." What you're hearing is, "Boy, that's a lot of service." And it is a lot of service. It's part of the reason that we're so staff heavy in this non-discretionary model. But we've got different theories in our industry, Michael, about, "Is financial advice, is this a deliverable of a bunch of math, or is it an experience that a client needs to sort of feel their way through and hug it out, and I have an advisor that knows me and loves me?"

We think that the way that we do the non-discretionary is sort of a tweener. We always have got quantitative reasoning behind any of our recommendations, but we think that by giving the investor agency or a sense of agency in directing some of these individual investment decisions, we find that they're more engaged. We're able to tie back, "Hey, the reason that we're recommending any of the stuff is remember the financial plan, and we got to drive better outcomes." The way that you protect yourself as a practitioner from the crazy client that wants to flip their portfolio every time there's an administration change, or 100% sold, or any of those clients, we got to build the financial plan and get consensus with our clients, "How about we agree that we're only going to do investment stuff that serves this financial plan?"

And what you're doing is you're starting to put some constraints on the range of investor behavior. And ultimately, over time, if you're going to be looking at our book, how much of our book is at huge variance from where our models are? It's not a huge variance. I bet you, if you were to say double the tolerances of a lot of the different portfolios that you see in discretionary world, and do most of our clients fit into twice tolerance on most models, probably, because we've sort of coached in there and we know the math that said we're believers in asset allocation and modern portfolio theory, and so on. We'd move them because it's our fiduciary job to get the allocation right, and there's a lot of work that goes into industry research about what that looks like. That's kind of how it feels from sort of the advisor dashboard in the non-discretionary world.

Michael: So, I guess, just trying to visualize, I like the spectrum that you set out. So where does your practice sit on that spectrum? How far out in the non-discretionary end are you, typically?

Thomas: That, I think, is...there's another aspect. The other aspect is the client's preferences for how much discretion changes. One big theme for me and my career is clients change their mind all the time. And we go back to my priorities and healthcare priorities when we're talking about it, the level of discretion that folks want, think about agency and, "I want to pick every particular security, and I want to go down and manage this Exxon sale by individual lot that my client has to sign off on." That can be true in the early stages of a lot of client relationships where, "I want you to prove it to me that I still have the ability to make changes based on what I want, not what you recommend."

But over time, that moderates and, "We've worked with you for a while. I'm just going to...give me the executive summary." And then you move, the majority, not all, but the majority of our client relationships after a 3-5-year period, particularly once we get the investments and the insurance and the financial plan all coming in the right direction, after that, I would find most of our clients raise their level of trust and confidence in our process and move more towards, "I know I used to do all this stuff myself, but I'm now letting you have sort of the stronger grip on the baton. And I'm more interested in the executive summary. And can you add any value in any of this personal stuff?"

Michael: So ironically, the book becomes basically more discretionary over time as just their trust level builds.

Thomas: Yep, yep. And let's imagine that most of the cognizant in the investment universe, I find that there's not an enormous amount of variance at the very high end of the RIA space in terms of what an optimal portfolio looks like. Now, there's different access and pricing points and things like that, but it's not like you see different firms doing radically different stuff at sort of the top of the pyramid. And I think that the more you bring clients up to here's the best research, here's the most cutting-edge analysis, here's how it relates back to you, it's sort of a gravitational pull. Sooner or later, you're going to optimize your portfolio, whether you want to or not if we use the financial plan as your guide. That's kind of the way that it really sort of plays out.

Michael: So, I guess I'm just trying to envision. How does this get reflected in the advisory agreement? Do you end out with just a whole bunch of...I'm envisioning a form with checkboxes of, "You can do the rebalancing trade without my permission, you can do the raise money for fees without my permission, but you do need my permission to swap in a manager," or, "You can swap in a manager without my permission, but you do need my permission to touch any of the concentrated stock position I came in with." How do you handle this?

Thomas: There's actually fewer boxes. I think that, in 2023, that's when we're going to roll out the formal language on the limited discretion, like I was talking about. So, there'll be a specific box that we've got to go through all of our filings and get our Tamarac Unified all set up so that that can happen on an automatic basis. A lot of times, the boxes are non-discretionary, which is sort of a pitch down the middle. You're going to check with us before you make any trades. And then it's discretionary, which looks like everything else when we go to model those sorts of pieces. And the discretionary stuff that we've got internally, it's got the same functionality as most of our other RIA peers. You've got some ability to time the divestment away from concentrated positions or tax loss harvest. Certainly, elevated models on the discretionary side of things allow for some tailoring to client circumstances.

But I think non-discretionary, as it's understood, and it appeals to a certain section of the market, which is, "I specifically want to continue to feel in charge, and I feel in charge if you're not doing anything until I give the thumbs-up." And what that really means is we're beholden to actually have our quarterly meetings or when a particular security falls out of favor, we actually have to call the client instead of just do something. And I think that part of our success and a really high retention ratio is non-discretionary forces a higher communication model. And even if the client is just sort of thumbs-upping everything that you put in front of them, you're still talking to them more. You're still checking in. This is a good point of reference, and you always have that catch-all question, "What else is on your mind?" You get something there.

So that, I think, speaks a little bit to part of what makes this non-discretionary thing grow as well. We had a fantastic growth year last year just in this space, on the non-discretionary, by itself, in addition to, and complemented by this health care stuff. So, we think that there's a space. We've got good partners in Schwab and Fidelity that appreciate the differentiation.

Michael: And then I was going to ask, just how do you manage the fact that every trade needs a call or a meeting? Do you have a system about how you do the calls? Do you try to time trading decisions or rebalances for when clients are otherwise coming in for a meeting so you can just check in when they're in the meeting?

Thomas: Exactly, exactly, exactly.

Michael: How do you manage to it?

Thomas: Well, I mean, I think the big thing that you got to manage is we've moved to what amounts to be surge meetings, which is we try to get the majority of our first quarter client meetings, we're coming up on the middle of February right now. So, we're right at the front of our first quarter surge. That means we're going to try to get all of our client reviews done in the latter part of the quarter. And what this basically means is, you remember the research cycle, it takes a few weeks to digest what just happened in the previous cycle, what's actionable, what's background noise, those sorts of things. So, it takes a few weeks to digest the previous quarter. It takes another few weeks for the investment cognoscenti to translate that into recommended portfolio changes that then get disseminated to the practice. So, we're usually having our client meetings jammed into not across the quarter but in a more dense part of a handful of weeks. And what the clients benefit from is we've got a lot of oars in the water rowing in the same direction. We've got very current advice, and we're able to basically give a lot of the same kind of market commentary that's pretty close to in real-time to folks all at the same time. It really adds efficiencies than waiting for the client to call us or sort of happenstance scheduling.

Michael: And are you meeting with clients quarterly all year long? Is this an ongoing quarterly cadence?

Thomas: Generally.

Michael: Look what's going on in markets the first half of the quarter, try to meet with them the second half of the quarters.

Thomas: Yup. Generally.

Michael: And so then, every meeting, "Here's our list of investment trades that we're recommending coming into the meeting. If you're good with these, we'll go ahead and get these wrapped up as soon as the meeting is done."

Thomas: Exactly. And then you've got all of the other value proposition of, "How's your family? What's your new goal? What's going on in the insurance or the financial planning side?" All of those things are sort of built. And then the portions of the calendar quarter that aren't in these review meetings, it's all following up on all the to-dos that happen from those particular meetings. But that's basically how we divide ourselves. I think non-discretionary would be very hard if you don't have sort of the discipline in action across the team that we've sort of built. If it's always just reacting to whatever the new thing is scheduled whenever the client sort of raises their hand, I don't think the offer would be as good.

Why Thomas Charges More For Non-Discretionary Asset Management [56:08]

Michael: And then, how do you charge for this? Is there a discretionary fee schedule and a non-discretionary fee schedule? How do you set AUM fees in this model?

Thomas: I think that if you're going to look at the AUM fees that we charge, you'd find that we're pretty in line with what the market's doing. So practically speaking, we're charging one quarter in arrears. I tend to, for my practice, schedule flat rates instead of tiered. I just find it's easier to explain, and it gives me a little bit of a competitive advantage just to sort of do it that way. In our ADV, we've got a band of ranges of fees per different level, and the practices and the partners are the ones that are pricing that out. Because sometimes, in a non-discretionary thing, somebody needs a lot of work, and it's a huge amount of plans or the portfolio is completely upside down and we got to do a whole lot of work. That's going to be more expensive. And then we charge flat fees. And when I say one quarter in arrears, one time period of 3 months, we collect T-plus-2 weeks into the subsequent quarter.

Michael: Okay. And so, nominally, you come out at the "traditional" 1% a year just as you build portfolio.

Thomas: Nominally, for purposes of this, sure, yes. And with a little bit of tailoring, that's right. And we do have the capacity to do standalone financial planning fees, which was sort of the jumping-off point for some of the work that we're trying to do with this healthcare-differentiated plan. So that's also part of what we're able to do. We certainly embed that level of planning inside of 1% AUM offer. And then we also do it sort of on the side as a standalone.

Michael: And so, is there a difference in how pricing works if it's discretionary versus non-discretionary, or is this kind of a quarter-per-quarter just the standard across the board unless you've got particularly messy weird situations where you have to adjust?

Thomas: It's probably more the latter. I find that we can charge a little bit less for discretionary just because it's less work, you know what I mean? At the end of the day, you're dividing advisor hours and overhead, and the rest of it, and the cost per client acquisition, and cost to service a client, and whatnot. One of the areas that is a...it's a different business model, but if you're driving a higher margin, you want to cut down on costs. I think discretionary is a better place to cut down on cost than non-discretionary.

Michael: Well, I'm struck by that dynamic though, because I feel like there's a perception in the industry of, if you're managing on a discretionary basis and clients are delegating all this authority that you're responsible for, that's a "premium service" that you charge more for. If the client is still retaining a portion of the investment decisions and investment control, they're "relying" less on the advisor as the sole steward here, that if you've got less responsibility over the portfolio because it's shared that the fee would be lower because you're not doing all of this stuff on their behalf. So, I'm struck by just how you're framing this that, no, no, no, the non-discretionary is at least in line with the cost of discretionary and might actually be higher.

Thomas: Oh, yeah, it's higher. It's higher. If you think of it this way, Michael, how long do I have to listen to you, my client, how long do I have to listen to your ideas about investments? [Makes ticking noises.] If it's non-discretionary, I got to listen longer, and then I've got to figure out a way to bring that back to your goals and then to wrap it up and then move you to accept the recommendations that I'm making in the fiduciary side of things. I don't have to do any of that in discretionary land.

Michael: I totally get it from just the dynamic, the reality of what we do. Yes, when the client gets involved at level, it's more work, but just obviously, this isn't how you pitch it to clients. I'm just envisioning this world of...so we basically have 2 options. We can do everything for you for this price, or you can be involved and we can share in the labor, but that costs 20% more.

Thomas: The positioning...well, I'll put my salesman hat on for a second. We can manage your portfolio like you were everybody else, or we can manage your portfolio like you were you. And we basically reverse-engineer, "We're going to make sure that the financial plan and your circumstances and your preference in the weird… that you're starting out within your portfolio is accounted for from the jump," and we're going to wear our fiduciary hat, and we're going to track that, "Here's your starting point. We'll imagine together your ending point, and every single one of our decisions in terms of the timing of transactions, whatnot, is going to lead to better outcomes, but it's specifically tailored and customized to you." I think that non-discretionary...

Michael: And so, that's the premium service. Look at all that specific for you, customer to you, that's a premium service for you. So, this isn't non-discretionary, the lesser service. This is non-discretionary, the premium service.

Thomas: Absolutely, 100%, and it's because it's tailored, it's customized, and I can show you it's tailored. I can show it to you that if I just give you a menu and you know you can choose X versus Y, and other clients choose different stuff and they're cool too. Imagine if I just lump all you guys together and everybody's in a tax-efficient moderate growth portfolio, that's not cool. That's easy.

Michael: Interesting. I think that that will be, I think, a striking mindset shift for a lot of people listening, to envision, "No, no, no, what if you start it with the baseline assumption that non-discretionary costs more?"

Thomas: Oh, yeah.

Michael: Would you approach that differently with clients if that's where you started?

Thomas: Sure, sure. And I think the only other piece, the question you didn't ask was, "Hey, if it's a premium service but you're charging the same as discretionary, what's that about?" Well, it's about a model to growth. I think that the idea right now is non-discretionary, as you said, is not the law of the land. It is a differentiation. I think that what really is the plan is we've got to build our practice. We've got to build our firm for growth. I think that last year, just for example, 500 [million dollars in AUM], whatever it is that's under the practice, we brought in [$]147 million last year. And it's staffed that way, and it's differentiated. And we took, I think, strong advantage of a market where, listen, everybody's model portfolio went down, and nobody was trying to tailor anything to you. That's a nice differentiation. And I think that you know how the growth works and either driving up multiples for the value of your business or driving down costs associated with the delivery of this higher touch thing. It's not going to work with keeping the fee parity if you're not showing the growth that SEIA or my practice is showing.

How Thomas Helps Clients With Cognitive Decline Through His ‘Lifecare Affordability Plan’ [1:03:41]

Michael: So, now bring us back to how, I don't even know what to call it, the counseling advice for seniors with Alzheimer's and cognitive decline. So, then what are you doing with that in the context of where the business is today? You talked about what you were doing with that in the days when you were a long-term care insurance producer. Now you're in this advisory model, what is it today, or I guess, what did it evolve to as it comes forward to today?

Thomas: Sure, and super good question. So, I think that my field of dreams, "If you build it, they will come," strategy 10 years ago was to try to build a standalone financial plan at a price point that was at cost or maybe a little bit better, but I certainly didn't want to do a loss leader. I didn't want to do a loss leader that all recommendations are "Hire us to manage your money." That isn't what I wanted to bring to the market. I wanted to try to do something where we would get some efficiencies. And most of the time, families really want to figure out, "Do I stay home, or do I move?" or "How can I manage the cost of this new placement in an assisted living facility? I just landed into the new spot, reality's changed, what do I do?" Those are a lot of the templates of the plans that we were doing.

And first off, I trademarked some of the way that the plans fell out. I spent a lot of time trying to think about, "All right, even if you're using some off-the-shelf software, do the math, and you're doing Monte Carlos, and you're doing linear analyses, and whatnot, what's the swizzle?” And the swizzle is that, and really what we built the trademark around, is if we go back to the thesis of healthcare priorities are going to highjack your financial priorities, whether you know it in advance or not, I think the data is overwhelming that it does, that what we do is we build out our scenarios not on different markets or what happens if somebody dies or whatnot. We build out all our scenarios that track prescribed plans of care.

So, you get a clinical diagnosis. You get a therapeutic path basically mapped out. And we know, just from the expertise that I've gotten folks on staff has, listen, stuff doesn't stay the same. If it doesn't work out for Mary taking care of her husband at home, what's that really going to look like? And what I'll share with you is priorities change pretty predictively, at least for a couple, for Mary's example. If home's no longer an option, the next most important thing is, "Where can we go together and stay together?" That's the new most important thing. And we're going to find a way to pay for it, because the most important thing is to stay together. So, in this Lifecare Affordability Plan that we trademark, all right, if Mary in Bethesda can't stay at home, realistically, where can they go together? And you got to find places that have different kinds of options where spouses with asymmetrical needs can maybe share a room, but if that doesn't work forever, where can we accommodate different starting points for Mary and her husband?

And imagine what we do is the scenarios sort of model out with a lot of feedback that is generated from the senior housing and healthcare industry, whether it's care managers or aging life professionals or intake clinician folks at these different facilities or whatnot, but they're the ones that help map out all of the different clinical paths that it could go. And then what we do is we sort of, all right, if Mary's husband progresses at this particular pace and we end up with these kind of out-of-pocket costs, we know, at that point, that it's T minus 1 year before we have to sell a beach house, or we have, at that point, run out of accelerated distributions from the IRA because we've been taking advantage of this big itemized medical expense deduction so we've been gutting the IRA faster. But we know that that's going to shift, and now we're going to be having to start thinking about the taxable account that we try to put on the side in hopes for a step-up, and so on, and so forth.

That's the math that we end up doing. And it was a differentiated enough approach, which is we got the health care as the driver. I think going back to teasing my old insurance manager, nobody could see this coming. I just fundamentally don't believe that. I think everybody sees this coming. People get old. Needs change. Priorities change. But it's not like everybody's making this up for the first time. Others have walked this path before. What can we learn from them? That's really what I tried to build out in this plan.

Michael: So, the essence of it, sounds like, is someone comes to you in a fairly later ongoing stage of senior health issues. Mary comes, her husband has Alzheimer's, she's managing at home right now, we're not quite sure how long that's going to last, but we're going to manage to it as long as we can. And so you end out with, I guess, just a very scenario-planning-based approach of, "So if his condition deteriorates very, very slowly and you can stay in the house a long time, you can use these local services, you can do these things, you can engage in this plan of care, and then here's what your costs have to be." Scenario 2, he deteriorates more quickly. "You need to leave the house, but you want to find a place where you can be together, so here are some potential facilities in the area that could do it. Here's what they cost. Here's how that's going to map into your plan of care. Here's how that's going to impact your distributions and your tax planning strategy and all the other pieces that come from it." And then maybe there's a third one, unfortunately, something happens, and he deteriorates very quickly and passes and, "You're now a widow. Can we cover your needs from this point forward?"

Thomas: Yeah. And you've got the gist of it right away, and this is something that I'm happy to be able to project out to this listening audience. I'm not reinventing things that have never been thought of before. I think that this is a configuration of some off-the-shelf tools that advisors are already using. It's just jumping off of a different frame of reference. Because remember, let's go back to what we talked about in the early part of our podcast. It is extremely hard for families to make decisions that involve money in the moment. There's a euphemism, an emergency room is a terrible time to talk about money for the first time. The way that we think this approach to financial planning really drives better life outcomes for families is we've pre-made a decision, and what we've done is we've put sort of guardrails on the road for the family that when they're in the moment and everything is sort of up in the air and sort of emotional, all of our stress, anxiety, analytics go out the window, we can come back and say, "Listen, we already talked about this. You saw it coming. We can bring other family members into it."

One thing that's really interesting about health care decisions and priorities versus financial decisions and priorities, whenever it's health care, Michael, all of the family members are in the room. If it's financial stuff, how many times are you just talking to the money-oriented spouse? So, what this does is it introduces a whole lot of what we call technical buyers, which is people that can say no, but they can't say yes. As soon as health care comes into it, there's a whole bunch of people that can kind of jack up your advisory relationship. "Listen, I know that mom and dad used you as the financial advisor in the past, but stuff's different. And who are you again, and why should we trust you? And I got a guy who's telling me..." Everything goes sideways. There's a lot of statistics that say, listen, what was it, 70% of investors change advisors at the disability of a first spouse and then another 70% change advisors when money is inherited from one generation to another. I think my offer is that it's because we aren't in the room when everything happens.

And by orienting all of our planning around the priorities that are agreed on when everybody's in the room and that all of the money stuff makes sense through the health care lens, which is where they are anyway, I think that you can get calls to action about, "Hey, listen, we got to simplify this stuff. You got accounts all over the place. Right now, we just cannot get our arms. In the meantime, can we just get all the stuff in one place?" You're going to get a whole lot more thumbs-up from all of the decision-makers if you're speaking health care as a reason to do this if you're thinking ways to support mom, Mary, when she's trying to manage all this stuff as, "Setting you up, son, as the successor decision-maker, how about we make life easy on you?" That's, I think, some of the real value of this different kind of framing of the financial planning approach.

Michael: So, how deep are you into actual services, facilities, providers, local care options? I feel like a lot of us, as advisors, can say, "Here's kind of what happens if you need to go into a facility, and we'll budget X hundred dollars a day to go into a continuing care retirement community. If you stay home, we probably got to budget a little bit of extra for you to have some folks coming in." But I feel like there are a number of advisors that might do that with some reasonable guestimate neighborhood numbers. My impression, because you're talking about Mary might look at this particular facility because it's a good one close to house for her and her husband for living options. How deep are you into actual services, facilities, providers in the area?

Thomas: I think pretty deep. Just from my own experience, there's a long list of reasons why I'm weird. One of the reasons that I'm weird is I really built out a very high degree of literacy on these life plan community contracts. The community that I was involved with for, I don't know, a decade or so, which is Goodwin House, now Goodwin Living in Alexandria, I was one of the architects of their continuing care at home contract that got filed in the state of Virginia and whatnot. I bring a pretty high level of literacy, and it's more the literacy, Michael, than it is "Am I plugged in? Do I have this exhausting network where I know all of the intake people and executive directors all over the industry?" That's not exactly true. We should talk just a little bit about how COVID has changed how that industry is sort of approaching the seniors who are our clients that are going to need them.

But I'd probably say a differentiation is sort of hyper-literacy on how all those business models work. If you're moving into assisted living, understanding that if you're going into assisted living and they're telling you you're going in on level 2, I want you to expect that you're going to go to level 3 inside of 6 months after moving in. Those are just little things that having been around the block and actually having a professional that came out of senior housing and health care who's very connected around the beltway in that industry, it makes for a better experience when you're doing the financial planning because you have somebody on the financial planning team that speaks health care and then can quickly translate the implications of whatever that intersection of health care and family stuff. In real-time, we can show how the financial decisions that need to be made to support that new direction of the plan of care is, how quickly it can be implemented, whether we need to zig or zag, those sorts of things.

Michael: And so, what tools are you using to do the scenario planning and modeling?

Thomas: Mostly, it's templates that we've built out in eMoney right now. The analytical side of things isn't real different.

Michael: It's having better inputs and assumptions and the knowledge you have of the industry and how this works.

Thomas: Yeah. This came back to, you remember the early software, I was sort of an early Sungard user, which is super complicated. And when you get into the planning software, you got to come up with a whole bunch of different workarounds to make the software kind of reflect reality. Well, as soon as you get into continuing care contracts, you got to do...the software are pretty good right now, so I do know how to model those things with, and you said it right, I think our inputs are first class, and the math isn't any different. And I do think, by the way, if you're thinking of different financial planning software, eMoney is a good example, the multivariate analysis on things where you can say this not that or these combinations is hugely empowering if you're starting from a health care projection into the future as compared to a financial goal-driven plan, because that way, you can more quickly map out variables that the family really hasn't gotten their arms around before. And on that multivariate page, that I think makes the analysis very powerful.

Michael: And then, what do you charge for this?

Thomas: Usually charge about $4,000 or $5,000. Generally speaking, we're looking at...we usually try to do it in 3 meetings, and so there's a point of engagement. We usually have to plug into folks in the senior housing and healthcare industry that have got some clinical perspectives in what those ranges of care plans might be. I think that the due diligence that we do is it can't be us making up the stuff about your clinical future. We got to have somebody else sort of sign off on that. And remember, most folks in the senior housing and healthcare industry, they don't know what they're talking about with money. They're talking mostly about, "Here's the different ways how we can accommodate weird behaviors because of the cognitive impairment needs," this not that. And then we got to put some work into it. We look up what's the added cost of bringing the home care into the independent living, and what's the bump from level 1 versus 2 assisted. So, it's taken a while to basically establish the bank of inputs that makes the efficiency of the plan easier, but it still comes back to superior inputs.

Michael: And then, how do you market this, or who do you market this to? Is this sold to clients? Is this just sold out to folks in the community? Is it something else?

Thomas: And this gets into the curse of the innovator, which is sometimes best-laid plans sort of go by the wayside. The vision really was, because of my background and the fact that I speak sort of C-suite level senior housing and health care stuff and that we've got other folks on staff that have had experience being in the room, asking for the $15,000 a month of the new resident that's coming in, I felt like we plugged into the senior housing and healthcare industry extremely well. And the plan, Michael, was this is going to be a B2B channel. We're going to find a way to be able to position this offer so that that industry, which has formerly been, let's say, suspicious and side-eyeing the financial services industry, look, I'm not asking them to do anything with the money, I'm not selling them anything, here's the standalone analysis. Look, you senior housing people, this all looks like you, right? Yes, it is. And we got a lot of confidence. And there were... I'll share with you. Before COVID, we advanced conversations pretty high up in a number of sort of name-brand providers of senior housing and healthcare services to have whether it's sponsored or co-branded approaches to a bunch of things. But COVID changed everything.

There's this way to understand. Think of senior housing and healthcare. Think of it as Maslow's hierarchy, for a second. Think of the industry as Maslow. Level 1 is I just need this business to exist. All right. I need to be able to pay rent and make payroll and cover our bond covenants. And 1 level up from there is our residents need to be safe, and they need to be healthy, and the regulators need to not say that we're doing terrible things to them. A level up from there is this is a great community and everybody loves each other. A level up from there is prestige, and we're recognized as a center of excellence. And the top, just like we have with Maslow, with self-actualizing, the top of a lot of these different things is we're trying to serve our seniors at the peak of creativity and their spiritual plays. And if it's a faith-based nonprofit, you're just trying to go all the way up.

COVID smashed that hierarchy. Imagine the pyramid just gets collapsed all the way down to... I was on the board. We're trying to have people not die. We're trying to keep our workforce from quitting. I've got people that are in hazmat suits trying to keep people alive that can get paid more by driving Uber or flipping burgers. And the turnover in the senior housing and healthcare industry since the beginning of COVID, something like 30% or 40% of health aid workers have left, and they're not coming back. And what effectively happened is, "Tom, this is a great idea. I love it, but we got other problems right now."

And I think that this is an interesting opportunity to take some of the ground that I've covered and the lessons that I've learned and say, look, this isn't sort of my idea for me by myself. I would like to share this. I would like other financial advisors to sort of, "Okay, what are some of these concepts? How can they be applied in my practice so we can serve folks a little bit more?" Because right now, what I had been developing 5 to 10 years of this industry, we were going to be the folks in the senior housing and healthcare industry, and with national aspirations that were imaginable. Yeah, that just went away. And I think, what do you do with all this stuff?

In the end, I think that I've had one mentor give me, and you've had the same speech, Michael, is it success or significance? Can you reach a certain apogee in your career? And I feel pretty strongly that some of the things that we're really meant to do as advisors is to get people better outcomes in their lives. And I think that the paths that I've taken on my own road to success are important enough to be shared and not just kept to myself.

Michael: And so, do you see this ultimately just shifting further in what you do or how you bring it to market? Does this continue to stay within your practice? Does it go other places? What comes next?

Thomas: That's a great question. I think that the preliminary decision is, because I'll be 53 this year, and I've got quite a long runway, I hope, in front of me in my career, and I think what I've stepped away from last year was doing a lot of this leadership and advocacy work in the senior housing, healthcare, and dementia industry. I've put in 2 and a half decades of my life. Invaluable, personally, professionally, the rest of it. I think this is sort of a pivot, which is I have not used my perch as a successful advisor to help project some of these best practices to the rest of the industry. And I think that the form of what that looks like is sort of to be determined. I'd like to imagine that this expertise can be shared if it's something that leaders in the industry think as really additive or multiplicative in terms of a number of different business models.

But in the end, when you think 70% of people change advisors at the disability of the first spouse, think of it like they're going somewhere and they're going to folks like me, so there's dumber business models to come up with, and how about we just develop this expertise so we can be in the room and then we can apply whatever skills, talents, passions, whatever it is? But that, I think, is the inflection point for decisions that we, as an industry, really need to improve on.

The Surprises And Low Points Thomas Encountered On His Journey [1:25:34]

Michael: So, as you look back on this journey, what surprised you the most about building an advisory business?

Thomas: What surprised me the most? I think that moving from being very competitive and maybe scorecard motivated or money motivated. I was surprised in going into the advisory business that, in my own experience, that that got replaced by trying to be part of a greater good so completely. So I think that the idea of Alzheimer's was my particular piece. Other advisors have their own sort of passion projects or areas where they're trying to change the world. I think that, for me, the idea of being successful from a production standpoint or an AUM standpoint, by having it all roll up to serving what I'd like to think is a greater good beyond what my own individual practice would be able to do, that has kept me much more inspired and working harder than I would have imagined when I started an advisory business. I think it was just about, whether it's financial success or comparisons of excellence of practice and whatnot, I don't think that I would be working quite as hard if it wasn't plugged into these larger themes. So, I guess that was a little bit of a surprise, a pleasant surprise.

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

Thomas: I think the low point was some of the lessons that I learned came from my wife, Beth, and I having a hand in the care of my in-laws for a while. I had already established myself as sort of a subject matter expert, and my mother-in-law died of pancreatic cancer, let's see, was it 2007, 2008, somewhere in there? And my father-in-law got diagnosed with kidney failure right after she died. But it was right coming into the stock market crash. So I know, because of my subject matter expertise, the thinnest of silver linings is at least dialysis is picked up by Medicare. It's the one chronic illness that you get the Medicare thumbs-up. And I knew that the cost of this care was actually not going to be financially impacting my father-in-law as a widower. But the market crashes, and I'm managing his stuff because it's easy. And my father-in-law comes to me, and he says, "Look, this is too much." He's buried his wife a handful of months ago and, "I need to get out of the market." Look, no, dialysis, it's fine, it's all paid for, but it very much came down to, "I'm on overload."

And I think that it ended up that my cautionary tale of trying to have the professional role compete with the support of spouse and the support of son-in-law, in the end, the only way that I, as part of the family, was going to be able to keep him invested in the market was to play a non-family role. And that's not what my family sort of needed from me in the time. It was a little bit...it was a tough lesson, Michael, that you can't do brain surgery on yourself. You can't play the role of the professional and the doctor and the supportive spouse at the same time. And my lesson was everybody's going to default to their primary family role in the end, no matter what. So any of the other roles and responsibilities that you might have are going to get lost in the wash because you want somebody to be comfortable or feel safe or feel loved or secured or whatnot. And that's how the low point was we sold out of family money in the dip of the market right after this period of care that I should have been a professional expertise on. My would have, could have, should have was there needed to be some other advisor in the house.

And that was a low point that I'm trying to...that's a little bit about what I learned. It sort of builds into a lot of my beliefs about excellence in decision-making on a family level that integrate all of these different things. It was sort of bouncing off of that particular low point, and it's certainly a memorable one.

The Advice Thomas Would Give His Former Self And Younger, Newer Advisors [1:30:11]

Michael: So, what else do you know now you wish you could go back and tell you 15, 20 years ago as you were starting to move away from the long-term care insurance producer and then to the advisory side of the business?

Thomas: I think, knowing myself then, I think that the trials and tribulations and innovations that went south, part of being a good innovator we know is you have to accept failure. And as long as you learn from and get actionable knowledge from that particular effort, it's got to work out in the long run. I probably would tell myself 15, 20 years ago, "Don't get quite so pissed off at the failures." I tend to invest a lot in my next new cool idea, and I'm an all-in-the-next-new-cool-idea guy. I'm home run swings all the time. And when those things don't work, I think earlier in my career, before I got used to having some of these failures not work, I'd be doing some pebble kicking. I'd be doing a lot of would have, could have, should have. My advice now would be, "Relax. There aren't a whole lot of people trying new things. There aren't a whole lot of people that are trying to move into this space, and you can probably chill out a little bit more." That would be my future Tom to past Tom advice.

Michael: Is there a particular...what was the worst home run swing that missed?

Thomas: I think that there was an effort in these life plan communities that I was very...I don't know, I believe I was first to market in doing some very sophisticated modeling of how you move into these places and what exactly you need to do to optimize. For example, type A contracts in life plan communities involve a pro-rata medical expense that you can deduct. So I was pretty early to, if you can deduct that, then maybe you can net it out and do a big ROTH conversion. I did all sorts of cool stuff from a modeling standpoint there.

And my biggest whiff was coming up...it reminded me a little bit of the lunch with Mary now that I'm thinking about it. I'd go to the hierarchy in these life plan communities and look at how awesome we could be treating your incoming residents with doing good planning, with the way that your contract is set up. And I think the worst whiff was, yeah, that's great, but we don't care about that at all. And the thing that we really want to do is we want to get these rooms occupied as quickly as possible. So, we're happy, hypothetically, to work with you after the fact, but we're definitely not going to interrupt our sales pipeline where if somebody might be moving in and, "Hey, wait, let's do a bunch of math before you sign on the dotted line," that's a non-starter. And that was probably my biggest pebble kick. Looking back at my play, nobody cares.

And that was one of a number of them, but it still is part of the DNA of a lot of the financial plan stuff that we do. But now, like it stands right now, senior housing and healthcare, it's hard to find the same people in the same positions that were there last year. I'd like to think that it's a dream deferred as compared to a dream crushed of having this financial planning approach plugged into that industry. But that was sort of telling, moving backwards, just getting a better understanding of, "Tom, your cool thing isn't as cool as you think it is."

Michael: So, what advice would you give younger and newer advisors coming into the industry today and looking to get started?

Thomas: Well, I think that there's sort of 2 ways to think about all of the realities of seniors and their changing needs. And I guess I would probably say, if you're thinking tactically, on a household level, I would tell new advisors to say, "Listen, you want to think proactively or reactively. Because your clients are going to be coming up with this stage of life, and if you need to react, to somebody just as a healthcare need, pay a lot of attention to liquidity needs based on worst-case healthcare scenarios. Make sure you're checking the deductibility of medical expenses, account for higher withdrawals. My goodness, if the financial needs of the household changed, the portfolio probably needs to change. And a good way that I think that I would say kind of critically, are you meeting your fiduciary responsibility if you change nothing in a portfolio model when everything has changed in the household in terms of cash flow responsibilities for the client?" That's probably what I would say.

I think, proactively, can you ask your clients, "Who do you think is responsible for healthcare decisions?" I always like that phrasing, Michael, because it's not the same as, "Who's your power of attorney?"

Michael: Say that again, how do you ask it?

Thomas: Yeah, I ask it this way, who do you think is responsible for your healthcare decisions? And that gets a different response. And then you compare that with, "Who's got a durable medical power of attorney?" Because it's not the same thing all the time. And who do you think is responsible for financial decisions? And that one turn of phrase, it helps because it helps the family anticipate any muddiness in the decision-making, and then you can do a better job of prescribing who your surrogate decision-maker should be.

Michael: Because when you ask, "Who do you think is responsible?" it's going to prompt the...or I'm just envisioning people are usually saying, "Well, my son's the power of attorney, but my daughter is probably not going to be the one who calls the shots." That answer is going to show right up when you say, "Who do you think is responsible?"

Thomas: Yeah. And that new advisor, that should be captured in your CRM, hypothetically. So, I think the other thing too is, does the responsible party that you just said you think is responsible for health care, you think is responsible for financial decisions, do they have the authority and the legal documents? Do they have the capacity or the willingness or the competence, or do they know me, or do they know your financial plan, or do they know where everything is? There's this whole space in there that I think, proactively, new advisors can really improve the depth of their advice when stuff happens down the road.

Michael, if I was going to say, on the practice level, "All right, well, look, Tom, let's imagine that I'm building a practice or I've got a practice, what do you think on a practice level?" Reactively, I think that the idea of asking permission to talk to and engage other aligned professionals from other disciplines, to see, on a practice level, can you ever get in the room or close to the room? And you don't have to do anything other than witness the formation of the new hierarchy of priorities. And that's the language that you use to drive better calls to action when you actually prescribe something financially. I think that that should be...on a practice level, listen, when stuff happens, I need to do a better job at getting in the room or being able to understand the clinical realities that my client is facing because that's what's going to drive all the financial actions.

If you're going to say, "Hey Tom, are there stages in a client's life where everything changes but you kind of should know about it in advance?" Yeah, it's when there's a change in health care, and you got new decision-makers trying to figure it out with so much ambiguity. We, as an industry, we, as an advice offer, we can't be bystanders here, because then you're just going to lose the business, and you're not going to help your clients. I think all of us should aspire to being more integrated in the decision-making in that dynamic circumstance.

And then I do think that the last one is, I think, from a practice level for advisors, do an age audit of your clients and see what your book of business looks like in 10 years or 15 years. And that should tell you a lot. If all of a sudden everybody's 80, what are you going to be talking about then? Do you want to get a head start on this now? Maybe you should start thinking along these lines and shifting the way your practice operates so you're not reacting to business models like the one, Michael, that you and I are talking about, which are a few steps ahead, and that's what's getting differentiated. I think that the industry is doing some interesting stuff that is sort of forcing at least a CYA level of standard of care.

Think of trusted contact forms that we've all got to do. My goodness, this is such an opportunity to ask questions and to add value. If you're not having conversations off your trusted contact forms, like "Who's this?" and then you just go into the, "Who do you think is your health care? Who do you think is your financial?" you should be matching all that. Do you think that they should know me? Probably. Is there a way that there's a safe space for you to make some deposits in that next-generation relationship so you can prequel the impact that you can have in crunch time somewhere down the road? I think that's right. I think, beneficiary reviews, this is sort of 101, but beneficiary reviews, this is the same cast of characters that's on the trusted contact. So, it's another way sort of in.

I think the only other piece is a lot of us, from an industry standpoint, we're starting to play around with different kinds of technologies. Some of us are doing a lot more work with firm portals. Are you using that as an opportunity to share documents or plans with aligned professionals? Some of us are using video to describe how the financial plan is driving investments. Can you ask if any of the video or the client meeting summaries can be forwarded to other family members so that, when the time comes, they're not doing it from scratch? All of these sorts of things, I think, could make a huge impact in our capacity to serve. That would be the advice I would be giving new or even existing advisors.

What Success Means To Thomas [1:41:01]

Michael: Very cool. So, as we come to the end here, this is a podcast about success, and one of the themes is that word success means different things to different people. And so you've built a wonderfully successful practice with $570 million under management and a great client base and continuing to grow. And so the business is in a good place. But how do you define success for yourself at this point?

Thomas: I'm struck with 2 thoughts. I've noticed, I'm an old man of 50, that I'm becoming a lot more motivated with bringing up next-generation talent in the industry. I'd like to think I arrived at that place where mentorship and being able to bring opportunities that our industry can offer to more people, I'm glad I've got plenty of career left while that sort of motivation hit me. So that's sort of one. How can I continue to expand the number of professionals that I can touch in some small way that can make sort of an impact that I've been able to experience? And I guess the other sort of more inward-focused success, it's probably some rip-off of Napoleon Hill, can you make full use of your talents and your passions and your skills? I think that part of what's driven me so far is feeling like I've had some excess capacity in some of those different places that might not have been fully utilized in my career, which is probably what gave me a lot of horsepower in the senior housing and healthcare effort. I'd like to think success moving forward is the same sort of thing. Do I feel like all of those different pieces that I bring to bear in my life and in my career are as fully tapped as possible? That would certainly be a welcome measure of success for me down the road.

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

Thomas: So happy to be here. Thank you very much.

Michael: Absolutely. Thank you.