#FASuccess Ep 220: Taking A Tech Startup Approach To Building And Pivoting Your Advisory Firm, With Shane Mason

Author: Michael Kitces

Team Kitces

Michael Kitces is Head of Planning Strategy at Buckingham Wealth Partners, a turnkey wealth management services provider supporting thousands of independent financial advisors.

In addition, he is a co-founder of the XY Planning Network, AdvicePay, fpPathfinder, and New Planner Recruiting, the former Practitioner Editor of the Journal of Financial Planning, the host of the Financial Advisor Success podcast, and the publisher of the popular financial planning industry blog Nerd’s Eye View through his website Kitces.com, dedicated to advancing knowledge in financial planning. In 2010, Michael was recognized with one of the FPA’s “Heart of Financial Planning” awards for his dedication and work in advancing the profession.

What You’ll Learn In This Podcast Episode

Resources Featured In This Episode:

Full Transcript:

Michael: Welcome, Shane Mason, to the “Financial Advisor Success” podcast.

Shane: Thank you, Michael. I’m really excited to be here. It’s an honor to be in the chair, so to speak.

Michael: I really appreciate you coming on and joining us for the podcast today because I’ve watched kind of the growth that your firm has had from afar over the past couple of years, as you kind of launched a new firm just a few years ago, have had some really fast growth, have done I think a couple of things that I feel like are very different than what we’re traditionally used to in the advisor world. Like you launched with a niche out of the gate, which a lot of firms don’t do or don’t like to do, you have already changed niches in the past few years, which I feel like a lot of firms, they at least start in a niche, are terrified to switch niches for fear of alienating their clients, you have made that switch. A lot of advisors I know like to start off solo, they’re like, when we get big enough, maybe I’ll take on a partner, but you know, early on there’s only so many dollars to get out, if you split it between two people, it’s even harder. But you, you kind of launched or brought in a partner very early on to build, and have been building that way.

And even down to the nature of what you do, I know you’ve got a kind of an interesting blend of tax practice and life planning, which I feel like for better or worse, a lot of us tend to put…I’ll call it hard technical skills in a different bucket than soft life planning skills, and you are wedding the two together. So, all sorts of things, I feel like you are breaking the mold in many, many different ways around…I’ll just call it the traditional advisor approach of what we do, and how we focus. And so I’m really excited just to talk about all these sort of strange implied contradictions that you are doing and breaking, and traditional industry views, and actually, absolutely crushing it in the process. So, that makes me really excited to talk about, because I always love to talk about doing things a little bit differently that ends up working better than what we’ve done historically.

Shane: Yeah. Well, thanks for putting it that way, that’s really flattering. It definitely doesn’t feel like it was as easy as you just said.

Michael: It always looks better in the rearview mirror.

Shane: But yeah, it’s been…specifically melding all of those things together, the taxes and traditional RIA practice with the two different niches, and then implementing life planning…we couldn’t resist that, once we…you know, we always wanted to implement that, and then going to Kinder’s pre-con and XYPN, and then following that up with Hawaii, and just knowing that we had to implement that, which isn’t the most scalable thing, and then having that in our process now has actually added a ton of value, and it’s been a fun challenge implementing, and bringing all those things together in our own way. I kind of feel like…I kind of feel like a young investor right now. There’s plenty of time, if something doesn’t work with one of our gambits, we have time to clean it up and get it put back together, so to speak. So, we have definitely moved fast and broken a few things, but at the same time created something really unique that has, I think, resonated with a lot of clients, and I’m excited to explore it with you.

Michael: Well, I love even how you said that, coming out of the gate here, of I feel like I’m a young investor, now we have plenty of time to clean it up or put it back together if we want to. And just that idea, because I think for so many of us when we’re getting started and getting going as advisors, there’s sort of this idea of this is a long-term business, and so I’ve got to make it right because I’m going to be stuck with this decision for a long time. And so we’re super careful about what firms we join when we’re getting started in the industry, we’re super careful about what niches we pick if we’re going to go that direction. And you know, not to knock the value of planning ahead, because we’re planners so we like to do that, but I think there’s a really interesting attitude and framing of coming into it, and saying, “look, I’m just going to go and try something for our advisory firm, about who we’re going to go after or what we’re going to do or what the value proposition is going to be or who we’re going to focus on. And you know what? If it doesn’t work out, or just we decide that we want to go a different direction in the future, it’s cool. If I’m going to be doing this for the next 30 years, it’s kind of okay if I end up only doing one thing for the last 27, because it took three years to figure out what I’m going to do.” You’re still going to have a long time to compound that focus and success, you don’t have to pick the thing that’s going to be all 30 out of 30 years.

Shane: Yeah, so I mean, I think you’ve got to have faith in yourself to make that commitment. I think people that are listening to this podcast, there are a lot of entrepreneurs, or would-be entrepreneurs listening to this podcast, I think to be an entrepreneur and to take those leaps, you kind of have to be a little crazy, right, and be optimistic, right? A lot of Americans are a little bit more optimistic than your average Joe, and entrepreneurs even more so, right? And I have a lot of personal optimism about what we’re capable of, and what…you know, we have good hearts, and we’re going to be clear with our clients and be transparent, we’re going to try things, and we’re going to try to be as clear about that as possible. And it’s surprising how many people are okay with that, we found out. That’s been one of the more surprising things with our journey, and how many people have been rooting for us as they see our business grow.

And we work with a lot of young clients as well, our average client age is around 36, so they’re also moving fast, and breaking things in their own careers. And we’re rooting for each other, you know? We’re supporting them, and even when our business has grown to a point where we can no longer support a specific type of client, and we say goodbye, they’re almost grateful. I don’t about grateful, but they’re supportive, we’re lifting each other up. And I’ve had a lot of, “Hey, man, you’re too expensive now, but good for you. Go do your thing, and we’re excited for you,” and that’s been crazy to hear that from clients that we were terrified of breaking up with, because we might have been taking care of them since I was 24. And it’s been cool to see that, and to get that support from people over the years, even as we’ve broken up, so to speak.

Michael: I love that. I love that. So as we get started, I think the best place to start is just the advisory firm as it exists today. Can you just talk to us a little bit about who you guys are, and what you do?

Brooklyn FI As It Exists Today [9:21]

Shane: Yeah. Yeah. Let me try to summarize that. So yeah, Brooklyn FI is an RIA, it’s a fee-only RIA, that used to be 100% based in Brooklyn, thus the name. We can talk about how COVID has impacted our business, and how we have gone fully remote as we’ve grown, and as…you know, we wanted to go virtual, COVID pushed us virtual, we’re now permanently virtual. We’ve got employees in Texas, Illinois, Delaware, Long Island, all over the country. I’m currently outside the country, have been for six months, so that’s been a successful experiment. But what we do…

Michael: So Brooklyn FI, coming to you from not Brooklyn, not New York, and not the continental United States.

Shane: Yeah, well, you know, we named the company before a global pandemic, a “once in a lifetime” event, so that is something that we’ll have to navigate in the near future. But the attorneys and the marketers, they think that “Brooklyn” as a brand works just fine, even if we have clients all over the country. If we open up offices in California and London and whatnot, wherever the journey takes us, it should be okay, but it’s okay for now. Yeah.

Michael: Well, and there is, to me, an interesting thing, particularly when you get around brands, that…you know, there are times when brands just grow and evolve to the point where the name is a thing, but it doesn’t necessarily really connect to what it was, like it can have a tie-in that was in the name that just doesn’t matter anymore, and it’s not a problem. The one to me that is always the quintessential is TIAA-CREF. And most people don’t even realize it was the Teachers Insurance and Annuity Association, that’s what the TIAA stands for. And you know, TIAA still does a lot of 403(b) teacher business, but they do a lot of other stuff as well, “teachers” isn’t even acknowledged in the name anymore. And you know what? The fact that TIAA-CREF isn’t focused on teachers anymore hasn’t really been a problem for them. It’s worked just fine, because at some point, the brand means and stands for something that maybe even goes beyond whatever it was originally, you know? At worst, you’ll just go from Brooklyn FI to BFI, and someday there’ll be a neat story about how the B used to be for Brooklyn.

Shane: Yeah…yeah, true. Fair enough. It’s funny, TIAA-CREF to me, the brand means I have to unwind this annuity for this client, which is a nightmare.

Michael: Well, as advisors, we have our own perspective on certain company’s business practices, but that’s a conversation for another day, probably.

Shane: Yeah, so…

Michael: So, fee-only RIA, based in Brooklyn, or at least coming to you nominally from Brooklyn, except people who are now more virtual beyond Brooklyn. Talk to us a little bit about just clients, size, however you measure it, whether that’s assets, or number of clients, or revenue, or something else. Just help us understand kind of size and scope of firm, and who you’re serving.

Shane: Yeah, totally. So to speak towards the niche thing that you were talking about before, we used to have a creative focus that was an extension of my background as a CPA. I was moonlighting as a…or I was working in CPA firms for a while, and then I started my own business on the side. It’s really easy to do creative, freelancers schedule Cs, that’s where we started, and then we evolved into a tech focus. So now, the vast majority of our revenue comes from tech clients, and it makes up about 75% of our clients at this point…73% to be exact. And we have 158 households. We have a lot of single individuals compared to your average client practice, I bet, or your average practice, because our average client age is 35. So, we still have a lot of people that are transitioning in their mid-30s, into marriage. We have a lot of LGBT clients as well, more so than your average practice, I would wager. But about 158 households, forward-looking retainer revenue, if we don’t sign any more clients today, is about…just south of $1 million, it’s $980,000, it looks like right now. And then we also manage about $25 million of assets at TD, that we collect about 70 bips on, on weighted average. So we’re looking at about, I think, $1.1, $1.2 million, if we don’t sign any more clients this year, looking forward.

We have, in the financial planning practice, we have three advisors that see clients routinely, that are responsible for clients. AJ, my business partner and 50% owner of the firm, has the majority of those households, she’s got about 70. Our new senior planner, lead advisor, senior planner, whatever you want to call John, he has his own relationships, he’s got about 60. And then we have a junior planner, Jason, and John and Jason both joined the firm last summer, he’s got about 30 relationships that he’s responsible for. And they handle the majority of the relationships. And yeah, that’s the makeup. Average client fee is around $460 a month, I want to say, maybe closer to $5,000. And that’s separate from AUM revenue. The average account size is around $90,000. I don’t know how many accounts that puts us at, I think it’s north of 150.

Michael: So I think it’s passing, even just as a framing, you know, the…right, the traditional industry discussion is can’t serve young clients profitably, it’s not economical to serve them, and then here you are like yep, average account’s $90K. Oh, but we do $1million of retainer fees at almost $500 a month.

Shane: Ah, yeah.

Michael: Which is $6,000 a year, which is…you know, if you want to think of that in AUM terms, you’re talking $500,000 to $750,000 average client, depending on what you’re approximately 1%, give or take a little, fee schedule is. And relative to most advisory firms that are out there, averaging almost $6,000 of revenue per client is larger than most advisory firms, just in terms of average client size. And here you are doing that with younger clientele, who we’ve historically said you “can’t serve profitably.”

Shane: Yeah. Yeah, I mean, I don’t know if it can do…I don’t know how many firms can do it. We have a very specific niche that’s pretty technical, and we’ve made it work. And I do have faith that a lot of advisors can make it work. I’ve got some stats on the equity compensation space, even if 100% of CFPs were focusing on equity compensation space, according to the stats we’ve looked at, and that’s important to us because we’re building a tool, a software tool that those numbers, the TAM, the market is really important, that’s still only 30% penetration into the space. So, we think that there’s a lot of people to move into this niche if they wanted to, we’ve made it work. And Michael, we got started in May of 2018, and we’ve added all those retainer clients, and the majority of their net worth is tied up in concentrated positions. And the way that we work is that we advise on those concentrated positions, and create “real portfolios” for the client, and then we manage the assets, okay? So we added $25 million in 2020, so that’s…we’re at $27 million now. So it was a big year, because it takes time, like 2018, 2019, to navigate those concentrated positions, go through those IPOs and the trading windows available for those equity comp plans at their respective tech companies, and make those diversified assets that we can then manage on an AUM basis.

Michael: And so out of curiosity then, is the long-term vision and expectation that you will actually end out being more of an AUM firm over time, because you’ll just accumulate clients over time that eventually have their liquidity events, and they’re often, it sounds like, big liquidity events, because you did $25 million of new assets last year, mostly from people you added a few years prior because it takes a while for the liquidity events to happen. You know, today, it sounds like revenue is north of 80% retainer fees and less than 20% AUM fees, but if if that’s the model, is your expectation five and ten years from now you’ll actually probably be 80/20 the other way? Not that we’re necessarily moving away from retainer fees, but these people are building a lot of wealth that’s very illiquid right now, but it will be liquid over time, and that’s going to make our AUM grow like a rocket ship in the future?

Shane: Yeah. I mean, honestly, yeah. Because we have a…we’ve structured the way that clients can pay us both ways. Once you have over $500,000 in assets that we manage, your retainer fee gets cut in half, and once we have $5 million of assets, there is no retainer fee, okay, and you get whatever you want. And some people are going to bark at me about you’re giving away the advice for free, and you’re charging on AUM, and you’re valuing AUM, and… And Mr. Zweig’s podcast, which I just listened to yesterday, who was on this podcast, and I know he’s going to be yelling at me if he listens to this. And I get that, but it’s a very sticky fee model, it’s easy…whatever is easiest for the client, Michael, is what we want, and we’ve given them the option. And we have faith that we’re going to do great things for our clients with the revenue that they give us, we’re always adding services and always trying to improve our services, and we have faith that we’re doing great work for our clients, no matter how they pay us. So, we don’t have any problems with either of the ways that they’re going to pay us, as long as they get what they want.

Michael: So functionally, your big focus for retainers, and driving that much revenue for the business now is not necessarily like we’re putting our stake in the ground for retainers, and trying to compete or pull away from AUM firms, but simply we’re working with people who have a lot of complexity and a lot of illiquidity, I can’t charge them an AUM fee right now, there’s no liquid A to M. So we’re going to charge them a retainer fee right now for all the value we’re adding around all the complexity they’ve got, and at some point when they’re more liquid, sure, we can work with them on an AUM basis, because at that point they’ll have assets to manage, and we can just update the fee model for where they are financially, and we’re going to be providing the same services either way.

How Brooklyn FI Is Uniquely Positioned To Help Clients With Equity Compensation Planning [19:40]

Shane: Exactly. Yeah. I mean, we’re agnostic about the way that they pay us, but we do have the capability to get paid either way. And some of the complications, I mean, a client will come to us and say, “My company is IPOing in a month, I’ve got $25 million worth of stock, but I have $200,000 in cash, there’s nothing to manage right now. Can you work me through a two-year drawdown strategy, but get me ready for this IPO? Here’s my credit card. Let’s do it this way, let’s get going. And it has to be fast because I’m IPOing in four weeks,” you know? That’s the unfortunate thing about our niche, is speed is actually an important factor when it comes to the services we provide because by the very nature of IPOs, they’re secret until they are released to the SEC, and then the employees now have to scramble. And oftentimes, because they don’t have high income, they haven’t talked to an advisor yet, because they don’t have assets to manage yet. And so they’re caught off guard on their back foot, and there’s not a lot of RIAs that on their website says all we do is equity comp, right, we know it inside and out, this is the spot, at least in my experience. And we’ve heard from other clients that it’s really hard to find an equity comp expert that really knows this stuff inside and out, ISOs, RSUs, restricted stock, qualified small business stock, etc., and all the complications surrounding it. So, speed is really important.

Michael: Well now, I think you have a fascinating point around what connects with them and moves them, this whole…you know, IPOs are secret right up until they’re not, which is very shortly before they actually happen, because regulatorily they have to for insider trading, and leaks, and yada yada. But the end result is that you get people who have a lot of complexity, a lot of money at stake, a very sudden and very looming, you know, complexity moment that they have very short notice on, and have to engage someone quickly and immediately, but there’s a lot of dollars at stake. So when it’s like, “Hey, I just found out we’re IPOing, and I’m going to be a multi-multimillionaire, I have a lot of decisions to make. And while I might not be used to paying a bunch of planning fees because I wasn’t engaged there before, I’m going to have a seven-figure liquidity event soon,” is usually a pretty good motivator for eh, I think this is the week I’m getting a financial planner.

Shane: And I need them immediately. And they don’t have…

Michael: And I need them immediately, right? It’s the classic we do well when there’s money in motion, which is just that’s often what stirs people to action. And you make an interesting point around why this is such an effective money in motion event, because there’s so much at stake, and it almost always happens on short notice.

Shane: Yeah, and they don’t, the advisor can’t be…they don’t have time to research things. I can’t be hiring someone that’s going to be researching what happens with a double-trigger vesting event, when I also have ISOs, and also maybe it’s November and I’ve got to figure out how much AMT I’m going to pay if I exercise my ISOs in December right before the tax year clicks over, and that might be a $50,000 tax savings if they spread out their AMT. So yeah, I mean, we signed in September, to speak to this a little bit, I think we signed 20 clients, because Palantir was IPOing, we had worked with some of them in the tax space, and then they realized that we knew… The majority of our clients honestly come from Slack channels, and referrals within the equity…I don’t want to say leadership, probably middle-level leadership within these tech companies, right before an IPO. They have one good experience with us, they tell their friends, we got 20 clients from that company, we know it inside and out. We speak with confidence on their equity comp plans, they’re happy with us, and when they move on to new firms, that continues.

Michael: Because once you get a Palantir IPO client, the first time you’ve got a ton of stuff to read and get up to speed on of the particulars of the Palantir IPO, and the next 19 that come it’s like, yeah, I know your stuff cold, I can handle it immediately. I’ve already done all the research, and I can take you right away.

Shane: It’s like adding more AUM to the same client.

Michael: And I’m struck as well, one of the other things of just the nature of having clients that have sort of these highly motivated events with very concrete deadlines, right? Like the IPO is happening, and in four weeks is even down to that phenomenon that I know crops up for a lot of…for a lot of advisors in this area, of “sure, we can work with tech folks, we can work with a lot of people, come on in and talk to us, and we’ll learn more about your situation, and figure out if this is a good fit,” that whole standard process that we do. But when I think about that from the client end, it takes weeks to find an advisor if you’ve got to schedule meetings, and get to know all of them, and spend time vetting them and having them vet you, and that whole dance that we tend to do because we don’t like to put anything on our websites except contact us for more information, that when you get clients scenarios like this, I have a lot of money at stake and I need to figure something out soon, the irony is the more motivated the client, the less likely they are to actually go through all those sort of hoops that we create. Whereas your site, I know just on the homepage says “We specialize in tech professionals,” and there’s a button that says stock options right there in the main navigation. There’s also a button right there that says prices on your main navigation of your website, because again, “I’m IPOing in a few weeks, I…you know, on Tuesday night I’ve got an hour, I’ve got to find me a financial advisor to help advise me on $20 million.” Which on the one hand sounds absurd, but on the other hand, that is some client’s reality, so you know, “schedule a call with us in the next few weeks, and we’ll chat” doesn’t get you very far. “We specialize in tech companies’ stock options, here’s information about stock options, and here’s our prices right here. So if you think this works for you, just go ahead and get going.”

You’ve got an ability to move quickly to close with clients because you just put all of that out there, right down to pricing. And I love, you know, you’ve got a whole complexity-based retainer fee with a quote on your website, where I can just click boxes of am I an individual or a couple, and the fee changes, and do you have children, and the fee changes, and are we going to do tax returns for you, and I can say yes or no, and the fee changes, do you have options or RSUs… And you know, you’ve got a bunch of questions on the website, and as I click the answers to this, literally my fee just updates live on the website, and I know exactly what it’s going to cost before I ever have to talk to you. So that if I’m comfortable with it, I’m just going to call, and we’re going to be working together next week. Not interviewing to see if we want to work together, we’re going to be working together next week because my IPO is at the end of the month.

Shane: Yeah, man. And those are the real prices, there’s no gotcha when you come into the door. Those are the real prices, and when you…that’s what we use internally too, when we quote our clients. And the cool thing about that is, there’s two cool things about having those prices right there…maybe three things. It’s necessary for us because Millennials, they don’t like…they don’t like surprises. And they’re good at research, they know how to use Google, our average client age is 35, they grew up with computers, they are going to figure out if this…they’re not into the lack of transparency, okay, the “call us and we’ll talk about it.”

Michael: Right. Well, and I find there’s…there’s a certain irony that itself of, I think particularly the RIA community, “we pride ourselves on transparency, call us to find out what our prices are.” Like, not actually transparent.

Shane: I get it, man. If you’re value pricing your clients and you want to talk to them before you…I get that. It’s something that I’ve been exploring on the accounting side of the business, it’s just not really scalable in my…I haven’t figured out how to scale it. It’s hard. But it’s worked for us. The kind of practice we want to build definitely is one wherein we can move fast, and we can take care of a lot of people. There’s definitely a lack of advice…there’s a big demand for this type of advice, and we want to provide it. So having the prices right there helps with the Millennials, it keeps people out that are going to get priced out. Every once in a while we get someone that comes in and says, “I can’t…” they get sticker shock, and we’re like, how can you possibly have sticker shock? It’s on the website. It’s on the website, and it’s in the reminders for the discovery calls, and it’s posted everywhere. Because we hate surprising people, right? We do that in the tax practice too, it’s all upfront pricing. And the other cool thing is that sometimes clients will sign up for a 15-minute discovery call, there’s not even a face-to-face sometimes. They’re like, “I trust…I’ve seen the prices, I know you guys are the experts in the field, I’ve talked to you on the phone, you’re real people, here’s the contract, let’s get started, this IPO is happening in four weeks.” And we’re fine with that because we know what we’re doing, and this is the niche we work in, and all we need is your documentation to get you to an effective plan. So it saves everyone a lot of time, and it’s very transparent.

Michael: It just sort of strikes me that a lot of us build marketing and sales processes for clients who aren’t actually that motivated to take action, so we drip them and we nurture them and we nudge them along over time, and then when you’re ready, you can have a call to get to know us, and we’ll spend that time to get to know each other, and then we’ll let you know what it would cost. And we’ll do this over a span of a couple of weeks because we’re assuming, implicitly or explicitly, that they’re not actually that motivated and in that much of a hurry, so it’s totally fine to stretch this out. Whereas you guys have a focus on a clientele that actually are highly motivated, time-sensitive, speed matters because that’s literally part of the opportunity, and so just the whole process, even down to how you work with them, and how you show up in pricing and service offering, is all built implicitly around that recognition of this is the kind of client that we serve, and they have certain motivators that means we can’t do a schedule a call in three weeks to understand our pricing and how we might work together, because they have to do it all in four weeks.

Shane: Yeah, I mean, the niche creates its own sense of urgency, so it definitely assists with, I guess, marketing, which we don’t do. Which is because we have to turn away more clients…it’s more of a capacity problem than a…and training our new employees as quickly as we can problem than a finding clients problem. Which is a very lucky…I feel we’re very lucky to be in that space, after all the work that we’ve put into it.

How Shane And AJ Positioned Brooklyn FI To Become A Growth Engine [30:24]

Michael: So I’d love to talk more about this, just how did this growth engine get going, that you’re…I mean, you said you got going in May of 2018, you’re less than three years out, you’re closing in on $1 million of retainer fees, you’re adding 5-plus clients a month with a 20 client month last September when Palantir IPOed…just how do you get the name out there and get established and get this kind of client volume going in the span of two or three years? Just where is all of this business coming from?

Shane: It’s mostly…I mean, we’ve got stats, it’s mostly referrals, it’s mostly friends. I think the tech industry is very tight-knit, and somebody goes from Freshly to BarkBox, or somebody goes from Palantir to Spotify, somebody goes from Google to Amazon, and they carry the name with them, and they’ve got their guy, they’ve got their girl, right, that they work with. And we have frequently been that referral, I think, because we just focus so heavily on this space. And we end up in the Slack channels or the bulletin boards of those companies as an alternative to the traditional referrals.

Michael: Right. You, you know, Brooklyn FI, you are in the New York City area, so you know, if they want a…if want a giant firm that’s been around for 100-plus years doing this, they do have choices right there. So that’s part of the distinction, I guess, for the firm, and what you do. You have to show up differently, or you may as well show up differently, because, you know, out-traditionaling a traditional advisory firm in New York City probably isn’t going to go well for you.

Shane: No, that’s not going to work. And we don’t want to do that anyway, you know? My hair is done to my shoulders, so that’s not really our vibe. I think we have three things that I think are our differentiators, it’s the tech thing that we already talked about, the equity comp space, it’s the fact that we also have a tax practice, I think that makes people comfortable, knowing that we actually prepare the tax return and we do the tax projection as well. We can tell you in the middle of the year what’s going to happen if everything continues to extrapolate out according to our current forecasts, for your life, and what happens when you exercise those ISOs, and what happens when you exercise your non-quals or disqualify your ISOs, and if your RSUs continue to vest at this price, what’s going to happen with that. And then the other differentiator, I think, is our age. Our culture is driven a lot by our age, actually. Our average employee age is probably 31, we’ve got a lot of people in their 20s, our average employee is 40…or our oldest employee is 40…I don’t know if I’m allowed to disclose that. But we just have a young culture here, and our average client ages 35. We work with a lot of those young, I guess you want to call them Henrys, but they are rich, they’re not not rich yet.

Michael: Yeah, they’re…it’s not High Earner Not Rich Yet, the H-E-N-R-Y part, they’re…I don’t know, High Earner Rich Now…they’re Herns. They’re not Henrys, they’re Herns.

Shane: Yeah…yeah, so…

Michael: And I think it does make an interesting point, you know, it’s one of the things I’ve long observed and talked about in the industry, that just we all tend to do best in connecting with people around our own age and stage of life. It’s just who we have natural rapport with most of the time. Obviously, there are some exceptions that, for all of us who are younger advisors who focus with retirees, but I think even especially for some advisors who are younger and focused on retirees, many I know move away from that because they get frustrated that their firm is focused on retirees, and they want to work with their friends, their peer group, their natural market. And so most advisory firms have always found they work with themselves, plus or minus 10 years. That’s who we end out with. And so it sounds like you guys are very much in that same category as well, it’s a younger clientele because it’s a younger team. Not that you have to do that, but just it’s who we tend to connect with, and it’s often how clients tend to connect with us.

Shane: Yeah…yeah, totally. And to speak…to kind of clip my own wings a little bit in that space, I don’t know much about the Secure Acts impact on RMDs, Michael.

Michael: It’s okay. You don’t have to, your clients won’t deal with RMDs until…what would it be, the 2060s? We have literally decades until this is an issue, and by then, with advancing life expectancy, the RMD age may be 87. So…yeah, to me, that’s one of the interesting, indirect cool things that comes when you get really focused on a niche clientele, there’s a whole bunch of expertise you can have and create to distinguish yourself in your niche, but there’s a whole bunch of stuff you actually don’t spend a lot of time learning or reading about because it doesn’t pertain to your clients.

Shane: Yeah, it’s really a weight off your chest when someone releases some huge…when, you know, the IRS or the Congress does a huge update to retirement planning, and you don’t have to worry about that. I mean, we do…

Michael: Well, what’s a huge weight off your chest is when we send you a 5,000-word article on how to Secure Act changes RMDs, and you don’t have to read it. That’s got to feel fantastic.

Shane: Yeah, that’s…I still read the headlines, but yeah. I read all your headlines just to keep track of what’s going on, but yeah, we don’t have to worry about that, which I think allows us to go deeper on what we do focus on, which allows us to speak more confidently with clients and win that business. So yeah, so that, we don’t know much about that, but it’s something that we will have to get into. We do have some older clients, our oldest client is around 60, and our older clients are young at heart, I want to say. They still get along with us really well because they’re young at heart, and we have a lot of fun with them, and we will have to get into that, that type of planning, in the near future. And that’s why we’ve been bringing on…some of our newer employees have worked at traditional RIAs and banks, and have dealt with trusts, and that’s really important not only for the RMD conversations that we’re going to be having to have soon, but also because we’re now dealing with taxable estates with people in their 30s, which is going to be a fun next step for us to really figure out how to work that into our process, right?

What Led To The Launch Of Brooklyn FI [36:41]

Michael: Right. So take me back a little bit, though. I understand how once you get going and get known in this specialization, where you’ve got a bunch of tech employee clients, you’re solely focused with tech employees so they get particularly excited to share what you’re doing with their colleagues in the company Slack channels, and the business grows from there. Referrals are great to grow when you’ve got clients to refer you, that’s really hard when you get started, and there’s no clients to refer you yet. So, how did this get going in 2018 to compound to the point that you’ve got the momentum you’ve got today? What was it back then that got you started?

Shane: Yeah. Yeah, so to take it back a little bit further, we did do a podcast about maybe two or three years ago on XYPN, and we were just transitioning into this. So it’s funny thinking back, we were focusing on the tax practice, right? I got started as a tax practitioner. I went to University of Mississippi, master’s there, CPA while I was in master’s, in my master’s program there, an awesome accounting program at Ole Miss, got to go work. Got my dream job at PwC…at the time it was my dream job at PwC in Austin, Texas, 2010, wish I had bought a house there in 2010. Worked there for three years, realized I was working on the tax returns for public tech companies.

So at 23, I was working at PwC, had a great…I learned a lot about how to be professional, but didn’t really like the size of that company. Actually had moved home, Dad got sick, moved home to Mississippi, and took care of him through the end of his life, and took a little bit of time off from working while we were taking care of his cancer diagnosis. And after that, didn’t really want to hop back into Big Four accounting, so

was working at this really, really tiny… six accountants working in a lower income neighborhood in Brooklyn. And this is the exact opposite of PwC, right? It’s one guy owns the firm, he’s got six guys and they’re all Earned Income Tax Credit tax returns, so a lot of people making $15,000 the whole year, with three or four kids, paying no taxes, actually getting an $8,000 refund from the government, Earned Income Tax Credit, it’s the total opposite of the R&D tax credit of a public company, right? And just fell in love with it. I had a great time interacting with the clients there, it was like bartending for taxes. I was like, you know, you’re getting $8,000, it was just a joyous moment for somebody that had made $15,000 over the past year, and it was a big deal for them. And I realized that…I took a look at the barriers to entry to become a tax preparer myself, started doing my friends’ and family’s tax returns, 30 becomes 60, 60 becomes 100… I got a job at a bigger firm in the meantime, and worked there for three more years in the space, working with individuals, high net worth individuals and small businesses, picked up a lot of S-corp, partnership, and equity comp skills there as well.

Michael: All just coming in as a tax preparer, just doing tax returns, using your CPA license to do tax returns, and kind of gravitating upmarket from the Earned Income Tax Credit types of returns over time.

Shane: Yeah. Yeah, exactly. There was actually an interesting twist to it as well. I was bartending when I first got to New York, and doing taxes on the side as well. And after I got my job at my new firm, I was moonlighting doing tax returns for maybe 50 people, and I couldn’t afford an office because it wasn’t something I wanted to spend office money on. So I talked to my old bartending…the old owners of the bar that I used to work at, and I was like…they were kind of gimmicky Brooklyn, “let’s-do-this-thing-deal-cutters”, and I said, “Hey, if you guys let me take a booth in the back of this cocktail bar that’s very quiet and well lit, I’ll buy each of the clients that come here a cocktail. And then you guys will have sales, you’ll have some traffic, you’ll probably get some press,” and they loved it. And not only did they love it, the clients loved it, and then the news loved it. It was in, like, 40 blogs around Brooklyn and New York, and then Fox News heard about it, and I was on the local news. And then “The Wall Street Journal” heard about it, I was in the Journal, and I was getting clients calling me about filing their trust tax returns in the bar, and then Maria Bartiromo…

Michael: All built around…just all built around, I guess for lack of a better term, the niche of the CPA that does the tax returns in the comfort of your local bar.

Shane: Yes. Yeah. And even Maria Bartiromo heard about it, and I was on national TV. And I have a clip of myself in a bar, doing my friend’s taxes, and I think she thought it was…yeah, they satellited it in, and I’m talking to Maria Bartiromo with this Fox News team nationwide, and Tony Robbins is on the call with me, and I’m talking to Tony Robbins as, like, this young.

Michael: All in the bar, while you’re hanging out in the bar.

Shane: Exactly.

But around then, I had the opportunity to leave my job. I had gotten my CFP, thinking that I was going to leave the job and start my own thing. I’ve been selling things and been an entrepreneur since I was selling bubble gum when I was, like, seven years old, so I’ve always wanted to hang a shingle myself. And I knew that was coming, so I started exploring the CFP as a supplement, I think I started listening to your material or reading your material, and getting into the XY material. And I went to XY…or I went to AICPA’s Engage, and everyone’s pushing advisory on CPAs, and I found out about the CFP, and they said this is the future.

So I took the test and passed it in 2015, and was exploring what’s an RIA, what is a hybrid firm, what’s a commission, what’s an insurance salesman, like what is going on in this murky space, and figuring out the landscape, and landed on the thing closest to what I was already doing, which is fee-only, you pay me, there’s no other kickbacks or referrals as an extension of the tax practice that I was already doing, and started exploring setting up an RIA around the end of 2017. And I’d had maybe 200 clients at that point, so it’s not…I don’t want the audience to think that I started an RIA with no prospects, we’re a million-dollar firm three years, you know, less than three years later.

Michael: So for you, it was an evolution of you had all these tax clients because you build a tax practice gradually on the side, over the span of a couple of years, and then went from I’m moonlighting tax prep only on the side to saying, okay, I’m going full in on the financial advisor business. And I’m guessing or assuming then, some of your tax clients became some of the first advisory clients? Were you able to convert some of them over, or were they just your referral base, but weren’t actually, necessarily a fit for the advisory firm you were creating?

Shane: So, our very first client was my business partner’s friend, AJ. So it’s very important, AJ is going to kick me if I don’t mention this, but our very first client was her friend. And I should talk about one of the main driving reasons of the growth of the firm is definitely my business partner AJ, and we would not be anywhere near to where we are without her efforts in taking the firm to where we are today. We would still be floundering. We definitely have the rocket fuel, whatever you want to call it, co-habitation, co-synergy, whatever you want to call it, that comes from a partnership where one person is more…it feels weird to say that you’re a big thinker, where you have an idea and you’ve explored all these things and this is your vision for the company, and then you’ve got someone that executes on that vision. AJ is an incredible executer and implementer, and has driven a lot of the processes that are necessary to scale a firm like the one that we have.

Michael: Interesting. So I…you know, it’s worth noting, I…for those maybe who aren’t familiar with the rocket fuel reference, it’s a book from a guy named Gino Wickman, that I highly recommend as well. It had a big impact on me as well. The idea is like, rocket fuel is made from two separate substances that each, on their own, just kind of sit there, and when you mix them together, they are extremely explosive rocket fuel, rocket propellant. And the whole idea of the book is that when you look at a lot of businesses that have been incredibly big and successful, often the visible part is there is some external visionary that we know and are familiar with, but many of the most successful businesses, if you go back to the early days, there’s usually a visionary, and some kind of person that’s the integrator/executer that actually makes it happen. You know, everybody’s familiar with Walt Disney, but Walt was the visionary who was a terrible business person and almost bankrupted the company I think three times in its first decade or so. His brother, Roy, was the executor who actually made it happen, and turned it into a company that was able to sustain. You know, Steve Jobs had Wozniak, Bill Gates had Ballmer, a lot of big, successful businesses, including and especially with visionaries, aren’t actually built by the visionary, that’s just the visible one, they’re usually built by dyads, by two people, the visionary and the executer. And so the whole Wickman analogy is you mix these two personality types together, and you get something that’s much more explosive than what either of them could have done on their own.

How Shane’s Partner, AJ, Came Into The Picture [46:28]

Shane: Yeah, I mean, AJ and I want to…she comes from…she’s a career changer, and she used to be…she’s an excellent writer, and she wants to write a book called, “Everyone Deserves A Partner,” or “Every Firm Should Be A Partnership,” it’s something along those lines about how she thinks that every firm should be headed by a partnership rather than a sole prop. And the way that I met AJ, so to circle back to the transition of where she came, and how we’ve been able to grow together, and where she came from…

Michael: I was going to say, so you’ve been talking about your story, and the tax practice goes big once it hits national news, and then you’re going to convert into an advisory firm over time, so yeah, where does AJ show up in this journey, and how did she come into the picture?

Shane: Yeah. Yeah, so I was…you know, I never worked at an RIA, and I was about to found one, and I thought that was a little bit silly. So, I started applying for jobs…I actually got a job offer at another RIA, to go work there them knowing that I’m a CPA, CFP, PFS, and I could add value, and they wanted to make me a junior, and I almost thought I would do that to pick up some of the skills necessary. Looking back, I’m super glad I didn’t do that, but I thank them for taking the time to work with me and whatnot. And I had met this great planner that I would have loved to work for, named Michael Goodman, which his name has been referenced on this podcast before. And I was talking to him about what my plans were, he’s a CPA/PFS, I’d met him at AICPA’s Engage as well. I was introduced to him, and he was doing a little bit of mentoring. He had me in his office, and he was talking to me about life planning, and what he does at Wealthstream, at his firm in New York. And eventually, I told him I wanted to start an XYPN-like retainer-based business, and he didn’t have that within his firm, which was more traditional. And he told me, he said, “All right, if you go out and bring me back a business plan that’s going to work for this retainer-based business, I will…you know, we can talk about it.” So I went out, and I started to build that, and this is where AJ comes along.

So I was thinking about that, and building that, and I had…one of my tax clients had told her friend, who was starting a podcast, “About Money”, she had just gotten money for the first time, working at Bandcamp, and she got her first share of, or her first slice of ISOs. And AJ being the person that she is, decided to figure out what these ISOs are, and spent a few hundred hours building a podcast to explore financial planning for creatives, and explaining it to them in a…and she has a podcast called “Moneysplained” that you can go listen to, and you can actually listen to our very first time that we meet, because I was on her podcast, explaining freelance taxes on one of her episodes. And so we have that conversation about…on that podcast, and then afterwards, like, “Hey, we’re both cool people, you’re getting into money…” I was going to Japan, and she was like, “Let’s go get a beer. I love Japan, we’ll talk about Japan, and all the things you should do there,” this was back in 2017. We’re getting that beer, and before I know it, we’re just talking about financial planning the whole time, I’m talking about me starting this firm or leaving my job, she’s getting into money, and I’m meeting this career changer that’s been working in PR and in the book publishing businesses for about seven years. And I’m not taking her too terribly serious about getting into the financial planning industry, so I tell her, at the end of our conversation, “If you get a CFP, we can explore working together.”

Meanwhile, I’m still working on this business plan for this bigger RIA that I planned on joining. She emails me four days later, and she has enrolled in the CFP program. I was like, okay…

Michael: So, you motivated her well.

Shane: Well, she doesn’t…when AJ wants something, she gets it done. And she really wanted to get into this industry, and really make a name for herself, which she has done. And so she enrolled in the CFP program, her and I are building out…I’m showing her some of this XYPN stuff that I’ve been building, I’ve been showing her these ad hoc plans that aren’t going very well, I’ve got a RightCapital login, and we start to build out this process. And we build, instead of building the business plan, we just build the firm. And then we sign one of her friends as a client, after tax season 2018 we sign, I think, 10 clients in our first month, and then we’re off to the races. And before I knew it, I had lost control of the business plan, and I just had a business that was growing. And I didn’t even email Mr. Goodman until…or Michael Goodman until actually two weeks ago, knowing that I was coming on this podcast, and I just wanted to say, “Hey, man, I’m sorry I never got back to you on that thing, but I’m going to be explaining it on Michael’s podcast.” And he was…he’s awesome, he was like, “Have a great time. No sweat. I look forward to listening to it.” So, it worked out in the end.

Why Shane And AJ Intentionally Built Brooklyn FI As A 50/50 Partnership [51:02]

Michael: It worked out in the end, very cool. And so, talk to us a little bit more of just…how does this…how did this partnership thing work for you? Particularly as you’re going to build a new advisory firm, but you had an existing tax practice and clients, and I don’t know if AJ had other stuff that she brought to the table as well, it sounds like she was actually helping to bring in some of the clients early on from her creatives network as well. So when you get down to the, you know, “the simple stuff,” how do you actually split this business, and just figure out who’s got what partnership, based on all the things that they’re bringing on the table, and who’s doing what in this?

Shane: That’s an awesome question, because we spent a lot of time worrying about that. And this was a new person in my life at the time, and to me it was…this is a business, and the first thing that you’re thinking is I’m a CFP, I’ve got all the experience, I should have, I don’t know, what, 90% of the business, and then we can talk about even own-…like, you’ll probably be an employee. And it’s really funny, looking back on those conversations, because now we’ve been partners for three years, we know what each other is thinking at all times, so it’s funny to look back on that and think about what we were thinking about separately. And we listened…the way that we did it is we just did a bunch of research, and we talked to a lot of people, we listened to a lot of podcasts. That’s the way that we go about solving a lot of problems, is just digesting a bunch of resources. And we ended up listening to this podcast about this guy that was a serial startup founder, or working with a serial startup founder…I forget the name of the podcast right now, I hope I can find it. But he was working with a friend, and they were trying to figure out if they were going to go 70/30, 60/40 or 50/50, and no matter what they figured out, if it wasn’t 50/50, they felt like one person wasn’t getting…like they weren’t going to devote enough time to it, they didn’t feel like they were respected for their contributions. And we just came to the conclusion that 50/50 was going to work the best for both of us.

And she didn’t want to come into…she didn’t want to change her whole career for something where she didn’t have control of what the business was going to look like, and I didn’t want to bring someone on that didn’t feel that way either. And it came down to trust, and us spending a lot of time together, and it was honestly a huge leap of faith for both of us that has worked out. And I think that might be why a lot of people are afraid of the partnership. And it’s really easy for me to say, “hey, everyone should have a partnership,” because I found someone awesome that works with me, but that’s probably going to be a lot harder for other people, and that’s going to be a long journey. And I just hope that other people can find that, because it’s worked out great for us. But…

Michael: So…I was just going to say, talk to me a little bit more about just how that…I guess for lack of a better term, how that dating phase went. You did say you spent a lot of time together, it’s not like you met and put together a business plan in a week, and it was like, hey, okay, let’s go for it, we’ll split the pie down the middle, and off we go. It sounds like there was a lot more time and thought put into it. So just what did that look like? What do you do to get to the point that you are comfortable splitting this new business in half, that AJ is comfortable, that you’re ready to take the leap, that she’s ready to take the leap? What was actually going on to get to that level of trust and decision?

Shane: Yeah, totally. So, it’s hard to go back in time, right? Because so much…And being on the other side of COVID even, and then going back three years on building these businesses, it’s hard to go back in time. But what I can tell you is that we just spent a lot of time envisioning what the practice would be like, and taking a look at are we going to sell insurance, and then talking through what that…like the incentives that would…what those incentives would look like. And then me thinking about…like seeing her reaction to those types of questions, and her being like, “No, I’m not selling insurance,” it being obvious that she doesn’t want to do that. And I was like, “Okay, well, do we want to work with creatives?” which we already work with, and her already having a very large creative network, and talking to her friends about what she’s going to do. And then I would…you know, her going through the CFP program, and her being an English major liberal arts degree, and her asking me for help with even, like, present value of money questions in the CFP program, and me talking her through it, and it clicking for her very quickly. I was like, “oh, this person is…she just needs time. She’s going to get all this stuff. And she’s got all these skills related to marketing and communications, and a network, and she’s a serious person, and she’s taking this very seriously, and she’s achieving and she’s learning,” and building that trust, and having a great time working with her, over those six months, up until when we actually…

And also building plans, right? Like doing beta plans with friends and family, having her actually go into RightCapital, and putting in the income information, putting in the savings rates, and all of that information, her retaining it, and also having a good time building the plan, and thinking about how is the client going to take this, and thinking with the end in mind, right, just starting with the end in mind, and then arriving at that end that we had originally designed for ourselves successfully, thanks to her help. And also her just putting in a ton of work, and working super hard, and…built a lot of trust, frankly, Michael. It was just working together very seamlessly and remotely. She still had a day job at Bandcamp, and she would just work nights and weekends, we would work Saturday and Sunday all day together, building this thing. We would work seven days a week for almost six months. I mean, a lot…like all through 2018 as well, almost seven days a week. So mechanically what we did, if you’re interested in that…

Michael: Yeah.

Shane: …is we talked to an attorney, and we said how can AJ own this business? Like, what works for both of us? And this was a way for me to protect myself as well, Michael, because she wasn’t a CFP. And as you know, for a career changer, it’s going to take a little time to get your CFP designation.

Michael: Yep.

Shane: At least two years. So what we did was it was 100% pre-owned, or owned by me as the CFP/CPA, and then we signed an agreement with our attorney that went into a box that said as soon as AJ gets her CFP designation, automatically gets 50% of the company. And we just went with that.

Michael: Interesting. So, it was kind of…for her, it was contingent on making sure that she…that she finishes her CFP marks. And so whenever it was that she finished her CFP marks, just boom, that agreement activates.

Shane: Yeah. And we were looking at…and she was taking two, three classes at a time. I don’t know the maximum that you can take in the CFP program, but she was taking the max every semester at NYU to get that education completed. Which was also really…

Michael: Well, nothing like vesting 50% of the company to make you highly motivated to finish your CFP marks in a timely manner.

Shane: Exactly. Yeah, it was a big day when she got her CFP in…was it mid-2019, I want to say, that she was, like… Because we started her education as soon as she started helping me with taxes in late 2017. Tax planning, she was working with me, started her hourly, vesting, so to speak for the CFP marks, so that took a little bit of time. And she went to some boot camp that allows you to accelerate some of that time. I think FPA has a boot camp you can go to. We did everything necessary to get her a CFP as fast as possible.

Michael: Okay. But interesting, it does sort of implicitly build in a roughly two-year acclimation period that she has to get to in order to get there, just because that’s the time requirement for getting your marks, for getting to use your marks.

Shane: Yeah. I mean, our incentives were aligned, so…I wanted a great business partner… I mean, think about it, if she could get that done, then she’s probably going to be a great business partner, because that’s such a hurdle for somebody, it proves that she’s ready for that.

Michael: You get a lot of value for the work that she does, and she got several years of experience and CFP marks, and a great opportunity. Even if you decide you’re not working together, pretty sure she’s going to land on her feet at that point, given what she’s doing, and what she’s putting in to get there as well.

Shane: I mean, Michael, she was working full time at Bandcamp, she was taking the maximum amount of classes at NYU for the CFP program, she got her Enrolled Agent designation at the same time for tax season 2018 for 2017 returns, and helped me file a ton of tax returns, and was also self-producing “Moneysplained,” the podcast, and…she’s just like an animal, man, she can do so much stuff, and when she wants something done, she gets it done. So yeah, she was also vesting the time with income tax planning by doing the tax work with me, and then we signed so many clients so fast because we built all the processes to build good plans for people, and we were talking to our tax clients about bringing them on board, and her friends about bringing them on board in May of 2018, right after that tax year. Our plan was for her to stay at Bandcamp until October or November, she had to quit her job in June because we had brought on so many clients so quickly, to handle the client load as my “assistant,” but really my partner in disguise, right?

How Shane And AJ Transitioned From Serving “Creatives” To A Tech-Focused Niche [1:00:18]

Michael: Okay, very cool. Very cool. And so then as all that ramps up, so it sounds like part of the focus on the niche with creatives actually came more from AJ’s side because she was at Bandcamp, which is a platform for creatives. That was much of her circle, and so that was part of the overlap, but now you’re sitting in a focus that’s more young tech professionals tied to IPO events. How did that transition happen, and what happens to all the creatives when that transition happens?

Shane: Yeah, so it’s…I would say it was both of us. We both ran with “creative circles.” As I mentioned, everyone went to LA or New York, and I was on tour with a band in college. I was in accounting school, I didn’t have any accounting friends, all my friends were weirdos and musicians and whatnot, and same with AJ. And so I was doing their taxes, doing schedule Cs for painters and musicians, and AJ came along, and we had the same clientele. And that was cool, that was where we started. And some of those clients became management of bands, podcast producers, people that…entrepreneurs that were starting to make $200,000, $500,000, having enough money for financial planning, and expensive tax prep and accounting and stuff, and we started working with them. And the weird thing, the interesting thing, Michael, about creatives is they hang out with tech professionals often, and they tend to marry each other, we’ve noticed. We don’t have any stats on it, but all of our tech…we’re 26% creative and 73% tech, and what is very common for us is a tech dude or girl is married to a creative, and vice…obviously, vice versa. So they come hand in hand. And we were working with these tech professionals, and they were referring our tech clients, and we ended up working with creative tech, back in 2016 I started working with a lot of Spotify people, and doing their taxes. And they were coming to me with incentive stock option questions, and I was exploring the AMT, I was exploring 83(b) elections on restricted stock, I was exploring all of those questions for cool…”cool” tech people that had a lot more income than our creative clients, because tech has…I don’t know if you noticed, but it’s been exploding for the past 10 years.

Michael: A little bit.

Shane: Yeah. So, we were working with creatives, and that’s where we thought we were going to be forever. So I think when we first met you, that was the niche, and you know, long hair…long hair made sense, and our vibe made sense with creatives, and that’s how we got pegged. And then just over time, we’re working with these creative clients, and then the tech clients keep coming to us with IPOs, and their net worth is creeping into the high six figures, and then low seven figures, and now multiple, you know, eight figures, and they need a lot of help immediately. And you’ve got one type of client that can only afford $200 a month, and they’ve got a lot of really messy student loan issues, and they want every…you know, the dollars count a little bit more, and they’re a little bit more difficult to work with. And then you’ve got these other clients that are happy to delegate everything, they don’t count every dollar, they have fewer emails, and they’re very busy, and they just want these very complicated things handled, and they’ve got more money. And I think you see what happens in that scenario, and we end up, you know, providing a lot… And we also have a lot higher impact. Well, I don’t…that’s hard to say. It’s hard to say where the impact is, you can’t always measure that in changes in net worth, and the world is more complex than that, but…

Michael: But there is a pretty quantifiable mathematical impact measurement of tech company folks going through IPOs, where seven and eight-figure dollar amounts are moving around. There is a lot you can quantify for value there.

Shane: To give you a perfect example, we were working with this tech client…or this creative client, she’s a freelance writer, and her husband…she was just a tax client, and her husband worked at a tech journalism company, so both kind of creative, but tech creative, right? It starts with a Buzz, I won’t tell you what it ends with. But so, they come to me, and we’re doing their taxes, and she’s like, “My husband had this weird equity comp thing a few years ago. Can you look at my old tax return?” And I see that he exercised ISOs, paid $50,000 in AMT. I think that they fired their accountant because they owed $50,000 that year, right?

Michael: Yeah, and weren’t expecting it, no one warned them about the AMT preference item, yep.

Shane: Which is why we don’t do one-off tax prep anymore. Clients think it’s the accountant’s fault when they owe a lot of money sometimes, and that’s an awkward position when you’re just looking backwards. And I get it… But yeah, I looked at it, and I realized that that credit can be carried forward, right? That’s how that AMT tax credit works, is you pay it then, but you carry it forward. But the new accountant didn’t know that, not niche, credit disappears…

Michael: Oh, that’s a big minimum tax credit carryforward. So, nothing like starting with a client like, I can get you a tens of thousands of dollar refund, how’s that to start?

Shane: $50,000.

Michael: Oh, the whole thing was actually claimable by then?

Shane: Well, it had been three years at that point, so we amended all the years. And they were paying the IRS, like, $700 a month in installment fees, and they were having a baby, and we were just like, “We’re going to get you all these refunds, and you don’t have to pay the IRS anymore.” And…

Michael: They were on an installment plan for the AMT bill that they didn’t actually owe anymore, because no one claimed the minimum tax credit for them?

Shane: Exactly. And you know, to the client, you just created $50,000…like, do you think they’re going to refer people? Yeah, they’re going to refer people. So we had a couple of experiences like that, and we were like, okay, maybe we should focus on the tech thing, because it seems like that’s working out in terms of…the clients don’t know what we’re doing, but it looks like magic in some scenarios, and that feels great. We get a lot of energy from that, and we love showing up to work and doing that type of stuff instead of, honestly, digesting the six different student loan options. Which is still great work, but it’s just not as invigorating as finding $50,000 for a client.

Michael: And so as this starts to morph, and you’re doing more with tech clients, you said now you’re 70%-plus tech clients, less than 30% on the creatives end, what happens to the creatives? Are you still working with both, do you envision working with both in the future, is there a point where you just stop taking the creatives because you’re focused on the tech clients, what happens to all the creatives as you focus more into the tech space? How are you guys thinking about that, when you had such a strong start in one niche, but then still found another one that you like more, and is more remunerative, is working better for you, but you did start in that creatives niche originally?

Shane: Yeah, that’s been one of the more difficult things to deal with, is…I don’t want to say graduating, but so, we’ve priced them out a lot. I think we start at $375 a month now for our simplest fee, so that’s the minimum. If you’re single, no complexities, starts at $375, so that prices out a lot of people that just…

Michael: So from a practical perspective, if they hear about you and they come to the site, because you’ve got it on your website, they start clicking through the fee tool for what it would be for them, and just realize, yeah, this just isn’t going to work for me, cool, no harm, no foul. Just they’ll look at the website, they’ll see what the fee adds up to, and maybe the Brooklyn FI folks aren’t a fit for me, and that’s that, and they just kind of move themselves along.

Shane: Totally. Yeah. And so it’s worked that way, and then our older clients that are just…like the plan has been developed, and we’re just doing maintenance, we’re continuing to maintain those clients. We haven’t raised their fees. If they’re not happy with where things are going, or things start to evolve into a direction that probably isn’t a good fit anymore, we fire them. We just let them know. We have a standard email, we have a standard off-boarding procedure where we say, “Hey, look, we used to focus in this space, we don’t anymore. We think that there are other people…” since we go so deep in this one thing that we know really well, we know it so well that we’re building a software tool to try to spread that information to other advisors to try to…we have the mission of spreading equity advisory to other advisors, because there’s such a need and such a thirst for this information, that if you’re asking us about real estate analysis in Tennessee because you’ve moved there, and you still have this student loan issue or you’re…whatever the complexity is that isn’t within the niche, we just fire them. It’s not…it’s okay, it’s fine, they’re going to be better somewhere else. And because we have the higher paying clients that used to subsidize these lower-paying clients, we don’t want that kind of relationship going on, we want to elevate our experience with our higher-paying clients, we just let them. So that has been tough, and we’ve sold a lot of one-off tax clients as well, that’s the majority of our creative relationships at this point as well, it’s like, we just file your tax return, and we sold half of them last year, we’re going to sell the other half later this year to make it a smoother transition.

Michael: Interesting…of getting out of the tax prep business completely, or just selling off clients who you were doing tax return only for, to some other CPA firm that just does tax returns, so you can do only tax work for advisory clients?

Shane: Yeah. I mean, if we’re not…if we’re not forward-looking with you, and doing a plan and a tax projection for you, I don’t want to do your taxes, because it just creates awkward…like you didn’t pay enough in in estimates, and now I look like…you know, you underpaid your estimates, and you have a $200 penalty, and I’m talking to this client that’s paying me $600 instead of a client that’s paying me $8,000 about this little penalty, and it’s just we don’t have to do that anymore. So other tax preparers have systems designed for that type of relationship, so let’s put everyone in the right seat or in the right relationship.

Where Shane Sees Brooklyn FI Going From Here [1:10:25]

Michael: Interesting. Interesting, just how it’s evolving for you. And then how do you think about just capacity of all of this in the future? I mean, I was struck even as you were listing through client advisors, and who does what, you didn’t list yourself amongst the advisors who see clients. You’ve hired two others that you’re adding clients to, and AJ is adding clients, so what’s the vision going forward of just how you keep adding clients? Are you going to take on more clients, do you not want to be in client work, are you hiring other advisors to take on clients? Because you guys have so much growth momentum now with adding five-plus clients a month, where does this go for you from here?

Shane: Yeah, you noticed that, huh? Yeah, I don’t have any assigned clients to me, which is something that we’re working on. It’s something that AJ and I both want for each other, we want some clients, but the responsibilities around being on for a hundred clients all the time is…it’s invigorating and also draining, as I’m sure you’re familiar with. And we’re working on some other things right now to help our…we’re working on I would say three main things, or four main other things for the future of the firm. We have an accounting and tax practice, obviously, and I have been focusing, over the past year, on build-…all the processes and the principles and the culture that we’ve developed at Brooklyn FI, and taking that back to the tax practice and the accounting practice, and focusing on advisory and forecasting for businesses. Because as I said earlier, a lot of our tech clients have creative business owner clients, and if they can’t tell me what their income is, that’s a problem for the financial plan. So the way we solved that was creating an outsourced accounting program where we do the books and the taxes and the forecasting, and you know, the franchise sales payroll, you name it, all-inclusive. And that’s a bit of a scope problem for businesses because if they hire someone in a different state, then we have to figure out how to do that, and it’s less niche, so I’ve been trying to herd cats and wrangle that for the past year, and it’s been harder than I thought. So I’ve been focusing a lot there, and I don’t have any client relationships within Brooklyn, FI, and AJ is stepping back.

And one of the other things that we’re doing to help with the capacity is we’re building out diamond team structure for our new advisors that we’re bringing on board, John and Jason, and the training that we’re doing for them. We’ve hired Angie Herbers to help us implement that, the diamond team program, and we’re creating a compensation package that is conducive to our advisors to grow from…essentially…I don’t know if you want to use the word paraplanner, but associate planner, and then graduate to senior…or junior planner, and then senior planner, lead advisor, whatever you want to call it, and then maintain their own book of business, and then they’ll be paid a base salary plus a compensation, depending on the revenue that they generate, eventually with equity. And that’s why we’re working with FP Transitions, we want to get…you know, our vision is to have 10 diamond teams, Michael, and we’re committed to that. And we’re already talking about succession planning, and slicing up the pie for the right people that want to come on board.

Michael: That’s a big vision when you’re building your first diamond team, and visioning 10 of them. How many clients does a diamond team serve?

Shane: I think it’s about 140, but we’re going to work with Angie on that. And build towards that, always thinking far into the future, and making sure that we start with the end in mind. We’ll figure it out. Because the diamond team for one other advisory firm is going to be different for the equity comp advisory firm that has a tax practice and outsourced accounting accouterments. So, it’s going to be a little custom, but fun, a fun challenge for us.

Michael: Right. Right. But functionally, you are literally visioning a firm that’s 10X larger than where you guys are today.

Shane: And if you don’t, if you shoot for the stars, you might accidentally hit the moon…or I don’t know how it works, how that phrase works, but we do want to plan on building a company with enterprise value, and if that’s not what we like when we get there, we can reconsider. But AJ and I really enjoy this industry, and we’re having a great time building it and growing it, and enriching our clients, our employees, etc., all of our stakeholders, that we just want to grow it and expand the culture.

What Surprised Shane About Building An Advisory Business And What Was The Low Point [1:14:34]

Michael: So, what surprised you the most about trying to build an advisory business?

Shane: Oh, man, probably how much fun. I mean…how challenging it has been, but also how much fun it has been at the same time. And how much our clients can be inspiring for us, and cheerleaders for us probably has been one of the most interesting things. We have a lot of…or surprising things. We have a lot of clients that are “product managers” at tech companies, and they have told us that we are product managers of a financial services firm, right? Like we’re building a process, we’re building…we don’t build our own interfaces besides our tool, the tech tool that we’re building, but you know, we use RightCapital, and we build this process which is kind of like a product that we’re building for them. So we’re product managers, and they’re on board with watching how we evolve and add employees, and I think they’re inspired by that, and they’re enjoying our journey.

Michael: Which I guess is…it hadn’t struck me before, but that’s an interesting part of it. I think for some advisory firms, and I think some advisors, there’s sort of this feeling like you have to get it all figured out, you have to put on the fully polished, perfect front on everything that we do, that’s part of what maintains our professionalism, and why clients can trust us and have confidence with us, and pay us the fees that they pay us. And you know, that’s, I would imagine just in general, hard to do at a firm like yours, that’s growing as fast as it is, because you constantly have to make new systems, new processes, hire new people, a lot of stuff changes. But when your niche is people at fast-growing tech companies, where the culture is entrepreneurial and always changing and visions are always evolving and offerings are always evolving, that is particularly normal for them, it strikes me, in a way that it isn’t necessarily for at least some other types of clients, but is very fitting for yours, right? Like if there’s one set of people who understand sending out an email that says, “Hey, we’re rolling out a new offering for our clients, it does this, and you go here in order to do it,” it’s a product manager who does that all day long, all month long, all year long, and that’s literally their job is iterating on the solution for the people that they serve, and then sending out announcements of here’s the new thing that we’re doing, and it’s completely normal and expected, even.

Shane: Totally, man. And if they’re into that, and you’re trying out something new, like hey, this is the first time we’ve got a client that needs a 10b5-1 plan drafted because they’re an insider at the company, and they’ve been a client for two years and they know that you’ve never done it before, and you’re like, I can learn how to do that, we’ve done everything else perfect…or I don’t know about perfect, we’ve done everything else in your interest, they’ll come along and help us out, here’s what we know about it, we learn that thing within the niche, and then we can take that to our other clients. And yeah, that’s been really exciting, to get buy-in from the clients as things change, and yes, as we… And you know, they saw the tech when they first came on board, exactly, and it was messier, and it was cheaper, and as we get more money, they see that we’re leveling up the software that they use with us, and that’s exciting, and that builds trust, I think. It’s like they’re early adopters of Brooklyn FI, and we’re going to continue to expand our services. Big plans for that.

Michael: Yeah. I love that. Well, and to me, it feels like there’s a…I don’t know, there’s kind of a product manager approach to a lot of what you guys are doing right down to, hey, it’s kind of a standard in the startup world, you can build a product that’s good and start offering it to some people, and then find out, hey, there’s this other group that’s buying it as well, and they’re buying it for some slightly different reasons. And they actually want some different features, and it’s a better market opportunity because they’ll actually pay more for the software to help solve their problems instead of the first problem. So you pivot the software, the offering to the new market that you found while you’re serving the original market, and just…it feels to me like your firm is very much living that same kind of journey, like hey, nothing against creatives, but we started there, we found some other people engaged with the service, we built more in their direction, they’re paying more for the product, so we’re going to keep building there because that builds our enterprise value. And just, you’re treating it as a constant iteration process where it’s okay to pivot, because that’s what you do in technology world, as a product manager.

Shane: Totally. And just to circle back to the other way that we’re helping ourselves scale is we’re literally taking their money and investing it into a tool that we’re building with developers, called Horizon FI, that is going to take the seven hours of work that we do building those, the master stock options spreadsheet that we talk about, and the tax projections, and the current year cash flow, and the paycheck data and all that, and it’s often trapped and missed by employees, sometimes there’s expiring options or AMT issues, etc., that all needs to be compiled, we’re building a tool to help us scale, right? If we can take a six-hour process and use APIs to pull all that information in and cut it down to half an hour, and serve more clients that way, that’s helping us scale. So we’re literally product managers as well, for an actual product on the side that we’re working on. So yeah, we’re familiar with their lives in multiple ways.

Michael: Very cool. So then, what was the low point for you on this journey?

Shane: The low points are sometimes when the relationship doesn’t work anymore, and clients get bitter and they send you that email that’s, “I don’t like where the firm is going,” you know? You know, we think about our clients all night. I dream…I don’t dream about what’s going on in their lives, but I have anxiety, and think I hope that client can figure out how to work it out with their cousin to split that house that they both inherited, and one of them doesn’t have any money, you know? And how to deal with that, and the… We think about them all the time, and then when they send you an email like, “I don’t like where the firm is going,” and they send that directly to you, you know, and you get it maybe at 10:00 at night, it’s just heartbreaking occasionally to get those, especially…

Michael: Right. The firm is your baby, and someone took the time to not only reject your baby, but call you up personally, like send you a personal email as the parent, to let you know how much they don’t like what your child has become.

Shane: Yeah, man. You create a business where the clients feel like they can take potshots at you, which is true for a really small, like a solo practitioner that works directly with their clients, which is how we started. And I’m not saying that we don’t want to have a firm where clients don’t feel like they have a say in where we’re going, like they’re not stakeholders, but they can feel a little bit more comfortable than maybe they ought to, especially when you used to go to their houses to do the meetings, or you used to have them…and they’re closer to friends, and whenever… That doesn’t happen a ton, but maybe the five or six times that it does happen, you’ll remember forever. And it irks you for a week or so. Or maybe they’ve got something to say about who you’re hiring at the firm, and they don’t like where that’s going, and they don’t know about the challenges that you face when it comes to finding the right people, and addressing diversity, for example. And I know that Shawn talked about the Latinx, the Black and Latinx internship that we’re participating in as well, Shawn Tydlaska, while he was on the podcast. And that’s a thing that keeps us up at night, and we think about this all the time. And if we get criticism about that, that really hurts because we’re doing the…we think that we’re doing the best that we can in that space as well, and that’s a whole other podcast, and a whole other challenge. But that’s definitely a low point, is that real feedback that you can get from clients. But besides that, it’s been…that’s the lowest point of the journey, for sure.

Michael: But it strikes me, at the same time, you’ve gotten the emails from some clients, like hey, Shane, I don’t like where the firm is going. I don’t like who you’re focusing on, or who you hired, or the way you guys are outgrowing your bridges from where you are, where you were, all those different things that clients surface sometimes, particularly when they were the early clients, and then see how much the firm has shifted and changed. But it just strikes me at the same time, it hasn’t stopped you…

Shane: No. Yeah, I take my licks. And I think that’s just part of…I think that’s what you need to be prepared to do if you want to grow quickly. You’ve got to be…you’ve got to take it on the chin. It is what it is. That’s okay, and that’s part of growing, and…yeah, I don’t know what else to say, it is what it is. And you’ve just got to steel yourself for that. What we try to do is try to prepare them for that via clear and constant communication, as much as possible. But when they receive that communication, and then they still come back with the, “I don’t like this,” that’s where it really hurts.

What Shane Knows Now That He Wishes He Knew Earlier, His Advice To Those Entering The Profession, And What Success Means To Him [1:23:34]

Michael: So, what do you know now that you wish you go back and tell yourself from three or four years ago, as you were getting going, and this was just a dream and a concept? What do you know now that you wish you knew back then?

Shane: Oh, that’s hard to say. I think that…if you…I remember my days back in PwC, and I remember working 70 hours a week, and right after the Great Recession in 2010, and jobs still weren’t really popping off, and we were working really hard and grinding to keep, I guess, PwC alive. And there was an all hands call worldwide, and the the chairman of PwC said to all of us when we weren’t getting raises, he said, “The work that you get to do here is part of your compensation.” And I remember being really young and dumb, and being like, what? I’m working 70 hours a week, and the work that I get to do is part…? I didn’t understand that. And now on the other side of it, I realize that not everyone gets to work in a niche, and really go deep on one specific thing that can turn into every stakeholder involved in a practice that focuses on that, having a great time, and being inspired and invigorated, and there being a lot of value for everyone because you got to work in that space. The new employees at our firm, we get to teach them a lot, they get to… Part of the compensation…I don’t know if I would ever say this to them, but is that they get to work in this hyper niche…I wouldn’t say hyper niche, but this really niche space of equity compensation. And I think I would have, if I had known back then that if I could go super deep and consider the work that I’m doing as compensation and as training, I might have enjoyed PwC a little bit more. Then again, I might not be who I am today, so hard to say.

Michael: So, any other advice you would give to younger or newer advisors? Because some are career changers coming in, and they’re not chronologically as young. Any advice you would give to newer advisors coming in today, then?

Shane: I mean, learn tax. Everyone’s…I hate to be so mechanical, but get an Enrolled Agent degree, learn tax, try to do your best. It might not be the profit point, or the most profitable part of your practice, but I do think clients get a lot of value out of you knowing the taxable element of everything. Maybe even a master’s in tax, like you did, Michael. And then also, you’re going to have to get over the imposter syndrome thing. And if you’re very transparent with your clients, you focus on a niche, you go deep, and you trust yourself, and you get really into the difficult weeds with stuff, and if you can find a niche early and go with it, and have faith and know that you can transition if necessary, especially if you’ve always been transparent with your clients, and you try to stay very constant and clear with them, they will go on the journey with you, and they will understand if you’ve transitioned.

Michael: So as we wrap up, this is a podcast around success, and one of the themes that always comes up is just the word success means very different things to different people. And so you guys are on this fantastic journey of success already, I mean just building a practice doing more than $1 million dollars of revenue is itself an endpoint for a lot of advisors, not what they do in their first three years, and then say like, “eh, now we’re working with Angie Herbers to 10X this thing.” So I know you’ve got a lot left in the tank about where you guys are growing the business in the coming years, but I’m wondering how do you define success for yourself at this point?

Shane: So my financial planner, Shawn Tydlaska, we went through a values exercise, and not surprisingly, autonomy was…autonomy, challenges, and friends are the three main values for me personally. And it also shows up when I do the Kinder questions. So I would definitely say that those are three of the things that definitely define success for me, Michael. And the way that those manifest is I’m not doing things that I’ve already mastered. We have a ruthless, ruthless process of delegating. If someone’s a master at something, they shouldn’t be doing it anymore, they should be training someone else on how to do it. That’s why I don’t have any clients anymore, Michael. And you know, having friends and challenges allows…you know, if you’re delegating things, you also get to work on new projects, and you get to explore new things. We’re starting a podcast, we’ve got our startup, we’ve got…I’m working on the outsourced accounting, AJ and I want to do a lot more video work, so those are new challenges that give me excitement. And also, training new advisors on ways that they can also do these things that we’ve had pleasure doing over the years, gives us a lot of excitement as well, because if they enjoy it, then everyone’s excited, and everyone’s having a good time. So I think autonomy, excitement at work, not dreading showing up, and the new challenges are really the things that define success for me. As long as we can continue to ride that train, I’ll be happy in the financial services industry.

Michael: I love the way that you frame that, that you are not doing the things you’ve mastered. If you’ve mastered it, you should be delegating it and training others, not still doing it. That’s just a really powerful statement, when you really think about what that means and what that translates, particularly into our lives as advisors. I really like that.

Shane: Yeah. I mean, if you’ve mastered it and someone else in your firm needs to grow as a person, you should be giving them the at bat, right? And maybe they’re shadowing you, maybe they’re watching you do the sales calls, watching you deliver a financial plan or a stock option plan, or explaining what you should do in retirement or what have you, and learning those people skills, and delegating…delegating is also a skill, so…as I’m sure you’re aware. And yeah, I think it’s necessary for a successful firm, and a growth firm to have a ruthless focus on delegation. And if you’ve mastered something, then you kind of have to agree that you shouldn’t be doing it anymore, if the firm is going to grow, right, unless it’s just necessary for the firm at that point in time, like sales can be, it’s one of the last things we’ll probably delegate.

Michael: Well, I love it. I love it. Thank you so much, Shane, for joining us on the “Financial Advisor Success” podcast.