#FA Success Ep 230: Showing Financial Planning Value As An AUM Advisor By Focusing The Conversation, With Dan Moisand

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, Dan Moisand, to the “Financial Advisor Success Podcast.”

Dan: Well, thank you, Michael, this is pretty exciting, man. It’s been a long time.

Michael: It has been a long time. We’ve been sequestered off in the pandemic world for the better part of 12-plus months now. Slowly starting to reemerge from our shells as people get vaccinated and offices start opening and travel starts getting underway again.

And I’m excited about the podcast episode today because we talk a lot in the industry these days about evolving fee models and business models. And we talk about that theme a good bit here on the podcast. We do include, I guess, I’ll call it a disproportionate number of advisors who are doing new and different fee models because I do like to just put new ideas out there. Let the advisor community see some different ways that things are getting done.

But at the same time, I’m actually one of the people who still pounds the table that there’s nothing wrong with the AUM model. I think the predictions of the death of the AUM model are grossly over-exaggerated. Just looking at industry benchmarking studies for the past 10 years, we have talked about robo-advisors causing fee compression, robo-advisors causing fee compression.

And then, you actually look at the industry benchmarking studies on fees and average revenue yield of an RIA, basically, hasn’t moved a basis point, not 1, in 10 years. All the pretended fee compression doesn’t seem to be happening in practice. And I know you have just spent the better part of 20 years running, I guess, I don’t mean this in a negative way, but just a good old-fashioned AUM model, you chose clients and AUM fees and provide them comprehensive services and have what, to me, is still one of my kind of favorite sayings and statements around fees. I apologize if I butcher it. I remember you saying it once and it stuck with me so well that you would describe your fees as saying, “Look, we’re not the most expensive, and you don’t want the cheapest.”

Dan: Amen, brother, no doubt.

Michael: It’s just, “We charge a reasonable fee. We do some good stuff. Clients are happy.” We’re making this way harder than it needs to be.

How Dan Views His Fees And The Value That He Offers To Clients [00:05:20]

Dan: Totally. There’s a whole segment of the population where the dominant decision point is price. And I say this a lot, I’ll make a good faith effort to do a lot of things when speaking with prospective clients. And I make a good faith effort to try to get people that are wired that way to see that there is a difference.

But it’s an uphill battle. And most of the time, if they’re wired that way, they’re just looking for the cheapest price because they think that’s better. But in real life, most people don’t make decisions that way. Price itself conveys what you believe the value of your product or service is worth.

So, you can go out there and tell everybody in the world that everybody else is overcharging you. They’re too expensive. Come see me because I’m cheap. And all you’re going to get is a bunch of cheapskates. They’re going to leave you as soon as they find something that looks cheaper than what you do. It’s a classic thing we learn when we get a degree from any business school in the country that the low-price provider has a unique set of challenges. And it has nothing to do with delivering highly personalized, high-quality advice to me.

So we have no interest in trying to undercut anybody’s price. Our prices are very fair. They’re very average. And we’re average in a lot of ways. And we actually promote our averageness in various ways and pricing is one of them. We’re not expensive and you don’t want cheap. And that really resonates with a lot of people very quickly and they get the point. In others, it doesn’t. So, they can be other people’s clients.

Michael: Mark Tibergien used to have this saying that a lot of businesses try to be better and out-compete in everything to try to win business. It’s like, the truth is, you can be average in everything, except one thing. You do need one thing that you are better than everybody else that you can stand out and differentiate on. But it’s totally fine to be average in everything else. And that includes, you can be completely average on fees right in there with what everybody else charges, as long as you got a little something that you do a little better for at least some segment of people that you can win those clients at the margin. You can build a great business from that.

Dan: Absolutely. It’s not getting easier for the public out there. Personal finance just gets more and more complex all the time. I don’t see any slowdown in demand from the populace. I don’t see any forces that would slow demand. The tax code is… What was the last Tax Simplification Act? What, 50,000 pages or some ridiculous thing like that?

That doesn’t get any less complex. The markets don’t become less volatile. The economy’s not less complex. The politicians aren’t any less nuts. I mean, there’s all these forces coming on to people, they’re not trained to absorb it and look at the tradeoffs and understand the technical details and all that. And this is a fantastic business to be in. It has been for the last 30 years. And I think it’s going to be for the next foreseeable future.

Michael: To me, there is something very, very primal at the core of just the value of financial planning and giving financial advice that, at the end of the day, as long as people have complexities that they can’t necessarily figure out and navigate on their own, there’s always a role for paying an advisor to help you through that complexity.

And so, if you want to figure out whether financial planning, the advice business, has a future and just the direction of fees, you don’t look at the direction of competition, you look at the direction of complexity. And just to say, we had all these robo-advisors and all this competition, but fees didn’t go down 1 basis point over the past 10 years. What happened? Well, look back over the past 10 years, if I was going to use a word to describe the difference between today and what life was like 10 years ago, simpler, not the word I would use. Less complex, not coming to mind.

Dan: Very true. The revenue top-level pricing has not come down. And I’ve been surprised that we have not experienced much in the way of margin compression either. It seemed to make sense to me that we would be delivering more in different types of services over time and over the last 20 years as an ensemble. That is true. But margins haven’t really been hurt. Some of that’s technological. Some of that is just learning to be more efficient.

I think it’s going to come. It hasn’t come to us quite yet. And technology, in particular, really helps with efficiencies. So, I’m not sure how much compression there’s going to be there either. We’re preparing for some, but I think it’s going to be, at least, less massive.

Michael: Yeah, when you look out at the broad industry benchmarking studies, there was a little bit of margin compression that showed up sort of industry-wide in the mid-teens. It was 2014 to 2017, just industry-wide profit margins came down a point or few, which in the middle of what was otherwise a raging bull market. That’s actually notable because usually our margins get better when markets go up because the revenue goes up and the team is still the same team.

But even that rebounded a few years later. And, yeah, margins aren’t dramatically different than they were 10 years ago either. The only exception I really to see to that, there is a small subset of advisors that were just really high fee 10 years ago. There were still a few out there that were charging 2% advisory fees. Fee schedules that started at 1.9%, I don’t see those anymore.

And I do find a few of those outliers do seem to have been squeezed out. But when you get toward the firms in the middle, like the median firm that wasn’t doing that stuff in the first place, yeah, pricing doesn’t look that different, margins don’t look that different. We do a little more for our clients than we did before. We got a little better technology to make it more efficient than we did before. And the business doesn’t look that different than it did 10 years ago, aside from, it turns out now we meet with everyone by Zoom. And they don’t have to come into our office.

Dan: Yeah, but most people don’t like that. That’s something that’s been talked about ad nauseam for the last year or so is the changing nature of communications with clients and remote communication, Zoom and all that. Yeah, it was there before. It’s there now. Clients do Zoom because it’s a means to an end, but the majority of them don’t like it.

It’s nice to have that option. We have that option before COVID. And people weren’t picking it up. I think on the margins, yeah, more people will use Zoom more often. But, man, when it’s something important like your life savings and big decisions, just like you don’t want cheap, you don’t want to do it over the internet, a lot of people, at least our clientele.

So, yeah, Zoom is a great tool, all those online tools are great. But it’s never been a replacement for understanding human-to-human communication. And I say this all the time, because I love technology, I love software, but, man, it’s one of the most overrated things in the world too. I can’t believe how many people just obsess about, “Should I RightCapital or eMoney, or Money Tree, or MoneyGuidePro, or whatever?”

And, man, all these, almost every topic we talk about has been studied to death. When I meet with a client, they’ve got $2 million bucks, and they need to pull $50,000 out a year to match up with their pension, social security to pay their bills. I’m not really worried about them running out of money. I don’t need to do a Monte Carlo simulation to figure that out. Software is really good for very particular things, very precise tax planning, for instance. Yeah, software, awesome for that kind of stuff.

But, man, the one thing that software does not do is it doesn’t care, doesn’t give a damn about you, what you feel about your money, or your kids, or your kids’ spouses, or any of that stuff at all, or your boss, none of that. They don’t care about you. The software does not care about you at all. Planners care about their clients. They care how these things impact. They care about the intangible parts of this whole process.

Money is there as a tool. It’s something that supports your life. And software can crunch numbers all day long. But you can put some pretty charts in front of people, but if they don’t think that you get them, you understand them, and you care about them, you don’t have a very good relationship and it’s vulnerable to disappearing at some point in time.

Michael: I love that phrase, just the one thing that software doesn’t do is care.

Dan: It doesn’t.

Michael: That’s going to end out on someone’s website, their marketing material, at some point. I like that. I really like that.

How Dan Emphasizes The Planning He Does With His Clients [00:14:10]

Michael: So, Dan, tell us a bit about your advisory firm then. We’ve kind of set the table around in industry trends and the future of fee compression or not, and the future margin compression or not. So, talk to us about just your advisory business. We’ve painted the world of the average firm of average fees. So, what is the average firm with average fees look like today?

Dan: Well, we’re not average, Michael. We’re extraordinary in so many ways.

Michael: Or do some things exceptionally and exceptionally good in many others.

Dan: That’s right. That’s right. So, yeah, it’s almost entirely AUM. And I’m really not interested in defending AUM, per se. It has its flaws but so does every other compensation arrangement. The idea that AUM won’t work anymore, I don’t buy that at all. It’s a mismatch for certain types of clients that don’t have the “A” to “M”, right?

So, that’s obvious. A compensation scheme either fits a situation or it doesn’t, but they all have conflicts. All those conflicts have to be managed. And one of the benefits of the AUM is that it’s very easy for clients. It’s also easy from a tax perspective. You could bill investment advisory fees from an IRA, for instance, and not cause a taxable event for your client under the law. That’s not true for other types of fees, is it?

So, I don’t see it going away for that reason and for the ease. And I don’t subscribe to the idea that people won’t appreciate the financial planning unless you make it painful for him to write out a check. That’s garbage too. I don’t see any reason to make it difficult on clients or painful for clients. It shouldn’t be that way at all. They should look at your fees as somewhere between a fair deal and a gift, if you ask me.

Michael: Explain that more to me, though. Just, because, as I’m sure you know that is a pretty active debate out there for a lot of segments of the industry. Clients won’t value the planning if you don’t charge them for it, you don’t charge them separately outside the AUM fee. So, how do you make sure they’re valuing the financial planning if you’re predominantly just charging them an AUM fee and doing all this planning work?

Dan: Yes, it’s pretty simple. Pay attention to what you are discussing with your client, and how you set up the relationship from the start. If you start the relationship, “Our job is to manage your money,” then that becomes the obsession, right? I think clients have every right to expect something from their investment advisors when the investment advisors are managing their money. They have expectations there. They should expect that to be managed appropriately. But is that what you’re emphasizing every time you meet with them?

So our clientele relies on us for a lot of stuff. They delegate a lot. The DIY, the delegators, the validators, we’re definitely in the delegation camp with respect to nuts and bolts, day-to-day activity. We try to do as much stuff for clients that we’re legally allowed to do for them.

So, investment management is tailor-made for that, right? But we don’t drag them into the office every quarter to go over their accounts. That’s not delegating. You’re undermining the value of the delegation when you do that. So, we’re specifically marketing to people that want this done, want this done for them professionally. We keep them informed. They’ve got the portals, they can see it every day, we report to them every quarter, all that kind of stuff.

But most of our conversations with clients, it starts from day one, from a financial planning perspective. They have to understand what planning is all about, all the different areas that we get into with clients, how all that ties in together, it’s all integrated. You can’t spend money on one thing and also spend it on something else. There’s all these tradeoffs that face them.

That’s what planning is about. It’s about understanding what the opportunities for this family are, what the obstacles are for this family, what resources they have, what they see coming, what they’re afraid of, what they’re enthusiastic about, what opportunities might arise later on down the road. And integrating all this stuff, understanding the tradeoffs, getting that 360-degree view and have that inform the portfolio construction process. The portfolio is the engine that drives the plan. In most cases, at least with our clientele, people that come to us, they want financial planning and they want their investments managed well. And they want those two things coordinated.

So, we don’t do reviews. We do previews, very different. So, twice a year, I’m calling clients for a “touch base call.” And it’s like, “Okay, here’s what’s going on. What do you got going on for the year? Any big expenses coming? How’s your cash flow? Is that still floating the boat? Still getting all the bills paid? Yes, there’s going to be some tax code changes. We don’t know what they are. Here’s what looks like they might be. Here’s what they just passed in the stimulus bill. Here’s how it affects you.” And then, we go from there.

Later in the year, toward the end of the year, we have another touch base call. We see what’s happened. We make sure all the year-end stuff is done and we tee up for next year. We just keep things very current. What do we need to be doing now? What do we need to be doing next? And working through very short-term timeframe, which is kind of an anti-planning thought, but most people are, like me and everybody else, we’re obsessed with the here and now. What are we doing today? What do we need to be doing today?

And you focus on all those broad subject areas, how they integrate with each other, you help people see the big picture and understand the tradeoffs and make good decisions. They don’t get as obsessed about the investment management. And if you’re messaging about investments is adequate, we’re really educating them about how markets actually work and taking an approach that makes sense, that’s prudent, they learn to understand what’s going on with the investments and how that affects them.

So, it’s what you emphasize. If you emphasize the planning, they’ll view you as a planner, and they’ll view it as a planning relationship. If you emphasize the investments, they’ll view as you as an investment person. It’s not the compensation model that does that, it’s what comes out of your mouth.

Michael: Yeah, I love that framing. The value isn’t determined by the fee. The value is determined by your conversation. The value is determined by what you put on the meeting agenda whenever you’re meeting with the client, right? If portfolio review is at the top of the meeting agenda or you don’t have a meeting agenda, and you just show up with a quarterly performance report. Guess where all the conversations are going to be, if every meeting starts with a meeting agenda, and every meeting agenda starts with financial planning conversations, and the portfolio performance report is at the end, and you may or may not even get to it. Clients start perceiving a different value proposition because the conversation is different.

Dan: Every other year, I think, on average, there’s a 10% correction. Right? It’s not if it’s going to happen, it’s when it’s going to happen and what are you going to do about it? So, you have to educate clients not on how you’re going to get out before it goes down or even before it goes up, unless that’s your pitch, you’re a market timer. God bless you.

But that’s not what we do here. We don’t we don’t play the market or otherwise gamble with our clients’ money. Right? We are prudent, long-term investors, boring investors, right? Your odds are stacked in your favor, you’re going to get a good result, if you’re in equities for the long term. Short term, it’s much less certain. You don’t want to do that. But you have to put up with the short-term crap to get to the long-term payoff. And it’s not, if it’s going to happen, it’s when.

So, the education process for the client is very important. They’re coming to us because they really don’t want to worry about this stuff. They’re delegators, remember? They don’t want to worry about this. They want us to worry about it for him. But they do need to have basic education on how markets work and what to expect.

And we’ve thrown in over the last decade-plus 15, 20 years, probably, a really heavy emphasis on education about the financial media because the financial media is of no help whatsoever. It’s all here and now. Right? What to do now, what’s hot now, who’s hot now, who made a killing, who lost a fortune?

Michael: And out of curiosity, just how do you try to, for lack of a better word, deprogram your clients from financial media? So, are there things you do or stuff you’ve found to say to them that actually works to get that client who just always seems to have CNBC on the background? How do you actually manage to deprogram some of them or get them to focus elsewhere?

Dan: Well, they have to be willing to do it. So, I mean, I joke about CNBC junkies, that’s the term that I use, CNBC junkies. There’s nothing wrong with watching the news. There’s nothing wrong with watching personal finance news until it gets you so wound up that you’re taking actions based on short-term guesses about which way markets will be affected by whatever you predict is going to be happening. That’s not what we do here. If you want to do that, you need to find somebody else to bounce these ideas off of. If you want this managed prudently then we’ve got something to talk about.

And a lot of times, one spouse is the junkie and the other one knows that the person’s not, just driving themselves nuts and there’s… I can help them try to mitigate that, but I can’t be the one to take on their disagreement, right?

So, the first step in managing that and converting people is not to take them on as clients if they’re not willing to be converted. So, what I mean, in the initial meeting, I’ll ask, “Do you watch a lot of cable news or personal finance news like CNBC?” And they’ll say, some of them say yes. And so, “Are you willing to quit?” So flat out, are you willing to quit?

Michael: You ask that in the initial meeting with the client?

Dan: Heck, yeah.

Michael: “Do you watch shows like CNBC?” And if they say yes, “Are you willing to quit that if you start working with us?”

Dan: Right. No, I’m smiling.

Michael: Like the deadpan look, when they say, “Yes, I watch CNBC.” Like, “Well, you’re going to stop now.”

Dan: Exactly. I want to be an informed citizen. I want my clients to be informed citizens. My clients are very well educated. This is the Space Coast, Michael, we have places crawling with rocket scientists. We’re putting some men up to space, literally, tomorrow morning.

Michael: You get clients who literally are rocket scientists?

Dan: Right. They know, it’s not rocket science, right? They’re really smart people. They just don’t have the expertise. And they might not have exactly the temperament that helps make those things work. And that’s where we come in.

So, yeah, it’s planning first. Planning is not a thing. Create a plan, I hear that a lot. I hear, what is your deliverable? What is the plan? You know, it’s fine to have something that’s a physical piece of paper that they can get their hands on. And that’s all good.

It doesn’t need to be more than a page, I think, for most people. They don’t want the detail behind it. They don’t want to know how the watch works. They want to know what time it is. That’s all fine. But it starts with planning.

You can’t come here and say, “Well, I just want you to manage the money. I don’t want to do all this financial planning stuff.” Sorry. “I just want to do a plan and I want you to manage the money.” That’s not us either.

Our clientele have assets that they want managed. There’s nothing wrong with just wanting a plan. There’s nothing wrong with having a business with planning practice that just does planning. There’s a market for that. There are people where that suits them well, they’ll be happy with that. That’s great, same with just investment management.

But for us, we want those things integrated. We want to be on top of it. We’ll take on the responsibility for it and the liability for it, more than happy to do that. That’s one of the best things about assets under management that is not talked about enough. It is true. It does not take 5 times as much effort to manage $5 million, as it does $1 million, but there is 5 times as much liability.

So, if you’re in the business of giving advice, you better be compensated for the additional liability. We don’t charge 5 times as much for a $5 million client as a $1 million client, but it scales down. So, it’s not that excessive, either. But, man, you’re in a business where people can sue you. You better dot your i’s and cross your t’s. This is serious stuff. This is a profession. This isn’t a joke. This isn’t a game. So, get it good straight.

Michael: So, I have to ask just because we’ve set up so much of this conversation around fees and fee dynamics. What is your fee schedule? Can I ask what that looks like?

What Dan’s Firm Looks Like Today [00:26:40]

Dan: Sure. It’s publicly available, Michael, in form ADV, which you can find online at SEC… Yeah, it’s 1% on the first million, 0.8% on the second, 0.5% above that. I think there’s another tier at $10 million, 25 basis points, I believe.

Michael: So, 1%, 0.8%. 0.5% at $1 million, $2 million, and up?

Dan: Yeah.

Michael: Horribly average, based on all the benchmarking studies we see. So, you’d asked this before, and I got sidetracked, but you told me I would, $800 million or so assets under management about 650 clients. There’s 18 total people, 5 owners, 6 lead advisors, 4 on the advisory track, there’s 4 client service managers, we have a general office manager. And then, we have a couple other specialists, three other specialists. One is a portfolio administrator who handles all the trading.

We have a Data Diva, as I call her. She doesn’t know that. I hope she doesn’t get mad. She just handles software stuff. She’s not an IT-networking person. She hasn’t configured the laptops and checked the firewall. She gets Salesforce to talk to Tamarac, creates the workflows, tests the workflows, that kind of thing. So, we don’t have to do that.

And then, we also have just hired. So, we have at least three enrolled agents on staff. Three more people in the program. We just hired a CPA to take over, work into position as the tax director.

Michael: And is that because tax preparation part of your business that you have all these EAs and a CPA on the team?

Dan: It is. We don’t have a tax practice per se, and that we won’t…there are only a handful of returns that are done that aren’t financial planning, wealth management clients. Not all of our financial planning and wealth management clients use us to do tax prep. But a lot of them do it. They find it extremely convenient. But if they’re working with a good CPA or an EA or somebody that they like, does a good job, great. No problem happy to work with them.

Michael: And if you’ve been doing this for a while? Do you actually see a difference in retention rates of clients that have the tax returns done internally versus the ones that are doing it externally in your “just the investment manager and financial planner?”

Dan: I can’t say that the retention level is higher with the clients that have us do their tax returns or not, because it’s really, really high at both ends. It’s just really, really high. I do hear a lot of expressions of happiness because there’s never a missing 1099. Toward the end of the year, when we’re doing tax projections, we’re not guessing about dividends, interest, capital gain distributions. We’re integrating all of those directly from the fund companies into the tax projections.

And so, if we’re trying to maximize the 12% bracket or something and get a number for a ROTH conversion, we’re right on the number because we’re using the professional tax software. It’s not an Excel spreadsheet, homegrown thing. It’s very specific, picks up all those little nuances and that’s extremely helpful as well.

Michael: And are you charging separately for the tax returns or is this just part of the aggregate service?

Dan: No, there’s a small… So, the fee, the way we describe it, it’s usually more than an H&R Block and usually less than a CPA. But we’re not specifically trying to undercut CPAs. CPAs just tend to charge more because they’re CPA firms.

Michael: And so, do you have a target of what you shoot for them on retention rates? When you said that you find retention rates are high across the board for you guys. But is there a target that you shoot for?

Dan: 100% of those still living, we wish to be clients at the end of the year. Yes.

Michael: And how close do you get to 100% of the not-dead?

Dan: Really close. That is the leading cause of leaving us is somebody… We’re not doing anything to cause this to happen, don’t get me wrong. But, yeah, there’s no reason for them to go. It’s very simple. Do what you say and say what to do.

Michael: So, help me understand more about, I guess, the overall value proposition in what you’re doing? We’ve painted this one picture of average fees, boring investments. Got it. So, how do you talk about the value proposition of the firm and getting clients on board?

How Dan Communicates His Value Proposition [00:31:18]

Dan: Yeah. So, what do you do when you do financial planning? So, first thing we do is we look at their overall situation. Look at the balance sheet. Look at the income statement. And then, we’re looking for opportunities to make those look better. And so, I’ll explain to clients in our first meeting. We do a screening call, usually about a half hour, just go over the basics of our power structure, or fee-only, what does that mean?

We’re looking for, we work best with people that want to collaborate on the high-level things and want to delegate day-to-day nuts and bolts, particularly the investments, because we want those things to work in concert. And people either resonate with them or they don’t. And if they do, we have a first meeting.

So, my first meeting, it’s just a conversation. There’s no script. There’s no slideshow, none of that. And that’s because of me. I’m most comfortable just having a conversation. And I’ll walk them through some of these concepts. So, here’s a basic concept about your net worth statement.

So, let’s pretend we’ve got two people. Person number one has a half-a-million-dollar home with a $200,000 mortgage. And they have $100,000 in some kind of an investment account. We won’t even talk about what it is yet. Their net worth is $400,000 – 500,000 value of the home minus 200,000 for the mortgage, 300,000 plus $100,000 investment counts $400,000.

So, the next guy also has a $400,000 net worth. He’s got a $500,000 home paid for. And he has a $100,000 personal loan that he’s paying 9% on. Which one would you rather be?

And they’ll tell me, it doesn’t matter what they say. They’re just giving me an example of how they think about things. But I’m making the point that two people with identical networks are in different situations.

So, then the conversation is, “What’s best for you? How confident are you that the way you have your assets and liabilities structure is best for you, given all the stuff you’ve got going on?” And sometimes, they say, “I’m eminently confident.” Awesome. Sometimes, they say not at all. Okay. Next, income and expense, the same thing.

And then, you just go through the different subject matter. The basic stuff that you learned in CFP school. Insurances, “How do you feel about your insurances? Are you confident that you have the right types and the right amounts and are paying fair fees for them?” “Yes” “No, I have no clue what’s going on.” “Okay. Well, tell me about that.” And they’ll tell you.

“How do you feel about your taxes?” “I hate ‘em.” Okay. Don’t we all. “Are you confident that your tax liability is as low as it can be given all the things you’re trying to do now and in the future?” “What do you mean?” “Okay, let’s talk about that.” “I’m confident.” That’s great. Okay. “I’m not confident.” And you just go through all these things and they’ll tell you exactly what they feel good about and exactly what they don’t.

Michael: So, that question phrase, that kind of anchor phrase. Are you confident… in your insurance coverage, in your taxes, in how your net worth is structured?” That seems to be a strong anchor phrase for you. Are you confident in that? They’ll inevitably answer yay or nay. Either way, you can say why, or tell me more about that, or something to that effect.

And just have that conversation about each of the areas of the financial planning world and see where you are, by the end of that conversation. You pretty much have a roadmap for what they’re concerned about and would like advice.

Dan: So, financial planning, what we do is we want to get you to a place where you can say yes to all these areas. And stay saying yes for the rest of your life. Now, that’s not possible. Okay. Because you can say yes to all these and something is going to affect it and your confidence levels going to drop. The easy one to relate to is with the investments. You can be really confident, you have a great investment plan, and then COVID hits, the market drops 35% in 6 weeks, or whatever it was. That could shake your confidence.

So, when that happens, our job is to step in and try to get the confidence back. Get you back reacquainted with the plan and why you were in what you’re in. And this is something that you should be able to deal with and what tactics do we need to employ at that time. So, financial planning, it’s a process, and it’s an ongoing process of maintaining a state of yes to all of these different things.

And so, that makes those touch base calls very easy because that’s what we’re doing. We’re just assessing what we see coming. What outside forces do I see coming that could affect you, Mr. or Mrs. Client? What forces do you see come in that can affect you? Let’s re-huddle and make sure that confidence level stays as high as it can be as often as it can be.

Michael: I love the framing idea of that, like what we’re doing our value in being financial planners and doing financial planning is we’re trying to get you to a yes on those confidence questions. And keep you on yes for the rest of your life.

Dan: Yeah. That’s what people want. So, that’s what financial planning is. “Now, what financial planning with us, for you, Mr. Client, revolves around the issues that came out of that conversation. So, initially, this is what we’re going to do. You have no idea about your insurances. So, we’re going to do a good evaluation there and get that all squared away, right?”

“I have no idea what I’m doing with taxes.” Well, obviously, we can help with that too and just kind of repeat it back to them in a way that they can see that we’re addressing the weaknesses without undoing the strengths. That’s kind of the trick. And, as we know, life and planning is all about tradeoffs. So, it’s a process to go through from there. But that’s what we’re doing. That’s why you’ll hire us because you want to be able to say yes to this all the time.

Michael: So, how does the process actually work for you from there? You said there’s an intro call where the goal is finding out, as you said, are they clients who want to collaborate on the high-level things and delegate the day-to-day? Then, you get into an intro meeting where the question is essentially, are there areas of your financial life where you’re not confident that we can help you get more confident and stay more confident? So, then, what comes next?

Dan: So the next thing that I do is I send them a written outline of what the engagement looks like. It’s nothing more than a recap of the meeting, really. “Here are the areas that we will look at. And you want to say yes to all these things.” Here’s a few things that they mentioned. And wherever they mentioned for whatever category and so, “This is what we will be addressing to start with. And this is the order that will address that in. And, as mentioned here, the fees, again. And you let us know. Here you go.” That’s it.

Michael: And I’m assuming because you’ve got your standard list of the areas, the financial planning topic areas that you asked about, that this is basically like a pretty templated engagement letter, follow-up letter at this point. Here’s my eight areas and I’m just going to fill in for each. Like they did talk about this. They did not talk about that. They do have an issue here. They don’t have an issue there.

Dan: Yeah. Now, it’s more effective both for them and for us if we’re as specific as possible. If you just send out, you want to be able to say yes to the question, are my assets and liabilities structured in an optimal way? That’s nothing. You get into…

Michael: Clients can sniff out a template very quickly.

Dan: Yes. So, “I’m 10 years from retirement. And I see that there’s an issue in that all of my net worth is in my 401k. And that when I retire, every dime, I take out it’s going to be taxable. Maybe I should be working on accumulating some assets outside of that.”

Michael: Dan, you’re hitting my sales scripts here. It’s a little close to home.

Dan: Yeah, well, it is sales. I don’t call it that. It doesn’t feel that way to me. I’m a professional. I know what the hell I’m doing. And I can help these people. And my job in these meetings is not to convince them that I’m the smartest person in the world, or I know something that they don’t and therefore they need me desperately for that. It’s to serve them. It’s to serve their needs. And I need to understand the needs in order to do that. And that’s what that conversation is all about.

Financial planning is a process. It has certain steps to it and certain standards associated that are universal around the world, literally. But when applied to a particular client, it needs to be customized and personalized. It needs to be focused on what’s important to them.

Michael: I love the framing of that, “I’m not here to try to show them I’m smarter than they are. I’m just here to try to show them that I can be of service.”

Dan: Yeah. Like I said, around here, I’m usually not the smartest person in the room.

Michael: I guess when your clients are literally rocket scientists, you’re setting yourself up for some challenges, if you’re going to try to always be the smartest person in the room.

Dan: Right. No, but I do have expertise, very specific expertise. That’s very valuable. Because once you’ve got yourself into a state where you are justifiably confident that you have these areas in good order, life’s a lot better. You run into fewer true problems and you worry less about less things.

There’s just an unbelievable amount of value in that. And we completely underappreciate that when we get caught in the weeds about a passive or active or this, that. I mean, those things are important on the margins, but the big picture is where people get most of the value from financial planning.

I think it was, I’m pretty sure, it was Elisa Buie and Dave, and that group that put it something like, I’m paraphrasing, “Advice is nice, but planning is magical.” So true. So true.

Dan’s Financial Planning Process For New Clients [00:41:31]

Michael: So, for clients that say yes on the engagement, you sent them a letter. They’re like, “Yep. It sounds good. These are the areas I would like to feel more confident in and it seems like you know what you’re talking about, and can give me some good service on this. I want to move forward, Dan, I want to get started.” So, what comes next? How does the process actually move forward?

Dan: Yeah, the way it’s supposed to, which is, you get the information about the areas that you’re going to be looking at, right? Gather that information. Take a look at how that’s working for them. I mean, sometimes they don’t think…they’re not confident, but there really are in pretty good shape. You know they’re doing all the things that they can do or should be doing at the time.

Michael: And so, how do you actually gather the data? I mean, are you a, “Here’s an eight-page fillable PDF, please enter in these numbers.” Or are you like, “Come on back in and we’re going to have another conversation, I’m going to ask you a whole bunch of questions to try to understand your financial situation.” How do you actually go about the, “Okay, it’s time to gather some of this data”?

Dan: Yeah. So, there’s a little questionnaire thing. We rely on them providing statements for things. I don’t see any need for them to write on a piece of paper that they have $500,000 in IRA when they could just provide the damn IRA statement. They’ll find that a little easier too. And if they can’t find the statement, then that tells me a little bit about the organizational level so they need some help with that.

But we basically gather documents and the basic information from them, look at it, and then go back to them in a session with clarifying questions. Sometimes, it’s done by phone or Zoom or in person. It just depends on what’s there.

So, we’ll build out a set of assumptions. We’ll go over that with them and we’ll change those based on their feedback, as well, before we go crunching any numbers. The vast majority of our clients that I work with directly are retired or about to be, pretty close. So, we are doing some modeling, we are doing some Monte Carlo stuff, those types of things. But, yeah, gather the data, see how things look, see where they could be improved, try to shore up the weaknesses without weakening the strengths.

Michael: So, I’m struck by that kind of framing that you start with, just send us our information, a short questionnaire of the background information, and just send us all the statements and the financials and such. And then, you do have a, I guess, I’ll call it a data meeting, maybe you’ve got a different label for it. You do have a follow-up meeting.

But the focus of that meeting is clarifying questions about the data and the stuff that you’ve given us because, “I’m not going to ask you about your investment accounts, the rest of your stuff, because I already got that because you sent it to me. I’m just going to get into the clarifying questions. I have a follow-up question about this. It seems like something’s missing.” Whatever those follow-ups are when you start looking at their stuff and saying, “I think there’s more here.”

Dan: And there’s flexibility around that because you’re not really sure. So, you ask for a certain amount of data and you get it. And then, there’s usually another round of data that doesn’t require a conversation. Some of it does. It just depends. It depends.

A lot of times, when you get into things like insurances and estate planning issues, what you’re looking at was purchased or drafted and executed years ago. Right? So, you got to get into, are these people still around? What was your thinking here with this trust or whatever? And that’s more of a qualitative thing than a quantitative thing.

Michael: And so, once you’ve gathered data, you’re formulating The Plan, I guess, capital T, capital P, The Plan. So, what ultimately do you do and bring back to clients? Is there a plan presentation meeting? What do you bring into that meeting? Would you produce a written plan deliverable? What is planning look like for you when you get to the point of, “Okay, it’s time for The Plan”?

Dan: Yeah, so we use… I bad mouth software, now I’m going to talk about how extensively we use it. That sounds like a contradiction. It kind of is, but it also isn’t. We use Money Tree as our workhorse because it is not visually exciting, by any stretch of the imagination. But it is very good for detailing cash flows, great audit trail. And when you start approaching retirement or are retired, that’s really where the rubber meets the road, right? Getting all the bills paid, and adequate cash flow, all that kind of thing.

So, what we do is we use a basic model to get them to understand the dynamics involved with the cash flow. Your investment return matters here. But not just the average, especially not the average, it’s the volatility. And so, this is what a Monte Carlo simulation does and why it’s important. Here’s what it tells us. Here’s what it doesn’t tell us. It does not tell you your odds.

You and I are in so much agreement on this point, Michael, it is not telling you the odds of success. It is telling you the number of failed simulations based on this set of assumptions. And this set of assumptions, so here’s the asset allocation doesn’t change, the cash flow doesn’t…all these different things. So, it’s really more about the odds that you’re going to have to do something different than what we modeled.

So when do we have to do something different than what we modeled? And what would those things be? What other things can we do? So it’s not, if there’s going to be a bad bear market, there’s going to be…? A retiree today, right, 65, 30-year life expectancy? On average, historically, they’ve seen six bear markets, about every five years, there’s a 20% decline in various degrees.

So, it’s not if, it’s when, and what are you going to do about it? That’s the important thing. So let’s preview this. Let’s look. So, there’s a certain amount that’s built into these simulations that bad markets are already in there.

But we talk about the levers that they can pull, right? You can be less aggressive with your investments after a crash. That never works. You can show them that, right? Being aggressive doesn’t necessarily help either. You could go back to work, maybe, maybe not. You can change your expenses, that’s the most powerful lever that they have. And they have to understand these dynamics and what realistically can help. And you go through that, and you talk to them about it.

And eventually, they’ll say, “Well, what if we sold this piece of property?” Okay. Well, let’s go through the what-ifs. And, eventually, they settle in on something that they think matches what they’re going to do. They look at those models. They look at the Monte Carlo results. They understand what that means by the time we’re done with the conversation. And they have confidence. They have a plan. They don’t have a guarantee. There is no guarantee, but they have a plan.

And it really puts a spring in their step. And they feel good about things. And we move on to getting the plan to work. Getting the investment squared away, getting the insurances in place, updating the state plans, integrating the tax planning, all that kind of stuff.

Michael: So, as you’re producing plans and output, I mean, are you literally printing off a bunch of Money Tree reports? Do you like to make your own things in Word? Do you like just put it up there on the screen and do all this interactively? How do you actually present all this and have the conversation?

Dan: We do most, all of it, now interactively on the screen. And at the end of that modeling, meeting session, it’s, “Would you like a copy of any of this. And I’d say, probably three out of four times, “No, we’re good.” And the other time, “Yes.” “Okay, well, let’s put this up. We’ll put this in your portal.” Okay.

Michael: Striking in of itself, right, three-quarters of the time, they say no.

Dan: Right. Because it’s not about the document, it’s about the plan. And not the plan as a document, the plan is a process. And now, we have a set of to-do’s that we have in mind should things go well for us, should things not go well for us, should this happen, should that happen, there’s a plan or the intangible sense. And that’s what they need to feel confident.

Michael: And so, what comes next?

Dan: Next after…what part did we stop at?

Michael: After we’ve gone through our plan presentation meeting, we put Money Tree up on the screen, they’re hopefully leaving with some reasonable confidence about where they financially stand. And as you put it, there is literally a plan. “I don’t know whether things are going to go well or go poorly, but I do know that we have a plan for handling either.”

Dan: So, we do formalize a written investment policy statement out of that, the equity to fixed mix is informed by that whole planning process. That’s one of the levers you can you can pull from time to time, right? Create that investment policy statement. Once that’s all endorsed and agreed to, then we get to the implementation, whatever that means.

So, for the investment management, we get things as close to the ideal that we can get them, given the circumstances. We’ll coordinate with insurance agents to get the insurance in place. We’ll keep encouraging them to get to the estate attorney to update those things. The tax planning, we take care of that in-house, even if we’re not doing the prep, obviously. We just go from there.

And then, a few months later, touch base. That’s done. Where are we at with these to-dos? What do you have coming? Here’s what we see, anything you see. All right. Then, a few months later, another call, “Hey, how’s it going? What do you see coming?” Here’s what we say. Here’s what’s going on, and just go from there.

Then, occasionally, there’s a big thing that happens and we have to – it warrants rerunning the models, revisiting those. But that’s another thing I hear all the time too, right? Get that Monte Carlo result, put it in their client portal so they can see it every day. I don’t see much value in that at all. It’s just not necessary.

So, your number is 87% today, and it’s 86% two weeks from now. What does that mean? It doesn’t mean anything.

Why Dan’s Firm Added A Data Integration Team Member [00:51:42]

Michael: So, I did want to circle back and hear a little bit more about this team member that you call the Data Diva. I think so many of us these days struggle with the world of just managing all the data of the business, all of the different software that integrates, or doesn’t integrate, or supposed to integrate. But then it really seems to actually integrate as well as the salesperson said it was going to integrate, and then we’ve got more work to do to make it talk together the way that’s supposed to talk together.

It’s a pain point for so many advisory firms. And so, I’m struck that from just a pure business management, and you’ve essentially said, like, “No, we’re just actually going to hire a full-time person whose job is to just deal with this.”

Dan: Yeah, that’s right. And it’s been a little over a year now. And it has been just as transformative as developing an investment department and having that handled. It has freed up a lot of time for the people that were involved in that. And it’s not their skill set. Different strokes for different folks. Not everybody makes a good client for us. We don’t make a good planner for everybody.

And the same is true with all the functions in your business. And you get somebody like Lisa, who is just wired that way, the right way for that job, and enjoys project management and processes and creating them and getting it to work and refining them and assimilating feedback from all the people on the team. And it’s just fantastic. Because none of the rest of us have to get bogged down in trying to get these things to work and technology changes fast, man, you got to stay on top of it.

Michael: So, just help me understand more just what this role looks like. I guess what is the formal title because it sounds like Data Diva is sort of our friendly internal term. What did you call it? And just what is this job description look like in practice? There’s a term for this.

Dan: Yeah, I use the term Data Diva because I don’t remember the formal title. I’m not in charge of HR. That’s Charlie Fitzgerald’s main thing.

Michael: Charlie being one of your business partners?

Dan: Yes, that’s correct. So, we switched over to Salesforce this year, for instance. We’re still switching over to Salesforce. So, she was the one that led that whole transition. She is the one that is recreating the workflows. She is the one that is helping each of the team members learn, do training on how to use Salesforce, how our workflows work, and where to find the information, all of that kind of thing. She’s the one that takes care of all that stuff.

So, somebody says it would be neat if we had a process that did this, right? Here’s something we do often. This is something we could probably automate a lot or at least automate the tracking of it getting done as it’s handed off from person to person. Lisa is the one that comes in and gets that to work. She also handles the downloads and things like that as well.

Michael: So, this isn’t… Notwithstanding the fun Data Diva title, this isn’t solely about data per se, like let’s just collect and manage all the data and dashboards or reporting or whatever it is. This is just systems and systems integrations as well. This is managing the technology and the integrations and the data that flows across them and the adoption of it within the practice itself not from an IT perspective? Now, I’m understanding now why you distinguished it earlier. Not from an IT perspective, but from a business systems and process perspective.

Dan: Yeah. We have a separate IT firm that we’ve had for years that configures the laptops, the firewalls, keeps the bad guys out, the penetration testing and all that kind of thing. Yeah, that’s a completely separate. The networking, that’s completely separate function. This is about getting the software that we use as planners, as client service people, to work for us and improve our efficiencies.

Michael: Okay. And so, what led you to a role like this just to actually do it? Because I don’t know very many firms that actually hired and created a role like this. So, what led you to actually do it and why now?

Dan: It’s the exact same reason the sole proprietor will hire an assistant because you find yourself doing things that keep you from doing the things you want to be doing. Right? So, when she was not there, people within our firm had to be doing this. And it was the advisors, the planners, a couple of them that kind of were assigned to, “Okay, let’s create a workflow in the old CRM.” They’re the ones that had to go in there and get that figured out and work with the CRM people to get it to go. So, they’re not using that time to serve clients.

And there comes a point where, how many people do we have doing stuff like that? How much of that stuff is there to do and maintain? And you get to a point, as you get to, I mean, we’re not huge, but we’ve got 18 people, total. That’s a lot of people that are interfacing with the software in different ways, right?

Think about the CRM there. My client service manager lives in CRM in a very different way than I live in CRM. And all that’s got to work. And it’s got to integrate, and it’s got to stay maintained. When it just becomes too big of a job, it’s time to bring somebody in to take a load off because our planner should be planning.

Michael: And so, I guess I am curious, as you look back, is this one of those, in retrospect, we should have done this years ago kind of thing? Or you just feeling like this was about the point of we could manage this when we were smaller, but hey, by the time we’re about 18 people, there’s just a little bit too many people and too much complexity and too much business systems that this was the right time to hire this person?

Dan: Yeah. Well, that’s a classic example of it depends on who you ask. You ask the guys that were having to do this stuff, “We should have done it earlier.” If you asked me, who never did any of that, it’s, “Yeah, it’s about the right time.”

Michael: How do you evaluate this from the business side?

Dan: Yeah. So, we have people that were involved are not as involved. So, they have more time to do other things. And are they doing them? And some of that is marketing and prospecting. And the answer to that is they are doing more and we’re seeing a result though. We opened a new office in Tampa recently. So, now we have three offices.

And we put that off for quite a bit of time because we really needed somebody to champion that cause. And that wasn’t happening. But with Lisa coming in, Mike Salmon, another one of my partners, got a lot more time freed up, not gazillion hours a week or anything, but enough time that more attention could be paid to that and develop that and now we have a Tampa office.

Michael: And where do you find someone to do this?

Dan: Again, I’m not the HR guy. It’s the same place where you find others. You just put the word out that you’re looking. She came from a law firm background.

Michael: But this wasn’t like someone’s got a friend who’s really good at this and we need to add this position and hire them. It sounds like this was this is more of a, “Okay, we think we need this position for the business so wrote a job description, put it on whatever the job sites of choice are, and people applied and you found someone that fit the job well and hire them.”

What Surprised Dan The Most About Building An Advisory Business [00:59:18]

Michael: So, as you look back on just the evolution of the business over the past 20-odd years, what surprised you the most about just building an advisory business?

Dan: Well, in looking back over, so I started doing financial planning, not too long after I got out of college. And what is surprising to me is just how different, what I do with my time when I’m in the office on a day-to-day basis is compared to the way it was 30 years ago. And it parallels the evolution of planning in general. It’s gotten much more consultative, much more holistic, much more personal.

I don’t spend a whole lot of time on mutual fund research or anything like that. That was a big deal 30 years ago. How I spend my day is very different. That’s a big surprise. But it’s also surprising to me how little has changed over 30 years. Because at the core of all of this is the relationship with the client and the financial planning process. That has not changed. It’s still about helping people get to where they want to be financially. And if they’re where, they want to be financially, stay there. None of that stuff has changed.

All the same hang-ups people had 30 years ago, they have now. The main difference that I see is media relations. It’s a little bit different because there was still a lot of crappy information out there 30 years ago, and biased, and all that. But the volume at it wasn’t thrown at people in such a high volume. And so, it is the 21st century skill to be able to manage your intake of media in a way that doesn’t cause you problems, not just financially but in other ways, too.

How many people do you meet these days that just seem miserable? And they really shouldn’t be in the big scheme of things because they have people in their family that love them, they have a roof over their head, they have enough income, but they’re still just miserable. And most of the time, it’s because they watch too much damn TV and let them get worked up.

I always see that with retired clients all the time. They know they can’t go back into the workforce. So, they’re relying on their assets to pay them to do whatever they want to do. And it should be the time in their life and they’re just miserable. They’re worried about themselves, they’re worried about their children and their grandchildren, all because they watch too much TV or they can’t process what they’re getting in a way that keeps them mentally healthy. It’s a tragedy.

Michael: And again, to me, that helps speak to, that technology has changed so much. It does exponentially so much more. I mean, just literally, there was no internet around when you were getting your business going. We talked about just the progress of robo-advisors over the past 5 or 10 years. Go back to pre-internet, pre-smartphones, pre all of that, and like, “Well, I’ll be darned. We’re still charging roughly 1% fees doing all this financial planning and running profitable businesses.”

To me, when you zoom out with the lens that much and look at just how far the technology has come, that’s part of what makes me chuckle so much of all the discussions of, well, this next big thing in technology is going to be the thing that disrupts financial advisors and financial services. Not to be complacent and blasé about it, but if the level of technology development over the past 30 years didn’t even make a dent, I’m really not so nervous about this.

Dan: Yeah, I mean, most of the things that have disrupted took time to disrupt. And the media likes to say, “Oh, it’s a disruptor. And it’s going to change everything instantly.” It doesn’t tend to work that way. It doesn’t tend to work that way.

What A Typical Week Looks Like For Dan Now [01:03:18]

Michael: I am curious, though, just the discussion of where your time is focused and goes and how that’s changed. So, can you talk a little more? What does a typical week look like for you at this point?

Dan: Yeah, so I have responsibility for some clients as their lead advisor. So, that comes first. I’m always thinking about what I need to do to integrate whatever’s new for them. But I’m also the primary client educator, I guess, would be a way to put it. I’m responsible for the first drafts of almost all the communication that comes out of the firm.

So, I’m constantly working on writing up something for somebody, for clients, for the firm, for the website. I write an article every month for “Financial Advisor Magazine”. Been doing that for a decade or so. Most of them, all of them released online, some of them go into the print edition. So, I’m always writing one of those.

I write Q&A columns for MarketWatch every couple of weeks, been doing that for eight years. I do a Q&A for the local paper. And most of those things that got out to the public, start with a client conversation or situation with a client that either I’m lead for or somebody else is because we have a meeting once a week here in Melbourne where all of us gather and talk about what’s going on with different clients, new clients, existing clients, different situations.

Michael: And that’s just because out of the 18 people in the firm, and the 5 partners, just you’re the writer guy so you’re the writer guy.

Dan: Yeah. So, I don’t do anything with bookkeeping. I don’t do anything with technology. I don’t do anything with HR. It sounds like I don’t do anything at all. But I’m doing all that other stuff.

Michael: You meet some clients occasionally.

Dan: Oh, yeah, absolutely. I love to meet with clients. I’ve got great clients. They’re fabulous people. Almost all of them have what they have because they did the right things. They live within their means and saved over long periods of time. I do want to take care of it. And they’re fascinating, a lot of fascinating people around here on the Space Coast.

Michael: And so, I’m struck by this internal meeting as well. So, you said every week, like all the advisors are coming together just to talk about the conversations that are coming up with clients.

Dan: Mm-hmm. Yeah. Well, the ones here in Melbourne. So, me, DJ, and Ryan Osborne, also a Certified Financial Planner. The “entire advisory team,” which are all of the CFP licensees, we probably have a meeting about things like that at least once a month. But that’s how you know, that’s how you share knowledge. That’s how you come up with understanding different situations that accelerate the learning process.

Ryan’s been with us for three years. He does not have lead responsibility yet with clients but he’s definitely on that track. DJ came to us last year. He’s got 20-some-odd years of experience. And you can accelerate the learning process by being exposed to more cases. So, that’s what that’s all about.

You come into some interesting situations or clients ask you interesting questions. What was on their mind? And where did that come from? And how did you answer it? And what happened? And do they understand that explanation? How else could we have explained that to our client?

It’s great to be able to explain things in more than one way because people receive messages in different ways. And so, it’s partially making sure that the advice that comes out of this firm is sound. We don’t really have a problem with that. Everybody’s pretty sharp. But it’s also a great way to help develop and mentor and learn. And I’ve been in this for 30 years, I’m still learning stuff. There’s no end to it. That’s part of the beauty of the job. There is no end to the learning. It’s great.

Michael: And so, this runs weekly?

Dan: Here in Melbourne, yeah.

Dan’s Low Point In His Career Journey [01:07:25]

Michael: And so, as you’ve gone through 25, 30-odd years of growth and evolution of the business, what was the low point for you on the journey?

Dan: They haven’t been that many, which is very fortunate. But I think the thing that threw me off the most was very early in my career, probably around ’95 or so, we had formed one of the first team practices within American Express Financial Advisors. There were three of us and we went through this whole big planning process to create this team.

It worked. It was great going forward, because I had a really good handle on the plan that needs to go into a partnership and planning for the contingencies, right, retirement, death, disability, lack of performance, whatever. And who’s going to do what, right? Who’s responsible for what you’re doing it? The idea of any kind of team or ensemble is that the labor is divided. How is that exactly going to work?

So, that served me well, later on down the road. But very shortly after we formed that team, one of the three of us basically disappeared, checked out, had like a midlife crisis. And it started before we had formalized the process. So, when that happened, and he was underperforming, the documents and the agreements laid out what would happen. But it threw me off because it was the first time that somebody flat out broke a promise to me of significance.

Yeah, so, I just, I didn’t really handle it really well for a few months. And it made me very leery. It reduced my trust in humanity in general for a little while. And eventually, I was able to refocus on the people that did keep their promises. And there’s a lot of great people out there. And, as you know, being involved with the financial planning profession, there’s lots and lots of really quality folks out there so you don’t have to look very hard to find good people.

And eventually, I went solo, moved to the independent broker-dealer channel for a little bit with a state-registered RIA. Eventually, I cut ties with the broker-dealer world, went solo fee-only for a while, and then found my partners back in ’02, ’03. And we’ve been an ensemble ever since. So, yeah, that was a bummer for sure.

Michael: So, looking back on that, was there something you missed? Was there something like you should have seen but didn’t? Was this just one of these unavoidable things that happen in life?

Dan: I spent a lot of time, why didn’t I see it coming? Why didn’t I see it coming? And there really weren’t any red flags. That was part of the betrayal. Right? That’s what made it so painful because he was presenting himself as all in for something that he wasn’t all in for. And, yeah, that’s why it hurt and that’s why it threw me for a loop.

And so, what changed that you had a partnership that went that badly the first time around, but you were still comfortable and willing to come to the table for another one later? Because I certainly know folks that, once done, twice shy, like been there, done that. Partnership sucks. Not doing that anymore. And they never come back to it, right?

Dan: With my remaining partner, just splitting things between the two of us, the workload, I got enough of a taste of that, that I knew that I did not want to be a sole proprietor. I did not want to practice outside of a team arrangement. There’s just too many aspects of running the business that I find tedious, I guess, but they’re really important.

So, if you surround yourself with people that also view those things as important, but not tedious, exciting, something that floats their boat, it could work out really well. So, I was always, while solo, I always just kind of kept the antenna up for people that were looking for the type of activities that I was good at and saw the benefit of the “ensemble.”

Michael: Interesting framing. So, for you, it was an assumption or an expectation, “This business is going to grow. We’re going to end up being sizable. That means a lot of things have to be done, including things that I don’t necessarily want to do.”

So, I need to come to the table and be finding partners from the start because there’s going to be things that I don’t want to do. So, I’m just going to find someone else that likes doing them. And they can do that. And I’m going to do the other thing.”

Dan: Yes. And I could have just hired out a lot of that stuff. Right? I didn’t have to have partners to do that. But I was just more comfortable getting those things taken care of by people who had skin in the game. I don’t know where that comes from exactly. Maybe, it’s team sports back in the day. I wasn’t good at any of them. But I played a lot of them.

It’s so much more gratifying to me to compete in a team setting than solo, always has been. I get much more gratification when I’m part of a group that accomplishes something, rather than when I accomplish something on my own. I enjoy that too, don’t get me wrong, but that’s just how I was wired.

So, I wanted people’s skin in the game that leads you to partners, more so than outsourcing for their employees. You still have to manage the employees and the outsourcing and managing is not… I’m one of those, managing people is not really something that I’m excited about. Mentoring. Yes. Working with them. Yes. Collaborating. Yes. Management. Not so much.

Michael: That’s why you’re probably not the HR guy.

Dan: That’s right. And I’m eternally grateful that Charlie is, and he loves that. He loves that stuff. And Ron’s great with the bookkeeping and technology. And, yeah, it works great. And they don’t want to do the stuff I do.

Michael: Yeah, you’re right for your role of, “I don’t want to be doing the HR and management stuff.” You’ve got a partner that’s like, “Yeah, you know what sounds really awful? Needing to sit down for an afternoon and write a client letter.”

Dan: Yeah. Right. I mean, you write a lot of stuff, Michael. You know how excruciating that could be. It’s excruciating for me too. But I enjoy the excruciation, if that’s the thing. It’s part of, I do feel some level of satisfaction getting through that process and getting something out there, even if everything I’ve ever written is deeply flawed.

What Dan Knows Now That He Wishes He Knew Earlier [01:14:15]

Michael: So, looking back on this over the years, what do you know now that you wish you could go back and tell you from the 1990s when your career was still getting going that would have maybe helped it go faster or better somehow?

Dan: Well, yeah, so you don’t know what you don’t know. You make the best decisions that you can at the time that you have to make the decision. You try to get as much information as possible to make those decisions. So, you really can’t spend a whole lot of time regretting. I don’t spend much time on that.

It would have been nice, I think, to have pulled the trigger on some things a little earlier, but I don’t know that I could have done it a little earlier. So, the thing that comes up when I reflect on me 30 years ago, 25 years ago is I wish I could have been a little bit more patient. I think I would have enjoyed the journey even more than I did if I had a little bit more level of patience. I wanted things to…

Michael: What were you impatient about?

Dan: Growth.

Michael: When I got out of college, I went to North Carolina chasing after a girl and took my first job out of college selling life insurance to tobacco farmers in rural eastern North Carolina. So, you get out of the car, coat and tie, they know you’re not from around there. This was an interesting experience. But I learned a lot of good stuff. I learned to eat deer meat biscuits and collard greens and pulled pork. Oh, I love pulled pork. And I learned a lot about insurance. So that served me well too, right?

But that’s where I found financial planning. I ran into somebody that actually had a plan, you know one of those old-fat binder deals, from IDS, right? And I went to IDS, I said, “This looks like a much better way to handle these things than what I’m doing. You need to hire me.” And they did.

Michael: That’s interesting. So, wait, so you went and sought out a job doing planning at IDS because you saw a client with an IDS plan and said, “I want to figure out how to do this for my clients.”

Dan: Yeah. Now, I didn’t even really give the binder much of a look. He just kind of showed it to me, “We got it all covered, right?” That was his excuse for not engaging in the insurance discussion. But, just intuitively, I knew that all these different areas, if they were covered and integrated together, you’re going to be in a better financial position, that would be valuable, because that’s hard to do. It’s very confusing.

What I saw as an insurance agent, during the less than a year that I did it, was people make most of their financial decisions on a piecemeal basis. “I have a baby, so I think I need insurance. So I’m going to go buy some insurance.” Yeah, that kind of thing. And that’s what attracted me to planning.

And I got lucky. I got some support there from people that really did buy into financial planning. At the time, in the early ’90s, there were something like 30,000 CFPs. And the number that stands out in my memory is 10,000 of them were or once were with IDS.

So, I mean, the Friedman’s up in Massachusetts, Barry Friedman, Mark Friedman’s father, he’s retired now. He was an old IDS guy. Bob Klosterman up in Minnesota, who John Guyton used to work for, old IDS guy. And John used to train at IDS. He was a trainer. You know, a lot. That was the epicenter of getting plans done and they were big on supporting CFPs. That’s how I got down that track. Right?

Michael: Yeah, I continue to be fascinated is if you talk to anybody who’s been in the business more than 20 years since the 1990s or prior, the number of people in the financial planning track who either came out of IDS on the on the mutual fund side or came out of Cigna on the life insurance side. Because Cigna was, for a life insurer, really big on going deep on financial planning. It is absolutely astonishing to me the legacy those two firms have in just seeding an entire generation of planners that then pay it forward in building the profession.

Dan: Yep. So, that’s where it started. And I had people that really cared about planning and doing it well within the confines of that system. And so, the evolution of my career was just basically moving to an ever-improving system. So, IDS became American Express Financial Advisors. I left that to go into the independent broker-dealer world with the state-registered RIA. I could see the writing on the wall with this that time, this was back in 2000-ish, cut ties with then NASDR, now FINRA, right? Just went fee-only at that point. And then, the business further evolved into an ensemble because of all the experiences that came before that.

Michael: So, what were you seeing 20-odd years ago that said, “I want to cut my securities licenses and go fee-only”?

Dan: Yeah, so fee-only started had already started. It was already a thing a very small minority, still a minority, but really small minority at the time. And I met with a prospective client and spent over an hour with them. And he was asking, not in an adversarial way, just very good questions about compensation and conflicts.

And he left and I could hear the door go thud. And my brain said, “You don’t know a damn thing about that guy. He knows everything there is to know about compensation and conflicts. But you don’t know anything about him? What a waste of time.” And it just occurred to me that most people, they won’t put it in these terms. But most people want a purely fiduciary relationship with their advisor, where the advisor has a fiduciary relationship to them, serve their interest alone. That’s what they want.

Michael: It’s kind of implied in the definition of advice in advisor. We don’t actually necessarily do that in our industry. And the title has gotten out there in lots of ways. I feel like it’s just… Like, the dictionary word definition of advice. Like it’s the definition of advice that it is for the person receiving the advice, right? That’s what makes it advice.

Dan: So, how many of my clients does this further occur in? As I’m thinking about this back then is, how many more of my clients have wonderings about this stuff? They’re wondering if what I’m telling them is going to be better for me or better for them. I wonder how many prospective clients didn’t become clients because they wondered about that. Right?

And full disclosure, put it all in table, be very frank about how you’re paid with the conflicts, that’s all good. And I couldn’t get that idea out of my head. I basically would not hire myself, especially at that point, I’m still having some trust issues. Because of that, so that’s got to stop.

So I have two pain-in-the-butt regulators, maybe one would be better. That was another thing that occurred to me. And so, I cut ties and went fee-only. Now, I didn’t suddenly become smarter. I didn’t become more ethical by doing that. But I did switch to a framework from which there are fewer conflicts to deal with and have to manage. And a framework that just made more sense to me intuitively, and I think makes more sense to the clients, intuitively. So, that’s why I cut those ties.

It wasn’t being in the independent broker-dealer world, there’s not as much, at least not then, where I was, there’s not much you need to do this, the other kind of pressure. It’s like here’s all these different things you could do, you figure it out.

But I was worried about the clients doubting. I don’t want clients wondering about that. I want clients thinking about what they want for themselves. I want them engaged in the conversation. I want them understanding what the tradeoffs are. I want them to make good decisions for themselves and their families. I want to be able to guide them without the potential poison of doubt about my incentives. So, that’s why that happened.

The Advice Dan Would Give To Newer Advisors Today [01:22:02]

Michael: And so, what advice would you give to younger, newer advisors coming into the profession today?

Dan: Be patient. I went through something that Philip Palaveev talks about all the time, with people just coming into the field, out of college in particular. It’s partly an age group thing, stage of life thing. And my son is one. He’s trying to figure out exactly what he’s going to do with himself right now. You go through this phase when you’re young like that, where you’re trying to figure out what it is you want to do with yourself, right?

And then, when you figure that out, you have to decide where you’re going to do it. So, you might not get a job coming out of college exactly where you want to be. And it’s okay. You’ll figure out if that’s worth it. First, you got to figure out if planning is really the field for you. You’ll learn that fairly soon. And then, you have to decide if where you’re doing it is where you want to be doing. That’s a whole other really issue.

But look around and ask a lot of questions and explore. As an employer, I don’t like that, I want people to come here out of college and never leave. I don’t want to find themselves and find that they don’t want to be where they want to be doing this, but at somebody else’s shop. I don’t want that. But as a dad and as somebody who’s gone through the experience in real life, that’s what happens. Is this what I want to do, is this where I want to do it? But I also…

Michael: So, get your foot in the door somewhere, but don’t stress so much about whether your first job is at the perfect firm?

Dan: Yes, correct. But I also want… I see this a lot with young people, they have this overly idealized or romanticized idea of what it’s like to work in a fee-only RIA. And there’s nothing really romantic about it. It’s work, man. It was just me and my computer for a number of years there after I went off on my own. It was fun to help the clients. It was fun to solve the problems. It was not fun running the business. And you do eliminate most, but not all conflicts, you do have a structure as a fee-only RIA that’s easier to manage all that, navigate that type of stuff.

But all the same problems that people have are still there: tax code, markets, politicians, family, all that kind of thing. It does not solve the problem. If you cannot have a conversation with somebody and show them how they’ll be better off by going through the financial planning process, and you’re working in a brokerage house or insurance company or an independent BD, if you can’t do that, in that environment, you might not be able to do it as a fee-only person either. It’s not the compensation that’s your problem, it’s your communication problem that you need to fix.

What Dan Is Focusing On Now And What Success Means To Him [01:24:47]

Michael: So, where is your focus right now? What are you working on? What else are you working on?

Dan: So, around the firm, it’s the same as it has been. It’s been the communications. It’s been dealing with clients, where I continue to evolve or continue to work on developing our people. We’ve got a succession plan kicking in with additional purchases by the smaller shareholders coming up.

So, that’s kind of just a natural progression. On the side, I’m currently a member of the board of directors of CFP Board and the practitioner editor for “The Journal of Financial Planning.” So, I help out those two groups a little bit, here and there too. Just a little bit.

The JFP job, it’s a weird gig because all of the decisions about what gets published are done by staff. And we’re just asked, I’m just asked my opinion about some things, occasionally. So, most months, I don’t even know what’s going to show up in there.

I’ve been really happy with what’s happened over the last year with that publication. One of the things I was asked to do is to help him get some calmness. So, I was fortunate to get positive responses from the likes of Alex Armstrong, Mark Tibergien has a couple of columns for us. One of them is in this month’s edition. Some folks nobody’s ever heard of are writing for us now. They are pretty good. And some folks in between, we’ve had some good cover stories.

In this month, God bless him, Bill Bengen was kind enough to do a write-up about how he would approach safe withdrawal these days. What is this, 25 years after or 27 years after he published that paper, how would he look at it now? So, it’s an interesting read, just to get his perspective on how he’d approach it. It’s a very different process. So, yeah, that’s been fun. But that’s a low labor. The CFP board job is a little bit more labor-intensive.

Michael: For those who are curious, we’ll put a link out to Bengen’s article in “The Journal of Financial Planning.” So, this is Episode 230. So, if you go to kitces.com/230, we’ll have a link in the show notes.

So, Dan, as we wrap up, this is a podcast about success. And one of the things that always comes up is just the word success means different things to different people. Something is different, different things to us at different stages in our life. So, you’ve had this wonderful path of success for the business itself. You’re not just not just building $800 million RIA, but you’re giving back involvement in the profession, leadership with FPA in the CFP board and “The Journal of Financial Planning.”

And so, as you’ve just checked a lot of the boxes in the professional sense of success, how do you define success for yourself at this point?

Dan: Yeah, I mean, one of the really weird byproducts of being involved as a volunteer for the profession over the years is I’ve gotten to go some interesting places. I’ve literally spoken on six continents over the years. I’ve had led delegations to places like Russia, India, China, South Africa, Australia, to speak about financial planning.

And one thing that travel does for you is it gives you a little bit different perspective on things. And success for just about everybody I’ve ever met boils down to some very simple concepts, which is they want to be doing things that they enjoy with people that care about and not have anybody mess with them.

So, you can look at the size of the firm and you can surmise how that has translated into our families here, financially, and all that and say that success. But none of it means a squat if I’m not a good husband, a good father, and get to do things with my friends and family, my staff, people I care about, my clients. So, as long as I’m able to do that, be a good husband, be a good father, be a good planner, and partner. Those things, that’s success. That’s success.

Michael: I love it. I love it. Thank you so much, Dan, for joining us on the “Financial Advisors Success Podcast.”

Dan: You’ve been a blessing. Blessing to me, my family, and the profession. I appreciate you very much.

Michael: Well, thank you, Dan. I appreciate that.