#FASuccess Ep 165: Navigating Broker Protocol When The Firm You Start With Isn’t The One You Want To Stick With, with Steve Kampschmidt

Author: Michael Kitces

Team Kitces

Michael Kitces is a Partner and the Director of Wealth Management for Pinnacle Advisory Group, a private wealth management firm located in Columbia, Maryland that oversees approximately $2.0 billion of client assets.

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

• How Steve Chose To Become A Financial Advisor [00:03:47]
• The Way Steve Created His Financial Advisory Firm And Differentiated Himself From Other Advisors [00:11:37]
• Steve’s Early Days As A New Advisor In The Merrill Training Program [00:19:57]
• Finding Clients Through ZoomInfo [00:31:47]
• Why Steve Decided To Go Out On His Own And How He Dealt With Broker Protocol Requirements [00:46:51]
• The Decisions Steve Made For His Firm’s Technology Infrastructure [01:07:55]
• How Steve’s Client Transition Process Worked [01:14:30]
• What Steve’s Business Looks Like Today [01:21:42]
• The Most Surprising Thing To Steve, And The Lowest Point In Building His Own Business [1:29:15]
• The Advice Steve Offers For Newer Advisors [01:34:12]
• What Success Means To Steve [01:36:29]

Resources Featured In This Episode:

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Full Transcript:

Michael: Welcome, Steve Kampschmidt, to the “Financial Advisor Success” podcast.

Steve: It’s a pleasure to be here, Michael.

Michael: I’m looking forward to the discussion today, and this interesting path, or phenomenon, of what you do when you come into the advisor industry, you work somewhere for a few years, you really like it, you get some clients going, and then you decide I’m really in this business for the long run but I’m not sure I’m going to stay at the firm I started with. And the awkward challenges that crop up when you have to deal with not just potentially changing firms, but potentially changing firms that may or may not want to see you take clients with them and all these rules that we have around things like Broker Protocol if you’re leaving large firms, in particular.

So I’m looking forward to the discussion today of what I know has been an interesting journey for you of coming into the industry as a career changer, starting in a large firm, having some success in a large firm, and then deciding that you want to leave and go somewhere else and needing to navigate these real-world things like Broker Protocol. How do you start up your own firm and set this new path for yourself when you decide, okay, I really like the advisor world, I’m just not sure I want to do my whole career at this firm I started with?

Steve: Yeah.

How Steve Chose To Become A Financial Advisor [00:03:47]

Michael: So, as you’ve started down this journey, just talk to us a little bit about what brought you to the financial advisor world in the first place. What were you doing originally, and then how did you come to this industry?

Steve: Yeah. So I actually, I went to school for finance and economics, graduated back in ’08 with my undergrad and then ’09 with my MBA. And that was from Rochester Institute of Technology. And at the time, I was actually interested in joining, but, of course, that was during the financial collapse of ’08 and ’09. So it was…

Michael: Not exactly the best time to try to get a job in the industry?

Steve: Right. It was tricky. And I almost did land a spot actually within an RIA in relative proximity to where I grew up in northern New Jersey, but that didn’t end up panning out. So fast-forward a little bit, I ended up working for Enterprise Rent-A-Car or Enterprise Holdings now for a number of years. Actually, I had deep family ties to the company; my father worked there for a long time. If you’re familiar with the company Enterprise Rent-A-Car, it’s privately owned. It is a rental car company, of course, and they teach you how to operate a small business and read profit and loss statements. So I performed well there. I was successful.

Eventually, I got the bug that I wanted to get back into the industry that I had initially, honestly set out to get into. And the way I ended up doing that was I obtained a job at Bank of America Merrill Lynch. Initially, I was a financial center manager for a couple of years. So it was still in this kind of management role, knowing full well that I could end up potentially parlaying that into becoming a financial advisor and starting my practice. So that was kind of the quick summary of the journey to get back to doing what I intentionally really set out to and wanted to do while in school.

Michael: So you had an eye from early on, like, “I want to be a financial advisor. I want to do this thing.”

Steve: I did. Yeah. I think I was taught good lessons growing up from my folks, from my father, and just money management and understanding it. So when I was going through school, I tended to have a decent saver’s mentality. Even shortly after graduating, that kind of carried through. I was the person at Enterprise Rent-A-Car who, when they got an initial promotion, was saying, “Okay, I got this much of a percentage raise, let’s dedicate half of it to upping my 401(k),” versus going and getting a nicer vehicle, or whatever caught my eye at that point in time.

Michael: Fantastic. So you ended out as I think a lot of people that come into the advisor world, like, “I was the go-to financial person in my other world. I just decided that eventually, I wanted to get paid for it. So I became a financial advisor.”

Steve: Yes. Tired of giving complimentary advice at the water cooler, I guess, at Enterprise. Sure.

Michael: So, what was the initial role that you took at Bank of America Merrill Lynch?

Steve: It was as a financial center manager, or to put it more bluntly, a bank manager. I was overseeing the operations of a bank in New Jersey for Bank of America, where I had a number of employees. One of which was also a financial solutions advisor, which is the Merrill Edge version of a financial advisor that stays within a banking center and does that.

I had a higher earning potential, of course, because shifting over, I had been in management for a number of years at Enterprise, but just as I mentioned, after a couple more years, I decided that I wanted to make the leap and go back into becoming a financial advisor. And an opportunity had presented itself when I met with the complex director in northern New Jersey for Merrill Lynch.

Michael: So part of the appeal for coming in in the management role initially was just, again, a stable salary. I can roughly translate something over similar to the salary I was getting before. That was part of the draw for you in making that transition there as opposed to trying to find an advisor job from day one when you were switching out of Enterprise?

Steve: It was, yeah. I had, of course, had a certain level of earnings at the prior management role within Enterprise. So coming into the bank, I was able to maintain that level. But eventually, after I had put away enough in savings, I was willing to jump over and take a bit of a pay cut to move into becoming a financial advisor in the FADP program, and then just starting my journey of building my practice.

Michael: I think it’s an interesting point, though, that you made there that is sort of twofold. That part of taking the ongoing salary was like, I’m living on less than I make from this. I didn’t need the salary to pay my bills, I need the salary because it was more than my bills, and that’s what let me build up some savings so that I could eventually do the shift where you launched the advisory career and take what for almost everybody ends out being a pay cut, particularly if you’re a career changer because you built up the savings to say, “Okay, now I’ve got a runway because it may take me a while to get my clients and get going.”

Steve: Yeah. And I think trying to be as thoughtful as possible and plan far ahead in advance was something that’s carried over to when I inevitably left Merrill Lynch as well and started my own practice, an RIA. So I’ve always attempted to make sure I left myself some form of a safety net to not put myself in an inappropriate position. I think sometimes maybe even advisors need an advisor. And luckily, I was fortunate where I felt like I did the right things and set myself up to be as successful as possible over the long run.

Michael: So out of curiosity, then, was there like a dollar target, I need to have X dollars in the bank or Y months of savings built up? Was that the trigger for you to say, “When I get here then I’m going to try to find an actual switch out of the manager role into an advisor job role” or was it just, “We’re going to build up some savings and then if opportunistically something comes along, at least I’ll be able to grab it?”

Steve: There wasn’t a specific number, to be honest. And I was married at the time when I ended up making…well, I was actually…wasn’t quite. It was 2016, September of 2016, but I was with somebody at the time who I was living with and who also had a decent salary, my girlfriend at the time, and now my wife. So it made sense numbers-wise where I was going to be okay, basically, where yes, I still had the safety net, but even at the income level split between us, we were going to be okay, no problem.

This was just before we ended up having our children. And getting pregnant was around the time I shifted from the management role into becoming a financial advisor. So, of course, some additional expenses ended up popping up but…

Michael: I was going to say, didn’t anybody explain to you that’s not really the ideal timing for that?

Steve: That is life, though, isn’t it? I guess.

Michael: Oh, so true. So true.

Steve: It’s one of those things where…emotional considerations too and just…other things you can, I think, plan for a little bit better in terms of making sure you have the right amount of income or savings. But children, it’s quite emotional, where it’s different. And you want to have children. And again, I knew my numbers. And having been a saver and I had a base salary. At Merrill Lynch, along with some of the other wirehouses out there, with the programs they use, there was a guaranteed base salary for that period of time that I was in, at the time PMD program, now FADP program.

The Way Steve Created His Financial Advisory Firm And Differentiated Himself From Other Advisors [00:11:37]

Michael: So I’m wondering on this end, so I guess…because I think this is an area that is sometimes underappreciated about the dynamics of trying to launch an advisory firm, just how important it is to get some combination of, I guess financial foundation and/or financial safety net in place because it’s very costly to start an advisory firm.

And it’s not costly because it costs you a lot of hard dollars out of pocket to get it going. It’s not like you’re standing up a factory where you need to get real estate, equipment, machinery, and all this other stuff. That just like, yeah, it’s not capital-intensive in that way. It may take a while to get clients and get revenue going, and you’ve got to pay your bills at home while you’re waiting to build your income up to the point where your take-home pay covers those bills.

So it’s not the business cost of launching that’s the challenge for most people, it’s the personal household upkeep. But it still means some combination of building savings, having a spouse that works, and being able to live on one spouse’s income partially or fully while you build the other that just is a very practical reality of what it takes for a lot of people if you want to go start out in your own and you’re not going to take a role that is purely employee and salary-based, although those jobs are out there as well.

Like if you want to build your own practice with your own clients, you have to have a way to navigate that at least partial income gap as you try to get clients to earn back to what your salary, your standard of living was before. And it can take a few years. Not that it’s zero throughout, but it can take a few years before you build the number all the way back up.

Steve: Yeah. And it’s why it worked out well to have built up some clientele in a practice within Merrill Lynch. And it wasn’t my intent to do that from the get-go. I actually early on and for the first…majority of the time I was there, I set out to become a Merrill Lynch advisor, and it wasn’t until I started learning about the industry more, focusing on my clients, understanding fee structures, and just gaining an appreciation and listening to podcasts and reading. And it wasn’t until I did all these things that I really started to recognize that, hey, I caught this entrepreneurial bug and wanted to break away after learning more and more.

So having that small practice, of course, that was built up, it still gives you that additional safety net, because as you mentioned, it isn’t necessarily the capital intense nature of going into the industry, it’s that loss of income and potentially, benefits. And again, I had benefits through my spouse, so it was a little bit of a smoother landing to start rather than having a strictly from scratch start, which I know, and you’ve, of course, had other podcasts and listening to XYPN podcast with Alan Moore, it can be incredibly difficult to be a strictly from scratch start.

Michael: Yeah. Yeah. Even when you talk to a lot of advisors that did this early on, we’ve had a number of folks on this podcast that run some of the largest billion-dollar, multi-billion-dollar firms in the industry today on the independent side, and still talking to a bunch of them, it’s like, “Oh, yeah, I racked up like $30,000 in credit card debt my first year. And that was in 1987 when that was a ginormous pile of credit card debt.” Because it just was very costly in income loss to live your life and pay your bills while you’re making no money in, for some people, the first year or two while you’re trying to build that client base and overcome the initial business expenses so you can start getting positive cash flow.

Steve: Yeah. I feel for those, that’s why I’m grateful. And of course, I kind of intentionally planned it this way, so I knew getting into it. But that’s why I feel for those who have done it and who have really made that wager on themselves. And more power to them too. If you have the utmost confidence in yourself that you can do it, you can build it, and ensuring that you have some kind of differentiation factor – I think is what’s probably most critical in those early years, and being knowledgeable.

Knowledge cannot be discounted. And whether you were able to obtain your CFP elsewhere or at least maybe you didn’t have the experience requirement, it’s critical to make sure that during those early conversations in those beginning years, you’re able to talk intelligently across the table from almost any prospect that you meet.

Michael: Yeah, I know that was…for me, that was a material part of the path early on. Because I started in my early 20s, straight out of school, and had like the additional layers of age bias when you’re trying to work with clients who are literally looking at you and saying like, “Oh, it’s so cute, you’re almost as old as my grandchildren.”

Steve: Sure, I’ll hand you millions of dollars. Here you go.

Michael: Yeah. Like, “You’re almost as old as them. And I remember when I was putting them in diapers. So tell me again what you do.” And it’s like, “Okay, that’s a little blow to my credibility right there.”

Steve: And that’s why I’m now kind of grateful that I got turned away and didn’t enter the industry at the time I did upon graduation was because the crash course that I received in sales and service, and again, understanding kind of the back office and managing expenses with an enterprise was paramount to me being able to have success once I finally ended up arriving within Merrill Lynch and started that practice. Yeah.

Michael: Yeah. When I came at it in that same theme of trying to find your differentiating factor in the early years and not discounting knowledge, that was part of why I ended out getting an alphabet soup of designations. I was like, “All right, at least if they’re going to look at me and say I’m young, they can look at me and then say like, ‘Wow, he’s so young, and he has all this knowledge.’” Right? And I’m like, “I’m going to turn this into a positive, ‘Geez, seems young to have all this great knowledge,’” as opposed to just, “Seems young,” which felt like a negative.

Steve: Sure. I know. And you are the encyclopedia of financial planning knowledge.

Michael: I may have taken it slightly further than was necessary, but it did work. It did work. Was there an angle for you around this? You’d said you were focused on having some kind of differentiating factor in your early years. Was there a particular path that you took to say, “How am I going to stand out amongst all the other advisors?” I guess even all the other Merrill advisors literally in your program that you’re sort of feeling like you’re in competition with?

Steve: The thing is I didn’t have…while at Merrill, I really didn’t have that great of a differentiating factor. I had experience because I had been in management. I had people in time management, sales background. I built the majority of my book through cold calling while I was within Merrill Lynch. And I did it. It was just…it was hard numbers. It was hitting the phones as much as possible and then showing up and being diligent about that process. So I really didn’t.

Now, of course, I do have a much greater differentiation factor, which I’m sure we’ll get into. But at the time when I was within Merrill, I really didn’t. It was more so just my ability to communicate, to sit down confidently at the table once I got a meeting, face-to-face, and being a nerd when it comes to planning and learning as much as I possibly could the prospects I was sitting down with.

Michael: And I guess there’s nothing like grinding out cold calling for a couple of years to say like, “I feel like I would like to get a more clear differentiator in the future so I don’t need to do that.”

Steve: Yeah. I’m not one that absolutely despised it. It was kind of just, I wouldn’t even call it a necessary evil, it was just a necessity. Every single one of the FADP or PMD participants that I had seen that was successful from prior years within my complex, that’s how they built it.

Maybe outside of one who had attached to a larger team or was a decent amount older and had a substantial network of rollers they could potentially pull from. And there just weren’t that many success stories and you had to do cold calling.

Steve’s Early Days As A New Advisor In The Merrill Training Program [00:19:57]

Michael: So talk to us about like just how it worked when you became an initial advisor in the Merrill program. And I realize the program changed a bit. They used to have their PMD program. Now I think it’s FADP. But when you were there and transitioning in, what was the deal? How did it work for salary or what you get compensated? How were you coming into it and looking at this financially when you were trying to decide whether to make the leap?

Steve: Yeah. When I first came in, it was kind of the general history of the PMD program where it was largely based on production, where you had to produce a certain amount. And of course, production translates to revenue. So when I first came in, that was primarily the program and the way you were going to do it.

There still was an additional bucket, which was called strategic flows, which was where some assets counted, some didn’t. And there were so many changes while I was there throughout the program that it’s tough to even recount all the different things that occurred. But it was mainly production.

But then there was a shift along the way, and I was probably about close to a year in where it changed. I think they started to see the value more and more, as the industry has, of relationship building. So it turned into being a best ball type of bucket where it also encountered or accounted for gross new households and assets, just general total assets and liabilities that were brought into the program.

Which is how I intended to, how I started to build my business, because knowing enough about the industry when I even came into it and having read your blog way before I even went into Bank of America, I knew enough that I wanted to be the relationship advisor and not anything bound towards product. And it’s rare. You don’t see that the product drive and commission generation is the lesser of what you see now within, at least from my experience, within the wirehouse firm and Merrill, where I was.

Michael: I think the whole industry is kind of going through that change and that shift of like, oh, it turns out just when you’re in an ongoing relationship with clients, retention is better and service tends to be better because you’re just incentivized to do more to keep them around. Revenue is still more stable than in a continuous sales environment. You wake up every January 1st year and your income is zero until you go find new people to sell stuff to.

The industry, top to bottom and all the way across, seems to be in this shift towards more relationship-oriented focus that says no, no, no, it’s about how deep you’re going with the client, and just from a practical perspective, the opportunity to expand the relationship and say, “I don’t just have one account, I have all your accounts,” or, “I don’t just provide you advice in this one area, I’m doing comprehensive advice for you in all areas,” and having an opportunity to do more business with that client, but just expanding the relationship.

Steve: Yeah. And there were a couple pivots while I was there because there are certainly teams and advisors within not just Merrill, but all the different wirehouse firms out there that still had a significant amount of revenue that was based on transactional-type business.

So they made a pivot where there was…I think at their heart, and they really do want to because they see what’s going on with market share, they do want to push towards managed money and to this relationship-type model. But at the same time, once the laws flipped back and there were probably enough voices concerned about, “Hey, let’s have that flexibility,” they pivoted back.

But I think honestly, the message that I did receive was that they are pushing towards the relationship model. And of course, they’re largely using that as a percentage of assets under management, which is different from also what I’m doing now.

Michael: Well, I guess the notable effect when you get into a large firm environment, particularly large firms like Merrill Lynch that has Bank of America attached, is it doesn’t even necessarily just have to be about traditional investment accounts, you get opportunities to expand banking relationships, you get opportunities to support on the liability side of the sheet. You have access to loan products at a company like Merrill Lynch that most in the RIA community just don’t have. It’s not a solution we can bring to the table.

So I know you get interesting opportunities in the wirehouse environment that frankly a relationship can actually be all-encompassing in all the different things that you help the clients with than even we sometimes can do on the independent channels.

Steve: Yeah. And that was a selling point. Sometimes I feel like it was a giant push. I never felt it was a huge push to spread out and make sure that the clients that you were bringing in were ensuring that you had banking. They incentivized you too, of course, as is well documented in how grid payout plans work nowadays, but I never felt it. I felt like you still had complete flexibility to do what you need to do. And there was a slight amount of pressure that was there. I’m sure it wasn’t nearly what it might have been initially or in the past, where it was being shoved down your throat a little bit more than that. So yeah.

Michael: And that ultimately just comes down to how you must generate a certain amount of revenue, of production on a month-to-month or quarter-to-quarter basis to validate the contract and keep going in the program?

Steve: Yeah. Yeah. So it was the best ball two out of three where it was either production, net new assets and liabilities, and then gross new households. So my primary focus was because, as you know when you’re building your relationship model, and you’re charging a percentage of assets under management that I was, it takes time for the production to catch up because it’s billed on a monthly basis, and those credits or revenues are only hitting on a monthly basis, versus if you were selling a product, an A-share mutual fund or something or whatever it was, you’re getting a lot more production up front.

So as I mentioned before, even from the onset, regardless of whether I failed and I didn’t make it through, I knew I was going to build it from that relationship standpoint and use the percentage of assets under management. So I was able to do that. And when they started to incorporate that newer model with the gross new households and net new assets and liabilities, it was easier for me. It was pretty easy at that point because I’d already done well from that standpoint versus strictly at the production level.

Michael: And so how did it work as far as overall compensation for you? Did you get a flat salary through this? Was it like a salary plus a percentage of your production? Was there a shift of starting out as salary, but then becoming more production-based over time? How were you coming into this from the compensation end?

Steve: Yeah, it was a guaranteed salary. Initially, when I came in, it was different. I did take a slightly heightened salary, which would diminish after the 12-month mark. It would kind of diminish over the following 24 months until the end of that entire period with kind of a minimum. But then also during the program, they ended up upping it where the salary remained for the entire program timeframe.

So you did have the potential to hit additional monthly bonuses and long-term incentives. I didn’t really have that opportunity. And without going into too much detail, my comp plan was kind of based off of the old plan, which was more production-focused. But to get through the program, I was able to get through on the new best ball-type hurdles. So again, my compensation was really just my salary while I was there because if it was strictly on production, I wouldn’t have quite hit those goals.

Michael: And can you give us a sense, I’m sure it varies for people, at least to some extent based on what they come in with, but what kind of salary are we talking about here? Is this just like, look, you get $3,000 a month so you can maybe pay a basic rent bill, but everything else is on your own or is this a higher salary closer to where you were that lets you maintain more of the current lifestyle and then grow from there?

Steve: Yeah. I can tell you what I was paid. I’ll tell you what I was paid. I’m not sure because I’m not privy to the information now, but I was paid $70,000 when I initially came in, which was a heightened base salary. I think at the time it might have been $50,000, what the normal salary would have been, but because of my prior experience, my background negotiation, my salary was $70,000. And then it kind of remained at that for the period of the program.

Michael: And the program runs how long? Three years?

Steve: It’s technically 43 months because I was not licensed prior to coming in. Yeah. Once you’re in full production, it is three years, but you have a three-month timeframe to obtain your licenses, and then an additional four months…I think you can find this on their website. It’s a development stage, where it’s a four-month timeframe where you kind of ramp up until you actually enter into production for that three-year period.

Michael: Okay. Okay. So you’re coming with the salary, and the idea is, as I go through, I don’t know if they evaluate monthly or quarterly, like, I’ve got to hit certain targets as I go, the targets got a little more flexible as the program adapted. Initially, it was a production target; then, it was either production or net new assets or gross new households. But you had to…you got your salary, but you had to hit certain targets in order to keep your salary and keep the gig. And then after your 43-month window, the salary would go away and you were just going to revert to whatever your payout would be off the grid at that point with whatever you had by the time you got there?

Steve: Essentially. Yeah. And once you did fully graduate from the program, and I had left just a couple of months prior to graduation, so at that point, I would have reverted back. And yes, it would have been based off of the amount of production, which I’m sure you’re familiar with the grid rates, where, at that level, it’s less than 40% is what you’re taking from the production level that you have, and they’re taking a little over 60% off the top. And then it slides up, or if you’re with a team, it can be a little bit different.

But yeah, they had changed it where it was that salary, and it remained that for the entirety of the program, actually. It didn’t dwindle while you were in it, it would just end up reverting back and shifting basically to that production base off the grid rate once you graduated from the actual program.

Michael: But what that means in the aggregate is that if I want to continue my $70,000-plus salary after I get out of this, I’m going to need closing in on like $175,000 to $200,000 of gross production after 3 years so that my 30-something, 35% to 40% payout gets me back near where I was previously.

Steve: That’s right. Yeah. So it can be a struggle unless you had really built up a substantial business prior to graduating. And I would have been okay, again, still, where my numbers and the amount of revenue or production that I was at from the relationship business I had gathered, I would have been okay. It would have been less than what I had been making, but I would have been okay.

I started to see the margins and what they can be in this industry. And if you’re willing to assume some control and do some research, it’s pretty incredible, as you know, the margins that you can create for yourself in the independent space.

Finding Clients Through ZoomInfo [00:31:47]

Michael: So talk to us a little about just how you got clients. Like, how did it get going? You mentioned a little of cold calling, but what was the cold calling? Who were you calling on? Where did the numbers come from? What were you offering them? What did that look like in practice?

Steve: Yeah. Yeah. So the numbers came from mainly ZoomInfo. Have you heard of the website or ZoomInfo before?

Michael: Yep.

Steve: Yeah. So you can obtain numbers. it was largely…I’m in northern New Jersey, a lot of Fortune 500 corporate directories and director level, vice president level is the types of individuals that I was calling on. And you end up finding companies that you can build somewhat of a presence in after you might obtain one or two clients.

So yeah, I dialed numbers, a lot of different companies, medical device and pharmaceutical companies. And it’s really just based on timing. If you have a decent script, when you call somebody and they are in the need, whether they’re upset with their current advisor, they’re having some kind of life event, it’s kind of luck on the initial conversation. That’s why you should be using scripts at that point. And then once you get that face-to-face meeting, that is where you really have to make sure that you know what you’re doing and where the sale really truly begins that process.

And again, I had had some experience before and was working through my CFP coursework while I was in the program. So I had a decent level of confidence when I’d sit down with anybody. But that was…again, yeah, that was the bulk. There was some networking that brought in some clients, initially a couple of family accounts too, but that was really the bulk of it.

Michael: So, I want to make sure I understand this. Because ZoomInfo, as far as I know, is basically just like a giant database system where you can plug in names or companies or people at companies and then they can ideally give you phone numbers, direct-dial numbers, email addresses, some way to hit them because they scrape a bajillion different public databases to try to get it.

So from your end, it was just, hey, you can try and look up pretty much anybody you want on ZoomInfo. So figure out who you want to look up and then go look them up and go do it? Was there further guidance or just ZoomInfo is like the modern version of, “Here’s the phone book, figure out some names to call and try calling them?”

Steve: Yeah, it’s a very efficient phone book. Because the thing is, with an old phone book, you had no idea who you were calling, right? Maybe you had some idea who someone might be, but for the most part, you had no idea. So with ZoomInfo, you were able to kind of dictate what level they were within the company. Of course, you scrub. Once you have the lists from there, you can scrub them within the tools that Merrill Lynch had so that you’re not affecting anything on the DNC, the Do Not Call database. So you’re doing all those things. And once you’ve done that, you make the calls.

I felt like I did the best with director-level executives within these publicly traded companies. And it wasn’t just public, I also dialed some private companies also, but it was a lot of publicly traded companies. Once I had the numbers, I would build out lists on an Excel spreadsheet. It was a lot of grunt work, where you’re just scraping that information from ZoomInfo, putting on an Excel spreadsheet. And then once the lists are built, you right-click on Excel, it’s all connected, and you dial. And you have a headset and you’re off to the races.

Michael: Interesting. And so is this like what you found as a path, or is this literally how Merrill set you up? Like, they paid for the ZoomInfo license. Just you log in, you figure out what names and people you want to try to pull up. You obviously scrub it against the Do Not Call list because you don’t want to get in trouble, and then just, okay, you know a little bit about them based on what you got in ZoomInfo, so good luck with that.

Steve: Yeah, there wasn’t direct guidance from Merrill, the company. No, it was more past participants of the program, how were they successful? Talking with them, talking amongst your own FADP or PMD class. And some people would go out and purchase lists externally, but I think ZoomInfo was what I found to have the most traction with. Once you get those first couple of initial meetings very early on and you get a little bit of success, you say, “Hey, you know what? I’m doing the best with this, so let’s just continue to drive on it a little bit more.”

Michael: So what did it look like as you’re calling them? What’s the pitch? Like, “Hi, I’m Steve. I’m calling from Merrill Lynch. Do you have a few minutes?”

Steve: Do you want to hear the pitch, Michael?

Michael: Yeah, I want to hear the pitch. Like, ring, ring me.

Steve: Yeah, sure. Yeah. So go ahead and pick up. Ring, ring.

Michael: Ring, ring. Hello, this is Michael.

Steve: Hi, Michael. This is Steve Kampschmidt. I’m calling from Merrill Lynch. How are you doing today?

Michael: Okay. What’s up, Steve? Why are you calling me?

Steve: Yep. I know you weren’t expecting the call. And I promise to be brief. The reason I was reaching out is because I’m a financial advisor within Merrill Lynch, and I actually happened to work with a number of individuals within your company. I was planning on being out on so-and-so date at so-and-so times, depending upon what the timeframe was, and just wanted to see if you’d be open to sitting down for 10, 15 minutes to talk a little bit and see if our practice can share some value with you.

Michael: Interesting. And just they either say yes or no. If you dial enough for them, a few people say yes, and that’s your entree to the conversation.

Steve: Yeah, it’s a numbers game. It is. Again, you’ll get plenty of nos. And a majority of them, of course, are just non-pickups. Just most people break up. You probably get a majority of no’s when they do pick up, and then a number of yeses, where maybe 2 to 3 out of 100 dials would be a yes. One percent to 2% I think would be kind of the normal number that you would see. And I did track it, and I think those numbers for me tended to be largely true for getting that initial meeting.

Michael: Interesting. Because, I’m just reflecting on it at that point, like, there’s nothing particularly…I don’t know; there’s not a particular disturbing track you’re trying to get them going on. Just if you ask enough people that question, at some point, you’re going to talk to someone, it’s like, “Oh, funny thing, I actually just saw my advisor last week. I’m really not happy with him. I was kind of thinking about making a switch anyways. Oh, and I guess you’re going to be here, and I’m familiar with Merrill Lynch. And they hired you. So I guess you’re a reasonable one to talk to and kind of convenient since you’re coming out to my office anyway.” It’s like, “Sure, I’ll do 10 or 15 minutes with the guy and just see what happens.”

Steve: Yeah. And the convenience factor there is probably the most critical part of all of it is stating that you’re going to be there at a certain time and giving a couple of options, because if you’re there, they’re going to be there, obviously. They’re often at their own business.

Michael: Yeah, you know where they are.

Steve: So it’s very easy for you to get together quickly versus attempting to set up another meeting in the future elsewhere or an additional phone call. My strategy was always to get face-to-face with them as quickly as possible because that’s how you close faster.

Michael: Yep. And so you call 100 people, 1 or 2 are going to say yes. I would imagine not even all of them post for the meeting, but probably most of them because you know where they are and they know you know where they are. So they’ll show up for the meeting. And once you’re in person, then I presume it quickly gets into like, so you took this meeting for a reason, what are your financial concerns and how can I help?

Steve: Yeah. And that’s where the human touch comes in, of course. Once you’re sitting across the table from somebody, you’re looking them in the eyes, they’re going to judge your character, they’re going to judge your knowledge.

I think the only individuals that tend to have success when they’re first starting off like that are…you’re not focusing on investments, you’re not focusing even necessarily on planning at first. It’s more so just who are you as a human being? And let me get to know you. What is your family like? What do you enjoy? What are your hobbies? And it’s those kinds of silly icebreaking types of questions and conversations that are how you ultimately gain trust.

Michael: And so as you said at the point, it’s just a numbers game. As long as you’re getting 1 or 2 out of every 100, just it hurts getting the other 98 noes, but the faster you can dial and get through and have good conversations if they’re good and then quickly if they’re not, at some point, you’ll get your 1 or 2 yeses for every 100 dials and get a few meetings, and a few of those turn into clients. And if you grind long enough, it will add up.

Steve: Yeah, yeah, essentially. And over that, to kind of summarize it, over the 2 and a half to 3-year timeframe from when I was in production, I’m at about 25 new households number, and I was approaching close to $20 million in assets. So you can kind of do the math and the timeframe there.

But that’s where I was at. And it was enough to be successful within the program. And again, I mentioned earlier, there were a couple outside of cold calling too, other family accounts or some networking events, maybe something, one or two came from that. But the lion’s share was from cold calling.

Michael: So as you’re doing this and making calls, how many calls were you making in a day? What did a day or a week look like for you at that point?

Steve: Different people have different methods, right, where some people want to hit a specific amount of calls. And I would probably end up saying early on, the first 6 months to a year, it would be up to 200 calls in a day, 100 to 200 calls in a day probably.

But my focus was on meetings. So I was always attempting to get two meetings, a minimum of two meetings within a day when I was really kind of on full-court press early on for doing the dialing and making cold calls. And over time, within that first year, I started to build a pipeline, and a pipeline of individuals that were…

Michael: So people like, “You know, I really don’t want to meet you right now, but I’ve got some stuff going on. Steve, call me back in two or three months and I may talk to you then.”

Steve: Yeah. So you make a spreadsheet. And this was just my way of tracking it. Everyone has a different method. Like you said earlier on, 100 different advisors have 100 different ways. So I made a spreadsheet with a probability ranking basing it from anywhere from 5% to 95%, kind of on the trajectory of closing that prospect and where they were, whether it was initial fact-finding, discovery, plan implementation, recommendations, all along that entire spectrum.

Michael: Interesting. And so over time, you got this growing spreadsheet of people I’m talking to, where there’s some momentum, where there’s more momentum, where there’s not much momentum so you could just track and manage where they were. So the goal was getting two meetings a day off of your calls. Like, the faster you get to two meetings, the faster you say like, “Okay, take a breather for the rest of the day, you got your two, chill out?”

Steve: Yeah. We’re focused on longer-term strategies. So while I was in the program and now, I had started the process of…it was part of a networking group, similar to BNI, but we formed something outside of BNI where we’re kind of on our own, one seat for every industry. So CPA, estate planning attorney, realtor, mortgage broker, all these different professional service-type industries. So I would build that out and communicate and make meetings with them. Or I was also a board member on a local non-profit within my town, which I’m now president of, Boonton Main Street. And those were the longer plays, right?

So I would focus on those kind of in the background, but the quickest way to get clients in fast, which is what you have to do when you’re in that kind of program, was cold calling, in my experience, because you were finding people who had a need and getting to them.

Michael: And were there metrics you targeted in the numbers game further down the stream? Like 1 to 200 calls a day should get me 1 or 2 meetings, but were you then looking like, of those, here’s how many I think will hold up into meetings and then here’s how many I’m going to get to do fact-finders and then here’s how many I’ll ultimately be able to get as some kind of clients?

Did you have like targets all the way down or just the goal activity was meetings, if I do enough of them, some business is going to shake out eventually?

Steve: Yeah, to an extent. And I didn’t. Once I got further along and I was progressing in the program. Early on, I was tracking to try and figure out of the meetings that I set how many of those were moving forward in the process. And it was probably, of the ones that I was meeting, I think it was close to maybe 50% were moving forward in the process. I couldn’t tell you and I didn’t, maybe shame on me, where I didn’t get to the point where I knew exactly of the meetings that I ended up setting what was my final close rate. If I had to guess, if I brought in 20, I don’t know. I would have to do some math and think about it for a second. But I couldn’t tell you that exact figure now.

Michael: Yeah. Well, if I just kind of did the math backward on it, you were ending out with about a new client every month over two-plus years. So you’re going for one or two meetings a day, because you don’t always get them every day. Not everybody shows up for a meeting. Some days you actually have to go out and do the meeting. So I’m presuming you didn’t get to as many calls that day. But I would…

Steve: And then there’s some who don’t have enough assets to manage too that might want to move forward in the process. But given the structure there, you couldn’t move them forward. Or maybe I didn’t want to move forward with them because they were strictly performance-driven. And being a planner and more passive in investment strategies, that wasn’t in my interest. So yeah.

Michael: I would imagine, it sounds like you were getting, I don’t know, 15, 20 meetings a month that were setting up and one of those became a client. Like, 5% or 10% actually shakes out the bottom. Like, they showed up, they met with you, they were qualified, they were interested in doing the business, and then they actually signed up and did something.

Steve: Yeah, early on I think those numbers would be very reflective. But I think as I progressed, and I told you before, I had two daughters along the way also, and I was wrapping up my CFP coursework, so as that got more intense and took away from some of my time, those numbers probably dwindled a little bit if I’m being completely honest. Yeah.

Michael: Sure. Life and other things come up. That’s always part of the challenge, particularly in that painful grindy phase.

Steve: Yes, yes, indeed.

Why Steve Decided To Go Out On His Own And How He Dealt With Broker Protocol Requirements [00:46:51]

Michael: So you got some traction, you lived the grind, 100 or 200 calls a day on and on, got to 20-something households, closed in on $20 million of assets. You’re a few years into the program. You’re making enough in numbers that you get to stay in the program and keep compounding forward.

So what shifted or changed for you that you’re still going in the business but you are not still at that company?

Steve: Yeah, yeah. It was probably listening to podcasts and reading. I stumbled across a couple podcasts with you and a number of others that are out there for individuals like Steve Lockshin and then James Osborne from Bason Asset Management who…James was kind of an individual who a lot of his ideas were very reflective of thoughts that I had had while I was progressing within Merrill, especially from the standpoint of flat fee structures, how he modeled his business, his feelings towards percentage of assets under management and how there are even conflicts of interest within that.

So once I started to delve into that and really just allow myself to be thoughtful on it and think through it, I started to have this idea that, “Hey, what would independence look like?” And having had a managerial background, having looked at expense statements, managing those line items, I felt like I had the right kind of set of skills to move forward and be successful.

And then, of course, the benefit on top of that and just being passionate about the ideas and the way I wanted to structure my own company was that the margins were far better too. So I’m not going to discount that. I’m not going to shy away and try and say that. Obviously, the pay could end up being better when you’re out on your own and you’re able to control what your expenses are.

Michael: Yeah, just kind of the math of it. Even just in traditional AUM, if you’re living the proverbial 1% fee on about $20 million, it’s roughly $200,000 gross revenue. So in a wirehouse environment where you may only be at a 30-something percent payout on the grid, you’re keeping 35% of your gross revenue, the house is getting the other 65%.

And to be fair, they’re providing compliance and technology and office space and a lot of other things that you get. But there comes a point where you can sit down and say like, “Okay, but I’m pretty sure I could get office space for myself and buy some software and it wouldn’t cost me 65% of $200,000.”

Steve: Yeah. And so when I started running those numbers, it was very evident. I do have an office space that’s in my own town, but I pay $400 a month, and it’s a very nice office space. And that’s one of the larger expenses on top of compliance, which was very important to me to make sure I was working with somebody from that compliance perspective that could assist me and make sure there were no issues, especially during this first year, right?

So once you see it more and more…it’s kind of similar to when a prospect sits down with an advisor where they don’t know what they don’t know in the industry and whether it’s financial planning itself and all the advantages of doing things in certain ways, advisors in a larger firm perspective or in wirehouses, they don’t know what they don’t know.

And until they start listening to your podcast or they start listening to a Mindy Diamond podcast, they’re not going to really gain an appreciation for what it can look like on the outside, and how you can have control over all of these different moving parts. As long as you’re willing to do that and be slightly entrepreneurial, it can look far better. And it is far better.

Michael: Yeah. And I think you make a really important point there that you have to be interested in, ready for, willing to handle, and make all those other decisions that come. Like, good news – you have total control, but bad news – that means you have to make every stinking decision about everything because no one makes any of the decisions for you.

It reminds me of what happens for the subset of our clients who are like, “I really want to build a house. I want to be able to make it exactly my way. And we want to be able to make it the way that we want to live in it. So we’re going to build our own house. That’s awesome. We can help figure out how to budget and pay for it.”

And I think without a single exception, every single client we’ve ever had that went and built their own house at some point was completely drained by like, “Oh my gosh, I didn’t realize that we were going to have to spend an hour just thinking about the knobs on the cabinets and choose from 17 different options.”

And like, for every possible thing, someone has to make a decision. And if you’re building from scratch, that’s you. If you like making those decisions and you’re ready to make all those decisions, more power to you. And it’s great. That’s why a lot of people choose the independent path. But it’s fair to recognize, a lot of people really don’t like that.

And that to me is why at the end of the day, as much as we talk about even the breakaway trends, if you look at a lot of the industry studies, most people measure the breakaway trend out of wirehouses in the dozens of advisors who left and went to independent channels.

Between the big four, Merrill, Morgan, UBS, and Wells, there are over 50,000 advisors. 99%-plus of them stay every year because a lot of people don’t want to make that level of decisions and have to deal with all of that. That’s part of what you have to do if you want the margins part of what you get at the end if you make those decisions.

Steve: And they’re just comfortable. And there’s nothing wrong with that either, right? And it might not even necessarily be that they wouldn’t be willing to or they’d want to, it’s just why am I going to even start down that path when what I am making is X, what I’m trying to get to is Y. I’m hitting those types of things. And why am I going to burden myself with all these other responsibilities if what I’m attempting to accomplish is being accomplished?

So I think it’s just human nature, this level of comfort where, why am I going to change and put myself into this uncomfortable position when I just simply don’t need to? So yes, there has to be that driving factor or that burning desire to either be an entrepreneur or I guess if you get ticked off enough, if something happens or if there’s comp changes that continue to happen, I guess that can, of course, stem it over time. But yeah.

Michael: There are definitely a few of those that happen out there as well. Yep.

Steve: Yeah.

Michael: So talk to us about what it was like and what the process was once you made this mental decision, “Okay, I think I want to leave. Oh wait, I have an employment contract and there’s a whole bunch of rules.”

Steve: Yeah. So I read that. That was one of the first things I did was I went back and got that just to make sure I understood it, even though as the planning went on and as my research went on, I recognized that Broker Protocol. And Merrill Lynch, of course, being a Broker Protocol firm that superseded those particular employee agreements and the covenants within.

So I started doing all that, the various research. I had a 45-minute commute back and forth from work. So I used that time wisely, where I was listening to, I think I mentioned Mindy Diamond’s podcast earlier. Listened to that. I listened to yours. I read articles online endlessly every single week.

Michael: Not while driving.

Steve: Not while driving. Yeah, that would be the ultimate multitasker there.

Michael: Podcasts while you drive, articles when you get home. Yep.

Steve: Exactly. So I was going through that process of just educating myself, learning as much as I possibly could so that as I put that plan together and put all of the various pieces together, I did so the right way. And yeah. So I’m happy to go into whichever, I guess detail of that process.

Michael: Yeah. I’d love to hear just sort of the details of like how does this play out? What is it really like when you say and decide like, “I think I’m going to make a switch, and I want to make sure this goes well and I don’t want to get in trouble?” I don’t want to blow up my switch by you getting hit with temporary restraining orders and lawsuits. So what did you do? How did this work for you?

Steve: Yeah. so from a compliance perspective, because obviously, there’s a custodian, which I’m sure we’ll talk about, you have to line that up, your whole tech stack. You’re investigating all these different pieces. But from the compliance portion of it, I think I talked to you, the one article that you had written kind of detailed what it would look like to line up and make sure that when you chose to make that break and on the day you made the break, everything had to be in order, inclusive of the firm being live, on the Broker Protocol list, you as an individual being…of course, your U-4 having been submitted for that particular company with that company so that once you did leave and on the day that you break, you’re able to immediately solicit your prior clientele, and taking those five pieces of information with you that Broker Protocol permits.

So those who aren’t familiar with Broker Protocol, you have to familiarize yourself with it. And some will work with a law firm, which certainly I would recommend. I think for larger teams, it’s very feasible because you might have a little more resources. But I was slightly more bootstrapped, even though I did have savings. I got some good, free advice also from an attorney. His name’s Dennis Concilla. He’s out in the Midwest. But he had given me some great free complimentary-type advice at one point along the way. And just through learning more and more, I understood what I had to do.

So I was in the dark piecing together the pieces of information that I was able to take with me. I was working with the compliance firm that made sure that all of my documents were in alignment before they were being submitted to the state.

Michael: And who did you end out working with from the compliance end?

Steve: Yeah. So it’s Foreside now. It was NCS and then Foreside acquired, NCS. So that’s who I continue to work with to this day from that compliance standpoint. So they were the ones who put together my agreements, really walked me through everything.

They knew Broker Protocol, but I still had to do a lot of research on my own and make sure that I was comfortable with it. It’s in my nature to know as much as I possibly can about every detail around it because this is my livelihood. I have a family to support. So I was going to ensure that I knew everything and that I didn’t end up moving forward unless I knew it was done appropriately. So I had all my information.

Michael: Were there key milestones or things that you were really focused on, what you had to get through in the buildup to make a transition?

Steve: Yeah, I wanted as much as possible. So I knew the custodian relationship. I was working with Fidelity. And I opted for Fidelity early on. I guess I’ll talk about them a little bit. And just the process that I went through was awesome. I think I listened to a Michael Henley podcast with you, and they really chose Fidelity as their primary custodian. So I had formed this relationship or started speaking with a gentleman by the name of Will Benenson at Fidelity who has been phenomenal throughout this entire transition and process. And love the fact that they were private.

They assembled the transition team for me. Even though I technically had lesser assets than they might have as a minimum, they saw the value, I think, in working with me. And they’ve just been rock stars. Everyone that I’ve worked with from that perspective has been great. And that partnership, and I’m kind of sidestepping to this custodian because it’s so important just now with what’s going on with Schwab and TD Ameritrade, or Schwabitrade I think as you’ve coined it, Michael.

Michael: I just think it works. Why would you not call it Schwabitrade?

Steve: I love it.

Michael: It rolls and it preserves Chuck’s legacy. It’s great. Yeah.

Steve: That’s right. So with Schwabitrade going on, and there’s Pershing there too, but there was kind of limited…and I don’t view it as…others might be more of a vendor, where you can switch things up quickly, but that is not how I viewed it early on. And I felt the sense or I got the sense that Fidelity viewed it that way too.

It was purely a partnership and that they were in it to support me and I’ve really continued to feel that way moving forward. And again, the fact that they were private, they weren’t beholden to shareholders’ quarterly reports, it just made sense to me. And I valued that. So that was one of the biggest pieces outside of the compliance perspective, that was one of the big things was finding out which custodian I was going to work with, and then kind of parlaying from there with the tech stack and figuring out all the moving pieces that go into owning your own business.

Michael: So were you evaluating and getting into other RIA custodians as well and having conversations with all of them or did you just talk to Fidelity early on, and it was like, “I like that you’re privately held and I really like the interaction I’m having with you and the way you’re supporting, it’s like, this is going to work for me, I’m moving forward from here?”

Steve: Yeah. And at the time, when I started talking with them, I was also researching XYPN, and I saw that there was a relationship there with TD Ameritrade. And I knew a little bit about the minimums from doing some research, but I think I had to be live before…from what I had read I think online, where I had to be live before I really started forming that relationship with them and getting things going, versus I was able to plan things out far in advance with Fidelity.

And that just kind of solidified it for me even more, even though I was leaning towards them from the onset. They have a strong Northeast presence. Obviously, a lot of retirement plans are maintained through Fidelity in the Northeast specifically. So there were just so many factors.

The fact that they had higher cash sweep options was big for me. And I felt like they were doing things the right way. That went back to me to being private. And the fact is I didn’t talk intimately with any other custodian. So I can’t speak to them. And maybe they would have been just as beneficial, but I just didn’t experience that really as much. So I can only speak on behalf of the relationships that I formed with Fidelity.

Michael: Well, they’re powerful points of just, they were working with me, they were ready to work with me to have me go live the moment I do the transition break. Because it’s a big deal, if you’re launching your own from scratch, obviously you want to get going just because you want to get going.

But you can do that pre-work on your own or on the side and just decide when you’re pulling the switch to say, “Okay, I’m going to quit my old job or leave my old firm and go and do this.” When you’re in a breakaway process, particularly in a large firm environment, the other people in your branch will be calling your clients next Monday to ask them to keep their business with the company. So for the breaks, when they come, you tend to really have a pressure to say you’ve got to do it fast because you want to be first call out to your clients.

Steve: Or even that Friday, not calling on Monday, even that Friday when I broke in the afternoon. It was quick on the draw that time.

Michael: So you resigned Friday afternoon and they were already redistributing your clients to other people to call while you’re walking out the door?

Steve: Yeah. And I didn’t resign late on Friday afternoon because I wasn’t going to take the chance. Once I had gotten the go-ahead and I knew my firm and I personally as an individual had gone live with the state, with my firm and I was on Broker Protocol list and received that email, I wasn’t going to wait.

At that point, I’m paranoid, the U-4 is on, and it could be found out. So once I received that, knowing that I was on the Broker Protocol list, I went in and tendered my resignation. It was more midday, it wasn’t late afternoon. So there were a few hours where they were able to distribute accounts. Yeah. And they reached out to a few clients. And a couple of them, as I was working my way down my list later on in the day, had been called first by them.

So they did receive that initial shock to get the news from a different advisor. But it was more of a joking matter at the time, honestly, because I think the ones who were called before I reached out to them and relayed the message, I had a very, very strong relationship with. So it was kind of funny at the time.

Michael: Yeah, just it’s part of the very real-world reality of sort of the sensitivity of the timing. Like, I need my U-4 to get filed so that I’m properly registered with the new firm, so that I can then file the new firm in the Broker Protocol so that I’m legitimately making a protocol to protocol switch. But if it takes too long, the firm may get notification that my U-4 was filed and then they’re going to call my branch manager and have me terminated because I just registered with another firm.

It is still the challenging reality, that day is still very messy. And as we heard with one guest who joined us in the past, he went in to resign Friday afternoon, his manager wasn’t there. They were out at a game.

Steve: I think that was Mike Henley. Yeah, I think that was Mike Henley from Merrill. Yeah, they were away in town. But as long as it’s somebody 8, 9, 10, they have a supervisory license, you’re able to present it to them, the proper immediate…effective immediately resignation and with the, as you know, the five pieces of information and an attached account number list that you provide to them. Of course, you can’t take the account number. So I can’t stress enough.

Michael: You get name, mailing address, phone number, email address, and titling of their accounts.

Steve: Titling. That’s right. Yeah. And then that along with the account numbers is what you present to the firm that you are leaving, along with a letter, preferably with your new company’s letterhead, stating your effective immediately resignation. And just make it simple.

For anyone listening to this that is potentially considering it, make sure you follow all the steps that were just outlined. And while there were a number of other podcasts I listened to, I still had to piece things together, I felt like, because I was largely on my own. Even compliance firm, there’s a lot of compliance firms who don’t know every single detail when it comes to exactly what you need to do for Broker Protocol.

So I just ensure anyone listening to this that they follow all those steps. The U-4 submission, the firm goes live and submitting the Broker Protocol at Capital Forensics where you submit your company for it to be added to the Broker Protocol list before resigning. So it’s a very specific process and timeframe that you have to follow.

Michael: Yeah. And to me, it’s one of the reasons why I really am a very big supporter of getting a compliance expert involved, of having a compliance firm supporting you and in your corner on it, just if you’re really making that transition, their clients to move, look, you can do it, the whole point of protocol is you can do it, and it is permissible and you don’t get in trouble, but it is a super-specific process.

Firms don’t like losing people and knowing that assets are going to follow them. It’s like, if you screw it up and give them an opportunity to come after you or try to put a restraining order on you or throw a legal challenge at you for violating your non-compete or your employment contract, they will do it. They’ve got lawyers whose sole job is sitting around and waiting to send some nastygrams to people.

So if you keep your nose clean, there is a process. And it is there for a reason. Because all the firms figured out years ago that constantly suing each other was not really productive at the end of the day. But don’t give them an excuse to come after you.

Steve: Yeah, do not give them an excuse. Maybe they won’t either way, even if you didn’t execute it perfectly, but do not give them the ability to just…don’t leave that open. Make sure you’re doing it all the way, not partial.

The Decisions Steve Made For His Firm’s Technology Infrastructure [01:07:55]

Michael: So you mentioned kind of the overflow of decisions you were looking at. You made Fidelity as the decision for your custodial platform. So what was the decision for the rest of the core technology that you need to run the firm?

Steve: Yeah. So demos, lots of demos, of course, on the different types of technologies that are available to us. And what a world we do live in now with, obviously technology in all industries, but from fintech’s perspective, it’s incredible. And the reasonable pricing too of these various technologies.

So I demoed a ton for financial planning, which was probably the next most important piece from a tech stack perspective. eMoney had been purchased by Fidelity. And there were, obviously, seamless integrations because of that. I just felt the type of planning that I was doing, where it was a combination of goals-based and cash flow planning, depending upon the type of client that I was working with, I just liked their platform the best. I felt like the prettiness from the client perspective when they log in and having it as a portal was phenomenal. And the ability to do interactive planning with clients is really, really amazing. And then from the usability side and the price, it all made sense. So eMoney for me was kind of a no-brainer.

CRM, client relationship management software was probably the next one that was important. Wealthbox is what I ended up deciding on. I am an Apple user, and I like stuff that is well built. And yes, maybe it is kind of closed off from a functionality and customization perspective, but it works and it works well. So as other Wealthbox users know or those who might look to demo it at some point in the future, it has kind of this Facebook feel, but there wasn’t too much there.

I’d come from a world where I was using Salesforce, and yes, there’s an incredible amount of functionality within Salesforce and customization that you can do, but for me, being an Apple user, it was too much. And that’s kind of the easiest way for me to describe it was that it was Android versus Apple.

Michael: Yeah. I was going to say like, it’s just designed well and it works to do what you wanted to do, and like, great, check that box and move on to my next decision.

Steve: Yeah, I try and apply the KISS method, keep it simple, stupid, as much as possible when making any kind of…whether it’s a business decision or any decision in my life, just keep it simple. And so it felt like it did what it needed to do. They also, of course, now have the email feature within Wealthbox, which was a nice added feature. And the price is incredibly reasonable. So that’s CRM.

Now I’m at the point where all the other technologies, I started using Kwanti, obviously AdvicePay through the XYPN Network. And kudos to you. I’ve got to give a shout out to you and Alan Moore through XYPN and the flat fee offering that you guys have there and the resources that are available within are awesome. And I think even more important, the community there is phenomenal. It’s kind of priceless.

On top of that, all the technologies and the resources have been great. So I’ve been able to now kind of nitpick and finalize some of the other pieces of technology that I needed to bring on to have the kind of service model that I wanted for my clients.

Michael: So in terms of the tech, obviously AdvicePay for doing and collecting financial planning fees and getting paid when you’re not on an AUM model, Kwanti is more of an investment research platform, doing some of your analysis and proposals. So what are you using for performance reporting and such?

Steve: Yeah. So this will be similar to the Michael Henley podcast I guess as well, where I’m really using eMoney and the custodians themselves, whether they be within Fidelity or if clients have external assets because I am passive.

I believe markets are incredibly efficient, especially now with data being available the way it is, and at the rapid pace that it’s available. I’m not trying to beat anything out, so there is performance flow-through within eMoney, especially for the Fidelity accounts, not yet for external accounts, unless you’re using a portfolio aggregation type of software where it’s giving performance reporting.

But honestly, that’s the most costly. And I don’t know yet, maybe I’ll end up shifting on this, but the type of clientele that I work with, it just isn’t necessary because we’re not performance-driven.

Michael: So in essence, eMoney portal has its Fidelity integration, so it’ll show you account balances. It gives you at least some basic performance indication of just literally like how your money is doing and the rest of what we tend to do in performance reporting, which is a lot of like performance relative to benchmark and performance breakdowns and attribution analysis and such. Just you’ve got a more passive investment approach.

It’s not part of the conversations with clients anyways, so just not paying for that software. Let clients see it through eMoney and whatever they get on the Fidelity website.

Steve: That’s right because it is costly. Whether it’s Orion, Black Diamond, some of these different providers, that’s one of the more costly things that you’d end up having to shell out some money for.

But I’ve been using now, and this is still early, right, my firm went live on December 13th, so I’m very much in an infancy stage, even though the transition has gone very well, I’m now starting to use Kwanti, believe it or not, where you can pull in outside through some of their integrations.

And I’m using certain types of model portfolios that are built out with usage of Vanguard funds, some Fidelity funds. In the process of working with DFA. I’m sure you’re familiar, you have to kind of get approved. And building out those portfolios and then just tracking it against a benchmark or an index. And we’re not trying to beat the world.

The value that my feeling is and what I’m providing to my clients is on the planning side, it is on the tax efficiencies, it’s on estate planning. It’s on just emotional, behavioral types of things that an advisor working as a counselor for their clients is going to have an effect on.

How Steve’s Client Transition Process Worked [01:14:30]

Michael: So how did this go from the client transition end? At the end of the day, did a reasonable number of them come along? Did all of them come along? How hard was it to get them to come along or not? How did that go now that you’re a few months into this transition?

Steve: Yeah. So it’s going to be close to that 80% mark of the clients that I wanted to bring with me. I’d say it’s the actual clients have come over thus are getting close to 60%, but there’s that other 20% of the clients are still in the transition phase where just schedules, start of the new year.

Obviously, I broke it. We were coming into the holiday timeframe. So there are those who have had some difficulty finding the time but have still said yes. It’s just making sure we get everything signed up and moved. So close to 80% from that standpoint is going to end up coming over of the clients that I wish to bring with me. Yeah.

Michael: Okay. So recognize like the total that may come may end out being a little bit lower than 80%. But we don’t always want to bring everyone. Sometimes they’re not a great fit. Sometimes they may not fit the future model of what we’re doing. Most of us have that subset of clients like, yeah, if I changed firms and they didn’t come, that would be a real shame.

Steve: Yeah. And some of them were hand-me-down clients too, right? The bulk of my clients within Merrill were ones that I brought in on my own, but I had a number of a few inherited clients where I didn’t have a great relationship from the get-go because I didn’t bring them in. And I still served them well, and I…if I really wanted to, but the relationship just wasn’t phenomenal from the get-go. So those types of clients as well.

Michael: Oh, interesting. And so is that in line with what you were hoping for or expecting?

Steve: It was, yeah. And that’s not to say…I knew there would be some surprises. That’s just how life works. Those colored glasses are not always going to be rose-colored. So I knew there was going to be some hiccups. And there were. And when it happens, you face that rejection. The similar types of rejection that you have when somebody doesn’t want to move forward with you as a client or whatever it is, it’s the same type of rejection and that feeling that you get. But if you had planned appropriately and had been thoughtful around what was going to happen, you would have been expecting it. And then you’re able to move forward very quickly and just move on to the next one, basically, and still be cordial. And maybe they’ll change their tune in the future if the relationship they end up building in that same firm is not up to par or how it was prior.

Michael: And so that’s part of why even saying, “Okay, I know I’m not going to take all my clients because there’s some I just don’t really want, I’m finally behind,” even of the ones that you wanted to bring over and knew you were going to make an outreach to and ask them to come with you, assuming you were only going to get 80% of them, because you were just assuming like, “Some of these are going to be surprises, I don’t know which ones, but I’m budgeting for the surprise?”

Steve: Yeah, yeah, exactly. And one of them was a bigger surprise and a slightly larger client. But under my new fee structure, it’s not as critical, because, for wealth management clients, my fee is really tiered from $5,000 to $10,000. I’ve kind of capped it at $10,000.

So it didn’t hurt me as much from a revenue standpoint, but that was one that was a bigger surprise. I just thought the relationship was better. And that’s the reality of this. I think others might want to paint it where it’s this perfect picture and no, I’m bulletproof and everybody loves me and there’s no way they’re not going to come with me. It’s just not the reality. So when you have that bigger shock.

But luckily, it didn’t hurt too much from that revenue standpoint.

Michael: Well, and there’s a piece, I think, to it as well. That when you build, particularly in a large national firm environment, right, a company like Bank of America Merrill Lynch, a piece of why a lot of advisors go to companies like that to build their career is you get this implicit trust imbued on you from having a large national brand and a company name that every prospect and client knows and is familiar with.

And it gives them a certain level of comfort and confidence that their money is not just going to vanish one night, because heck, even if it doesn’t work out with you, there’s like a bajillion other people at your firm.

And the good news of having that brand on your business card is it can help bring in business and get going. I think particularly for some advisors when they’re very new and having to establish their own credibility and relationship yet. But the bad news then when you go out and you go independent, A, some people will decide at the end of the day they actually were more loyal to the brand than you, which may or may not hurt, and for some, there’s a reason they picked that firm, they like giant national brands.

And no matter how good you are individually, they just don’t have the same confidence in, “You’re hanging your own shingle? Like, you’re going from that giant national firm and hanging your own shingle? I just don’t know if I’m comfortable in startup realm.” And not entirely a fair characterization since obviously the assets are custodied with Fidelity along with a few trillion others, but there is a perception difference for some clients where big national companies, national brands matter.

Steve: And then there is the flip side too. And I think yes, that has primarily been the case for the test of time, but now, more so on the other side, there are those who love the fact that you’re going out on your own and that you are creating something separate from the big bank and from the wirehouse firm.

So yeah, I think more so to your point, the convenience of having the banking consolidated under one umbrella and receiving some rewards, that was more so what it was. It wasn’t necessarily the fact that it was just strictly the brand, because brand reputation has been hurt, especially, I think, for those who have been purchased by banks.

But I think even more so is just the fact that having banking and rewards programs under that same umbrella was a piece of it, especially for the clients that didn’t come with me. Yeah.

Michael: Yeah. Well, and fair, like, they call them rewards loyalty programs for a reason. Like, they help promote loyalty. It works. It makes people want to stick around some time to feel like they’re getting rewards for being a loyal, continuing customer at some of those companies.

Steve: Yeah, absolutely. And that was one of my selling points while I was there. The fact that you could do that and there were different types of rewards. I’d come from the banking center. So I knew those programs very well from the banking perspective. So that was a big part of my pitch. So no surprise that that was one of the reasons for a few of my clients that wanted to remain. And we’ll see where that goes.

What Steve’s Business Looks Like Today [01:21:42]

Michael: So talk to us about the business as it exists today. What did you go stand up and create when you decided to go on your own? Because you’ve mentioned a few times being inspired by James Osborne, who runs a flat fee model, not an AUM model, and that you were looking at some non-AUM options. So what is the business today and how does it actually work?

Steve: Yeah. So it was an amalgamation of all these different ideas and structures that I had seen elsewhere. And from a pricing or fee structure standpoint, I did want to be able to service a wide range of clients.

I felt that by using strictly a comprehensive wealth management singular flat fee similar to that of James Osborne’s structure, I felt like that was going to limit who I could assist. So what I’ve done is I do have standalone financial planning where I can do financial plan construction for individuals. The pricing is between $1,000 and $1,500, depending upon whether or not they become a retainer client.

If they choose to become a retainer client, that’s $130 a month for strictly financial planning guidance. Similar to a financial fitness membership, it’s how it’s labeled with on my company website. I think people are in dire need of that now, with just the amount of excessive debt that’s out there and knowing where to put your money, how to pay down things, asset location, all these financial planning pieces that people really need assistance with.

I wanted to be able to do that not strictly for those who had amassed a certain amount of assets, but for those who just needed to have strictly financial planning help. So that’s one piece.

And then the other, which is the bulk of my clients now, because that’s how I served clients under Merrill Lynch and that’s who transitioned over, is the comprehensive wealth management client where I’m doing both portfolio management and financial planning guidance for. And those fees will range from really $5,000 to $10,000.

There are some that are a little bit less than that from clients that I had brought over from Merrill. That’s an annual fee paid on a quarterly basis. It’s essentially that kind of flat fee retainer. So that is what things look like now.

And echoing some of the ideology that James had discussed on that prior podcast is I had grown uncomfortable too with a number of my clients that maybe were in the $2 million to $5 million range, and I was doing the…I hate to almost sound like a robot or a repeater, but I was doing approximately the same level of work, maybe a slight amount more for those clients versus somebody who had closer to half a million dollars. So that felt the same way.

So while I still used tiers, and I guess I can discuss that, I made these tiers where between half a million and $1 million, it’s a $5,000 annual fee, $1 million to $2 million, it’s $7,500, and then $2 million up, it is capped at $10,000. So basically, at the highest end, yes, you are at 1%. And that is where it’s capped to say if you had exactly a half a million dollars, but then from that point on, you are getting relief.

And especially as you get into the higher net worths, you’re getting a more tremendous amount of relief, because, again, my feeling was that the amount of work was incrementally higher, given why I still have slightly higher fees at that higher level, but not 2, 3, 4, 5X what it was.

Michael: Okay. So basically, up to $1 million is $5,000, $1 million to $2 million is $7,500, $2 million-plus is $10,000 and just they’re flat tiers?

Steve: Yeah, exactly. And there’s still…obviously, there’s language within the ADV for pricing where there’s negotiation that can happen. If a client who came along who was ultra-high-net-worth or had estate planning issues that were very intensely complicated, then it could look different. Yeah. So that’s how I formulated it.

Michael: So in practice, as you took that back to clients, was that a fee increase for them, a fee decrease for them? Was there some of each where some ended out being a little higher and some ended out being a little lower?

Steve: It was the same or less for everybody because I was charging 1% or even slightly higher than that. Because at one point earlier in my time at Merrill, kind of the base percentage that you could charge without getting a haircut, essentially, was a little over 1%.

But now, since my fee is really at the highest level of 1%, it was the same or less for everybody. And it was easy for me to explain. I think advisors get caught up on this notion that percentage is so much easier. And it’s so much more clandestine the way we explain it, where it’s not right in your face.

But I haven’t had a problem because it’s just very quick. Like, give our clients credit and say, “Hey, at 1%, you were getting charged so-and-so, I am now going to charge you this flat fee. It is less than what you would have been charged under that percentage of assets under management model.” And just get over the fear of that lump in your throat of saying the hard dollar figure.

So I haven’t had an issue with it. And my clients, the clients that I brought with me, it made sense to them very, very quickly. And I think as consumers become more knowledgeable and there are advocates for them, and with technology and automation making administrative back-office work far easier for individuals like myself and my types of practice, you’re going to see that type of structure more and more. Hence I’m sure XYPN is a fan of the fee-for-service model.

Michael: Yep. Yep. Well, and to me, it’s interesting in twofold in that, it’s not just about redistributing or re-managing clients who were on AUM and can afford AUM who were just going to say, “Well, we’re just going to do this flat fee arrangement because it’s different pricing on that end.”

But as you’ve noted here, the other clients, you can start working with when you say, “Or we’ve also got this ongoing monthly fee option. And like, I don’t care what your assets are, I don’t care if you have assets, this is just a financial planning relationship and I will charge you for the financial planning advice, and we can work on that basis. And it doesn’t matter if you’re bringing assets to the table or what they are.”

Steve: Yeah. And the benefit, the additional benefit because of that is that it functions as a feeder, right? You have those who are probably closer to age, me but have a higher income but haven’t amassed a great deal of assets yet, and it functions as a perfect feeder type of relationship to become your comprehensive wealth management clients eventually.

So I just wanted to make sure that depending upon the trajectory of my firm in the future and some of the vision that I have for it, I wanted to be able to service as many clients as possible and potentially allow maybe bolt-on advisors or others who could plug in at some point to do it that same way and have that type of feeder system to bring about the larger paying comprehensive wealth management clients at that level.

The Most Surprising Thing To Steve, And The  Lowest Point In Building His Own Business [1:29:15]

Michael: So what surprised you the most about making this transition to independence out of the big firm into your own firm?

Steve: It’s tough. I don’t know. I haven’t had a great deal of giant surprise. I mentioned the couple of clients that for me were a big surprise that chose not to come with. Again, it’s only been about a month and a half. So I’m sure I’m going to have some additional surprises along the way. Nothing has reared an ugly head that’s been a shocker for me.

I think early on and during the process of opening things up, you think everyone’s going to have this great deal of support behind you, but there is…as you talk about with that success and that mountain of success and everything that is below, there’s a lot of skepticism too.

So I think at times when anybody is…as an entrepreneur would know, you might be surprised by…people might not be willing to throw the complete support behind you. But that’s not just this industry, that is just being an entrepreneur at all. Because people tend to go towards the more comfortable route, but I guess it is still somewhat of a surprise when you might think some would be really behind you.

Michael: So that’s in terms of just like friends and family dynamics of people are like, “Dude, Steve, you’re at this big national firm that we all know, why are you going out and hanging your own shingle? You’re crazy. Stay at your big firm.”

Steve: Yeah. And I think ultimately that is because they’re concerned for you and they want to make sure that you’re okay. But when you’ve done the amount of research that I did, when you’ve put the amount of time and thought into it that I did, I felt confident, but they didn’t. And you can’t expect somebody else to think along those lines because they weren’t in your shoes. So I say it’s a surprise, but…an actuality, maybe it wasn’t a complete surprise.

Michael: So, what’s been the low point for you in building the business over the past five years?

Steve: Over the past five years? I think I haven’t had that low point yet, because, again, when markets have been calm. I have a feeling that at some point if markets that create…work is a lot harder when there’s turbulent markets, when that time inevitably comes. So there haven’t been a great deal of low points.

I think I’ve been able to manage and balance my time relatively well, especially because I have two daughters now and I’ve experienced the birth of my two children over the past three years. And that was incredible. Being and doing what we do, you do have the ability to have afforded a little bit of extra time and some flexibility with how you manage it.

So I guess because I have had to commit a large amount of time now to do what I’m doing and opening my business, I haven’t felt it as greatly, but that is a low point where I haven’t been able to spend probably quite as much time with my daughters at the younger ages, but I still have a decent amount, and what I would think would be pretty fortunate compared to maybe others who are in the military or something else. But that’s one aspect because you do have to dedicate a lot of time when you’re getting something like this off the ground.

Michael: So after five-plus years of building in the business, anything you wish you could go back and tell you from five years ago based on what you’ve now learned, having done this for a while?

Steve: Have confidence in yourself. Just continue to have that confidence where if you have an idea that you are passionate about and you think something should be done in a certain way, then move forward with it. Obviously, do your planning and have a certain vision for it and put everything in motion the right way, but don’t be afraid to push forward and do those things that you want to do. Because ultimately, purpose is what drives our lives, right?

The slogan of my firm is wealth is freedom found. It’s something I wanted to bring up because it’s something I think about all the time. It hit me to the core when I thought about what wealth truly is. And not just wealth in the financial sense, but…his name, I think it’s Zaid Dahhaj. I had read something at one point where he talks about these different types of wealth: financial wealth, social wealth, time wealth, and physical wealth.

And one of the early blog posts I wrote discussed that and how he states, “Be careful of those things that rob you of your time and physical wealth to provide you with financial and social wealth.” And social wealth is really status. So that was critical to me.

And just building something that allowed you to focus on those things was awesome. Yeah.

The Advice Steve Offers For Newer Advisors [01:34:12]

Michael: So what advice would you give to newer advisors that are coming into the industry today and want to be a financial advisor?

Steve: Focus on doing the right thing for the client, first and foremost, regardless of whatever else you hear out there. Obviously, obtaining your CFP I think is kind of just a baseline for obtaining knowledge and making sure that you are going to be able to serve clients in the right manner. So do that.

And then finding a mentor. Find somebody who has been through it, who’s traveled down that road and who has strong character and has the right level of integrity so that you can attempt to kind of model what you’re doing after them to an extent while still, of course, implementing your own way of thinking around those things.

Michael: I like that. I like that. So where have you found your mentors?

Steve: I had a couple within Merrill, where, whether they were just incredibly helpful from learning the red tape when you first get in and also more the philosophical approach.

I’m thinking right now when I think about it, right? Will Hunting in the “Good Will Hunting” movie, he talks about these individuals that he never knew, right? But for me, I’m talking to one of them who I consider – you, because I spent all this time, where individuals like yourself, Steve Lockshin, I mentioned before, James Osborne, I think, just by listening to them, and even though I haven’t had in-depth conversations with them, I’ve learned so much.

Because your immediate circle, when you’re an advisor, and especially when you want to have a structure the way I’ve structured my business, you might not have a lot of people who are on the same wavelength as you. So it’s incredible now speaking with you, someone who is in that same space, whereas when you’re attempting to explain it to your buddy that you grew up with at your hometown and you go out to the bar and have a drink with or something, you’re not going to be able to have the same kind of conversation. So I think some of those individuals I mentioned and listening to them and reading things is what I would consider mentors as well.

What Success Means To Steve [01:36:29]

Michael: So as we wrap up, this is a podcast about success, and one of the themes that always comes up is just the word “success” means different things to different people. So you’re off on this success journey, you had the successful transition out of the big firm to make the thing that you want to make in the future for the advisory business, but I’m just wondering, how do you define success for yourself at this point?

Steve: Yeah, I think first and foremost, it is pushing yourself for change, because it’s not always about becoming comfortable. If you’re not adapting and you’re not trying to find yourself at the forefront of the curve, you’re going to just get gobbled up through inertia. And to really experience what I would consider happiness and contentment, you have to have this additional drive that only comes from purpose and doing the things that you’re most passionate about.

I think that’s what’s coming to mind right now. But thinking back to a prior podcast, I forget who this was, I think it might have been Mike Henley again, he was incredibly simplistic the way he described it. It is doing the things that you love in the places you love, with the people you love. It was kind of the easiest way to describe what success truly is. Because if you’re doing that, you’re going to be content. And to me, contentment is happiness.

Michael: I love it. I love it. Well, I’m excited you got to make the transition to, as you said, to get to do the thing you love in the place you love with the people you love and building the business. So I’m excited to see where it goes for you here as you build on the next stage. And hopefully, we want to come back and join us in a few years and maybe give us an update on how the journey is going.

Steve: Yeah, I look forward to it.

Michael: Awesome. Awesome. Well, thank you, Steve, for joining us on the “Financial Advisor Success” podcast.

Steve: Thank you, Michael.