Maintaining Good Work/Life Balance While Adding Advisors And 4X’ing The Firm To $315M: #FASuccess Ep 479 With Andy Panko

Podcast Player:

Resources Featured In This Episode:

• Andy Panko: Website | LinkedIn
• #FA Success Ep 297: From $0 To $70M In 2 Years By Leveraging Facebook Groups To Share Authentic Expertise, With Andy Panko
• Kitces Report: How Financial Planners Actually Do Financial Planning
• Retirement Planning Education
• XY Planning Network
• Synergy Compliance Education
• Cyber Secure RIA
• Retirement Income Certified Professional
• Ed Slott and Company's Advisor Training

Full Transcript:

Michael: Welcome back, Andy Panko, to the "Financial Advisor Success" podcast.

Andy: Hi, thanks for having me. I'm very much looking forward to being on again and sharing the story of how things have changed since the last time I was here.

Michael: Yeah, I'm really excited to get to talk about the changes over the past few years, and I think just more broadly, I guess, both the challenges and opportunities that crop up as firms go multi-advisor, and often, start getting consumed with more work hours that tend to kick in. And we find this empirically in the productivity research studies that we do, that most advisory firm owners get drawn into more working hours as the firm grows and they staff up. For the remarkably simple reason as the firm grows, there's a business to be managed and there are more and more clients to be serviced. And now, suddenly, you have people who report to you that need one-on-ones and performance reviews, all the things that come with management. And it's the expansion of management time in particular that usually starts adding, at least, a couple hours a week to someone's work schedule, which ideally, we try to offset through more aggressively delegating things down to those team members. So, at least, we delegate down as much as we take back in management.

Now, you have been in the midst of this rapid growth phase. You joined us about three and a half years ago in 2022, and you were $70 million under management. Already growing quite rapidly to have gotten there in just a few years after you launched. Now, we're fast forwarding. It's almost four years later. You're more than 4X the size, and still maintaining very healthy work-life balance and good work hours. And so, I'm excited today to get to talk about, I guess, both growth journey over the past few years and what it's been like to cross the barrier to add advisors when early on, I think you had said you were pretty intentionally solo at the time, and how you managed to keep the firm and work hours healthy as you've been going through this growth phase.

Andy: Yeah. And that's been the overarching goal of mine from the get-go and still is, is I very much want the lifestyle look and feel of this. I came from... Nineteen years prior to starting this firm, I was in corporate finance world, corporate banking, financing, investment management, risk management, and didn't want to do that. I didn't want the fixed hours. I didn't want to commute, etc. I didn't want to manage people. I didn't want to be managed. So, I started a firm to be a solo because I wanted the antithesis of everything my prior life was.

And as we recapped on the last episode, which is, like you said, late 2022, got to where I wanted to go much faster than expected, thankfully, and basically, closed the doors. I wanted 40 to 50 clients that I would fully serve myself with zero help other than some compliance support…but zero admin support, zero trading support, zero planning assistant support. And I had the quintessential lifestyle thing. Everything was great.

And I think I said, when we wrapped up the episode last time, something along the lines of, I'm steadfast, committed to staying solo. But I know me, ask me again in a year, and my story may be different. And here we are three years later, the story's very different. But I still keep the governor of, even with growth and with employees and staff now, I still very much have what I feel is a lifestyle thing. It does not...running this business, serving my clients well. Which is still the same client load I had at the time. I'm not looking to scale myself up. I still have the flexibility I want between my work time and my personal time. So, that's what guides me.

Andy's Journey To 4X-ing His AUM Over The Past Few Years [06:34]

Michael: So, take us forward a little bit further on the journey. I guess actually, even let me pause there and make sure that we, I guess, paint the picture of where you were in 2022 when you had joined us last. I think you were coming up on your 40 or 50 client target. Where was revenue? Where were working hours? What did the business look like for you at that point?

Andy: Yeah, so at the time I had, I want to say, 40-ish households. It's not where a household, is either a single person or a couple households. It was only ongoing business. I had stopped doing hourly work. I stopped doing one-time plans or any other limited engagement work a year or so prior. So, it was only just ongoing planning and investment management relationships where the other sort of unique thing about the firm is I charge a flat fee. Everyone pays the same dollar amount. The only distinction is whether you're married or single. There's a $1,200 less a year fee for single people versus married. We can get into that more if you want.

But so, yeah, I was at 40-ish. My terminal level was, I didn't want more than 50. And I already had a pretty robust pipeline of people who had reached out. You know, and if I close the doors and said, "Okay, no more, I'm not taking any more intro calls," or whatever, because I was confident I'd get to my 40 something, 50 clients within the course of a handful of months after we had talked. So, at the time, you have 40-ish clients that. I had about $70 million of assets under management across those 40. And that was it. And I did ultimately get to, I think it was 45, 46, 47 and maybe closer to $90 million all said and done before I eventually hired.

Michael: So, let me take a moment to ask about the flat fee structure and what it was. I suspect we'll get into this a little bit more later as we talk about the growth and scaling-up journey. But where were fees at the time? Like, what were you charging? Where did that put revenue for the firm?

Andy: When I stopped taking clients myself and, basically, closed the doors, I believe it was $9,600 a year for married couples, $8,400 a year for single folks. I think I had one, maybe two clients paying $10,800. I like my fees in increments of $1,200. Just keeps math simple. And I like round numbers, but I think I had more than two clients paying slightly more because they had slightly higher complexity. But otherwise, everyone was in one of those buckets.

Michael: Do you actually...I'm assuming in increments of 12 because 12 months, do you bill monthly, or do you bill every quarter?

Andy: I bill quarterly. Yeah, quarterly.

Michael: Quarterly, okay.

Andy: And now, there were some, I should step back, legacy clients, clients from... When I first started in November 2019, my fees were $7,200 a year married, $6,000 a year single. And then I did have a few rounds of fee increases before I finally got to the point where I closed my doors. But I did not increase fees on existing clients. The higher fees were only for new people coming in.

Michael: Okay. So, blended revenue would have been...just inferring the math there, you would have been 300 something (thousand dollars), low to mid 300s with some people.

Andy: People. Correct.

Michael: Some people, the single 40 something households, a few clients on legacy.

Andy: Correct. I'm rounding and I could be slightly off. But I want to say at the time, gross was like, I don't know, $330, $350 (thousand dollars). As I discussed on the last episode, my net take home was pretty high. It was 93%, maybe, give or take a percent. So, yeah, you can do the math. I was personally clearing before taxes and stuff like that, obviously. But it was a little over 300.

Michael: Well, it was you and no staff. your expenses are CRM and financial planning software and a few hours of a client's consultant. like, what were you even paying for at that point? What hit your P&L [Profit and Loss statement] as an expense when there's no team in place? Because you're getting it all done.

Andy: It was a lot. My own expenses were 30 grand, little less. Now, some of that was I had an office, which the business was and is completely virtual. So, I don't even need an office. I was working mainly at a home. But for sanity's sake, especially coming out of COVID I needed to get out of the house. So, when the business started getting some legs and some staying power, I got this little office space a mile from my house. The rent was $750 a month plus Internet plus I had to get some commercial general insurance. So, I was paying maybe 10,000 bucks a year, roughly related to my office. So, that was a third of my total expenses. And that wasn't even necessary. So, like you said, the rest of it was, basically, software, some compliance costs, some professional association, membership fees and things, regulatory filings. So, yeah, actual necessary expenses, $20-ish grand a year, maybe excluding the office, which was another $10 [thousand].

Michael: And how are you solving compliance? It sounds like you were doing something externally.

Andy: Not really much at the time. So, as a solo, compliance is relatively straightforward, especially at the state level, especially in New Jersey, where I am. New Jersey is very, I don't say lax, but they don't do audits. They send you this annual report you have to fill out, which is really straightforward. Everyone I know in New Jersey who stayed state registered has never had an audit.

Michael: Interesting.

Andy: So, it was pretty simple.

Michael: A lot of the states I know, just because their auditor enforcement staff is limited, they have various versions or essentially risk-based audits. Like they go audit the stuff where there's smoke to look for fire. And standalone financial planning practices don't have a lot of fire. they're looking for actual fraud and sale of unregistered securities and egregious sales and billing issues. Like, it's just not what we do with financial planners. We're not really high-risk by the nature of our businesses compared to other things that might be state registered investment advisors.

Andy: And I think that's part of why they sent around that annual report you had to fill out. It's like, "Man, you're a super plain vanilla business. You're not high-risk. We're not going to put our resources towards reviewing you, physically auditing you." So, yeah, to your point, that makes sense.

Michael: And so, at least, before you hit some of the wall, you said you were closing your doors. What were you...because you still had flow. You had all these marketing systems and machines. They just couldn't contact you for a while? Did you start referring all of them out and just trying to send them to other places? what did you do as you were approaching this capacity wall?

Andy: Yeah, the latter. I became a very large advocate and support person for other advisors, namely flat fee advisors who were doing retirement planning firms of people that looked and felt like me and my firm. I had put right on my company's website a list to other advisors who were flat fee, who were retirement focused, who were fee only. And originally that list was six or seven. It got up to over 30. And so, I was just freely giving away on my What We Do section of the website like, "I'm sorry, we're full, but here's a list of other folks you can reach out to." And I had disclaimers on there, said, "I did not vet them. This is not a recommendation. Just here's other folks I'm aware of who kind of do what we do, charge how we charge, think how we think. It's on you to go research them." And so, that list was up there for a couple years.

And it was fascinating to see the number of folks that I've gotten in with and became friends with on LinkedIn or even in person who started their firms or converted their firms to flat fee, not just to get on that list, but definitely, I firsthand witnessed a really large growth in firms who went flat fee that included investment management, retirement focus, etc. Because I personally saw 30 something come up or convert during my few years of when I was full, when I was giving away all these prospects to other people. Eventually, we can get to this later, but the SEC [Securities And Exchange Commission] in effect made me take that list down in a roundabout way. So, I was no longer able just to freely say, "Hey, here's other advisors to reach out to."

But I did have the interesting position of, like you said, I had, and still have, large social and online outlets. And even though now, they're not direct extensions of my business. So, I have the Facebook group, which we talked about a lot last episode. I've since started a podcast which has grown rather large in its own, right? Still a YouTube channel, which I've kind of not too active in anymore. And created a website. I basically created this brand called Retirement Planning Education, which is listed as an outside business activity on my ADV, where it's just me as an individual creating content, giving away education and guidance. No advice, obviously, but lots of just retirement planning and tax planning-related information through various sources.

And that's, again, not direct extensions of my firm. I don't mention my firm. I don't use it directly as saying, "Hey, set up a call with my firm." But in a roundabout way, because of Google, people can find that, they can find me. They then find my business with my company website. And so, it ended up still being really big exposure for the firm and services offered. So, people still find me reach out to the firm. So, that, like you said, the prospect flow didn't go away, which is which I'm thankful for. But I had this issue now of like, "Okay, I can't serve them myself. I can no longer just point them to these few dozen other advisors. Now, what do I do?" So, then it was kind of weird. And that ultimately led me to the decision to, okay, maybe I hire at this point.

Making The Decision To Add Advisors To His Firm [16:01]

Michael: So, take me a little bit further down, I guess, that crossroads, right? You had this goal, "I want to get to my 40 to 50 clients at a good fee." The math was going great. You were probably $350 closing on $400 [thousand] of revenue as you were approaching your 50 clients. Not working a lot of hours, no commute, no one to manage or be managed to. Like, all the things you said. And helping clients still find a good home, and even paying it forward, spawning some other advisory firms, or helping to grow some other advisory firms in the process. So, what changed? Or what triggered a change?

Andy: Yeah, part of it was life circumstances. So, just going back when I was still in the corporate world, it was 2016, I got serious about thinking, "This is what I want to do," meaning, change directions, become an advisor, do it my own way, start my own firm. In 2016, my kids were 9 and 7. And so, I still... They were very young. I very much wanted the lifestyle thing, largely to have flexibility and time to be around with them. Because up till then, between my wife and I, I was the one with working full time, the main breadwinner. She still works. She was job sharing. She was working a few days a week. But otherwise, she was home a couple days and she was the one who was class mom and doing the running around when available. But I was in New York. I live in New Jersey, worked in New York, and long hours, long commute, whatever. So, I was like, "I just don't want this." 2016, I was what? I was almost 40 at the time. I was like, "I don't want to do this another 20 years."

And so, my driver was the lifestyle thing largely because I wanted the flexibility, I want to be around more for my kids, etc. 2019, I launched a business. My kids were 12 and 10. Still kind of young, but not as young anymore. Now, they're in middle school or whatever. And then fast forward to 2022, 2023, they're a few years older even at that point, and the writing's on the wall. Like, they're getting in high school. They're going to be driving, going away to college at some point. So, I then felt and still feel, due to life circumstances, I have more willingness, ability, energy, and desire to put a little more into this thing.

It's still not completely crush myself with hours and take away the lifestyle, look and feel of it, but I have more capacity and energy and focus now that I want to put toward this. Whereas I didn't in 2016, which is why I was so steadfastly committed to being solo and solo only. So, now, my kids are 18 and 16 and my oldest is going off to college next year. The younger one's a year behind that. So, I have big life changes coming. So, that helps drive kind of my views and feelings and what I want and willing and able to do with the business at this point.

Michael: Interesting. So, I just think of this as very seasons of life, and just in the good ways, just the ways our time and capacity and priorities and focus shift as life season changes. And particularly, as we go from the more intensive parenting phase to the less under-our-roof intensive parenting phase.

Andy: Yeah. So, that was sort of my personal circumstance change. Also, and I think I mentioned something along the lines of this on the last episode, was like, I know me, I know I'm a builder, I know I'm going to struggle to sit still, and just be content with what I have, even though it's everything I wanted. Like, I can't complain about it. I just feel like I could and should be doing more. And I'm not saying this in an altruistic way. Like, I'm doing this for the sake of the consumer. Like, no, this is a for profit business and I make good money at it, but I know that we offer something good that a lot of people want and need. And we do so at, what I believe, is a really mutually fair fee. And I feel strongly about that. And many who know me know I'm, almost to a fault, a very vocal advocate of the way we go about doing things and the merits of it and pros and cons and whatever.

So, I just kind of hit this point okay, I can't serve clients, or I don't want to serve clients myself. I could have taken on another 10, 20 clients. I didn't want to. I wasn't looking to scale me up. I couldn't just freely give the business away anymore through this list thing that I had. So, I was like, what if I were to hire? And coming back to my ultimate beacon, was I don't want to ruin this lifestyle thing I have. If I can hire someone, again, not looking to scale me up. But I had figured out and thankfully cracked one of the hardest parts about starting and growing an advisory firm is getting clients.

Michael: Correct.

Andy: Like, learning the technical knowledge. That's not that hard. Anyone could do that. Well, most people could do that. But getting the clients, having an outlet or outlets to get in front of qualified people where you're mutually good fit. Like, that's the hardest part. And I had got that pretty well figured out. So, I thought, knowing I don't want to scale me up, what if I can create a role where I find a really smart, responsible, mature person who I can plug in. They don't necessarily need to be an existing advisor, but they need to be smart and need to be mature. I don't want to have to handhold them. Obviously, there'll be some training and teaching and stuff like that, but I want someone I can more or less trust once they're up to speed, kind of do their thing, be relatively autonomous, for lack of a better word. And I get all the clients for them. Like, they still have to do all the initial intro call, do all the whatever, and all the work beyond that. But getting the prospects, I already got figured out. So, what if I can create that?

I also wanted to do it, to create a role where I would want to work there if I was looking to work for someone else. And so, going back to my corporate life, I did not want to have to do deal with annual reviews and goal setting and the nonsense of, name three objectives you want to do this year. I was like, "Just let me do my job and do it well and pay me for it." That's all I really wanted. The rest of it just seemed like corporate noise. So, I wanted to get away from that.

I also didn't the concept of bonuses. Now, I'm sure I'm probably wrong on this because most industry does it this way, probably for a reason. But I always felt just pay me more in base salary a really good base salary. I'm happy with that. As opposed to the variability and randomness. And there's always some sort of story around bonus time of there's a firm component and a group component in a personal...like, no, just pay me well. So, I wanted, my view was hire someone, responsible adult. Pay them salary, really good salary, no bonus. So, neither I nor them have to mess around with performance reviews and coming up with some metric and matrix to figure out how exactly do you get paid. Like, I want it simple. I want to be hopefully above average, to treat people well. Super flexible.

Michael: It's kind of the like, let's figure out what the salary plus bonus would be. And I'm just going to bake in most of the bonus up front, call it salary. But I expect you to perform at the levels that would have earned that level of bonus and quality and just call it.

Andy: Correct.

Michael: Like, just be good enough to earn the bonus and I'll put it the salary. And if you don't perform at that level, we'll have that conversation.

Andy: Yeah. And the assumption, the expectation about the role would be just modeling it after what I did when I was growing the client base and doing all the work myself was, I know this isn't the optimized way of doing things, but I'm not trying to build the most optimized at the nth degree firm, you do all the work yourself for your clients. Again, I in effect, get the people in the door, but you do everything else from the initial calls to the onboarding to all the data gathering to all the planning to all the trading for them, all the ops for them, all the account opening for them, you're the one who answers emails and phone when your clients call up or email. You do everything for them.

Adding The Compliance And Technology Infrastructure Needed When Bringing On Employees [23:35]

Andy: I'd still run the business. I do all the corporate functions. I do all the billing for everyone. Even I'm the sole owner. I do all the accounting. I did have to start...and I knew this, I'd have to do this, was beefing up compliance. So, I started hiring an outsourced virtual CCO thing. I also started outsourcing IT, because now, when you have a remote employee and additional hardware and stuff I don't know what to do with that. So, I started paying for a subscription to that.

Michael: Out of curiosity, just very practically who did you hire? What did you have to pay to start solving these functions as a business owner who's going down the expansion phase?

Andy: So, like I said, when I was solo, I was comfortable enough doing compliance myself. I'm a member of XY Planning Network, so I use them for my annual ADV updates, and any time I had to file a new state, I use them. But knowing I'd be hiring someone, knowing you'd be purely virtual, this person is going to be out of state. I was like, I'm not messing around with this compliance wise. So, I started looking around. And I had used Synergy [Compliance Education] to do a one-time sort of like soup to nuts compliance and risk review of me when I was still solo and liked what they did, and knew they had this ongoing sort of virtual CCO [Chief Compliance Officer] offering. So, I just like, "Okay, I like them. Let me use them," so I started using them. I forget what it cost, the virtual CCO at the time. I think it was $2,000 a month for state-registered people. I also knew I'd have to get SEC-registered once I hired because I knew AUM would be growing because I alone was at 90-ish just myself. And so, once your SCC registered, it's in $2,500 a month for their virtual CCO thing, so $30 grand a year, I think that was.

Michael: Okay, okay.

Andy: Which I think is well worth it for what they do. They, in effect, do everything they can do without having the title of CCO. That still has to be me, but they do basically everything they can do in their capacity as not formally being the CCO. They did do the SEC registration process for me. They were fully involved in the SEC exam I had a year later with all the prep work and follow ups and responses to the SEC. They do lots of stuff on a quarterly basis, monthly basis, all the checking of political contributions and gifts and trade errors and personal transactions and stuff like that. They do annual books and records review for a random sampling of clients. They do a full blown risk matrix review every year. So, anyway, very happy with them. Long answer to your question, but...

Michael: And then how did you solve the IT part? That's a pain for some of us. I really don't want to have to hire people, and then troubleshoot either Microsoft Word....

Andy: Yeah, exactly.

Michael: What was wrong with their Gmail account?

Andy: I hate computers. I just started asking around in advisor networks, and ultimately, came across one called JM Addington. Their DBA is CyberSecureRIA. Reached out to that. I reached out to two or three people. I frankly don't remember the other two I reached out to. But the one I ultimately went with, which is JM Addington, just really impressed with them. Sounded like everything I needed. Seemed like a fair fee. I don't know. It's like 1,000 bucks a month, slightly more, I think. And what that includes is all the devices we have. So, I personally have two desktops, one at home, one at my office. I have a laptop. And then my first employee at the time has a laptop as well. So, that's four devices plus a couple of printers, plus a modem. So that's how they charge. So, yeah, it's 1,100 bucks a month, I want to say.

Michael: Okay, 1,100 bucks a month for all three team.

Andy: Yeah, for the whole team. Now, the more your team grows, the more devices you add under their management. You know, the fee goes up. But they do a lot…stuff I don't even understand. Like, every week, they're pushing through updates and security patches and stuff like that. Like, things I wasn't doing by myself. They also help troubleshoot if I have any issues with anything relating to office or my computer, I just call them up. They remote and they figure it out, which would have taken me hours to try to do myself. I'd still get it wrong. So, well worth it. But point is that's something that wasn't a cost I had when it was just me and my own hardware. Like, I was comfortable enough running with that and figuring it out. But now, the risk with an employee who's remote, if they go rogue, you want to wipe their system. And now you can do that with these people help monitor that. And they're able to remotely, basically, brick the machine if I want them to, if someone were to go rogue.

Michael: So, it sounds like, obviously, not deal killer because you grew and built on through, but you did have some... like, these are non-trivial amounts of investments to make to be ready to staff up a little bit more. You've got $25 to $30 grand for compliance. You've got $10,000 to $12,000 for IT. You've got some additional accounting billing things to do because there's more advisors and more things. So, I guess just talk to us more about how... you know, are these annoying costs of doing business? Were these investments for the future? when you're staring down this wonderfully high income 90%-plus margin business, how do you think about starting to make these kinds of cost additions to the P&L to expand the team when you're already making good money and running amazing margins?

Creating A Simple, Feasible Compensation Structure For His First Advisor Hires [28:44]

Andy: Yeah, that was interesting. So, stepping back a little more, I still wasn't actively looking to hire yet, but I did have a loose idea in my mind what it would look like if I did. And then thanks to being on your show, I can share her name because it's public, Michelle, who was the first advisor to join, heard the podcast, just cold reached out to me on LinkedIn and said, "Hey, heard you on the show. Would like to pick your brain about some stuff if you don't mind." And she wasn't looking to hit me up for a job. Her story was, she had similar background to mine, came from the corporate investing and risk management world worked in big city and for big firms, wanted off that process, wanted to become an advisor. And so, she was contracting through a couple of different places as an advisor and just wanted to pick my brain about getting clients, growing a business, being an advisor, whatever.

And as we were talking, I was like, "Wait a second, if I were to hire, this is the person I'd want to hire based on what I know about her and her background and etc." So, I just sort of said like, "Hey, instead of you continuing to go it alone by whatever way you're trying to do it, whether it's stay a consultant or start up your own thing, what if we were to work together?" And so, that just sort of... That was, I think, October of 2022, she and I first talked, and then we kicked the idea around for a few months, and ultimately decided, yeah, let's try this this could make sense. And so, it wasn't until that point that I started getting serious about, okay, what's actually involved now in hiring someone? That's when I started looking into the compliance, the technology, that I'll need to be SEC-registered pretty soon. Payroll, all that stuff was all new to me, so it was a few month process for me to research that, figure it out, and start to get serious about those things.

Now, that also helped figure out what the pay would be. Like I said, our firm is flat fee, so the revenue is pretty predictable for every household you add. The revenue is either going to be the single rate or the married rate. So, pretty tight band of revenue per household. And so, I wanted to come up with something where I want to pay people…I should also step back. I only want to hire someone who is a responsible adult who's sort of like career 2.0. By that, not someone who's 25, super eager, wants to take over the world, is going to need a lot of wrangling and development and management of expectations and is going to want ownership in a year and is going to want to be a lead advisor within six months type thing. And we'll probably...well, not probably, but maybe leave you in two or three years anyway, which is absolutely catastrophic to a single-person firm when half the team leaves.

So, I was like, I want to find someone who wants to do this for the right reasons. They want the lifestyle change. They want to be an advisor because I know where they came from. I know what they don't want to go back to, the corporate grind. They're, again, mature, seasoned, responsible. They've been in the working world for a while. Also, important that they know investing well, not because our investment process is complicated. It's not. It's probably one of the easiest, simplest processes you've probably seen. But in order to fully appreciate that and understand and support that, you have to know all the nonsense and shiny objects and complexities there are out there in the investing world to appreciate that, "Yeah, a few basic index funds is all people really need, and I'm comfortable supporting that."

So, having been through the corporate investing world was important to me because that gets investing out of the way. I think investing is a roadblock where a lot of new advisors get hung up on and overthink and trip themselves up. Whereas when I hired Michelle, she already knew investing and knew it well, and she was comfortable with the basic index-type approach that we use. Also, having been around the corporate investing world for so long, she's familiar with the compliance, with what not to say, with all the trainings you have to do, with what's involved in being in this industry, and the things you can and can't do and say. So, that was important.

So, anyway, I realize I'm hiring seasoned people who came from well-paying corporate jobs. Michelle's already a CFA at the time. She already had her CFP. Like, this is someone who rightfully need good pay with high expectations because, again, they're mature, they're responsible, they've been through the working world for a while. But wasn't a seasoned tax-focused, retirement distribution planner like what my firm is, so I knew there'd be training there. Anyway, so a long way of saying, I was like, what's a fair amount of pay for this? Knowing it would be W-2, I didn't even consider going the contractor route. And then we had to figure out how many clients do you want and need, and how many do I want and need to make this worth it for me type thing. And we figured out, needs to be a minimum of 30 clients, maximum of 60. And we can talk about the max of 60 and why. Under our current business model, I think that's kind of like the terminal limit. So, that's a client load. Now, knowing the min and max client load, I can pretty easily back into, what's the min and max revenue attributable to the clients this advisor would have. Now, the hard part isn't...

Michael: Right, if they're all coming in at new fees in particular, it's just shy of 10k a piece. So this is $300,000 to $600,000 of revenue, give or take a little.

Andy: So, then what's fair comp for that? This is where I tried to ask around friends. I tried to look at industry studies, tried to also account for what other benefits, be it directly financial or non-financial benefits there would be with this role. And came up to, for 30 clients, the pay would be $180 [thousand]. Again, no base. I wanted to go back to super simple. I don't want to mess around with funky performance structures. Like, to have and maintain and serve 30 clients pay would be like $180, for 60 clients, I think it was like $320 [thousand]. I forget what it was at the time. A little over $3, something over $3. And then just kind of linear in between every additional client to 30 and 60 would be an additional 6,000 or 7,000 bucks. And that was basically it.

So, now, the other angle was I can't afford to pay someone $180 grand right out of the gates because that would be a massive chunk of my revenue. Add to it the other cost where, again, I knew I need to pay more for compliance now, pay more for IT support. So, I was like, "Here's what I can do. I can't pay you the full freight from day one, but I realize I can't pay zero either." I just sort of came up with some cockamamie structure. I was like, "Pay $40 grand to start with. For every 6 households that sign up, I'll pay another $40, and we'll just kind of like step up to the $180 level for 30 clients." Specifically, it was this is really weird the way I cooked it up, you'd get to $180 [thousand] at 20 clients. And then it would stay $180 until 30 clients. And after 30 is where it starts to step up again for every client you add after that. Don't ask me how and why I did that.

Michael: So, you were absorbing a little bit more on the first 20 to try to get the person to what you felt was a viable level.

Andy: Correct.

Michael: Then they grow into their profitability, as it were. And then you're kind of running in parallel with them. From there is their client base builds.

Andy: That exactly. I was trying to get them to the full minimum 30-client salary as soon as possible without me eating too much of it, too hard and too fast. So, yeah, so basically, 20 clients got you to the $180, and then you stall out between 20 to 30, and then to go beyond that, you start getting more per client.

Michael: All right, so lots of questions here.

Andy: Very different.

The Benefits Of Clients On A Flat-Fee Basis [36:13]

Michael: So, from a comp structure end, was this intended to kind of like literally be a per client? I feel like there's almost this parody. You're a flat fee firm by fee structure to the client, and then you're like a flat cost firm, where every client pays this. The advisor gets paid this much to serve that that that client household. There's a very straightforward parallel or unity to that. like, was that the idea and intention, or just sort of where it where it ended up that you have this fee for service to the client and fee for service for the firm to service the client?

Andy: Sort of. I realize servicing 50 clients, 60 clients is very different than servicing 30 clients. There should rightfully be a noticeable difference in pay. But also, like I said, there needs to be a minimum level where it's worth it for me to hire someone. If someone's like, "Come on, I want to take five clients." Like, no, my fixed costs alone are going to not be worth it. So, I don't know, it's sort of this quasi hybrid model where the amount of pay is, in some regard, directly related to the number of clients you have, again, within that range. It's got to be between 30 and 60 and up to 30. The comp model, it's goofy, and it's just something I kind of came up with that worked for me. And hopefully, it works for people that are wanting to work...

Michael: Because you're just trying to phase in the costs as the revenue comes in, so you're not completely underwater.

Andy: Exactly.

Michael: And I guess, just notable to me, at least, relative to what I see for a lot of other firms, your model was, your comp model is client-based, not revenue-based with the asterisk that your revenue is flat fee with only a $1,200 difference between client types, married versus single. So, your client count is more perfectly related to revenue than almost any other advisors in the first place. Because most firms that are doing any kind of investment management with an AUM structure, you can have wildly different fees per client because different portfolio sizes. So, you think you're client-based, not revenue-based, but just I'm struck that the clients correlate very strongly to revenue for you because of the fee structure.

Andy: Yeah, and that's my fundamental belief, and this has ended up being so. Was that with the people we work with, now, flat fee, I can say with 100% confidence is the best, most mutually fair, fee model for what we do and who we do it for. Because we're very intentional, we have a specialization in tax-focused, tax efficient, deaccumulation planning for people. Like, we don't work with anyone who's under 55-ish. If you have too much complexity, there's certain things we stay away from. If you're a business owner above and beyond a basic schedule, side hustle, we don't work with you. If you have special needs planning, we don't do that. We're not the experts in that. If you have international planning, we don't do that.

If you're not complex enough, if our fees' too expensive, so you have a $500,000 IRA, that's all you have we're not going to take you on. Because I can't, in good faith, charge you $10,000, $11,000, $12,000 when you can pay $5, $6 grand elsewhere and get served just fine. So, for the people we work with, flat fee makes a lot of sense because we're doing and focusing on and offering more or less the same things to different people. And I didn't want one of my beefs with percent of AUM as well, multiple beefs. But investable asset size alone is a very poor gauge of complexity or value clients perceive what they get or actually get or even what goes into it from resources, time, expertise, etc. So, let's strip all that away and just boil it down to, again, for a relatively homogeneous client base like ours, flat fee makes the most sense. And doing flat fee...we don't directly or indirectly sort of prioritize, "Man, this clients pay me $40,000 a year. I'm going to treat them better or special or different than someone paying $10 grand."

Michael: You have no A clients, B clients and C clients. You have clients.

Andy: Correct. And you can even argue someone with a million dollars values their money more than someone with $5 million because they need it to last longer potentially, right? So who am I to say that the larger asset clients worth more gets more value out of it? So, let me just do a flat fee.

Michael: Well, and I'm struck as well, and I've seen a number of advisors that are moving in flat fee directions as you highlighted, wealth and portfolio size is not a great proxy for client complexity, but it is a proxy. It doesn't utterly fail given ubiquity of AUM model. There's some level of correlation of the two that everybody on the consumer and the advisor side seems to have gotten comfortable with. But it's not a perfect proxy. I see a lot of advisors that adopt flat fee structures, then start working on various versions of complexity-based pricing to try to account for, "I need a lower number for the people that really aren't as complex, but then I don't want to overprice my value for the people who really do have complexity," because you're trying to set fees for this wide range of clientele that you may serve.

So, it strikes me that you sort of went the other direction, which is, "I'm not going to do all this complexity based pricing on a range of clients. I'm just going to go after a particular type of complex clients, make the fee exactly right for them, have a straightforward, homogeneous client base. And if you don't want that, that's cool. I'll just help you find someone else because we know the thing we're good at. We know we're appropriately priced for that. So, let's just go get those."

Andy: Exactly, yeah, it's not perfectly priced, flat fee is still flawed, all fee models are. It's the least flawed. It's the least imperfect for what we do and who we do it for. But I also have, as a firm, the benefit of being able to be choosy with who we take on. And that's a function of having built up such a large presence and pipeline, for lack of a better word, with a large market to start with. We don't have a niche. We have a specialization. Plain vanilla retirees who want and need and appreciate really good tax planning around their finances. That's a really big pool of people. How many people in this country are over 60, right? A lot. Millions of them. That's not a niche. That's a really big market, thankfully. We just specialize in doing something really well within that market.

Michael: So, I want to come back for a moment more just for the discussion around the advisor hiring and kind of building compensation around them. So, you'd said that you had this client-based structure. You try to ramp them a little bit faster to 180k of comp where they get to 20 clients, then their comp starts lifting after 30. They cap out at 60. And you had kind of this per client number as revenue ads. So, how you set the number or target the number, was there a percentage of revenue you wanted a comp, or a percentage of margin you were trying to retain or an allocation for overhead you were trying to make? How do you get to 30 clients is $180 and not $160 or $200? Like, how did you do the number in?

Andy: Imperfect triangulation from asking around, looking around, reading around, just feeling what seems fair. Knowing what goes into it based on using my own experience of having built up 40 to 50 clients of my own and what it takes to service them ongoing and the hours involved in that. Like, I can say, for me to service my clients, not run the business, not do all the social media stuff I do, but just serve my 40 to 50 clients, on average, I work under 20 hours a week. Now, there's busy times throughout the year, but I can confidently say, now that I'm done with the onboarding process and stuff with my clients, the ongoing servicing is, let's call it 20-ish hours a week on average throughout the course of the year. So, I'm like, with that number in mind to get to a terminal level of 30 or 60 clients and average hours involved in working and stuff, what do I think is a fair pay range?

And I also want to make sure on a percentage-of-revenue-wise, it's also sort of aligns with what I think is hopefully above reasonable based on other industry data. And so, it landed at 55-ish percent of the gross revenue attributable to the clients and advisors serves is what they get paid in their in their compensation. Now, again, there's no bonus. Like, that's their base. But there's other things I pay above and beyond that. So, it's not like I'm fat cat just skimming off 45% and going home laughing and diving in my pile of gold, Scrooge McDuck.

Because they're employees, not contractors, I'm paying the employer share of payroll taxes, which is non-trivial. Because their employees, not contractors, I pay for all their necessary expenses related to the business. So, all the software, all the regulatory licensing, all the CE, all the ongoing recertification fees for CFP. And I have both employees. I paid for them to get the RICP [Retirement Income Certified Professional designation]. So, I pay for that American College recert fee. Like I also want to ensure they stay up on things that are important and knowledge and stuff like that, and also, be involved in the industry.

So, while not formally written out, what I expressed was the expectation is I'll pay for one to two conferences or sort of training things a year. So, like last year, both employees, there's now two, we can talk about that, but sent them both to the Ed Slott two-day training in Chicago. So, I think ticket alone was $2,000 for each of them to attend plus travel. I started a 401(k) with a 5% match, and there's no vesting on that the match you get immediately vested in. So that's another expense. Plus the back-end expense I pay as an employer for the 401(k) where it's 100 bucks a month to maintain the plan. And so, I'm still making good money, don't get me wrong, but it's not like I'm keeping all 45% and they're not getting paid. There's still a lot of expenses associated behind that.

Michael: And the nature of the job for them is, service the clients and do everything for the clients.

Andy: Correct.

Michael: But they don't have to get them. So, because you've got all your marketing channels, so you queue up clients for them. Do they do they have to do, I guess, the sales and closing process once you've brought them in, or once the marketing's brought them in? Or do you even go through that part, and then then can transition the clients to one of the advisors once they've said yes?

Andy: They do everything other than, I in my presence, is in effect, what gets people to reach out to the company to say, "Hey, I'm interested in learning more and potentially being a client."

Michael: Okay, so from the moment of sales outreach, "Michelle, we got a lead in. Good luck with that. Let me know if you need help."

Andy: That's exactly it. Yeah. Now, initially, when she first started I was on all the intro calls. I was on all the initial planning. I was stepping through and making sure she and I are both comfortable that, yeah, okay, she's good now. And then, obviously, there be follow up questions about technical matters or onboarding matters or operational processes. And then eventually, she got to a point where it's like she's kind of fully on her own with knowledge and knows what to do with the whole process.

But so, yeah, the job requirement, the expectation is that zero business development. My public presence and social content is what gets people to reach out and say, "Hey, I'm interested in learning more." Once they reach out, it's the advisor who fields that and runs with everything from there. They do the intro call. Because it's the advisor they'll be working with. Clients, unless I take them on as my client, they really don't see or work with me at all day-to-day other than I'm the sole signatory of the company. So, I'm the one who sends out the advisory agreement, for example, and who signs the investment policy statement. But otherwise, the advisor is their contact for everything.

So, the advisor does the initial closing, if you want to call it that, with having the intro call and figuring out, is this mutually good fit? Yes or no. But we don't really have a closing process. It's like, "Hey, we think this works. If you want to move forward, let us know. If not, great." And we never follow up with people. We leave it completely up to them. And so, let's assume client says, "Yeah, let's do this." Then advisor is the one who fires off sending them this stuff to get set up with e-money and with advise on. Send them our ADV and other 2A, 2B documents, CRS, do all the data gathering, do all the initial planning, do all the account opening, account transfers, all the investing, all the action items going forward. So, fully owns all aspects of that relationship other than, again, I get the person in the door initially for the initial call.

Michael: And you've got a steady flow of those because of all the marketing things and funnels and pipelines that you've already built over the years.

Andy: Exactly. Which was interesting to manage because I very much was and still am the public face of the firm. Now, the advisors have their pictures and names up on the website, obviously, but I'm the only one who... I write the newsletters on behalf of the company. Interesting fact, all the other content I do isn't directly an extension of the company at this point. So, I've since created this retirement planning education brand, if you want to call it that, which is disclosed as an outside business activity in the ADV. It's just me, Andy Panko, as an individual giving away content and info and education about retirement planning. So, that isn't even directly marketing of the firm, but people learn of me, of that, and they trace it back and find the firm and reach out that way. So, yeah, that's how that works.

Michael: And I would note as well, for folks who are listening, if you want more background on Andy's marketing processes, marketing funnel, you can listen to the prior episode as well. He talked about all the things he did for building and scaling up the business in the first place. So, that was episode 297. So, if you go to kitces.com/297, you can queue up that episode as well.

Why Andy Hasn't Added Admin Support As He's Grown His Firm [49:56]

Michael: So, Andy, I guess, the flip side, so you effectively handle all the prospecting and marketing because they just get served up, leads to close and work with. They do all the planning work. Is there like admin support in place for the advisors? Is that part of the process of the pipeline as well? Or do they handle all that themselves?

Andy: The latter. They handle that themselves. Now, this is something I might revisit if I keep growing and in effect, tacking on other advisors under this model. But I had the time and capacity to do all the ops work, all the admin work when I was onboarding, and now, managing my 40 to 50 clients. And I feel like with the workload the advisors have, again, knowing there's only going to be, ultimately, no more than 50, 60 clients, they can do it themselves. Now, I know it's not glamorous work. And I probably don't appreciate and respect my time and value as much as I should. So, I'm okay with doing monkey tasks or not monkey, but whatever trivial, mundane, sort of not value add work, whereas not everyone is.

But for what it's worth, it does help you better understand all areas, all aspects of the relationship like the account transfer process. If a transfer gets hung up for some reason, the client reaches out and is like, "Hey, what happened?" You don't have to be like, "Oh, I don't know. Let me check with a junior person because they're the one doing it." Like, no you know intimately well, every step, every part of the relationship. And with only 50, 60 relationships at most you have the capacity to do that, in my view.

Now, it is a lot of work. The compensation model is almost flip-flopped because it's a lot of work onboarding these clients, doing the initial calls when they do get onboarding, data gathering, doing the initial plans, opening accounts, transfer accounts. And so, it's like it's almost not worth the money initially. Like, I'm only getting paid $40 grand to start to onboard 6 clients. But there's a huge payoff at the end, I like to think. Like, once you're past the onboarding, you're in maintenance mode with your how many clients you have I can confidently say, like I said, I work on average 20-ish hours a week, actually serving clients. That's a good gig for this pay, right? So, I don't know, that's my view. Maybe at some point, we get some admin help, especially if I keep growing, but as of now, it's not needed. I'm not trying to wring as much capacity and efficiency out of myself, out of other advisors. That's my view and my vision for what this is and how I want to try to keep it.

How Andy Decided On A 60-Client Capacity Threshold For Himself And For His Advisors [52:26]

Michael: So, then talk to us about the 60-client capacity threshold. Like, how do you arrive at that number? Where does that come from? Tell us more about this.

Andy: So, our business model, it's not super unique, but it's somewhat common for folks who do what we do, really tax-focused income and distribution planning. The workflow, once clients are onboarded, the general sort of cadence is their semiannual meetings, one in May or June-ish, one again, November, December, where we're sketching out for clients an income plan, a distribution plan, doing projections around conversions or distributions or gifting or tax loss or gain harvesting, whatever. And so, it involves doing detailed income and tax projections for people, which we do early in the year. But you have to make a lot of guesses in a lot of cases about what dividends or what interest are going to be, what other source of income are going to be, so we don't know exactly.

And then late in the year, we've got to do it again, because as the year becomes more known, incomes becomes more known, then we can refine the process and really nail down. But you can't do that till late in the year really nail down a conversion figure, a distribution figure, or whatever. So, our bottleneck is when you get to the end of the year. And again, you can't pull this forward too early in the year because you need a lot of the year's income to have passed. The end-of-year process with doing projections, updating projections, with the takeaways from that processing conversions, distributions, whatever, that's the bottleneck. Now, can there be some assistance to help free up capacity in that? Sure. Like, whether it's help take meeting notes or help process the actual conversions or help do some of the planning and Holistiplan or the tax prep software that we use. Yes.

This is probably my own hang up. But I feel like, with things as important and potentially complicated as tax projections you can't mess those up. And it's going to happen eventually, but you really need to make sure they're right. And I'm just reluctant that you farm that out to someone junior. And are you really gaining anything? Because you're going to have to fact check it and review it all yourself anyway. So, that's the hold up, the end-of-year process. It will be a real hustle to do more than 60 end-of-year meetings and the work involved in the course of two, two and a half months. It could be done. But again, I'm not looking to build this finely-tuned, German-engineered, hyper-efficient thing where you're working ten hour days for two months. So, anyway, so that's my view.

Michael: That's a really interesting perspective, that the end-of-year planning that has to happen at the end of the year because you can't dial in the exact right amount of the Roth conversion, exactly how much gains or losses to harvest, exactly how much to distribute for tax purposes. Like, all of those necessitate being done in the last six to eight weeks of the year just to have enough of the income and deduction numbers in. So, now, you get crammed into just literally how many of those analyses plus recommendations plus meetings plus implement the recommendations. Can you cram in when they're kind of artificially stuck in six to eight weeks because that's just how late in the year it has to be to do it well.

Andy: That's exactly it. Now, the flip side of that is that outside of the mid-year, semi-annual meeting cycle there's a lot of downtime in the year, in the summer, in the fall, which is awesome in its own, right? Like I said, it's not the model of optimized efficiency, but that's not what I was setting out to try to build. And I'm okay with that. And the economics work for me as the owner. I like to think the economics work for employees as advisors and what they get paid for what they do. So, it works. I don't know. It's good enough to me. It seems to be good enough for the people that I work with. So...

Michael: And did I hear you say you do tax prep as well, or you're just using tax prep software to do the distribution planning tax modeling?

Andy: I personally do tax prep. I have a separate company where I'm the sole preparer. I got to figure this out because at this point, I don't take on any clients for tax prep unless they're also advisory clients. I'm actually shutting off tax prep clients who aren't advisory clients. But still, I just keep saying yes to doing more returns. And I can still do it. I have the capacity, but it's at some point, it's going to have to stop. So, I have to figure that out. So, yes, I do. I use tax prep software for projections because I do taxes. The other two advisors use Holistiplan because they don't do taxes. And it's too big of a learning curve to use tax prep software just to do projections.

Michael: And do you see that becoming more of the service model in the future? Do you want to go deeper on tax prep in the firm, or is this staying Andy's side hustle outside of the core advisory business?

Andy: Mixed feelings. It's a grind. It's a slog of a business. I know I way under charge for tax prep. But the tax prep business on a standalone basis still makes some money. I view it as a value add extension to the advisory business. Like I said, I'm only doing new returns for clients who are also advisory clients. So, I'm just looking to cover costs plus a little in tax prep. I'm not looking to use that as a big profit driver. Because I feel like we're already getting paid well in the advisory side of the business. So, I'm willing to not make as much as I could by normal standards on the tax prep side.

So, I don't know where it's going to go. I think it's a tremendous value add. Clients really appreciate us being able or me being able to do their taxes. I can say that doing their taxes does make it better and more efficient to do their planning because you know them that much more intimately well, and vice versa. Being their planner makes it easier and more efficient to do their taxes. So, it is symbiotic. But it's interesting couple months and February and March with having to do so many returns. So, I don't know, ask me again in a year or two, I may have a different view. But I'm trying to figure out what exactly to do, where to go, because at this point, it'll just keep growing, which I don't want to do.

Michael: And I guess in terms of the seasonality of it, it fits well.

Andy: Correct.

Michael: You've got correct end-of-year planning in November, December. You've got the mid-year plannings in May, June. I'm going to assume part of the reason they're in May, June is because you can do tax returns, February, March, early April. You've even got room to do extensions in September, October, if you've got extensions. Like, your planning meetings seem constructively offset to tax prep cycle.

Andy: Yeah, it works well. Me as the one doing tax prep, yes, it fits in nicely in my year and where my time plugs lay. But as advisors, it's nice to be able to do it mid-year meeting in May or June, because regardless who did the person's return, the returns likely done by then, so you can at least review the return at that point, which is helpful.

Michael: And is there a vision of what the non-tax preparing advisors are meant to do to fill their time in the spring, in the fall, given this kind of these fluctuations?

Andy: No.

Michael: Or no, there's just busy seasons and late seasons and that's the deal, that's the gig.

Andy: The latter. That's the deal, that's the gig. And I've said this to the advisors, it's like, "I really don't care what you do, how little you do just, or when you do it, just make sure your clients are served. Make sure you're timely, professional, responsive. If a client sends you an email, make sure you, at least, acknowledge it within a business day." There's going to be the busy seasons end of year, definitely, is a thick of it, mid-year to a lesser extent. Otherwise, there'll be lots of days you're twiddling your thumb and we'll have literally nothing to do. Maybe a random client email here or there. And I'm okay with that. But that's the role.

So, some people like that some people don't. And that's also why I said, only, I think, responsible adults can handle this role. Like, it sounds great on the surface. Completely virtual. Work from home. There's zero time off or hours requirements. Just get your work done. If it's two hours a day, great, good for you. If it's eight hours a day, so be it. That sounds awesome, but I think someone who's early 20s right out of school they can't handle that. That's going to be difficult for them. So, coming back to the responsible adult theme, I think people who are in their late 30s and their 40s who have been around the working world a while, and who value and appreciate what the corporate world is versus what this is, it's like, "Yeah, this is awesome. I'm willing to deal with the ebbs and flows of the seasons."

Michael: Well, some people find that a feature, not a bug. They're good.

Andy: Oh, yeah. I do, personally.

Michael: It's a positive. Yeah, I've got busy seasons, and I've got a lot of flexible time to travel or do things with my family, or whatever you want to do with flexible time in the business.

Andy: Exactly. And I view that as indirectly a benefit of the job, above and beyond. Like I said, the financial benefits are the pay, which we talked about. The 401(k) match, I just started the 401(k) a year or two ago. There's no other financial benefits beyond that. There's no healthcare reimbursement. Some point, who knows? If this thing keeps growing, I may build that out more. But and I don't even consider all the other costs I cover as financial benefits. I view that as like, well, those are requirements of them doing the job. Like, I should be paying for those as the employer, like the training and the travel to see clients who go to conferences and all the software and regulatory fees and stuff like that. Which is very different if this was a contractor role, right, because that usually push on the worker.

What Tenon Financial Looks Like Today [1:01:29]

Michael: So, then paint the picture for us of the state of the businesses that exist today of assets, revenue, clients, team.

Andy: Sure. So, as it stands right now, we as a firm have 105 households signed up, still growing. I figure we'll get to 130, 140 households by the end of the year. I won't say which advisors have how many clients. Just you already know there's a 30 minimum, 60 maximum. So, I don't want people to reverse engineer personal compensation. Yeah, so currently 105. There's another four clients in the queue to get signed up within the next couple of weeks. AUM as of today for the 105 clients is $323 million. So, do the math, that's roughly a little over $3 million average AUM per household. Fees relative to AUM, and this has been consistent all the while from when I was a solo until now, and I think this is common across, a few other flat fee advisor groups and networks and masterminds and stuff, fees as a percent of AUM end up being typically somewhere 35 to 40 basis points, and we're in that range as well.

Michael: So, meaning your revenue will come in a million, a million two something like that?

Andy: Yeah. As of now with current clients, it's $1.1 is the annualized run rate of revenue.

Michael: Interesting.

Andy: So, that'll grow as we onboard more clients. Like I said, I'm confident we'll get to what I said, 130, 140 households by the end of the year, but...

Michael: I guess, so in that vein, you don't charge percentage of assets, right? The whole point is flat fee, but when you're back into, okay, who actually buys this and who doesn't? And how much assets do they have where they think it's a good deal? And then how much the assets they have where they go to someone else? What you end up with is you're getting clients who average you at about 35 to 40 bps.

Andy: Yep. And I think, again, that's standard with other flat fee folks I talk with. For better or worse, the flat fee industry, retirement-focus folks fees have ended up sort of landing around $10,000 to $12,000 a year roughly, give or take a little. And AUM per household ends up being $2.5 to $3 million based on lots of folks I talked with. So, our model isn't that different than others who run the same thing, similar thing.

Michael: So, then I'd love to understand a little bit more there why the flat fee model? Because I'm struck. Unlike some folks who do flat fee, this isn't a planning-only, advice-only, we're not doing the investment management side. You manage assets, you have a very sizable...

Andy: Correct. We require it, yeah.

Michael: But you require it. So, just help us understand flat fee. Why the model? Particularly if it kind of adds up and correlates to bps [basis points] anyways. Just talk us through that further.

Andy: So, I firmly feel... I don't say firmly feel. I know having gone through this now for, what is it, six years I've been running this firm, that again, investable asset size alone is a really terrible, arbitrary, poor gauge or indicator of complexity or what goes into providing the relationship or value clients get out of it. So, when I set the flat fee, I sort of backed into, how many hours on average do I think I'll be spending servicing a client, whether it's in-person meetings or takeaways or trading or whatever? What do I think is a fair hourly rate for myself and what I provide? How does this fee translate to what they'd be paying at other advisors? For my typical client, what would they be paying at other advisors who have traditional percent of AUM models? And does it work for me personally with what I want out of this given my costs and everything? And that's how I initially ended up with the fees I did when I started. And, like I said, I increased it a few times because I was getting no pushback on fees. So, I was like, I don't know, maybe I'm undercharging.

Michael: I guess I'm just curious to hear if you can reflect those numbers further. How many hours do you estimate? What is the sort of hourly rate equivalent you earmark in your head that you want to generate from this?

Andy: So, it's approximately 20 hours per year per household relationship. Now, it's an inexact science. That's just a rough average, but that's not terribly far off between semiannual meetings, the prep, the takeaways, every quarter checking for rebalancing and actually doing rebalancing if necessary, other random servicing and requests that pop up throughout the year. So, I think 20 hours per year per household is a fair guesstimate on average. So, then if we're charging, now the current rates are $12,000 a year married, $10,800 a year single, that breaks out to five, 600 bucks an hour, which I think is fair.

Michael: For, as you noted earlier, specialized knowledge in a particular domain with a high stakes complexity problem.

Andy: Correct. And we are all well credentialed, well experienced people that there's now three of us, me plus two. I won't give away ages, but all of us are in our 40s. We all had corporate investing, investor-related backgrounds. Michelle, like I said, is a CFA, has CFP, also got RICP. Brad, the second one to join is a CPA. He has a CFP. He has RICP as well. I'm a CFP, enrolled agent, RICP as well. So, between prior experience, between...not that having designations makes you an expert per se, but we should be relatively well paid on an hourly basis for who we are and what we do and background and stuff.

Michael: Yeah. Well, I know plenty of attorneys and accountants who have specializations whose hourly rates are a good bit higher than $500 to $600. To me, that resonates just fine in, what does it cost for high-touch professional services from knowledged, experienced people when you've actually got some dollars in complexity at stake.

Andy: Yeah. And I'll share. I do struggle at times with feeling like, well, I know we're leaving money on the table. We could easily charge more and have no problem getting clients to pay that higher level. But I try not to let that cloud me. Even if you just look at our fees on a percent of AUM basis, compare that to the standard, we are substantially less than what all these clients will be paying elsewhere. And they know that. Now, my goal was never to be the low-cost provider or discount. My goal was truly, and I still mean this, to come up with a fee that I feel is mutually fair for what we do, again, for the 20-ish hours that goes into it, for what they get, for what's involved, for our backgrounds, experience, etc., etc. And I'm comfortable and confident that the fee we're charging is a mutually fair fee.

There are definitely days I'm like, "Man, I can so easily charge $15 grand to everyone, and we get clients without even them batting an eye." But I try not to let that cloud me. Now, I don't want to be the low-cost provider where if someone has $20 million, we will say no right off the bat nope. Just I don't care how complex you are or aren't, no. Because then I feel like they're just using us because we're cheap. And I don't like that. But I feel like someone's got $3, $4, $5, $6 million, and they don't have any extraordinary complexities besides they happen to have a lot of money relative to someone with a million dollars. I can say with confidence yeah, we're serving them fine, but they're really no more work. They're not necessarily getting more value out of us than someone with a million bucks. So, our fee makes sense.

Michael: But it sounds like you've already moved this to some extent. If I back into where fees were for you a few years ago, it sounds like you were effectively charging closer to $400 an hour, now it's $500 or $600 an hour. As I guess the market has validated, it appreciates your expertise at a $500 to $600 an hour rate. Is there some world where the fees keep shifting higher simply because you're trying to find what is the marketplace value for this kind of...you don't literally charge hourly, but hourly equivalent work? Is this actually $750 an hour work? And so, eventually, the fees will move there because the market's showing it's willing to pay $750 an hour for this work.

Andy: I struggle with that. I don't know. Fees have to go up eventually, if nothing else, for inflation, because my costs have gone up, not just inflation of existing things, but look at all the additional infrastructure I had to build out to hire and grow this. Now, that's not client's fault, right? That's my decision, my choosing. So, is it really fair to clients that I pay them more because I hired people to take on other advisors who aren't directly benefiting the clients we already have? I struggle with that thought.

But I don't know. I realize I'm running a business. I realize I need to make money for myself and in my family. Now, I struggle with what's fair, what's too much to make, what's not enough to make. And there's no right answer to that. I realize that. I definitely don't want to wring as much as clients will let me out of them just in the name of winning capitalism. I feel like a lot of advisors do that and that's not okay with me. Now, that's my opinion. Others feel otherwise. Because I struggle with that thought, I'm like, I'm not going to keep increasing fees simply because people will let me. Because I know, again, relative to a lot of percent of AUM and what they'd be charging, it'd be $20, $30 grand for a lot of these clients. What's to say their fee is right and we're cheap? Flip it. What's not to say, we're right, and they're overcharging? That's how I view a lot of these relationships.

So, I don't know how to answer your question, but I realize fees can stay stagnant. I did, just this year, increase fees for the first time on anyone, and it's just inflation-based. So, what I did was, the clients who were paying me $6,000, $7,200 a year. The day one clients from 2020 when I first started ramping this business up, I looked at, what has CPI-U been since then, since they signed the advisory agreement, how much inflation has there been? If there's been enough inflation to justify increasing their fee $1,200, because I want to stick to $1,200 increments because I'm weird with that, then that's what I did. So, this is the first year, 2026, where I increased fees on roughly 30 people. I just basically went through the list, oldest clients to newest, and stopped where there wasn't enough CPI to increase fees by $1,200.

Michael: And did you get any pushback on it when you went out and did that?

Andy: Two people, two out of thirty. One ultimately left. But I suspect she was going to leave anyway. And got her through the transition to retirement, to figuring out a plan, to getting pensions started, etc. So, logically, yeah, there was less to do for her compared to the heavy lifting the last few years. So, she left. I think the fee was probably the straw that broke the camel's back. Otherwise she was on the fence about leaving anyway, I suspect. One other one initially was, I don't know if taken aback is the right word, but didn't seem okay with it initially, but ultimately, consented and we changed the advisory agreement and things seem to be fine with it now. So, roughly two out of 30.

Michael: Yeah. Well, look on the whole, fees increased 10% or 15% to make it for a bunch of years of inflation, and 1 out of 30 is 3% left. I can do the math, 10% to 15% fee increased 3% change in attrition this netted okay for the firm to keep fees in line with inflation over time.

Andy: Now, I wish...this is on me, I know I didn't clearly communicate this to folks in the early days. I may have said to some folks in passing, "Yeah, your fee is this. It'll stay this. It's hard code and the advisory agreement is this. At some point, every handful of years, I might look to increase it for inflation." But for a lot of people, I think that was the extent of the conversation if I even said anything at all. So, I'm sure there's people who feel like, "Oh, Andy said this was a fixed fee," and maybe expected it to actually stay pegged at $6,000 forever. But realistically, I think people understand. Even if they're a little taken back by the fact that I may not have communicated that the fee will go up eventually, I think they still get it and realize like, "Yeah, it's been five years. There's been a lot of inflation." It's not unfair.

Michael: And I got to presume, in the long run, the hardest time to have that conversation is the first time when people are like, "Wait, this changes. It's not totally fixed." Once that happens once, I find it's usually a lot easier going forward, because now, they're just used to and understand the fact that periodically this number has to move for inflation.

Andy: Yes. And even now on the website, I'm more clear about it. It says, "The fee is X and the expectation is to go up with inflation over time." So, no one new should be surprised by this, eventually.

Michael: Well, and I'm struck on the whole. I was saying all the rest of the conversation about, are we setting good numbers? This seems to be a little bit lower than where some of our advisors are if you convert it to bps and look at what other advisors charge. And by the time you were hitting personal capacity, you were doing almost $400,000 of revenue with 90% margins and working 20 hours a week. It's clearly working. Like, it's...

Andy: That's the other thing I struggle with.

Michael: ...very clearly working.

Andy: Yeah, the intersection of capitalism versus feeling like we're the best stewards we can be of financial decisions for our clients. I don't know. Just my opinion. But if you boast how much you make, how little you work directly on the backs of people where your job is to help them maximize and make the most of their money, I'm like, that's so tone deaf.

Michael: No, no. Yeah, that doesn't feel good.

Andy: No. That shouldn't be what you image to the world, but to each their own. So, yeah.

Michael: Correct. But just to ask the question, is the service "mispriced" or too low because others charge more? To me, there is just an anchoring of, well, it certainly seems like it's running quite cost effectively as a business. Normally, if services are really undercharged, the margins are squeezed and it's hard to reinvest for growth. And we get other problems that crop up when you run a business where the pricing is too low. And you have none of those problems.

Andy: Right. And what I say, the reason why a lot of people say flat fee can't scale, I view it as, well, what's the average per-household revenue per relationship and percent of AUM firms? Let's just assume it's 10,000 bucks at most of them. If I'm charging $10,000 household economics are the same. Just get there in a more direct and easier way. So...

Michael: Yeah. to your comment, and what I find for a lot of firms, it's not that flat fee can't scale. It's that $2,000 or $3,000 per client can't scale.

Andy: Correct, yes. Right.

Michael: And there's a segment of folks that try to do flat fees at those sorts of price points because they're trying to expand access to planning and a lot of other good things and putting more financial advice out to the world. But for better or worse, when our service models just require as many hours as they do, and clients require as many hours of conversation education as they do, that's really challenging. Not because of the fee model, but because of where the revenue per client is adding up.

Andy: Right. Yeah. It's not that flat fee can't scale. It's under charging can't scale.

Michael: Yeah. Well, I can't help, but reflect as well because your model is unique, because again, you don't have A, B, and C clients the way that so many firms do, you have clients because they all pay the same healthy, economically-viable rate. I've long observed for lots of advisory firms, the old Pareto Principle saying is some version of the 80/20 rule or 80% of your profits come from 20% of your clients in lots of businesses.

I will say, I've seen a lot of advisory firms where if you really do an appropriate audit of the clients, it's not 80/20, it's 120/-20. They generate more than 100% of their profitability from their top clients, and the bottom end of their book is literally losing money, and their top clients are subsidizing their bottom clients. For which I can't help... they raise the question on reflection hearing models like yours. So, is part of the reason that AUM firms tend to be higher than yours on the upper end is because they really are using larger client fees to subsidize smaller, unprofitable clients. And when you don't have the unprofitable clients to subsidize, you don't actually need the fees to be as high on multimillion dollar clients.

Andy: Agreed, yeah.

What's Surprised Andy The Most During This Phase Of His Advisory Journey [1:18:12]

Michael: So, Andy, as you reflect on this journey what's surprised you the most about continuing to build and scale the advisory business?

Andy: I'm eternally grateful for the amount of consumers out there who still reach out, who still are interested in the service, who still follow all the content put out there and make this all possible. Now, granted, I put a tremendous amount of time into maintaining and fostering those, the podcast I have, the YouTube, the Facebook group, the newsletter. So, I don't know, I think the fact that it's non-salesy all of this stuff. And that harkens back to I just hate the thought of selling something to someone. So, what I do is I just give away really involved, really thorough knowledge and education and ask nothing in return. And that non-sales approach has been the best sales tool I could have ever possibly done. And that surprised me how that worked out, but I'm glad it did.

Michael: Because you didn't think it was going to work out? You're surprised it worked out that way?

Andy: I didn't know what to expect in researching, becoming an advisor, and what's involved. I talked with a lot of people, and it was a lot of just traditional sales tactics, was the feedback I got. Do dinner seminars, send out mailings, send out white label content with, "You got to give me your email if you want to get this." So, now, they're on an email list where you can drip them stuff, and I don't say pitches, but try to get them in your funnel at some point. I was like, that just feels dirty to me. That's my own hang up because I'm so anti-sales. It's probably a detriment of mine. But my strong suit is I know the technical stuff well. I know I can explain it well. And I know I don't like asking people for stuff. So, let me just blast the world with all this info I can give out without asking or expecting anything in return and see what happens. And thankfully, that "let's see what happens" ended up turning out really, really well. So, I'm thankful for that and a bit surprised by it because it's so contradictory to what a lot of the advising industry does with their sales and business development processes.

The Low Point On Andy's Journey [1:20:20]

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

Andy: I thought about this and thought about if my answer would be different from the last time I was on the show a few years ago. And professionally, the low point is still the same honestly, where just being lonely. Being a solo initially, where it's just me in my office or my basement. Now, even with two employees, they're both still completely remote. So yeah, we have Microsoft Teams and we can chat and we can email, we can call, but it's not the same as having someone to sit next to, go run out, take a break, go get something to eat, go chit chat by the water cooler. I'm really social and I miss that. It's not a low point to the point where it's like, "I regret doing this," far from it. I have zero regrets. I'm glad this all worked out as it did. But it is a lonely position to be in working remote, working solo, and I struggle with that and I'll never stop struggling with that.

Michael: So, what do you do to try to fill that gap for you?

Andy: Professionally, I stay very active, probably more than I should be, on LinkedIn, just building relationships. You know, I go to multiple conferences and advisor events. I'm actually hosting one in a few days on behalf of XY Planning Network in New York. There's going to be about 40 people going. So, I try to stay as involved as possible, professionally. I started taking on more of a role as an industry figure, for lack of a better word. I have a few speaking engagements lined up about retirement planning, about various aspects of the business. That's some pretty well respected conferences I'll be at this year. So, I'm curious to see where that goes.

So, the point is that helps me expand my network and my involvement and engagement in the industry. And then just personally, I try to do as best I can, fostering relationships. And I see this with the retirees the struggle to go from a life of working for 40 years to, now, you're retired. It's like, "Wait, where did my network and my friends go?" That happened to me when I left work and I knew it was coming. So, I try as best as possible to actively maintain relationships with friends, with parents of my kids' friends ,and do things that way.

Andy's Advice For His Younger Self And For Newer Advisors [1:22:22]

Michael: So, what do you know now that you wish you could go back and tell you, it's three or four years ago? When you were with us last, it was still only you, other advisors hadn't come on board, yet. What do you know now you wish you knew then?

Andy: Honestly, nothing's really that different. My story could be very different if one of my two advisors would have left because that would be crushing. I like to think I sort of took a lot of the risk out of hiring people by focusing on, like I said, experienced, seasoned, responsible adults who are looking for this role for the right reason to try to really minimize potentials of turnover. Now, granted, life can happen, things can happen, and anyone can leave any day for any reason. But that would be devastating if an advisor were to leave and didn't take their clients with them and left behind 30 to 60 clients. I don't want that. That would completely destroy my lifestyle thing.

Thankfully, it hasn't happened, yet. So, if it did, that would be my like, "Man, this would..." I don't know what the learning event would have been, but I would have learned something from that experience, I hope. Otherwise, really nothing big. I went about starting the firm, and now, growing the firm with a lot of intention, a lot of thought, a lot of planning. A lot of making sure I'm doing this slowly, methodically in ways where I don't get ahead of my skis. I'm already now, frankly, thinking about when the current roster of advisors fills up on client load then what? I know it's going to happen. Probably hire someone else.

Michael: It's said, by growth trajectory, you got 12 to 18 months depending on…

Andy: It's not even a year.

Michael: ...how far ahead of the curve you want to hire.

Andy: We'll probably be filled up by the end of the year. At some point, I have to do some serious thinking and soul searching, how far do I let this go? I'm pretty confident I can sort of bolt on another advisor under the same structure without admin support, without hiring an ops person, or dedicated compliance person besides myself. At some point, though, this firm has to grow up and institutionalize if I let it keep going. And I haven't even thought that far ahead to what that looks like or when. But it comes back to being methodical and intentional. If I let it, I know I could have easily grown much faster than I did, but that would have been dangerous and unwieldy. And I'm trying to avoid that.

Michael: So, I'm struck at the same time. And you said someone leaving would be pretty crushing to have the clients boomerang back and have to manage to them. But it hasn't held you back from hiring and growing and going down this road.

Andy: No, it's a risk you have to take. And I was reluctant to hire for multiple reasons. One was just simply I'm anal and the liability of someone fat fingering a trade or saying or doing something stupid. And it's ultimately my responsibility, my company. It stops with me. And that scares me. But you can't completely neutralize and eliminate that risk. You have to get comfortable with it if you're ever going to hire, and just face the fact that that risk is going to be present. Now, there's things you can do to help minimize it. Like I said, I like to think I hired the best people I could who are best suited for this role and responsible and know what they know and don't know, etc., etc.

But still, any of us could make errors that could be potentially catastrophic, myself included. You just have to get okay with that. And I made the decision, if I'm going to grow I have to get okay with that. And I was uncomfortable at first, frankly, with the hiring, and with someone else opening accounts, someone else trading. But I did as much as I could in terms of training and sitting with people and walking them through to make sure we're both mutually comfortable, "Yeah, I think you're good. And also, I think you know what you don't know. So, if there is something big you think is on the horizon, you're going to let me know. You're going to ask me. You're not just going to wing it or make some really terrible mistake that shouldn't have been made," or such as what we think. But, yeah.

Michael: Any advice you would give younger, newer advisors coming into the profession today?

Andy: This is hard, man. It's still a meat grinder of sales and production-focused places. Thankfully, there seems to be an increasing amount of firms with real planning, where it's not just, "Go sell, go get money in the door," but actually doing work and planning. They're just still few and far between. So, the best I can say is, if you're coming right out of school, ideally try to get the job you think you want. But in reality, just get anything. Like, any experience is going to be good. You're most likely not staying at the first place more than a couple of years anyway, whether you go back to school or go bounce to another firm. So, just get whatever you can. Any exposure and experience is good exposure and experience. It's not until you're a handful of years in better part of a decade in, and then you really start to get serious about really firming up your path and what type of place you work for and what you want out of this and what you want to work toward.

 

That's where it can get challenging, where if the opportunity is simply not there, how long do you sit and wait to find that ideal firm? Or do you strike out on your own? And if you think through it, hopefully, you have a good chance of making a success out of it. But it's tough. I don't have any single, concise advice other than just think through what you really want. Try to be honest with yourself. Take what you can get if you have to. Always be working toward your ideal role, your ideal job, your ideal sort of circumstances personally and professionally.

What Success Means To Andy [1:27:25]

Michael: So, as we come to the end, this is a podcast about success. And just one of the themes that comes up is that that word success means different things to different people. Sometimes it changes as our seasons of life change for the conversation earlier. And so you're on this wonderful path of success with the business as you're crossing a million dollars of revenue and team is expanding and everything seems to be flowing in a great place from the business and work-life balance perspective. How do you find success for yourself personally at this point?

Andy: Still the same as it was last time. I want to enjoy what I do. I don't want to wake up and feel like what I'm doing for compensation is a chore. It's something I'm doing because I have to do because I need the money. I still truly enjoy almost every day of what I do, whether it's doing the actual client work or whether it's running the business or whether it's taking on a bit more of a role as a sort of industry speaker or figure. I'm not sacrificing anything in my personal life. I still have plenty of time to do what I want to do with my family, with my friends, with hobbies, and activities.

So, I don't know. It's kind of like the whole package of, I don't regret any aspect of my life, and I don't wish any major changes around any aspect of my life. I'm just content, and that's good enough for me. Can I make more money out of this? Sure. Do I want to? It's not what's driving me. Really keeping that work-life balance. Assuming I'm making enough to have the life I want to have, which I do, I'm not motivated by more money at this point. It's really work-life balance and just being content around all areas as much as possible.

Michael: I love it. I love it, Andy. Thank you for joining us on the "Financial Advisor Success" podcast.

Andy: Thanks for having me on. It's my pleasure. Maybe we'll speak again in a few more years, and who knows where this firm will be by then.

Michael: We'll find out in a few more years. Absolutely.

Andy: Great. Thank you.