Few service industries have as much potential to impact lives as financial advice, and it's that very ability for financial advicers to help their clients achieve positive outcomes that can often compound for decades and beyond that make the profession deeply satisfying for so many. It's no wonder, then, that the profession attracts individuals who are highly service-minded and enjoy helping others. (It also doesn't hurt that advicers can earn a good living, and can also build their practices in any number of ways that fit their personal preferences, needs, and goals!) Not surprisingly, the most recent Kitces Research Study on What Actually Contributes To Advisor Wellbeing shows that, while advicers who have a service mentality are typically happier in their roles, service-minded advicers who are also on the higher end of the income spectrum tend to be the happiest. Which highlights an interesting tension in that some households reaping the greatest benefit from an advicer's help might not always be the most profitable for the advicer, and sometimes may not be profitable at all!
In our 130th episode of Kitces & Carl, Michael Kitces and Carl Richards explore this duality of solving for both providing service and earning income, the key metrics that separate advicers who are "thriving" from those who are "struggling", and why advicers who intentionally build towards having a highly profitable business don't need to forego being of service towards underserved individuals who truly need help with financial planning, even when those clients may not be profitable.
Conventional wisdom holds that an effective way to increase the chances of having a successful practice (and being happy) is to simply move up the proverbial food chain by finding wealthier clients and jettisoning the least profitable clients. Taken to a logical extreme, then, it would seem that the 'happiest' advicers would only serve the highest-of-high-net-worth clients. But the reality is that it doesn't take a big leap in client affluence before advicers begin achieving material gains in happiness. Notably, 'struggling' advicers had clients who averaged having $600,000 or $700,000 in assets, while 'thriving' advicers had clients with an average of $1,000,000 in assets. The difference also resulted in material benefits, including fewer hours worked, fewer clients, less overhead and staff, more autonomy and freedom, and greater profitability.
In other words, there appears to be a threshold where, once achieved, advicers can reclaim a non-trivial number of hours each week when they can focus their efforts on other rewarding endeavors… like offering pro bono financial planning services or creating broader content that addresses the widespread need for financial education. That way, an advicer can have the satisfaction of getting paid well while still being able to serve the underserved.
Ultimately, the key point is that being a happy advicer who's paid well for doing good work doesn't necessitate sacrificing service to those who need real financial advice the most. By being intentional around building a client base of profitable clients, reasonably reducing overhead, and learning how to say "no" to prospects who aren't a good fit (and helping them find the help they need), advicers can increase their take-home pay and reduce the number of hours they work. And a focus on building a profitable business in which an advicer is paid well for the good work they do isn't only about being happier… it's also about having the satisfaction of being able to create the freedom and capacity to serve those who are truly in need
***Editor's Note: Can't get enough of Kitces & Carl? Neither can we, which is why we've released it as a podcast as well! Check it out on all the usual podcast platforms, including Apple Podcasts (iTunes), Spotify, and Stitcher.
- Kitces & Carl Ep 129: How Autonomy, Experience, And Team Drive Advisor Wellbeing
- Kitces Report: What Actually Contributes To Advisor Wellbeing
- #FASuccess Ep 199: The Barbell Approach To Building A High-Income And Broad-Reach Lifestyle Practice, With Morgen Rochard
- Financial Advisor Success Requires Just 50 Great Clients
- Foundation for Financial Planning | Pro Bono Financial Planning
Kitces & Carl Podcast Transcript
Michael: Well, hello, there, Carl.
Carl: Hello, Michael Kitces. How's it going?
Michael: It's going well. It's going well. We are full steam into 2024 as this podcast episode is airing. This is usually peak New Year's resolutions. We're all leaning in, like, "This is the thing I'm going to change to make this year my best year ever."
Carl: Yeah. New year, new me, right? New year, new you. That's what they say in the publishing industry. New year, new you.
Michael: New year, new you. So, in that theme, in our last episode, we got to talk a bit around well-being. I feel like it's apropos for the new year, new you. What was it? Find the autonomy, experience path, and team that lets you be more you, because that seems to go well for us. But there was another piece of our well-being research that I actually wanted to talk about because it highlights to me just an interesting tension that I think our whole industry seems to be struggling with at large right now.
The 4th Driver Of Advisor Wellbeing: A Service Mentality [01:20]
So, we talked last episode. There were the "Big 3" factors that seemed most associated with advisors with greater well-being. They tend to have greater autonomy, more years of experience, and a team around them. Exceptions apply, your mileage may vary, but those were the drivers that we found. But there was actually a fourth cluster of factors that showed up that I think present an interesting dynamic around the advisor industry.
So, on the one hand, what we found, and certainly this just resonates true to me for what I see in our advisor world, advisors who were happier tended to be ones who had a service mentality.
And I distinguish that from the advisors who mostly do this because they're income-motivated and just want to make more income and climb the income ladder.We actually found a non-trivial negative relationship of people who are motivated by income or less happy because, frankly, as many of us have seen, that's a hard game to play. The goalposts always move on you.
And particularly in our business, if you're trying to move all the way up the income ladder, often you move up market with wealthier clients. And so you just end up working with wealthier people who still have more money than you do. And if you're motivated by money and being the wealthiest, you never win that game. You just find bigger clients who are still wealthier than you.
But on the flip side, we found that advisors who had a service orientation were much happier than those who were more income-motivated. But the happier advisors were the one who had a service orientation and got paid really well for working with fairly affluent clients. So, they had a high service orientation, but they also had a significantly higher revenue per client and profit per client.
They tended to work with more affluent people who could pay them more for the wonderfully awesome service that they were providing. So, there was this duality: a service mentality but a pretty strong desire to actually make sure we're getting paid what we're worth. If I'm doing all the service and I'm not really getting paid well for how much work I'm putting into this, it starts to feel not so good even when you're otherwise pretty service/help/people oriented.
And that's an interesting tension because if you're really service-oriented and you're trying to get paid a certain amount to deliver the high-quality thing that you're capable of delivering, not everyone can afford that. And then this tension emerges. I want to serve people and get paid well, but not everybody I want to serve can afford to pay me that. And then problems start to come forth.
Carl: Listen, I think it makes sense to me that this is what you found, and I don't like it at all. Some of the early questions I have is make more relative to whom or what. And how do we think about being service-oriented? Because I've been saying a lot lately that I didn't get into, and most of the advisors I know didn't get into this profession, if you will, to help somebody calculate the deduction on the private jet. But if you stick around very long, you end up doing that.
And I'm using a private jet carefully here, just metaphorically, right? It may not be that far, but it is interesting that, look, I got into this industry to help people. And I've had this conversation a lot lately with advisors who have said... These are 45, 50, 55-year-old advisors who are wondering about their sense of purpose because they... And the phrase you hear a lot is, "Am I just helping rich people get richer?"
So, it's really interesting to me that we do find that if you can still find a way to hold in your head at least this idea that you can be helpful and service-oriented to those people... And I don't think it feels service-oriented to help rich people get richer, but it does feel service-oriented to help people who've made plenty of money figure out what their purpose is and how to align that use of capital with what is really important to them. And you see a lot of swings towards, how do we use that money for good now?
And I can see how we could say those are the people I'm serving. And there are some that say, look, it's 100% about making more money. Well, I don't know how I can have a sense of purpose there, but I can have a sense of purpose with somebody who's been really successful, made tons of money, and is trying to figure out how to align the use of that capital with their values. So that makes some sense to me.
Michael: Well, and look, here's part of the interesting thing that we did find as we drilled into this though. It's not that the happier advisors were serving, as I fondly call them, the bajillionaires, as you put it, the people who need their private jet planning. Struggling advisors had an average client that was $600,000 or $700,000 of assets, if we use that as a benchmark, while the thriving advisors had an average client household of $1 million.
Now, on a relative basis, if you go from a bunch of $600,000 to $700,000 clients to a bunch of million-dollar clients, and you're otherwise providing a roughly similar service to them, your average account size is about 40% higher. So, you're making 40% more with the same number of clients because you're just working with people who can pay you incrementally better for what you're providing. That's essentially what we found. The average struggling advisor was making $4,000 to $5,000 of revenue per client. Take your total revenue divided by your total clients. The average thriving advisor was making $6,000 or $7,000 of revenue per client by the time you get our fee breakpoints and concessions, and all the stuff that we tend to blend in there. So, it wasn't a wild difference of happy advisors only serve super-wealthy people. And obviously, there's a distribution curve around both of these.
Carl: And you're saying same number of households.
Michael: Almost exactly. The struggling advisors average 65 clients per advisor on their team. The thriving advisors were averaging 60 clients on their team. Now, there were a bunch of interesting downstream effects that came with it as well. The happiest advisors, over-generalizing a little but basically, happiest advisors worked four days a week, unhappiest advisors worked five days a week. The average workweek of a thriving advisor, my clients are 40% wealthier. I have 10% fewer of them. I serve them in 20% fewer hours.
Carl: Probably have more help because I can afford more help. Would that be a reasonable assumption?
Michael: Would seem so, but not in practice. We actually found the thriving advisors had better profit margins and less cost overhead. And I think, in part, that drives from... And we didn't get to fully tease this apart in the study as we published it. It's one of these things I want to dig into further later. So, we looked at a lot of our client metrics about clients per advisor. So, look, if I'm at 65 clients per advisor, that could be because I'm a solo with 65 clients or I'm a 2-person team with 130, or I'm a 3-person team with 195.
And I think what we'll find when we drill in further is the thriving advisors were a lot of solo advisors with 60 great clients who can serve them on 4 days a week because they've been working with them for a long time and there's not that much intensive service work ongoing. And that the struggling advisors were more likely to be, I got 65 clients per advisor because I've got a 3-person team serving almost 200 clients who don't pay me as much because they're smaller. And I've got more staff overhead because instead of just telling them we're not a good fit, I hired a service advisor to work with them instead. And so now I took my least profitable clients and assigned my most expensive staff to them because that's what happens if you hire a service advisor to delegate your small clients to. I took my least profitable clients and assigned them to my most expensive service team member, and so now my profitability is actually worse and now I have to manage them.
Do We Need To Just Bring On More Profitable Clients To Increase Happiness? [11:17]
Carl: Yeah. Yeah. So, what do you do about that? Is that essentially just a function of, okay, every year I'm going to bring on more client? I'm going to move. Is this the same story? Is this the same story, Kitces, over and over and over? Move upstream, take on more profitable clients. And now we're saying take on more profitable clients. You will be happier, guaranteed. That's what Kitces's data says.
Michael: I have learned after years of experience in the industry that you never ever, ever say guaranteed. But part of me says yeah.
Carl: It appears.
Michael: The data is certainly showing that directionality, to put it mildly. The flip side, as you said, and as I think a lot of us collectively feel, that feels really sucking to a lot of us. That's not supposed to be the answer, particularly when we're very service-minded, and helper-minded, and help-people-oriented. That's not the answer you want it to be.
Carl: I actually really believe this, that if you're unhappy, more money won't solve that problem.
Michael: Yeah, but it's not a money thing. Most of us that keep holding on to the clients that aren't a good fit, we demonstrably make significantly less money. We've already made that money trade-off, but we're also working more hours for less money, which I think is when it starts to feel not so good. What we found, it wasn't a direct factor but it showed up in a lot of places. One of the biggest drivers of advisors that were happier, they just worked fewer hours. They did whatever they needed to do in their practices to get to the point where this is not a 45 to 50-hour-a-week job. It's a 30 to 35-hour-a-week job. They're not working two days a week, but they get it from five-plus days down to a solid four.
Carl: But this is a function, you're saying, that advisors who made more... State the claim again.
Michael: So, the purest sense of this is the happiest advisors generated 50% more revenue per client than the least happy advisors.
Carl: So, we're not saying...
Michael: They worked with people who could write 50% bigger checks and then as they got more money, the trade-offs they made in practice were less staff, less overhead, fewer hours, and fewer clients. And because 40% revenue per client is so much higher, you can make a bunch of those concessions and still end out taking home significantly more profitability, in part, because if you just work with fewer clients, you don't need as much staff overhead. So, you tend to run a leaner practice in the first place.
Carl: Yeah. So, where I'm landing is that this may be less a function of money and more a function of autonomy and freedom.
Michael: Yes and no. But what we found is there was, even separate from... Autonomy absolutely showed up, and experience showed up, as we mentioned earlier. And to be fair, those were bigger factors than this "get paid what you're worth", but the "get paid what you're worth" factor was independently related to well-being above and beyond the impact of autonomy and experience. Even after you control for those, happier advisors just tend to be ones that generate more revenue per client and more profit per client.
And the differences were pretty big. The thriving advisors generate about 40% more revenue per client and more than 100% more profit per client because they tended to have significantly less overhead. I think because, again, struggling advisors ended up getting too many clients that they can't serve profitably and the solution was, well, I'm just going to give them to another advisor in my firm, but then I have to hire an advisor, pay for that advisor, pay for support staff for that advisor. And so they end out with a much heavier overhead.
The happier ones seem to have found some means. I don't know what it is. Maybe we'll do this in future research or people can send in and share their own strategies. They seem to be finding some way, I guess, to say no to clients that aren't a good fit. I don't know if they say no, or they refer them out, or they get comfortable with some other way, or maybe there's just something about their psychological makeup that they're more comfortable with that conversation than others, and they won some weird cosmic genetic lottery.
I don't know what the thing is, but we can see it in the outcomes of where they are. All of the things that help downstream, like "I want to work fewer hours. I want to have better profitability. I want to have more flexibility in my time. I don't want to feel as chained to my desk." All of those seem to come or solve more readily when you just get clients that can write big enough checks to make the math work.
And again, it's not like I got to find multi, multi, multi-millionaires. It really just came down to the difference between (and I'm overgeneralizing here) working with millionaires versus half-millionaires. Little generous rounding there. But that was basically the neighborhood of what we found. Or viewed another way, most of us, and we've done this in some of our separate research studies, most of us end out spending 20-plus hours every year supporting our clients. If you just get in the emails, the phone calls, the meetings, the meeting prep, the meeting follow-up, the due diligence on their behalf around their portfolio, it's all the different things that we do, if you sign on how many hours you spend on client-y things and you divide it by how many clients we've got, a lot of us are somewhere in the 20 to 25 hours per client per year.
If I want to get paid $250 an hour as a healthy professional, and I'm going to work 20 to 25 hours/year for my client, I need to get paid $5,000 to $7,000 per client. And not coincidentally, the thriving advisors average $6,481 of revenue per client. We're right there. It's not about earning big, big dollars, although we have some in the study that did that as well, but there wasn't a, "Hey, I'm even happier because I charge $700/hour, and my gross production is $ 1.3 million. And I do it as a solo." There are some people out there like that, but they weren't materially happier.
But there does seem to be some threshold of when my time gets valued a certain dollar amount, this seems to add up well that I can do all the tradeoffs I'd like to do. And I have a good level of autonomy. I have a good level of freedom. I don't work an unknown amount of hours. I've got the flexibility that I want because I don't have so many clients I'm drowning in them or I have to throw staff at them to solve problems. And those of us that seem to struggle with setting that line seem to struggle more overall with our well-being in our practices.
Carl: And again, profit.
Michael: I don't want that to be the answer, right? My own helper mentality comes out. I don't want this to be the answer.
More Profit Equals More Autonomy? [19:26]
Carl: Yeah. And look, assuming that the way in which the research was done and all those, assuming all of that is true, the only thing I can conclude is that... One of my favorite sayings is profit equals permission. And for me, profit equals permission to continue to do the projects I want to do, which gets me all the way back to, "If I've got a more profitable business, that just means I have more autonomy." And I know it's over and above and it's separate, but it's still pointing to a similar thing. I have less overhead. I have less employees. I'm working with fewer people.
And working with fewer people, that's not a non-material factor, right? If I'm working with just a few fewer people, that is when you talk about 20 to 25 hours of service time, plus all the thinking you do about the person when you get the email at 5:00 right before you leave the office. You're service-minded. You don't leave this stuff at the office, unfortunately, right? And even if you go on vacations where you turn everything off, which I hope everybody's doing, you're still thinking about those people because they "metaphorically" cried in your office. You know what the money's for. You care deeply about these people.
And so that makes sense to me that fewer people generally results in a higher happiness. And it also makes sense to me that higher profit generally would result in... If I'm thoughtful about that profit, it generally results in a higher autonomy and freedom. That's all good. But the thing I don't...
Michael: Well, it feels good to be valued for your time, right?
Carl: There's nothing wrong with that either.
Michael: It feels good to be valued for your time and expertise.
Carl: The thing I don't love about this, which is what I said at the beginning, is just the idea that it ends in the same place, which is this standard idea of, okay, every year take your bottom 20% of your clients and fire them summarily.
Michael: We can find some nicer ways to do that. But maybe that's part of it.
Carl: Of course, I know. And I'm not suggesting this. I'm just saying this is what we've been saying for 10-plus years. Every consultant you go to, every practice management person will tell you the same thing.
Michael: Well, yes, but the irony, to some extent, even to our point, they tell you that because it makes the business more profitable. Our research, unfortunately, finds it also makes you happier. On average, again, like I say, your mileage may vary. I don't want it too grossly overgeneralized. But we did find this effect pretty clearly, just you sum up the economics of thriving advisors versus struggling advisors, even when you segment down to the ones that are already experienced and past the crappy early years that suck for everyone. And it's a pretty startling difference.
Carl: And as you break it down, that makes sense to me. I work with a slight number of fewer people, I get paid what I feel like, for some reason, the market has decided I'm worth, and I have, generally, less overhead. All of that means I've probably got less headaches in my life as far as work is related, which would naturally mean that I'm happier, which is the reason I think both of us think, "Oh, how are we ever going to solve the problem of serving people that really, really need to be served in a profitable way?" And there are other solutions to that, right? The reality is the best thing you can do for your own happiness and for the business, right, is build a profitable business.
Michael: Well, and to me, there are a few other interesting implications that come from this. So, on the one end... I like your framing, where you just said profit equals permission.
Carl: Permission, yeah.
Michael: Look, if you want to have your segment of high-profit, relative basis, you don't have to work with bajillionaires, but if you want to have your segment of high-profit clients, and that frees up the time for you to serve other segments that otherwise weren't getting served and that's how you want to spend your time, that's rewarding. More power to you. To me, part of the implication here though is that you have to be clear about what the scope and time of it is.
Look, if you can run a profitable practice with your 50 or 60 great clients in 4 days a week, and you want to help people who aren't getting served, instead of taking Fridays off to play golf, take Fridays and just do 1-hour pro bono meetings with anybody in the community that wants to come in and get help. Or charge them $20 an hour so they got some skin in the game, and it's affordable to them. Because it's literally not about the money at this point. I make more than enough on my 60 affluent clients to do my thing.
But now at least you're really clear. On Fridays, I do my give-back service to the world. Monday through Thursday, I'm running a profitable practice. Because if I try to balance this money through Friday all mixed together, I end up taking too many clients on the balances, and right then I got to hire more staff, which makes me less profitable, increases my workload and overhead and management time, and starts dragging me down a challenging road. Or even for some advisors that are out there like, "No, no, I'm not going to take Friday time to do pro bono or low-cost meetings to help people in my community. I'm going to make a content platform, a consumer education platform, a community organization." If there's a seesaw thing, on the one end is my 60 affluent clients and the other end is as many stinking people as I can put out there on the other end of the seesaw to balance out my cosmic good. It reminds me of an advisor named Morgen Rochard, had talked about this a bunch of years ago. And she called it the barbell approach.
Carl: Yeah, I love that.
Michael: I'm going to have some really good clients on one end of the bar and I'm going to put as many other people who can't afford my services at the other end of the bar. So, it's probably not an even barbell by number of people. Or it's a small group of high profit at one end and a really big group of very limited dollars, or means, or ability to pay at the other end. And ironically, hanging in the middle, either have them pay full rate or be really clear that they're not, but don't get caught in the middle. But to me, the key around all the advisors I've seen that seem to do that well is they do have really clear boundaries about who's a core client, who's not, exactly how much capacity do they really have to serve, just call them non-core clients?
Carl: And how?
Michael: And how? And they don't go beyond that because then it ripples into the main practice. And now you go from happy barbell practice where you pay what you're worth and get back to the world of unhappy practice with too many clients, too few dollars, too much staff serving too many clients for too few dollars, and we start getting stuck down the bad road.
Committing To Saying No [27:01]
Carl: Yeah. Totally, which leads us to a topic we need to do in the future. Let's just make sure... I'm going to commit us to allowed.
Michael: And what's that?
Carl: We call it something like the workshop on "no". "The No Workshop".
Michael: If you're going to make the boundaries, how do you actually make the boundaries?
Carl: How do you say...? Because we all know this. You know what I mean? Tactically or theoretically, we know. In practice, it's really hard.
Michael: Yeah, it really is.
Carl: But I just think this data is one more just evidence of, look, go find really profitable clients who you can serve really well, and then go do the other thing. I remember looking at some report that an online creator put together. He was teaching people how to do... I can't remember what it was. It was calligraphy. It was something he was actually really good at, teaching somebody how to do it. And he was talking about how he gives 90-plus percent of his content away and then charges really high dollar for the people who want to go deeper. And he says the 90-plus percent of the content he gives away is better than most of the stuff you'd pay for anyway, but he gives away.
And at one point, he tried to build a $49 product or a $49/month product and he was like... And he built it for years and years and years, and finally ended up closing it down and said, "No, I'm only going to sell $5,000 private coaching and then give everything else away." And when he ran the actual numbers, he's like, "Look, if you take $49 and you do the conversion rate of 2% and then you've got to get somebody on your list," he's like, "Ut turns out I need to expose somebody to 10 million people. I need to see the message for me to end up with X at the bottom of that 'funnel,' versus over here, 1,000 people.
He was like, "The numbers are so different." That's really stuck with me the last couple of years. I've been like, "Look, let's just focus on creating really 'high-value' product, really high-value advice for the people who need it." And then, of course, there are other models. This is just one model. You can go do the thing. It just turns out that here's one more piece you have to add to the puzzle of if you're going to go do the thing, make sure you figure out how to be happy too.
Michael: Yeah. Serve the people you want to serve, but it does feel better when you're really getting paid what you're worth.
Carl: Yeah. And that does not mean it's not possible. It just means keep in mind.
Michael: Well, thank you, Carl.
Carl: Amen, Michael. So fun.
Michael: Appreciate it.