Welcome back to the eleventh episode of the Financial Advisor Success podcast!
My guest this week is Alan Moore. Alan and I co-founded the XY Planning Network in 2014, but the reason I invited him to the podcast has little to do with XYPN itself, and everything to do with his own fascinating path as a financial advisor, business owner, and successful entrepreneur.
Because Alan started out his career as most of us are taught from the days we’re young – to go out and try to find a stable job with a steady income, and move up the ladder over time. Except Alan realized barely 6 months into his first job that it wasn’t going to be the right fit. Only to change to another job… from which he got fired in another 6 months. And so, realizing that perhaps being an employee just wasn’t the right fit, Alan decided to launch his own advisory firm. From scratch. At age 25.
These early experiences led Alan to the counter-intuitive conclusion that perhaps the traditional view of trying to find a job with a steady income is wrong, and that it can actually be more stable (at least in the long run) to build a business from scratch. Because as a business owner, even your best client firing you might only cost you a 2% to 5% of revenue… which is a lot “safer” than relying on a single boss who can take away 100% of your income in a heartbeat by firing you!
In this podcast episode, we talk about Alan’s journey from financial planning college student, to getting involved as a volunteer with NAPFA and its young-advisor group Genesis, to his path from employee to (young) entrepreneur of his own advisory firm, how he later launched a second business (XY Planning Network) as well, and how and why he ultimately made the decision that he couldn’t keep both a B2B and B2C business and would have to wind one down to fully focus on the other.
And be certain to listen to the end, where Alan talks about the rut he got into that almost led him to leave his rapidly-growing business entirely after a particularly bad month, and what it took to turn everything around and re-energize him in the business again.
So if you’re thinking about making the switch from employee to entrepreneur, or perhaps are an advisory firm business owner wondering how to better keep your young entrepreneurial employees, I hope you enjoy this latest episode of the Financial Advisor Success podcast!
What You’ll Learn In This Podcast Episode
- Why Alan thought he wanted to be a pharmacist when he was in high school, despite having no interest in chemistry. [3:35]
- How being introduced to the concept of financial therapy in his early undergraduate classes shaped Alan’s outlook on financial planning. [9:38]
- How a NAPFA scholarship helped him find a path to his first financial planning job. [21:07]
- What Alan did to land an internship with Rick Kahler, who let him sit in on meetings with multi-million dollar clients and offer his technical expertise immediately from day 1. [22:32]
- Why he decided to leave Rick’s firm after six months, and how he got fired from his next job as an associate planner. [36:11]
- The reflection and conversations that pushed Alan to establish his own firm, rather than having his income reliant on the choices of a boss. [44:00]
- What the transition to entrepreneurship looked and felt like as he struggled with balancing cash flow the first year. [50:31]
- How Alan’s commitment to assisting other planners interested in starting their own firms helped him realize that he was becoming a business coach and practice manager, too. [1:05:17]
- Why you’ll eventually have to choose between offering B2B services or B2C if you try to run a business doing each. [1:18:45]
- Why hiring a COO for XYPN was one of the most important decisions Alan ever made, and how it made the business fun again. [1:24:08]
Resources Featured In This Episode:
- Alan Moore – XY Planning Network
- NAPFA & NAPFA Genesis
- Rick Kahler – Kahler Financial Group
- Financial Advisor Success Ep 001: Rick Kahler on Entrepreneurial Persistence & Building a $200 AUM Practice
- Financial Advisor Success Ep 002: Love-Affair Marketing and Amplifying Your Successful Business with Ron Carson
- Financial Advisor Success Ep 007: Building a Highly Profitable Lifestyle Practice by Age 35 with Matthew Jarvis
- Financial Advisor Success Ep 010: From Unpaid Intern to CEO and Successful Succession Planning with Eric Hehman
- Garrett Planning Network
- Paula Hogan
- Delivering Happiness: A Path Profits, Passion, and Purpose by Tony Hsieh
- “If you really look closely, most overnight successes took a long time.” – Steve Jobs
- Jude Boudreaux – Upperline Financial Planning
- Caleb Brown – New Planner Recruiting
- Technology Tools for Today Conference
- J.D. Bruce – Abacus Wealth Partners
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Full Transcript: Alan Moore On How Launching An Advisory Business Can Be Safer Than Working In One
Michael: Welcome, everyone. Welcome, to the 11th episode of the Financial Advisor Success podcast. My guest on today’s podcast is Alan Moore. Alan’s the CEO and a Co-founder with me of XY Planning Network, a turnkey financial planning platform that shows financial advisors how to build a profitable business to serve Gen X and Gen Y clientele by providing financial planning services to those younger clients, under a monthly subscription fee business model.
But the reason I’ve invited Alan to the podcast, though, actually has nothing to do with XYPN, and everything to do with his own fascinating path as a financial advisor, business owner, and entrepreneur. Because Alan started working as a planning associate, straight out of getting a Master’s Degree in Financial Planning, only to realize in about six months that the job wasn’t the right fit. So, he joined another advisory firm only to get fired from that job in another six months because it was an even worse fit.
And so in this episode, Alan talks about how these challenges, ultimately led him to change his entire views on entrepreneurialism and starting a business itself, to the point that he views starting a business as actually being a safer and more diversified way to generate income than being an employee in an otherwise stable job. And that in turn led him to start his own advisory firm at the age of 25, and then later the XY Planning Network.
We also talk a bit about how Alan got his own advisory business off the ground, in the early years as a young planner, what he sees is the true purpose of financial planning, and the challenges that arise in running a rapidly growing business. And be certain to listen to the end when Alan shares the struggles that made running a successful business no longer enjoyable for him personally, and the change that he made to make the business fun again for himself. And so with that introduction, I hope you enjoy this episode of the Financial Advisor Success podcast with Alan Moore. Welcome, Alan Moore to the Financial Advisor Success podcast.
Alan: Thanks for much for having me on, man. I’m excited.
Michael: I’m excited, too. This is an interesting interview for me because as I’m sure at least a few listeners know we are business partners together in XY Planning Network and also co-host another podcast called XYPN radio. Although, for that one, you’re the primary host. I’m the secondary. So this is kind of fun to turn the tables a bit. The reason I’m excited to have you on the podcast doesn’t actually really have anything to do with working with you, necessarily.
It’s just, I think you have a really cool story and a journey from starting in as a graduate student, coming into financial planning, working in the business, starting your own firm at 25, becoming an entrepreneur again, and Founding XYPN. So I’m excited to just to take people through that journey frankly, a lot of stuff you’ve done already for still being the young guy. You’re not yet 30?
Alan: Correct, so I turn 30 in April. So when we go through this, it always freaks me out when I realize how much has happened in that period of time because then, it makes me reassess my whole view on life.
Why Alan Thought He Wanted To Be A Pharmacist, Despite Having No Interest In Chemistry [3:35]
Michael: Yes, at your current pace of iteration, you have a lot of years left to do things. So can you start us off with just a little of your background? You know who’s Alan Moore, where you’re from?
Alan: Yes. So I’m a homeschooled kid from the south, from the hills of Alabama. My folks decided to homeschool us because we were in a really bad school district, and I actually especially recently have started to realize how much of an impact that had on me. You know I’ve always known I didn’t have the ability to like tolerate stupid people. You know my friends always said that was because I didn’t go to public school and learn tolerance. The other piece too was that it, on a positive side was that it, sort of ingrained in me the personality traits. I think, and just the skill sets that have come in handy.
I certainly missed out on a few things, but I think it helped me out in the long run. But went to the University of Georgia where I was going to be a pharmacist because you could be a doctor in six years, and, you know, it’s a good paying job and I guess interesting work. I don’t know what I was thinking because when I really started thinking about it, I was like, “I’m going to sit behind a desk in the CVS or a Walgreen’s for my entire life counting pills.” Like, I don’t know what I was thinking. But it sounded like a really good plan at the time because you know it’s what they told us, “Go get a good job. You’ll get a good career.”
Michael: Right, go get something that’s got good income potential and stable earning power, right, like we’re probably going to have pharmacists for a long time because you’ve got to be careful about having the robots hand out drugs.
Alan: Yeah. And, you know, underneath that, it was like, “Be sure you have a job that your parents can explain to their friends.” Because when you’re in high school, I guess you think about your big careers, being an accountant, a lawyer, a doctor, a pharmacist. No one says like, “I’m going to go be a commercial real estate salesperson.” You don’t go to school for that because it’s not a popular career path, I guess.
Michael: So like pharmacist reasonably checked the box for you?
Alan: Yeah, it hit all the things that you’re supposed to look for in a career. So I went, you know, to the University of Georgia, got started, hit culture shock really fast. Come to find out, you can’t just write anything you want. If you offend your teachers then they will just fail you, whether you wrote a good paper or not, which happened in my first semester. Because a teacher said, “Don’t write about this topic,” because they didn’t agree with it politically. So, I wrote about it, multiple times, ended up sort of crawling out of that hole. But the class that I took was Chemistry 101 which most people take, and pass with flying colors, I guess, and it just did not click for me. We got to naming compounds and I was like, “Nope, I’m out.” Like, “This makes no sense.”
Michael: Five and a half more years of that, then plus, actually doing it for a career was…you were out by Chem 101?
Alan: Yeah, it didn’t take long. Funny enough, I spent seven years in college, I guess, by the time I got through grad school, and it was the only class I ever had to withdraw from, but it was bad. It was just so bad.
Michael: Not because you were failing, just because you were miserable.
Alan: Both, I was failing, let’s be honest. I took the second test, it was like…I don’t know. I got a 30% on it, and it just was not the way my the brain worked. So I sort of had to go back and say, “Okay. How am I going to pick a career?” And so, I did what most college kids did, and I put in some parameters. One, no life sciences so, I was not going to pick a major that required a life science, and I took foreign language in high school and was very bad at it, and so, no foreign language. So at the University of Georgia with 40,000 students, there are a total of 8 majors that do not require a life science or a foreign language to graduate, and I picked 2 of the 8. I wish that wasn’t a true story, but it absolutely is.
Michael: And so which two did you pick? Was one Financial Planning at that point?
Alan: It started with Consumer Economics because I saw Econ in the Business School, took some classes there. It was really cool, but the Business School had a lot of requirements and just other coursework that didn’t look like fun, and so then I discovered Consumer Economics, which sounds a lot like economics. I did not know until I got there that it was…
Michael: But it didn’t have all that business-y stuff you didn’t care about.
Alan: Yeah, none of the business-y stuff. It was like household economics. Like, “It’ll be so cool” and then, I realized it was actually home economics they had just rebranded to Consumer Econ because no one would take Home Ec. classes and all the football players were there. Long-winded story to say that I ended up taking an elective called Intro to Personal Finance, and I thought I was taking sort of a how to do your own financial plan so, how to do your own cash flow and budgeting, and all of that.
Michael: All right so, personal Intro to Personal Finance kind of?
Alan: Yeah, that’s what I thought it was. Come to find out, it was the Intro Fundamentals calls into the CFP Program at UGA. No one bothered to correct me. It was like the second year, I think I was in the second, starting. There was one year before me and then I got started.
Michael: Okay. So the Financial Planning Program itself had just showed up in UGA.
Alan: Exactly. Yeah, so Dr. Lance Palmer had brought it to UGA, I think in 2005 which was my freshman year of college, and then got started, I think, in 2006 or early 2007. But I took that intro class, quickly realized it was not what I thought it was, but I just fell in love with it because it was exactly what I was looking for but didn’t really know it. It was numbers, but it wasn’t an equation. So it’s one of the things I loved about financial planning was that it’s a puzzle. There’s so many answers. So my dad used to say that math is the perfect science because there’s always one right answer. He did not tell me about calculus, and so that was true until calculus.
But, you know there’s one right answer but in financial planning, there’s not. There’s infinite possibilities that we get to play with, all of these levers we get to pull to create a scenario that’s individualized for a client that helps them achieve what they want out of life, and I realized that that’s really what financial planning was, was that we got to figure out what a client wanted to accomplish with their life, and then pull all these little levers, and put all the pieces together to give them a plan that helped them accomplish that.
How Being Exposed To Financial Therapy In College Shaped Alan’s Thoughts And Views Of Financial Planning [9:38]
Michael: That’s actually a cool framing for financial planning. I don’t feel like we spend a lot of time framing financial planning. I mean, I guess we sort of say we’re going to help clients achieve their goals and then figure out what to do to get them there, but the way you just framed it, to me, is interesting. Like we’re going to help clients just kind of live the life that they want, and pull the levers that they need to pull, in order to get there.
Alan: Yeah, and I truly believe it. I guess in college I was sort of beginning to see this, and I was very fortunate at the University of Georgia, we had Dr. Joe Goetz who had his Master’s in Psychology. And so we brought in this kind of concept of financial therapy and blending of psychology and money. Just sort of a different perspective on planning then I think a lot of the programs get. We also weren’t the Business School, so we didn’t have Business School oversight which at UGA was a benefit. I know there are many top programs in Business Schools.
Yeah, I realized that we’re one of the few professions, and I’m not even sure that I can name any others, that the whole point of our job is to figure out what a client wants out of their life. Like, “What is their great life? What are the things they want to accomplish to be fulfilled?” And then we use their money as a tool to accomplish that dream. And when you really dig in with a client, I mean, yes, it can be the standard, “I want to travel more, spend more time with my family, start a business,” and that sort of thing. But it can also be a client that wants to leave a concert hall to their alma mater college and how do they do that? How do they leave a $10 million building when they don’t have $10 million?
Well, I worked at a firm where we actually figured out how to do that, you know, for, I think, half a million dollars. Left a $10 million foundation that was just this amazing thing that we helped them accomplish in their life. And not very many professions have the honor of being able to actually say, “We help clients live great lives.” And so that’s, I think why I was so attracted to it and, again, we think of financial planning as this simple equation. You spend less, save more, retire, and it’s just going to be really easy. And anybody in financial planning knows that is not how life works. It’s not how financial planning works, and so it’s this cool, like, malleable puzzle, we get to sort of play with, and make our own or make the client’s own, and that’s what’s so fun about it, I guess.
Michael: Well, and it strikes me, certainly in the modern discussion about the rise of the robo-advisors or just technology and automation, in general, and this question of, “Are we going to, at some point, going to get automated out of existence?” When financial planning boils down to a math problem, it boils down to something a computer can solve. I mean it’s just a math equation and solve it. When you frame it in a sense of the purpose of financial planning is to help clients live their great lives which, of course, naturally invites the follow-up question, “Well, how do you define great life?” And the answer is, “It varies by the client.”
And, frankly, even for a client, it tends to vary and change over time, as we go through our lives and life happens. And so, to me, that’s an interesting way to frame like, “This is why the client-facing part of financial planning can’t get replaced by computers and robots any time soon.” Because that whole discovery process and conversation with the client about, “What would a great life be for you? What does that look like?”
Like, helping people actually figure out what their real goal is and not just the, “Hey, it sounds neat to say, ‘What if I had a million dollars when I retired at age 65?'” It’s a much more complex, and nuanced thing that a computer can’t solve because it’s a personal question. It’s a personal conversation because I don’t think most people can actually answer that very effectively if you just said to them like, “Hey, define your great life, go.”
Alan: Right, and to do it quantitatively so the computer can figure out what you’re trying to do.
Michael: Pick it from this drop down list, that the computer questionnaire has, “Which of these if your great life? Would you like to A, B, C, or D?”
Alan: And I’m sure there’s somebody listening to this podcast that’s an artificial intelligence genius and they’re like, “Oh, you guys have no idea what’s coming.” That may be true, but by the time that happens, there’s not going to be any other jobs for us, either. Because just the complexity of the human psyche and the human brain, especially when it comes to money and, just all the emotion, and issues that we, you know, have with money if you work with true, real, financial planners, not the, you know, life insurance salesman…because we can outsource that or we can put that in an algorithm and not the, “I do low-cost ETF model portfolios.”
Like we can put that into an algorithm, right? But the real financial planning, you can get rid of us. I don’t honestly know what jobs are left, at that point. It’s going to be a really short list. Let’s just not worry about it.
Michael: So how did it go from there? You found your CFP class, partially, accidentally, sophomore year, but I think you ultimately said you were in college for seven years. So how did that play out?
Alan: I need to do the math. So I started in 2005. I graduated in 2010. So I guess I was there for five and a half years because I started in the fall, and graduated at the end of December. But yeah, so I got started in financial planning. It was an easy dual major just because of the way the electives rolled out. So I got my undergrad in Consumer Economics, and my undergrad in Family Financial Planning, which qualified us to sit for the CFP and up until about March of 2009, I had this grand plan of getting a job. Come to find out, March of 2009…
Michael: So you started in the fall of 2005, 2006, 2007, 2008. So you’re supposed to graduate, the summer of 2009?
Alan: Yeah, great time to graduate. For anybody that doesn’t get that sarcasm, look it up. So there were jobs available, but what I knew was that the class before us, every single senior before us, had their job locked in for May before the January semester even started. I mean like five and six months out, they were already recruited, and nobody in my class had any jobs.
Michael: Six months out from your graduation is, literally the depths of the financial crisis, and the markets are moving up and down by 8% to 10% a day.
Alan: You’ve got it. And that was kind of combined with the fact that I had a mentor, Dr. Goetz there at UGA, and he ended up being my major professor, and I saw his life and I loved the way it looked. And so Dr. Goetz is a Professor of Financial Planning, but he also co-owns a financial planning firm with his wife, with Lindsey. And she actually runs the firm and does the day-to-day, and he sort of shows up from time-to-time and does awesome work with his Ph.D and brings some credibility.
But he gets to do planning, but he doesn’t actually have to run the firm, but he was able to do both, and so I was like, “That’s awesome. So why don’t I stay for grad school?” And so I went, and I talked to the professors, and I was like, “Hey, maybe I should stay for grad school.” And they said, “Well, we’d love to have you, but you know the deadline’s in two days.” So, I signed up for the GRE the next day. Did not do as well as I would’ve hoped. They have you write an essay in Notepad. Notepad with no, like, red squiggly lines for when you misspell a word.
Michael: Yes, well, part of the point of assessing people’s natural talents is to assess the non-computer augmented version of them.
Alan: Yeah. Well, I grew up with Microsoft Word. I didn’t know there was any other system. But what’s interesting is that actually ended up playing into my career path. The fact that I totally bombed the writing portion of the GRE. So I think I got a two out of five which, basically meant, like, I could spell my name correctly, I think. Did fine on the math, and English or the comprehensive language side.
So anyway I get started, stayed for my Master’s in Financial Planning. I was really passionate about teaching more than research and so, they let me teach a class or actually two classes. So I taught the Capstone class, as well as a technology class in our program, and I sort of started to get into the world of academia which is very political. There’s a lot of underhanded favors, and you’ve got to know the right people, and asking permission from the right folks, and…
Michael: The world of entrenched bureaucracy, right? I mean that’s kind of the dynamic for academia. You know if you’re going to allow professors that get tenure and then are unfireable for next 40 years, like, you’re going to tend to get a little bit of entrenched bureaucracy out of that.
Alan: Just a little bit. And so, you know, basically, the mistake I made was moving my desk six inches to the wrong direction. I just realized that I had crossed into someone’s territory that I wasn’t supposed to cross into, and not a very interesting story. But what it turned out was, I realized just, the politics and the drama, and I was just not built for that. Right about that same time, UGA, historically had made it so that you could get your Ph.D. in Financial Planning, which is the path that I decided I was on.
And I had applied to the Ph.D. program, but you could get your Master’s and Ph.D. at the same time so, instead of having to write a Master’s thesis, and then start over with your Ph.D, you could just go straight through. Which worked well for me because at UGA, I had taken by the time I was done with grad school, I had taken all the classes. There were no other classes to take. So if I just got my Master’s, I was going to have to leave Athens, go to, probably Texas Tech, and get my Ph.D.
And so I was just on this path where I was going to go all the way through. So there was this routine meeting where the professors got together to say, “Yes, Alan can be a Ph.D. student.” And right before they voted, someone decided to reevaluate the rules for minimum qualifications to be eligible for the straight-through Ph.D. program. So they reevaluated the numbers, wrote up the new numbers, and my GRE score didn’t qualify.
Michael: So your GRE score was fine to actually get you into the Master’s program, but then when you tried to add the Ph.D, then you got flagged?
Alan: Well, I was already in what we called the Ph.D. program, the straight-through thing. It wasn’t super official. It was kind of a weird deal, and I was following the footsteps of Dr. Seay, now Martin Seay who’s out of Kansas State who had done this. I was sort of following in his footsteps. I actually couldn’t even tell you if I was a Master student or a Ph.D. student at that moment, but it was a shoo-in. I was definitely going to be considered at that moment, after that meeting, a Ph.D. student. And they came out and said, “So here’s the deal. We changed the rules and you don’t qualify anymore. So you’re now a Master’s student, and you can’t get your Ph.D. here.”
Michael: You stepped on someone’s political toes, and it came back to you.
Alan: I don’t think so. I actually think it was a legitimate, “Hey, we need to evaluate these rules, standardize it.” Had I studied for the GRE, and actually had a couple of weeks of prep time, and focused on it, and that sort of thing, it could have been a different story, but I didn’t know it mattered. You know, I needed to get into the program. I didn’t know I needed this higher score so, I kind of shot myself in the foot, inadvertently.
Suddenly it was sort of back to ground zero where it was just like, “Okay so, now what do I do? To get my Ph.D. it’s going to take me four more years than I thought. I not only have to write a dissertation, I also have to write a Master’s thesis now. So is this really the direction that I want to go?” And I decided it wasn’t, decided academia probably wasn’t for me, and I was just a tad ticked. This would have been early 2010, I guess, so I’m sort of finishing up my first year of grad school.
How A NAPFA Scholarship Helped Alan Find His First Job In Financial Planning [21:07]
Michael: You went along one year further out from the financial crisis than actually trying to apply for a job, like in March of 2009 as the market hit its all-time low?
Alan: Yep, that was pretty much it. I happened to come across a scholarship from an organization I had not heard of called N-A-P-F-A.
Michael: Oh, I think I’ve heard of them now.
Alan: Yes. And I didn’t know who they were as a student. We didn’t do a ton of practice management work on things like that. So they had a scholarship program where the South Region was running a scholarship for conference attendance. They’d pay your way to come. So write an essay about why you want to be a financial planner, what NAPFA means to you, and that sort of thing. So I did a whole bunch of research on what that all meant, and then sort of clued in…I guess I could take a step back. I actually did an internship at Smith Barney which was really the reason I knew I wanted to be fee-only. I just didn’t know that’s what it was called. I just knew it was called not Smith Barney.
Michael: Okay, not sales environment, okay.
Alan: Not sales. And so I applied for a scholarship and they actually denied me, and said, “We actually are out of basically South Region scholarships.” So they kicked my application up to National who gave me one of their scholarships. Total luck, and it’s just amazing when you look back, and you start putting some of these pieces together on, just how fortunate I was. But also, just some of it was fortune, some of it was just hard work, some of it was, just didn’t know any better, and just ended up there.
How Alan Landed An Internship With Rick Kahler [22:32]
Michael: Well, there’s always a little of that luck favors the prepared.
Alan: This is very true. Yeah, I actually applied, right, so I mean I got lucky that I got it, but I actually did apply. And for any of the students out there, no one else applies to those scholarship programs so, if you see any out there from TD Ameritrade or NAPFA or FPA, by all means, apply because you’re probably the only one actually sending in an application. Just a note, so I got the scholarship. And I started looking around and saw this guy who was going to be at the NAPFA Conference, and he was hiring an associate advisor. So I started doing some research and his name was Rick Kahler, and he said that he was one of the pioneers in financial therapy.
And I was like, “Oh, good, another con artist. I know the guy who’s the Founder of Financial Therapy. He wrote our textbook.” So I went back to the textbook written by Rick Kahler. So quickly put my foot in my mouth, and met with him at the NAPFA Conference in Chicago. He was hiring an associate advisor. Now I walked in saying, “Look, I’m not graduating till December. It’s May so, I’ve got eight months. So I have to convince this guy to wait for me because, like, I love the concept of financial therapy. Working for him will be awesome, like, I’ve read all of this books.”
So I walked into the interview prepared to convince him he needed to wait for me. What I didn’t know was that Rick has a very challenging time recruiting to Rapid City, South Dakota, and he fully expected for it to take a year for him to find someone. So, me, saying I could start in January was actually, like, five months ahead of schedule.
Michael: So your eight-month timeline was fast for his expectations.
Alan: It was. And I do want to say for anyone who listened to the first episode with Rick Kahler…I got multiple emails after it. I was not the one that quit, along with five other people. I came in after that. I was not part of the coup that was not really a coup.
Michael: For those who have dialed in more recently to the podcast, so Alan is talking about Rick Kahler who actually joined us for episode one of the podcast. So you can go back and listen to it, if you want, kitces.com/one. And one of the stories that Rick had shared, amongst many about his challenges of trying to hire in Rapid City, South Dakota, is that he had a moment a couple of years ago where he lost 5 of his 6 staff members in the span of 60 days through some combination of people quitting, and two people with health events, and just like a whole bunch of crazy, bad stuff that hit him in the business all at once. And so out of sheer coincidence, Alan spent some time there as well, but not during that particular turbulent time.
Alan: Right, yeah, that was after me. He had pulled things back together. Righted the ship, and then I came in, but what I was prepared with was, I knew that he was hiring now or at least I thought I did, and so I come in and say, “Hey, look, I will come to South Dakota for a nine-week internship/job interview. No promises, you don’t have to give me a job afterward. Please pay me enough to like come out there.” Luckily, Rick also owns a property management company so, he just hooked me up with a studio apartment nearby which was awesome.
Michael: So was this for the summer coming up because you were meeting him in May But you weren’t going to graduate until December and so this was in the meantime?
Alan: Yep, so this would have been mid-May is usually when NAPFA’s conference is and I said, “I’ll come out whenever. You just let me know. I’ve cleared my summer for you,” and he bit. And he called me back, like two days later and said, “Okay. Pack your bags. How fast can you be out here?”
Michael: Because as you’ve learned in retrospect, the fact that you said you were willing to go to South Dakota was actually enough for him to give you, at least an initial chance.
Alan: Yeah, and it was low risk for him, and come to find out, again, he has trouble recruiting to South Dakota. So for me to say, “Look, I’ll show up.” I think I asked for $11 an hour or something like that just because I, literally just budgeted out, what will it cost me in terms of move out there, nine weeks of rent because there’s not a lot of places doing nine-week rentals outside of hotel rooms, you know, food, that sort of…and drive back? Like, What’s the bare bones? And so I just said, “Forty hours a week, $11 an hour, $10 an hour,” whatever the number was, and he said, “Okay.” And, you know, he was impressed that one, that I was willing to do that, that I had read all of his books.
So some of them I read before I knew I was applying. The other ones I read after and those are the things that I think just…I don’t know. I didn’t think anything of it. I was like, “If I’m interviewing with this guy, I need to know him.” And it frustrated me when we were interviewing candidates while I was there and they’d be like, “Rick Kahler, he wrote some books?” I’m like, “Did you Google the boss, like the guy that started the firm, and bother realizing that he wrote four books? Don’t come in here and don’t know anything about financial therapy. He coined the term. What are you doing?”
Michael: And I think there actually is a good message there for like maybe any students, younger planners, I guess really anyone that’s looking to do a job change perhaps at some point, and is thinking about an interview process, like, this stuff matters, do your homework, and due diligence. You only get one chance to make a good first impression, and doing a little bit of homework on who you’re going to be interviewing with, to show that you really actually know their situation, and what they’ve done, and can talk competently about it, like, it reflects well on you.
Frankly, most people like the ego stroke of knowing that you’ve read their stuff and paid attention to it, if they’ve written things so, it makes you look good. It makes them feel good. If you make them feel good, then they like you. It’s sort of personal dynamics and rapport building 101. And yeah, I’ve gone through the same thing in hiring for a couple different of my businesses over the years. It’s always fascinating to me the split between, you know, people that, just clearly do a little bit of their homework and those who don’t.
And if you’re one of the ones that don’t, you show so…even if you’re otherwise a strong, capable candidate, you show so badly compared to someone that clearly did their homework that it’s one of the primary reasons you probably got screened out early on and quickly. If you keep wondering, “Why do my interviews not go further?” Or, “Why did my job application not go further?” This easily could be it.
I know people that get frustrated and they’re like, “I’m having trouble finding a job. So I just keep applying for more and more, and I’m applying for so many that I can’t read up on all of them because it’s too many.” That’s the problem. If you shoot too wide, you can’t build rapport with anybody that you’re actually reaching out to, and you’re just going to apply for more jobs, and they’re all going to fail.
Alan: Yeah, the beauty of financial planning is almost every single firm out there can afford to hire you. We have pretty good profit margins. Most firms are not sitting there on the verge of bankruptcy especially in the independent space. So if you make a good impression, and you make the case yourself, and show them why you’re the right person, you’d be surprised how many firms will open their doors, and will make you a job offer. But, you know, especially if we have any college students listening or are very early in your career, you know what all your buddies are doing while you’re listening to a podcast or going to FPA career day?
They’re partying, right? That’s what we do in college, and partied a lot in college too, but your friends would rather party than actually put in the effort. So it’s not like you have to be the most knowledgeable person in the world, just be better than the meatheads that we’re coming into our office, and interviewing for positions. Just put in a little bit of effort, and it was amazing how far that will go for you, but, again, I didn’t know all this. I wasn’t necessarily doing it intentionally and I don’t want to claim to have had some like secret sauce that I was pursuing.
And I was genuinely interested in it. It wasn’t fake. I loved what he was doing. I had a ton of respect for him, and when I met him, we just had a really good rapport and a lot of that was because I was very much a mini-me of Rick. Now, I was the mini-me of Rick, pre-20 years of therapy training. So the Rick you had on the podcast and the Alan now are not quite in line. And I don’t mean that in a critical way. He’s just done some amazing work in that space in really helping to uncover that side of his brain. But he saw in me, himself, you know 30 years ago whenever he was hiring me.
So I’ll fast forward. Went to South Dakota for nine weeks, did the internship, made a good impression. And at the end of the nine weeks, he offered me a position to start in January, and so I went back to school. I only had one class remaining, I believe. I was teaching a class, and then I had to decide between the CFP or writing my thesis. So one of the great things that, again, pure accident was that I had my undergrad in financial planning. So I was qualified to sit for the CFP while still in school whereas most CFP students have to wait until after graduation.
I was actually eligible in grad school, based on my undergraduate degree. I was actually able to take the CFP exam in November, back in the day when it was Scantron and took two entire days. For all you lucky people now you don’t even know. But anyway, so I took it in November, but also didn’t find out I had passed the exam until after I had moved to South Dakota, and had a pay raise contingent upon my passing.
Michael: So that was really good news when you got it.
Alan: It was. I got the little piece of paper with the fireworks. I just felt like it should be a big party but, anyway. So got to work, kind of took on the associate advisor role. We had an investment guru on staff that was just an Excel whiz. So she handled the investments, sort of the, I guess, investment associate, and I was the planning associate. I sat in all the meetings which I realized now was such a gift, that I was able to sit in. I literally sat in every single client meeting, from day one of my internship and then that followed through, you know, to the job.
Michael: That’s an interesting dynamic, right, because a lot of firms don’t do that. So when you’re sitting in on a client meeting as a, literally fresh out of college, don’t even have your CFP yet, don’t even know if you passed your course yet, what do you do in those meetings as that para-planner person? What were you tasked with doing?
Alan: So what I love about Rick, and the reason I am where I am today is because he saw something in my personality and, again, probably just saw himself, that he clued in very quickly that I was a personality that, if I wanted to find out how to swim, if I’m not sure if I know how to swim, I just dive into the deep end and figure it out. And he let me do that in client meetings with multi-million dollar clients.
So, for instance, this was 2010, well, I guess 2011 now. So this is rough conversion time, and so clients would ask questions about rough conversions and he’d go, “I’m not sure. Alan, do you know the answer?” I remember the first time he did that I was like, “Is this is a trick question? Do you say the answer?” But I have no ability to hold my tongue, so I’d blurt out the answer and we’d move on. And he would just do that, he would prompt me in the middle of meetings. Say, “Hey, what do you think about this? Do you know the technical answer to this?”
Michael: Were you right? Were you wrong? Like, did he ask it, and then correct you if you ended up not knowing?
Alan: You know I tended to have the right answer with very little tact.
Michael: Which, I think, is actually an interesting point, right? Because true for so many students that are coming in today, well, some of them are probably more tactful than you were. But I think sometimes we underestimate how much people absorb in their CFP classes. For a lot of us who have been practicing for a long time, you know you’re trying to remember some Roth rules that you haven’t actually looked up for 5 or 10, or 15 or 20 years, since you studied for the CFP, and you have a student that just spent years immersed in this stuff. So they tend to know it. They may not be the best at communicating it, yet, that’s a learning opportunity, but they know their stuff pretty well.
Alan: Yeah, Rick will tell you that when I got hired, I knew more technically about financial planning than he did. I mean he relied on me from a technical standpoint to answer technical questions about financial planning, because I was so fresh. You know, again, five and a half years of, you know, multiple degrees, and we actually had a clinic at Georgia. We worked with clients while I was still in school. So I did have a little bit of that side, I just after the CFP. So there were things, you know, that he would say and he would tell clients, “Alan’s smarter than I am when it comes to financial planning topics.” Now was that true? I don’t know. That’s what he would tell people. Probably not, but I was a very raw…
Michael: It helps them build trust in your when you’re sitting in the meeting, though.
Alan: Yes, it did. I never had a single problem with a client going, “What do you know?” or “Where’s your gray hair? How many market cycles have you seen?” or any of the things that, you know, people will say about that. But I was a very raw talent I will say if talent is even the right word. I had the technical skills, but I did not have the art and the finesse of financial planning, and Rick let me learn that on his clients. He really did. And he let me loose, and when I would an analysis, he let me present it.
He let me talk through it, and then after the meeting, and I’d recommend all planners do this. After the meeting, we talked for 5 to 10 minutes, and sort of caught up with each other. He would give me some things, “You did this well. Could have worded this better.” You know, “Could you see how this would be insulting to a client when you frame something in that manner?” Because I would tend to just say things like basically, “You’re an idiot. Here’s the answer.” And like, “Could you see how a client might not take that well?”
Why Alan Decided To Leave Rick’s Firm After Six Months [36:11]
Michael: Might not appreciate that.
Alan: And he actually let me correct him sometimes or anytime I was willing to. But you know say like, “Hey, you said this, and I don’t think that’s what you meant to say.” Like, “You know that’s really good feedback.” And we had a two-way communication street. I say all of that to say that Rick and I got along great. We’re having a lot of fun. But sort of coming out of that story that you mentioned about having a bunch of staff members, sort of rebuilding the firm, the team that he had was not necessarily on the same page as I was, in terms of where the firm was going.
So I came in, high-energy, 23-years-old, didn’t know any better, and just said, “Let’s grow the heck out of this thing” because I’m here to be a successor. I’m here to buy this firm. So I want this firm to be worth something so, let’s grow it. And up until that point, everything was organic. One client a month was the goal, but we probably did six to eight clients a year, in actuality. And what I ran into was a staff that we did not see eye to eye on the future of the firm and it made for a very toxic work environment.
And it wasn’t intentional and I don’t hold any ill will against any of those folks, but we just clashed personality wise. And so about six months in so about July I said to him, “Rick,” I said, “man, I don’t think I can do this anymore.” And he said, “Yeah, I’ve been feeling like one of you have to go, and I’m going to let you all make that decision.” I said, “Okay. Well, it’s me.” Because, you know, ultimately he had loyalties to both of us and making that decision would have put him in a really bad position, and it may have put me in a bad position too, but I think it worked out the way it needed to.
And so I said, “Okay. I’ll start looking for other positions. Can I keep working here until I find something?” And he said, “Yep, take as long as you need.” And the truth is he was my reference for all of the firms I applied for going forward. He talked to every single potential employer and I asked him, “Tell them the truth. Tell them who I am. Because I don’t want to run into this situation again.”
Michael: And this was July so like six, seven months in?
Alan: Yeah, people talk about like, “I’ve been with a firm five years.” I don’t know what I was doing five years ago, but it most certainly wasn’t with this firm. Yeah, so I was there a total of 10 months because I left in October. But like I said, he actually talked to some folks, and I have since talked with folks that did not give me a job because they were smarter than others. I wasn’t the right fit for their firm, and he was helpful. He was honest and said good things, said bad things, but he remains a friend today. But I ended up getting a position with a firm called Financial Service Group out of Racine, Wisconsin.
So owned by Mike Holbrook who was actually in a study group with Rick, and Marty Kirsch, from The Planning Center. They sort of were buddies, and this position had opened up. And so I applied, and Rick encouraged me to, and flew out to Racine and was offered an associate advisor position there. And so I packed my bags and drove from South Dakota to Wisconsin, which is not a short trip. Got started sort of in a similar position, associate advisor, fee-only RIA. We had about $150 million under management or somewhere around there.
Michael: How big was the team? Like, were you the planning associate or there were a bunch?
Alan: There were two leads, me and one other associate/assistant advisor and then two staff. So, you know, a total of six of us in the office, so pretty small. I guess that’s actually the largest company I’d ever worked for. So yeah, so we got there. And within just a couple of weeks, I knew I had a problem. Angie Herbers, one time…I don’t mean to misquote her if I do, but she quoted research, I believe that said, “An employee knows within two weeks if a position is long-term or not.” Like it’s going to be a good fit or not, they know within the first two weeks, and that was my experience. I walked in. It was like, “Whoa, this is not what I thought I was signing up for.
Michael: Because the job duties, you weren’t doing the planning you thought or what was it?
Alan: Yeah, there were two pieces. One, at this firm they sort of had the structure. Level one was lead planner. Level two was associate planner. Level three was assistant planner, and I walked in as a very arrogant, 24-year-old that thought I knew everything because I worked for Rick Kahler and I have a Master’s degree, and a CFP so, of course, I know everything. I walked in at what I would consider a level one personality. I’m a lead planner personality, “Put me on the front lines. Let me go get us business. Let me be the planner.”
Michael: Because even if you’re not, your personality style is, “I need to swim in the deep end, and fail at it.”
Alan: Let’s figure it out. But I was paid as a level two. So I was an associate advisor which is fine. I quickly realized I was doing the work of a level three. So I was a level one personality getting paid like a level two, doing the job of duties of a level three, and that caused so much conflict, I mean, mainly because I was just bored.
Michael: So I mean the irony was like they tried to move…I mean I’m imagining it from their perspective. You know Rick’s telling them that “You’re a strong, outgoing personality and need opportunities.” So they’ve only got a job for a three, but they’re trying to move you up to a two, to give you this opportunity and you’re miserable because they couldn’t jump you to a one.
Alan: Well, I was miserable because it was the level three, that assistant level job duties that just drove me up a wall. So I had to call 150 clients every single quarter to schedule meetings. Because we didn’t have meeting scheduling software, and I managed the paper trade tickets for every single trade that we did. Just things like that that, one, were just systems and processes that needed a little bit out of updating. But just the work was grueling, and I have learned about myself, I don’t live in pain well. And so if I’m in pain, I need to make a change because if I don’t I’ll explode, and I was just boiling.
Michael: Because you just didn’t want to do rote, repetitive tasks kind of stuff.
Alan: Yeah, the job duties they just made me want to just pull my hair out. I mean it was just awful, and what I wanted to do was I wanted to be out talking to folks trying to find new business and being the lead planner, and that opportunity just wasn’t there. And that was sort of the second piece to this, and I don’t even mean to imply that Mike lied to me, but Mike is a visionary personality. He can just paint a beautiful picture of the future, and he had this sort of model of franchising the business, “So, Alan, come in, learn the business over a couple of years, and then you can open your own franchise of Financial Service Group wherever you want, and you’ll be the lead planner of that franchise.” And it was just this beautiful vision.
Michael: Yeah, that’s what we said as vision people.
Alan: It was awesome. And so I came thinking like, “Okay. This is legitimately a two to three year thing,” and I quickly realized that it was more like a 15 to 20-year thing.
Michael: Because the firm just wasn’t growing fast enough to be able to create that opportunity?
Alan: Yeah, and it was something they had been working on for a very long time. It was just a very slow movement and, ultimately they needed me just to be there to take care of their clients. And so, again, I think Mike sort of had this vision, and I got sold on the vision. And when I got there, I think the vision and the reality were disconnected, and I just assumed they were connected. So I started there in October of 2011. So with Rick 10 months, started there in October, in April, just after my birthday came into the boss’ office. It was a Friday afternoon, and Mike politely asked me to not come back on Monday so, I was there about six months.
Michael: And just got outright fired.
Alan: Yeah, and it wasn’t that I did anything illegal or anything like that. It was just very obvious that the tension was too much, that we weren’t working well together. We butted heads because we were both sort of strong personalities and, yeah, again, sort of the conflict of the job duties, and all of that combined, just created a toxic atmosphere.
The Reflection And Conversations That Pushed Alan To Launch His Own Firm [44:00]
Michael: So you’ve graduated from college, and you’ve been out for not even 18 months, and you’re now out two jobs?
Alan: Yep. So I didn’t know what to do at that point. Fortunately, they had already paid for me to attend the NAPFA Conference in Chicago, so it was just south of where I was, so I think that was two or three weeks later. So I dropped down there, started talking to a bunch of different firms. I probably had legitimately 20 conversations with firms that were hiring at some level. I had gotten myself established with NAPFA Genesis, so most of the planners there knew me. I had come a couple of times, so at least I was a familiar face.
So I could spark up conversation, find out if they were hiring, and the conversations were just like, depressing and not because they weren’t awesome opportunities, but it sounded too much like what I had been through. And so, for instance, there was one planner he was totally sold on me and he said, “Alan, you come in and we’re going to grow this firm together over the next five years. We’re going to double cash flow, double profits, and then you can buy me out, and you can buy the firm with the profits.” And I was like, “So I’m going to work for the next three to five years to double the purchase price of your firm? That doesn’t sound like a good deal.”
Like, “How about you give me half the equity now and an owner’s note with a five-year balloon payment or something like that? So that I have equity now so when we double it, my equity doubles.” And he was like, “Are you crazy?” Which, at the time, I’m thinking like, “No, this is a stupid deal.” Now as a business owner, I understand why he shunned my offer. Those conversations just didn’t feel right to me, and so I went home after the conference and said, “You know what? My dad always told me that the definition of insanity was doing the same thing over and over and expecting a different result. And I’ve done this twice, and maybe I’m the problem.”
Like, “Maybe it’s me, you know. Maybe I’m just a terrible para-planner and I need to be a lead planner.” You know who’s going to give a 25-year-old, freshly minted CSP who can’t hold a job in financial planning, a lead planner job? And the answer is no one. And so I really started doing some reflection on what do I really want here? And I sort of saw two routes. One, being I’d go and get a job as an associate advisor in an RAA and there were plenty of those positions out there, make my $60,000 a year, whatever associate advisors made at the time, and be fine, maybe I’ll be happy, maybe not or what if I started my own firm?
What would that look like, and if I start my own firm, I sort of have two options for how it goes. I either succeed and I’m successful, yay, everybody’s happy or I fail and what is failure? Because when I think of failure, I think of like living under a bridge, unable to feed my child is failure. Failure in that route is, “I go get a job as an associate advisor at an RIA making $60,000.”
Michael: I can go get a job and work for the man or I can try this on my own for a while because the fallback is still going to be, I can go get a job and work for the man?
Alan: You’ve got it, and suddenly I had this sort of change in perception of job risk. So growing up, and I think we’re all sort of taught that starting a business is very risky. It’s safe to go get a job. You get a 401(k) and…
Michael: Good job, steady income, right, what every parent wishes for their child.
Alan: All of that, and what I realized was that, in a moment, a person that, you know, I had no control overtook 100% of my income from me by firing me. It took 100% of it, and yet, when I look at entrepreneurship and I think about the risk associated with entrepreneurship, if the worst case scenario is I go get the job that I was going to get anyway but I remove the barrier that one person controls my life and controls all of my income…so if I have 20 clients and one of them fires me, then they have taken 5% of my income, not 100%.
And in that moment, I sort of rewired the way I was thinking about risk and entrepreneurship and realized that maybe the risky choice was going and depending on a single person for my income. And maybe the diversified choice and the lower risk side was, diversify my income stream by having multiple clients or multiple jobs, multiple businesses whatever that is so that I could weather financial storms a little better, and that’s what led me to start my own RAA.
Michael: I think it’s a fascinating framing this idea that the risky path is having a job because one person can control and eliminate 100% of your income. It’s an interesting way to frame it. Like, “Okay. I want to get paid for my time by working. So option one, I can build a business and have a whole bunch of clients where if anyone fires me, I only lose that one client’s income or I can hook myself to basically one client, my boss and if my one client fires me, I lose 100% of my income.” It’s a fascinating way to reframe the concept of what’s risky to your income versus not.
Alan: Because as a business owner let’s say I have 20 clients, but one of them covers, let’s say 50% of my pay. That 50% of my income is coming from a single client and then the other 50% is split the other 19 ways. Every business owner listening to this would be solely focused on diversifying their income away from the potential that that one client could quit, and tank your business, and we don’t think about our personal life, in terms of just a job as a business to manage. But if you frame it as you’re a business owner…even though you’re an employee…but you’re a business owner of yourself, and you have a single client that is paying 100% of your income that is a really high-risk proposition.
And I don’t want to pretend that there’s not a lot more that comes with entrepreneurship which we could talk about, and that it’s some easy, low-risk road. It’s not that. It’s just that the way we’re trained as kids, the way we were trained growing up on risk when it comes to career, blew up in my face. And I needed to reassess it for myself, in order to be comfortable with the fact that, ultimately, I had decided, you know, that I wanted to go out on my own and do my own thing, and how was I going to make that work?
Alan’s Transition To Entrepreneurship And How He Managed His Cash Flow [50:31]
Michael: And maybe this’ll kind of lead into it. But I mean, obviously the other piece that jumps out at me, and I’m sure for a bunch of people that are listening to the podcast, and may be thinking about one of these leaps is, “Yeah, but when I get the job, you know, 100% of my income may be at risk from my boss, but I get 100% of my income now.” And when I go and do the entrepreneurial leap, I voluntarily take my income to zero, right? It’s like, “Good news, you can’t fire me. Bad news because I walked away from it.”
So like, “Ha-ha, you can’t break up with me because I’m dumping you first,” kind of thing. So I mean what did that transition look like for? Did you have savings? Were you married, and relying on a spouse’s income? How do you make this transition as a 25-year-old, 18 months out of school who I’m going to presume, correct me if I’m wrong but you didn’t have a lot of time to build a big reserve for your entrepreneurial transition here.
Alan: No, I didn’t. I had spent my first couple years paying down student loans because I did graduate with about $40,000 in student loans so, I had been focused on paying down debt. I didn’t really have any savings. And if there’s one thing I can tell you, folks it’s, “Do not do what I did financially.” I should have gone and gotten a job. At the time, I found a way to make it work. But I think at the time, I had $8,000 in the bank was all the savings I had, sort of outlined what it was going to take for me to start a firm, and looked up the Garrett Planning Network.
So mad props to Sheryl who helped me get my firm launched, but their first year’s fees were like $11,000 or $13,000 or something like that. And so what I did was I sort of worked out, “What’s it going to take for me, financially?” So you have two sides. You have how do you keep the business financials down. But then how do you keep your personal expenses down in a way that’s manageable? And so, I moved out of my two-bedroom, renovated loft with granite countertops and stainless steel appliances, into a studio apartment that was 400 square feet.
Literally, my bed was butted up to the kitchen, and I have…it’s funny to think about in the last five years, I have never moved back into an apartment as nice as the one that I left to start my own firm. One, you realize you don’t need it,you know, and, two, it just didn’t work for me. But I focused on how do I get my personal expenses in order and I cut my personal budget by 50%, literally overnight. I got rid of the apartment, got rid of a bunch of stuff, cut a bunch of bills, and just trimmed down super deep. Which is the only reason I made it was because I didn’t have really high overhead on the personal side.
Michael: And I think it’s an important thing to know because I talk to so many people that are thinking about launching an advisory firm. Maybe either their career changes coming in or even, they’re people in the industry that have been an employee, but want to go on their own. And the common refrain is always, “It’s so expensive to start an advisory firm.” And the comment I always have is, “It’s really not. The licensing, the startup costs, the, you know, getting a website done and getting CRM, and financial planning software, and all that stuff, it doesn’t cost that much.”
I mean I know a lot of people that have done that for $5,000 or $10,000 on the light end, maybe $15,000 at the high end, and I mean I realize that’s not chump change. That’s not nothing. But I also have some friends who’ve started restaurants, and that’s $50,000 to $100,000 just to get space and leases, and fit out the place, and buy the industrial ovens, and the furniture, and all the physical stuff you need to run the business. And for a bunch of them, they’ll say to me, “It costs how little to start an advisory business?”
I mean they’re stunned by how cheap it is, relative to most other businesses, but the thing that buries most people, it’s not the cost to start the business, it’s the cost to maintain your personal lifestyle, to which you’re accustomed while you’re not yet earning the income. It’s the personal lifestyle expenses that bury most startup advisory firms. It’s not the business expenses.
Alan: You’ve got it. Like I said, I had $8,000, wanted to join Garrett, and their fee structure was like $5,000 upfront, and then $600 a month or something like that, for the first year, and then dropped to $200 a month after that. So I called my dad who makes a pretty good living, and so I said, “Dad, I need a loan to start the business. Here’s my business plan.” I said, “I don’t need $12,000 today. What I need is $1000 a month.” Because what I assumed was that it would be very painful for him to write me a $12,000 check, but writing me $1000 a month check, not so bad.
Michael: You were cash flowing it for him. That’s very considerate of you. You were a very considerate borrower.
Alan: That was it. He agreed, and so, on the first of the month, I got $1,000 in my bank, and, you knopw, that basically paid to keep the lights on. So I did get a small office because I was living in a studio, so meeting with clients in my home was not really an option. And so I got a single room office in an office building across the street, and that $1,000 kept the lights on. And so from a financial standpoint after about, I believe, six months I was able to turn off him sending me the $1,000 a month, and 18 months in my business I actually paid him back for the $6,000, plus interest that had accumulated.
Michael: So where were you getting clients? Who were you working with? I mean you got some clients going pretty quickly then, if you were able to wean off the loan payments, then repay it after 18 months, and still be able to pay the rest of your bills, as well. So where did business come from? What were you doing?
Alan: I was, again, very lucky. The summer I was starting my business…so I made the decision I was going to start in May. I launched in August. I was two months short of experienced at my CFP, but I was still enrolled in college because I had not written my thesis, yet, so I was still paying college tuition. But I wrote it that summer while I was launching my business so I got it knocked out by August. But what I knew is that if I could do an internship for two hours of credit for college coursework, you actually get two months of work experience towards the CFP.
So I called up Kristin Harad. She owned V2V Financial, which was New Parent Finance, and she’s a niche marketing guru, and so she actually let me virtually intern with her that summer. So not only did I get a cool internship opportunity and the credit, I learned a lot about marketing from her. And I promptly ignored everything she taught and launched a firm called Serenity Financial Consulting, and my byline about me was, “I serve individuals, families, regardless of income and net worth.”
Michael: So you worked for a niche marketing expert and then promptly launched a non-niche business.
Alan: And ignored everything she taught me, and that should have been to my detriment. Honestly, that should have been it, but I got very lucky that I took a little bit of initiative and called around to the local NAPFA firms that were in the area, and met with all of them and said, “Here’s who I am. Here’s what I’m doing. This is who I serve.” And one in particular, I met with Paula Hogan, who is a well-known NAPFA member, was just north of me, and I sat down and said, “Paula, I’m a young planner, breaking into the industry. I’m in NAPFA. I’m a fiduciary. I’m a CFP. I believe in all the same things. I just work with a different type of client.”
And come to find out, I’ll work with anybody and she works with people that…she had a $10,000 fee minimum or a $1 million assets under management minimum. So she had a lot of prospects calling her that weren’t qualified to work with her. And I will tell you that for most fee-only advisors, telling someone, “I’m sorry. You’re not rich enough to get access to a financial planner is not a happy conversation.” Because we got into this business to help people, but to turn them away because they’re not financially healthy and they’re not rich, kind of hurts, but from a business perspective, there comes a point at which you may have to, and she was at that position. And so she started sending me leads, and I got, I believe, 12 clients in my first year just from referrals that Paula sent me.
Michael: You build your business on cast-offs. They were fantastic clients for you, and not a fit for where her business was, at the stage that she was at?
Alan: Yeah, I mean one of her cast-offs had $400,000 in investable assets, so we’re not talking about bankrupt clients that she was just trying to pawn off. These were amazing clients for me, but for her, for every $400,000 client she worked with that was one less $5 million client she could work with. So it was just a natural partnership. I hope one day I can pay back what she gave me which was she made my business work. But that being said, in November…so I launched in August, spent more money than I expected because I had to have a Keurig coffee maker in my office because who brews pots of coffee anymore? Spent a little too much money and I ran out of money in November.
Michael: Okay. Despite loans from dad coming in?
Alan: Yeah, it just wasn’t enough. I had under projected some of my just various costs, so I knew that at the first of the month, I was not going to either be able to pay rent on my apartment or rent on the office, just the way the numbers were going to work out. I kind of freaked out, and then pulled myself together and said, “Here it is. Either I make a go of this, and I figure this out or I’m going to go back and get that $60,000 job that is out there, I hope.” Two things happened. The Financial Review Board, the FSB which owns the rights to the CFP Program internationally sent out a request for people to review their program materials.
They offered to pay like, $50 an hour to do it, and another planner out of Texas, Jean Keener, sent out a request looking for a virtual para-planner, and I grabbed them both as quickly as I could and got the money as quickly as I could. Those two checks came in, literally days before I was slated to run out of money and those two checks kept the lights on long enough, for the next couple of months, for me to get to the first of the year which is when I have always experienced the biggest pop in business respective clients. And so it held on long enough for me to get to that point, and then sort of New Year’s resolution clients started showing up, and I was able to start cash flowing positive again.
Michael: It’s funny the pinches that we go through, sometimes, in early stages of business. We had Ron Carson on for the second episode of the podcast, and today Ron’s a multi, multi-billion firm, I think four and a half billion dollars under management under the umbrella and a number of related businesses that have been very successful. He recently did a venture capital round. I think sold off something like 20% or 30% of his business for $20 million or $30 million. And he was talking about the early days and how, you know, after his first six years in the business, he still hadn’t broken $30,000 of gross revenue in sales, and that was at a broker-dealer.
So that was $30,000 of GDC which means, even as he was trying to get to $30,000 he was probably only keeping half of that. So six years to get to $15,000 a year of takehome revenue, gross, before business expenses. Fast forward another 25 or 30 years, and it’s a $100 million business. Even a story I’d seen recently of the early days of Raymond James, apparently Raymond James was so stricken in the market downturn, in the ’73, ’74 beer market crash, apparently the only way they kept going at the time was Tom James sold his personal coin collection to have enough money to keep the business going to make it through the ’73, ’74 beer market crash, and then, obviously, it recovered well, thereafter. Always fascinating to me, the pinches that sometimes businesses go through in the early days.
Alan: You know if you read the book, “Delivering Happiness” from Zappos with Tony Hsieh there, he did the same thing. I mean basically sold everything in order to make it work. Elon Musk trying to get Tesla up and running after he made $150 million off PayPal, sunk every penny into Tesla, Space X, and Solar City. Almost went bankrupt and had to take out a personal loan from some buddies to pay rent for a while. So there’s a Steve Jobs quote that I absolutely love and it’s, “If you look more closely most overnight successes took a really long time.”
And I think that that is so true of what we do, and I try my best because we tend to remember positive experiences, I try my best to talk about the tough side as well. Because it can look easy and I remember being very frustrated looking at other planners, thinking like, “Gosh, they’ve done it so easy.” Jude Boudreaux is a great example. He was somebody who had started his business three to four years before I had, and I was following in his footsteps. And I was sort of idolizing him and the way he was building his business, and then if you ever go and actually talk to Jude or listen to his story, it was anything but easy.
Now he made it look easy, but he had an incredible experience over the course of building his business. And so I encourage folks to know when you’re getting on this journey of entrepreneurship, a roller coaster does not even describe what it is because, emotionally, it’s just incredible how challenging it can be. But if there’s one recommendation I have for folks that are going to get on that roller coaster is, “Do it with someone else.” You need a study group, a Mastermind group, whatever you want to call it, of three to five of your closest friends that are doing the same thing you are.
You need a spouse or a significant other that is fully bought into what you’re doing. Because it is really hard because there will come a day where you will wake up and you’re going to have the moment I had of “I can’t pay rent.” And I’ll tell you if somebody’s talking into your ear like, “I told you were going to fail. I told you, you couldn’t do it, Alan. There’s no way you’re going to be able to do this. You need to go get a job.” I may not have been able to come through that, but having surrounded myself with the right people, I was able to keep that frame of mind, just power through, figure it out, just sort of my mantra at this point, just like, “I don’t know. I’ll figure it out.”
How Alan Realized He Was Becoming A Business Coach And Practice Manager [1:05:17]
Michael: Which of those did you do? Did you have all of those? Do you have a study group? Did you have a supporting spouse, other things? What was your path to navigate those ups and downs?
Alan: Yeah, early on it was just groups of friends. So I was on the NAPFA Genesis board at the time, and so Dave Grant was one. He was the President of Genesis, and he was looking at launching his own firm. I’m trying to remember who else was on that board with us, and that group, I met with and we’d just sort of talk about things with. And then, later on, I ended up forming or being asked to join a study group that, ultimately, ended up sort of changing my career path, but for the better.
Yeah, you’ve just got to surround yourself with the right people, and just keep a positive frame of mind. But you will forever have “Chicken Little” moments where you are running around thinking the sky is falling whether it is or not, is relevant. Your brain thinks it is.
Michael: So how did the business move forward from there? You had survived the first year, some combination of the so-called cast-off clients from advisors that were further along. You’re filling the income on the side with whatever side things you can get. You’ve got a loan that you’re finally working through. So what did it look like once you got into year two and beyond?
Alan: Yeah, things after about the first year, things just started working for me. I was able to start paying myself a salary that was pretty close to my pre-getting fired salary. The income was coming in. The clients were there, working with them, and just all of that, and just sort of everything was going well.
Michael: Where were they coming from at that point? Are you doing local marketing? Are you doing networking groups? Are you just racking up more planners like Paula Hogan sending you referrals?
Alan: Yeah, Paula Hogan type folks, kind of started getting on the speaking scene at NAPFA Conferences, and getting on panels, and talking about my experience working with younger clients, having a little different service, and fee structure, a different service model. So random planners would send me their cousin, you know, especially younger planners would be like, “Oh, my cousin’s been looking for a financial planner. We can’t work with him because we have million dollar minimums. Alan uses technology and works virtually so he should be able to work with you.” I got a bunch of referrals from planners.
Michael: So you almost sent it out with a little niche of like, “I’m a young planner that works with young people. I’m not just taking my local cast-offs. I’ll take any cast-offs from anyone across the country.”
Alan: Pretty much. Anyone that will fog a mirror or a webcam.
Michael: It’s an interesting point though that, again, you can make a successful business off of almost any kind of niche or focus, if you just have one, including even, “I’m the planner that takes all the young clients with less money than what all the other planners take, who tend to work with some older clients that have more money.” Even that’s a valid niche that you can build a valid business off of.
Alan: Now I will say I did start to develop a niche. I just never got around to really branding to it and marketing to it which we’ll talk about. But that it was working with younger clients, generally in their 30’s that were looking at starting a service-based business. So I had orthodontists, dentists, a couple of lawyers, a couple of doctors that were looking at starting their own business, and I loved those clients. Those were the ones that excited me the most to have meetings with because we didn’t just talk about personal finance. We talked about should they establish a benefit plan or profit sharing plan or a simple for their business? We almost got into business planning.
I’m showing them how to do Quickbooks. We’re talking marketing strategies, “Should the dentist buy iPads and put them in the waiting room to do data intake or should he have forms that his assistant, you know, puts into the computer?” So I almost became, like a business coach.
Michael: Yeah, I was going to say like business coaching, practice management.
Alan: Yeah, which I realized that’s what was fun for me. So then about a year and a half in, you know, as I’m building my business, one thing was very early on I made a lot of phone calls to a lot of different people, like Jude Boudreaux, and Caleb Brown with New Planner Recruiting and those types of folks, and everyone took my phone call. And I was so thankful for that because I learned just incredible amounts of information from those folks. And so I committed that when someone called me, I was going to pick up the phone. You know young advisors would reach out to me and say, “Alan, how did you do compliance? How are you getting your clients? What CRM did you select?”
All of these various questions, and after about 18 months of being in business, this would have been December of ’13, I looked back at my calendar and I’d had 100, one-hour phone calls with young planners, 100. And I was happy to do it, but I was getting a little overwhelmed with it and I was like, “What is the commonality here?” All of these young planners want to know how to start their own business because many of them are sitting inside failed succession plans. They were promised, you know, equity in five years, and then five years the boss doesn’t want to have the conversation. They have a niche they really want to serve. They have a passion for serving some particular client that doesn’t meet their current firm’s standards.
And so I got this crazy idea and I emailed this guy. You may have heard of him, named Michael Kitces, and I was like, “Hey, dude. I think we may have a business idea here that we could help people that want to start their own business. I think there’s something here.”
Michael: You mean like help advisors who want to start businesses?
Alan: That was the impetus for, again, just a colossal career change that my original idea was actually much more scaled-down than what we ended up doing, just through conversations saying, “Hey, you said here’s what you’re seeing.” I said, “Here’s what I’m seeing in the conversations.” You know, “Let’s pull together a group and sort of see what happens.” And so that we December of ’13, and then I had to make the decision. I could see the writing on the wall that things were going to get busy with XY and you were busy. So I knew I was going to be running things.
That was sort of our agreement. So I was going to be sort of doing the day-to-day operations, and so I actually made a very good call, thankfully, in March that I was not going to take any more clients for a while until I saw what XY Planning Network did. To be sure, I just didn’t overwhelm myself, and so in April, four months later, launched XY Planning Network. Yeah, it just sort of went from there.
Michael: And off it went, and the rest is history. Yeah, I mean it’s funny now to look back on how not that long ago it was. We’re still not three years out from the launch which was April of 2014, and now as we look back, where are we at, 365 advisors, I think, 366 advisors, roughly $5,000 a year? So I mean people can kind of do the math on what the revenue is for the business and a dozen staff members, and it’s business. There’s a lot of people. Ironically, now you’re on the other end of that. You’re the boss that has the other people’s income control. We try to be very, very good to our XYPN team.
Alan: Yeah, I mean I’ll say that when we started XYPN, I thought it was going to be a side gig. You know we’re going to have 20, 30 planners, that it was a cool community thing. We helped out and I made a little bit of money.
Michael: The original business projection was to try to get 10 or 20 in the first 3 months and then add 1 or 2 a month thereafter. I mean I think on the original business projection we still wouldn’t be at 100 advisors now after 3 years. We would have been at like 70 or 80 by now.
Alan: Now I will say that is largely indicative…for all the listeners out there of Michael’s personality which is increasing growth rates in a straight line, two a month. But no, I didn’t know the marketplace. I knew there was a marketplace, just didn’t realize how much pent-up energy there was among younger advisors that said, “I want to serve my peers. I want to do it in a fee-only way.”
Because when I started my business, a very reputable person that I trusted, and was a friend called me and said, “Alan, you cannot, you will not be successful as a fee-only advisor. You’re 25. Young people don’t pay for planning. Go get your Series 7. Start selling. It’s the only way to make money off young people.” And I credit that person a lot because when times got tough there’s nothing I love more than winning, and I would think back to that quote, “You will not be successful,” and thought, “I will show you. I’m going to prove that this can be done.”
Michael: So you built a business just to spite him or her?
Alan: Yeah, pretty much. I was already building it, but…
Michael: It’s good to know what your motivators are.
Alan: But what I didn’t realize is how many people are out there that are experiencing that. I was at the T3 Conference earlier this month. A young lady walked up to me, a Utah Valley student, and she saw my shirt because if anybody sees me, I’m running around in an XY Planning Network t-shirt. And she said, “XY. Do you work with young people?” I mean she had no idea who I was and I was like, “Yeah, we have a business that works with young people. Why do you ask?”
And she’s like, “I’ve had this idea that I could do planning for young people, but I’ve talked to three or four different advisory firms in the area, and they all say it can’t be done. ‘Young people don’t pay for planning.'” And, of course, I’m fired up. I’m like, “You give me their name. I will call them right now.” Because I thought we were past this, but we’re not. We have a long way to go, but I just didn’t realize that the marketplace, the number of people that were out there, that were experiencing this same angst that I was, that just didn’t know what they didn’t know.
There’s no book on compliance that tells you how to manage all the various regulations and all of that, and just how many failed succession plans there are out there. There’s just such a huge group, lack of a better phrase, I mean just the pissed off associate advisors that were sold a bill of goods. They were sold an unsigned succession contract that’s never going to come due, and they’re realizing it. They’re realizing that the old guard isn’t actually going to sell their firm. One, because they have an emotional attachment to their firm and, two, financially it just makes no sense for older people to sell their firm when you could just hold onto it and keep making money. It’s like the greatest lifetime annuity ever.
Michael: Selling and succession planning works when either A: You really want to be out. Just some people are done. If you’re done, tap out, sell. There are people who will buy, works fine. And it works when businesses are growing because, of course, when everybody’s participating in a growing pie, it’s easier to sell, even from the business owner’s end because you’re going to sell a piece of your business, but you’re going to have a smaller piece of a larger pie.
So, you know, last episode, we had Eric Hayman from Ossen Asset who was talking about the fact that, also as a young guy in his mid-20’s, he had an opportunity to buy into the founder’s firm, and the founder let him buy in at one times revenue. And there were a bunch of people saying like, “What idiot sells to a 25-year-old at one times revenue?” It’s like, “Oh, well, you know over the next 10 years the business grew 30X, literally.” You let him have a slice at one time, he got 10% of it at one times revenue, and then had such an ownership stake that was meaningful for him, that he put his full energy into growing it, and your other 90% grew 30X in the meantime.
Let’s kind of do the math if he came out ahead, but it’s that dynamic. When the business is growing, it’s very effective to sell pieces of the business to the next generation. It incentivizes them to continue the ball rolling on growth, and if you do that well, everybody wins. Their stake gets bigger that they own, so they feel rewarded for their growth, and your stake gets bigger as the founder or the original owner or the primary owner, so you finish with a smaller piece of a larger pie, and you’re still moving forward. It’s still positive.
But for so many firms that are going through these succession plans, I find they’re not selling because they’re not growing. So if the business isn’t growing, every piece you sell is just a piece of that lifetime annuity stream that goes away and does get replaced. So it doesn’t feel good to sell, so you don’t sell unless you really, really have to. The thing about the advisory business is it’s not exactly intensive manual labor, as long as the mind is willing and the body is at all able to sit in a meeting for an hour or two. You can do this until your 80’s or beyond.
Alan: And a lot of people are going to do it, and honestly, it will probably continue to be an impetus for our growth. Because I will tell you that there were a lot of advisors, folks that make snide comments to us or to me about, you know, poaching younger advisors, and out just sort of raiding the young talent, and I will tell you, we don’t have a do a bit of raiding. Existing firms do a wonderful job of pissing off their associate advisors that I don’t have to go in and convince that this is a better way. They get convinced all on their own and then go looking for answers, and we just happen to be, hopefully, where they’re looking for those answers.
But I do think it’s important with XY Planning Network, in terms of, again, the growth of XY Planning Network has made it look easy from the outside, and sometimes I get lulled into it, that it’s been an easy road. You know, we’ve just sort of grown, and so just a couple of notes on that because I think it’s important to say.
Why You Eventually Have To Decide Between B2B And B2C [1:18:45]
Michael: Yeah, it’s like you just finally start a business and then $2 million of revenue showed up in the first three years, like it’s easy, right?
Alan: So one thing and this is for any advisor out there that is thinking about getting into the advisor-facing space, so moving from B2C to B2B, and doing both. I am not aware of anyone that does B2B and B2C well. Almost everyone, everyone that I can think of that did both for a time, Bill Winterberg, Caleb Brown, you, me, Kristin Harad, Marty Kurtz with The Planning Center when he launched First Step, all of these folks…I just lost the name, vreated IPS Pro for Mosaic.
Michael: Norm Boone.
Alan: Norm Boone, all of us, had to make a choice, and my choice came in the summer of 2015. So we had been in business about a year and a half when we got our 100th member. It was the day that a client called me because I still had my RAA, a client me, a member called me, and I returned the member phone call and not the client’s phone call until the next day. And that was the moment that I realized that I was no longer the best advisor for my clients, and I was going to have to make a choice.
Michael: How big was the business at that point?
Alan: I had around 20 clients left. So, one, I had over the time, I had sort of culled back the number of clients I was working with, and not all of those were on retainer because I had originally started out doing hourly project work. So I had about 20 relationships, and so it wasn’t a big book. I should have been able to manage it, but from just a focus perspective and prioritization of who gets my energy and time, I’m at the crossroads, again, about a year and a half in.
And so I encourage advisors that get pulled into things that are advisor-facing, be wary because you will make a choice. I’m not aware of anyone that really does both, and does it really well. And so I ended up selling my practice to J.D. Bruce with Abacus Wealth out in California which was one of the best decisions I’ve made, just because it did free me to, you know, focus on XY which came at a good time. Because after that, we started sort of seeing even faster growth rates.
Michael: So as you look back, I’m curious, over the past couple of years then, you know, how has the picture changed from your end? You went from prior businesses where you were working in the business, in businesses that had 5 to 10 employees, then you were solo for a couple of years. Now, suddenly, three years later you’re on the other end with a team of 12-plus, growing quickly and you’re the boss, and you’re on the other end of that conversation now. I’m curious what it’s like for you in terms of how the experience of running a business has evolved?
Alan: Painfully. It has been an extremely painful process to go from solo-preneur where you get to do everything, and that’s what I love about starting businesses is, I get to do everything. I get to make all the decisions, just to get in, get things done. I don’t have to ask someone else to do it, and then wait three days or three weeks for them to get it done. I just sort of get to do everything. I have my thumb on the pulse of everything.
To, suddenly, I don’t have the pulse of anything because my team is the member-facing team, and they’re the ones that are actually bringing in the information, and managing managers. I will tell you that when you start a business and I have friends and some of our advisors will say, “You know Alan, I want to scale. I’m going to make $500,000 next year or $1 million in three years.” And I just have to tell you, you be very, very careful what you wish for because if you scale a business to a million dollars in revenue, you are no longer a financial planner.
You are a business owner and that did not clue in for me until, you know, we were probably a year and a half into running XY and I was miserable. We were growing. Things were fine. We just had our first conference. We were riding high off of that, and I was just not having fun to the point that I, actually as upset with me as you got, actually applied for a position at the University of Illinois to be their Director of Financial Planning which now is slightly amusing. We had about 130 members and we were sort of growing, but I was just not enjoying the work anymore.
I was just managing team members and trying to, you know, learn how to not be the one who makes all the decisions, the one who has all the answers. Like you have to learn management techniques, and none of that I was prepared for. And so, fortunately, University of Illinois never called me back, so if any U of I people are listening, thank you for not calling me. I sort of came out of that and then February of 2015 hit. Oh, I’m sorry, 2016. Do you remember in February 2016?
Michael: I’ve got a vague recollection.
Alan: It was our first ever net-zero growth month, 12 members and for various reasons, 12 members in one month emailed us to leave the network. I think we had 100 and I don’t know, 150 members at this point. So we lost 10% of our revenue. I mean it all came in within about a week, and I lost it. I was like “Chicken Little” running around, “I told you this was going to happen. The business is never going to work. It wasn’t sustainable. They figured out that we’re not providing value. We’re not doing a good job.”
Why Hiring A COO For XYPN Was One Of The Most Important Business Decisions Alan Has Ever Made [1:24:08]
Michael: All the things you say as a business owner to yourself when you’re anxious and worried, and then as soon as someone leaves you it’s like, “Oh, God. It’s all coming to an end.”
Alan: It was all done, and I just remember freaking out, and then we took a step back, and said, “Okay. Why did the 12 people leave?” Well, come to find it was 12 completely different reasons. Like one got bought out. Three just decided not to launch firms, very legitimate things, and oh, by the way, we also brought on 12 new members. So it was actually a revenue neutral month, and that sort of sparked the conversation of like…well, one, I remember it took forever to get the date on 12 that joined and the 12 that left.
And that sparked a conversation on, “Hey, you know what? I think we need a COO. I think we actually need someone to come in here and manage the company because Alan clearly is not the world’s best manager and it’s just not my skill set. Alan’s not having fun anymore, kind of miserable to the point of applying for a salaried position.” And so we ended up bringing in…
Michael: It’s everything you were running away from in the first place.
Alan: I know, right. In retrospect now, it’s hilarious, but at the time it was not. And so we brought in Raoul and in May of 2016, so he’s been with the team coming up on a year now. And that was the switch for me, and that’s when we came out of like business ownership hell, which is where I was, and I was just miserable to my quality of life is 10 times better now than it was before we hired him. And we have a rock star team.
Michael: And in the meantime, the business literally has more than doubled in the past year.
Alan: Yep, and I will say we have a rock star team. It has nothing to do with the fact that any of our team was underperforming or anything like that. I was just not doing what I loved doing anymore, and by hiring Raoul, I was able to hand off a lot of the stuff that was his skill set, and what he is gifted at and things I could never learn to do if it was my job for my entire career, and let me sort of get back into doing the things I love doing. And that was just so unbelievably critical for me, and who knows? You may be the entrepreneur out there that’s like, “I love the operations and management. Please don’t make me do the partnership relations, and the business development, and strategy, and new initiatives. Fine, go hire that person.” That was me.
That was I love doing, so I went and hired the operations process leadership guy and that’s really what, I think, you know, if we’re sitting here in 10 years and continue to see success, we may look back at various waypoints and hiring a COO, and hiring, professional management will be one that, I think we’ll look at go like, “That was the moment running XYPN became fun again.”
Michael: I think there’s a really powerful message in that for, well, I suspect for a lot of advisors in their businesses that are struggling at this point where it’s not fun anymore. And I find it happens so much in our industry particularly since the whole industry’s been shifting to the AUM model over the past 10 or 15 years. Because the effect that happens is…I mean the glorious thing about AUM from building a business perspective is that its recurring revenue and clients seem to be very, very sticky.
Like bad firms have 85% to 90% retention rates. Good firms have like 95% to 98% retention rates. And so what that means is if you’re at capable in business development and you can wait out the tough early years, you just start accruing and accumulating revenue, and then eventually at some point after a couple years, you wake up it’s like, “I can pay all my bills, and I’ve even got profits left over and I’ve even got enough money left over to actually hire someone to take some stuff off my plate.” And so you start hiring, and then you hire a few people, and the team gets a little bigger and, maybe you delegate a couple of things that you don’t like, and then that works for a while.
But if you keep bringing in clients, the thing keeps getting bigger and, you know, there’s this wall that you hit where you can get a couple of employees that are kind of like the doctor with nurses, like, you can get a couple of nurses around you, and really leverage the value of your time, and be a little bit more productive, and delegate some things that you probably shouldn’t be doing as a business owner. But if it gets much bigger than that, by the time you get to about 5 to 7 people, and especially when you start getting up towards 8 to 10, you hit a wall where the reality is most of your time is just spent managing all the people that have accrued around you because of all the clients that have accrued in the business.
And for so many advisors I fine, like, you get away from the thing that you liked doing originally which was seeing clients or prospects, turning them into clients or just working with clients on an ongoing basis, and you’re stuck in this what, for a lot of people, is management hell because you didn’t set out to build a business and manage people. You set out to be a financial advisor and help people and freeing yourself from that, I mean making that decision, that transitionary decision of, “I’ve got to hire, not just more assistants to support me, I’ve got to hire a business manager. I’ve got to hire a COO. I’ve got to bring on a partner who wants to do that side of the business so that I can get back to the stuff that I enjoy” is a brutally challenging transition, but an absolutely crucial one.
Alan: It is. Was what makes us great entrepreneurs…great, I don’t mean that to sound conceited. It’s just that the skill set that comes with being an entrepreneur and being able to get businesses off the ground, doesn’t necessarily lend itself to being the best CEO. And so if you look at pretty much any major company out there, the founder is rarely at the top of the company or if they are, like with the Mark Zuckerberg at Facebook, he has a COO that actually runs the whole thing. You know he’s not actually doing management.
But it’s a hard thing to let go of, but you’re absolutely right, it’s the business hell when you’re running a successful business and you’re miserable. And so for the advisors out there that want to scale, I want to caution you and be sure you answer the question of why because if it’s for ego or to prove someone else wrong or anything like that, that is a really bad idea. If you want to grow a real business and run a real business, excellent, but when you run a business, it is a whole different set of skills that you don’t know and you have to learn on the job which is tough. But, you know, fortunately, we got to that point to where we could hire that management. We made the right call to do so and, again, it’s just been so amazing since.
Michael: And it’s worth knowing you don’t have to do the growth path. We had Matthew Jarvis on in Episode 7. People can go download it if they want. It’s at kitces.com/7. Matthew is in his mid-30’s. He built a lifestyle practice with a million dollars of revenue. He sustained something like a 50% profit margin on the business, and he takes 83 days vacation a year, and he’s hardly growing at this point, and he doesn’t want to, and he doesn’t care because he’s making incredibly fantastic money and living the lifestyle that he wants, and spending the time with his family that he wants, and he’s not interested in growing a big business because he’s got just a fantastic lifestyle practice. And it’s a cool thing because you can do that in this business, in the world of financial advising, but if you don’t have a plan for it, if you don’t have a vision of what you want to build, so many advisors, I find, they get stuck in a trap where it just accrues larger than they meant for it to be.
And then they’ve got all these people that have to be around to handle it, and they’re stuck doing all the management-y stuff that they don’t really want to do anymore. And so if you hit that crossroads, you’ve really only got two choices. You either have to hire through it. You have to hire a COO or take on a partner, find a way to let go of that stuff or you’ve got to make the deliberate decision on the other end to say, “I don’t want to actually have this thing be so big.” So fire some clients or fire some staff or sell off a portion of the business or spin it off or whatever you’ve got to do to downsize it back down or right size it back down. Because if you don’t, you’re just stuck in a business you’re miserable in.
Alan: Yep, I couldn’t agree more and so that’s the cautionary tale of running a business that, you know, just be sure you know the vision, know where you’re headed, know what you’re looking to do because the decisions that you make will be very different. If we plan to stay at 360 advisors, every decision that we make right now would be different. But our goal is we want to have 1,000 advisors in 3 years, so the decisions that we make are laying the foundation to have 1,000 advisors in 3 years, not 360.
The truth is we could probably, personally take home just as much money if we stayed at 360 as if we go to 1,000 because it’s not like you triple revenue and don’t triple expenses. But we believe in the mission and I believe I have 100X mindset that if I can help 1,000 advisors each help 100 clients, I mean we’re having this 100,000 impact on the world where we can bring financial planning to a 100,000 people that never would have been able to access a financial advisor before.
And so that’s what gets me up in the morning so, it drives me, and so the mission is still what drives me. Now the work I actually do is also what drives me, and it’s a hard thing to get to and there’s no cheat sheet or like shortcut to that. We were probably lucky that we grew through that painful process pretty quickly because if I had had to sit in it for five years, it would not have worked out well. So we were able to get through it fast enough that I didn’t keep applying to jobs. Yeah, it’s just something to be aware of for the folks looking to scale out there.
Michael: As we wrap up here, this is a show about success and paths to success and kind of riffing on that last theme, one of the things I’ve long observed is that the whole idea of success and what you’re shooting for means very different things to different people. So as someone who has built what I think most would objectively call a successful business at this point, a couple million dollars of revenue in less than three years, I’m curious from your end, like how do you define success?
Alan: It’s a good question because my definition of success has changed over time. When I launched my RIA, I was going to be a lifestyle practice guy. I was going to work 10 to 15 hours a week with 20 clients once I groomed 20 millionaires, and it was just going to be me, and that has slowly shifted over time, and I’ll say that at this point, success is that I get to feed my family and the bills are paid. I don’t have a very lavish lifestyle, but I make enough to sort of keep food on the table, but that we actually make a change in the industry. I think that we are uniquely positioned and, you know, whether we got there by chance or intentional. I’d say more by chance, but I think we’re at the forefront of this catalyst that could literally reshape the face of financial services in the independent space.
And so I think success for me now is seeing that what we’re building towards, actually has the effect that I think it can, and that we truly see this shift in financial planning towards being able to work with clients of all income levels, being able to work virtually and running a lifestyle business, and fiduciary advice, and moving away from sales. It’s sort of all the various components that XY’s all about. So, you know, it’s an intangible thing at this point, but I think once you sort of meet your financial needs, then it becomes sort of what gets you up in the morning, and honestly that’s what excited me now.
Michael: I think there’s a powerful message in that. It’s a theme that we’ve heard from a lot of our guests that there’s kind of this transition point. Once you get to the threshold that meets kind of the core financial needs, you know, put food on my table, and make sure my kids will go to college, the definition of success or what we’re shooting for starts changing and it starts shifting towards impact, and legacy, and what else you leave behind, as the saying goes, “You can’t take it with you, if you just make it more money.” Well, thank you for joining us on the podcast today. This was a fun discussion, a fun journey.
Alan: Well, thanks for having me on, and for anyone out there listening, best of luck on your journey. Because, this podcast, hearing the highs, but hearing the lows, it’s good to know. It’s not that I want to be discouraging. I want it to be realistic so that you’re more prepared than I was for this addictive roller coaster called entrepreneurship that, honestly, I don’t know if I could ever give up at this point.
Michael: Amen. I think you’re probably at the point now that we can safely call you unemployable. I don’t know if you can go back to being an employee at this point.