Welcome back to the 213th episode of the Financial Advisor Success Podcast!
My guest on today’s podcast is Dave Yeske. Dave is the co-founder of Yeske Buie, an independent RIA based in San Francisco that oversees 740 million of assets under management for more than 300 affluent clients. What’s unique about Dave, though, is the way he has blended together academic financial planning research with the practice of financial planning, culminating in a policy-based financial planning approach that frames financial planning, not in terms of the recommendations he makes for specific client situations, but the policies he set with clients to help them confidently handle any number of future scenarios that might arise.
In this episode, we talk in-depth about how Dave applies his policy-based financial planning approach at Yeske Buie, the monthly reports they generate for retired clients to help them see whether they’re in their safe spending policy guidelines, the quarterly tax reports they create to coordinate with their clients’ outside accountants. The Money Quotient questionnaires they use on an annual basis to be certain that they’re covering all the bases with their clients, and how using a policy-based approach to financial planning can help reduce client stress during turbulent markets.
We also talked about how Yeske Buie structures its own approach to financial planning with clients, why the firm has chosen to take a team-based approach for all clients it serves, the reason Yeske Buie chooses to charge a single consolidated assets under management fee despite the fact that in Dave’s own words, 75% of what they do for clients is around the financial planning and not the investment management.
And why after hearing of the impending death of the AUM model for nearly his entire 30-year career, Dave now thinks it’s more important to be nimble and adapt to changes in financial planning services and business models over time, rather than just trying to predict what the future may hold. And be certain to listen to the end, where Dave shares why he has such a passion for academic research despite being a self-admitted late bloomer in his own journey through college.
The reason that Dave got so involved in the Financial Planning Association and how volunteering back to the profession has advanced his own career, and how even financial planners who teach their clients about long-term compounding seem to under-appreciate the way that compounding works in our own advisory businesses, as Dave reflects on how painfully slow and difficult was for the first six years of his business, but how dramatically the growth began to accelerate in the years that followed and has continued ever since.
So whether you’re interested in learning more about why Dave pursued getting his doctorate while running his own firm, how he may have created the first-ever online client portal, or why he is trying to become ‘dispensable’ in his firm, then we hope you enjoy this episode of the Financial Advisor Success podcast.
What You’ll Learn In This Podcast Episode
- How Dave Views All Of The Different Aspects Of His Involvement In The Financial Planning Profession [05:09]
- The Benefits Of Becoming Involved In Membership Associations [15:14]
- What Yeske Buie Looks Like Today And The History Of The Firm [21:11]
- How Yeske Buie Has Systematized Their Process For Serving Clients [31:50]
- The Money Quotient Surveys That Dave Uses With Clients [34:42]
- The Fee Model That Yeske Buie Uses For Their Combined Financial Planning And Investment Management Service [43:34]
- Yeske Buie’s Safe Spending System [53:06]
- The ‘Three Rules’ That Dave Uses With Clients [01:01:53]
- Why Dave Pursued Getting His Doctorate While Running His Own Firm [01:10:29]
- What Is Policy-Based Financial Planning? [01:16:25]
- What Surprised Dave The Most About Building His Advisory Business And The Low Point In His Journey [01:26:19]
- The Advice That Dave Would Give Newer Advisors [01:32:20]
- What Comes Next For Dave And How He Defines ‘Success’ For Himself [01:36:25]
Resources Featured In This Episode:
- Dave Yeske
- Yeske Buie
- Dave’s SSRN Page
- What Does It Mean to Live Big in These Trying Times? (aka The Live Big List)
- Fulfilling Frugality (Financial Advisor Mag cover feature on the Live Big List)
- Against Empathy: The Case for Rational Compassion by Paul Bloom
- The Defining Personality Traits Of (Successful) Financial Planners
- FAS Episode #85: Boosting Firm Productivity With A Financial Planning Resident Program With Elissa Buie
- Salesforce Financial Services Cloud
- Money Quotient
- Guyton-Klinger Decision Rules on Safe Withdrawal Rates
- Policy-Based Financial Planning: Linking Financial Life Planning To Actionable Recommendations
- Golden Gate University’s Master’s in Financial Planning
- Guy Cumbie
- Finding the Planning in Financial Planning
- Is Financial Planning Software Incapable Of Formulating An Actual Financial PLAN?
- Foundation for Financial Planning
Michael: Welcome, Dave Yeske, to the “Financial Advisor Success Podcast.”
Dave: Well, thank you, I’m so glad to be here.
Michael: I’m really excited for today’s podcast episode because I think in some ways, you and I have lived some similar overlapping paths in not only living within the advisory business, but spending time in the membership association world, kind of crossing over to publish some research in academia, although you have done this even further than I have because you chaired the FPA National Board at one point and have gone back and gotten your doctorate, of which I’m terribly jealous and hope to do at some point as well.
But there’s this interesting intersection of just academia and membership associations, giving back to your profession, building an advisory firm, and working with clients. That, to me, is sort of the quintessential essence of what it means to talk about the financial planning profession, right? Like a big key profession, and I think in many ways, you really embody all of those different pieces. And so, I’m excited to kind of talk about…it’s one thing to say that, it’s another to get down to the real world of how does that actually all come together? You got your doctorate and teach; you are also active in membership associations; you are a partner and a founder of a very successful advisory firm. That is a lot of stuff.
So, figuring out how all of that actually fits together in the real world as someone that’s tried to juggle those balls, all of which we’re just really excited to hear a lot about. But I think to get us started, I’d love to just hear your views and thoughts of how you think about weaving all of that together, like being an advisory firm owner and trying to be involved in research and being involved in membership associations, there’s only so much time in the day. How do you think about all of that coming together?
How Dave Views All Of The Different Aspects Of His Involvement In The Financial Planning Profession [05:09]
Dave: Well, for me, it’s always been one whole. Years ago with my former wife…I used to say, “My last wife,” but Elissa tells me, “No, I’m your last wife.” With my former wife, I was in marriage counseling at one point and she was…honestly, she was very angry, among various other things. She was very angry that she didn’t feel like I was spending enough time with the business because of the fact that I was spending so much time teaching and doing volunteer work with FPA.
And my response to her at the time was, “You know what, the business is getting all that it’s ever going to get from me. If it wasn’t the teaching and the FPA, it would be something else.” And so, I guess I’ve always felt like I needed those various parts in my life, but they do fit together. I think you referenced that, but they do fit together. The thing is, is that, first of all, you never understand anything better than when you’re teaching it, and that means that if you understand it better because you’re teaching it, it means you’re also applying it better in practice, so those things are a natural mix.
And the other thing about the teaching and the research is that I think we need to be an evidence-based profession, and so there needs to be a continuous link between academia and the world of practice. And teaching is a great way to do that. Research is a great way to do that. But I think practitioners should at least be good consumers of research-based literature. And as far as the volunteer work mostly with FPA, I just felt drawn to it, I felt drawn to it because the financial planning world was my world, and it ultimately came to feel like my family.
And what we do – and I know that most of the listeners are financial planners, so I’m stating something that they already know – what we do is hard. What we do is hard. We carry our clients; we carry them around. Elissa likes to joke and say that “we sleep with our clients” because when we wake up at 3:00 a.m. and can’t go back to sleep, it’s invariably because we’re thinking about a client issue. And so, it’s hard work to internalize your client’s needs and goals and dreams and aspirations and feel like you have a role in those and worry about them.
And so, being part of a larger community where you can experience the fact that you’re not alone, you’re surrounded by – you are actually surrounded by people who are experiencing the same thing – is tremendously important. And so, that’s where I see all three of them as fitting together and actually as necessary. Because I just think, to be satisfied and effective as a practitioner, you have to be deeply connected to your professional community. And I think to be really sharp, you have to have some connection to academia, whether you’re taking some graduate courses or you’re teaching some graduate courses. Anyway, those three pieces are…for me, they’re like one whole.
Michael: I think you make a powerful point, I don’t know if I would quite put it the way that Elissa does that “we sleep with our clients,” although I love that phrase.
Dave: Well, actually, she said that to someone and they said, “Do you charge extra for that?”
Michael: “And it’s just part of the deep service that we provide and focusing on our clients.”
There is to me something, though, just really powerful around that, including even a little bit of a dark side to it. There’s a book that’s been bouncing around on my reading list for a year or two now that I will admit I’ve not gotten to yet, but keeps being recommended to me, by Paul Bloom called “Against Empathy.” And the whole nature of the book, at the end of the day, is that we often talk about ‘helping professions’, particularly around areas like doctors and medicine, although I think this applies very much to what we do as advisors as well.
These sort of ‘caring professions’ that are focused on our clients where we put empathy on this pedestal. Like, you have to be more empathetic. It’s how you create rapport and connect with your clients. And Bloom talks about how there is a dark side to empathy, which is, if you actually feel their pain too much, their pain becomes your pain. That’s kind of literally what makes it empathy, but it becomes a big cross to bear. It can burn you out, particularly when you have a lot of clients and they’re going through a lot of stress.
And we’ll see what comes from some of the research on the pandemic here, but Clontech put out a study that got a lot of buzz back in 2010-2011, looking at the financial crisis that the overwhelming majority of advisors had PTSD-like symptoms from the amount of stress that their bodies were carrying because we internalized all of our clients’ fears and challenges all at once when the market crashed and, of course, it hits every client at the same time when the market crashed, as it did in 2008.
And kind of, the case that he makes is that you actually have to be careful about being too close and too connected with your clients that way. And he kind of sets it up with what you actually want to get to is not empathy but compassion, where you can sort of express compassion for the challenges that someone is going through, but not totally internalized them to yourself to the point that you carry so much weight and burden of your clients’ fears and worries that it burns you out directly as well.
Dave: I think that’s a huge risk. I actually have a close friend who’s a long-standing and very successful financial planner. Whatever it was, 8 or 9 or 10 years ago…it was after the Great Recession. But he left the firm he was with and took, I think, about a 9- or 10-month hiatus before joining another firm. And prior to leaving his first firm, he had been suffering a whole host of medical issues that he was trying to manage. And he was working with nutritionists and herbalists and acupuncturists and chiropractors, you name it.
And during his hiatus, all of that disappeared, and he realized that what had been causing it was the fact that he was carrying all of his clients around on his back. The weight of his clients was damaging his health. Very much to the point that Brad Clontz…was it Brad or Ted who did that study? Anyway, very much to the point that Brad uncovered with financial planners walking around with the PTSD stuff. I’ve had financial planners say to me about the Great Recession, “It broke me. It just broke me. I haven’t been the same since.”
Michael: Yeah, and we actually saw a version of this. We did actually research on advisors and personality characteristics of advisors a few years ago through one of our Kitces Research studies, we kind of mapped it to what’s known as the ‘Big Five personality traits’, which is a very broadly vetted and researched framework around sort of the core traits that define personality styles: extraversion versus introversion, conscientiousness, openness to experience, agreeableness, and the last is sort of neuroticism versus emotional stability, right? Like, how often are you sort of anxious or impulsive versus kind of being very emotionally stable?
And one of the biggest defining characteristics that we actually found in that research, despite the conventional view around advisors are kind of this people-oriented, extroverted profession where you’re supposed to be out there meeting people and building your client base, we found no statistically significant difference of the extraversion of advisors versus the extraversion of the general population. But we found a monstrous difference in low neuroticism for advisors that, in essence, the people who become advisors actually do seem to, very disproportionately, be from a group that are a little more comfortable trying to be that emotional grounding point for their clients.
Because – not to put judgments around neuroticism – it is, I know, a loaded term sometimes in society, but in the Big Five context, it’s not meant to be judgmental. It’s just descriptive of how we take on emotions of others around us. And what we found in our research is that those who take on lots of emotions from their clients don’t seem to stick around as long in the business. I would guess, probably, very directly because of these challenges around burnout and that you’ve got to be willing and ready to be the rock for your clients or this just gets hard when times get difficult.
Dave: Oh, gosh, it does. And you have more formal evidence. Mine is only anecdotal, but I have witnessed many times over the years people dropping out of the profession because they were not capable of not getting so drawn into their client’s situation emotionally that it just became unbearable. So, it’s something…this is why all this talk about, “It’s just as important to engage in self-care as care for your clients,” is actually not…it’s not new-age woo-hoo stuff. And it’s not coddling yourself, it’s just like you have to care for yourself, mentally, physically, and psychologically – or emotionally, I should say, just to be able to carry the weight of your client responsibilities.
Michael: So, as you look at this, it sounds like a piece of areas like membership associations and being involved in FPA, for you, was a portion of this emotional outlet, right? You just said it does feel a little easier to talk about the stresses of dealing with clients with a lot of other fellow advisors who are dealing with the same stresses with their clients, that that kind of community connection was a big driver for you?
The Benefits Of Becoming Involved In Membership Associations [15:14]
Dave: Absolutely. It was absolutely…I mean, I started out as a solo practitioner, and even my part-time secretary was not in the office much at the time. And so, I’m bouncing off the four walls trying to figure this stuff out, trying to serve the few clients I had in the beginning. That was sort of what…I think what drove me to found the San Francisco Society of the ICFP, which was the predecessor of FPA, because it helped me build a community. And out of that, came some of my closest and longest-standing friends within the profession, and it just kept expanding.
And it kept expanding, first of all, because I just find it interesting, I’m fascinated by the profession, I think about it every waking minute in many ways. And so, to be surrounded…it’s why I like to go to FPA Retreat or Annual Conference because it’s a target-rich environment. It’s why I don’t sleep much when I’m there because when I have all of these people who have the same experiences I have, I want to hang out with them. I want to bond with them. I want to reconnect. I want to talk about the challenges of the day. And so, yeah, I think that it’s very therapeutic to be deeply connected to your community and to be engaged with your community.
Michael: And I can’t help but chuckle when you say you get so energized at Retreat, it’s hard for you to sleep when you’re there, because I still remember the first time I ever went to FPA Retreat back in 2004. And it was my first conference ever, I was super excited, I’m like, “I’m going to be a good conference-goer.” I was up for the 7:00 a.m. breakfast sessions and I went to every single session diligently, and I got involved in all the different activities all the way through.
And I still remember…probably, I guess, the second or third morning of the conference, I’d gotten up to go to the 7:00 a.m. breakfast session, so it’s 6:40, early daybreak, and I’m walking across the campus facility that we were at to get there, to go to the breakfast session, and I passed you going the other direction because you were going back to your room to go to sleep and take a nap. And then, you were the speaker at the 10:00 a.m. session that I went to.
So, I passed you; you took a nap for what it could have mathematically been no more than 3 hours and 20 minutes and then came back and presented on the topic and the discussion of the day. And I remember going through that and walking by that and thinking like, “Okay, this is a different kind of conference than I understood.”
Dave: You know, it’s funny, Greg Clark tells this story of being with me in the presidential suite at Annual Conference or Retreat…probably Annual Conference. And it was one of those things where we were drinking wine and talking financial planning until like 3:00 in the morning and I was going to be the opening speaker in the morning or I was going to introduce the opening speaker or something.
No, I guess I was going to be the opening speaker. And Greg said, “I was never going to get up for that opening session,” but he said, as the night grew longer and longer and longer, he thought, “I have got to get up for this train wreck,” then he said, “Damn it, you were just fine.” So, the other thing I’m going to say…
Michael: He should have just seen it through and stayed up until your session and then gone to sleep.
Dave: Well, yeah, we’ve pulled a few of those as well. But I’ve had people say to me while I’m walking up to the stage, as I’m walking by them in the aisle, “So, do you know what you’re going to say?” I said, “Yeah, I’ll figure it out when I get there.” And they’re like, “How can you do that?” And my response is, “Just speak from your heart.” If you just speak from your heart, you don’t need notes, right? And my heart has always been very filled with this profession, both from the standpoint of gratitude because this can be one of the most satisfying and remunerative activities possible, but also really satisfying in terms of feeling like you’re making a difference in people’s lives.
And so, again, this comes back to the professional side – to the professional association side – is that I have got hundreds of dear friends and colleagues around the country and around the world who feel the same way. And so, if I can have a gathering where I can hug them and talk to them until 3:00 in the morning, I have to do it; it charges my batteries. So, the year I was president of FPA, 2003, I was actually out of the office…I looked at my calendar like in June, halfway through the year, and I’d been out of the office traveling on association business for more than half the time so far that year.
And that continued through the balance of the year, and yet my practice grew. My practice grew during that time when I was gone almost half the time. And I thought about it later, “Why did that happen?” And I realized that all of that stuff I was doing was charging my batteries, so that when I was in the office, when I was meeting with clients or prospective clients, it was kind of like the old ad where someone’s hair is being blown back by a speaker.
I would get to the end of a conversation with a prospect and they would say, “Oh, my God, you’re clearly excited about what you do!” I say, “Yes, it’s important. I am excited.” And guess what, it turns out that people like to work with people who are excited about what they do, so anything that charges your batteries has got to be good.
Michael: I like that, people like to work with people who are – like you said – who are energized about what they do.
Dave: Yeah. Absolutely.
Michael: So, talk to us a little bit about the advisory firm itself. What does the advisory business look like today? And then I want to go back and understand a little bit how it grew and evolved over time. But for starters, can you just tell us a little bit about the advisory firm as it exists today?
What Yeske Buie Looks Like Today And The History Of The Firm [21:11]
Dave: Sure. So, we are two offices, one in Vienna, Virginia, which is about nine miles outside DC. You know that very well since that’s your hood.
Michael: Yeah, about four miles up the street from us. Yep.
Dave: There you go, and another office in San Francisco. We have a team of 15 right now, 10 of whom are on the financial planning team, and the other 5 are operations and support. We have a single service offering, and it is comprehensive financial planning and asset management combined as a single service – a single integrated service paid for by a single asset-based fee – and we really emphasize the financial planning part. I think that we’re really good at the investment part; I think we have a real depth of expertise and we’re very disciplined and we could go into that for hours.
But as I always say to clients or prospective clients, we nonetheless think of ourselves first and foremost as financial planners because financial planning is about context, and context matters. And so, I’m going to say we devote 25% of our time to the investment management part, 75% of our time to the financial planning. And so, the best fit for us, the clients who work with us and stay with us long term, are the ones who value the financial planning side, are the ones for whom we are their first call for almost anything that’s going on in their life.
And so, my partner is Elissa Buie. We both had our own firms, and we merged as of January 1 of 2008. So Elissa and I, we met on the board – the National Board – back in the late ’90s. And Elissa was ultimately the Chair of FPA in 2000 and then rotated off the board and I stayed on the board, but we were part of a study group. We continued to meet and see each other and we got to be really close friends. And then in 2002, neither of us were married at the time and we were at a…of course, we were at a financial planning conference, it was actually a Naz Rubin meeting in Anchorage, Alaska.
When we looked at each other and said, “Are we really going to allow 2,419 miles to stand between us and something special?” And the answer was no, so we started dating coast to coast, ultimately got married in 2006, and then merged our firm as of 2008. And I’ve had people say to me, “Well, of course, you merged your firms, who were married,” and I’m like, “Have you never been married before? That was like the last reason to do it.”
Michael: Well, I’m glad you said that. Yeah, that’s the striking thing. And there are literally models out there around this. A lot of advisors know Norm Boone and Linda Lubitz who are married and had practices on the opposite sides of the coast and kept their firms separate.
Dave: Yeah, Elissa likes to say that they had the same commute that we had, but they were wimps, they didn’t go so far as to merge their businesses.
Michael: Oh, that’s like a gauntlet is thrown. So, how many clients or what’s the acid-base of who you serve, just so that we have context of who are 15 people supporting?
Dave: The last time I looked was probably a month ago, I think we’re about 740 billion…pardon the billion – I wish it was billion – 740 million under management, about 300 clients.
Michael: Okay, so kind of like napkin math, your average client is two, two and a half million dollars under management, so you work with a fairly affluent clientele, like this is a, “We’ve got to do a lot of stuff for these clients before charging them an asset-based fee on two-plus million dollars.”
Dave: I would say, yeah, that’s absolutely true. I mean, it’s a mix, the average is around 2 million but that includes some people who are worth 20 million and some who have been with us for a long time who are worth 500,000, but we love them and care for them just like everyone else. But you’re right, I mean, the majority of our clients are larger, if you will, in terms of financial resources.
And we do feel like we have to do a lot for them. Although we feel like, to do financial planning right, we have to do a lot, anyway. But, again, the clients who are the best fit for us are the ones who value the financial planning part of what we do. I mean, I don’t want them to put no value on the investment side of what we do, but they have to also value the financial planning side and those are the ones who stick and those are the ones who I think thrive and the ones that become a permanent part of our family.
Michael: So, can you talk to us a little bit more of just what that means in practice? What do you do, what do you do for your multimillion-dollar clients in this blended investment management and financial planning offering to keep the financial planning side so front and center for them?
Dave: Of course, we begin every engagement with a very deep discovery process and then followed by our initial planning assessment, evaluating all of their resources in light of what we learn about who and what matters to them, and we develop an initial plan. And so, all of our analysis is posted to a client private page online, and that’s the portal through which we work with our clients. And so, we do all of our…
Michael: And what’s the actual portal of choice that you use for facilitating that?
Dave: It’s our own proprietary.
Michael: So, you literally built your own client portal?
Dave: Yes. And I will say, I have yet to hear anything that would contradict this, but I think I created the first financial planning portal on the face of the earth back in 1998 – I think it was – ’97 or ’98. I hand-coded my first website. I got bored on a Sunday and figured I could teach myself some HTML and it turned out, it was pretty intuitive, and so I built my own website. Eventually, in the late ’90s, we were getting into the dot com frenzy and I had clients who were getting on the Schwab institutional website 15 times a day looking at their…looking at what the market was doing and this and the other.
And so, my first initial impulse was, “I want to get them the hell off the Schwab site.” And so, that’s when I had the notion of building a portal for each and every client, to give them someplace to go where they could look at information that’s been formatted the way I think is meaningful. So, that was the beginning, but what we rapidly realized is that it could be very effective for all of our financial planning work as well because when you’re printing out financial plans or drafting financial plans, you end up with some version control where it’s like, who knows if we’re all looking at the same document or the same information?
But if the authoritative copy is always the one that’s posted to the client’s private page, then we’re always looking at the same thing, so you get version control. And it also means that clients can look at it whenever they want and see the most recent information. So, we do our initial financial planning…I know I got off on a bit of a tangent there, and it’s all posted on the client’s private page. We post tax information on a quarterly basis. We update their portfolio performance reports on a monthly basis.
And some people in the past have said to me, “Oh, my God, do you want people thinking about their investments every month?” And it’s like, “Well, not necessarily, but people don’t always check…they don’t check into their client private page every month, so whenever they do check-in, I want the information to be current.” And then, on an annual basis, we do an annual update with every client and we update all the relevant financial planning analyses and we review it with them.
And some of it is just housekeeping stuff, some of it is just we have a summary of all of their key insurance information, a summary of all their beneficiary information of their key estate documents and estate flowchart, and an annually updated tax analysis. And a lot of this stuff we go through is just like, “Let’s revisit your beneficiaries. Let’s revisit your successor trustees. Let’s revisit…” And most of the time, clients nod and say, “That’s fine,” and sometimes they say, “No, actually, I hadn’t thought about that. I want to change the successor trustee,” or “I want to change that beneficiary.”
So, we were the kind of the keepers of the key information, and then we do other analysis as needed in between. Clients have always said to me, or they’ve always asked me, “Well, how often will we meet?” And my answer has always been, “Well, I don’t have a maximum, but I do have a minimum. I want to meet no less than annually because that’s the minimum timeframe to keep us all on the same page,” because we’re thinking about this stuff every day but the clients aren’t.
So, the other thing is that…this was my fantasy from the beginning back in…I started out in 1990 and in the early ’90s, I hired a programmer to create a custom CRM, which is a fool’s errand. Norm Boone did the same thing, and he told me at the time, it’s a fool’s errand. But I hired a programmer to create a custom CRM because I had this fantasy of being able to every time there was a change in the regulatory or economic environment, I could scan my clientele for key characteristics where there was either a threat or an opportunity that needed to be addressed proactively.
That project didn’t go well, but we currently use a highly modified version of Salesforce, and today, we can do that. And so, the financial planning team is constantly scanning the horizon and saying, “Oh, we’ve just had a new regulatory change, a tax change, a law change, we need to scan our clientele and see who fits the profile of someone who’s going to be impacted by this.” And then we need to proactively analyze if there’s something to do and then we need to reach out to them and say, “You know, we’ve analyzed this and we need to do the following in order to avoid the threat or take advantage of the opportunity.”
And we’re trying to get better about doing the negative recommendation thing where we reach out and say, “We analyzed this on your behalf, and by the way, there’s no action to be taken,” so at least they know we’ve analyzed it. So, it’s a combination of having a very systematic foundation where we know we’re going to do this upfront, we’re going to do this on a monthly basis, this on a quarterly basis, this on an annual basis, but then also being prepared to be proactive, based on changes in the environment that are going to differentially affect different clients.
Michael: So, I’m struck by that framework that you have things you focus on doing on a monthly basis, on a quarterly basis, on an annual basis. So, what actually falls into monthly versus quarterly versus annually at this point?
How Yeske Buie Has Systematized Their Process For Serving Clients [31:50]
Dave: First of all…well, actually, we have some things we do every two weeks. On a monthly basis, we update all of the clients’ portfolio performance reports. But the thing is, it’s not just portfolio performance, it also is a monthly update in their 12-month rolling spending, if they’re spending clients. And that’s a key number because, in our safe spending system, we constantly want to compare that rolling 12 months to what their actual target spending is – annual target spending – so there’s a financial planning dimension to that as well. So, if we have a conversation with a client, we can say, “Hey, as of last month, your 12-month rolling spending is in excess of your safe spending target, let’s talk about what’s going on here.”
Michael: And how do you actually track that? Their 12-month rolling spending?
Dave: Well, so we use Portfolio Centers as our portfolio accounting system, and one of the standard reports that we generate, that’s part of the monthly update, is a 12-month summary of spending from the portfolio. And it’s just like shows every itemized expenditure from the portfolio, or itemizes every withdrawal from the portfolio, and then summarizes it for 12 months.
Michael: So, you’re not necessarily diving into their bank account, but you just literally account what comes from the portfolio in the first place.
Dave: Exactly. And you know what, from the standpoint of our safe spending system, we don’t care what you spend it on, just don’t spend more than what we tell you that you can spend. So, we’re dealing with that at a very macro level. On a quarterly basis, we update the realized capital gains, dividend income – all of that – and we actually share that proactively with a lot of tax preparers. We create client private pages for the tax preparers with whom we share clients, and then we actually post the client’s quarterly information there.
Not every tax preparer does anything with it, a lot of them just safe harbor and don’t think about it. But there are others – and, of course, this is more relevant when you get into the bigger clients – there are others who will look at it every quarter, and they’ll update their estimates of what the estimated taxes should be for the balance of the year and so forth. And then on an annual basis, we go back and we update all of the rest of the financial planning stuff. So, we’re going to update their net worth statement, we may update their retirement projections, we’re definitely going to update their tax projections.
We actually send out a couple of Money Quotient forms to clients every year. We send out a financial satisfaction survey and a life transition survey. And it’s like, we know our clients really well and we communicate with them a lot, but for us, these are instruments to just catch anything we’ve missed something that’s going on in their life that they just didn’t get around to mentioning to us that may have planning implications.
Michael: For those who aren’t familiar with Money Quotient and some of these questionnaires, can you just explain a little bit more what they are? You said it’s financial satisfaction and life transition surveys?
The Money Quotient Surveys That Dave Uses With Clients [34:42]
Dave: So, the way Money Quotient has structured a lot of their instruments for use with clients is, Money Quotient is very much about giving you the tools to take a deep dive into the interior dimension with your clients – their personal history with money, their motivations, their vision, all of that discovery stuff – but it’s also good on an ongoing basis. And the way it’s structured is they have some that are very simple, they’re just checkboxes. And that’s where the life transition survey and the financial satisfaction survey…those forms are just checkboxes.
In the life transition survey, it’ll have something like “expecting an inheritance” or “a child leaving the house” or whatever, and it’ll say happening “now”, “soon”, “much later”. The financial satisfaction survey will say, “I’m satisfied with my estate plan,” or with whatever, and they’ll say, “not satisfied”, “somewhat satisfied”, “very satisfied”. And then they have other forms where it’s short answer, and other forms where you just like go into a really extended exploration of what they’re thinking or what their vision is.
But we find that those first two forms are very simple for anyone to complete. They are just checkbox forms, but again, it’s an instrument to just scoop up anything we didn’t already know about that we may have missed or they may not have thought to mention to us, and these are things – as is almost everything in life – that have financial planning implications that we address.
Michael: And so, you send these out before your annual meeting, after your annual meeting, offset from your annual meeting because you’re going to ask about these things in your annual meeting? When do you put these out and try to use them?
Dave: We put them out before the annual meeting. So when we’re scheduling the annual meeting, we’ll send them an updated version – we’ll just send them fresh forms. And I’ll be honest with you, we probably get them back only about half the time, so they’re useful but…and sometimes, if it’s a couple, we only get them back from one spouse and not the other, but even that creates the basis of a conversation.
Michael: And I guess at the end of the day, if there’s something to talk about that’s on their mind that your form queues up for them, they are more likely to fill it out and send it back. Which is perfect because that actually prepares you for the important conversations, when they have an important conversation they want to have a conversation about. And I would assume, at least, by and large, the people who don’t fill it out and respond, it’s just because they basically didn’t have much that they felt like they wanted to chime in on and share about, which just gives you context for what’s probably coming in this meeting.
Dave: Exactly. I mean, I was in a meeting a couple of days ago with some clients. It was an annual update meeting, and the wife had checked that she was not satisfied with her estate plan. And so, I said, “Pam, I see that you indicate you’re not satisfied with your estate plan, I’d love to hear what your thoughts are. Do you want to make changes to the beneficiaries? What are you thinking?” And she said, “I’m not dissatisfied with it; I just don’t understand it.”
And that created an opening for us to say, “Well, let’s talk about it. Let’s look at our summary document. Let’s look at the flowchart that we’ve created that lays out what’s going to happen at each stage along the way,” and she was really happy about that. So, it may not pick up what you think it’s picking up. She checked that she was dissatisfied, but it turned out that the only thing she was dissatisfied with was that she didn’t understand it.
Michael: What a wonderful conversation to have and the kind of thing that just doesn’t always come up. I find, particularly areas like, “I’m just not really clear on the strategy or the things,” I think a lot of people, a lot of clients, feel awkward about bringing that up. Like, “I know we’ve talked about this three times already but I just really need to hear it again,” that is reality for some clients, but not everybody likes to bring that up. It’s a little easier just to check a box of “not satisfied with current status” or something and let you ask.
Dave: Well, and that’s the psychological brilliance of the different ways in which…the different layers that Money Quotient has created is that you’re absolutely right. There’s a really low threshold for checking a box versus actually bringing it up in the middle of a meeting. By checking the box, it created an opening for us to clarify some stuff that she was unclear about, and she felt much better afterward. The thing is, is that we spend time – I mean, it’s so funny – sometimes we do these annual updates, or maybe an interim update, and we never get to the portfolio reports, because we spent half the time talking about their property and casualty insurance and talking about some of the sub-limits that were not a good mix for them.
And the thing about it is that, at the end of it, the clients will say, “Well, nobody, including my property and casualty broker, ever talked to me about these things. I didn’t understand how my policy worked, and I didn’t understand where the gaps were.” So, there are so many ways in which we can add value, even including about stuff that the estate planning attorney didn’t make it clear how their plan worked, but we did a flowchart and we can explain it. Their property and casualty agent didn’t make it clear what their insurance coverages were and what it meant, but we can explain it to them. And so, they value all of that stuff.
Michael: Well, and it strikes me as well, so on the one hand, I feel like what you’re talking about is also just a lot of work. I was going to say a lot of busywork, but that diminishes in a way but I don’t mean to diminish it, but just literally, it’s work that takes a lot of busyness to produce – net worth statements and update or tax projection and update, tax projections and send out Money Quotient forms and get them back and quarterly tax reports and monthly performance reports that are being posted up for each client’s portal.
So, I guess this is part of what tracks back to – at the end of the day – you have 300 clients and 10 team members on the financial planning side, that’s a ratio…like that’s 30 clients per financial planning team member, which is a fairly low ratio compared to some firms, but that’s what lets you go deeper and that’s what led you to serve $2 million clients and keep them on board.
Michael: Well, and some of the members of our financial planning team are our financial planning residents, and that’s a whole other conversation, probably talking about our in-residence program, but we always do our work with clients in teams. Never fewer than two, sometimes three. I had a meeting yesterday with a $20 million client, and there are three of us on the team, and he likes the fact that it’s a team. In fact, he says, “Hey, team, what do you have to say about this?” He likes the fact that it’s a team.
He has worked with Morgan Stanley in the past and he often tells me, “You’re kind of expensive,” and I’m like, “We’re like your private office, and we’re a lot more enjoyable to work with than they are,” and he said, “Well, that’s true, you are.” But we give him what he wants. He wants to be able to talk to us anytime, day or night, and get an answer to a question of interest, and he wants…and we have no less than monthly meetings because he’s got a lot going on in his life.
And, I mean, I say 20 million – that’s 20 million that we’re managing – there’s a bunch of concentrated stock positions that we’ll eventually manage, but we’re still helping him manage the risks and the opportunities with those concentrated stock positions. So, it just has a lot of moving parts, but we charge a premium fee and I think we give premium service. But you’re right, I know that a team of 10 for 300 clients is on the high end, but at the end of the day, we still managed to be well compensated, so it works out. As far as we’re concerned, it works out. We could probably make a lot more money if we pared it down to a bare bone offering and just allowed for more turnover, but we prefer to do it our way.
Michael: So, in that context, I am curious; I know you are well aware of all the industry debates and discussions that are out there around advisory fees, fee models, AUM fees versus planning fees, charging planning fees separately. So, I’m going to presume for a firm like yours that to go as deep as you go on financial planning and charge an AUM fee and not a separate planning fee is a conscious choice. So, I’m very curious for your views on why the AUM model? Why not planning fees or separate planning fees or breaking them apart when you have this offering where, as you’ve said it, 75% of what we do is financial planning, but you are charging a single bundled AUM fee?
The Fee Model That Yeske Buie Uses For Their Combined Financial Planning And Investment Management Service [43:34]
Dave: Well, so I guess I’ll say a couple of things about that. First of all, historically, back when I was starting out back in the ’90s, I did all kinds of things. I would do financial plans for fixed and hourly fees, I would manage assets for an AUM fee, I was doing hourly consulting for expert witness stuff, I was doing a little bit of everything. And it was very scattered, and it was not very satisfying for me, it just wasn’t working. And so, I sat down and thought about which client relationships seemed to be the most successful and satisfying for the client and for me, and it was the ones where I had a continuous ongoing engagement with them.
Because I would do a free-standing plan and I’d give them all the instructions for how to implement it, and they’d go away and they’d come back in a year or two and I’d say, “Did you do anything?” They said, “No.” Implementation is just too important. So, we finally decided that there’s just going to be one integrated offering, there’s going to be one asset-based fee – which honestly, is also really easy to administer. I’m going to be honest there, when I want to talk about operational efficiencies, we will only charge an asset-based fee. We will only assess it against the assets that we’re directly managing at Schwab because, administratively, we don’t have to think about it. You put that stuff on autopilot, and so at least the billing and the fee collection and all of that is easy.
But philosophically, first of all, their portfolio fuels everything else in their life, why shouldn’t it fuel their financial planning advice? I know a number of colleagues who, back just before the Great Recession, switched from asset base fees to annual retainers. And, oh, my God, that worked out well for them, I’m not sure how well it worked for their clients. But I can remember during the Great Recession sitting in my office, sitting in my conference room with clients across the table, more than once and having a client look at me and go, “Based on what’s happened in the markets in our portfolio, your income must be way down.” And I’d say, “Yeah, it is,” and they’d go, “Good.”
And it wasn’t because they had any animus towards me, it was because it made them feel like we were in the same boat. And so, clients liked the fact that you’ve kind of got skin in the game. If they’re suffering, you’re suffering, and it means you have to build a business that can have a fluctuating income. Our income fluctuated quite a bit in the Great Recession and at least in the first quarter of this year, it really fluctuated. The year has turned out to be better than we thought, but…
Michael: If Q1 billing happened on March 21st instead of March 31st, it would have been a lot uglier.
Dave: Oh, yeah, that’s true. So, the point is, is that…here’s the thing, I’m not going to…I mean, a lot of people have…I won’t name the names, but I’ve been listening to prognosticators for 30 years saying, “It’s wrong to charge asset-based fees, you’re making clients think it’s all about the asset management.” And first of all, my response to that is, “What is it you tell them you’re doing for that fee?” If you tell them you’re doing financial planning for that asset-based fee and then you actually do financial planning, then they’ll think of it as a financial planning fee. But, that aside, I’ve heard people for 30 years say that the asset-based fee model is dead. And guess what? It hasn’t died in the 30 years that its death has been predicted and the reason for that…
Michael: It hasn’t even shrunk! It’s growing, the entire brokerage industry is moving into the fee-based model. That’s the most dominant trend of the past 20 years is the growth of the supposed-to-be-dying AUM model.
Dave: And the reason for that – I have my own theories, but I think based on my personal experience – that the reason for it is clients like that model. Clients like that model! And here’s the other thing that…my other take on it is our firm is not the Queen Mary, we’re not a giant cruise ship that can’t…we can turn on a dime. If we woke up tomorrow morning and no client on the face of the earth was willing to pay an asset-based fee, we’d figure out another way to get compensated.
But until that day arrives, it works for us; it seems to work for our clients. And so, see, I don’t believe in that whole Wayne Gretzky thing, “Oh, he’s successful because he didn’t go to the puck, he went to where the puck was going to be.” I think trying to predict the future when it comes to business models is as much a fool’s errand as trying to predict the future of the stock market. I think what we need to be instead is nimble and grounded and prepared, sort of with our antenna out to what’s going on in the moment and making real-time adjustments to it.
Michael: I like that framing, you don’t have to predict, you can just be really nimble. There is a piece to me, though, that really resonates around the discussion of if you’re doing AUM fee, but you’re focused on planning, the question really becomes what are you actually telling your clients you’re doing for that fee and then what are you actually doing and following through on?
The phenomenon that I’ve seen for a number of firms out there that, I’ll sort of putting air quotes, “do financial planning” as a part of their AUM fee, is that if you – just from the business end – if you look at your AUM fees and think about your AUMs in portfolios as the driver of revenue, if you’re not careful, you’ll start actually managing your business that way. Which means you focus on asset gathering activities. You focus on asset retention activities, and financial planning is no longer a value proposition to be invested in, it’s a cost to be managed because you’re not treating it as the central revenue driver of your firm.
And if you do that and if you do that long enough, you will lose focus on planning. You will put less resources there. You will end up delivering less value there. You will probably communicate less, and your clients would end up thinking of you in the investment box rather than the financial planning box. But to me, that’s not necessarily a function of the business model, per se, it’s a function of where you set the value proposition of your business and how you think about your staff costs, your staff investments, what you’re holding out, and what you’re trying to deliver to clients.
If you view your financial planning as the primary way in which you drive the AUM fees, you’re going to put a lot into your planning, and if you view investment management as what you do to drive your AUM fees, you’re going to put a lot there instead. Having just seen a lot of firms over the years, I’ve seen a lot of firms that unwittingly crept away from doing as much financial planning because the irony is, I think the AUM model distorted how they ran the business more than it distorted how clients thought of the value. Because as you said, if you tell the clients, “This is what’s valuable and this is what we do,” and you actually deliver that and they value that, they value what you tell them is the value that you deliver on.
Dave: Exactly. And the thing is, is financial planning relationships are sticky relationships. I don’t think asset management relationships are at all sticky. I think you live and die by your latest returns. Whereas if it’s a true financial planning relationship – I have clients who just by bad timing, they have returns that look crappy sometimes for years on end, maybe in situations where they shouldn’t look crappy just because the timing was bad about when they showed up, when we got in the market, however that went, and yet they’re so engrossed in and happy with the financial planning dimension of our relationship, that they don’t even talk about it and they don’t…it’s just not their metric. I don’t know.
I guess what I’m saying is I think doing financial planning is the right thing to do. I think it does benefit people’s lives; it reduces the anxiety in their life that attaches to money and every human being has anxiety around money, that’s universal. And so, we are among those practitioners…there are psychotherapists and there are financial planners doing good financial planning, and both groups can help reduce anxiety around money, although I think financial planners, if they’re doing it right, can do more than psychotherapists to reduce anxiety around money.
So, that stuff matters, so it’s not just about a business…I mentioned earlier that the financial planning relationship is a stickier one. So, there is a business motive to do good, consistent, comprehensive financial planning and don’t let down, but it’s also because it’s the right thing to do. It is the way to change people’s lives and to change their relationship with money, reduce their anxiety, just help them live happier lives.
Michael: Now, I’m wondering as well, you had mentioned as part of your ongoing process, your ongoing monthly process is kind of capturing the withdrawals that have come out of the portfolio as a rolling spending report to make sure that they’re on track and within the guidelines of your safe spending system. So, what is the safe spending system? What is that?
Yeske Buie’s Safe Spending System [53:06]
Dave: So, it is something that’s evolved a little bit over the years, but it started a dozen years ago. It started with the research of Guyton and Klinger on decision rules around safe withdrawal rates. And I know you’re familiar with all this stuff, but I don’t know if all your listeners are, I mean, if I can just take two minutes? Back in the ’90s, you got a lot of stuff coming out of the Trinity study, and Bill Bengen very famously started publishing in the “Journal of Financial Planning” work on safe withdrawal rates.
And a lot of the numbers that came out of that – and of course, what they were looking at, or the question that Bill Bengen, for example, was answering initially was, “For a given portfolio, how much can I start spending in Year 1 of retirement, such that I can increase it for inflation every year, never have to take a cut, and have some confidence that my money is going to last for 30 years?” And the numbers he was coming up with were like three, I think the biggest number at the time in his first study was 3.6% or something like that. And a number of…
Michael: In an era where… in the ’90s, everyone was talking about it’s 7%, 8%, 9%, that was safe because the markets had been doing double digits for so long.
Dave: Because the markets have been doing well. Right. So it was actually a good sort of counter-discussion. But what I found interesting, later in the 2000s, and this was actually in 2006 that they published, was that they were asking a slightly different question. And the question that John Guyton and Bill Klinger were asking is, “Well, for a given portfolio, what’s the initial spending trajectory you can set yourself on assuming you’re willing to make certain adjustments under well-defined circumstances along the way?”
If you’re willing to add a little bit of dynamism into it and have a high degree of confidence that the portfolio will last…they actually studied 40 years, not 30 years. It was over the course of two sort of research initiatives and two papers that they published, but they eventually got to a system that had three decision rules. And these decision rules were like guardrails, in the form of like guardrails around the spending. And so, one day on an airplane – because clients are always asking about this stuff and we were just like rerunning – for retired clients, we were just like rerunning money tree projections every year and saying, “Yeah, it still looks good,” or “it doesn’t look good.”
And it was not very intuitive for clients, and it actually didn’t seem to stop clients from overspending. It wasn’t very obvious to them what was going on. And so, we realized that a system like that one that distilled down all of that empirical data and all of those Monte Carlo simulations into three simple decision rules – and, of course, the decision rules which John Guyton now calls ‘policies’ because it’s a very good example of policy-based financial planning – are very intuitive to people.
And what we found interesting is that we would always run – when we’re doing a money tree projection pre-retirement, we’d always look for a plan that had a 70% success rate with the Monte Carlo. And then we say to clients, “Look, we’re not saying there’s a 30% chance that your plan is going to fail, what we’re saying is there’s a 30% chance that you might have to make some adjustments along the way over the course of your retirement.” Well, what was interesting was, that was a little bit of an intuitive thing for us as a way to incorporate the client behavioral dimension, which, of course, the Monte Carlo doesn’t.
But it turned out that when we operationalized the Guyton and Klinger work, it matched up perfectly with that. It turns out that the safe spending system via the Guyton and Klinger study actually answered the question perfectly of what you’re doing 30% of the time. So, one day on an airplane flying coast to coast, I said, “I need to operationalize this in a way we can use with clients.” And so, I built a spreadsheet, and I built all the decision rules into the spreadsheet with all the inputs.
I learned what the limits of nested if-then statements are in Excel because I literally had to…in several cases, I had to have 18 nested if-then statements in order to simultaneously accommodate all the three decision rules against all the possible inputs. But I developed a spreadsheet where we could input the data that was necessary, and then we could just run it every year. We’d enter in: “What was the 12-month inflation? What was the last 12 months’ return? What’s the current portfolio value?”
You entered those three pieces of data in, the spreadsheet automatically runs the three decision rules, and it just tells you which of the decision rules have been triggered and what the consequences are for the spending target for the next year. Now, the thing that I did to extend that, is I felt like I had – and you and I have had a lot of conversations about this dimension – I felt like I have to incorporate market valuation levels into it. What’s the market valuation when you start?
And so, what I did was, I took the results of the Monte Carlo work that was embedded in the Guyton and Klinger study and I’d said, “We could use the spending level that had a 70% success rate if we’re in a really low valuation point in the market, and if we’re in a high valuation point in the market, we have to use the spending levels that had a 90% success rate.” So, we built a low, medium, and high valuation metric and we use the 70%, 80%, 90% success rate metrics from the Guyton and Klinger study and then that became another input into the spreadsheet. I hope that made sense but…
Michael: Yeah, so if you’re in a higher valuation environment that’s at more risk, you might aim for a 90% probability of success because your adjustments could be more severe since the markets just sort of mathematically have more downside risk. If you’re in a lower valuation, a lower risk environment, we can manage to a 70% probability of success. Yes, literally, it means you might make more adjustments because there are 30% odds instead of 10% odds, but they’re probably more manageable adjustments because there’s only so much drawdown.
Dave: And you’re coming from a low valuation in the market, which predicts higher subsequent returns. And of course, intuitively…it also fits intuitively because if what you do is you input a high market valuation, then it spits out a lower initial spending rate, and if you put in a low market valuation, it spits out a higher initial spending rate. And, Michael, again, I know you and I have had this conversation, but it answers a question…I think this may have been back in 2004, or at least maybe ’05 or ’06, but…nah, I think it might have been that 2004 annual retreat in Florida, where I was up on stage pontificating about something.
And you raised this question about the paradox of the safe spending approach where one person has $1 million and starts out at 4% in one year, another person who also has $1 million defers for a year and the markets go down 20% and their four percent is much lower. Wait a minute, they just both got stuck on radically different trajectories, and I’ve actually run the simulation…
Michael: Just differs on which day they came to ask you the question.
Dave: Exactly, but I’ve run the simulations and the Guyton and Klinger model, as we’ve implemented it, actually bridges that gap. The ones who started out…the first ones to start out, they actually get a couple of…they get at least one capital preservation rule cut or maybe several, and the ones who started out the next year with the lower spending, they actually get some prosperity rule increases and eventually, the two converge on the same place.
Michael: Right, just the idea of, in essence, if you’re retiring at market highs, you might take 4% off $1 million, if you’re retiring right after the market took a big drawdown, you might only have $800,000 in your portfolio because the balanced portfolio took a big hit. But you can take a 5% withdrawal rate off of the 800 because your forward returns are probably better right after a giant market crash than they were if you had retired right before the market crash.
Dave: The thing I say to clients all the time when they…because they always call up during a market decline and they say, “So, at what point do we sell out?” It’s like, “No, you have to understand, the farther down it goes, the higher the expected return, the farther down it goes, the less likely we are to sell out.”
Michael: And so, you’ve talked about a few times kind of these three rules that you use in practice. So, can you just talk about what are the three rules, the three triggers or changes that you use with clients?
The ‘Three Rules’ That Dave Uses With Clients [01:01:53]
Dave: Sure. So, the first one, and the one that typically gets triggered, is the inflation rule. And that says that you get an increase…we do this once a year, there’s an anniversary and we apply these three rules once a year. So, it’s dynamism but also stability, people always know for the coming year what their spending target is. Anyway, so on the anniversary when you run the rules, the inflation rule says that the spending target is going to be increased by the trailing 12-month change in the CPI, unless the portfolio had a negative return, in which case there’s a freeze. But there’s a further exception, if the spending target as a percentage of the portfolio is lower than the initial spending target, then they still get an inflation increase. So, that’s the inflation rule, that’s the one…
Michael: So, in essence, the central idea of it is if your portfolio didn’t make any money this year, you don’t get a cost-of-living raise this year.
Dave: Right. Unless because it’s done well in prior years, your spending as a percentage of the portfolio still below its initial level, then you still have room to get an increase. Then the two others are mirror images of each other and, in many ways, the most important, I think, is the capital preservation rule.
And what that says is, if your portfolio has declined in value sufficiently, that your spending target as a percentage of that smaller portfolio is 20% bigger than your initial spending target…so, in other words, if your initial spending target was 5% and the portfolio was gone from $1 million to $833,000. Well, that 50,000 initial spending is no longer 5% of the portfolio, it’s now 6% of the portfolio. Six percent is 20% bigger than 5%, the capital preservation rule is triggered, and your spending target takes a 10% cut.
So, for the next year, instead of a $50,000 spending target, it’s $45,000. And of course, the mirror image of that is, if the portfolio has grown to $1.3 million, your $50,000 spending target is now 4% of the portfolio, and 4% is 20% smaller than 5%, the initial spending target, and that triggers the prosperity rule, and you get a 10% increase on top of any inflation adjustment you got.
And what they found in their simulations was that over a 40-year span, that maintained 99% of purchasing power. But it also leads to other conversations with clients because I’ve had situations with clients where they struggled because they had created lifestyles in which most of their spending was fixed expenses. And we talk a lot with clients about, “Let’s talk about structuring your spending so that a big enough proportion of it is discretionary spending, that you can afford to absorb a 10% cut anytime the capital preservation rule is triggered.”
So, the alternative is they just start out with a lower spending target, so if you want a higher spending target, you have to also be willing to make adjustments down the road. But the thing I love about this, I had one client, and this is a $30 million client from a very wealthy…it’s a large complex of clients. And she said to me one time, she said, “I’ve worked with financial advisors my whole life. Everyone has been able to tell me how to get money into my portfolio. No one has been able to tell me how to get money out of my portfolio until you.” And the thing is, these decision rules, if explained appropriately, are very intuitive for clients. And so, it keeps them grounded, and it also makes them feel confident that they have a system that’s going to keep them on a sustainable path.
Michael: And it effectively just boils down to, “We’re going to keep your spending rate between 4% and 6%. We’re going to put some guardrails in place. Markets are going to do what they do. Most of the time, markets are not going to move enough to move your rate out of the 4% to 6% range, in which case you can just chug along living your lifestyle. But if you’re veering way off track, these are our guardrails.”
Dave: And we’ve had capital preservation cuts over the last dozen years or more, however long we implemented this, and I’ve never had a year in which the capital preservation rule got triggered more than once. In theory, it could be triggered on multiple subsequent years but it’s never happened…even through the Great Recession, that didn’t happen, you know? Because the thing is, the Great Recession, the drop in the markets was horrific, but they started to recover pretty rapidly – rapidly enough that you never got more than one capital preservation cut. And the same is true…actually, I don’t even think this year is…I haven’t seen any this year because we recovered so rapidly from the February/March drop.
Michael: And living in the world of Portfolio Center – how are you tracking this and showing clients where they stand? I mean, I understand getting the trailing 12-month distribution report out of Portfolio Center, but that doesn’t necessarily give you a report where you can line this up relative to their guardrails and where the inflation rule kicks in, where the preservation rule kicks in, where the prosperity rule kicks in. How do you actually do this in practice? Do you have some template you’ve made and you drop portfolio center data into it? Did you figure out how to make some custom portfolio center report to show this? How do you do it, because you’re doing it for a lot of clients?
Dave: Well, we’ve formatted my original spreadsheet into a format that we use with clients, and the spreadsheet just literally lays out the key factors. I mean, the key factors that we input every year are what’s the portfolio value, what’s the 12-month return, what’s the 12-month change in the CPI, and, of course, the spending target carries over from the prior year. And when we update those three inputs, the spreadsheet automatically runs the decision rules and says, “Oh, this one’s been triggered,” and then it shows what the new spending target is, which most years is just a spending target that’s been increased by inflation but it could be one that’s been increased or decreased by the capital preservation or prosperity rule.
But then we have a further section at the bottom. This is where this has proven to be so much more powerful than just rerunning Money Tree projections every year for someone who’s already retired. There’s a section at the bottom that says, “Here’s your prior spending target, here was your actual 12-month spending,” and if the actual 12-month spending was equal to or less than their target, we literally have a graphical image next to it that’s like a thumbs up. If the 12-month spending was in excess of the prior spending target, we actually have like a big red circle slash that we put there.
And so, it’s like you have two numbers you have to compare, and we can compare them mid-year, which is why our monthly reports are structured the way they are. If a client meets with us mid-year – we have a conversation anytime during the year between times that these rules are being applied – we always update the spreadsheet to show, “Okay, what’s the 12-month as of now? What’s the 12-month as of the end of November?” And, “Oh, by the way, that’s higher or lower than what your spending target is.”
So, it’s a very simple – if they can understand the decision rules, the policies – they have a very clear format that just shows you, “Here’s what you spent the last 12 months. Here’s what your target was. It was higher or lower. It was good or bad.” Maybe we need to have a conversation, or maybe “Yay, you!” Maybe it’s all good.
Michael: So, I can certainly appreciate your, kind of, passion around the research and the academic side of this and sort of taking academic research and putting it in practice. I know there was a label that was bouncing around for a while of calling people ‘pracademics’, just sort of that practitioner-academic intersection, but I know you took this a step further because you actually decided to go back to school for a doctorate. So, can you talk to us for a little bit about just what leads you at this sort of stage of career and business to say like, “Now I’d like to go get a doctorate while I’m doing my financial planning work?”
Why Dave Pursued Getting His Doctorate While Running His Own Firm [01:10:29]
Dave: So, I was kind of a late bloomer. I bounced around about four different institutions of higher learning before I managed to cobble together a bachelor’s degree in my late 20s. And then, at 31, I started my financial planning practice and immediately enrolled into a master’s degree in economics at the University of San Francisco. And I found it to be a very powerful experience to be studying economics in the evening for four hours every week and then applying it with my clients on a daily basis.
I remember having a conversation with a set of clients and sort of mentioning the Markowitz mean-variance concept, the whole idea of an efficient portfolio, and the husband was an engineer, and he said, “What is that formula?” Well, I was able to sit there and write out the formula for him and tell him how each element worked, which was exactly the right thing at the time, but more importantly, it gave me confidence in what I was doing with clients. I mean, I read the Fama-French seminal 1992 paper, in 1992, in my graduate program, and I found it very compelling, and it actually influenced how I was building portfolios.
So, when the DFA folks showed up in my office in 1995 and wanted to talk to me about the Fama-French model, I said, “I can tell you more about it than you understand and yes, I believe you guys are implementing it well, let’s talk.” So, I found that that kind of two-legged gate of taking that sort of a deep dive into the technical topics and then applying it on a daily basis with your clients was very powerful for me. And so, I completed my master’s degree, and I was teaching in the graduate program – the graduate financial planning program at Golden Gate University.
And I got to know the full-time faculty who are running the doctoral program there, and I thought, “You know, I seem to do well having an academic element in my life even beyond the teaching.” And so, that’s when I joined the program, but what was interesting is when I started out, coming off of a master’s degree in economics, which was almost all basic economic theory and it was econometrics and it was market theory and portfolio theory and it was very sort of investment-focused in many ways.
So, I started out in the doctoral program with a focus on finance, and I was assuming I would do some study on market microstructure or something like that. But what happened is my program was kind of extended because I got involved in the leadership of FPA and I couldn’t really be as focused, but what happened is as my involvement with FPA deepened and as I had more conversations with Guy Cumbie, who was actually kind of one of the inspirations of my ultimate research, I realized that I wanted to do research in the area of financial planning. And my inspiration, as I just said, was Cumbie.
Cumbie, back in – I don’t know, 2003-2004 – he had just rolled off the FPA board as chair. He was speaking around the country and saying, “We have a gaping hole in our body of knowledge around planning.” And especially in those days, if you went to any conference, everything was about the silos. There’d be a presentation on tax, there’d be a presentation on estate planning, there’d be a presentation on investments. Nobody thought of planning as something to focus on itself. And so, I thought, “I’m going to figure out some kind of a model around that.”
And I was lucky that the gentleman who eventually became the dean of the business school, he since retired, ultimately was the chair of my dissertation committee, and he was someone who had…all of his prior work had been done in the field of strategy. He’d been up at the University of Washington. He did his dissertation there in strategy. And so, I spent a year or two working closely with him and he sent me back through the strategy literature on the business side. And, of course, strategy, corporate policy, a lot of different names for it, but it’s kind of the same, it’s like financial planning.
It’s like how do you best allocate scarce resources with certain goals in mind with organizational constraints? And the strategic question in the corporate side could be easily reconceptualized on the family side. And so, I spent a year or two sort of combing through that literature, reading hundreds and hundreds of papers and writing summaries of them, and I’ve distilled out of that, a model of strategy making that I felt could be applied to the financial planner-client relationship. And what was interesting was that the policy-based…and Elissa and I had already conceptualized and written and spoken a lot about policy-based financial planning.
It turned out that the policy-based approach as a strategic posture was actually the most powerful in terms of fostering client trust and relationship commitment, so that was kind of gratifying that those two pieces came together. But anyway, I’m doing what I’m typical of doing, giving the long answer to the short question, or maybe that was never a short question, I don’t know. So, anyway, so that was another piece where it all came together for me, it all came together, and my passion about financial planning and my work with clients and wanting to figure out how to make it better sort of then permeated my doctoral research. And I ended up publishing a version of my dissertation in the “Journal of Financial Planning” called “Finding the Planning in Financial Planning” and so forth.
What Is Policy-Based Financial Planning? [01:16:25]
Dave: Sure. So, policy-based financial planning is…well, now I have to give a little more background. So, back in the early 2000s, clients were traumatized by the dot com meltdown, 9/11, the deep recession that followed that didn’t end until the beginning of 2003. And what I was finding, and what I think a lot of financial planners were finding, is that clients were coming back to us and they were freaked out that their financial plans had just blown up.
And so, you gin up the machine, you’d reenter all the data, you’d rerun the projections, you say, “Look, it hasn’t really put you much off course,” or, “Maybe it hasn’t put you off course at all.” But it was very effortful and what happened also is because it relieved their stress, they would come back for their annual update three times a year, which was really not efficient. And so, Elissa and I were having long-distance conversations at that time. We were dating, but I was not traveling as much.
So, we were having long conversations every night and because most of what we talked about is financial planning, we were talking about this idea of policies. And the thing is, is that policies had been mentioned by Holman and Rosenbloom back in the ’70s in one paragraph in a financial planning textbook they wrote, and it was actually one that was used by the College for Financial Planning in the ’80s. And I went back and looked at my copy from 1988 and I had actually highlighted this paragraph that was about this notion of policies, but they mentioned the notion but never developed it.
And so we thought, “Well, maybe this is a useful construct. Take everything we know about what matters to clients – their values, their vision for their goals – and combine it with financial planning best practices and distill it down to these decision rules that can guide decisions under changing external circumstances.” And so, you could have a policy – certainly, you can have policies like the safe spending policies that clients find to be very intuitive and very comforting and very simple to understand because it’s a distillation of a lot of stuff embedded in those policies, but the policies themselves and the way we present them is very simple and intuitive for clients, and it keeps them grounded.
But you can also have risk management policies about how they’re going to make decisions about insuring or not insuring risks. You can have legacy policies about the charitable cause legacy or charitable giving policies. I always like to joke that the first time you write a check to a charity, it’s the first of two gifts: the second one being when they sell your name to a mailing list. People who give money tend to find that they increasingly are called upon to give money by an ever-widening circle, and in my experience, it can become very stressful for clients.
And so, if we develop simple decision rules – policies around what matters to them, what they want to support, and how they want to support it – then those policies make it very easy for them to field these requests that are coming in and it makes it very…it relieves the stress of that. So, it’s a way of taking every – and, of course, every financial plan has policies implicit in it – but our argument is, go to the next step and actually take those implicit policies and distill them down and make them explicit and then allow them to be a touchstone or a guide to clients to keep them grounded without having to rerun the financial plan every time they get worried or every time something new comes out, and we find that it works pretty well.
Michael: Yeah, it strikes them now, this discussion puts the safe spending framework that you talked about in much more context that…it’s not literally about sort of the rules and where the guardrails are, per se, although we have this research from Guyton and Klinger that says 4% and 6%, around 5% is a good place to put the guardrails, and off we go. The point is, is that that is a policy, right? It’s not necessarily what they’re going to be able to spend, per se, because I don’t know how the future is going to turn out, so I don’t know which guardrails you’re going to walk into or how many or in what sequence.
What I do know is whatever it is that happens in the future, I know how we’re going to handle it because we have a policy. Like if things get bad, you’ll make this trim to get on track. If things go well, you make that boost because you’re ahead. So, I don’t know which one is going to happen, but I know we have a framework to deal with whatever it is that’s going to happen. And so, in the most sort of literal sense, I am beginning to reduce the uncertainty. I can’t take it to zero because I don’t know which guardrails are going to be, but we, very literally, have a plan, “If this happens, you’ll do that, and if this other thing happens, you’ll do that other strategy instead. Now let’s go along together and see which one occurs.”
Dave: We don’t have to make a decision, and we don’t have to reinvent the wheel every time. We’ve already agreed to these policies, and we know what the guardrails look like. And as you say, whichever one we bump into, we know what’s going to happen, we’re not being surprised. Or for that matter, if someone is being asked for money by a charitable cause, they can say, “Look, here are my policies: I support Pre-K enrichment programs because research has shown that it has a huge impact on subsequent success. So, that’s my first policy, let’s examine what your cause is. Oh, you know what? You’re doing good work but it doesn’t fit my focus,” or “you’re doing good work and it does fit my focus.” Well, now there’s a second policy – the second element of that policy – and that is, “And I give up to 10% of my then safe spending target to the causes that I believe in,” or, “I’ve already spent 10% of my current safe spending target, see me next year,” or, “No, I haven’t, let’s talk some more.” And so, the policies call for it to be kind of mated together.
And the thing about policies is they’re about things that change. If the policy always gives the same answer, it’s not a policy, it’s a goal. The policy has to change when external circumstances change. The characteristics of a good policy are that it’s broad enough to encompass any changing circumstances but clear enough…but it always delivers a clear answer. It has to satisfy that kind of dual characteristic, but it has to be about things that change. So, for example, again, in the charitable giving policy, the second part of that policy is, “10% of my then safe spending target.” Well, that number changes every year, but it doesn’t matter because I can always figure out what 10% of that is.
Michael: And I guess the one unfortunate asterisk to all this is, “And you can’t do any of this in planning software.” Right? I mean, I can’t put it in planning software…Well, I mean, even like the framework that you have, I can show the client that the client has a 70% probability of success and all the dynamics, you noted, if you do the spending rules, your probability is going to go from 70% to 99%. You basically won’t run out of money, you might have to cut several times because you’ve got a capital preservation rule that necessitates cuts if times are bad, but you don’t run out, your spending just ends out drifting down with the policy until it gets to a sustainable place.
So, it’s not even really about the probability of success anymore because it’ll always go back to nearly 100% if you do enough cuts, but I can’t show in my planning software if the market drops by 30%, my client will cut their spending, but if the market doesn’t drop by 30%, my client won’t cut their spending. I can’t show that.
Dave: Well, but what the planning software does do well, and this is where – because we want to incorporate variability – we want to incorporate the variability of the key inputs into our pre-retirement projections. So, if we’re talking to someone who’s 45 years old, we’re going to do some Money Tree projections or retirement projections and we’re going to run the Monte Carlo. What we do with the software is we’re always running the Monte Carlo to 70% because we found that the safe spending system actually answers the question of what you do in the 30% of the time that you’re off target.
So, sort of they fit together, except that we used to do the Money Tree post-retirement as a validity check, and now we only do it at pre-retirement, and post-retirement, we’re using the safe spending system. But all the way along, if someone was on a path pre-retirement where they were on a path where we were getting 70% Monte Carlo success rates, we know that when they hit retirement, that’s going to match perfectly with the safe spending system. Although there’s another layer…and I’ve done a bunch of stuff on this and even presented on it, in fact, John and I did some joint presentations.
The particular mix of pre- and post-tax assets, it does have an impact. If it’s all post-tax assets, then it mates up perfectly with the 70%. If it’s all post…if it’s all pre-tax assets, it’s not a perfect match for a lot of reasons. I mean, it will work but the problem is that you will put someone on a sustainable spending trajectory, but their after-tax spending will decline over time with RMDs and the taxation that goes along with it.
Michael: So, as you look over all of this journey of just having been doing this now, as you noted, for nearly 30 years and growing to this $740 million AUM firm with 300 clients, what surprised you the most about building your advisory business?
What Surprised Dave The Most About Building His Advisory Business And The Low Point In His Journey [01:26:19]
Dave: At the most macro level, two things surprised me. The first thing that surprised me was how long it took to get off the ground in the beginning, and the second thing that surprised me was how fast it grew once I hit critical mass. It’s a very interesting function. Man, that that line was flat for like the first five or six years that I was trying to get off the ground, but then you kind of get seven, eight, nine years in, and suddenly it takes off.
There’s a bootstrapping that – if you’re starting your own practice – there’s a bootstrapping operation where you’ve got to reach critical mass before it’ll take off. And at least in my experience, and maybe I’m just not very efficient, it took a lot longer than I expected to hit critical mass.
Michael: As I say occasionally on this podcast and elsewhere, the first few years are really pretty sucky for everyone, and like it’s years, it’s years, that it’s really slow and really hard. But the advisory business is a compounding business where knowledge compounds, relationships compound, just actual business resources compounds. So, it’s really awful in the early years, but compounding is an amazing thing and it works in advisory businesses as with most other stuff.
Dave: It really does, it does, and that’s something for people to think about in terms of the upfront investment. Maybe in time and money it may be a lot more than you’d hoped, but it will pay off. If you’ve got the spleen and if you’ve got the patience and the capital to stick it out in the beginning, it will pay out. It is like a compounding function, that line seems to be staying pretty flat for a while, and then it goes vertical.
Michael: So, what was the low point for you in this career journey of building an advisory business?
Dave: The low point for me came in the late ’90s when I was starting to ramp up. I was starting to get a lot more referrals and more clients coming in, and I didn’t have another financial planner working for me, I had a part-time office administrator, and I was basically doing everything myself. And my conference table would fill up with Schwab forms and client data for a financial plan. And I got to the point where…I’m pretty effective when it comes to talking to a prospective client and getting them excited about working with me.
And so, I would have good conversations with prospects and then we get to the end of the meeting, and they’d say, “Man, you’re hired, I really want to work with you.” And they leave the office and I would immediately get depressed because it’s like, “Oh, that’s going to be one more stack of data that’s going to sit untouched on my conference table,” or one more stack of Schwab forms or something. And so, that was a real low point, that was a real low point, and it finally drove me to hire an assistant financial planner.
I’ve heard other people say, “You should kind of hire ahead of what you think your need is.” That was an example where I at least could have avoided some of that low point if I pulled the trigger sooner. Because the person that I hired was someone, honestly, who didn’t work out long term but one of the things she did is she just helped me get a lot more systematized so that after she did leave, we just were a lot more systematized. I had someone else doing a lot more of the grunt work, and it also helped me get to the point where I realized I need – and we had this conversation earlier – I need to clarify my service offering.
I need to get down to a simplified service offering where it’s one thing, it’s asset management and financial planning as one integrated service, there’s one fee that pays for it all. And if you want something else, that doesn’t make you a bad person, it just means that you and I are not a fit. I will refer you to a colleague who does it the way you want to do it. And that was how I came out of that hole, and it was a pretty dark hole for a while.
Michael: Well, I think it’s a powerful…there’s a powerful realization moment there. If you’re ever at a point in your business where you get a new client and your first response is, “Ugh. I have all this stuff I have to do for them now,” you are probably behind the hiring curve. That’s your signal. That’s your moment, right? New clients and growth – if you’re trying to grow – should be a positive, celebrated thing because, “Hey, we can totally do this and we’ve got the team to do it.” If you’re getting the growth and that makes you go, “Ugh. Now I’ve got to do all this stuff for them,” you’ve probably crossed that point.
Dave: What’s interesting – and again, this might be me just being dense – I mentioned Norm Boone a lot because he got into financial planning about five years before I did. And we got to be friends through starting up the ICHP in San Francisco, and he just gave me a lot of advice, Norm is good at giving advice. And I have to say, with 20/20 hindsight, all of his advice was excellent, but I didn’t take any of it, I had to make all my own mistakes.
And so, this is one where I could – maybe I was just being slow and stubborn – but I didn’t see it. I didn’t see it until I was deep into that hole. And so, it’s great you do these podcasts, someone could just prime themselves…if they’re just starting out, if they just prime themselves, man, be prepared. If you cross that threshold that you just described, Michael, if you cross that threshold, you are behind that hiring curve and you need to act now.
Michael: So, what advice would you give to younger…or I’ll even just say newer advisors because many come in at career changers in many stages. What advice would you give to newer advisors that are coming into the profession today, trying to build their financial planning careers?
The Advice That Dave Would Give Newer Advisors [01:32:20]
Dave: This won’t be surprising based on what we talked about at the beginning, I think that one of the things you need to do is you need to, from day one, get embedded in your professional community. It will make you better; it will be that stress reliever. It will just make you feel better about what you’re doing, but it will make you better, as well. So, you know, NAPFA doesn’t have chapters, they have study groups, but get into a NAPFA study group. Join FPA, go to those monthly chapter meetings, go to the regional events. Just get engaged, get on a committee. Do something to be engaged in the larger professional community because it will have so many positive ramifications.
And do it for the right reason. Do it because you want to be part of the community. I mean, I’ve had people over the years who have come up to me and said, “You’ve seem to have been a really active volunteer, Dave, and your practice seems to be very successful. I’d like to be successful, should I also volunteer?” And it’s like, “Yes and no.” If you volunteer because you think it’s going to be some kind of a transactional thing where, “Oh, I’m going to do some volunteer work and my practice is going to grow,” it’s like no, you have to do it for the love of the work.
And, yeah, there’ll be some externalities, you’ll probably be more successful, but not because it was a transactional thing, it was no one-to-one thing. But the one thing I do know is, I’ve now been doing this for over 30 years, and I’ve had the opportunity to meet a lot of practitioners at various stages of their career, and the thing that has been universally true is that the most successful practitioners I’ve ever met are the ones who are deeply involved in their professional community. So, do it for the love of it, do it because it’s the right thing to do, but it’ll also make you better.
Michael: Yeah, I mean, I can also give a shout out for that, that was certainly pivotal for my career. I spent the first few years just kind of bouncing around and trying to find the job and the path and where the heck I was supposed to land in the financial services world. I didn’t find FPA until I was about four years in, into my career, but without a doubt that was the changing and turning point for the trajectory of my career. Just the stuff I learned, people I met, opportunities to be in leadership – that was very foundational for being in leadership roles later. There was just so much that came out of being active, which for me was FPA.
That was what was around, at the time. I didn’t know as much about the world then, and it was FPA local chapter and leadership and being involved in national and committees with the national organization and going to the conferences. And still, a lot of the things that I do today, originated with relationships or conversations that happened, literally, 15 years ago when I was first getting involved in FPA. And sometimes, it takes that long for them to germinate, but cool things happened and I don’t track any of it to my pre-FPA days.
Dave: I love hearing that, and it doesn’t surprise me at all. I was listening to a great speech by Jim Collins the other day, Jim Collins who wrote “From Good to Great,” and he basically laid out 10 things that young people should do, and one of those 10 things was form your personal advisory board. Form your personal advisory board. And as he described it, some of those people might not even be people you know, but I think that’s one of the things that getting deeply involved in FPA does, is it gives you a personal advisory board of people who know what you’re going through and are at different stages of their careers and can give you really relevant advice or maybe just a hug or the pat on the back that you need at that moment.
What Comes Next For Dave And How He Defines ‘Success’ For Himself [01:36:25]
Dave: Boy, that’s a good question. In terms of volunteer work, I’m on the Foundation for Financial Planning Board of Trustees. Although I’ve been pretty focused on the foundation for a while, I’ve only recently been on their board and I’ve got a growing amount of focus there.
Michael: And for those who aren’t familiar, can you just explain what the Foundation for Financial Planning is?
Dave: So, the Foundation for Financial Planning is the only nonprofit foundation solely devoted to facilitating the delivery of pro bono financial planning advice to those in need. And the foundation has close relationships with all the major elements of the financial planning profession, including FPA, CFP Board, NAPFA. I believe deeply that – first of all, it’s a hallmark of any true profession – and it’s my belief, or at the very least, my aspiration, that financial planning ultimately be a true profession. It’s the hallmark of any true profession to give back, and it’s in recognition of the important role in society and the power that a profession practices.
It’s obviously deeply embedded into the legal profession, and I think it needs to be deeply embedded in the financial planning profession. And it is, I mean, every FPA chapter has a pro bono director and they have an ongoing focus on those things. But the foundation exists to facilitate those initiatives, and it’s everything from…it was putting financial planners together with 9/11 survivors back in the early 2000s, to more recently there was a pro bono for cancer initiative that has put financial planners together with families that are suffering the financial toxicity of a severe cancer diagnosis.
To this year, the foundation jumped into action early in the year and created a COVID-19 Financial Resilience Fund that has been used to prop up organizations that lost funding, but we’re trying to…but we’re in a position to help those in society who are particularly suffering from the impact of the pandemic. Yeah, so I’d encourage everyone to learn more about the foundation and support the foundation financially if you can. So, that’s one thing, I’m finding that I’m more…an ever-growing amount of my focus is now going to the foundation.
As I said, it’s been there for a long time, but it’s growing. And I’m working on…I’m continuing to work on the financial planning program at Golden Gate University. That’s kind of an ongoing project, and I’m going to say, especially on the Advanced Financial Planning side, the Master of Science in Advanced Financial Planning for those who have already passed the CFP exam, we have…
Michael: So, kind of that post-CFP, “I want to go deeper. I’m trying to figure out what’s next after I get my CFP marks,” that’s where you guys are?
Michael: Exactly. And you and I have talked about – you’ve even written about it before – but we have a taxation concentration and estate planning concentration, and most recently, a financial life planning concentration that’s been really well received and has some amazing faculty running it. I’ve got a couple of projects on the back burner that I would really…if I ever carve out the time, I’d like to move them to the front burner. And one is I want to do a “Live Big” book of financial planning that was aimed at the public that would incorporate some of our insights about financial planning and the policy-based approach.
I’d like to write something…I have a book in mind that’s sort of based on my original dissertation research that I think would be…the working title in my head is “Financial Planner as Strategist,” and it would be aimed at sharing with my fellow practitioners everything I’ve learned about how to think about the strategic dimension of financial planning because that is our unique domain. Some people say, “Well, it’s just interdisciplinary, it’s just a jumble of estate planning, tax planning, investment planning, and so forth.” And it’s like, well, no, there’s a strategic dimension that knits all of that together, that’s our unique domain.
And I think that when we learn to think of ourselves as strategists and when we learn to think about financial planning as something that is a strategic activity and takes place within a strategic framework, that we approach things differently. And so, “Financial Planner as Strategist,” I have it outlined, I have the “Live Big” book of financial planning outlined. Everything I’ve written to date has been journal articles or chapters in books. I think I’d like to sit down and do a couple of more complete works, and I’m just going to need to find some more bandwidth.
Michael: So, as we wrap up, this is a podcast about success and one of the themes that always comes up is the word ‘success’ means different things to different people, sometimes different things to us as our definition of success changes as life goes. So, as someone who has certainly created what anyone would objectively call a very successful business, how do you define ‘success’ for yourself at this point?
Dave: So, success, I’m going to say that it’s got a couple of different dimensions. I mean, obviously, one dimension of success is having so many clients who so regularly say, “My life is better because you’re in it.” That’s obviously…and you’re right, it’s a successful business, there’s some financial success there, Elissa and I feel very financially secure. We’re able to do pretty much anything we want, which is nice. But the ultimate success, specifically on the business side, is creating something enduring that doesn’t depend on me.
I will say…I’ve said briefly, I was on a panel back in 2000 and I had, I think, Peggy Rulon was on my right and Tim Coaches was on my left, and at some point…and I was considered the dinosaur, I was like the solo practitioner. I don’t know why that’s dinosaur, but that’s what they called me, but I was very focused on this solo practitioner mindset at the time. And at some point, Tim made this grandiloquent statement to the fact that, “We’re building a firm that will serve our clients unto the seventh generation.
And I turned to him and I said, “Tim, the seventh generation doesn’t give a damn about you,” and he said, he immediately said, “Yes, but our current clients do care about that.” And I’ve come to see the wisdom of it, and I set about in the ’90s to see how big I could build a firm sort of all by myself with a lot of technology and systems. And the project since we formed Yeske Buie has been quite different, and it’s been how to build a firm, how to build a team, how to build something enduring that could continue and carry on the values that we’ve built into it without us.
Elissa and I talked about one of our filters when we started this firm was that we ultimately wanted to be dispensable. A lot of times, people want to be indispensable and that’s the word that always comes to our mind, but we want to be dispensable. We want to have built something that could carry on our legacy for generations to come and most importantly, continue to serve our clients and their children and their children’s children with the same level of standards and care that we’ve developed to date.
And Tim was right, I can’t tell you how many times clients have come to me and said, “I’m so happy that you’re taking care of our adult children and that your firm will be able to continue to do that.” Or they’ll come in with their grandchild and say, “Well, here’s your third generation of clients,” spontaneously on their own, not because I’ve prompted them. So, that’s the really big project that Elissa and I are engaged in now. We have three young partners, Yusuf Abugideiri, Lauren Mireles, and Lauren Stansell joined us as partners at the beginning of last year and there may be more partners in the future.
But we feel like we have a framework in place that can create continuity, and I just want to continue to deepen that framework because I’m not yet dispensable. The team is great, my young partners are great. Honestly, I’m not yet dispensable. So, that’s the major project of my life for the next…I don’t know how many, as many years as it takes, but I’m going to say with a lot of focus over the next three to five years, I’m going to be working on becoming dispensable. It doesn’t mean I’m going to be gone, I’ll probably be hanging around annoying the young people for a long time, but I want to be at that place where the firm doesn’t require me to carry on the mission.
Michael: Well, I wish you nothing but the best in becoming more dispensable.
Dave: Thank you.
Michael: And thank you, Dave, for joining us on the “Financial Advisor Success Podcast.”
Dave: Well, it’s been my pleasure. It’s always enjoyable to hang out and talk with you, Michael.
Michael: Likewise, likewise. Thank you, Dave.
Dave: Okay, take care.