#FASuccess Ep 442: Attracting $100M Per Month Of Like-Minded Clients By Being Vocal About (Divisive) Issues You’re Passionate About, With David Bahnsen

Resources Featured In This Episode:

• David Bahnsen: Website | LinkedIn
• The Bahnsen Group
• Dividend Cafe
• Crisis of Responsibility: Our Cultural Addiction to Blame and How You Can Cure It by David Bahnsen
• The Case for Dividend Growth: Investing in a Post-Crisis World by David Bahnsen

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Full Transcript:

Michael: Welcome, David Bahnsen, to the "Financial Advisor Success" podcast.

David: Michael, it's great to be with you. Thank you for having me.

Michael: I really appreciate you joining us today and I'm excited to get to talk about the various ways that we get to market ourselves and our expertise out to the world. I feel like historically, this was really difficult as an advisor. If you go back a couple of decades, most of us worked in large firms, insurance companies, broker dealers, and especially in wirehouse environments. We were totally supposed to go out one prospect at a time and meet people, but heaven forbid, we did anything more scaled and leveraged like writing, or newsletters, or television, or anything with a lot of visibility because that was advertising and compliance people don't know what you're going to say, so that was forbidden. As independents, at least we get to do this. It's legal and one might say good to advertise your business. And as experienced advisors, we learn and understand what's appropriate to say and what kinds of promises and guarantees you're not supposed to make.

Even then, I still find there are limits, not just in what we can and cannot say for compliance purposes about investment returns and the like, but also what we shouldn't say because we're supposed to be professionals and stay away from contentious topics, politics and religion and the like, which seems to have gotten really hard in today's environment where almost everything seems to have a political undertone. And I know you have grown very much in the opposite way, not just going from the wirehouse world to the independent channel to have more flexibility in what you say, but using media to promote your expertise and being vocal about topics that you're passionate about, even when they're things where we're not supposed to talk about because they get in the realms like religion and politics. And so I'm excited to hear about how it's like taking the filters off, doing what we're "not supposed to do" has helped you grow. It ultimately now is like a multi, multi-billion dollar advisory firm. And just how you get comfortable with the fact that any time the conversation veers in domains like religion or politics, it seems like we are inevitably going to upset people like people who could be prospects, people who might meet clients and how you've navigated and gotten comfortable with that.

How David Builds Trust With Prospective Clients By Being Open About His Opinions On Divisive Issues [05:18]

David: Well, it's one of my favorite topics because my views on it are so contrarian to the conventional norms that we hear about a lot. And I believe that there is a misunderstanding not just in our business, but across society about what the norms should be. And so any chance I get to share the success we've had by leaning into something very different, I always hope it could prove to be somewhat contagious. Just at a high level outside the advisory profession, I don't agree that families fight at the Thanksgiving table because politics came up. I think they fight at the Thanksgiving table because nobody taught them how to talk about politics without fighting. There is a lot of room for disagreement amongst various issues, whether it's politics, or faith, or foreign policy, or your favorite college football team that certainly can lend itself to divisiveness and contention, but does not have to.

And so just right off the top, whether it's in the advisory profession or not, I really do believe there is the possibility of respectful dialogue and not necessarily because everyone's agreeable, but that even when there's disagreement, there can be some sort of civility in the way the conversations go. But when you talk about the success we've had leaning into a content platform that sometimes does go into areas considered taboo, I think it's more than just because we do it in a civil and charitable way, we avoid offense. I actually think there's a real advantage that I am mystified is not more immediately obvious to people by the very premise that you accurately share that there could be people that are offended by something you said. The basis of the offense is that they disagree, which means there's a corollary. There's got to be somebody out there who agrees.

Michael: Right.

David: And that's to me the opportunity that for somebody who has thoughtful opinions, who has reasonable opinions, who's worked through them and they somewhat connect to...you look at politics, for example, it's not very hard to find where one's opinions on tariffs are going to connect to a market conversation. It's not very hard to figure where one's opinion on tax policy or certain just kind of economic frameworks are really relevant to what we think about economic growth and so forth. So, yeah, for me, my tentacles are probably spread a little wider than just those obviously market-sensitive connections. But I figured out that in me just being me and not having to walk on tiptoes and always afraid of who I might be offending, I actually opened up a door to like-minded people that might appreciate what I had to say. And as long as I was willing to live with the fact that there may be somebody who disagrees with it and therefore won't work with me because I know that person exists. But to be honest with you, Michael, what I do know exists are the seven, eight, or nine people that do work with us and not the one person who I'm never going to know didn't work with us because we never heard from that person. In other words, it sort of filters itself out before it ever gets to me.

Michael: Right. So, that's the interesting irony or note when you're doing this in a marketing or media context. It's one thing to sit across from a prospect and have a conversation veer in the direction of politics or the like. And someone may or may not be upset and indignant at the moment that they realize there's a disagreement. But particularly when it's done in the vein of marketing and media, the reality is people who really agree what you're saying will find it a breath of fresh air and want to reach out. And people who don't agree with what you're saying may or may not say something to their spouse or brother or buddy, whoever's there with them. But they're never calling you. It's not like you're going to talk to them to have them then say, "Well, I disagree with you and I'm not going to work with you. But I just wanted to call you to tell you that I'm not going to work with you." They got their own lives and they're busy. So you just end out not hearing from the people who disagree and then hearing a lot more from the people who say, "I really agree with what you're saying. It resonates with me. And I've actually realized I would like to work with you because what you're saying resonates with me and I think you understand what's important to me as well."

David: I think that the general construction there is all pretty accurate. The only thing I would say about that last point is it doesn't quite happen that quickly in the sense that I believe the common ground, shared worldview on certain things, helps build trust and it opens a relationship, but it doesn't necessarily close it. It isn't like someone says, "David, I read your book on a certain thing. I liked it and therefore, I'd like to give you my money." But what it does is it builds a certain degree of trust and a certain degree of credibility that at least allows them to then say, "Let's let's find out a little more about your business." So then they want to hear more about our investment philosophy and our wealth management process. We still have to earn their trust as a client. But probably before that process started, we did already earn their trust as a person.

Michael: Okay, that's kind of an interesting distinction. If in a context of trust, I have to get to both. You have to, sort of the old proverbial, you have to "know, like, and trust" me as a person and be able to see yourself working with me and having a relationship. And I still have to prove I can actually do the work, like I have the expertise. I have a system and process of what I do. You can be reasonably confident you're going to get the results that you want by working with me. So there's a whole business lens of demonstrating that we can just provide the service and give you the outcomes you want that we still have to prove, even if you've decided, "Okay, our views are aligned. I seem to trust what you have to say as a person. And I think you're someone I'd want to work with. So now I can learn how your business might serve my needs."

David: That's right. And we obsess over the latter because the fact of the matter is I would never want someone to work with us under the kind of relational criteria of, "I really don't like the way you manage money. I don't think you guys are very good at what you do. But you know what? You like the same football team I do, or you go to the same church I do," or whatever the case may be. The other piece I'd say, though, I think you were using the term kind of for shorthand. You're right. I do a lot of media, but I feel I get way too much credit that I don't deserve when someone talks about the content creation as marketing, because it implies that I was smart enough to do it on purpose. And what the thing is that's so important here is I never sought to go do business development by having opinions about divisive issues. I was wired to see the world a certain way. I was a political junkie as a very young kid. I was campaigning for Reagan when I was in kindergarten. I was just a weird kid who was reading a lot of Milton Friedman and Friedrich Hayek in high school. My father passed away in his 40s and he was a very renowned Christian intellectual and he was my hero and best friend. And I was heavily influenced by him. And so I just grew up in sort of an intellectualized and opinionated context.

And so in my adult life, I would love to be writing op-eds if I was a salesman at IBM. But if I was writing op-eds or somehow a book or a blog or what have you, just had opinions on things in the public square, it wouldn't help my career as a vacuum salesman or IBM consultant. And yet when I would do client events talking about markets and certain political things would come up, it just occurred to me that there was kind of a Venn diagram that was a little bit more connected than many people thought. And in fact, some people, I think, ran away from it. They wanted to push the pieces of the Venn diagram away from one another, where I started to realize, and this is back in wirehouse days, that there was a affinity that helped to build a little trust and credibility on the front end that I didn't need to lean away from. But I still don't think I was smart enough to do it as marketing. It was very organic, if that makes sense.

Michael: Yep. So you were just trying to, you were just showing up with the views you have and some willingness to express them because you grew up in an intellectual household that liked to debate things and found that some people were actually responding well to it, so it continued.

David: And then the going independent mode expanded the mediums. And that's where the content at scale really became $7.5 billion-dollar and change for our business. I remain mystified to this day that there's enough people out there that agree with at least some of the things I have to say or like some of it. By the way, a lot of people don't agree. They like that I have the opinions and it has helped build trust. But the kind of connection of the relationship was not agreement. It was actually disagreement, but it was respectable disagreement that caused us to kind of connect. So it's really been interesting to see how people respond to that. And yet at no point would we ever have the luxury of being able to rest on that. The fact of matter is all it does is allow people to kick our tires. They still have to like test driving the car. And that's where a very unique investment philosophy, a unique value proposition, a unique differentiated business model still has to be there. And I assure you, we have to spend a lot more time focusing and fine tuning that than we do my old school Reaganite political opinions or whatever the case may be.

Getting His Views Into The Public Sphere Across Multiple Media [16:16]

Michael: When we talk about putting forth views that may be maybe divisive, is that the context of the kind of views that you like to talk about and put forth? For folks maybe who haven't seen you on television or read the commentary, can you just give us more context of what sorts of things are you talking about? Like, what doors do you open as you're trying to put forth market views?

David: Yeah, it's really interesting because you may have heard that the political world has been sort of turned upside down in the last 10 years by a rather notorious figure who came down some escalators in 2015 and got elected president twice. And yet, see, it's so interesting because I'm a center-right conservative Republican and my hero as a kid was the Alex P. Keaton character on "Family Ties." It's on our website, a picture of me going on Halloween as Alex P. Keaton when I was a little kid with a sweater vest and tie and briefcase. That was kind of my whole shtick. And yet really a movement conservative, I keep using the word Reaganite because I'm a pretty traditional conservative. That's actually not been the flavor of the month in my own political party in this era of President Trump. So it's actually made for very strange bedfellows. I'm more of...

Michael: Because you managed to offend both sides of the aisle at the same time.

David: I do. I do. That's exactly right. And by the way, weighted has been far more on the pro-Trump right. And so nobody would consider me a, what do they call it? That “Trump Derangement Syndrome”, whatever that means. I'm incredibly complimentary of his first-term corporate tax reform and deregulation and energy policy. I'm very strong in my opinions on American energy independence. Larry Kudlow is one of my best friends and Larry was his National Economic Council director. There are a gazillion people in the Trump 1.0 and Trump 2.0 department cabinet and staff that I know very well. I just visited with Secretary Bessent in the White House, in the Treasury Department a few weeks ago. So you would think there's all this connectivity there, but I actually did not vote for President Trump any of the three times. Now, I didn't vote for his opponent either. I had a little bit more independent kind of streak in me on this one. But my point being that it didn't line up with the normal you're either on this side or that side kind of thing. And that's resulted in certain pro-Trump Republicans feeling that I'm too hard on the president and obviously certain anti-Trump people on the left that still know that I'm a conservative and don't care for that. And yet, unlike so much of what's happened in the political scene at large, I believe, not perfectly because I make mistakes, but I've worked very hard to have a lot of empathy for both sides through this moment to understand where people are coming from and then to just do what I call calling balls and strikes. So I'll write an investment commentary, which I write every single week at dividendcafe.com. And one week I'm praising the idea of certain supply side tax cuts. And the next week I'm hammering the president on tariffs. And I think it causes people to say, "You know what, I don't have to just be on one side or the other. I'm allowed to call balls and strikes," which I kind of think would be a great thing for all people to do regardless.

Michael: And so how do you end out, I guess I'll say expressing views into the world? So, you mentioned weekly market commentary. So tell us a little bit more about that and then whatever other mediums and paths you've pursued.

David: Yeah. So in the original, the 15 years that I was a successful wirehouse advisor, I was doing dinner events and I would speak at certain think tanks and conferences and so forth. And then I would do a kind of weekly writing that I would try to sneak underneath compliance's purview. But it was very small scale. I would attend political events. I was at that point in a position where I was a pretty deep donor into certain things. And so I was hosting senators at my office. I was hosting governor candidates and fundraisers at my country club, things like that. That brought a certain profile and kind of visibility. But the content platform was pretty limited. There was barely any use of social media then and certainly not very much that was compliance-allowed. And I couldn't write a book and I couldn't go on TV and podcasts barely existed. And so there just wasn't a lot of that distribution. But I still was doing it. It was just at a smaller and certainly more local scale. I was kind of more well known in Orange County, California, just as a politically active guy and present at my church. And we kind of focused on the political side, but there was a lot of theological goodies in this stuff, too. I was always very open talking about my faith and that kind of stuff. And so that was what it was.

But yeah, what changed was in going independent, all the guard rails came down, and I'm never going to know why I got invited back. But my very first TV appearance was actually secured by a PR firm. And then they liked me and asked me to come back. And then they asked me again and then another show and another show. And so the television thing was really very organic, but that didn't generate any prospects. People think you go on TV and your phone starts ringing. I did Stuart Varney show on Fox Business every Friday for a year before we ever got a single call. And now we get five inbound calls every time I'm on. But it took years for that to happen.

Gaining Notoriety By Writing A Book [22:41]

David: But then I wrote a book and that really changed everything that... I was at Morgan Stanley as a managing director, a chairman's club advisor through the financial crisis and in the years that followed. And the financial crisis was a transformative event, obviously for our markets and for our economy, but for my own life and career. And I had strong opinions about what was going on and what it meant and what it didn't mean. But I read 75 books about the financial crisis, which I still to this day believe means I read all of them. Every now and then I hear of a book that I don't think I read and I get irritated at myself. How did I miss that one? But there were some great books and I read them all. And I became convinced, Michael, that almost every book that was more opinion-driven, that wasn't just simply describing certain events mathematically or financially, but like a kind of ideological-type book, everyone was either someone on the left blaming the crisis on Wall Street or on capitalism or on big business, or somebody on the right blaming it on government, blaming it on the Fed or blaming it on something like that. And I wrote a book called Crisis of Responsibility suggesting that the financial crisis was indeed, did actually have fingerprints from bad policy, from low regulation, from bad actors at Wall Street, that both the left and the right had truth in their respective blamecasting, but that there was an individual moral cultural crisis that resided on Main Street. Now, I couldn't write that book at Morgan Stanley. They never would have approved it. But once I was independent, I said, "You know what, I think I can get this done now." And I got a deal for the book. It was published in early 2018. I finished it in 2017. And then that book sort of opened up more doors. And of course, at the same time, podcasting was becoming a bigger thing, YouTube. I already was seeing a big increase in our content platform just with my own investment writing and so forth. And so the combination of all these things happening simultaneously, a lot of conscious effort into my investment writing while at the same time extracurricular projects like the book, living through this period of Trump, all of those things were happening at the same time. And lo and behold, there were a few people out there that liked me.

Michael: So I'm curious to hear more about the book and just how it got done.

David: Well, I can't use anybody else to help me in my writing. I get asked that a lot about my investment writing. How many people I have at my team helping and how many staff writers I have and even research assistants. And I am not a micromanager in our business. I feel pretty darn good about the way I've been able to delegate certain aspects of what's now become, there's 84 people in the company and I never thought I'd be able to have somebody else even do a financial plan, let alone run a financial planning department. And yet I've been able to release more and more control of things that way. But the one thing that I am obsessive about is my own writing. And so, yeah, that has always been soup to nuts me. But I'm what is called a binge writer. And I've been writing a 2,000 to 3,000-word investment commentary every single Friday without exception since September of 2008. The week that Lehman and AIG went down was my first week and I haven't missed a week since. And so for me to say I want to write this book, I need to put together an outline of what it's going to cover and then go about writing the chapters…the difference is a chapter of a book is about 5,000 words. And I found writing the 2,500 to 3,000 words I'm used to writing in one sitting very easy. My brain turned to mush after half a chapter. I just couldn't sit and write an entire chapter all the way through. And, of course, I was limited to writing on weekends and think I there was no possible way you could just sort of casually write a little bit of a book in the middle of my work week. And so, yeah, I would take like a Saturday in New York City, go to a coffee shop and write all morning and then get up and just walk around for a couple hours and then find another coffee shop and sit down and start again. And kept going until about 50,000 words were written.

Michael: Okay. And so you said once you publish the book, things started to change. So can you share more of what happened? What changed? What magically altered when suddenly there's a book with your name on the cover?

David: Yeah. So the initial change, I still think, was pretty gradual. There's a couple other catalysts that we'll get to later that were much more significant in their magnitude of change. But what changed was that the TV invitations picked up. The being a guest on podcasts picked up. And I just found that I'm going and talking about this moral crisis of responsibility. They're not even saying I'm a financial advisor necessarily. Sometimes they would. But then the "Dividend Cafe", my investment writing, those subscribers started picking up. So again, it was just this organic process by which that content, the distribution of it, the profile and visibility was picking up. And then it was leading to people reading more of what I had to say about dividend growth investing and about wealth management and about all the things that I believed in and did and so forth. It was still at a pretty small scale. Now we also had at this point a podcast. We had a video. We had the weekly written commentary, which was my favorite medium, still is to this day. But now we had three different ways to connect with people. And then I was doing more and more media. So all of those things put together led to an increase in the profile. And also more speaking engagements, speaking at conferences, symposiums. And so it just, yeah, I think it kind of accidentally helped to build a little bit of a brand.

Michael: And so how do you find time to do all of this when there's also clients and a firm and team to manage? I'm going to assume your role and activity in the business was shifting and evolving through this as well.

David: Well, it shifted and evolved a bit later, but that was a very difficult period. I was still the personal relationship manager for 180 clients at the time. I was and still am to this day, the chief investment officer of the firm. And we are active money managers. We're running a dividend growth portfolio inside our firm. There is absolutely no way I could have done it if God didn't wire me to be a morning person. I'm up at 3:30 every morning. And so my 3:30 to 7:00 a.m. period is where the bulk of my day gets done. And then it afforded me the ability to be in meetings with clients throughout the day and doing all the normal kind of chaotic things that one has to do when they're running money and running clients and running a team. But I always had the early morning hours as that kind of solitude of real focused work.

Michael: And then I assume basically you go to bed when the sun goes down.

David: I generally am trying to get in bed by 10:00. I try to get five to six hours a night. I sleep really well, but I'm not a big sleeper and I inherited that from my dad. So it's another thing I'm grateful for from my late father.

Using Regular Written Investment Commentary To Build A Relationship With Readers [31:18]

Michael: Interesting. Okay. So, now fast forward us a little bit to the advisory firm as it exists today. Just so we can now understand what all of this media and market commentary has kind of added up to and built up over the years.

David: Yeah, I think at that stage in 2017, '18 and going into what became the COVID period, we just were building more subscribers, building more pipeline, building more clients. We were not growing at that time a billion a year, but we were always growing $300 to $500 million [in assets under management] a year. So we had always had really strong organic growth and slowly building out the team. When I originally left Morgan Stanley, there were eight people on the team. And by this period after the first book came out and then my second book was actually on dividend growth investing. So now I had a collateral product that was really specific to our investment worldview and not extracurricular. And then you got to the COVID year of 2020. And at that point, I believe we were at about $2.5 billion, had 25 to 30 people, a really, really successful business I was proud of. But the phone was ringing more and more and there was more growth in the content and growth and interest in what we were doing. And then in the COVID moment, I began doing a daily market commentary called covidandmarkets.com. And that thing just took off. And all I was doing was writing daily stuff about what the Fed was doing and what Congress was doing and what they weren't doing. And I was calling hospitals, getting data. And it was just this really intense period. And there were well-known conservative folks out there, they were kind of touting it. There was actually one point that President Trump retweeted a tweet I had put out about Arizona hospital data. And that got millions of views and all this stuff. And so then our traffic really went up a lot on "Dividend Cafe." I was already a very frequent guest at CNBC and Fox and other networks. But again, it all still came through our investment writing. There were just different things that were kind of promoting that interest. And it had a little bit of a political edge. It had a little bit of a faith context just because of who I am and what I believe. But then it still sort of connected to a broader sensibility about markets.

Michael: I'm struck as you frame it, that as you talk about these different beats, different cycles of the media work that you were doing and the opportunities that came from it, that it always seems to be, and we did these things and we got these opportunities. And then growth went up at "Dividend Cafe." And then we did these other things. We did these opportunities. And then we got more readers at "Dividend Cafe." It sounds like there is some intentionality that there is a sort of a funnel here that there's a wide range of media stuff that gets people to "Dividend Cafe." "Dividend Cafe" is our market commentary where we demonstrate our investment expertise and build some trust and credibility that we actually know what we're doing in helping people manage their money. And if you like that, then you can explore how to work with us and maybe become a client. Is that a fair characterization of how this flows?

David: Yes. Basically, without any design or intelligence or competence that could have led to such a "sales funnel," the organic progression is more or less exactly what you described. And if you were to look at the last billion dollars of business we've closed, an X number of households, I think north of 90% would have at some point gone through "Dividend Cafe." And the question is, what are the varying outlets, mediums, and catalysts that got them to "Dividend Cafe?" It's very hard from a business intelligence standpoint because sometimes they don't even know. They don't even remember. They saw me on Fox once, then signed up for "Dividend Cafe," started reading it every single week for a year, had a liquidity event, had a life event. They reach out and they have been in a relationship with us unbeknownst to us for a year reading Div Cafe. But the fact that they first found it because they read an op-ed I wrote in "The Wall Street Journal," or they saw me on Fox or they read a book or they heard me speak at a church or heard me speak at a conference there's all these different things where all I can really do is wake up and write and speak the way I like doing and then just trust the process. It brings people to us. But do they generally skip "Dividend Cafe" and say, "I loved you so much and liked your tie you were wearing on Fox so much we want to become a client?" That's incredibly rare. We have to build...

Michael: It would be a really good tie, if you find the tie.

David: Yeah, it would have to be very dynamic. Yes. No, we have to build competence and likability. The demonstration of competence and likability is what this entire business is about. And I believe "Dividend Cafe" gave me the ability to demonstrate competence and likability. Now there could be people that read it and don't find me likable and they're going to self-select out. They're going to be people that maybe they think we're competent but they don't agree. That's all going to happen. But that would happen anyways. I mean, at some point, even if you're just doing a proposal based on your investment worldview and if someone disagrees with you, you're not going to close that business. That's okay. But "Dividend Cafe" gives me an ability to constantly be saying the things I authentically believe and allowing people to stay in touch with it at scale.

Michael: And so how many people subscribe to and get "Dividend Cafe" at this point? How many do you distribute out to?

David: 27,116 subscribers to "Dividend Cafe" as of right this second. And then there's over 5,000 weekly, per episode rather, downloads of the podcast and about 1,200 weekly video views. So in terms of how many eyeballs or ears are touching "Dividend Cafe" on a weekly basis across all three mediums, we think it's somewhere right now around 15,000 a week. That's counting the open rate...

Michael: 15,000 a week who actually see it because not every subscriber actually clicks through it and reads everything.

David: Right, I'm looking at the actual open rate and click rate, not the subscriber.

Michael: Okay. Interesting. And so 15,000 that seem to truly be engaging every week powers the growth of the business because some percentage of them at any particular time are having whatever goes on in their life that says today's the day or this is the week I think I need to figure out this financial advisor thing. I think it's earlier. They read you for a year and then they're ready to sell their business and they're going to have their liquidity events and go, "Oh, I think I need an advisor. Well, I've been following this 'Dividend Cafe' stuff for quite a while and I really like it. They seem to know what they're doing and I like their founder. I'm going to reach out."

David: That's exactly right. And so, at the same time, if I made a policy tomorrow that we're not taking any more clients, we're just closing the door. I don't want to have to keep hiring people and opening offices and growing the business. It's cash flowing plenty enough that I'm okay to be done growing, then I wouldn't change a bit about the content I'm creating. The "Dividend Cafe" was always created to be a content service to clients who are paying us. And has it become an incredible magnet for business growth? It has, I just feel a need to humbly acknowledge that I never did that on purpose because I wasn't smart enough. I didn't know. I did it, Michael, because I was panicking when Lehman went down and I thought Morgan Stanley was going to go down. And I needed some way to talk to more than 25 people at once. And it wasn't branded as "Dividend Cafe" back then but it was a weekly market commentary that I would send as a BCC from my Microsoft Outlook at Morgan Stanley and I would never send it to compliance. And I did it for years before I got caught, and by the time I got caught I was a five million-dollar producer at a wirehouse. They weren't going to say anything to me and I ended up leaving and started my own firm a little while later. But my point is that I only did it originally and became obsessed with this weekly content creation because it was a way for me to be touching clients, staying in touch with clients, and it also was this forced constant accountability of my own reading and research. I loved doing the writing because it forced me to be doing the reading.

What The Bahnsen Group Looks Like Today [40:43]

Michael: So now help us understand the Bahnsen Group as it exists today, just tell us about the advisory firm itself. So just starting with size, however you evaluate of like assets or clients or staff or revenue, just help us understand the firm.

David: Yeah. So we're at $7.5 billion in AUM and there are 84 people. We just got done opening our 10th office. So this year, we've opened a new office in Dallas, Texas, and another new office in Grand Rapids, Michigan. All of our growth has been totally organic. We haven't bought another group or hired people with a book of business in these cities. We relocated somebody from our Newport Beach office to go start in Palm Beach, Florida, to go start in Dallas, to go start in Nashville, Bend, Oregon, Austin, Texas, Phoenix, Arizona. All these cities we're in we had to relocate people to do because we had clients there. We had our market presence there, we had prospect interest. But I did it accidentally at first and found out that "if you build a field, they will come" was not just a great line in a great movie but it was true. I think that a lot of people out there were interested in us and thought of us as a coastal firm because we were in California and New York. And once I put a shingle on the wall in Nashville and once I put a shingle on the wall in Phoenix, you know what I mean, it just changed everything.

Michael: Oh, interesting. So you had a national reach, just "Dividend Cafe," anyone can sign up from anywhere, TV is national. And we are in the Zoom era as it were after COVID. It's like you can work with any client anywhere in the country electronically, it's fine, and when you started actually opening up offices in larger cities between the coasts you got more clients who said, I guess, you got more previous prospects who reached out saying, I don't know, "We've been following you for a while and now we're excited you actually have a location in our town," presumably because they still actually wanted you to be local.

David: Well, so that is 100% true, but I'm actually even saying something else that is more mystifying to me, but I'm very grateful for it. Sometimes they weren't even in the town, they were at one state over. It was still six hours away and it was just, in other words, there were some really successful people in Mississippi and South Carolina that became clients of ours when we opened an office in Nashville. Now to me, six hours is six hours. I'm not driving six hours to go to an office whether it was New York or Nashville. That's still a video meeting, but what I think it did is it communicated, you know what, they're not a California firm or they're not a New York firm, they are national. And it sort of democratized the appeal.

Michael: Okay, interesting. So how many clients is it? I think you said $7.5 billion of AUM. How many households do you guys serve or clients or however you measure?

David: If you were to basically look at nothing other than real fee-paying clients that are not friends and family there are 1,800 households that we're servicing and we have a zero to 2 million segment, a two to ten, and then a ten-plus, each one of which is a multi-billion dollar business.

Michael: Interesting. I guess I'm just curious how they distribute amongst those. Are those fairly even segments for you, or is it more, I don't know, like traditional pyramid style, wider base, narrower at the top? How is that shaped up for you?

David: Yeah, I think it's inescapable across the business. Pareto's law is pretty universal for a reason. And the one thing I would say is our $1 to $2 million segment, we do believe is profitable and I certainly know it is profitable for some of our younger advisors. And I know it is profitable in terms of the value that we're creating to those clients, but as a percentage of revenue, the amount of households relative to the revenue and assets, it's incredibly disproportionate as it is for everybody. Our, what we would call “A” clients, make up basically... There's 114 clients out of 1,800, so 7.5% and yet as a percentage of the assets it's 47%. So 7% of the clients are 47% of the assets, and then when you look at the “B” segment then that is going to be 23% of the assets and then 17% of the clients. So let's just put A and B together, 25% equals 80%, right? That's Pareto's law, basically, as traditional as it gets

Michael: Yep. And can I ask what revenue is for the firm overall?

David: Yeah, so we're just now over 50 million run rate revenue in the last quarter. And so you're looking at some ROA [Return On Assets] that averages right in the high 60s [basis points] across the whole book of business.

Michael: Which I think is pretty typical for most firms. We all talk about the proverbial 1%, but then you get larger clients who clearly have higher break points. As noted, larger clients are usually a disproportionate percentage of assets in total. If you work in ultra high net worth space, sometimes there's fixed fees in there as well. And so most advisory firms, by the time they're a billion or few dollars end up with a revenue yield somewhere between 65 and 75 basis points I find like really, really commonly. And the more up market you go, the slightly lower that number tends to get just because fee schedules are graduated.

David: And it tends to go down by a basis point here or there. It's really pretty minimal. We were around 72 or 73 basis points average ROA $5 billion ago and now we're around 68 or 69 basis points and we've added $5 billion of assets. So yeah, you're right, it really does hold in that 65 to 75 range.

Michael: Well, at some point you get a slight undermining over time just because we retain clients and they grow with markets and markets always grow assets at the lowest break point on the fee schedule because it hits the top. So, most firms have a slight erosion of revenue yield over time simply because portfolios grow with markets at the lowest incremental fee. And so on an average yield basis it slips a basis point every time period.

David: That's right. And with a lot of the fixed fee pricing, we have 44 very large clients in our family office and there's a significant amount of the fee revenue there that is fixed. And so it's not evolving at all.

Incorporating Tax Preparation To Drive Client Satisfaction And Retention [48:06]

David: We have a full soup-to-nuts tax department for tax professionals for tax associates. We're looking to grow more to that as well. We're not doing any taxes for any non-clients at all, it's entirely a cost center service within our business, but that has added close to a million of revenue. It has no chance of ever making money, no chance.

Michael: So I'm curious in the context. You're clearly charging something since it generates revenue, but...

David: Right.

Michael: I guess I'm wondering, how do you price it? How widely does it get utilized with clients?

David: We just completed our third tax year doing it, and there are 400 households that we are servicing. So you're getting close to 25% penetration. And I think it'll end up being something closer to 50% over time. The family office pricing is inclusive of the tax services, but those are much larger clients. And we do an internal allocation of revenue to the tax department from the family office. So it doesn't make a difference to the client, but we're assessing what belongs in the tax P&L [Profit and Loss] versus the family office P&L.

Michael: Right, just so you can keep the internal P&Ls clean of are we really priced appropriately, are we really staffed appropriately for the work we're doing?

David: Exactly, exactly. And I don't think there's a lot of margin in that business when you're not doing 800 tax returns for a lot of very small households that are not clients. That's where I believe personally a lot of RIAs make a mistake is to avoid losing money on the idea of a strategic offering for tax services. They try to make it pay for itself by acquiring a ready book of business. The problem is that ready book of business means your tax department isn't available to do exactly what you wanted them to be there to be which was a tax consultative service to your clients. So I sort of told myself I'm willing to lose money on this in perpetuity for the greater good of full integration of tax and investment under our roof with a lot of forward-planning, a lot of consultative work. And then, of course, the return and preparation and available for audit and other complexities that come up after the fact. And what I really discovered is that if you're paying your tax professionals well and you're disciplined about only using it for your own clients, there's not enough margin to go along. But look, I broke even on it in my second year. And then all the growth of that revenue had to go in into more salaries and things like that. And that's just what I think it'll be. As we continue to grow, every incremental dollar is going to go to more incremental hiring. It doesn't scale very well, but it's just such a powerful client retention and client service tool.

Michael: I'm curious, have you found it to be? Are you able to measure or see yet that clients that do tax returns with you retain more than than those that don't? Or are you in on faith, this will this will work out over time?

David: Well, we haven't lost a client who utilizes us for tax. And so I do, prima facie, believe that there is reason to believe that it is better for retention. But it's more in the qualitative measurement of that client satisfaction that the feedback we get from clients is we are beyond grateful for the ability to come in your office, meet about our plan, meet about our portfolio, see your whole team, have your tax people be present at the meeting, go through our tax stuff, have a resource to call in the middle of the year about a Roth conversion or about a charitable gift or donor-advised fund activity. It just really added to the depth of what we could do in real time. And on the point-of-sale side, just presenting a full team when we're doing a proposal and looking to bring a prospective client, on I think you add a lot of bench when included in your value proposition is the tax side.

Hiring For Client-Facing Advisory Skills Rather Than Rainmaking Ability [52:44]

Michael: So now I want to kind of come back to the discussion of growth and I guess just the intersection of $7.5 billion of AUM and 1,800 clients and all of this media activity that you're doing over time, you've done over time. So I'm just wondering, I guess the simplest is like just where has all this growth come from? Where did 1,800 multi-million-dollar clients come from? At the end of the day is it all I just get enough people in "Dividends Cafe" and eventually they become clients and that's added up to 1,800 over the years, or are there other elements of just where does all this client growth come from?

David: Yeah, so my view of it internally is that there was TBG [The Bahnsen Group] 1.0 which was me as a rookie at PaineWebber back as dot-com was imploding and I was in my 20s building out a business with a shared CSA and myself. And I was the first quintile guy cold calling, doing dinner seminars, all the things, and built up $100 million business around me and my network and my relentless rainmaking efforts. And then that got to be more successful. I go to Morgan Stanley in 2006 and 2007. And the financial crisis was a huge period of growth. I just buckled down and did what many, many advisors refused to do was call my clients over and over again. And then, of course, as is always the case, in bad markets the one thing that breaks people out of inertia in American wealth management is underserved investors that don't mind being underserved until the economy or the market gets bad, and then all of a sudden they start looking for a move. And so I grew substantially at Morgan. At that point, I was still a sole practitioner but I was adding more people to my team, more operational support, more planning support, junior advisor, things like that. That's where the team of eight came to be by the time we left to start our own firm. The scale came in...

Michael: So is that still all TBG 1.0, kind of that cycle PaineWebber and Morgan Stanley?

David: Yes, it is. And meaning as far as business growth, all the business basically came through my efforts, but it was a vertical team and I was the primary rainmaker. But then 2.0 was still largely going through me but then I would hire other people that had their own rolodex and they were leveraging the rolodex to get them to come hear me talk, to come meet me, to come read my writing. And we did quite well there. And so we started seeing business growth as we were adding more resources to our team, more support, more operations, things like that. But then the rainmaking became a bit more democratized in 2.0, and I guess we would have gone from about a $600 million business to a $1.5 billion business in the couple years after that. And at that time is when the book came out and the stuff we talked about earlier, the sort of organic content platform came to be. And where the hockey-stick growth has come was really from the ability to take me out of the lead primary relationship management responsibility. So my direct relationship manager responsibility went from 180 to 20 clients but now I have 20 other advisors and it grew over time. It was one here and then another one there. But keep in mind most of those in the 20, when we hired them were very, very new and very young, but in that 2.0 phase, Brian Szytel, he was a guy hired as my junior partner at Morgan Stanley, he became my kind of right-hand man. He entered the business the same year I did. He's a very senior level advisor, very sophisticated in his skill. I could give him $20 and $30-million clients that I had been handling and he could take over that relationship without skipping a beat. Where most G1 to G2 situations, it's very difficult because it's hard to just hand over a real sophisticated client to a less sophisticated advisor obviously. I had the kind of best of all worlds. I had, with Brian, and then Kimberlee, and Don some of my more senior, I don't want to call them older advisors because if they're listening I'll get in trouble, but my more senior experienced team. They could take...

Michael: Tenured. They were tenured, yes.

David: Yeah. They were tenured, and yeah, that's right, more comfortable in those relationships. But then our perfect hire has always been somebody who was a good advisor, who knew how to service a client, who knew what went into planning, who knew what went into being a generalist, but just simply wasn't able to go out and make a lot of rain. It's hard to do, it's very hard. And so guys that would go through a training program at a wirehouse but now the salary was wearing off, and what was their next move going to be? Were they going to go in-house at a bank? Were they going to go in-house at Schwab's private wealth group, or could they come to us? And we've been able to grow their income 5x, 8x, 10x because now they had a platform where they didn't manage any money. We did all the investment, we had the planning department, we had the tax, we had the operations, but also we had the real secret sauce, we had the clients.

Michael: So a couple of questions here. First, I want to understand kind of the transition from the Bahnsen Group, from TBG 2.0 to 3.0. 3.0 was when you shed the client relationship management responsibility, went from 108 clients down to 20. And it hockey-sticked because that let you go do more content, was that the shift? Once you freed up time you amplified or accelerated this content marketing funnel cycle that was working?

David: Yes, it was sort of those three or four things at once and the domino sequence is kind of hard to say because they were all necessary together. I had to have more advisors that were like-minded that could be in relationship with clients while I was creating more content while I was having less day-to-day responsibility for my own individual client handholding. And those three things all together allowed us to scale.

Michael: And I guess I'm also struck that it sounds like the 2.0 version, you were hiring some advisors who maybe had a rolodex, had some business development capability to at least get people in the door to see you, to hear you talk, to read your writing, to get into the system. Whereas it sounds like TBG 3.0 is way less about hiring advisors who can drive business development and is much more about hiring advisors who can simply, I don't mean that in a negative way, but who can just serve the clients really well because you're freeing up the capacity to make enough rain to feed them.

David: Well, you just summarized it perfectly that it's not just that the priority was not on their business development let alone an incumbent book. We almost didn't even want it. I'll tell you...

Michael: If you're actually making rain, it doesn't help to hire advisors who have a book because they don't have the capacity to take the clients.

David: That's right, and if they're already a very good rainmaker, why would they want to come work with us? Look, we have a very thick set of departments and infrastructure and overhead, the net yield that they're going to get in our firm is going to be less but their gross pay is going to be substantially higher because the margins are going to be different because they're not needing to do all of that rainmaking and business development. So if somebody has the ability to organically generate $50 million of assets and they are going to keep 50% or we're going to give them $500 million of assets and they're going to keep 25% I think the math is pretty easy there.

I'll give you a funny example. I don't think he'd mind me sharing. My best friend in the world who's like a brother to me, he was my manager at Morgan Stanley and he's now run San Francisco for Morgan at the complex. I think they have three or four offices up there that he runs. And he and his wife have a house in Nashville, Tennessee, and I was there visiting a college with my oldest son on his college tours and we had dinner together. And I said, "Tom, I really believe I need to open an office in Nashville. We're growing in the south like crazy and I cannot believe how much Nashville has grown." And he said, "Oh, you really should talk to my son-in-law. He is working as an internal wholesaler at AllianceBernstein, but he had won a college world series at Vanderbilt as a pitcher and got drafted by the Tampa Bay Rays." And I only knew this young man as a guy who had been a pro athlete. I didn't know he was working in the business. And he had gotten injured and his baseball career had come to an end. I think he was 27 or 28 at the time. We go and find ops talent and find some support and sign a lease and put our sign on the door and open an office and hire him as the lead advisor. We brought him out to California with his wife and kids for four months for training. He comes back out, signs up. And I was thinking to myself, oh, he probably knows a lot of pro baseball players, he's going to bring in some of these other large clients. Now fast-forward about 4 years. He's overseeing over half a billion dollars of business and he's never ever brought in a single client. And I think that's the best thing about him. If he was, I'd be mad at him because he would be distracted from the core...

Michael: And from the flip side as well, if the reality is business development is not his natural strength and he's got hundreds of millions of dollars by coming to the firm and working in the firm that provides the clients, he has no reason or desire or incentive to ever leave or break away. He's already made the determination that rainmaking by hanging his own shingle isn't necessarily his strength. So I'm just struck in a world where a lot of advisory firms seem to struggle with talent retention as well, that part of the challenge is, well, if you try to bring advisors in who are good at making rain, then basically only one of two things happens, they either get a piece of your equity or they make their own equity because they're creating and they can do it. So why stay at the firm unless they can get equity because otherwise, they can just start their own firm anytime they want. Whereas when you get folks whose strength is servicing clients but don't necessarily have a strength of business development, they don't have the same incentives to leave. You've created a wonderful environment for them by letting them do the thing they're good at and they don't have to do the part that they didn't want to do and would be so much harder to do on their own anyways.

David: Well, you're exactly right. But the only thing I'd say is that in fairness to all these advisors, I am defining business development the way you are, which it really has to do with opening of business possibility. Our advisors still have to close. It's just that you're in an environment of cultivating leads that literally the people that are leads have often been reading the content for a year. Look, we don't close 100% but we're closing well north of 70% of people that are reaching out.

Michael: And so when they're reaching out, you have to teach a sales process, but they don't have to spend the immense amount of time it takes to prospect.

David: That's right. That's right. They have to cultivate the lead and have a process that is in alignment with the way we do things. All of our advisors have to believe in what we're doing, be like-minded in that way, and fit into our culture. But that's really who will thrive in our system, and it's just been a dream. And yet, it isn't like I feel I'm just sitting here doing this big altruistic thing by giving really big career growth to all these young advisors, these people have enabled me to scale this business because they are great ambassadors of our way of doing things. They're in relationship with clients. And we're just utter sticklers about no advisor having more than 80 households they're going to oversee, so they can really invest into a high-depth relationship with all these clients they're working with. And it, to me, has been a great system for the client, for the advisor, and for the business itself.

Michael: I'm fascinated by that, that the service commitment is no advisor will have more than 80 client relationships. So you're very consciously keeping them at a limit that allows for a certain level of touch, and I guess the client revenue, the revenue per client is high enough that they will have enough revenue to make that math work at 80 clients.

David: Right. And then we created something called a APWA program, an Associate Private Wealth Advisor, where basically, it's kind of a farm team into our Private Wealth Advisor Group, what we call PWAG. And so let's say someone's roster gets full and they want to keep growing, we'll hire on our dime, and we pay pretty well, and we have really generous benefits, all that, we'll go hire someone who will become their dedicated financial planner. And they'll be reporting to our planning department director, they're getting fully trained by him. And they're becoming a planner while they're learning the relationship management process, while they're learning what it means to be an advisor. And they'll do that for a year, two years, three years and begin start taking on some of that C and D book, and it enables the advisor who's getting full in his capacity to start handing off 20 or 30 spots to a younger advisor who then grows into their own P&L while that senior advisor then frees up 20 spots to effectively replace a $2 million client with a $5 million client, or a $5 million client with a $10 million client, what have you.

The Bahnsen Group's Revenue-Based Compensation Model [1:07:52]

Michael: So, do advisors have a revenue-based compensation model that makes them want to move up market and client revenue that way?

David: Not only that, they have a path to partnership. So they have a salary benefit at hire that is never recoupable, not a draw, that then once their P&L, which is basically revenue times the yield, gets in, it becomes best ball to their salary and once the revenue-based comp is in excess of salary, they're now on their own P&L. And then once someone has been with us four years, has closed over $250 million of business, we have to up that now because it's changed as a percentage. And then pass the qualitative test, meaning the rest of the partners feel that they're one of us, they've passed the code, then we give them an equity position in the company as well.

Michael: And how many years do they have to be with to get there?

David: We don't want to even look at eligibility til four years. So four years doesn't guarantee it, but four years is the minimum threshold. And candidly it may sound arbitrary. We picked four because that's what we had done before we had a process. The person who became partner the quickest did it in four, so we ran with that.

Michael: So precedent set.

David: Yeah.

Michael: So, I'm curious, are you willing to share, where do you set revenue-based comp? What number works for you that attracts and retains talent?

David: Well, again, you mean as a yield?

Michael: Yeah, yeah. I guess that's how you frame it. Yep.

David: Yeah. No, I don't mind getting into it at all. They're all paid 22% of the revenue that their P&L generates. And once that's in excess of the base salary which was well into six figures and benefits and all that kind of stuff, then they have best ball. And then when they are a partner they have a piece of the profitability of the company and there's other perks and whatnot. But it's never ever once come up in hiring or attracting them at the yield because the key variable is always in the revenue itself. Again, if you're talking about advisors that are just good advisors, good at servicing but not rainmakers, whatever the percentages being applied to a very low denominator by giving them a very high denominator they're in a much better place.

Michael: Right, because you can actually build people to have million-dollar revenue books pushing, I don't even know how high they get. You've got an 80-client cap, so I guess they can only quite get so high, but you can get folks that have a million or two of revenue on their book, and I guess then now I see the context. So you want to grow...

David: There's nobody below a million in revenue.

Michael: None?

David: Nobody. There's many that are above a million in income but there's nobody below a million revenue.

Michael: And so thus the APWA program. You are capped at 80 client relationships. So if you want to grow, your natural incentive is take the bigger opportunities that are coming in, close them, so your revenue goes up and your revenue-based comp goes up. But since you have to create space because you're capped at 80, you better find yourself an APWA and start feeding them as well because you have to clear space on yours to create the opportunity to move up.

David: Yeah. It's really basic unit economics. When you're at the wirehouse you can grow if they increase your grid, you can grow if you add more clients, and you can grow if your per-client is larger. More or less, what we're saying is your growth has to come from simply having more AUM per household because we don't believe that your household count should grow. And so what that does is enable them to do shared economics with the junior, but they're also responsible to mentor the APWA, and they make a commitment that within two years they will have moved x number of dollars to that associate advisor. And so...

Michael: Do they participate in the APWA economics? Is there a override, or some equivalent? Or is the goal simply, you want to hand clients the APWA because that's the only way you create space to lift your own book up?

David: Yeah, that's a great question. And what we've done, we've tried a number of different things about this and I've read some of the stuff that you've written and put out around it. We give them the option of doing 50/50 economics but after three years it has to move to 100/0. So then what you'll get is some of the senior guys, I'm making up an example, but they may have a $4 million client that they think the junior can service well but they want to keep 50% of that for a few years. And they might have a $1.2 million client, they're just going to move 100% of it. Everybody responds to incentives and everybody has every right to be driven by self-interest to some degree, but I will say in defense of my guys and gals, I think that they do a really good job at having a kind of mentality of abundance. I have tried my best to promise them that they make money when they give money away, that I have gone through it myself that the most... I went from 180 to 20 clients and my income has skyrocketed. And yet it's very hard to convince somebody of that.

Michael: It's so hard, yep. You just see what you're giving up. But I'm struck just by how you built the framework in the system. So if I'm a more senior advisor and I'm looking at this and saying, "Okay, I get it, but I'm only willing to take a haircut so much right now in the hopes that I'm going to get newer, bigger clients to backfill. So, hey, I can rev share up to three years. It basically gives me a runway to actually replace some of the clients I'm shifting away with bigger ones so I don't have to take one step back, take two steps forward, I can take a half a step back to take two steps forward." And I guess functionally...

David: And that half-step back and two-step forward might be 48 hours later because the lead flow is so strong. We haven't had a month that we brought in less than $50 million in four years but we haven't had a month that we brought in less than $100 million in a year now. And so these senior advisors know, that's one thing is this lead flow is not algorithmic, it's not random. We have full control. So when I see the generosity and abundant spirit of our guys, they're the ones that are more likely going to share from the new leads coming in, so we try to qualitatively control it a little bit.

Michael: Okay. And I guess from an economics end…until the APWA gets to the crossover point where their revenue yield is above their base salary, you've got to cover down for them a little bit more in these revenue-sharing scenarios until they get to their own crossover point, but it maps out relatively quickly because of the volume of lead flow.

David: That's right. And yet even with good lead flow and even with a generous sponsoring senior advisor, the juniors have to become prepared. And so that may not...just because the volume of lead flow may be there, we don't graduate the APWA into their own P&L and their own standalone PWA status until we think they're qualitatively ready. To date we've now had three of our APWAs go into PWAG, and it was somewhere between one and two years for each of them. We have a couple of the younger ones that may be two to three years, so it's a little different based on what their experience was coming in and kind of background, but there's a lot of things going on there at once. But yeah, I accept it's a cost center of the business but that's where the planning issue comes in is we basically now have stood up a department of over a dozen dedicated financial planners. They have to get their CFP, we pay for everything, we sponsor all the education and the testing and all those things. And then they're getting their salary and benefits from us and we're going to make our money back on them down the line when they spend their career with us as an advisor.

What's Next For The Bahnsen Group [1:16:23]

Michael: So what comes next for you in the business from here? Because you now are in TBG 3.0, I don't know if it's like continuing 3.0, if there's a 4.0 vision. What comes next for you guys? What's on the horizon?

David: Well, I think that what I'd really love for 4.0 to be is 3.0 just done even better. More excellence in the work we're doing, more sophistication. The family office has been really transformative for us to go do a lot of the stuff that makes this line of work so exciting, so complex, so rewarding. I would love to continue creating content that I love creating and believe in that authentically captures who I am and what animates me as a person. And I would love it if there's still some people out there who like it. And if there isn't, I'll just keep writing and we'll find out that there is at some point a diminishing opportunity in that. But we haven't hit it yet, so I just want to sort of keep faithfully doing what we've been doing. But the hard part is the blocking and tackling along the way that I always thought this business would scale and I learned that from an operating leverage standpoint, there is a new FTE per about every half a million dollars of revenue that we have to hire forever and ever and ever. And it just is what it is. Now look, I don't have to go open fancy and expensive and nice offices in all these cities, that's our decision. It happens to be a pretty low part of P&L when all said and done as a percentage. Our people are the main cost, but the offices are a cost but they're a really worthwhile cost because every place we've gone to we've gone and grown $100, $200 million dollars in the first six months of being there. So we feel that the geographic expansion is a good business strategy.

What Surprised David The Most Building His Business [1:18:26]

Michael: So what surprised you the most about this path of building the business over the decades?

David: I hope it doesn't sound pious or fake humble or whatever, I think what surprises me is that we're even having this conversation. The fact that I would have...I think everybody that enters the business at some point says, "I would do anything to one day be a million-dollar producer." And then to have gotten there and then climbed more and built more and added more people. And each level came with a certain degree of surreal moment and a lot of gratitude. But now it is a real blessing but also a challenge that it has scaled well, it's been successful. I'm so proud of this team, I'm proud of the people. But then I say, what are the things that could screw it up? What could we do wrong? How do we manage the relationships of people we're working with custodially, our relationship with Hightower [Advisors], our relationship with vendors? The people we hire, that alone, that last element, I got to thank anyone who goes from being an advisor to being an owner of an RIA. That's the number one biggest change in their career is people. You always have the complexity of clients, you're always managing people because you have diverse personalities with the clients you're working with, but managing eight people is incredibly different than managing 84 people.

The Low Point On David's Journey [1:20:04]

Michael: Yep. So what was the low point for you?

David: Oh, well, the COVID moment was extremely difficult. We're an in-office company and all of a sudden that was disrupted. We had just moved into a bigger, more expensive office in New York. And obviously New York was going through the kind of ground zero, the whole thing. The market, that month from hell in March of 2020 presents its own kind of anxieties. And so I think that was one of the lows. There's certain people over the years, we've had extremely low employee attrition, but there have been a couple, not many, but a couple of employees I've had to terminate. And I hate firing people, I hate it. It's just, anyone who likes it, there's something wrong with them. So probably related to those things. And everybody has clients that leave and you're just shocked the people you think are the stickiest, most loyal. On one hand, it's easy to say, this is not a business for sensitive people, but we are all sensitive people. And so losing an employee, whether it's voluntary or involuntary, losing a client, those things are always difficult. But I think most advisors would probably say that the hardest part have been difficult markets, and that's not my answer. I think that from the dot-com implosion when I began building this business 25 years ago, through the financial crisis, through COVID, even this whole tariff war thing in 2025, all of those periods of extreme market volatility I think give us a great chance to do what we're in this business to do. But the personnel side, personal stuff of clients, those are the things that stick out.

David's Advice For His Younger Self And For Newer Advisors [1:22:01]

Michael: So what else do you know now you wish you could go back and tell you from 20-something years ago when you were still getting started in this growth cycle?

David: Well, I've been such an advocate and an evangelist for independence that a lot of people have said, "Do you wish you had left the wirehouses quicker?" And as much as I really believe in the RIA model, I do always say it's futile for me to say that because I was ready to leave when I was ready to leave, and I wasn't ready to leave until I was. And so while I do believe that there is just an extraordinary advantage to the independence and autonomy and entrepreneurialism of the independent fiduciary RIA channel, I don't wish that 25 years ago, I'd started my own shingle. I think that that path and that evolution happened for a reason. I think the evolution of my relationship with Hightower, the way in which we went independent, I feel the same way though there are things we've changed and adjusted and I learned from. I can't really answer it apart from what I knew at the time. And when I was leaving Morgan Stanley with eight people, $600 million, $5 million trailing 12 [months] revenue, I wasn't in a position to do it without a partner. And then a couple years in you realized where the partners helped you, where they didn't, what you could do on your own. But none of those things... I found out pretty quick that we were really entrepreneurial, we were really autonomous, we were really self-sufficient. And we were obsessive about our own brand, our own content, but I didn't know a lot of those things early on. And so I don't think of them as regrets, I just think of them as things I learned over time and adjusted the business accordingly.

Michael: So, is there advice you would give younger, newer advisors coming into the profession today and trying to find their path?

David: Yeah. I do believe that there is an incredible benefit. I know the wirehouses have gotten obsessed with teaming. I think that the various RIAs have different models, kind of similar to what I described to you about our APWA model. I really believe that everyone entering the business who wants to be in the business of financial advice should find the vehicle that enables them to learn the advice business not the sales business. And it's the one thing that I think our industry has improved on dramatically but was woefully in need of improvement was the upside-down model versus law firms, where essentially I got to learn how to become an advisor because I was good at business development. Where the law firms say if you can be good at being a lawyer, then we'll let you be a partner. And the wealth management world was upside down about that for a long time, and I think young people entering the business, they got to realize how hard it is for a 24-year-old to go ask a 64-year-old for 10 million dollars. It's very hard to do.

Michael: And so how do you encourage young folks today to try to find or navigate the path?

David: Well, again, whether it is as a junior member at a wirehouse or a junior member of a RIA or one of these financial planning roles or wealth services roles, when someone's young enough in the business, I think those various versions of that business model really represent a great way to learn the vocabulary, to learn the various frictions that come up, the just unique challenges that get presented to you. It's the biggest issue that I don't know how anyone can learn apart from experience. You can get a textbook that teaches you asset allocation, you can get a textbook that teaches you cash flow modeling. There's even just the things you'll learn when you're preparing for your CFP, all of that knowledge is very useful. But there's nothing like being in a meeting with a client and they ask you something you never could have thought of before about how to deal with their daughter's divorce or their son-in-law who has some real estate with the situation, and the complexities of weird things that come up and family dynamics and with tax situations and planning situations and whatnot. And just that experience, that almost sort of dress rehearsal of going through all the questions that come up where you become a more competent solutions provider, that's, to me, producing the nucleus of what can become an incredibly rewarding career later with a P&L.

What Success Means To David [1:26:57]

Michael: So, as we wrap up, this is a podcast about success. And just one of the themes that comes up is that that word success means very different things to different people. And so you built this just incredibly successful advisory businesses as you're cresting $50 million of revenue and $7.5 billion of AUM, and so the business is in such an incredible place right now. How do you define success for yourself at this point?

David: Well, for me, the answer is very different now at age 50 and with those business metrics than it would have been 10 years ago and 20 years ago. I have my financial freedom, I have my business success, and those things. But then the stewardship of that, how do I affect good succession in the future? How do I affect an ongoing cultivation of this? What will our client retention be in the decade ahead? And if I look at 20 young advisors, what kind of career development do we provide them? I think that I can quantify a lot of it. There's a certain number of these people I want to become partners, there's certain income goals I want them to hit and life and career milestones I want them to hit. For myself, personally, I have content goals of things I want to create, books I want to write, passions I want to be able to articulate. If it sounds like it's all over the map it's because it kind of is, but in a weird way, all these things are harmonized in my mind as being very connected to one another. I believe if I write a book on a really, really thorough, succinct, readable, powerful understanding of a Christian view of economics, that's a book that's going to animate me and I think it's a book that might really lead to career success for some of my advisors. So that all these things put together just becomes the very exciting opportunity for TBG 4.0.

Michael: That's so cool. That's so cool. I love it. Thank you, David, for joining us on "The Financial Advisor Success" podcast.

David: Thank you so much for having me, Michael.

Michael: Thank you.