Generating 10–15 Referrals Per Week By Coaching Clients To Make More Effective Introductions: #FASuccess Ep 463 With David Stevens

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Resources Featured In This Episode:

• David Stevens: Website | LinkedIn
• Kitces Report On How Financial Planners Actually Market Their Services
• RingCentral
• EP Navigator
• Implementing Client Meeting Surges To Boost Advisor Productivity And Systematize Client Value
• "Personality Plus: How to Understand Others by Understanding Yourself" by Florence Littauer
• Culture Index
• Archway Consulting
• Stratos Wealth
• Knudge
• "The Five Dysfunctions of a Team: A Leadership Fable" by Patrick Lencioni

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Full Transcript:

Michael: Welcome, David Stevens, to the "Financial Advisor Success" Podcast.

David: Thanks, Michael. It's an honor to be here. Thanks for having me.

Michael: I'm really excited to have you joining us today and to get to talk about, dare I say, good old-fashioned referrals, intentional growth through referrals. Because we find in the Kitces Research studies that we do on marketing that notwithstanding all the rest of the marketing channels have evolved, the podcasts and the blogging and the digital and the seminars and the webinars and all the rest, that at the end of the day, about two-thirds of consumers still find their advisor through some kind of referral, either referral from friend, family member, colleague, referral from an attorney or an accountant, or referred through some other trusted source like an advisor directory that says, "Here's the advisor that would be a good fit for you." And of the roughly two thirds that find their way through some kind of, "I asked a trusted source who's good to work with," about two-thirds of those, or 40% of all consumers, still find their advisor by referral from an existing client who works with that advisor.

And at the same time, we find most firms really struggle to grow their referrals, their referral rate. It's like "you get what you get and you don't get upset" tendency for referrals. Virtually, all of us have some passive flow, but very few of us are comfortable with or have figured out how to proactively ask for referrals in a way that isn't awkward and actually drives results. But I know you have grown very proactively with referrals to great success in being proactive and even coaching clients how to provide referrals. So, just for today's episode, I'm excited to talk about what it takes to turn referrals from a passive into a more proactive growth strategy. And what you found, what you are doing differently, that you are actually growing through referrals more than most other advisory firms.

Encouraging Clients To Make Referrals Early In The Relationship [04:52]

David: I appreciate the opportunity to share. So, a couple things that we're doing, Michael. The first is, we make sure that we plant the seed that most families we work with do refer to us within the first few weeks of getting to know us. And as we understand their full situation and as we take them through their client experience, they end up referring friends and family members. And it's easy to do that. Even when we're talking about what it's going to cost to do business with us, we might say something like, "Hey, John. Hey, Lisa. It's been a pleasure working with you. Of course, our fee's going to be this, and this is how this works. However, most families that we work with end up introducing us to a friend, a colleague, a family member of theirs. Just wanted to let that we will be willing to aggregate the fees if you end up doing that." And so we just plant the seed right in the very beginning that way.

We also come back to it again as we have a three-meeting process that we walk our clients through to onboard them. We mention it again in that third meeting. And the key there is that we're trying to deliver so much value and really create what we call "delighting experiences" with clients by doing little things that maybe they didn't experience with their prior firm that really wow them, those wow moments, if you will, where they clearly know that this experience is way different than anything that they've done before with any prior relationship that they've had before. So, that's the first part. And then we coach them on how to give that referral because inevitably, they'll come back and they'll say, "Oh, yeah, it's funny, you mentioned this last meeting. I did talk to my brother, Bob, and told him about you. Hey, I'm going to probably give him your number. As a matter of fact, I already gave him your number." That's what they typically will say. We say, "Hey, that's wonderful. Thank you so much Appreciate you giving my number to Bob. We'll look forward to hearing from him. Oh, you know what, actually, something that might work a little bit better to make Bob feel comfortable is if you want to send a text message to Bob, include me on it." And of course, on our side, from a compliance perspective, we have our compliance-approved phone numbers that are exclusive to the firm. Our work numbers use the software RingCentral to do that. And we keep them all archived with compliance.

So, we'll just share with them, "Hey, why don't you just send a text to Bob? I think it'll be way more comfortable, that's what we found, including me on it, making that introduction. And then, because a lot of times what we find, John, is that even though Bob is maybe fine calling us, sometimes clients are intimidated to give a firm a call and ask for someone they don't know. It just creates a little bit more of a warmer dynamic if you actually send that text with both of us on it." So, that's how we're coaching our clients. And it's worked extremely well where we get, I don't know, anywhere from 10 to 15 referrals a week in that way from clients that are introducing us to friends and family.

Michael: All right. So, I have so many questions now. That's amazing just in a flow. So, I guess, first, just to anchor us a little, how many clients are with the firm? What's the overall size of the firm? So, 10 to 15 referrals a week when you've got 10,000 clients is different than if you've got 100 clients. So, help us just understand the context of the firm here.

David: Yeah, absolutely. So, we have about 575 households right now as far as clients are concerned. So, that's how many we have.

Michael: Then you're living a world, 10 to 15 a week, you're 500 to 700 a year. So, you're getting almost as many referral introductions as you have clients in total. I'm sure it's not evenly distributed somewhere. Referers and others are quieter.

David: That has doubled since last year though, by far. So, we're just ramping up, and that's doubled since last year as we've had more capacity to serve more clients. We went from pretty much, about 15 months ago, two advisors, to now we have seven advisors. So, we've had quite a bit of growth.

Michael: Well, you get that much referral flow, you have to hire advisors.

David: Yeah, that's a good point. So, that's where it's changed quite a bit.

Serving Next-Gen Clients Efficiently [09:08]

Michael: How many of these are good fits? How many of these actually close? Are you getting good referral flow or are you getting the mixture of referral flow and, "I referred my nephew who needs his first IRA." And you're like, "That's so wonderful, but this is not really a great client fit for me."

David: No, that's a valid question. There's so much in that. I would say a couple things. The first is, at least half of those referrals are certainly G2s [Second Generation], like you're saying, or people that are not necessarily the ideal client who we're servicing. However, the reason why I said there's so much in that is that because we were getting so many referrals of younger clients, G2 clients, we ended up hiring one of those new advisors, one of the five new ones, was someone to just work with what we call emerging clients. And those are those clients that are HENRYs, High Earners, Not Rich Yet, DINKs, Dual Income, No Kids, things that where they will be great clients eventually. And we just charge a flat planning fee for those relationships. And what we've seen is that, and this is through a few different consultants that I've worked with over the years, they've said, "Ah, David, just turn those clients down, send them somewhere else." Call me a bleeding heart or whatever, I just have not wanted to do that. Maybe it's not the best business decision, but we've found a way to make it work.

Michael: It works better if there's still enough of a fee to actually just staff it properly.

David: That's right.

Michael: You said they all pay a fee. So, where do you set the fee for that emerging client segment?

David: So, our fee is $5,000 a year, that's our minimum fee at Stevens Capital Partners that we charge. And with that though, they're getting quite a few services and benefits. So, for those, we'll call them younger clients, for lack of a better term, those clients, they have access for quarterly meetings, if they'd like to. We're giving them advice on everything from property and casualty, to future estate planning if they just had their first child, and we're helping them out with actually doing that through different softwares and services that are out there.

Michael: Sorry. So, what's your estate document service of choice?

David: We have used a variety of them over the years, EP Navigator and some others. That's who we've used most recently. So, I'll say that.

Michael: Is EP Navigator?

David: That's right.

Michael: So, where do you set the fee then for these clients, this younger emerging segment? Is it the same $5,000, or is there a different fee structure?

David: Yeah. So, for some of those younger clients, we cut that in half to $2,500. So, our normal fee is $5,000, but for them it's $2,500, flat fee. So, it ends up being around a couple hundred dollars if you think about it a subscription each month.

Michael: Yeah. A little over $200 a month if you're if you're putting it on a monthly basis.

David: Mm-hmm. So, that's what we've done. But they're getting a full financial plan with us, access to quarterly reviews if they want. We do office hours. And this one advisor, he runs the whole show and does a great job. And so, of the 575 households, right around 200 to 215 are in that category, actually.

Michael: A few other questions. You mentioned office hours. So, what are office hours in this context?

David: So, the office hours are, he does three weeks of the quarter, of the 12-week quarter, we'll call it, 12 to 13-week quarter that he basically sends out a Calendly. And that Calendly is available for 20 minute increments for six hours a day. So, there's spots that if you want to set up a time to talk about anything, all we ask is that you send the questions that you'd like to cover or the topics ahead of time. That you don't just schedule the Calendly, but you want to talk about these three topics. You have a question on your benefits package at work. Whatever it is, please submit those so we can be properly prepared to have those answers ready.

Michael: Interesting. So, that's how you're managing to the volume of quarterly meetings with these folks, is the meetings are pretty short and concise.

David: That's right. That's right.And then once a year, on top of that, they do have a full-hour review, and that's blocked off for an hour for him to cover, but it's just one time a year.

Michael: Interesting service model. And it's this surge style.

David: It is surge. That's right.

Michael: He's got mini surges. He's got a three weeks per quarter surge because of the cadence you're shooting for.

David: That's exactly right. And then we do surge as well, the other advisors that are working with some of these other types of clients, and we just make sure that we don't do it at the same time that he's doing those.

Michael: So, support team does not get blown up in the process?

David: Exactly.

Michael: I think you said there's one advisor doing this, so is he at capacity with the 200-something client/household you have in this segment?

David: No. When we worked our spreadsheet and looked at the numbers, he could do up to about 350. This individual is a high-capacity leader himself, so I don't know that everyone could do that, but just the way he's wired.

Michael: Sure. There are certain people that just do a lot more meetings than others and don't seem to get tired by them.

David: That's right.That's right. And that's him, no doubt about it. So, it's a really good fit. He's actually said to me, "I need more to do, I need more." And so I'm like, "Okay." Yeah, he's just wired that way.

Michael: The simple math, even to 200 clients doing this at $2,500 per client it's a $500,000 revenue book. That's economically viable. You can pay an advisor a very reasonable compensation and cover the overhead of the firm and be profitable. A lot of firms run with less than $500,000 of revenue per advisor, especially if he says he's still got capacity for some more.

David: Exactly. And he's even doing his own ops, which is incredible. So, he came from a role prior where he was doing ops, he was doing everything, so, his operations paperwork. So, we figured out a way to make that work. We know that we're going to have to change and evolve over the course of time as that subset of clients grows. We get that, but at this time, it's working well. So yeah, it's been good.

Michael: I was going to say, how does the fee model work as they grow? Are you a planning fee and AUM fee firm? Are you an AUM fee firm, there's just a hard minimum you have to get to? How does it work as clients start saving and accumulating with you?

David: Yeah, it's more the latter. We don't charge for both, We just charge one or the other. So, it's planning or you're in the AUM model. But then we also have business clients where we do CFO services. We do quite a few things there too. So, we do have some planning fixed-fee arrangements for some of those types of clients too, that are more high net worth. But the majority, 90% of our revenue, if you will, is certainly going to be on the AUM side.

Michael: So, I want to go back for a moment now to the referrals discussion. So, this high-volume flow of ten to 15 referrals a week now. How many turn into clients? Do you have a sense of what close rates ultimately end up being from this flow?

David: Yeah. So, we've been really blessed and fortunate with the, I'm going to call them qualified clients, that we'll call half a million and above, if you will. We look at those at $375 [thousand] and above. Because If you do the math on $5,000 at our fee schedule, that's pretty much what it is. So, we'll call them qualified clients, non emerging clients. For those folks, we've been really fortunate, over 90% of those are closing, but again...

Michael: Because less high close rates on referrals.

David: Yeah. And it's been great because the warm introduction. People know that they're coming to us based upon a close friend of theirs referring them and having a great experience, or CPA, or a banker, or an attorney, whoever that might be, that referrer.

Michael: And how many of the 10 to 15 actually fit the qualified client profile? Is that only one or two are actually fitting, but you close 90% of those, or is it a bigger chunk?

David: When I looked at the numbers, it's right around three to four a month. So, I would say on average, one a week. That's where we're at on average. That is about four a month.

Michael: Interesting. So, the good news, seeding the introduction discussion, and the text messaging and such, it has a high level of engagement with clients, but you still have to navigate the volume that aren't a good fit, except you largely navigated the volume that aren't a good fit by making a emerging client segment that's profitable, so now you can actually work with most of the referrals that come in after all.

David: That's right.

Michael: Just with this flow, I'm assuming then the advisor who's doing this and has 200-plus clients in the segment, this is all new clients in the past two or three years?

David: That's right.

Michael: They just fueled up from nothing because you've got such a referral flow that you just turned the flow into business into a new client segment?

David: Yeah. So, what actually happened was, when we were at two versus now seven and even...so, I said 15 months ago, we were at two advisors, 12 months ago, we were at three advisors, and then of course, we brought the other four on. So, he's one of those advisors, as I mentioned that we brought on. Some of those clients that have been with us for three years that are more of those emerging clients, we've actually had a transition process over the last year. So, over the last year, we've now transitioned these clients over to this new advisor that's just working with emerging clients only.

Segmenting Clients Across The Firm's Service Offerings And Advisors [19:27]

Michael: So, you had other advisor books who were mixed up with some of each, and you consolidated them to one advisor.

David: That's exactly it. So, we essentially segmented. We just segmented our entire book of clients where we have four distinct groups of clients. So, there's been quite a bit of transition, but it's really helped us from, I would call walking, to now sprinting, just from an efficiency standpoint. There's so many different hats that we were all wearing. You might've been in a meeting with someone that had $250,000, and then the next meeting the person has $4 million. And it was just like, "Oh my goodness." And that was one of the challenges that we dealt with over the years, and really one of the mistakes, I would call it, is trying to give the same thing to everyone and it just doesn't work, as we all know. So, it's been helpful to now segment.

Michael: So, I'm intrigued by this. Segmenting is pretty common for a lot of advisory firms. We get a certain volume of clients, a certain range of things, and you start segmenting. For some of us, it's because we have a lot of clients that are below our minimum or our typical, so we try to figure out how to have just a less staff- and service-intensive offering for them commensurate with the fact that their fees are just lower. Some of us segment the other direction. It's like, "Okay, I've got a chunk of clients that are much bigger than the rest. I want to be super extra awesome for them." It's less about what you don't do for your C clients and more about what you do for your A-plus clients. But I find for most firms, when they segment, as an advisor, it's your role to do the A-tier services for A clients, only do the C tier services for C clients, however you define those. So, I'm fascinated that your segmentation isn't just, "We provide different services to A clients versus D clients, it's that we actually have completely different advisors that work with As versus Ds, and we literally rearranged which clients are working with who to make that happen."

David: Yeah.

Michael: So, talk to us more about why you made the segments by advisor as opposed to every advisor has their segments of clients.

David: I think it was based upon our current talent pool at the time of who we basically had on the team as we were making these decisions. And then who was in, I'm going to use the term "on the bench" as far as from an HR perspective of who I knew locally here in Omaha, Nebraska, and even nationally talking to different advisors that I'm prospecting to come onto the firm, and what's their skill level? Do they understand how to work with more complex needs and a more sophisticated client? And are they going to be frustrated by the fact that all of a sudden, they're going to have to work with someone who is just starting out compared to someone who needs irrevocable trust because they're over the limit? It's essentially based by talent, is what it comes down to, Michael. And then it worked. It's working extremely well. It's just way more efficient and effective.

Michael: Because everybody gets a standard groove?

David: That's right.

Michael: Your advisor that works with emerging only works emerging, knows emerging, and their whole life is built around their quarterly surges with 20-minute meetings and how to do that efficiently. And the other advisors who work with the fancy complex folks with lots of dollars can just be all in on working with complex folks with lots of dollars and don't have to context switch to, "Oh wait, this is a C client. I probably shouldn't go so deep on this question."

David: In my opinion, it allows us to specialize. When you think about surgeons who just do knee surgeries and do 500 knee surgeries a year, the same one, they're a little bit better typically than the surgeon that does ten different surgeries. "Hey, yeah, I've done this, but it's been a few months." So, it's just a better overall client experience, and the advisors seem happier. So yeah, it's just worked really well.

Michael: Can I ask, how does this work from an advisor compensation end? Are they salaried? Are they paid a percentage of the revenue they're responsible for? Do you end out with compensation differences that also align, "You work with the high dollar clients with a bigger book, you end up making more than when you're working with the smaller clients?" But that's ok if you're a newer advisor. That's still awesome because you've got a job and you're getting paid, and you're getting reps in with clients.

David: Yes. So, there's three different ways that we comp. So, there's a salary that's a very generous salary. And when you look behind the scenes, it is a percentage of revenue…that's not what they're paid on. They don't see that, "Hey, I'm making 20% of the revenue of this book," or whatever the case might be. But when you actually run the numbers of what their salary is in comparison to what they actually oversee, I'm going to use that term, then it is a certain percentage. So, the salary is one component. The next component is there's a bonus pool based upon the gross revenue that we do each quarter and that we bring in. And so, that is split up amongst the advisors. And we have a scorecard that the advisors are ranked in a variety of areas. So, it is something called MAP calls, which stands for reaching out to clients on a weekly basis, talking about the markets, talking about their account, and talking about something personal. Did you do that five times as an example.

Michael: I'm just realizing that MAP calls is literally M-A-P: Markets, Accounts, Personal.

David: You got it. Exactly. So, that's part of the scorecard that we're using. And then, another part of that scorecard is response time. We're not going and auditing every single email that a client...or assuming that our advisors have, but it's just when they know that's one of the criteria and expectations, then when we know better, we do better. So, that's a part of it. And there's some other things as well: culture and some subjective measurements as well. And as well as did the company grow at the rate that we thought we were going to grow? And we're not putting some large astronomical numbers out there that are not achievable or that are BHAG goals, Big Hairy, Audacious Goals. They're relatively achievable. So anyway, that pool of assets, that's the second. And then the third is we pay advisors a onetime, I don't know if commission's the right word, but a onetime bonus based upon a certain percentage of the revenue that they bring in and what we call self-source. So, back to your question on, hey...

Michael: Like a business development incentive?

David: Business development incentive. So, if it is an advisor that's not working with the higher-net-worth clients, but they still want to be able to right their own ship, so to speak, and make the money that they want to make, they can do that by going out there and bringing in clients. They can make more than someone that's working with high-net-worth clients if they want to. So, that's how we do that.

Michael: So, can I ask, where you've set the business development incentive, how much do they get to participate and how do you calculate it?

David: Yeah. So, the business development part is 20% of the first-year revenue. But it's just a one time.

Michael: You pay it when they come in based on projected revenue, or the client has to actually say, "We've got to get before billing cycles and you'll get your bonus at the end of the year based on literally how much revenue the firm got to generate from that client in the first year?"

David: We pay it the month after they actually get billed. So, we bill the first month of the quarter, like a lot of firms do, in advance. Right now we're in September. So, let's say that October 7th that it gets billed. We're going to pay that advisor around December 15th, and we pay it all.

Michael: Mathematically, cash flows, nominally, you're getting 25% of annual revenue when you bill quarterly and they're getting 20% of revenue. So, basically, almost all the first quarter's billing goes back to the advisor.

David: Back to the advisor. Yeah.

Michael: But you're not cashflow negative, you're just not making anything yet from a business perspective.

David: Correct. That's it.

Michael: Interesting structure. So, then can I ask as well, how do you target salary versus bonus percentages? Is there a total percentage of comp on your P&L [Profit and Loss Statement] that you're trying to allocate to advisor compensation? How do you figure out what those numbers are that work for you?

David: Yeah, exactly. So, we want to be about one-third that goes to advisor compensation. That's the target. And so, that's where we want to land.

Michael: Out of some combination of the salary and the bonus pool, or that's just the salary layer?

David: That's the salary and the bonus pool, both of those two.

Training Advisors On Business Development [29:04]

Michael: And so, then per your comment, if they're doing biz dev on top of that, that's basically a, sky's the limit?

David: That's correct.

Michael: Kind of thing, "You want to grow that much, you're just going to keep growing your income?"

David: Go out and make it happen. Absolutely. Most advisors that I've met today are not interested in business development. I think it's very different than it was 20 years ago. I know you know that as well. They're just not interested. It's just a different world. But once in a while, you meet one that says, "Hey, I'm willing to learn." And the nice thing about what we do here is we have something called the SCP Academy. Stevens Capital Partner Academy, where we walk our advisors through how to do business development. Hey, if you want to learn how to do it in a very friendly, I'm going to use that term, very friendly, non-pushy way, where it's professional, white glove service, we're going to walk you through how to do that. What does that client experience look like, what to say, what not to say, how to connect with different temperaments. Because we spend a lot of time on temperament analysis here as well so people understand how to talk to a sanguine versus talking to someone who's more of an analyzer, or whatever the case may be. So, they can learn. So, even if they don't know how to do business development, Michael, but they say, "Hey, I'm willing to go out there and take a risk if it means I can provide more for my family and be able to hit some goals that I'm excited about," then, hey, we're going to teach you how to do it.

Michael: Interesting. Is there a temperament tool you're using?

David: Yeah.

Michael: Tell us more about what this process looks like, and the tools that you use that you're training on.

David: Yeah, you bet. So, we use for client facing, there's a book called "Personality Plus" out there that you can go on Amazon and get. It's a great book. And there's four main temperaments. It's very similar to the commander, analyzer, performer type of temperament, but this one is the powerful cleric, then you've got a perfect melancholy, you've got a peaceful phlegmatic. So, you've got these different temperaments. We actually just got done reading the book again as a full team so everyone would know how to work with Mr. And Mrs. Client when they walk in the office here, or when you talk to them on the phone or over Zoom, what they like, what they don't like naturally, how to communicate with them properly. So, we teach people through that.

David: So, "Personality Plus" is probably the main one. On the hiring front, I know you didn't ask me this, but it's just good to share this. We use "Culture Index" for hiring. So, that is, I would say Personality Plus is, I'll call that the high school version. And "Culture Index" to me is the PhD level when it comes to temperament analysis. So, we do that again on the hiring side, just seeing who people are, what are their natural proclivities? And how they think naturally culture wise versus in their job. Yeah, that's how that works.

Michael: So, I'm just trying to visualize this SCP Academy. So, is this ultimately you sitting down and teaching them? Did you record a bunch of videos of yourself?

David: Yeah. We actually hired a consultant who came in and interviewed me and basically recorded me on everything that I do with clients. Maybe sharing a little bit of background would be helpful. So, I was at TD Ameritrade. I worked at TD Ameritrade for almost 20 years. And when my time there, I was really blessed and fortunate to run the largest guidance practice in the nation out of over 800 advisors there for a long time, for over ten years in that specific role. And so, really had a great time doing that. And each year, I would teach at our national sales academy and at our circle of champions, I would do panels. And I would also coach the registered investment advisors on how they could drive more business to each of their firms. They had the program called Advisor Direct and I used to coach those RIAs on how they could basically just do better.

So, I had a repeatable process that I had honed in for ten-plus years. Then coming here, I just kept doing what I was doing, but when I hired this consultant, this individual said, "David, you know what to do. You know how to do it. You make it look easy, but you got to teach it." She just basically walked through this process of taking the information that was in my head...and it wasn't the fact that I did something different every time, I actually did the exact same thing every time. I knew exactly what I said, and how we did it, down tonality down to, "Do say this, don't do this." Very, very detailed. And again, I've been doing it for years. And so, she took that.

And to answer your question, it's a written binder, if you will, of initial connection. It goes all the way from initial connection or what we call contact, all the way into ten years that you're with this client. So, what does it look for you to contact them? What does it look for you when they walk into the office if it's face to face? What are you doing? What are you not doing? How is the room set up? All the way to, what are some things to do...When you're face to face with a client, the 1-100 rule, John Maxwell. Take the one thing you guys have in common and spend 100% of the time on initialing that first 10 to 15 minutes to build connection. Little things like, listen after the pause. Very few people do that. You're talking to a client, they share a few things, there's a pause and an uncomfortable silence for about five to seven seconds. Then they actually share with you what was really on their heart and on their mind.

Teaching advisors to just be quiet and sit there and relax for that ten seconds, and then you're really going to find out what their biggest driver is. You name it. So, a lot of technical, but also soft skills, but very much skill and art focus. And we are going to do videos as well, that's on our rocks for 2026, on my rocks actually, to work with a consultant and do video trainings as well that we'll be able to have a little bit more accessible to the team so it's not just written and not just one-on-one coaching.

Michael: I'm fascinated by this. So, how long did it take? What did it cost to just hire the person, have them come in and turn all the things in your brain into a training binder?

David: Three thousand [dollars] was the cost for that, which is obviously worth it. That's nothing.

Michael: That seems stunningly low.

David: I know. I know. Let me say this. This consultant, this is one of the things that she's helped us with, just one of the things. But that service alone was $3,000. I don't know if she would do that just as a standalone. But that's what it cost us, and well worth the time.

Michael: Can I ask who the consultant is? Can we give someone an awesome shout out?

David: Yeah. Absolutely. I'd love to give her a shout out. So, Abby is her name, her first name, her business is Archway Consulting. Archway Consulting. She's phenomenal. She does a great job. She's based right here in Omaha, Nebraska. She used to work for Carson doing business development. She's also really helped elevate us as a firm when it comes to going upstream as far as ultra-high-net-worth clients. She's done some great things there on our decks from a marketing perspective, our workflow, our scope of work service to be able to explain to clients and other professionals to increase the amount of referrals that we're getting from other professionals. She's phenomenal.

Michael: Very cool. Very cool. So, for folks who are listening, this is episode 463. So, if you go to kitces.com/463, we'll have a link out to Abby's website at Archway Consulting if you're curious to explore further. We'll give Abby's website a little hug of love.

David: She deserves it. She's phenomenal.

Michael: Just from your end, so how long did it take to go through this process with Abby? Because it sounds like it wasn't actually a lot of time and lift on your end. She asked you questions, you talked, and then she made the training manual deliverables.

David: Yeah. So, just on this one topic as far as the training, six sessions for that, just to get it all out. I'm telling you, it wasn't just on the prospecting side, it's all the way to ten years as a client. So, there's quite a bit that we do. So, six sessions though, is the short answer.

Michael: Six-one hours, now she has more questions and I talk through my next stage?

David: That's right.

Michael: And now more questions, and next stage, and just going through?

David: Correct.

Michael: And then a training manual appears. That just sounds amazing for all of us that are not so inclined towards building detailed training material.

David: Exactly.

Michael: I just talk for a few hours about what I do, and then someone else makes it appear. This sounds really nice.

David: And she's phenomenal at making things look aesthetically pleasing too. So, for all those who prefer spreadsheets versus PowerPoints from an advisor facing and a client facing, she's helped with that too. A lot of client facing.

The Language David Uses In His Referral Conversations With Prospects [38:28]

Michael: So now, I want to jump all the way back for a moment to the beginning now that we have a lot more context, about this referral conversation, where you introduce it and just really the language that you use, how you're setting it up. So, what I heard, "Hey, Mr. and Mrs. Client, it's great to start working with you. Most families we work with end up introducing us to friends, families, colleagues of ours." And then if I heard right, you said there was a piece on top of that, "I just want to you know let we'll be willing to aggregate the fees." So, share with us a little bit more there.

David: Michael, that's not always said, that part, but it is said when I know that it's an analyzer, back to the temperament. Typically, analyzers are the most frugal. We know that. What we typical people call perfect melancholy. They want to cut right to the details. They're the engineers of the world, the tech people. And so I might mention that if I already know that that is a concern. I'm not going to lead with that one statement as far as we'll aggregate. The purpose is just to plant the seed that, "Most people that are just like you, Mr. and Mrs. Client refer to us." And we also want to putting messaging in there that we don't believe in having a bifurcated strategy where you have money at three different RIAs. People that work with us bring us everything. So, there's just a few of those, I'm going to call them preventative maintenance statements that we say, that we can just get ahead of some of those issues that sometimes come up in the third meeting, "Hey, I'm going to work with you. I've got this $5 million, but I'm going to leave $2 million with my old guy and give you guys this $3 million, just see how things work." That as well as the referers, "Hey, people who work with us, they bring all their assets, they end up referring to friends and family, and we are honored to serve your friends and family. We have capacity. We're going to take such great care of you."

One of the other things we say during that same conversation is, "Hey, we view this relationship as a 30-year relationship." Just by the sheer fact of planting that seed in their mind, you're literally helping to eliminate the doubt of this might not work out, "Am I going to have to do this again in five years?" No, we're together. This is it. I can't wait to help you, your next generation, the generation after that, right here at our firm. That's something I've been doing for, gosh, a decade and a half. So, that's really, really important. But as far as the referrers and the language behind it, the key there is just letting them know that it's natural and people do it. It's not pushing them to do it. That's not my style at all. It's more just leading them, and then also having them know that a couple times that, "Hey, this is normal. This is what everyone does that works with us."

Michael: I'm struck by how you're framing it, and I guess strictly speaking, you're not asking referral referrals. It's not literally like, "And if you enjoy working with us, please introduce us to your friends and family. Is there anyone you want to know? Here's a piece of paper." You can put three names at the top of their phone number. It's just, "Most families we work with end up introducing us to their friends and family and colleagues," and then you're just starting to set expectations about how that works. So, I'm truck by that. You're not asking, you're just setting an expectation that they should and that's normal and that's what everybody else does. It's a social proofing thing playing out.

David: It really is because we believe that this is the marriage. You've been dating for the last 15, 20, 30 years, you've dated three advisors, but now you just met your spouse. And so, that's the way that we view it. And maybe that's overconfident, I don't know. But I think all advisors should feel that way and should have that expectation since we know we're doing what's in the best interest of our clients and taking great care of them. But that's really our thought process.

Michael: And so, now remind us again, so where does this conversation come up in your process? Where are you introducing and seeding this idea?

David: This is in the first discovery meeting. This is the first time I talk to someone on the phone.

Michael: After they've agreed to become a client, or even in the prospect phase?

David: This is prospect phase.

Michael: So, you're quoting them, at the end of a discovery meeting, "Here's our typical fee. And by the way, most people that we work with end up introducing us. And if appropriate, we even have some ways to aggregate the fees for the family"?

David: Yeah, absolutely. I heard a gentleman say one time years ago, he was trying to encourage someone to make a decision to come to an event, and he said, "Don't focus on encouraging the person to come to the event, focus on helping that person get other people to come to this event," whatever the event was, it's not the point. The point is really thinking forward, thinking about the best-case scenario and planting that seed. So, what's the best-case scenario from a business development perspective? It's you having a client that's a COI [Center Of Influence] that literally gives you ten clients a year on average. That would be everyone's dream. So, if that's what we want, let's let them know that that's what we're assuming is going to happen in the future. And I don't think it's presumptuous to say that. It is assumptive, but I don't think it's presumptuous. So, I think it's great.

Michael: It's assumptive but not presumptuous. For all those that learned their assumptive clothes techniques. I really like that. So, then, does it come up again? Where else does it come up? How often do you reseed this?

David: We'll share it again in that last recommendations meeting. So, our process is we go through discovery, and then we have the financial planning meeting. Then we do a recommendations meeting where we come back and go through all the six areas of your financial plan with the client, and, "Here are all the recommendations." And then we get back together with them 60 days later. And so, in that recs meeting, we'll mention it again lightly. And oftentimes, they'll say, "Yeah, actually it's funny you should say that. I told my sister about you," or, "Oh, yeah. I was talking to a buddy yesterday at the golf course, mentioned that we're making this change." Because what we found, and I guess what I found over the years is that a lot of the referrals either happen in the first 60 days of the relationship or after a couple of years in. That's just what I've seen over the years. And maybe that's true, maybe that's not true based. I mean, you have all the research, Michael, so you know better than anybody.

Michael: We've never specifically studied or measured that, but I will say, I know my collection of my anecdata, high volume of anecdotes, not scientifically measured, is very similar that there's a subset of folks that just don't refer until it's been a few years. They have to get really high trust and comfort themselves before they're willing to open up to others. But that there are a segment of folks who, if they're having a good experience right up at the beginning, are actually quite willing to refer at the beginning when it's fresh of mind and they're having this experience that's so different from other advisors they've worked with. And that most advisory firms miss the early referral opportunity because they didn't introduce the conversation, they didn't set it up. They hadn't made clear to clients that it's okay to refer early when the clients are ready to refer early and they just lose that window.

David: Yeah, exactly.

Michael: So, I'm fascinated that your process, you're setting that right up front. And so, you are capturing all those opportunities from the people who are totally willing to refer. You just had to tell them it's normal to do so. So, you told them and they do.

David: And in that recommendations meeting, when we mention it again, and then we might mention it one or two times throughout the year depending upon when we're seeing it, but we're not exhaustive with it at all, I don't think. But in the recs meeting though, Michael, what's nice is that, we call them client promises. So, we we're covering these promises with our new clients. And what I mean by that is, in our very first meeting, we walk through all of the different challenges that they've shared that they've had before meeting us. What are their concerns? What are their fears? So on and so forth. What do they want answered? What are they trying to find and solve for? And so, we call those promises. So, when we're taking our notes, as we're using technology to take the notes, we still use old school pen and paper or typing in on our computer when we're sitting there.

And we really want to identify promises there of, what did we tell the client that we were going to solve for? And so, then we can come back in that recs meeting and we said, "Hey, do you remember in our first meeting, you said that you had a concern of, are you going to have enough to retire?" Or, "What if Social Security gets cut?" Or, "Do you have enough or do you need to consider long-term care?" Whatever those are, whatever the issue was, "Hey, we want to look at what a second home would be in Florida." But just the sheer fact that we go through that list...and they're pretty surprised, "Oh yeah, I did say that, didn't I?" "Oh yeah, you actually said nine things. Here they are. And here's the answer." Because sometimes advisors, what I've seen over the years, training, coaching advisors, I've just seen them listen, kind of sort've. They do what they always do and they share the plan at the end. And, "Oh yeah, you're good here." But it's not specific to what that client asked and the way that they asked it. So, the client doesn't really feel like their itch was scratched, if you will. They feel good because it's more than what they knew, but when you actually directly say, "Remember you said this on this date. Here's exactly the answer to what you said," it just makes an impact.

Michael: And then how do you bring the referral conversation back in, in the recommendations meeting? It sounds like you have very standard script, talking points you use. I'm curious what's the conversation thread of the way you introduce it here?

David: At the very end of the meeting, that we've gone through all the recommendations, they have their financial plan, they've seen everything, we set up a meeting to meet them again in 60 days. Because sometimes it just takes too long if you're waiting until the next review season. So, we want to touch them again so they don't feel like they purchased something, and then, "Okay, now we're done." So, we meet again in 60 days, but then at the very end, right as we're booking that meeting, we will mention it again to them and we will just say, "Hey, hopefully you've had a great experience here over the last several meetings. It's been wonderful getting to know you, your family. We're so excited to work with you. We see this as a very long-term relationship over the next 30 years. If there's someone that you've been thinking about, know that we would love to partner with them as well, and just let us know anything we can do there."

It's very natural, normal for folks to send folks our way. So, just something, again, mentioning that. And I would say, at least 30 to 50% of the time, Michael, someone is saying, "Oh yeah, I did talk to someone," and it's coming up. Clients don't remember to share, is what I've seen over the years. So, it's incumbent upon us as the advisor to just bring it up. And as long as it's not uncomfortable or awkward the way that the advisor is saying it, where it feels like pushy, that's what I've seen over the years. As long as it's just very natural as a part of the next sentence that you're talking about anyway, it comes across really well. And there's really no ask. There's no ask. We're just mentioning it so they don't feel like we're putting pressure on them. So, that's important.

Michael: And then also in this vein, the whole thing around text messages, do you introduce that here? It sounds like no, you let them mention at some point they did a referral, and then say, "Oh, hey, let's help that friend of yours move forward a little faster." Not a little faster, make it easier for them and less intimidating for them, "Do you want to do this text message introduction?"

David: So, typically when you say that, what I just mentioned there, they're going to respond and say, "Oh yeah, we have a couple of people we're actually thinking about." And then that's when I'm saying to them, and that's when our advisors are saying, "Oh, perfect." Well, a lot of folks find the most comfortable way to bring it up is really just to make a warm introduction via text because sometimes when you just give them our number, sometimes they just don't feel comfortable calling, what I've seen over the last 20-plus years. Or sometimes, if you just give me their number and they don't recognize the number when it's calling them, it's tough to connect there because it's an unknown name and number. I don't pick up on unknown name or number, and they say, "Oh yeah, we don't either."

So, it just makes sense to them. Email is good, but it's not personal enough. So, the text is really nice because then they know who we are, they know you, know us, and it just works out extremely well. So, that's when I mention that process to them and they're like, "Oh, that's a great idea. Yeah."

Michael: Just explain a little further why... You said it in the language itself, so maybe that's the whole story, but why text and not email? I get the whole phone number thing. They're intimidated to call us, and very few people answer stranger numbers on their inbounds now. But it feels like email's still pretty ubiquitous. So, why the text version versus email?

David: The email has not been my experience as far as the response rate on email compared to text. Text has been overwhelmingly, I don't have a percentage on it, but they always respond on text. They always respond. And what we do is we keep it in that same thread as well initially. So, John introduces me to Bob, "Hey Bob, I've got David Stevens, my advisor, on the line. I told you about him the other day, wanted to connect the two. I'll let you guys take it from here." Something like that. "Hi Bob. So, nice to meet you. Pleasure to e-meet you or pleasure to meet you through text today. Hey, looking forward to connecting with you more." Then I'm not responding. I'm letting Bob respond. I'm not saying, "Hey, let's meet together," or, "Hey, I'll send you my Calendly." No, that's a little too much.

Let Bob respond first, "Hey, David. It's so nice to meet you. Yeah, John told me about you. Looking forward to connecting." And then I respond and I'll say, "Okay, sounds great. I'll send you a direct text now with a few times that we could connect." And then, "Oh, sounds good." So, now it is reciprocal. Now email, I do do email and emails happen, it's just not, I'm going to use the term 100%. Sometimes they just don't respond or it goes cold. Plus, you have the phone number. So, you can just call them. So, that's helpful.

What Stevens Capital Partners Looks Like Today [53:23]

Michael: So, now let me just zoom out a bit on the firm overall. So, just help us understand overall size and scope of the firm as it exists today. You mentioned 575 clients, but I don't know if you can tell us about AUM and revenue, staff headcount. Help us understand the overall context of the firm.

David: Yeah, you bet. So, I'll give background first. When I first started the firm, I actually went to a TAMP [Turnkey Asset Management Platform] at first for about the first year, year and a half, and worked with a TAMP. And then I went SEC only because we had over $100 million. And so, we weren't really using the services of the TAMP to the level that made sense financially. And support-wise, we felt we could do it ourselves. So, we actually went SEC directly, I believe April of 2022, is when that was.

Michael: So, when you started with the TAMP, I'm inferring, was that like a corporate RIA structure, so you were actually on their ADV, so you didn't have to do your own registrations and state management and such?

David: Exactly. That was basically late November of 2020. So, I've been on my own, is how I'll say it, for a little less than five years. So, November.

Michael: Can I ask, who did you use originally to do the transition? Who TAMP that facilitated this flow?

David: Stratos Advisors, which, by the way, I had a wonderful experience. Happy to give a shout-out to Jeff Concepcion. He's a phenomenal CEO, wonderful experience, and great. And he was so gracious with me when we decided to go a different direction. He said, "Hey, for you, it makes sense for you to go SEC-only, buddy," is what he said. And we've sent him referrals since then. He's great.

Michael: Interesting. So, just one of those, I needed a waypoint and a stepping stone when I was launching. It's easier to attach to an existing platform to go on my own. And then at some point you were large enough to say, "No, I just think I'm ready to stand on my own two feet," as it were, "and do this myself."

David: Yeah. But when we made the decision to go to Stratos, when I made that decision, I didn't think I was going to leave Stratos. So, it wasn't, "Let's do a two-step approach." It would've been way better from a client experience perspective.

Michael: I wanted to do one because it just sucks to do two sets of transfers.

David: Exactly. I had all the intentions of staying there. However, when I actually saw what it would take to do it on my own, and we were doing it all. We didn't use them for investment management, we didn't use them for anything.

Michael: Because you just were comfortable to hire your own thing and do it your own way.

David: That's right.

Michael: And all of a sudden it's like, "Well, I really may as well just do it my own way. Apparently, I'm doing it already."

David: Yeah. Because we were already doing it. So, for us, it just made sense to be direct. But we had, the beginning of 2021, $100 million under management. But coming from TD Ameritrade, the fees were so low there, discount brokerage world. So, my revenue was only $600,000 at that time.

Michael: So, meaning it sounds like you had a lot of 0.6% fee schedule kinds of folks.

David: Literally. And in some cases, 45 basis points, 50 basis points. I'm 70. And giving Jeff Concepcion another shout out here, when he sat with me and he looked at my actual fee schedule, and then I walked him through everything I do with clients, he goes, "What do you do with clients? Tell me about the client experience." He didn't laugh at me, Michael, but he kind of laughed at me. He goes, "David, you're doing that? Oh, and then you're doing that as well? Oh, and then you do this as well for clients." He said, "David, you're undercharging. You need to be charging double and some." And he was a great source because he had what, hundreds if not thousands of advisors that are part of their actual ecosystem to pull from and know what was a commensurate fee relative to the service. So, that was pretty compelling. Between that conversation with him and about three other consultants and a bunch of peers, and just looking at the world of our fee schedule, we ended up changing. And so, over the course of time, we got our fees up to where they're at today.

Michael: So, where are they now?

David: So, now, for all the services that we do, and this is in our ADV, of course, $0 to $2 million, 1.35%, $2 million to $3 million is at 1.2%, $3million to $5 million is at 1%. $5 million to $10 million is at 0.8%. And it goes down from there. We are definitely a premium. We know that compared to others. But from a scope of work and the calendar and all the different things that we touch, we do really deep tax planning and we feel really good about it. And our clients do too.

Michael: I love it. It's like, "Yeah, we're premium. So, is the Four Seasons." They're not bashful about it.

David: No, we really are.

Michael: It's cool. You can be the above-average provider for the above-average fee. It works fine. There are people who like to pay for that and receive the services that go with it.

David: It's funny that we're talking about this, because even yesterday I had a client, they've been with me for, gosh, maybe 12 years, and they were still under the old fee schedule. And we just yesterday had one of those meetings where I said, "Hey, guys, this is where you're at. This is where our normal fee schedule is." And we were able to increase their fees by 40 basis points yesterday. And it was wonderful because the client, who by the way, historically, before he met me, was totally self-directed, an MBA, finance director. Knows the markets well. He said, "David, your firm has been worth every dime. You charge us whatever. This has been phenomenal. You guys have done exceptional work, everything you do for us." So, that's comforting.

So, over the last several years, we have raised fees for those clients by having one-on-one conversations. I didn't believe in just sending out an email, blanket email to everyone, "Hey, your fees are going up." I know other firms do that, and they just build in the attrition, and they say, "Hey, it's worth it." For me, that's just not my style. I needed to have a one-on-one conversation, show them the scope of work that we're doing for them, "Here's where we're at, here's where the market is. Here's where you've been. Are you okay with this?" And it wasn't even that I told them we're going to do it, call me weak, Michael, or people pleaser, as some would call, but I wanted to make sure that they were good with it. Because I just didn't want anyone to leave. And they were. So, that's been really good. So, now where we're at, back to your question is, you already mentioned the 575 households, but our annual recurring revenue is a little over $6 million, which is exciting. Just in less than five years, pretty much 10X-ing.

Michael: Wow. And so, what is that in terms of asset base and staff team?

David: Five hundred and twenty million dollars is where we're at today in assets under management.

Michael: Okay. So, per the conversation, average revenue yield is a little over 1% because you're at 1.35% for the first $2 million before it steps down?

David: And then we have tax revenue that makes up part of that $6.2 million tax revenue. Right now as it stands is at about $750,000 because we do tax prep as well. And then we also have planning fees that are a little under $600,000. So, we're still probably around the 1%, back to your statement there. And we still have quite a few clients that have not had their fees increase yet. So, there's still room there that we can go and do that.

Michael: Okay. Fascinating. I guess a couple things I'm still just trying to understand on fees. So, first is on the schedule. Are your graduated rates like tax brackets, 1.35% on the first two?

David: Correct. That's how we are.

Michael: Then 1% of the rest. It's not like a cliff, like once I get a dollar over $2 million, the whole thing notches down?

David: Correct. Not a cliff. That's right.

Michael: Okay. So, even on a blended rate, by the time I'm at $4 million or $5 million, my blended fee is still over one [percent] because I was 1.35% on the first two alone.

David: Correct.

Michael: So, planning fees, is there a layer where that kicks in in addition to the investment management fee you highlighted, or is planning fees for you the emerging clients?

David: The emerging client

Michael: Like HENRY fees segment?

David: Yeah. The emerging client, HENRY fees, or what's happening now with a couple of us on the team having the CEPA [Certified Exit Planning Advisor] designation and really leaning into more of the exit planning, there have been cases where we've had a client that owns several businesses, doesn't really have a lot of assets under management or even looking at net worth. So, then we're doing a fixed planning fee for those individuals. So, we have some of those families and those are really growing actually.

Michael: Okay. And I'm assuming those could be much higher planning fees? Those are actually high complexity clients?

David: That is correct. So, we have a $50,000 minimum for those. That's our target, let me say it that way. That's our target. We'd like to have $50,000, and we do have that in some cases. Some are like, "Hey, they're going to be there." They're going to be selling their business. But with our planning, we have a couple of VAs [Virtual Assistants] on the team, and one of our strategic partner, not partner, he's actually a W2 employee, but he does CFO services. So, cashflow forecasting, reinvestment to profit analysis, labor cost management, business valuations, company scorecard creation, company financial analysis, strategic goal planning. He does all of that for those clients. So, it's worth it, for sure, for the clients.

Michael: Very cool. And they pay separately for that, or that would be wrapped into one of these big $50k planning fee relationships for a business owner?

David: That is wrapped into that.

Stevens Capital Partners' Four Client Segments [1:03:14]

Michael: Okay. So, I guess following that vein, and I think you mentioned earlier that you've got four distinct groups of clients. Can you talk a little bit more about... Because clients or markets you serve, I don't know if these are segments or a whole different clientele, personas. I'm hearing like there's HENRYs with one fee structure and big illiquid business owners with another fee structure. So, talk to us about the different groups of clients that you've got and how this works.

David: Absolutely. So, we've got the emerging that I talked to you about, or the HENRYs, as we talked about there. We have $500,000 to $5 million, just the normal retiree, pre-retiree. That is right in that wheelhouse, if you will. Assets are right around $500,000 to $5 million. I know that's a big range. And then we have our PCS clients that are $5 million or more.

Michael: And what does PCS stand for?

David: Sorry. Private client services. And those are clients that we're working with and meeting every quarter. And so, that's those clients. And then we have that new area that I just talked about, which is more of the business owner CFO services that I just mentioned.

Michael: So, talk to us a little bit more about how services vary by these tiers. It sounds like you are pretty intentional about what you design for each tier, so I'm curious to hear more about how you segment these services.

David: Absolutely. So, the HENRYs/emerging clients once a year, and then the quarterly time that they can, on their own, set up a time to get together. Whole financial plan with those individuals. We do the investments for them as well. So, they're traded, everything there. And then all things CFP related. Anything that is associated with something that we all learned on our CFP studies, we're covering that with them. The retiree, pre-retiree, $500,000 to $5 million client, that's your typical client that most RIAs work with.

Michael: Yep. That's our bread and butter for most of us.

David: Mm-hmm. That's our bread and butter. We break that down into two categories, dependent upon the revenue. So, if the revenue is $5,000 to $20,000, we're meeting twice a year, and then we're doing another phone meeting or a Zoom meeting outside of that. So, really, it's three proactive touches a year for that group of people. If the clients are $30,000 to $50,000, then there are three meetings a year that are face-to-face or Zoom, and then an extra phone call/quicker Zoom, if you will, a lighter touchpoint we call it, with those individuals. As far as what they're getting and the scope of work that we're doing, full financial planning, we're also doing tax planning with them. We're looking at their tax return. So, in the fall, we do death and taxes.

So, every other year— And I've got to give a shout out to my good friends, Kyle and Bjorn from Quarry Hill [Advisors]. We're in a mastermind group together. And so, they've really helped out with some of these things. But we're doing a death and taxes. So, every other year, it is your trust and your full estate plan, reviewing that. And then on the other year, it's beneficiaries on insurance documents, etc. But every year it's looking at your taxes, your tax return, what needs to change, what do we need to do, how can we save you money, so on and so forth. And the EAs [Enrolled Agents] on our team are doing those. And then in the spring, we're doing the full financial plan, updating everything, you name it, using software to make sure that we're aggregating all the assets at the bank.

Michael: And what's your planning software of choice for doing this?

David: We are using MoneyGuidePro.

Michael: Yodlee Account Aggregation?

David: Exactly. Yodlee Account Aggregation. And so, we're doing that in the spring. And then the summertime on those folks that we reach out to, that's a little bit more market-driven, economy-driven, "Here's what's happening." Anything else that we didn't get done for them that was on the checklist. Because we use a dashboard that prints out, "Here's all the things we're doing for you. Here's everything we did last year, the year before." We're keeping track of it. And it's our own internal, kind of like how a doctor uses their list of things that they need to do as far as...

Michael: How do you generate that, just for tracking all the things you've done? Is that like a CRM output or something else?

David: No, it's not. It's nothing fancy on that one. We're still trying to innovate technology-wise to come up with a better solution. But right now, it's just as simple as Microsoft Word. And we keep it in their file. It's that simple. It looks nice, but it's the six major areas. If they're a business owner, we build in business planning and cash flow planning as well. So, it might be seven or eight areas, but all the recommendations for all those various areas of their plan.

Michael: So, you list the recommendations and then some indicator that you got through them, I presume, because not, unfortunately, all clients do our recommendations.

David: That's right. Exactly. And we are now using Knudge as a software to help us out, with a shout-out to my friend Sean, who's also in my mastermind group, who's one of the owners of Knudge.

Michael: It's Knudge with a K. K-N-U-D-G-E for client reminders.

David: That's right. For client reminders. So, anything that's on that checklist... And one of the challenges we used to do is we used to try to get them to do everything in the first three to six months. To your point, clients don't always want that. It's overwhelming. So, now we've scheduled those out. What are the most pressing items that we need to get done? And we have a nice workflow of doing that, but it's just as simple as Microsoft Word. We're keeping that in their respective client folder. But it's our internal document. We don't really share that with the clients. We do show it to them. So, in the meetings, we'll show it to them like, "Here's our internal dashboard of what we're working on for you." And then using Knudge to reach out and say, "Hey, remember you need to update this, or you need to send this to us," or whatever the case may be.

Michael: So, then is that everything at this middle $500,000 to $5 million tier?

David: That's right. That's pretty much everything there. On the PCS level, we really consider ourselves a strategist for those individuals. And what I mean by strategists is we're going to come in and we're going to be the liaison for all of their professionals. So, we have them sign a document that allows us to retrieve information from all the other professional services folks they work with, their attorneys, their CPA, whoever that is. And we're now acting as that quarterback of that relationship. So, think about it almost like a light family office where we are basically still meeting four times a year face to face. We have a scope of work that we're doing, everything that I already mentioned, plus some other areas that we're just getting much deeper.

Typically, when you're at that $5 million of liquid net worth, you might be net worth at $25 million, $30 million, $40 million, $50 million, $60 million, $70 million, $100 million or more, just depending upon...we have a lot of clients that have a ton of real estate here in Omaha, but probably most cities, but that's just a really big asset class I found with my clients. And so, there's complexity there, that we're giving advice on real estate decisions as well. We're meeting with and vetting actually different real estate opportunities for a lot of our clients. So, we're having those people come in and talk to us. And they go through us to make a decision on whether or not they're going to invest this million dollars or do this 1031 exchange or whatever the case may be. So, it's very much family office-ish in that group.

Michael: And these people are all... Because of your fee schedule, these are all $50,000 plus annual fee clients at this point?

David: That is correct. At least $50,000, they're paying us in all those situations. Now the jury's out on this one, I've been challenged on this, but it's probably my old TD Ameritrade upbringing where I'm naturally a little bit more frugal. But we even cover fees for those, what we'll call attorney fees. So, if an attorney comes in and says, "Hey, we need to draft this," we will cover that fee. They have a letter of engagement with that client, but we're going to just take from whatever the client's paying us and we're going to pay that attorney.

Michael: Oh, interesting. So, you're not trying to hire the attorney internally and put this on payroll, but you'll cover their legal fees to do some documents.

David: That's right. So, the clients like that. Again, I don't know if we'll do that forever, as we scale and grow, but at this point in time, economically, it makes sense. If the client's paying us $120,000 a year and the attorney's going to charge...literally, the meeting I just got out of, the attorney is doing a special needs trust for this client's relative, and it's going to be $3,000. So, we're going to cover that, no problem. We don't want to nickel and dime you. You made the introduction, so we'll do it. So, those are those services. And then the business exit planning services, that's what I was talking about earlier where we're doing the cashflow forecast and reinvestment and profit analysis, labor cost management, business valuation, all those different things there, as well as making sure that we look at the wealth gap and the value gap and all the things that the CEPA through exit planning teaches, we're covering all those topics with those individuals. Again, that's exclusively for business owners that are going to exit down the road.

Michael: And your model from a staffing end is that different advisors have different tiers, and as an advisor, most or all of your clients are one of these tiers in particular, you are the advisor doing emerging or you're the advisor doing PCS?

David: Correct. There's some overlaps still, but not long-term. Long term, we're still doing some client transitions right now, and we're looking to hire. So, right now, we're looking to hire an advisor that could work in that exit business planning as far as that specialty because it's growing rapidly.

Michael: So, we'll have for David's firm in the show notes as well. So, kitces.com/463, and click on the link to his website if you're job hunting for a high-net-worth business owner client.

David: There we go. Thank you, Michael.

Considering Advisor Capacity When Managing Several Client Tiers [1:14:00]

Michael: So, when you've got these substantially different tiers, just the depth... I guess I'm really curious, how do you think about capacity or figure out capacity for these?

David: Yeah, that's a great question. So, just the last four months, we actually just hired a COO and he was a COO at a $4 billion registered investment advisory firm. And he's just phenomenal. He's helped out with a lot of the projections. But prior to that, we have also Terrance Hutchins on our team who is an incredible advisor, but really a fractional CFO. So, over the last several years, he's helped us with the forecasting, exactly what you're talking about. So, he's been helping us with that for some time. And all of our efficiency ratios as far as the people that are generating revenue versus the people on our staff that are not generating revenue, and how many clients per advisor can we have.

Michael: Do you mean by efficiency ratios? I know clients per advisor. What are efficiency ratios as you measure them?

David: So, labor efficiency ratios, looking at how much money each person generates, if you will, for the firm relative to what they're being paid. What does that translate to…

Michael: So, I guess nominally, if the firm's trying to spend a third of its revenue on advisor comp, you want to average an efficiency ratio of three? I'm thinking about that right?

David: You nailed it actually. That's exactly it. That's our number. So, that is it. So, we're tracking that and just making sure…we're probably late is what we found just as far as hiring. We probably are a little bit behind on where we should be. But it's looking at the advisors and how many...

Michael: Which means the number is too high? That's what you get if you're behind, it's like, "Oops, we're actually generating more revenue than we meant to or needed to, which means we might be stretching capacity and need to hire more"?

David: Exactly.

Michael: So, there is such thing as being too labor efficiency ratio in your world. That's, "Oops, we're behind the hiring curve at the moment."

David: Exactly. And that's frankly where we're at right now. But everyone has a different capacity as well. So, it's difficult because my capacity might be I can work efficiently, effectively, and deliver a wonderful red carpet experience to X amount of clients, versus someone else.

What Surprised David The Most Building His Advisory Business [1:16:39]

Michael: So, as you reflect on this whole journey, what's surprised you the most about building your own advisory business?

David: I wish I would've done it a lot sooner.

Michael: Because you were a long time at TD Ameritrade before going on in your own, right?

David: Yeah. Almost 20 years. So, wonderful time there. Built some lifelong relationships there, and nothing but great things to say about TD.

Michael: So, you were at TD Ameritrade before it was TD Ameritrade. Are you on the Ameritrade side or the Waterhouse side?

David: I was on the Ameritrade side, because here in Omaha, Nebraska, that's the headquarters. What surprised me is, I would say I was really surprised about how important it is to really vet people from a culture standpoint that you're going to hire versus maybe just their expertise. Not really having a background in HR, interviewing people when I was at TD Ameritrade, but not working day to day with having to hire people, that was really not only surprising, but difficult, and had been quite difficult for me to just, if someone's highly capable as far as the skillset, but maybe there's just not a good culture fit for whatever reason saying no when you feel like saying yes. And that's been tough. And even having to let go of a couple of people, I was surprised at how difficult that was for me.

I'm always thinking about someone else as far as "Hey, how is this going to impact their family?" And even if they're not doing a good job, I'm "Hey, here's another chance. We'll give you another chance." "Oh, here's your 10th chance. Here's your 15th chance." And another shout out is definitely needed here, my dear friend, Mr. Daniel Hannoush, who is owner of Pandowealth, CEO of Pandowealth. He really has coached me quite a bit over the last three years on, "Hey, David, you're actually helping that employee by letting them go to let them go do what they were meant to do and what they're really skilled at. You're actually helping them, you're not hurting them."

Michael: It usually doesn't really feel good for them. Most of them know it's not going well. It doesn't feel great. Easy to say, hard to do.

David: Definitely, very hard to do.

The Low Point On David's Journey [1:19:04]

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

David: The low point, definitely having to fire the first person and just having that conversation and knowing that we probably should have made that decision a year before. And then also in full transparency, someone who they're actually the first person I hired. The very first person that I hired when we were just going gangbusters, just me, my wife, Natalia, and then we hired someone else. This is after about, gosh, four to five months, and just too many things to manage, too many hats that we were wearing. My wife is helping out here and there. She might be working a couple hours a day because I actually met her at Ameritrade way back in 2003. So, she worked in operations there. So, she had a background in ops. So, it was very fortunate to have her help.

But then this individual, after working with me for about seven, eight months, I was going too fast for him and I was just sprinting too fast. And he was just like, "David, this is incredible. The growth that we're experiencing is great. It's just too fast for me." He was used to going 50 miles an hour and we wanted to go 120 miles an hour. The challenge that I had was I did not want to give up the incredible client experience that we were delivering. So, if you have a wonderful client experience, but you're sprinting, it's just too much. It's just sometimes you should slow down or at least hire enough people to be able to sprint at that level or hire the right people. So, that really hurt when he left. And I didn't know things like "The Five Dysfunctions of a Team," Patrick, I think Lencioni. He gave me that book. He's like, "Hey, you need to read this."

Michael: That was his exit interview to you.

David: That was his exit interview, like, "Hey, you're great with people and you're really nice and you're a wonderful advisor, but leadership..." No, not leadership. He said I was good leader, but management, eh, not very good. And he was right. So, I needed that. I needed to learn that. And so, I lost a great person, and that hurt. And I knew it was my fault, not his, quite frankly. It was all me. And we're still friends today though, and he's still cheering us on from a distance, but I wish I would've known better.

David's Advice For His Younger Self And For Newer Advisors [1:21:19]

Michael: So, what else do you know now you wish you could go back and tell you five, ten, years ago as you were launching, thinking about going in this direction?

David: I would say just really believe that anyone can do this. And this is all about growth mindset. So, even when it stinks, and you might have lost a wonderful client or something, we can all pull ourselves up and just make it happen. To me, it's work ethic and it's desire at the end of the day. And so, I wish I knew that because I would've gone out on my own a long time prior. And just knowing that it's all about clients at the end of the day. Yes, if you're a CEO and you're wearing the CEO hat, you have to understand how to change from the advisor to CEO, which has been difficult for me. I'm very good at delegating, but I just want to make sure that the client experience doesn't diminish at all.

And so, that's been a difficult point for me. But just knowing that, "Hey, anyone can do it," and then really getting to know your clients much better. One of the things that I do with the clients is we get together once a quarter. I'm just thinking about one specific client. Every quarter, we get together, we have breakfast, and he's gone through and told me about his life from zero to 15 years old is where he started. And then I did, the next quarter, I shared zero to 15. And then he came back and shared 15 to 30. Everything that happened, magical moments, critical decisions, challenging things. And then I did the same thing in the next meeting. But that's a wonderful practice of getting to know clients. And then the next thing is understanding just how to go really deep with clients as far as knowing why they're building what they're building,

And then connecting them with meaningful nonprofits. That's one of the things we do; we give 10% of our profit away to charities. And then we connect our clients, Michael, with some of those charities as well. So, we have an annual event that we bring clients in, they can give to, they can learn about charities. But that's actually why I am doing what I'm doing. It's not to make more money. It's not for notoriety. It's not for any of that. It's so that we can help more people. I can make a bigger impact. And so, if I would've started some of those exercises 15 years ago, with helping clients to connect with charities, I just think that would've made it even better. Every time I do that, every time we have that, every time we have that conversation, that fills my bucket more than anything else.

Michael: You noted you realize now it's all about work ethic and desire and serving the clients, and when you do that well, it goes well. So, you wish you'd gone out sooner. So, what did you used to think it was about that was holding you back? What was the wrong version of that thinking?

David: The wrong version was my former manager would tell me, "Oh, it's so tough. If you go out on your own, you're not going to be able to find clients at all. It is so difficult. I know so many people that have done it, and then they came back." And I would think, "Man, I'm not going to be able to find clients. I'm not going to be able to do this." So, that was the old stinking thinking, if you will, that I used to have, for years. Even just right before I left, I was like, "Oh my gosh." Because I thought maybe 50 million [dollars of client assets] would follow me.

Michael: So, they'd convinced you or you convinced yourself that it wasn't going to work to be on your own. You couldn't do it on your own. And it turns out you could.

David: That's right. And you got to work at the end of the day. You just have to make it happen and get out of your comfort zone. We all know that. But that was certainly my old thought process and belief system.

Michael: So, what advice would you give younger, newer advisors looking to come into the profession today and wanting to set off on a good path here?

David: I would say to listen more than anything and just observe, and then also learn how to do business development. I feel like that's a skillset that's really been lost with new advisors. They just don't want to, they don't want to get out of their comfort zone. Again, this is the average advisor. This is not all of them. As I interview young advisors, not all of them, but overwhelmingly, they very much have no interest in selling. Selling is almost a dirty word to them, business development. And so, knowing that it's not personality-driven, it's just skillset-driven. And do you believe in what you're offering? Do you have value that you can offer someone else? And so, I would encourage young advisors to learn that skillset, learn how to do it in a way that's attractive and accurate.

So, many times people aren't attractive, and so, it turns people off when they do business development or they're not accurate, they don't tell the truth, or they tell half-truths, and that turns us off. We don't want that. I'll give you perspective. In 2011 is when I actually started being client-facing as an advisor at my old firm. Prior to that, I would just send referrals over to them for about two and a half years before that. And I didn't think I could do it. At that time, I was like, "I'm not going to be client-facing." But I got so frustrated with how the advisors that I would send business to treated those clients because I would stay on mute and listen to the call. And I'm just like, "Oh, they weren't even listening. The client already said that two minutes ago. They asked him the same question. What are they doing? " And so, my wife is the one who encouraged me like, "Babe, you could do it. Why don't you go be an advisor?" "No, I can't do it. I can't do it."

Michael: "They've got successful firms. You've heard their talking points. You can do better than this."

David: Right. So, that's where I just made the jump.

What Success Means To David [1:27:07]

Michael: So, as we come to the end of the podcast, this is a show about success, and one of themes that always comes up is that that word success means very different things to different people. And so, you're now building this wonderfully successful firm, you're at half a billion, five years in, and chugging along. So, the business seems to be an amazing place. Can you share a little bit more about how you define success for yourself at this point?

David: Yeah, absolutely. So, the general term that I always share with the team and folks is success, as I mentioned earlier, is how many people are better off because you lived? That's my personal definition of success, how many people are better off because we lived? But how that plays out is we do EOS [Entrepreneurial Operating System], Traction, and we do the VTO, the vision traction organizer, where we look at ten years, what are our goals? And part of our goals there are to give away a certain amount. So, for me, the way I define success now is, how much money as a firm are we going to be able to give away to help with paying for surgeries, emergency surgeries, whether national or global. Really global there. And then also scholarships for kids. We want to do some pretty amazing things there.

So, that's how I define it, as well as helping other advisors to build significant businesses. So, we want them to be able to come into the SCP, Stevens Capital Partners community, and be able to build their own very successful books, to help those clients to also, of course, as a byproduct, help their family. But that's not the focus. It's helping other people first, and then as a byproduct of that, you're helping yourself too, in that order. And that's the type of people that we're trying to partner with, Michael. People that feel that way genuinely, where they have very low egos, which is important, and to be that way. So, that's what I would say there as far as success.

Michael: Thank you, David, so much for joining us on the "Financial Advisor Success" Podcast.

David: Thank you, Michael.