Welcome back to the sixteenth episode of the Financial Advisor Success podcast!
Our guest this week is Deena Katz, the co-chairwoman of Evensky & Katz / Foldes Financial, a $1.6 billion independent RIA in Coral Gables, Florida. In addition, Deena is an author, editor, and contributor to 9 books on financial planning and wealth management, including 3 specifically on practice management for financial advisors… one of which had a tremendous impact on me when I was early in my own career!
More recently, Deena transitioned from financial advising to academia, and is now a professor in the financial planning program at Texas Tech University as well! Though in point of fact, Deena’s transition to becoming a professor isn’t entirely surprising, because she was also a teacher early in her career before making the change into financial planning almost 40 years ago.
In this interview, Deena talks about the early years of financial planning, how she and her partners established one of the first sizable fee-only financial advisory businesses, and how she was able to break through in her own career – at a time when there were even fewer female independent advisory firm owners – by adopting a niche of working with recently widowed and divorcee women.
We also talk a lot about the delivery of financial planning itself, and various business models, including why it is that Deena’s firm does not provide full-length comprehensive financial plans to new clients anymore (and instead breaks up their financial planning process into modules over the first year), the simple process her firm uses to demonstrate its ongoing financial planning value over time, and why success isn’t about following your passion but practicing your skills instead.
And be certain to listen to the end, where we talk about various types of financial advisory business models, the future of the AUM model, and the infamous question of whether it’s better to charge separately for financial planning, or not.
So whether you’re looking for perspective on the future of financial advisor business models (from a woman whose firm has tried almost all of them at some point or another!), ideas in how to get your growth going by focusing into a niche, or are looking for inspiration about how to get started in your financial planning career from here (especially as a woman in a still-male-dominated industry), I hope you enjoy this latest episode of the Financial Advisor Success podcast!
What You’ll Learn In This Podcast Episode
- Why Deena moved to Florida to work with her partner Harold, and the big changes she made when she got there (including becoming president!). [4:52]
- The importance of demonstrating value in an industry where so much of our work is “invisible” to clients. [12:40]
- The modular financial planning approach her firm uses to build the financial plan over time without overwhelming new clients. [18:38]
- What Deena’s firm does to keep clients focused on financial planning and avoid having them tunnel-vision on investment performance. [23:16]
- Several of Deena’s book recommendations for building better advisory firms and client relationships. [39:18]
- Why success isn’t about following your passion, but practicing your skills. [40:51]
- How Deena got traction in this male-dominated industry early on as a female financial advisor by building a niche with recently widowed and divorced women. [42:47]
- What happened to Deena’s mother that made her instill the importance of women’s financial empowerment in her daughters, and how Deena has brought that to her work for decades. [48:50]
- Why “great service” is no longer a good differentiator for financial advisors. [58:41]
- How Deena’s experience with breast cancer shifted her perspective on planning and shifted her role in the financial industry. [1:03:08]
- The evolution of financial planning education at Texas Tech University and around the country that has stemmed in part from Deena’s efforts. [1:06:11]
- What challenges advisors face today, and how to change your outlook on fear and failure. [1:09:58]
- What the future of fee structures in financial planning might look like, especially with the added wrinkle of robo-advisors. [1:13:08]
Resources Featured In This Episode:
- Texas Tech Personal Financial Planning program
- Practice Management: Tips, Tools, & Templates for the Financial Advisor by Deena Katz
- Selling the Invisible: A Field Guide to Modern Marketing by Harry Beckwith
- The Speed of Trust: The One Thing That Changes Everything by Stephen M. R. Covey
- So Good They Can’t Ignore You: Why Skills Trump Passion in the Quest for Work You Love by Cal Newport
- Purple Cow by Seth Godin
- Equal Pay Day: The shocking profession with the biggest gender wage gap
- Ep 001: Rick Kahler on Entrepreneurial Persistence and Building a $200M AUM Practice
- CFP Board
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Full Transcript: Building Authentic Client Relationships By Practice Skills (Not Pursuing Passions!)
Michael: Welcome, everyone. Welcome to the 16th episode of the Financial Advisor Success podcast. My guest on today’s podcast is Deena Katz. Deena is the Co-Chairwoman of Evensky & Katz/Foldes Financial, a $1.6 billion independent RIA in Coral Gables, Florida and Lubbock, Texas. In addition, Deena is an author, editor and contributor to nine books on financial planning and wealth management, including three specifically on practice management for financial advisors. And she’s now a professor in the financial planning program at Texas Tech University as well.
In this episode, Deena shares how she built her career in family planning, from getting traction early on by focusing on a niche with women who were recent widows and divorcees to running and systematizing Evensky & Katz as it grew, and what the firm has found that works and doesn’t work when it comes to business models, and that infamous question of whether it’s better to charge separately for financial planning or not. In addition, Deena also talks about why her firm does not provide fully comprehensive financial plans for new clients anymore and instead breaks up their financial planning process into modules that stretch out over the first year. She also talks about the simple process that the firm uses to demonstrate its ongoing financial planning value over time, and what she thinks it will take to succeed in the financial planning business going forward.
As always, you can find show notes for this episode including a number of great books that Deena suggest throughout the podcast on our website at www.kitces.com/16 for episode 16. And if you have a moment, I hope you also go to iTunes and leave us a review, and let us know what do you think of the podcast? And whether there’s anything that we can do to make it even better. And so with that introduction, I hope you enjoy this episode of the Financial Advisor Success podcast with Deena Katz.
Welcome, Deena Katz to the Financial Advisor Success podcast.
Deena: Thank you, Michael. I’m happy to be here, this is fun. We’ve got a lot to talk about.
Michael: Fantastic. I’m excited about having you on the show today because, you know, you probably don’t even know this. So your book “Tools and Templates for Your Advisory Practice” from back in like probably 2001 or so was the first book I ever saw about practice management for financial advisors. So back then I was a paraplanner in advisory firm, and actually like it was the advisor I was working for who was reading the book. So I remember it on his desk. And I was fascinated by the idea that there were whole books on how to run an advisory firm, because I was just trying to figure out how to be a financial planner. I think back then I was studying for my CFP exam and I’m learning how to make plans and learning plan software. I was like, “Oh my God, there’s this whole other like higher order of magnitude plane above my head that I haven’t even got into yet. That you already mastered to the point of writing a book on the topic.” It’s great to interview you about this as someone that made a really huge impression on me from very early in my career that even beyond being a professional financial planner to professionally run an advisory business mean something different. And just even the idea that those would be separate skills to learn and whole other things to figure out just kind of blew my mind at the time.
Deena: Well, you know, when I first started, there weren’t any directions. And actually, I had already run a real estate management company and some other related businesses, so I had a lot of business background that a lot of advisors didn’t have. And funny story about that book, not that one, I think the first one. I have three on practice management. The first one, I was doing a talk with Mary Rowland who was columnist at the New York Times, and she had talked to me privately about writing a book about practice management and I said, “No, no, I’m not going to do it. I’m not going to do it.” And so we were talking and she announces that I’m working on a book. I’m like…
Michael: Just announces in a public forum.
Deena: Yeah. Like, “What the hell are you saying? What is this?” I had to write it because I didn’t want to embarrass myself.
Michael: Fantastic. I feel like there’s a lot of volunteer leadership that happens in a very similar manner.
Deena: And it’s true, most of it happens around speaking engagements. Never do a panel, that’s the first advice, never do a panel.
Why Deena Moved To Florida To Work With Her Partner Harold [4:52]
Michael: Yeah, yeah, it’s amazing what peer-to-peer social pressure can cause and inflict on us. So maybe I’d like to start to set the table first. Can you just tell us a little about the advisory firm as it exists today?
Deena: We have 28 people, we have two separate offices. There’s one in Lubbock that Harold and I started so I could train the next generation. We have interns working there, we have people who have graduated from our program who are working there. So we just have a really wonderful, robust group of people. I don’t run the practice anymore. When I left, I put together a management team and so there are a team of five people who take different aspects of the…of the business, and then we have an overall managing partner.
Michael: And so how big is the firm overall? I don’t know, like do you measure AUM or revenues, or head count, or…?
Deena: We have about 1.6 billion under management.
Michael: Across? Do you know like how many clients is that or what a typical household for?
Deena: Well, typically, I mean, probably our average is around 2 million, but we do have some clients with smaller dollars because we bought a practice, I don’t know, three years ago, Foldes Financial. And although we changed the name to add his for his firm, we actually bought it. So it is not…
Michael: So it’s not an Evensky & Katz / Foldes Financial?
Deena: Yeah, but that’ll change.
Deena: So, you know, we have just…we have an amazing group of people, many that I hired right out of college. And in fact the first student that came out of University of Miami with a degree in accounting and financial planning, a dual degree is our managing partner. So he’s, I don’t know, 20-something years with us. So it’s a good solid firm, been around a long time. Probably anyone who’s doing business in Miami has worked with us at one period of time because Harold, well, let me put it this way. Harold would give a talk to two drunks in a bar. Sometimes he was one of the drunks.
Michael: And the other one got hired.
Deena: Yeah. So, I mean, he just…he taught programs and people would come and say, “Gee, can I be part of your firm?” At that time he had a broker-dealer. I had my own firm in Chicago, I had seven people working with me. Here’s the story of that one. I met Harold at a conference out in Denver in the old CFP conferences, and he was giving a talk on selecting software. Well, Harold’s idea of selecting software is to do a spreadsheet that lasts about, oh, I don’t know, seven or eight pages. Of all the things that you need in that software, my idea of selecting software to look at it and say, “I think I’d work with this.” And so I went to his talk and afterward I was sitting down under the stairs, in that hotel they had a bar under the stairs, with five people from the IFP and we were telling dirty jokes because I’m a minister’s daughter and that’s what I do. And so I saw Harold and I decided to, you know, call him over to talk to him and we found that we had a lot in common the way we talk about, or talked about our clients and what kinds of things we did in our commitment to the industry, which was very, very new at that time. So we began corresponding. And one day my mother called me and she said she was moving to Florida because she had retired, and I wanted to be close to her. So I called Harold and I said, “I think I’m going to go to Florida.”
Michael: You were like, “I know an advisor in Florida.”
Deena: But I didn’t ask to be part of his firm. I said, “You know, I think I’m going to move to Florida.” And he said, “Why don’t you join us?” We had one other partner at the time, neither one of them could manage a practice, which became real clear when I got there. And so here they, you know, had this broker-dealer, they had 20 people working through this broker-dealer and not one of them could sell their way out of a paper bag. And, you know, nice, nice people, really, really nice but just had, you know, no real skills. And Harold was…is not the type of person who does that kind of training. That just wasn’t his…
Michael: But he’s a very nice man who wanted to give them a chance.
Deena: He did, he did. And so I moved down there. Well, actually, what actually happened was he called me and he said, “Well, why don’t you come down and join us?” And I said, “I’d have to on two conditions. One is I’d have to be an owner-partner. That means, you know, I’ll buy in whatever cost. But the second one is I’ve always run my own practice, so I’d have to be the president.” He called me back…
Michael: I’ll be your partner but I have to run you.
Deena: Oh yeah, oh yeah. And he called back two days later and he said, “How soon can you get here?”
Michael: Deal accepted, fantastic.
Deena: It was at a time when…And this really kind of ties in to all the problems beneath the surface of a practice. When I came down, he had all these, you know, really nice people, but they really had no direction. And he is a wonderful planner, just to work with him is an absolute joy. And not because he’s my husband, but they didn’t know where they were going. And so one day I got a call from this Mary Rowland at The New York Times and she said, “Do you know any fee-only planners, because my editor doesn’t want me to quote people who are product pushers?” And I said, “No, but call me back in a couple of weeks.” So I went down the hall and I said to Harold and Peter, “We’re going to sell the broker-dealer, we’re going to become fee-only.” And when I picked them both up off the floor, we began this business plan to become fee-only. And we were one of the first people.
Michael: And when was this?
Deena: This was 1989.
Michael: Wow! So NAPFA had only been around a couple of years.
Deena: And NAPFA was full of, you know, people who had…I don’t know, some of them represented their families and…You know, I mean, it was…
Michael: Yeah, just there wasn’t a lot of infrastructure.
Deena: Yeah. There was nothing fully formed there. So we did it, and those were really tough times, particularly because when you start something that nobody’s ever heard of before, you have to educate them before you can tell them they need you. So there were times when we did not take a salary, there were times when, you know, just to pay our people, we scrunched around trying to get, you know, enough money to…just to make their salaries.
Michael: I mean, was that like early on in the first year while you were doing this transition or, I mean, did that take a while?
Deena: It was actually about the first three years. And the reason was because they had started looking at charging fees, and they were…they had converted a few people over, but they forgot to charge.
Michael: So they convinced people to switch to doing advisory fees but then they didn’t charge the advisory fees.
Deena: That’s pretty much what it was. So about, you know, 18 months that people had not had any charge, they were kind of in shock that I actually sent them a bill.
The Importance Of Demonstrating Value In An Industry Where So Much Work Is “Invisible” [12:40]
Michael: Which of course is a very eye-poppingly large bill when you catch up 18 month’s worth of fees all at once.
Deena: Yeah. And I think what they misunderstood was I really think they thought Harold said “free-only” instead of “fee-only.” That’s really what happened. So it was very difficult to kind of get started. But our third partner wasn’t particularly excited about it. And, of course, in order to grow, you have to have a process and infrastructure, which they never did. So I went through the whole process of prioritizing, of having a business plan, a mission statement. They never had any of these things. And so it was pretty hard to tell, you know, some 50-year-old guy, “You know, you’ve got to do things differently now.”
Michael: Well, I mean, how do you have that conversation? Like just…
Deena: Well, actually try to get a lot of buy-in. And that’s really what, you know, what I spent a lot of time on was, “Look, you know, it’s things are not working the way you’re doing them.” And this was to both Harold and Peter. We need to look at this differently if we’re going to provide advice, and advice is your product and not…you know, product, you’re going to have to be much more specific on what’s valuable and what isn’t. You know, it’s kind of like selling vaporware. You know, you don’t ultimately have something. You know, and this is the kind of business where people don’t discover how valuable your work is for years maybe. And I read this one amazing book called “Selling the Invisible.” I still use it today. And he really helped me formulate tangible value, which is very hard to do in a fee-only business. So it’s one of the problems I think advisors have today and they still have is how do you demonstrate value?
Michael: Yeah. You know, we’ll make sure we include a link to it in the show notes. So for those who’re listening, kitces.com/16 since we’re on episode 16 here. I was fascinated by Harry’s book, “Selling the Invisible.” And for those who aren’t familiar with, like the key tenet to it, the key point to it is that you…in many types of service-based industries, including financial planning, the thing we’re ultimately selling is invisible, it’s intangible. It’s not like a car where I can take it to test drive. It’s not like an object at the store where I can go and look at it, or touch it, or lift it, or shake it, or, you know, whatever it is you do to buy things. When you’re selling intangible service, people have nothing to evaluate and nothing to vet about the thing you’re actually selling. And at least for me one of the big takeaways that Beckwith makes in the book is when people don’t have something tangible to ground themselves to when they’re evaluating an intangible service, they start looking for other stuff, like anything that they can lapse themselves to. And so, you know, things like how you dress, and how you speak, and the décor of your office and things like that actually do matter because when they have no idea whether you’re really actually going to be able to deliver this intangible thing that you’re talking about, all they really have to go on is like, “Well, at least they know how to put together a decent look in the office.” I mean, it surrounds ridiculous but like it comes down to stuff like that sometimes.
Deena: Well, you know, my big takeaway from him was he says, you know, if you have an iron and it breaks down, you don’t say, “Oh, those Black & Decker people, how could they do this to me?” You know, well, okay, the iron broke down. But when you have a service and it breaks down, it’s gone. People leave you.
Michael: And it’s personal. It’s like, “Why did you do this to me?”
Deena: And so, you know, my whole theory prior to that was we didn’t want to show the clients how we make the sausage. And after that book, it was like, “All right, you get to see the sausage. You know, we get to show exactly what we’re doing for you on a day-to-day basis, because you don’t realize how much work it is to make sure that you get where you want to go. And it’s not about monitoring the market and…You know, it’s about most of those things that financial planning is about.”
Michael: So I’m curious, what did you do with that? Like do you start like showing them stuff you’re doing in meetings and between meetings or did create some deliverable of, “Here’s all the work we did for you?”
Deena: Well, basically we started with, after every meeting, we send a follow-up letter, and in that follow-up letter it says, “These are the things that we’re going to attack in the next, you know, quarter, or 60 days, or whatever it is.” So then as we’re going along, you know, if we need to contact them we do, and we, you know, let them know we’re doing these things. And then at the next meeting, we go over, “Here are the things we did.” And then we set up for the next thing. This is kind of how we got our holistic financial planning process because one of the other things I figured out it’s my first financial plan was 103 pages. The client looked at me and said, “My God, you published.” I thought I had to tell her everything that I knew and then some. And so what I realized is, you know, planning is a process, it is not a Polaroid picture. Each step is a Polaroid picture. So we started doing our planning over a period of a year. So we would, you know, look at one aspect of the plan and we’d work on that, and we’d look at another. Now, there’s this overriding outline that we know what we’re going to be doing, but we actually delved into each part of the client’s life as we go along.
The Modular Financial Planning Approach Deena’s Firm Uses [18:38]
Michael: So by the end, like, did you not even do I guess what we call like the traditional the comprehensive plan? When you get a new client you’re going to have a three-meeting process and at the end you’re going to get The Plan, capital T, capital P. And I’m going to…
Deena: Well, we all started out that way. But no, when I was finished, no, we didn’t. We usually started with those things that were most pressing. And if you think about what’s pressing in the financial plan, for me it’s risk management. We don’t sell insurance, we never have. We say fee-only, we don’t get anything from the client. But first thing we tackle is, “Okay, where is your coverage for all of this?” And we bring in some outside people to…who would manage that for us. You know, our clients would have a relationship with them.
Michael: So I’m intrigued by this idea of like, “We’re just flat out not going to give them a plan, we’re just literally going to structure it out over time.” All right, so two questions come to mind, number one is, do you ever get that anxiety of, “What if the thing we were going to get to fourth turns out to be the thing that mattered?” Right? Like the whole like, “Okay, we’ll do the risk management first then like maybe we’ll do some cash flow issues that they’ve got,” but we don’t actually get to the portfolio until step three, and then it turns out there’s a market crash in the fourth month and we hadn’t gotten there yet and we didn’t save the client from the concentrated stock position and…
Deena: No. Understand, you know, we prioritize things. There are some things we do immediately, so we don’t delve in till after we get certain things in place. And one of them is the investment piece. You know, “What do we need to do with that?” But as far as actually drilling down into where their issues are, you know, we do that over quarters. We already know there are certain things we need to do first, and we do those things.
Michael: And I’m struck as well that just, you know, there is a certain simple straightforwardness, and I don’t mean that in a negative way, of just, we make a plan for the things we’re going to do in the next 60 or 90 days, and then we give the client a takeaway, and then when we come to the next meeting, we pull out those items and we see what got done and then we set the next few. And like it’s so straightforward yet I feel like it’s one of those things that most of us are really deep down not actually going to do on a very consistent, systematized basis.
Deena: I think that’s a big issue. I mean, you know, in the early days, we didn’t have software to do all of this, so everything was written down. We kept client diaries, we still do but, you know, it was a lot harder.
Michael: Client diaries of just like a central place to write down and capture all the stuff?
Deena: Yeah, because we want to know what the client is about, what the relationship is about. So we’d have these client volumes of client notes, and that time I think we were using Lotus 1-2-3. But, you know, basically, we needed to write down…I knew what kind of beverage the client wanted before they walked in, I knew how many kids they had, grandkids, grandma. You know, we captured everything we could capture because the more you know about the client, the easier it is to get them to buy into what you’re doing. And so then, we did plans, but they weren’t comprehensive, they were usually investment retirement kind of thing because that’s what most people came into. And then we did the other planning. Today, all of our planning is done online on MoneyGuidePro, and it’s interactive, it’s collaborative. So for example, if the clients are sitting with you, they can dial into you and see the same screen that you’ve got. We make changes on the fly. Because, you know, when you had a financial plan 40 years ago, it was on paper and it was typed, and maybe you had a word processor. And so, you know, today we just say, “Okay, you think inflation is going to be a little higher than that? Let’s see what that looks like.”
So this has really given us a world of assist in what we’re trying to do for our clients. And that’s why it’s all one big process, because we can move from one area of the client’s plan to the other with…seamlessly with them watching. So we know exactly what…they know exactly what we need to do and they kind of direct us. You know, “I think we need to talk about this. We’re having a new kid.” “Okay.”
What Deena’s Firm Does To Keep Clients Focused On Financial Planning [23:16]
Michael: So how many…like how many meanings does this typically stretch out to? I mean, I’m kind of envisioning this more of like we do some investment retirement up front, and then we’ve got to cycle back in college planning, and then we’ve got to do just risk management and then there’s some estate planning stuff, and then maybe there’s like a business issue, and by then something else has come back up in their life. I mean, how many meetings would you go through in the first year just to try and get through this staged financial planning process?
Deena: Yeah, really it takes about a year to go through this staging. We meet them every quarter. Here’s the thing. One of the things I learned is that if you don’t stay in touch with your client, other people are going to tell them what they should be doing. So you’re going to be meeting with them anyway, you might as well make it about them, focused and stop looking at, you know, numbers on a paper. Numbers on a paper are useless. Quite frankly, it’s really not about performance, it’s about how far, you know, are you getting where you want to go. And so we stopped…the first thing we stopped doing was showing short-term performance. We didn’t show anything before a one-year performance.
Michael: Okay. So like even if the clients are coming in for their quarterly review, like, you’ve got the past 12 months up through this quarter.
Deena: And so, you know, part of that is that we don’t want them to focus on performance. What we use as a benchmark is we use…for them, we use inflation. How far ahead of inflation are you staying? This is important stuff to know, because inflation is going to eat you alive. Here’s my other…my story about performance. Actually about what we do versus what money managers do. There used to be a fund, I don’t know if Jean-Marie is around, Jean-Marie Eveillard. And he had this balance fund. We used it for a lot of our clients in the early days because many of them were very risk-averse. So we invited them down to speak to our clients, clients all came and they were so happy to meet him, and then afterward we took him to dinner. Harold and I are sitting at dinner, and I said to him, “You know, my brother is a Salvation Army minister. Last year during a storm, a tree fell on his trailer that was his vacation truckload and they towed it and gave him $5,000 and he wanted to know what to do with it so he called his hotshot sister, and I put it in your fund.”He stood up, slammed his hands on the table and said, “Now you’ve done it.” I was like, “Oh my God,” you know. He said, “Now you’ve put a face to the money. I can’t manage my fund if I’m thinking about your brother and his $5,000 trying to put his kids through college.”
And that was the biggest aha of my life, because I realized I do put a face to the money. I care about those two kids. He shouldn’t…he’s absolutely right. I am not the money manager, I select him, and he does his best with that sector of the market that he needs to handle so my client can send his kids to college and take care of his retirement. So on that basis if you think about what we do, if we pay attention to performance so much that the client is not focused on whether or not he’s getting where he’s going, we’re not doing our job.
Michael: So in that world of you focusing on the planning over the investments and doing this extended planning process over time, I feel like I have to ask that legendary controversial question in our world right now. So did you charge separately for the planning, or was it bundled as part of the overall AUM fee?
Deena: We have tried so many fee things. And initially we charged separately for the planning, then we tried a retainer fee, we’ve tried everything. Right now it’s just assets under management, which I hate but it’s not my choice anymore frankly.
Michael: What led you there or what led you, you know, for…I mean, I’ve got to presume like a view. If there was a point where you tried some version of a flat fee or a retainer fee and it was kind of kicking back for the business, it probably would have stopped. So I’ve got a…
Deena: Well, mostly, you know, people didn’t understand that. I mean, remember this was early on, and they just couldn’t get their arms around it.
Michael: Because a standalone planning fee is this weird, alien thing I’ve never paid for but I get AUM fees because everybody assessed them already and if you do more awesome stuff and you do all these financial planning things on the side, then you’re just a super special, awesome deal for the same AUM fee I had to pay anyway.
Deena: There you go, there you go. And so, you know, you finally give up after a while but…And people, people are amazing to me. For example, I had a woman come in a few years ago, and I still, you know, see a few people but I don’t really do their…I pass them off to, you know, other advisors because I mostly spend my time teaching the next generation. Now, that’s a different story. But she says to me, “I’ve got this whole $7 million bond portfolio and I’d like you to take a look at it.”So I looked at it and I said, “You’ve got some good things…yeah, you’ve got some things that, you know, not really excited about, and there’s a lot of reasons why not.” But I’m certainly not going to talk to her about duration, you know, because she’s not going to get it. She says to me, “I don’t pay for my advisor for any advice or for anything.”
Michael: Really? You work with a charity?
Deena: So I said, “Well, how do you think he gets paid?” “Well, you know, I knew him in high school, he’s a really nice guy, you know. And he gave me my first kiss, so, you know, I figure, you know, he’s just doing this for me to be nice.” I said, “Every one of these bonds in here cost money for you, you paid…you paid to buy them. I don’t know what that is, but I can tell you that it could be pretty hefty.” “Really? I didn’t know that.” The other thing he would do, and this is another problem I have, he would send her an invoice for what it might be for that fee, and then cross through it and say, “No fee.” Of course, she also had some A-Share mutual funds. So my whole thing about fees is how are you comfortable, you know? I’ve got to get paid. I don’t like charging you just an asset under management, because I think that’s going to make you look at performance, but I’m going to tell you what I really get paid for, and it’s all of this other stuff.
The other thing that I tell people when I talk to them is you don’t have to maximize return. Now, you know, Jean-Marie Eveillard over here, he’s got a maximized return because he wants more people to get into his fund and he wants people to stay there, so he’s got to do that, but you don’t have to. You just have to make enough to get you where you want to go. So if you’re coming to me so I can find the top most dollar you can get out of your money, you’re in the wrong place. I’m going to do the best but my best is staying ahead of inflation and letting you get all the things that you’ve listed that you want to do in your lifetime.
Michael: I’m curious then, like, it kind of kicks of all sorts of interesting questions from me, because I go back and forth in this with obviously lots of people in the industry about compensation dynamics. And as far as this whole question of if you only charge an AUM fee, do clients only value the asset management? And I’ve always kind of maintained I guess right or wrong that clients value the value you create for them. And clients in no small part value whatever part you tell them are valuable because they kind of look to you for cues sometimes. And so, you know, when you go into every meeting and they’re the playing an AUM fee but there’s always an agenda for the meeting and the agenda always has four financial planning things. You know, the two or three from the last meeting and the next one or two we’re going to work on, and the framework that you’ve set forth. Like when one meeting after another after another it’s always all these financial planning agenda items, and they’re making progress, and they’re making changes in their lives and things are getting better for them, it’s hard for them like to think that your value is investments when every meeting is not about investments. When you let every meeting be an investment portfolio statement review meeting, it ends up being about the money, because that’s literally where you spend the time and focus.
The challenge that I’ve noticed for some firms like of where that creates an issue is the clients will value the planning if you do the planning, regardless of what the fee source is. The biggest challenge I’ve actually watched a lot of firms go through is it’s a management challenge, because when you get paid for the planning and there’s revenue attached to the planning, you make certain business decisions knowing that more planners equals more planning stuff, equals more planning revenue and like the cost of the planners pays for itself. There’s kind of like a, you know, it’s easy to attach cost to revenue. When you live in a world where you charge AUM fees but you do the planning, I feel like there’s a…it’s like a focus test for management, for a firm owner to say, “Even though our revenue is purely on the investment side, I have to keep spending all of this money in the business on all these financial planning things that don’t tie to revenue at least directly, because it is part of…the value proposition is what I’m trying to create and not succumb to the temptation to say, “Well, if our revenue drives from the AUM, I’m going to hire more investment people that are attached to the revenue and I’m not going to hire more financial planning people that are starting to feel like a cost and less like a value add, because the clients pay us the same AUM fees regardless whether I do more planning in the next three months,” you can succumb to a management challenge about losing your focus, and if you lose your focus and you become investment-centric then lo and behold, your clients become investment-centric.
Deena: Here’s what you’re missing is the retention budget. Here’s the thing. Not only do you want to get new clients but you want those old clients to stay with you, and you want the new clients to get to stay with you. So I in my management days would have a retention budget. And this is what we spent to make sure that clients stayed with us, that we engendered trust, that we got their loyalty, and that’s where the planning piece resides. So it’s not just, you know, all the revenue comes from one source, yes, because we simply can’t, you know, look at it in a different way but we can buy for it in-house saying, “Look, this is really what it costs us to manage those investments, and this is what it cost us to do the other thing.”
Michael: And so, effectively, the ROI on the financial planning is some version of “Hey, maybe we’re getting to charge a little more of an AUM fee because we have the stuff bundled together,” but when we do the planning work and our retention rate moves from 92% to 98% or whatever the number is, like in a world where client AUM fees are what they are, a relatively small percentage change in retention is actually a really big ROI on the investment into making financial planning part of the value proposition for your firm.
Deena: Yeah. And I will tell you, I really believe, and we haven’t felt it in our firm but I believe there’s going to be a lot of downward pressure, and I think people are going to have to separate assets under management. And I think it’s all going to be, you know, in the 20 basis points, and everything else is going to be charged a fee. It’s going to be different for clients, but then charging fees was different for clients to begin with. We attracted people who wanted to work with us and were okay with how we were compensated, because everything was…And I maintain that if you are transparent, you know, people will still pay for planning. I think the reason that so much of the industry is not unbundled is because they’re scared to death that people are going to not see value in the planning. And I say, “Then you’re not doing your job.”
Michael: Well, although, again, I could at playing devil’s advocate is the question we have to… if the client psychology is just so much better on AUM, like just we just seem to feel better about it for whatever security reason happens in our brains, do we end up in a world where AUM fees remain more robust or we end up with some hybridization like maybe we finally get to a world where investment-only folks can only manage to charge about 70 basis points but the comprehensive planning firm charge 100 basis points? So like we do at least like more directly acknowledge a difference in AUM fees between investment-only versus comprehensive wealth, but it still ends out being mostly an AUM fee?
Deena: I don’t know. I really think we are going to have to take a long look at this. And listen, we’ve been talking about fees. I’ve been in this business 41 years, so in all of that time, we’ve talked about how we charge commissions, fees, fees, commissions, and we never seem to come to a consensus. Now we’ve got a new wrinkle and that is the robo-advisors. I think that we all need to take a look at what we’re actually delivering and how we’re getting paid for it. And I think into the future there will not be just one prevalent way to charge.
Michael: The AUM firms will hang around but the retainer firms will be out there, and the hourly firms will be out there and someone will come up with a new thing that’ll be out there and consumers will just choose what fits them from a range of choices as opposed to everybody going to AUM fees.
Deena: I think so. I just don’t see that, you know, forcing people into situations. But think about this, the broker-dealers have now, you know, got a whole fee structure to compete with the RIAs. Why? Because in their finding, they’ve got people that would rather pay that way. So I just think we…at some point, we have to say, “Look, there’s a lot of structures, you know…” The biggest problem is that people compare one thing against the other and it’s virtually…you know, it’s hard to do that apples to apples when you’re charging one way versus another. But we can figure that out too. I just think that ultimately, it’s not about the money. Ultimately, it’s about the relationship, it’s about the trust, and it’s about the value. And I hate to, you know, say value proposition because that doesn’t sound, but it is about what we deliver that people find valuable. And, you know, there’s this huge value gap that we have with most of our clients that advisors don’t even know about. You know, we think that what we do for them is so darn important, and what they value could be far away different than what you think. And we don’t explore that with them. You know, one of my favorite things to say to people is, “Okay, what it would look like one year from now for you to think that you found value.”
Several of Deena’s Book Recommendations For Building Better Advisory Firms [39:18]
Michael: I was reading someone else recently that had made the same point. I think they used a three-year time frame but it was the same framing. Like what has to have happened in whether it was one year or three years that this relationship will have been…or this planning service will have been valuable for you? And then did the hardest thing for all of us to do as financial planners, which is shut up and let them talk, and see what the answer…and see if its investment returns, because usually it’s not.
Deena: Exactly. And I think, you know, one of the classes I teach at Tech, and I just love this class is counseling and communication. And we spend a lot of time doing mock practice, mock interviews and just listening and reflecting on what the client is saying and trying to move the conversation forward to get the information we want. And it’s so very hard for people because they want to talk. You know, if we just learned to shut up, we get all the things we need. And trust, you know, I also read this. You know, Stephen Covey’s son wrote a book called “The Speed of Trust.” And it’s another book that I really…had a great impact on me because I always thought that trust took a long time, you know, to keep dependable action so that people would build up trust over time. Trust can be very fast if you do the right things. And the first thing is shut up.
Why Success Isn’t About Following Your Passion [40:51]
Michael: I’ll make sure we include a link to that in the show notes as well for “The Speed of Trust.” So, again, for those who are listening, it’s…we’re episode 16 here so it’s kitces.com/16, and you can get the show notes. So we’ll put “Speed of Trust” in there and “Selling the Invisible.” And like, we’re just…we’re going to make an awesome book reading list by the end of this conversation.
Deena: Oh yeah. Actually, I’ve got one more that I…because I’ll forget the name of this. It’s called “So Good They Can’t Ignore You.”
Michael: “So Good They Can’t Ignore You.” I think I know that one.
Deena: Let me see if I can tell you who…because I have it up here on my shelf.
Michael: I’ll pull it up here. Oh, Cal Newport.
Deena: Carl Newport, right. One of the things he says, and this is one of the things I tell my students but I like to tell advisors. You know, we always talk practicing, and the passion we have for this industry. You know it’s, “Oh, I’m so passionate about this industry, that’s why I want to be in it. That’s why I want to do it.” At a certain point you have to stop with the passion and start practicing. And he talks about Steve Martin who is an incredible banjo player. And he said, “You know, I’ve been practicing for 40 years. And people will always say to me, “Well, how do you get so good? You have such passion for the banjo.” I was like, “Man, I’ve been practicing for 40 years.” So, you know, I marvel at advisors who still tell me, “You know, I’m in this because I’m passionate.” Well, it’s really wonderful, but what you really want to do is be so good, and the only way you can be so good they can’t ignore you is to continually work on your skills and hone your skills so that you are the expert in what you do and stop hiding behind your passion.” Anyway, that’s kind of my big takeaway. It’s kind of a fun book.
How Deena Got Traction In A Male-Dominated Industry [42:47]
Michael: I’m just curious. So how did you…how did you come to RIA industry in the first place? I think you said you were a minister’s daughter so as far as I know, financial advising is not a particularly common career path out of ministry.
Deena: Well, it is actually. My mother was a social worker, and quite frankly we’re all social workers. We’re all closet social workers. And unless you’re a stock jockey, you know, different breed, we’re all social workers. But I went into teaching because when I graduated from college that was one of the few things that women could do. And so I went into teaching and I was teaching first grade in Idaho, and we had a staggered classroom because some of the kids were the children of the big professors at Atomic City, and some of them were beat farmer kids. And the beat farmer kids couldn’t read, and the other kids were, you know, far and above where they should have been in first grade.
And so one day I’m teaching these…the bluebirds who couldn’t read very well, and I was having trouble, and I said, “Oh my God, if I can’t teach these children to read, I’m going to screw up their whole lives. I’m want to do something that has, you know, less of a big impact so I think I’ll go manage other people’s money.” Actually I was in management and real estate syndication. We had a private investment group, and I would…we could only have 100, I mean 99 because it was private investment. So I would have these little old widows say to me, “Yeah, but what else can I invest in?” We were doing convertible bonds. And I said, “You know what? You don’t even know what you’re investing for.” I was going through Money magazine and I found the CFP and I called them, and I took their courses. I decided that that’s what I needed to do. So that’s how I got into this. I never was a broker. I had a license, I had Series 7, I had the whole thing but I was never a practicing broker. I used my license so I could sell stuff that people shouldn’t own.
Michael: You created an RIA from the start? Like, how were you structured early on? Like not lot of broker-dealer reps with…outside RIAs in the 1980s.
Deena: Yeah, well I found one, it was in Lubbock, Texas. And he said, “Yeah, you know, I’ll help you do this.”
Michael: Was that comf for you?
Deena: No, uh-uh. It’s actual incidence that they were here in Lubbock and then later I came here. I had no clue.
Michael: I mean, God bless Texas Tech and Lubbock but Lubbock’s kind of legendary for being the largest city that’s not actually near any other city. Like, how did you…how did you find an advisor in Lubbock that actually would do this?
Deena: Well, you know, I met him at one of the meetings and he was fairly prominent, and he said…He’s probably in his late 80s now, Lee Pennington. But he was…he was a good guy. And he said, “Well, you know, I’ll let you do this.” And eventually he wanted me to sell stuff but I didn’t. And I didn’t stay with him very long because then I found other ways to…I’m not only going to say how I found other ways to do this, but I did.
Michael: Some less traditional business models.
Deena: Yes. You know, but he’s the one who, you know, kind of let me do my thing.
Michael: And so when was this that you were getting…getting going with this?
Deena: Eighty-four, 83.
Michael: So we’re still in kind of early days, mutual funds, heyday limited tax then in the partnerships.
Deena: Oh boy, were they? I did not sell any of them, trust me. You know, it was pure…I didn’t sell anything, it was pure plain vanilla stuff, but anyway I really…I knew exactly how I wanted to deal with people and how I wanted them to see. And I never wanted to be a sales guy, and I never wanted to push product, I wanted to improve lives. So that’s kind of the path I took. And Harold was a broker. He was with Prudential Bache and he was…you know, he was in all the milk and mess. I mean, he wasn’t involved but he was working at the same place and, you know, there was all kinds of…And he hated what he was doing, so it was a good fit for us. And when I started my practice in Chicago, I just mostly had a bunch of little old widows who were…would go and have tea with him and him.
But the first client I had called me and she says, “Listen, I heard about what you do and my husband died two months ago and I’ve never written a check, and the assessment is due on the condo but I’ve never done it because he always said, “Don’t worry, I’ll take care of you,” and then he died. And there’s a car in the garage and I know how to drive but I’ve never put gas in it.” I took her out, we put gas in the car and we went to the bank, and opened an account, and I showed her how to write checks. So, you know, that was what we had in those days, women who were not encouraged to have financial knowledge. And she was actually one of my best clients. When the market fell in ’89, I’m embarrassed to say I was in Las Vegas. I called her and said, “You know, you’re okay?” And she said, “Yeah. Now, isn’t this what you said would be a good buying opportunity?”
Michael: Ooooh! Just what every advisor wants to hear from their client.
Deena: You know, she drank the Kool-Aid.
What Happened To Deena’s Mother That Made Her Instill The Importance Of Women’s Financial Empowerment In Her Daughters [48:50]
Michael: So did that become a focus for you? This like working with women, working with widows, or is that just kind of how it was shaping up early on?
Deena: No, it always was. I mean, I’ll tell you what really spanned me on was my mom was…had a master’s in social work, she was a minister. My father died when he was 39 and I was 5. My mum had three kids. In the Salvation Army, they just give you a stipend. You get a house and a car. My mom didn’t know what to do with money. She turned to my sister and me and she said, “Never give up your right to manage your own money, and to handle your own financial life because you never know when you’re going to be on your own.” And notice she said “when.” So my sort of mission was bringing women to…I’d have up to speed meetings for women who delegated their financial life to somebody else. Those were hoot. The things that gave them a lot of confidence to work in their own…on their own life.
Michael: So I never realized that. So you kind of had a niche around women in general? I guess widows in particular, like was…
Deena: Oh, widows, divorced women, women who would…in business who had never really had an opportunity to learn about their financial life. They just got a hold of some broker that somebody said would do the right thing for them. And I felt like I really empowered a lot of women over my career. And that was something I enjoyed doing.
Michael: And so I’m curious then what it was like…So, you know, RIA industry at least is, shall we say doesn’t have a great track record of being hospitable to women. In fact, there was actually like a new study that just came out from BLS data looking at gender pay gap across industries, and financial advisors have the privilege of being singled out as the single worst professional for gender gap compensation. It came in at 56%. Overall country’s average is at least 83% now. And, you know, we have all these miserable statistics. We’re like we’ve been stuck at 23% female CFPs for something like 15 years now. And I think the CFP female percentage is actually better than the broader financial advisor female percentage. So I’m curious like, I can’t imagine you were more supportive of women when you were getting started in the industry.
Deena: Well, that’s why I started with women, working with women.
Michael: I was going to ask, was that the dynamic? Like, women were accepting of a woman financial advisor than men.
Deena: Not necessarily. Women can be male chauvinist pigs too, and many of them still are, however, a lot of women who’d suffered a loss, either divorce or through death would say, “Well, you know, I’d like to talk to a woman she understands where I am right now.” But women are actually…In those days were in two camps. One is, “All men are scammers,” or, “Only a man who, you know, can take care of my stuff, because that’s what my husband did.” So I just found the right, you know, group of women who wanted that. But I will tell you, I had a lot of issues. I said I had seven people working for me in Chicago and one of the guys was an airline pilot. And he had just got into planning and he was bringing in pilots. And, by the way, I’m an old pilot too, so we had a lot to talk about. Well, he brought in this one guy, and I was out of my office. The guy wanted to meet the head of the company, and I don’t think he even knew who he was going to meet. So I walked in and the client says…looks up at me and says, “Will you bring me a cup of coffee, honey?” So I said, “For sure I will.” And I went and got him a cup of coffee and I sat it down and then I sat at the desk. This man almost lost it. So it was not expected that women should know anything. You know, yeah, we could do all touchy-feely stuff if necessary, but when it comes down to the investing, I don’t know. But if you knew how to point out that many men didn’t really know what they were doing, you could get there.
Michael: For maybe women who are listening today and, you know, sadly for our industry are still struggling with this, do you have kind of words of advice for women struggling with this now still about how to work through it, or how to break through, or I don’t even know how you would frame it?
Deena: Well, I will say that in today’s world, there are…many more men accept women for what they do. Not as many as we’d like, but there are. I think the best thing is to be authentic, not try to be something you’re not. Not try to put on a show for someone. “Hey, this is who I am, this is what I know. This is how I can help you. If I’m not for you, I’m not wasting my time. Life is too short, go on to the next person.” I find that many women don’t know what role to play. Play your role, play who you are. You know, I was the first woman in ROTARYOne, Chicago, and I remember walking to the door one day and some guy runs up before me and opens the door and then he holds it a minute and he says, “What do you want?” And I said, “What?” And he said, “Look, if I hold the door open for you, you’re going to be pissed, if I don’t hold the door open for you, you’re going to be pissed. What do you want?” That’s when I decided I was going to be me. I would go, we’d have drinks before the meeting started and I’d belly up to the bar like everybody else. I’m not going to say I didn’t put liquor in mine but, you know, who knew that? And I would talk to them about things they wanted to talk about. I decided I was not going to be this delicate thing that would be offended by some of things people said or did, because that’s really who I am. I didn’t have to fake that. And I think that’s where a lot of women get in trouble. They try to assess what their client wants and give it to them. And I’m saying you be authentic. Be who you are. Be in control of your relationship with your clients. Once you let them get control, you will never get it back.
Michael: So don’t try to…This is going to sound badly. Don’t try to do what the clients want. The point is like be authentic to yourself, what you’re good at, and let the people who like to work with that come and find their way to you?
Deena: Yeah. Or you can find them. I mean, that’s part of…you know, we built our firm by relationship marketing and retention. We recognized that we were sitting on a goldmine, and that was our clients. And we made a concerted effort, each time we did something good, to remind the clients that we were there to do something good for someone else. And we gave them scenarios because doing a blanket, you know, “Yes, I’ll take all the new clients and just give me a referral.” It doesn’t necessarily resonate with people. But I’d say, “You know, look what you went through over the last couple of years. I’m sure that you have some friends who are in that same situation. Do you suppose you could write down a couple for me?” So, you know, I think that warm referrals are probably, honest to God, best thing you can have. And so referrals from our clients and also getting referrals from people in spheres of influence. In the early days, all of my clients came from accountants and attorneys who didn’t know anything.
Michael: But you had a particular niche. I mean, they sent you their widows and divorcees.
Deena: Which brings me to another thing, you need to have a niche. You know, if you ask advisors what their specialty is, they usually say, “Oh, you know, I specialize in investment retirement.” Actually what retirement? “Yes or, Sure.” That is a huge specialty. I mean, come on, give me a break.
Michael: Yeah, we are…I was joking with someone the other day that we were looking at financial advisors websites and it said they specialize in women, couples, retirees and institutions.
Deena: Right. Well, why don’t you just say who you don’t specialize in? And how ridiculous this is because people can’t identify you by the skills that you have to provide to them. How easy is it to say, “I specialize in women in transition,” which is exactly what my practice was, women in transition. Now, it wasn’t as narrow as it got later on, but at least I let people know that I, you know, could help people who are going through issues.
Michael: I think the fear always comes back to yeah, but what about like the other 98 prospects you were going to meet that day that… that we could a month that aren’t women in transition? Like think of all the business opportunities you’re giving up by just only taking the widows and divorcees.
Deena: Think of all the opportunities that you have to have clients that you shouldn’t have. Do you know that in my first book, I interviewed 53 advisors, and I said, “Have you ever fired a client?” And not one of them. And then I said, “Do you have clients that you really shouldn’t have that and that you’d like to, you know, free up their future?” Every one of them…
Why “Great Service” Is No Longer A Good Differentiator [58:41]
Michael: How about that, “I’m going to free up your future.”
Deena: Oh, it’s wonderful. You know, that’s what I say. It’s like, “I’m going to give you an opportunity to work with somebody else because I’m not sure I’m the right person for you.” But how much time would you save if you cut to the chase? Why am I taking on all these clients? Do you know that I used to do, well, I call them brain dumps, but I would do consulting and I’d go in and I’d…you know, I’d spend a day with them, and I’d to their staff, and I’d look at all their things that they’d sent me a bunch of stuff, and then I’d give them brain dump at the end of the day. And this advisor sat with me and he says, “I have an 87% closing rate.” And I said, “My God, that’s horrible.” And he said, “What do you mean horrible.” So I turned to his staff and I said…
Michael: What does it take to be the other 13?
Deena: Yeah. I don’t know. So I said, “You know, who gets this business when he pulls it in? Well, we do. And often times it’s not people we should have. We don’t want them.” So why don’t you have an opening rate? How many people should you actually be welcoming into your practice that you can work with, that you can provide value and will appreciate the value that you do? Why do you want to take on people unless you’re getting combat pay? So, you know, I think too many advisors spend too much time scrambling for business they shouldn’t have. And I work from a view of abundance. There is a ton of people out there who need what you do. And the more you specialize in what you do, the more valuable you are to them.
Michael: That’s a powerful. The more specialized you are, the more valuable you can be to them.
Deena: So one of the things I first did was…I had a client who…No, no. This was an advisor I sort of copied his philosophy. He belonged to the printers’ organization. And he found out this organization, you didn’t have to be in the printing business to be there. And that was in times when they had, you know, little printing shops on the corner instead of FedEx. And he’d go to these meetings, and he was the only financial advisor in the place. So they could talk to him about things, they could talk about him when he wasn’t there because he had something special and unique to bring. Well, that’s what I did. I went into places where it was…yeah, I was the only. And that’s really valuable because people don’t know anybody else who does what you do. Yeah, I went into working with women because I could go into attorneys who didn’t want to see anybody and say, “Will you meet with me because I have some clients who are widows or who are getting divorced, and, you know, they probably really need some legal work.” And sure they saw me, and then they asked me what I did. They didn’t know anybody who did what I did, so that’s how I got a lot of clients.
Michael: Then your financial advisors, they didn’t know anybody that specialized in women and widows and divorcees. That’s differentiator.
Deena: So that’s what we need to do. Here’s another book, “In Search of the Purple Cow.” What’s his name? Seth Godin. Great stuff. Small book, amazing. I am not a person who likes to read volumes unless it’s, you know…I didn’t like one piece frankly. And so I look through little books that are going to give me some real gems, and his is one of them. Be exceptional. You know, in today’s…in today’s world, great service is table sticks, and I…yet I’m amazed at how many advisors say to me, “Oh, you know, people come to me because I have a wonderful service. I’m wonderful.”
Michael: I think FPA actually had a study recently that looked at this. And I think the number was 73% of advisors differentiate on great service.
Deena: Yeah, horse pucky.
Michael: Yeah, it’s kind of like 75…73% of advisors are also above average.
Deena: Yeah, exactly, exactly. So, you know, this is just the most bizarre thing I’ve ever heard. But that’s what people will tell you. And people go in expecting excellent service. What are you going to do that’s going to differentiate you from that? And it’s sure as hell it’s not going to be service.
How Deena’s Experience With Breast Cancer Shifted Her Role In The Financial Industry [1:03:08]
Michael: So I want to talk a little bit as well about the…this interesting second stage of your career that we haven’t really gotten to talk about yet. That, you know, you mentioned briefly earlier you’re not primarily involved in the practice now, you’re doing some other things. So can you share with us a little of what you’re working on now, what you’re dealing now?
Deena: Well, for the past 11 years I’ve been teaching at Texas Tech. And I was the first person who looked up and said, “Holy crap, we’re not training the next generation.” You know, the average age at that time was 57. I think now it’s, you know, like 53. But no one was creating a place for next generation. And we had boxed ourselves into a corner because advisors who had successful practices did not make any of their junior advisors rainmakers, they were babysitters. So we built a whole next generation of babysitters. Probably what helped this along was that I had breast cancer. And I came back from seven months of treatment and rehab and I sat down with one of my clients, older lady, who had gobs of money. And she said to me, “Deena, I’d like you to help me talk to my attorney about cutting my daughter out of my will because she’s dating a man I don’t like.” You know, I’d gone through this with her before, and I’d always said, “Okay, let’s think about this and talk her through it.” This time I said, “Gloria, get a life. You either love your daughter or you don’t. If you love your daughter, stop wagging your money in front of her face to get her to do stuff that you want her to do.” And I got up and I walked down the hall to Harold and I said, “I think we’ve lost a client and I’ve got to get out of here.” She waited for me for 45 minutes. In fact, she’s still a client and I just got an email from her the other day. She’s living now in San Antonio and she’s so happy. And she has grandchildren who are absolutely the world’s best, and their father is this guy who she hated, and he now walks on water.
So what I learned from this is, you know, obviously, you know, sometimes play-kidding your client doesn’t work. They need a kick in the butt, you need to give it to them, but also that I needed to move on. As much as I loved what I was doing, I needed to do it in some other way. And I thought about this next generation, and I realized that’s where I needed to be. So I called up Texas Tech, and I have friends there, and I said, “I want a job.” And Vickie Hampton, who is Chair of the Department said, “Oh, you can always come out and talk out here. We’d love to have you,” because I’d been there a few times. I said, “No, no, I want a tenure track position.”
The Evolution Of Financial Planning Education At Texas Tech And How It Stemmed In Part From Deena’s Efforts [1:06:11]
Michael: “No, no, I want a job.”
Deena: And so she said, “Well, I guess we can make that happen.” And that’s what I’ve been doing. And what I’ve discovered is that we need not only to teach the next generation but we need to teach our generation how to receive these people. We’ve not done a good job. Most of advisors today are suffering from Founder Syndrome, and they’re not happy giving up responsibilities and management to their next generation. They’re not training them to be partners and future owners, they’re trading…still training a lot of them to be babysitters. And so part of what we are doing now as part of our internship program, we’ve taught people how to do interviews.
Well, you know. You know, look at the things that you and Caleb are doing in hiring the next generation. Well, first, you’ve got to educate the current one because they don’t really know how to do an interview. They don’t really know how to assess whether this person is going to fit into their practice and…because they don’t even know when it’s time to hire a new person. So we needed that solely, and I think what I’m particularly proud of is that I’ve gotten large institutions to recognize, “This is where they need to be.” Schwab was the first step on board and support us. We now have, you know, colleges and universities all over the country who’re, you know, are building great programs. We have people like TD Ameritrade and Fidelity, and Schwab, who are looking at this next generation. And smaller, you know, advisor group in Cetera and his people who are looking at this generation saying, “Yeah, we need to give them what we learned along the way.”
Michael: I’m curious what it was like for you personally transitioning from an advisory firm you ran to academia that is, shall we say not known for being accommodating for entrepreneurs.
Deena: Well, fortunately, the financial planning department…And by the way when I first came, it wasn’t a department, it was a division, which meant we didn’t get any visibility anywhere. I was told by the dean of the college, “Look, no new initiatives, because the PFP division is always coming with some new harebrained idea. It doesn’t work.” So I said, “Could I just have one, just one? Let me try something.” And she agreed. So there were only 6 of us when I came, we are 15 now, but we all were interested in the industry, we weren’t the usual academics. By the way, I took this job and then I went home and told Harold. So he was kind of in shock that…
Michael: “Honey, we might have to find a new president.”
Deena: Yeah, but…and move. I, you know, moved out to Lubbock. But he was wonderfully supportive and said, “You know, that’s what you’ve got to do.” There were a few things in my life where the path was there before me and I knew I had to take it. One of them was moving to Florida, and the other one was moving out here and taking on this. And so by getting Schwab involved in helping us with bricks and mortar and, you know, building a lab, I demonstrated to this academic community that we needed industry, and I demonstrated to the industry they needed us.
How To Change Your Outlook On Fear And Failure [1:09:58]
Michael: Well, very cool. So as we kind of head into the home stretch here, so I’m curious, as you look back over your career and the turning points, are there like particular turning points that you kind of looked back and said like, Like, “This was the…this was the thing that I got right, that really drove the business, or like the thing that I got really wrong. Hey, if you’re listeners, whatever you do, don’t do what I did right now.” Our first episode was Rick Kahler, who I know you know well. And Rick was talking about this and he called them “AFGOs,” another freaking growth opportunity, right? So like there’s things that we do that are like, “Okay, that probably wasn’t the best thing for myself and my business, but it was an AFGO, I learned something from it, I’m moving forward positively.” And then every now and then there’s the, “No, just no one should do this.” So I’m curious if there are any that come to mind for you as you look back that are either like, “Not great but this was a powerful learning experience or things that are just whatever you do, here’s something to avoid.”
Deena: Most of it had to do with hiring.
Deena: Yeah. To hire my successor, I hired a guy who was just absolutely amazing. I thought he’d be an incredible president, and he walked around for one year with a baseball bat in his hand, literally it was a baseball bat that some group had given us, some vendor had given us with our name on it. And he’d visit every office. He didn’t do another damn thing, but he just visits. “So what are you doing today? You know, how’s that going for you?’ It was the worst experience. So much so that my controller came in to me and said, “I quit.” And I said to her, “If I fire so and so, will you stay?” Because she was amazing, and still is. And she said, “Yes, I would.” Then I went to every staff member and said, “You know, what’s your problem?” And they all named the same one. And I called him in and said, “This isn’t working.” So it was a very…you know, it looked on the surface amazing, it was awful.
We’ve had a couple of fits and starts. And in growing we were going to put together this Evensky Group, and the guy we had working with us for that was, to put it mildly, not trustworthy and it was a bad mistake. So, you know, we’ve done a few things over the years, but, again, as, you know, Rick said, “You dust yourself off, pick yourself up and say, “Well, where are we going to go from here?” That was an interesting learning experience. I never met anyone who didn’t fail at something at some time in their life. And, you know, failure is like fear, it’s really non-existent. It’s how you react to it. If you’re fearful of something, it’s your reaction. Some people are afraid of snakes. Snakes are not a problem, it’s you. It’s your reaction to them. Well, failure is not a problem, it’s how you react to them. If it’s a learning experience, you just, you know, say, “Wow, never doing that again” And if it’s not, you wallow in it. And, you know, life is short.
What Deena Thinks The Future Of Fee Schedules Looks Like [1:13:08]
Michael: So for newer advisors that are coming in, as you look at whether financial planning has been over the years of your career, and then you kind of project forward of what’s the same or what’s different, are there particular things that you find very different going forward for new advisors coming in today? I guess I should say this, so as you’re teaching a lot of students, like what’s your advice to them for coming into financial planning today and finding their career, or their job, or their firm. Like, we have a lot of choices, this and that.
Deena: A lot of the challenges are the same, a lot of the stuff we’re talking about, we’ve been talking about for years, and years, and years, those we’re probably never going to solve. Like the fee commission kind of thing. But the challenges are I think there are people out there today who are trying to take the human out of the financial planning transaction.
Michael: So, you know, robo-advisors and the like.
Deena: And, I mean, now I think, you know, we’re learning how to use some of that to our advantage, but don’t mistake this, there are people who want it to be totally online and humanless.
Michael: Pure technology. Yeah, just give me, I just want to self-serve myself with some technology, give me some good technology.
Deena: And so don’t overestimate your value to your client but constantly demonstrate your value. You know, when we get into trouble…I remember a friend of mine, you probably know him, oh gosh, RTD, Roy T. Diliberto. One day when I was writing this book, I called Roy and I said, “So, Roy, you know, how do you get clients?” And he said, “I’m passive. I get passive referrals.” I said, “Well, what you consider passive?” He said, “I sit and watch the telephone.” And I said, “Well, what happens when it’s not ringing?” He said, “I watch it harder.” And part of that is because we get complacent and say, “Well, you know, I know how to attract clients or I know what clients value.” I did a whole seminar for a bunch of advisors a couple of years ago and we talked about, “Do you take on the children of your clients? Are you doing anything to actively get them?” And, I don’t know, like 90% of them said, “No, they don’t fit.” You know, they don’t fit their model, or, “These kids saw value. They know how much their parents value me that they’re just going to value me too after the parents are gone.” I’m like, “What? So what I’m telling people today is think forward enough on how you can maintain the humanness in what you do that can’t be replaced. You know, I love my Alexa, but I can’t hug her, and she doesn’t cry with me when I’ve suffered a loss.
Michael: So as we come to the end here, this is a show about financial advisor success, and one of the things I’ve long observed that, you know, has really only been reinforced as we’ve done the podcast is just like that word “success” means very different things for different people, and even different things, like different stages of our life. And so as someone who’s…you’ve built what most would objectively certainly call a successful business, I’m curious how you define success.
Deena: To me success is that every person I come in contact with finds a better path, whether it’s a client, or my students, or other advisors. That I can say something or do something that gets them thinking about where they want to go, and how they want to get. And that success has nothing to do with money. It is totally the impact that I think or I hope I make on people.
Michael: And I love that success is that every person I come in contact with finds a better path. Well, thank you. Thank you so much for joining us on the show. And, again, I think you…you impacted my path from the start with a book that blew my mind at the time of there’s so much to this advisory business. And I hope gave a lot of our listeners today some new ideas and I guess, you know, we’re in our virtual world now, so I hope you will consider podcasting now as part of a way to come in contact with people and that a few of them find a better path from the discussion today.
Deena: And you have given me a lot of thought. And I want to say this about you, Michael. I have never seen anyone so dedicated to educating current advisors, next generation, all of us in everything that you do. There isn’t a day that I don’t read some little gem that Michel Kitces writes, and I thank you for that.
Michael: Well, thank you. I’m just trying to keep it interesting.
Michael: Well, thank you again. Thank you for joining us on the Financial Advisor Success podcast.