Welcome back to the 129th episode of Financial Advisor Success Podcast!
My guest on today’s podcast is Donna Skeels Cygan. Donna is the founder of Sage Future Financial, an independent RIA in Albuquerque, New Mexico that oversees nearly $90 million of assets for about 40 client households.
What’s unique about Donna, though, is the way that she successfully built her first advisory firm to over $100 million of AUM with 5 full-time staff members, and then found herself so mired in the time it took to run the practice and serve her clients that she sold it and came back 3 years later to start over again, building a much more deliberately crafted structure that’s intended to only ever have 40 affluent clients.
In this episode, we talk in depth about Donna’s journey of building both her first and second advisory firm. The way that years of continued growth allowed her to hire more team members but frustratingly never got to the point where she was able to free up her time to spend more of it with her family, why she ultimately decided that the only way to relieve the burden of the firm was to sell it, the reason that Donna ended out coming back to start a second advisory firm after all, and how her current structure with just 42 clients paying an average of nearly $18,000 a year in fees allows her to run so efficiently as a solo advisor that she finally has the work-life balance she wanted, needs only 2 part-time assistants for support, and is able to drive nearly 80% of the firm’s revenue to the bottom line.
We also talk about Donna’s actual process in serving clients. The way she arranges two meetings a year with clients that include a biannual rotation of ongoing planning topics, the structured agenda she uses for each client meeting that includes new and pending issues, financial planning topics and an investment review, the way she leverages her virtual assistant to maximize her time in meeting with clients, and the software she uses to run her advisory firm.
And be certain to listen to the end, where Donna talks about why despite the ongoing buzz in the industry about the need to consolidate and grow to gain economies of scale, she has no concerns about her ability to remain competitive as a standalone solo advisor, and actually feels even better than ever about having sold her larger advisory firm and started over with the goal of building a smaller but far more profitable one instead.
So whether you’re interested in what being intentional about starting over and building a new lifestyle practice looks like, how she manages to run such high margins while serving 42 clients, and the services she provides for her clients, then we hope you enjoy this episode of the Financial Advisor Success podcast.
What You’ll Learn In This Podcast Episode
- How Donna Has Been Intentional About Building Her Business [04:18]
- What Donna’s Practice Looks Like Today [09:30]
- How Donna Decided On Her Fee Structure [14:29]
- Her Plan When She Sold Her Firm [25:27]
- Other Outcomes She Aimed For When Building Her New Practice [37:57]
- What Donna Does For Her Clients On An Ongoing Basis [45:18]
- How Donna’s Book Connect With What She’s Doing Now [1:11:14]
- What One Of Donna’s Typical Weeks Looks Like [1:20:30]
- How She Defines Success [1:34:31]
Resources Featured In This Episode:
- Donna Skeels Cygan
- Sage Future Financial
- Joy of Financial Security (website)
- Joy of Financial Security (book) by Donna Skeels Cygan
- Morningstar Office
- What Managing A Client Relationship Means
- TLC Books
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Michael: Welcome, Donna Skeels Cygan, to the “Financial Advisor Success” podcast.
Donna: Thanks very much, Michael. It’s great to be on your podcast.
Michael: I’m really excited about the discussion today because one of the themes that we, I think have had for a few of our guests over the years are I would say advisors who have become very intentional in crafting their advisory firms around themselves and what they do. Sometimes the label for it is a lifestyle practice, but to me it’s just more broadly, what does it look like when you create an advisory firm with a lot of intent around the structure and the size it’s going to grow and what you want to do with it and I think ultimately what you want to get out of it.
And so I was fascinated a ways back when I had seen some discussion of your firm, that you just have this outright limit like, “We are aiming for 40 clients.” And not abashedly so. It says it right on your website, “We have 40 clients.” That’s the deal here. And you’ve got some pretty healthy minimums, which we’ll talk about further. And so, as we’ve discussed with some other people on the podcast, you can have a pretty good income from an advisory firm with just a moderate number of clients that pay a good amount of revenue per client. And so, I’m just excited to talk about, what does it look like when you craft an advisory firm with such focus and intent as to say like, “Here’s my minimum and I’m taking 40 clients, and that’s the deal?”
How Donna Has Been Intentional About Building Her Business [04:18]
Donna: Well, I’ve been doing this for 20 years, and I think it was the first 9 years I had a drastically different business model. A different company actually, different name and everything for a fee-only financial planning company. And I was on a very rapid growth path. We would take any clients who came to our door. And I kept adding staff. And I was in a study group and we talked about the frustrations with adding staff and the back-office work and bringing on more clients and all of those issues. And the advice I kept getting was if I got up to about eight people on my staff, it would actually get easier because if one person decided to leave then others could absorb that workload. But the problem with that, and theoretically that all makes perfect sense, but I didn’t get to eight, I got to five. I had five employees and very, very rapid growth.
The problem was really my personality is that I’m a workaholic. And so I was here every night and every weekend taking good care of my clients. They were thrilled, but my family was getting the short end of that stick. And it didn’t feel right. I had two young daughters at that point and my husband, he’s a great guy, and I felt like I never saw them and I wasn’t a big part of their lives. And so I took a very drastic step at one point, I think I was 49 at the time, and I sold that business. A company approached me and I decided to sell it because I couldn’t find any other path away from being a workaholic.
But then when I came back, which is another story in terms of why I came back, and we can go into that if you’d like, but it was a very different business model. I had the time to think through the fact that I love working with clients, that’s really where my passion lies, but I didn’t like being here nights and weekends. And so I came back with a lifestyle practice. Originally the plan was that I would have 25 clients, and then I sent out invitations to 35 of my prior clients. I’d had 95 when I sold the firm. And out of those 35, 30 came back. And then my commitment to myself was that I would add one or two a year, but I would never get back to a fast growth path. And it’s worked really, really well. I feel very comfortable with it. My clients are happy. They get great service. And it is incredibly profitable in terms of roughly 80% falls to the bottom line.
And so, there’s different ways that advisors can be very successful but I think they do need to look at their personalities. And if I were to go back into that fast growth path, I think I’d be here every weekend again. I might have some boundaries or guardrails, but I just know that my tendency is to put my clients ahead of myself or my family, and I don’t want to get back into that situation again.
Michael: This is like an absolutely fascinating path to me. This phenomenon of, “I was getting all this growth so I hired all these people. And hiring all the people just meant I had to work harder and work more hours and was more miserable until I got tired of it and sold it.” I think as you said, there’s this view and perception out there that if you’re tired in the business, if you feel like you’re working too hard or you can’t get your head above water or you’re having some of these challenges that the solution is, well, you just need to grow more so that you can hire more people and then you’ll have more people to delegate stuff to and it’ll all get better.
And what I see so often in practice, in talking to other advisors is that almost no one ever actually gets to the point where suddenly they’ve had enough growth that they’ve delegated enough things that that magic point comes and it finally gets easier. Because it’s usually not really that. That’s the problem in the first place. As you said, for better or worse, the challenge is you love your clients and love serving your clients. And that just means the more clients you have, the more people there are to serve. And you don’t ever really get to get off the roller coaster. In fact, the bigger the firm gets, the more clients there are that suck you in. And as you said, you ended out working nights and weekends and going all the way through without being able to get off the, I guess, like, the workaholic roller coaster. Not because you didn’t have staff, but it just meant now you have 5 people to manage on top of having 95 clients to support.
Donna: That’s definitely true. I think I’m proof that you don’t have to have a rapidly growing firm or a large firm in order to be very successful, to find the work incredibly rewarding and also very profitable.
Michael: Yeah. Yeah, I love the model.
So maybe just to start delving into this further, tell us a little bit more about just the nature of the firm at it exists today. What does the practice look like? How many clients? What do you do for them? Can you paint us a little bit of this picture of this successful, rewarding work, financially profitable firm that’s not doing the rapid growth thing that everybody else did?
What Donna’s Practice Looks Like Today [09:30]
Donna: Sure. I currently have 42 clients. I turn most people away, but I occasionally take a new client. I like working with new client. But I’m also considering retiring a couple of clients at the end of the year to keep the number around 40 or 42 because that’s kind of the number that works for me. So in terms of my process, I see clients twice a year. And that’s usually the first meeting between about mid-January and mid-April, and then again between September and mid-December. And those are official meetings where I’ve got an agenda. During those two meetings, I make sure we cover every topic each year. In other words, investments are going to be on both of those agendas, but retirement planning is on the second. Sometimes estate planning or insurance issues are on the first. I always look at how much my clients are withdrawing. And I do that in the first appointment of the year to make sure they’re not withdrawing too much or how much they’re saving, that kind of thing. So those are full agendas.
And about a third of my clients, maybe a little more, are long distance. And so they’re not in person. And then my clients know that they can access me at any time for any reason. So at one point, I had an advisory committee and I said, “Do you guys, I know you’re really busy and I’m really busy, do you really need to see me more than twice a year or would that be fine?” And they said, “Twice a year is perfectly fine as long as we know we can access you at other times if we need you.” And so with my first firm back in ’98, I saw clients 4 times a year, then I went to 3 times. And when I opened Sage Future Financial, which was January of 2010, that’s when I went to two times a year. And they seem very happy with that. And if they need anything, they know they can access me and I’ll respond very quickly. And so it works really well.
And that also gives me my summers to some degree off. I don’t want to say they’re completely off. But this summer I’m planning on writing a second book. I’m real excited about that. Some summers I’ve gone on book tours and speaking tours. One summer I remember I converted all of my clients’ Vanguard mutual funds to the institutional share class. And at that time Schwab Institutional was allowing that without any transaction fees. But it was a very labor-intensive process. So I can do projects like that over the summer. But I love having some free time and a lot more flexibility in the summer.
And then when I’m seeing those clients, it’s rather intense. I work really hard. I have a virtual assistant who works maybe, I don’t know, 5 or 10 hours a week at most, and she helps me prep for meetings. And then I have an on-site person one or two days a week who helps me with on-site tasks. But I don’t have a regular staff. And so it’s a very lean practice, and it suits my personality. I love working alone most of the time and then meeting with clients. And so that’s kind of the way it’s evolved and the way I’ve designed it to be actually. I’m really happy with it.
Michael: I love it. And just the intentional design nature of it. So I’ve got actually still a couple of questions here, but to start, you mentioned this, you’re at 42 clients. What’s the business model that goes along with this? Are you charging planning fees? Are you doing assets under management? Is it a combination of both? What do 42 clients pay?
Donna: Well, my average client is just under $18,000 a year. It is an annual retainer. And it’s composed of two parts. One is an assets under management part, and then I also charge $2,000 a year to each client for the financial planning component. So clearly the financial planning component is worth a lot more than $2,000, but I’ve done that for a very long time just to remind my clients that they’re getting so much more than just investments. And you put all of that together, the 2 components together, it ends up at 1.1% on the first $1 million, and then it goes to 0.8%, and over $5 million I think it goes to 0.7%. So it comes down. But it’s close to the average in the industry. My fees are not low. They’re very close to the 1% that’s pretty typical.
Michael: Okay. And out of curiosity, why not change the balance of those more if you’re focusing more on the planning end? Did you experiment with this in other ways of, “What if we only do $1,000 a year planning compounded? What if we do $5,000 a year and then take the AUM fee lower?” Like when you’re…if your average client is at $18,000 a year of revenue all in, you could carve this up a lot of ways to make the math work. So I’m just curious, how did you land at $2,000 plus AUM fee and not $9,000 plus much smaller AUM fee to get to the same number?
How Donna Decided On Her Fee Structure [14:29]
Donna: Well, I’ve looked at it in lots of different directions over the years. I play with the numbers. And if I bring the assets under management down and I take the financial planning fee up, then that actually ends up hurting my smaller clients and benefiting my larger clients. And so I’ve always got to look at that. I do want to be very profitable. And I’ve just left it at $2,000 because it works. But I know there’s so many other models out there. And I know there’s pressure to get away from AUM and go to a flat fee. And sometimes that looks really attractive, but my clients are used to it. And so far I haven’t had any reason to change it drastically.
Michael: And you don’t get clients who are asking like, “Can we just pay you a flat fee for all of it and not assets under management?”
Donna: I’ve never had a client ask that. There will be people that come to me who think my fees are horrendous, there’s no doubt about that, and then I refer them to somebody who works on a project basis. So my services are certainly not for everybody. They’re mostly for people who are close to retirement or they’re retired and they’ve accumulated a lot of money. They have well over $1 million, but they have very middle-income values. And so they’re that type of a person. I really insist on the middle-income values because that’s my background. And yet they’ve accumulated a lot of money. They’ve saved really hard throughout their careers and they want to do it right. And they want the customized service that a fee-only advisor can give more so than a stockbroker will give them investment recommendations or take care of investments. But we can do so much more.
Michael: Interesting. I love the way you frame it, though. “We sometimes talk to people who find our fees horrific, so we just refer them out to someone else.” Like, “It’s all good not to work with everyone.”
Donna: Well, there’s that joke that when you’re new you take anybody that will fog a mirror. So I’ve been there. I remember those days. But at this point, that’s not where I am. And so I try to provide a lot of service. I offer free appointments. If somebody calls me and they want to come in to talk about my services and I…on the phone I generally will try to ask a lot of questions. What are they trying to accomplish? Where are their investments now? I try to figure out if they are a potential client or not. And if they are then I’ll have them in for a free appointment. And I try to give a lot of free advice. And so I feel good about that. But then if they’re not a match it’s okay, I’ll try to put them with someone who might be a better match.
Michael: I like that juxtaposition that you made. That early on we pretty much all start in the same place. If you can fog a mirror you’re a prospect. And we take anyone we can get. And as you said, that’s just not the place that you’re at now, and so that’s not how you do it. I don’t know, I guess, is there some switchover point? Is there some magic threshold where we should all be able to say, “Okay, I’m doing well enough that I’m not just taking anybody who fogs a mirror anymore, I’m only focusing on the particular folks that I want to work with?” Do you wish you did this earlier or differently or from the start in building your firm?
Donna: That’s a really good question. When I had my first firm and I was on that proverbial treadmill running faster and faster and going nowhere, it’s really hard to step off of that. And so I was constantly looking at my business model and, “Should we close the doors to new clients so that I have a chance to breathe and I can go home at night?” But my personality was such that the growth was exciting. It was adrenaline flowing. And I had to take a step back from that to say, “Yes, the growth is exciting, but this is not good for my family. It’s not good for me.” And it just felt so much out of balance. And so it was almost like bearing my soul and admitting that I could not continue along that path. And it wouldn’t be healthy to do that. And so maybe I was incredibly fortunate to have a company approach me saying, “We want to buy your firm” when it was not for sale and I was not thinking that I would sell it. So, I’m thankful for that.
I hadn’t planned on coming back. I had a junior advisor who I had mentored. I felt very strongly that he could be the senior advisor, and then plans change. And what happened is after five weeks after I sold the company, he quit. And so they went out and had to hire another advisor.
Michael: Oh, no.
Donna: Yeah. So the whole plan of walking away from a financial planning firm. And I was planning on writing more. I love to write. And then when he left and they hired another advisor who I think did a fine job but just wasn’t as interested in building relationships, then I had clients coming back to me during the year when I could not compete and had to stay out of the industry asking me if I would come back when I could. And that’s really what forced me to do some soul-searching and to realize if I could come back really small and put some guardrails on it and honor those guardrails then I could really love it again. So I have no regrets on selling the company and stepping off of that treadmill. I think I was very fortunate that I was able to come back with a business model that I truly love.
Michael: So talk to me a little bit more about this decision that you had in growing the firm originally and just coming to the conclusion of, “Oh, my God, I’ve got to sell this.” How do you get to that point?
Donna: Well, my daughters were, I don’t know how old they were, maybe 12 and 14 or something, and I just felt like they were growing up without me. My husband was working full-time, but his job had more flexibility than mine did. And so he was doing a lot of the parenting. And it just felt wrong. I kept trying to fix it and I wasn’t successful at fixing it. I was working with coaches who had ideas. I was talking to my study group, and it just wasn’t working. And so I knew I had to do something drastic. And I guess when the offer came in that someone wanted to buy it, that was exactly what I needed.
I remember talking to my compliance attorney and telling him that I wanted to sell it and he said, “Donna, are you out of your mind? You’re not even 50 years old.” And I just said, “It’s something I have to do.” It was a gut feeling that I had to do that. So it was a very personal decision. I hated leaving my clients. It was like, the company was definitely my baby, and yet when I was totally honest with them, after I’d worked for the buyer for a year then I had a year where I couldn’t compete, when I came back and sent a letter out saying, “I’m coming back with a very different business model,” it was laying it all on the table as to, “This is what happened. This is how the plans changed. This is why I’m coming back. I’d love to work with you again.” And then they had a decision to make. So the whole process was very honest and transparent. And that felt really good to me.
Michael: So you’re now in this firm where you’ve created the deliberate design around yourself, so what stopped you from…I guess, was there a pathway to get the firm that you owned to where you are now? Most of what you have now it sounds like were a subset of the higher-end clients from the old firm anyways. Was there a path to just say, “Hey, I’m just going to take my 95-client firm down to 40 and hold onto it rather than selling it?”
Donna: Oh, I see where you’re going. I had contemplated that. I had considered letting go of a lot of clients. And so yes, that probably was an option. Although when you get attached to clients, it’s hard to figure out who you can let go off. They all feel like they need you, and it becomes a really emotional decision. But yes, I think that could have been an option.
Michael: But you just, it didn’t feel like a path to you at the time? And obviously, you didn’t go that path.
Donna: I remember looking at it and it just didn’t feel comfortable.
Michael: Because you’d have to go to half or two-thirds of the client base and transition them away, and you just didn’t want to go out to that many people and do that conversation?
Donna: Right. And when I chose the 35 clients I wanted to invite back, that was really gut-wrenching too to think about, “Who would I like to work with?” And it wasn’t just the wealthiest that I invited back, it was the people that I enjoyed working with the most. And in some cases, it was the people who I felt needed me the most. And so it was a combination of all different levels of investments and fees. I didn’t think it was right just invite the wealthiest back. So I had to really think through who did I want those 35 clients to be.
Michael: I don’t know, there’s something that fascinates me, and I guess this is just part of our human psychology, this phenomenon that, being at 95 clients and going to 40 was too uncomfortable, but selling on 95 and then bringing 30-something back felt better.
Donna: Well, I think if my junior advisor had not quit, I would not have this company today because I wouldn’t want to compete against him. So the fact that he left, I feel like I owe him a huge thank you. He left because he didn’t like the buyer. And he made his own decisions for his family. And it just turned out then that that opened up an opportunity for me to come back. But it definitely wasn’t planned this way. So it’s almost like, we’re planners, therefore we plan the future to the nth degree, but plans change and we have to stay flexible.
Michael: So when you were queuing up this sale, what was going through your head at the time about what you were going to do? Because as you said, you were not yet 50 and selling your business and exiting stage left. What was the plan, at least then, since it wasn’t, leave for three years and then come back and start over again? Because you didn’t know your junior advisor was going to go out the door as well. What was the plan at the time that made you say, “Yes, I’m going to sell it and make this change?”
Her Plan When She Sold Her Firm [25:27]
Donna: Well, I remember being incredibly scared that I was making the wrong decision. I was selling a firm that I had built from the ground up and still had a lot of years left to work and wasn’t sure how I would work. I was working on my first book at that time, so I really wanted time to write. And I had this pollyannaish feeling that the year that I had a non-compete, I would get to go to lunch with my daughters. I would be able to bond with them. Everything would be wonderful. And as it turned out, they wanted nothing to do with me because they were teenagers.
Michael: They were teenagers?
Donna: Yeah. And so it was incredibly painful. I don’t mean to make it sound like this was a wonderful several years. It was very, very painful. And then coming back felt good because I realized how much I missed it, and so I built a much smaller firm. And that makes me happy. And they’re in their mid-20s now and they’re beyond the teenage years and our relationship is much, much better as they get older. But it wasn’t perfect. It was painful.
Michael: So, that decision and that timing, I think a lot of advisors that are going through this conversation or this question today, there’s so much merger and acquisition activity and so many buyers out there that want to buy out small to mid-sized advisory firms and tuck them and roll them and merge them, acquire them, lots of different angles to it. And I think a lot of advisors who built successful firms and have a good base of clients and revenue and are getting these phone calls and offers are trying to figure out the same decision you were weighing of, “Is this actually the right time to sell or am I making the wrong decision?”
Donna: Right. Well, there’s a lot of uncertainty. And so it’s almost impossible to know for sure that you’re making the right decision if you sell or if you don’t sell or if you bring on a junior advisor and hope to mentor that person and leave your firm with that person. That’s got a huge amount of risk as well. So, none of the options are perfect. And I think you just have to decide which one fits your personality and go down that path. And if it doesn’t work, you pick yourself up and brush yourself off and go down a different path. So, I don’t know the answer to that. I know all about the mergers and acquisitions and I know, when I brought on that junior advisor, when I hired him initially, it was to be my successor because I had no intention of selling my firm. So I went down that path. But that can backfire too if that person decides to leave and take lots of your clients with them. And so there’s a huge amount of uncertainty in making that kind of a decision.
Michael: And so what pushed it across the line for you then in the face of so much uncertainty and fear of wrong decision?
Donna: I think for me it was probably very personal in the sense that I felt like I had neglected my daughters and my husband and that I was not being a good mother or a good wife. So it was very, very personal. And I had to realize that the company was second, playing second fiddle. And it was interesting. I knew that from a priority standpoint, I had talked with my coaches over the years that, of course, my family is first priority, my health is second priority, clients are third at best, but when I looked at how I spent my time, it was clear that clients were first. And that just felt wrong. And I had to fix that.
Michael: And the fixing it was selling it and walking away.
Donna: It was. For me it was. I had tried everything else and they weren’t working. And so at that point, I think I was ready for a drastic move.
Michael: I’m just curious, what else were you trying? I’m imagining coaches trying to come up with all these different things of, “Have you tried this to free up more of your time? Have you tried this to free up more of your time?” What were you trying that I guess didn’t work but you were at least going down the path?
Donna: Well, I think one of them might have been letting go of a lot of clients or closing the doors to new clients so we had a chance to catch up. Or hiring more people. That was a big one. Hiring a junior advisor. I hired an investment person to place all our trades and confirm them and do performance reporting. I was really building a team. And I had some great employees, but it still wasn’t taking the work off of my shoulders.
Michael: What was still stuck on your shoulders?
Donna: Well, certainly meeting with clients, of course, but also I think a lot of the back-office work. Making sure the forms were right. If they came back from Schwab or from Vanguard with mistakes, it took five times as long to fix them as it did to do them right in the first place. So it’s just the frustrations of training new people and the steep learning curve, that kind of thing.
Michael: Okay. And so you were always on this treadmill of, “We’re trying to train the new person to get up to speed on more things,” and then by the time you got there, there were other more things to do anyways and so you never got your time back?
Donna: I would say that’s true. Yeah. Maybe I didn’t do it right. I don’t know. But I certainly gave it a good effort. I kept working at it. And by having coaches, they have a lot of good advice. I was getting input. And I was on a study group where we were all sharing our frustrations with growing the firm and hiring employees and that kind of thing. So part of it I think is just that I like being smaller. I’m far, far more profitable now than I ever was with a team and 95 employees. And it’s just working better now. I get to go home at a decent hour. And I’m not spending my weekends here. Now, I do spend weekends here when I’m seeing clients. There are a lot of weekends where I’ll come in on a Sunday afternoon. But generally, that’s not the norm, and certainly not during the summer.
Michael: Well, and it’s such a powerful point that you just made there, that, “I’m far, far more profitable now with my 42 clients than I was at 95 with all those employees.” To me, that’s the other piece that still gets missed and overlooked so often, this idea that if we just keep growing, it’s also just a pathway to more income, more dollars, more opportunity. And for so many firms, that’s always the theory and virtually never turns out that way in practice because once you go past your personal capacity and have to start hiring more team members to service more clients, every time you get more clients, you’ve got to hire more people. The more people take up a big old chunk of the additional revenue you just got from having more clients.
And it’s why still when you look at the benchmarking studies today, incredibly profitable solo firms like yours still take home as much income as partners at billion-dollar advisory firms. The net take-home pay per partner is almost the same for high-profit solos and partners of billion-dollar firms, which is just striking to me. There are people who spend 20 years growing to $1 billion and through the entire journey never make any more dollars than you would as just a focused well-designed solo.
Donna: I agree with that. I’ve seen both. And I know when I was adding employees, it’s not just paying their salary, but it’s the benefits and the extra computers and more IT people. And it just snowballs.
Michael: More support and infrastructure. And then you need people to help manage the people. Like if you were going to go much beyond six or seven, you would get to the point where you can’t handle that many people reporting to you on top of the clients, then you’ve got to hire people to manage the people, who add nothing to the revenue but are essential for the infrastructure but just pull the margins down further as you grow.
Donna: Right. And I agree, it snowballs. It’s very expensive to have a lot of employees. And sometimes I’ll see something about a firm where…I don’t know, I think I’ve got about $90 million in investments and I’ll see something about a firm that has $100 million or so but they have 5 employees and I’m thinking, “How does that work?” Although that’s actually, that was the same situation I was in. I had 95 clients and we had just slightly over $100 million and I had 5 employees plus me, so we had six, whereas now I’m at $90 million, 42 clients and no employees. I have a little bit of part-time virtual, a little tiny sliver of part-time on-site, but they’re contract employees. I don’t pay benefits. And it’s very efficient.
Michael: Well, and as you say, now you’re in a firm where 80 cents on the dollar goes from the top-line revenue to the bottom line to the owner, and you don’t do that with 5 employees.
Donna: Right, right.
Michael: Yeah, it’s a fascinating juxtaposition to me. And to me it’s not about saying, well, therefore it’s bad to grow a larger firm or you’re “dumb” to grow a larger firm. Not everybody is motivated by dollars alone and climbing a higher income. And there is an enterprise value asset that’s there at the end to be fair and sort of comparing them financially. But if you look at it and say, “You can be a successful solo or grow a path to $1 billion with all the stress and headache and challenges and employee issues that come with that and you’re going to make the same income either way, or less in the growth path because you have to keep doing all that hiring, now which one do you really want to do and why?”
Donna: Yeah, I think you have to look at what motivates you. I remember when I had my first firm and growing 30%, 40% a year was very exciting. And so that was a motivator for me. Now it’s not. I don’t care about that. But I think you’d have to look at, do you want to be a big player in this industry and get a lot of attention, and that’s exciting, or do you want to just kind of run your firm and do a great job of servicing a much, much, much smaller number of clients and you’re content with that? So I think the answer is different for different people.
Michael: Yeah, fully agreed. But it’s when you take a step back and say it’s not about growing income, it’s about something else, which is fine, but just, then it really pushes you to answer the question, “What is the something else that you’re building towards?” I look at some advisors that have built much larger firms, and it’s impact. It’s just a vision that they’ve got about how they think people should be served. And they want to do it for more people just to…intrinsically motivated to build a bigger, to serve more people. And as you said, there’s a lot of different reasons that people may go down that road. And it’s very personal to them. But to me one of the myths I think that’s slowly getting shattered as advisory firms grow and get more mature and we just get more data on it is how growth is surprisingly not particularly a path to higher income, or at least not much higher income and not until you get much, much, much, much bigger. Bigger than most people ever grow their firms in their lifetimes.
Donna: Right. I think that’s an important point. I agree.
Michael: So given the pain of what you’d gone through in the first round, you said when you were coming back to do it the second time you were trying design intentionally and put, as you said, guardrails in place. And so I’m just wondering, what else was in your mind about how the business was going to be intentionally designed? Was it just specifically, “I only want to be at a certain number of clients?” Was there a revenue target? Was there times of day or how many days a week or year you wanted to work? Were there other factors in the design beyond simply, “I’ve done 90-plus clients, I sure don’t want to go back to that again?”
Other Outcomes She Aimed For When Building Her New Practice [37:57]
Donna: Well, I think I just wanted some free time. I wanted to know that I wouldn’t fall back into my bad habit of being a workaholic. And when I’m in the midst of client meetings and I come in on Sundays or I work late, I am very aware that I could easily fall back into that pattern. So I was determined not to let that happen.
Michael: And that’s where the client cap came from? Like, “If I kept myself at 40 and they’ve already said they don’t really want to meet with me more than two times a year, I just can’t get that sucked in because there aren’t enough of them to pull me back in?”
Donna: Well, originally the goal was 25. And I’m sure, I don’t remember the number I was looking at, but I was looking at a revenue line, a revenue goal which would then turn into a profit goal. I’m always watching very closely my P&L. So I don’t remember the numbers at the time what I thought 25 clients would be. Maybe they would be, I don’t know, $15,000 each or something. But then a lot of that would fall to the bottom line and I thought, “That’s adequate.” But more so than that, I was looking at making sure I didn’t become a workaholic again and that I had time. This time it was more time for my husband because, by that time, my daughters were off to college. So he became more of a priority in terms of having balance, being able to travel, having our evenings free, our weekends free, that kind of thing.
Michael: Well, I’m just looking at the math of it, 25 clients at $15,000 each I think if I’m doing the math right is $375,000 of gross revenue. At 25 clients you don’t have very much staff infrastructure, so you’re probably taking home 80% to 85% of it. So it’s netting over $300,000 a year. It’s a heck of a designed practice.
Donna: Yeah. Yeah. It was attractive.
Michael: Yeah. And so are there other, as you’ve put it, guardrails or things that you put in place for yourself to try to keep you from getting, as you said, sucked back into your workaholic tendencies?
Donna: Well, I accepted a new client in December who turned out to be an enormous amount of work. I didn’t really expect it, but we ran into some hiccups. And at that point, I’m thinking, “Okay, I love working with new clients, but I don’t want to devote 60 hours to a new client.” And that’s basically what I did. So I’m constantly watching the balance. If I feel like I’ve got to be here this weekend then I’m paying attention to that, and I’m not happy. And also the fact that I want to start writing this book. I actually started it a few weeks ago. So I’m very excited about that.
And I write a monthly article for the “Albuquerque Journal,” which actually takes me quite a lot of time. And I love that. And that’s strictly educational life. I told the “Albuquerque Journal” when they asked me to do that a couple of years ago that I did not want to be paid for it. It’s a way to give back to the community. And so I put time into that. I put time into my writing. I have time for other interests, and that all feels good. So I’m happy with my lifestyle. I love my clients. I’m happy with my firm. Everything is good. I have to say I’m very, very fortunate.
Michael: And so what happens now that you’re at 42 clients of original upside target of 40? I think you mentioned at the beginning this possibility of, I think you said retiring some of your clients or retiring from some of your clients. What happens now if you still at least enjoy the occasional new client? Probably not the guy that had 60 hours in the first few weeks. But in general, if you still want to take on the occasional new client but you’re already at 42 out of 40, what is the plan about how you handle this?
Donna: Well, I’m contemplating letting a few clients, I call it retiring. It doesn’t feel like letting them go. It’s not a negative thing. It’s just that I think maybe they can do it on their own at this point. Maybe they don’t need to pay me. And so that’s a way to cut back to 40 if I decide I want to do that. And I’m also looking, I’m 61 now, so I’m looking at all my options. I’ve told people, with this kind of a lifestyle practice, I want to work several more years, but I don’t want to be here at age 70. So I’m looking at whether there might be someone locally who I could bring on who could take over or whether partnering through an acquisition would make sense. I’m just kind of exploring all of that with my eyes wide open. I haven’t made any decisions. But my goal is to make sure that I make the best decision so that my clients will be in good hands after I retire in several years.
Michael: So I’m just imagining anybody within, like, 50 miles of Albuquerque now is going to be looking at your website and saying, “So you want a successor? I’ll come in and buy out this practice. Just got to wait a couple of years?”
Donna: I don’t know. I’m just trying to be honest, but hopefully, I’m not giving away too much information.
Michael: No, no. Right? It’s just, it’s the reality. Age is what it is and it marches inexorably forward. There’s no shortage of industry folks who have pointed out and banging the table that just from the sheer demographics and the number of advisors in their 50s and 60s that a lot of people are going to be looking to retire or find successors over the next 5 to 10 years. I think frankly that a lot of the predictions was that the wave was supposed to happen already because huge swathes of advisors who are baby boomers are turning 62. And as you noted, this is something you can actually do beyond just the onset of Social Security, particularly if they’re practices at a good balancing point and you’re happy to go on. I see a lot of advisors doing this well into their late 60s and even into their 70s in some cases. But eventually at some point, either we move on to other things or unfortunately, health changes may occur eventually. And so there’s a lot of people that have to retire at some point.
Donna: Right. And there are a lot of good options out there. So it’s not top of my list. I don’t feel any sense of urgency, but it’s just something I’m looking into.
Michael: Interesting. So talk to us a little bit more about just what you do for these 42 clients that keeps them on board at $18,000 a year in fees. It’s a good-sized number. As you said, if they are appalled by that, you refer them somewhere else. So kind of by definition the people who are working with you value what you do for the fees that you charge. But can you talk to us a little bit more about what you’re doing for clients and what that relationship looks like on an ongoing basis? Because, unlike most firms, you’re not primarily focused on all the planning work that happens for a new client because you’re only taking one or two a year. Most of your world is ongoing financial planning for ongoing clients. So what does that look like?
What Donna Does For Her Clients On An Ongoing Basis [45:18]
Donna: Well, the investments, I think most people who come to a financial planner often come because of the investments. And I custody most of my assets with Schwab Institutional. I’ve got quite a bit of Vanguard, some at Fidelity. I use a lot of Vanguard Institutional shares. And I use some DFA. And I use some actively managed funds. And I do my own due diligence using Morningstar Office. So I put a lot of energy into the investments. And then certainly retirement planning I use MoneyGuidePro. And I’m happy with that. And I update clients’ retirement plans every fall. And then estate planning, I keep going back to estate planning, making sure beneficiaries are correct, making sure their legal documents are current and they convey their wishes. And so there’s a lot of work around estate planning, seems like on an ongoing basis.
Tax planning was huge this year. In December, especially when the market was plummeting, I was doing a lot more tax loss harvesting than I have ever done before. And I was not happy about that because I didn’t think there was any reason for the market to be going down except for a lot of tweets and that kind of thing. And so a lot of tax loss harvesting in December, which carried into January, and reviewing tax returns. I don’t complete tax returns for my clients, but I work closely with a lot of their accountants and review them all looking for errors, looking for opportunities. So I spend a lot of time on taxes as well. And occasionally review insurance if they want me to.
We’re constantly talking about goals. I spend a lot of time on the relationship between money and happiness because of the book I wrote was called “The Joy of Financial Security.” And it’s a lot about the psychology and the neuroscience around money. And so I definitely get into that kind of fuzzy side with my clients. And how can they enjoy their money more? We do a lot of donor-advised funds, some college funding, some for grandchildren. And then I work with some of my clients’ children and grandchildren. I like doing that. So multiple generations. So it’s pretty comprehensive. I’m certainly not a family office, but from a financial planning standpoint, it’s pretty comprehensive.
Michael: Interesting. And so, on the investment side, you’re managing client portfolios entirely yourself, you’re not in the world of TAMPs and other outsourced providers. You’re hands-on yourself?
Donna: I am hands-on myself. I haven’t had any reason to outsource it. With 42 clients, I can let them have customized portfolios. I don’t use models. And at every meeting, we’re talking about cash flow and all of those issues. And so yeah, I do that myself. Being small, you can do that.
Michael: Yeah. Yeah. And then are you in a CRM system for tracking a lot of this together as well or don’t even need one at 42 clients, you’re able to keep track of them on your own?
Donna: No, I do use Junxure and have used Junxure for many, many years.
Michael: Okay. Okay. And so, you’d mentioned earlier that there’s, like, an agenda structure to meetings as well with, I think you said some cyclicality of estate and insurance stuff in the spring and retirement updates in the fall. Can you talk a little bit more about what the agenda structure is and just how you manage this flow with clients?
Donna: Sure. I come up with an agenda about a month before my meetings begin. And I send that off to my virtual assistant. And as I said earlier, it’s always going to include investments. So we’re always going to cover that. But then there’s a lot of other topics that are different on the spring agenda versus the fall agenda. So, on the spring one, which I just finished with all of my clients, I had taxes on there because of all the tax law changes and talking about whether they would be itemizing in the future, charitable contributions, all of those issues, tax issues I had how much they had spent during 2018 and what percentage is that of their total and whether that’s very, very safe or whether it’s pushing the limits a little bit. We talked about that and cash flow. We talked about their family issues.
I prepared a finance binder for this last meeting. The purpose of that was that everything would be together for estate planning purposes. And if anything happened to them… A lot of my clients are married couples, and so I would say, “This really only pertains to if you both go down in an airplane together. But if we create this finance binder, you’ll have everything together for your executor or your trustee.” And then it also, of course, has my business card in it so they know how to reach me. But that had their legal documents in it. It had a copy of every one of their investment accounts, not necessarily to keep it current, but to have the account number. It had net worth statements so that someone who would be going through that would know everything that they own. It had funeral wishes if they had that. It had all of those kinds of information together. And so I did that for them.
And then also, a couple of years ago I had a spreadsheet that I designed which included keeping track of all their passwords. Keeping track of where everything important is, whether it’s in a safety deposit box or not. Keeping track of cash flow, Social Security that flows in automatically or bills they pay automatically. So that spreadsheet also went into that finance binder. So I do things like that for them. And it ends up being at least an hour and a half, sometimes a two-hour meeting.
And then other issues come up. One issue with one of my clients now is her father died last November and we’re trying to work with a trust company in Chicago that seems to be dragging their feet on distributing the assets. So that’s something that comes up that’s totally separate from a meeting, where I’m helping her get information and ask questions and trying to nudge them along. Those kinds of things always come up.
Michael: So, it sounds like there’s a fairly standardized agenda that you end out creating. Like, “It’s spring of 2019, so here’s the standard thing we’re covering with everyone. We’ve got to talk about tax stuff because we did a whole bunch of loss harvesting. This isn’t estate planning year, so we’re going to review all the beneficiaries. We’re going to do our check in on spending as a percentage of assets and when we’re doing this update to the finance binders.” And that’s the thing. That’s the agenda. That’s what every client then gets for this cycle of meetings?
Donna: That is correct. And then my virtual assistant, she will drop in the prior investment section and she’ll update the values. And then usually three days before the meeting, I will go in and do the final prep for that appointment, and I will then go through all the investments, make my recommendations for changes, if we have to free up cash for cash flow needs, that kind of thing. That’s when I customize it. And also in Junxure, actually one thing I’m doing, I was doing today prior to our call is I recap the appointments in Junxure. So, I was going in and recapping all of the spring meetings and posting those in Junxure with all of the loose ends, what I call the pending items. And so I go into Junxure and I list it as a note and I put in all the issues I want to talk about first for that next meeting. And then my virtual assistant will carry that forward onto the next agenda. So everything that’s a loose end that’s pending is already documented. I don’t have to keep any of it in my head. And that helps me tremendously.
Michael: Oh, so you end out with two sections or I guess three sections of the agenda. Part one is, “Here’s the pending issues from last meeting we’re coming back to.” Part two is, “Here’s the standardized planning stuff that we’re going to talk about.” And then part three is, “Here’s where we stand on investment portfolios and any tweaks or recommendations I have on your portfolio?”
Donna: Yeah, that’s actually very accurate. The very first topic on my agenda is always new and old issues. So I start out by asking a client, “Is there anything new we should talk about it because I want to talk about that first?” And often they do have new issues. And then the old issues are…new and pending, I should say. And then the pending issues are all of those items I put into Junxure to remind me that I want to talk to the client about this at the next meeting. And they may be loose ends. Like for instance, I may say, “Did you complete the spreadsheet that we discussed at our last meeting?” And that’s that estate planning spreadsheet where they have to drop in their payments and what’s coming in and passwords and all…it had a lot of different pages. And they will say, “No, I didn’t get around to it” and we’ll laugh about it and keep it on the list, or they’ll say, “Yeah, we did it and here it is.”
Michael: Interesting. And so, I am curious because when it comes to agendas, I know different people have different approaches of, they put down the…they mark down their agenda and then the first thing in the meeting is, “Hey, is there anything else you want to talk about that we didn’t have on the agenda?” I know other advisors that like to always do that in advance. They send their agendas and say, “Hey Mr. and Mrs. Client, is there anything you want to add to the agenda before we go into the meeting?” Do you have a particular style about how you do this? You like to send them advance or you like to ask them at the top of the meeting in person?
Donna: I do it at the top of the meeting in person. Definitely. And usually, at the very end of the meeting, I may have a miscellaneous category. And that might be something like, “What kind of things are you planning to have more fun? What’s on your schedule for the next six months?” And if they’ve told me they want to take a trip to Australia, I’ll say, “Are you scheduling it yet? Do you have a plan?” Or they want to go see their grandson, those kinds of things. And so I tend to end the meeting with a more personal topic right at the end.
Michael: Okay. But it’s otherwise a very, I guess just standardized agenda. Aside from obviously pending issues varies by client, so your virtual assistant fills them in. But I guess that makes it easier in going through the planning process and the cycle of meetings, that you just know, “Okay, as first quarter of 2019 meetings cue up, I know exactly what my conversations and talking points are because this is the theme we’re taking in every client meeting over this quarter and we’ll just repeat it one after the other until we’ve gotten through all the clients on this issue or topic.”
Donna: That is true. You’re exactly right. And so on the next meeting, I’m already making a list of the topics I want on the next meeting that are unique. And one of them is going to be a good discussion around risk assessment. And so I’m starting to do some research on that. The fact that we all think we have more tolerance for risk until the market plummets and then we realize we really didn’t. So that’s something I want to bring to their attention at the next meeting. And I’ll have several topics like that that will be unique to the fall meeting and then different ones in the spring meeting, etc.
Michael: And so that part of this cycle is I guess your…it sounds like your financial planning issues section is a combination of things you regularly do and rotate. “We’ll review their estate and insurance beneficiaries in the spring. We’ll do their retirement projections update in the fall.” And then a issue of the meeting that’s like, “Here’s the new thing we’re doing. We’re going to take this topic or theme out to all of our clients in the next meeting cycle.” And you get a couple of months to build up to that since you’re meeting with clients in chunks twice a year, and then it goes on in the agenda, and that’s the thing you do for the next meeting cycle.
Donna: That is all correct.
Michael: And so if clients want to meet in between, it sounds like you were saying you’ll still meet with them as they need if other stuff comes up. It’s just this standardized agenda framework is once in the spring between January…well, I guess winter between January and April and once in the fall between September and the end of the year.
Donna: Right. And that’s a really good example of guardrails. Because I remember a few years ago I had a client who wanted to meet three times a year. And so they would say, “Well, we want to meet in the summer.” And I did that for one or two years and created a customized agenda for them and thought, “This is so incredibly inefficient.” And it’s also, I don’t think it’s necessarily valuable for them, but I think they were thinking, “Well, if I’m going to pay you X dollars, I want three meetings instead of two.” And I can understand that.
Michael: “I’m a big client, I should get more meetings.”
Donna: Exactly. And so what I finally did with them was I said, “We can meet in the summer, I don’t mind at all, but you bring the agenda. Tell me what you want to talk about. Because my spring and my fall meeting cover everything we need to cover.” And they quit asking.
Michael: Interesting. “So if you want to meet more, just tell me what you want to talk about,” and they couldn’t come up with anything.
Donna: Exactly. Yeah.
Michael: It is an interesting phenomenon to me that so much of what we’ve done in the past couple of years around, “How do we segment clients and who’s a more or less valuable client and what do we do with them” is just this thing, the number of meetings. Like, “You have more assets, you get to take three or four times a year to come see me. You have fewer assets so you only get to see me once or twice.” And I feel like a lot of that does happen, as you just noted there, without any actual thought or focus on what really you need to talk about in those meetings on an ongoing basis such that you need that many of them, particularly for a long-standing client after you’ve been doing that pattern for a number of years.
We’ve always seen in our firm that you hit this point with clients, I find it’s usually somewhere around five years into the relationship, where it gets really hard to schedule meetings with them. Not that anything is wrong, it’s just we reach out and say, “Hey, it’s time to schedule the next meeting,” and they get back to us and say, “Well, actually, I’m feeling good. There’s nothing going in our lives. I don’t really have any questions. If you don’t think there’s anything going on from your end on the planning stuff then I just don’t know why we need this third meeting this year.” And it took me a while to sort of accept and get over the fact that what they were basically saying is, “All of your meetings are boring and unnecessary.” But that’s basically what it’s coming down to. Like, “Hey, when there’s stuff going on we definitely want to meet. And when you’ve got planning things to talk about, let’s come in and talk about them.”
And there’s often things to talk about at least for one or two meetings a year, but if there wasn’t stuff going on in their lives that they needed help with, we kind of found the same thing. The more meeting pace, just eventually the clients started rejecting it. And my gut, in retrospect, is they probably would have pushed back sooner. But since we told them like, “You’re a sizable, valuable client, you’re supposed to come and see us three or four times a year,” I think they were just trying to be good, obedient, diligent clients for the first few years until eventually they got comfortable with us enough to say, “Why don’t you just call me if there’s something going on and I’ll call you if there’s something going on. And short of that, I don’t know why we need to meet so often.” Particularly in D.C. area because our traffic is horrible, so it’s not a 90-minute meeting for clients, it’s like a 3-hour excursion through traffic, a portion of which will be sitting in our office.
Donna: Well, I think that sometimes we’re our own worst enemies in terms of feeling like, like you said, if we segment clients, a really large client that has…well, large client for me is $4 million, $5 million, they should get more meetings or more touches. I remember looking at touches, which could be birthday cards, could be calls, could be emails. It doesn’t have to be meetings. And I kind of just let all of that go. And I guess maybe I can do that because I’m so small. But I do schedule the meeting…the next meeting is scheduled at the prior meeting. So that gets around calling them to try to schedule a meeting. And I’ve done that for a very long time. We scheduled meetings from September, October, November, and they’re all on the calendar now. And then a week before, I send out just a really brief email saying, “This is a meeting reminder. We’re scheduled for such-and-such day at such-and-such time. If you need to reschedule, please let me know.”
And I find that clients are very tradable. I hope that isn’t taken wrong, but we just need to teach them to let us know if they need to change their meeting. And a lot of my clients now will call me or email me ahead of time to say, “We see this on our calendar, we realize we’re going to be out of town, we need to reschedule.” And I always say there’s no problem in rescheduling because we schedule so far in advance. But then we don’t have to be tracking them down. They know that we’re going to have two meetings. And if there’s a health issue, maybe one year we only have one. But that’s very rare. Usually, it’s two.
Michael: There was a fantastic article that came out a couple of months ago from Philip Palaveev, who’s a practice management consultant and actually was also on the podcast back in our early days. So if anybody wants to go back and listen to it, it was episode 40, kitces.com/40. And one of the things that Philip has both written about and talked about is this idea of, “What does it actually mean to manage a client relationship?” Because we say like, “We manage client relationships. That’s the role of a senior advisor.” And part of the point that he makes is, managing a client relationship is not just, I’m the person with whom the client has the relationship and I try to be a good and personable person so they have a relationship with me and that when they’ve got an issue or a problem, I’m the person that calls and handles the situation.
One of the key points of what it really means to manage a relationship is managing expectations, and as you put it, training clients. Like, “If you have a service need, here is who you call on the firm and how you’re supposed to contact in order to get it resolved. And here is the expectation about how often we’re going to meet in order to work on your financial planning issues.” And some of that is investment management expectations as well, but a lot of it is just managing the relationship. There really is a component of, are you being proactive in setting those expectations for your clients, and as you put it, training the client, “Here’s how it works?” And it’s okay to do that. It’s actually important to do that. That’s how you get a much more efficient practice. Otherwise, you’re constantly in reactive mode because clients haven’t been trained on the way that they’re supposed to work with you to make the relationship productive. And so you’re just continuously reacting to dozens and dozens of clients. And I think that’s part of how we tend to drown in our practices.
Donna: Right. And I remember many years ago at a conference, someone said, “We’re not in the meeting business.” And that stuck with me.
Michael: I like that.
Donna: Yeah. Because as I said, first of all, we were doing quarterly, then we went to three a year, now we’re at two a year. Similarly, I used to send out performance reports four times a year and now I send them out once a year. So, when I came back with Sage Future and two meetings a year, at that point I was sending them out mid-year and end of year, January. I asked some clients, “Do you look at these?” and they kind of said, “Rarely.” And so I started just sending them out in January so they’d be a year-end performance report. And I remember the first year, I have a big client in Missouri, and I remember them, they’re very savvy and they pay close attention, so I thought, “Oh, they’re going to want it twice a year.” So I sent it twice a year for them and then the next year I skipped the mid-year and they never mentioned it. And it’s just, like you said, a matter of teaching the client how you can best run your practice so that you’re there when they need you, but you’re not doing unnecessary work that makes you crazy that they don’t really value.
Michael: Well, I think there’s something kind of oddly heretical about what you just said. Like, “We just only send our clients performance reviews once a year.” I’m imagining there are a few people that are just listening to this and yelling like, “What do you mean you don’t send it quarterly? Like, everything happens quarterly. They get their statements from Schwab quarterly. How do you not send your stuff quarterly?”
Donna: Well, first of all, I asked my clients if they wanted me to set up portals. And most of the software these days will allow you to set up portals. That’s a simple thing to do. I’m happy to do it. And I think I have one client that probably would have said yes, and so I send everything to them via email. They’re down in Florida, scanned and everything. But the other clients said no. I actually had, this is going to sound crazy, but I had these big turquoise envelopes that I’ve used from day one. And they said to me, “When we get a turquoise envelope in the mail, we know it’s from you. And if we have to throw it in a pile because we don’t have time then we know exactly where that is.” And they said, “We want things via snail mail.” So I could say, well, my clients are super old-fashioned, but even with my own situation, and my daughters are millennials, so I think they maybe get everything via email, but there’s just so much stuff that comes via email and I don’t look at much of it. And so they told me they wanted things snail mail, I still do snail mail.
Michael: So you send them one performance review a year and it’s printed and physically mailed.
Donna: That’s right. And we do review investments during their two meetings. So that’s when I’m reviewing them and discussing them with them. And then in January, early January, they just get the year-end report. And it’s always got a cover letter from me saying, “If you have any questions, don’t hesitate to call me,” but they also know that we’re going to go over that and we’re going to go over the current investments at the next meeting,
Michael: Which I think in some ways makes, I don’t know, the point about the real point of it, which is not leaving clients with this accumulating number of statements about how their portfolio stands and how it’s doing. Like, if they wanted it that much, they wouldn’t always leave it behind in our office after we’re done with the meeting [inaudible 01:08:28] do, right? We print the reports and give it to them and most clients don’t take it with them because it’s not actually that valuable for them to hold on to and keep. To me, it’s a due diligence thing for the client, that at some point they need to have the conversation so they can feel like they’re being good, responsible stewards of their money because they looked at how it’s doing and they asked you some questions.
And that’s an important part of the relationship, but you can do that in person when you’re meeting with them twice a year and say, “Here’s how we’re doing and here’s how it’s going. And do you have any questions?” And answer whatever questions they’ve got. And as I think your examples kind of illustrate, when you’re meeting with them on a regular basis and you’re getting to have those conversations anyways, all of a sudden mailing the report quarterlies out to them as well doesn’t necessarily matter as much. But for a lot of firms I know, they spend a lot of time and effort and hard dollars on printing and postage and mailing and circulation to get all these things out or all these tech integrations to automate it to a client portal, and then when you go and look, almost no one is logging into the portal to see it anyways.
Donna: Right. Right. Exactly. Because we’re all just too busy. I also send out newsletters. And I had a client just recently email me and say, “I so much appreciate the articles you send us and the fact that you do not use a canned newsletter.” And that was great feedback. So I’m probably not supposed to be sending out articles, I don’t know. But I send out…I collect articles from the “Wall Street Journal,” from “The New York Times,” from “Kiplinger,” from…a lot of them are also lifestyle articles about happiness, about wellness, about…there was one that I sent out this past time about telling, I think it was probably in “The New York Times,” but it was about telling your kids what they’re going to inherit.
So I collect all these articles. And I always have a cover letter on them, and I say, “Read the articles that speak to you and discard the rest.” And at one point I asked clients, I think it was last year, “Give me feedback. Do you like this? Do you not like this?” And a lot of them said, “Oh, we love the articles.” And then I got this email just recently. And that’s kind of a personal touch. It’s a little bit old-fashioned. It’s kind of quirky, but they like it.
Michael: So is this another one you’re physically printing articles and mailing it out to them or is this something you gather together online and email?
Donna: I physically do it and I kill way too many trees and I admit it. But for a few clients, they’ll say, “Can you send me that article, this one article via email so I can forward it to my friends or something?” And then I always have them via email as well.
Michael: You also said along the way you had published a book, “Joy of Financial Security” and that you were doing more of these conversations with clients about the intersections of money and happiness. So can you talk to us a little bit more about the book? What did you do? What did you write, and how does that connect back to the business that you have today?
How Donna’s Book Connect With What She’s Doing Now [1:11:14]
Donna: Well, the book came out in late 2013. And it’s all about the relationship between money and happiness. And so the beginning of the book, the first half basically is about happiness research, psychology research. I reviewed a lot of that. And also neural research that’s being done on how we make decisions regarding money, that kind of thing. And then the second half of the book was financial planning 101. It was, if you want to do this yourself, you need to create a net worth statement. You need to understand what an asset allocation is and what your risk tolerances, and, “Here’s how you can start to compose an investment account.” And it had a section in there on, “If you want to choose an advisor, here’s the way different advisors work. If you’re taking a pension, do you take a lump sum versus an annuity?” I tried to cover just kind of the basics.
And it took me six years to write it because I had no idea what I was doing. And it was great fun. I went around the country and appeared on a lot of TV shows, lifestyle shows. It was really, really fun. Did some speaking. Got quoted in a lot of articles. It was great fun. But the problem is that it’s like a second job. It takes a huge amount of time to do that much media work. And so I haven’t done much in the past several years. I did a lot in 2014/15. Last year I did some media training, which was fun. And then just recently I started writing my second book, which I’m very excited about. And it’s going to be quite different. It’s called “Becoming Mildred.” And my grandmother was Mildred Skeels, and she was just such an inspiration in terms of the fact that when her husband died at age 62, she just blossomed. And she drastically changed her life at that point and decided to have a lot of fun and to do some really exciting things.
And so, the opening of the book is all about her. And it’s going to have a lot of finance in it. I think the subtitle will be “Protect your finances now from whatever upheaval may come, then begin to blossom.” And so it’s going to talk about what you can do now to protect your finances in case you become a widow, in case you become divorced, you lose your job, you have health crisis, all of those issues. How do you protect your finances now, and then nudging mostly women to really kind of give themselves permission to blossom as they get older.
Michael: Very cool. And are you…do you self-publish these? Do go find a publisher or publishers found you? How do you actually make a book happen?
Donna: That’s a great question. I’m glad you asked that. My first one was self-published. And everyone always said it doesn’t look like a self-published book. It looks great. It sold about 2,500 copies. And so, for self-published book, that was very exciting. Those are good numbers for self-published. But with this next book, I definitely want a traditional publisher. And my name is not well known, and so I’m going to be looking for a publisher. If any of your listeners know of a contact, I would love to hear from them. That’s a challenge for somebody who doesn’t have a well-known name to find a traditional publisher.
Michael: So having done your first book yourself and gotten some great book sales out of it, why do you want to go to a traditional publisher now? Like, as someone that did the self-publishing route successfully the first time, what do you see as the opportunity the second time going with a traditional publisher?
Donna: Well, this kind of goes back to our earlier discussion about what motivates us and what floats our boat. But one of the things I really want and it would be rewarding to me would be a review in the “Wall Street Journal” or a review in “The New York Times.” And I’ve worked with journalists from both of those, which I love to do, but they will not review a book that’s self-published. And so I want to go the traditional publishing route and try to get a review like that.
Michael: Very cool. Yeah, I guess that’s still the unfortunate challenge of where the book and publishing industry is. That, as you said, you can actually publish something that looks beautiful and no one can tell it’s self-published but the media still has certain expectations, I guess. Right or wrong, but they are what they are.
Michael: So, as you look at it from the book end, so I guess I have two questions. One just, how did this come together? Did you hire someone to help do the self-publishing thing? Did you just cobble together the freelancers to do it? Did you just go hands-on and do all the layout and the rest of the stuff yourself? How did your self-published book actually come to fruition as a self-published book?
Donna: Well, I definitely didn’t do it myself because I didn’t know how to do it. I hired a company which is in Texas called TLC. And they work with small authors. And they will do all of the layout. They’ll do the book cover design. And I hired them and they did a great job. And then I hired a publicist who had a great reputation for getting a lot of print media. And that got me into a lot of articles. And then I hired a different person who could get me the TV interviews. And so, there are a lot of people involved, and it gets rather expensive. But that’s the only way I know how to do it. And I’d love to do that again. But when you have a traditional publisher, they have those connections and it’s not up to the author to find all of that.
Michael: And so, if you don’t mind me asking, what was the cost for you to go through and bring a book to fruition? What did you have to put in to make it happen?
Donna: I’d have to go back to QuickBooks and look because I set it up as a separate business. And so it’s not in with my financial planning firm. But I’m going to say I spent a huge amount of money. I’m going to say something like $60,000 to $80,000. Very, very, very expensive.
Michael: And was that because of just the cost to get the design work done, the editing work, just what it takes to buy copies and print them and get them into distribution? Where does the cost add up from?
Donna: It really was from all of those various people. TLC, they charged for…they gave me an editor, and so she had a fee. They had the cover design, graphics design person. They had a layout person. And so I don’t remember how much I paid them. I thought it was reasonable. But you start paying out $5,000 or $10,000 for various things. The publicists are expensive. The TV publicist.
Michael: Part of it was the publicist, and once the book was published, that’s how you got into the media activity?
Donna: Yes. And also into bookstores and Amazon obviously. But there are people that open those doors for you and they all charge a fee, understandably. And so, yeah, it adds up. I think the only authors that can…maybe I shouldn’t say this, but the only authors that really make a lot of money are those that have established a really well-known name and they’ve earned it. For most people, writing a book is not…it does not break even.
Michael: And so, how do you look at it from a results end? Like, between the book and the media and such, did you get new clients in? Or I guess I don’t even know if you wanted more because you’re close to your capacity already. Was it just a personal itch to scratch that just you wanted…you had something to say, you wanted to say it and get it out there, so you made it happen?
Donna: Yeah, it was mostly the second. Actually, in my book, I think in the introduction it says I’m not accepting new clients. And so I didn’t write the book to attract clients. And I felt strongly about not doing that. It was a chance to reach a much broader audience and to help them with their finances and also with understanding how having a really healthy relationship with money can truly make them happier, can bring them more joy. I think there’s a lot of thoughts around that. That people are fearful of money. They don’t know how to deal with it. So it was just reaching a bigger audience and having a chance to give back. And that’s the reason I did it.
Michael: What does a typical week look like for you at this point in the practice?
What One Of Donna’s Typical Weeks Looks Like [1:20:30]
Donna: Well, it just changed because around April 20th or so, I finished my client meetings. And so now I’m recapping. And next week I’ll finish that. And also next week I have a huge amount of time set aside for writing. So during the summer, I’ve blocked off large chunks of my calendar for writing. And I definitely want to get the first chapter done before I can approach publishers and try to find a traditional publisher. But I also would love to finish this book this summer, which is maybe unrealistic, but I want to make a lot of progress on it.
And then I’m going off to the NAPFA conference in Austin, and then a few weeks later I’m going to the NorCal FPA Conference. And I haven’t attended many conferences. So I’m looking forward to both of those. And so the summer is going to be pretty relaxed. Now, that could change if I have a client suddenly have a crisis and I find I’m back at the office more. But generally, this summer looks like it will be relaxing and a great summer. So I’m excited about it.
Michael: Very cool. And I guess that’s a striking thing, that because of how you’ve designed the practice and the guardrails that you put in place, your calendar is very seasonally cyclical, I guess. Like, a sprint of meetings, a close out to recap them, then a light period. Then you’ve got to start prepping for the next cycle. Then you go through another month or two of meetings and then you get another light period and then you prep for the next one and repeat the cycle. And so there’s this, prep meetings, recaps, break that just cycles twice a year?
Donna: Yeah. Normally December would be a month where I’m kind of wrapping up a lot of loose ends but not seeing a lot of clients. This past December was different because of all the tax loss harvesting, and then I rolled right into January getting performance reports out the door and getting ready for that next meeting. So there really hasn’t been a break up until now. And then starting with mid-August, I’ll be back working full-time and 40 to 45 hours a week probably.
Michael: And as you look back over all this evolution, what surprised you the most about trying to build your own advisory firm?
Donna: Well, I think maybe the fact that I’ve learned a lot about myself. I consider myself to be an extreme introvert. And I can hold my own in a party and socialize and all of that, but then I’m exhausted. So basically, I’m an introvert, which means I can work very closely with one or two people. And being a financial planner allows me to do that. So it fits my personality really well. Whereas managing a staff of five people doesn’t necessarily fit that. So I’ve just learned that having a small firm, knowing that my clients trust me and knowing that I’m here for them when they have issues that come up is rewarding. And I don’t have to be on that kind of a rat race treadmill any longer. So, I’m real happy about that. It’s very rewarding.
Michael: So then looking back, anything you wish you’d done differently in the path, I guess in the first cycle that you had of growing the firm? Are there things you know now that you wish you’d known then about what you were building?
Donna: I don’t think I have any regrets. From a personal standpoint, I would have liked to have been there for my daughters and my husband more during those early years rather than being at the office. But if I were to ask my daughters now about that, I think that they would probably say the fact that I was working was important to me. I like to work. I really enjoy working. And so it’s fine. It worked out just fine. At the time it felt like I was losing them. I could have easily headed for a divorce because it was so out of balance. And I guess that would be one thing. For people who are just starting their firms, I would suggest that they really pay attention to their family and make sure they don’t let it get out of whack like I did. But I was really lucky and fortunate that I was able to keep my family and make some changes that were very positive for me.
Michael: So what was the low point in the journey? So like a particular moment where it crystallized for you?
Donna: The low point was probably early ’07 when I was just so unhappy that I was always at the office and just feeling like a horrible mother. And then this company approached me wanting to buy the firm. So I think just before that was a low point. Then going through the turmoil of deciding if this is something I should do or if it’s a stupid decision. All of ’07 I was wrestling with that. And then ’08 was very uncomfortable because once they bought the firm, they were not very nice to me even though I was still working. So it wasn’t a walk in the park by any means. It was incredibly stressful. But looking back on it, I don’t have any regrets.
Michael: It is an interesting journey to me, though, that just, you had to sell the firm to get a chance to start fresh, to build the thing you wanted, to build, I was going to say that you wanted to build in the first place but I guess you didn’t want to build it that way in the first place. You kind of had to self-discover your way there. But that you had to sell the firm and come back to build the thing that you wanted to build in the end.
Donna: Right. And I don’t think I ever would have expected that. It’s not something I planned. It just happened.
Michael: So, I’ve got to ask from the other side as well as a little bit of a, I don’t know, broader industry perspective. We’d said earlier, for so many firms, they just try to grow income, grow to hopefully get economies of scale. There’s a lot of discussion out there of just, firms basically have to grow in order to stay competitive. And here you are with 42 clients and $90 million under management and an 80% profit margin, and it looks like things are going just fine. How do you look at all these discussions of, “You must grow or you can’t be a solo and stay competitive” when you’ve got this phenomenally successful firm staying solo and being competitive?
Donna: Well, I think that financial advisors need to stay on top of their numbers in terms of their profitability. That was always important to me. First of all, I guess they need to provide really great service to clients or they’re not going to be in business. So that’s the first priority. But then they also need to run their business like a business. And that doesn’t necessarily mean they need to grow. And for me, having 42 clients, I don’t need to be all things to all people because I don’t want 400 clients. So I don’t need to necessarily meet the needs of everyone who contacts me. And a lot of people contact me because they see my articles in the paper and I’ve got a good name in New Mexico and that kind of thing. I’ve tried to build the brand. And I try to help them and give them advice and send them in the direction that I think might be a good fit for them.
But I also think it’s just so fascinating in this industry. I think that the media has done a great job of educating the public about fee-only planning. And to some degree, they’re educating people on the meaning of fiduciary, which is still a strange term to many people. And I watch the trends in the industry. I see the large brokerage firms, obviously, their commission model is very much like a dinosaur. Really educated investors are not going to be happy with that model, and certainly not younger models, younger potential clients. And so they’ve got to adjust. And I think they’re trying to figure out how to do it and how to do it profitably. But I think, the robo planners are coming in and they’ll have a certain little slice of the pie that they attract.
And I watch Schwab very closely. I think Schwab, they just came out with a subscription service and that will be interesting to see how many people they attract. And for people going into their offices, they’re selling a managed account sort of service for something like 1% and yet independent RIAs are providing good investment advice and service as well as all of the other financial planning topics for the same 1%. So I see an opportunity for us to educate our communities on value and what we provide. And I think there’s always going to be a place for independent RIAs. And I don’t think they have to be especially large.
Michael: So you don’t worry too much at all about this, “Thou must grow and get larger in order to stay competitive” when you’re a solo yourself.
Donna: I really don’t. I remember the white paper that came out years ago that said little companies will not survive. And there are a lot of great little RIAs. We don’t have the marketing budgets that the big brokerage firms do. I watch their TV ads and I think they sound like they’re the best thing since sliced bread. And that’s very appealing to potential clients, but I think we’ve got an opportunity to educate people that we have tremendous expertise and value to give them. And it’s a great deal for an investor or for anyone that’s looking for financial planning advice.
Michael: Well, and the irony to me for that infamous Mark Hurley paper from 20 years ago that said all the solos are going to go away, everyone is going to consolidate into megafirms is…the irony to me, your firm is more profitable today than it would have been 20 years ago. Twenty years ago you couldn’t have a virtual assistant. You probably would have had to have an in-person one. And a lot of the things that we do with technology now means you might have had to have a second staff member. And then you also would have needed more physical office space to handle all of them. And you would have still had a firm with a good-sized client base and revenue and some good profits, but your firm is probably much more profitable now as a solo staying competitive than 20 years ago when he first wrote the paper that the firm wouldn’t be successful as a solo in 20 years. It seems like it went the exact opposite of the direction of the prediction. Solo firms got more profitable over the past 20 years, not less.
Donna: Right. And I remember probably 15 years ago, I would have potential clients, this is when I was growing and accepting a lot of new clients, I’d have potential clients who had met with one of the large brokerage firms. And I won’t mention them. And what they were saying about me was that I was so small. I could not give good investment advice because I didn’t have the research to do it. Now, of course, that makes absolutely no sense because those large firms were fined many times for conflicts of interest between what they were recommending and what they were doing in their home office. But the potential client didn’t know that.
And I would try to explain to them that when I have Morningstar Office and I take the time to really delve into all these mutual funds and make them compete with index funds and actively managed funds and benchmarks, I can design a portfolio that’s just as good as that huge brokerage firm. But that was the argument they were using, that I was too small to do a good job with investments. So I don’t think that’s quite as common now. They’re still going to come up with arguments against us, but I think we’ve come a long way. I guess that’s what I’m trying to say. And Technology has helped that
Michael: So where do you see the industry trends going as all this plays out in the coming years?
Donna: Well, I think that independent RIAs will be just fine if they want to stay that way. I do see the firms that are acquiring small firms. And there are reasons for that. It’s attractive in the sense that you get rid of compliance. And I think the biggest issue for me is cybersecurity. I have firewalls on top of firewalls and IT firm and everything, but there’s always that fear that there’s going to be a cybersecurity issue. And by merging into a larger firm, the little guy gets rid of that fear. It’s still there. But there are headaches for us that merging into a larger firm can take care of. And on the other hand, obviously, we’re giving up our independence. We’re giving up our autonomy to make decisions, and everybody has to weigh the pros and cons for themselves.
Michael: So as we wrap up, this is a podcast about success and one of the themes that always comes up is just the word “success” means different things to different people. I think as your story has illustrated, even sometimes success is different things to us at different stages of our lives and building our businesses. And so, you now have what anyone would objectively call a phenomenally successful “lifestyle practice,” but I’m wondering, how do you define success for yourself at this point?
How She Defines Success [1:34:31]
Donna: That’s a great question. Success for me is going to be heading into my later 60s and being happily married and having a great relationship with my daughters. So it’s much more from a family perspective than ever before. It’s also, success is also for me writing a book and hoping that it can be successful and hoping that I get to go out and talk about how people can have a healthy relationship with their money and how they can choose to blossom and change their lives. And so, that’s all very exciting to me, too. And having the firm feels great and having the profit feels great, but those other issues are higher on my priority list right now. So I guess it does change. Throughout our lives, our definition of success will change.
Michael: Well, very cool. I’m excited to see where the journey takes you from here. It sounds like you, at least, have, as you said, very deliberately crafted a practice around your ability to get that level of work-life balance with family that you’re looking for and time to write a book, or write a second book as well.
Wonderful. Thank you so much for joining us, Donna, on the “Financial Advisor Success” podcast.
Donna: Thank you, Michael. It’s been an honor to be on your podcast. I really appreciate the opportunity.
Michael: Absolutely. Thank you.