Welcome back to the 138th episode of Financial Advisor Success Podcast!
My guest on today’s podcast is Douglas Boneparth. Douglas is the founder of Bone Fide Wealth, an independent RIA based in New York City that manages nearly $80 million of assets under management for 100 client households.
What’s unique about Douglas, though, is that after starting out in a fairly traditional broker-dealer business model serving affluent retirees, he decided to shift and focus on serving a niche of very high-income millennials, most of whom make half a million to $1 million per year in income.
In this episode, we talk in depth about Douglas’s niche of working with ultra-high-income millennials. Why he chose to invest so heavily in a younger clientele that’s investing in themselves with high student debt loads that often precede their high-income jobs, the way he structures his fee as a combination of a traditional AUM fee plus a flat annual planning fee of $2,000 and $10,000 that’s waived once the client reaches half a million of assets under management, because his clients are so high income, they often reach his asset minimums quite quickly, and how he’s been able to be so effective with a media- and PR-driven marketing strategy that he’s used to attract such high-income millennial clients to himself in the first place.
We also talk about how Douglas structures his own advisory firm. The reason he decided to transition from being a registered rep with Commonwealth as his broker-dealer to become an independent RIA but stay with Commonwealth to provide his RIA support services, why he decided to stop implementing term insurance policies himself for his clients even though he views life insurance as a critical element of the financial plan, and how he sees the rise of millennial-oriented do-it-yourself technology platforms and financial services as the key to being able to work with and support his own millennial clients.
And be certain to listen to the end, where Douglas shares his views on why the industry still has such a difficulty attracting millennials to become financial advisors, his own advice for young advisors looking to get started in the advisory business on how to navigate the sales culture that still exists at many large firms that do the bulk of the industry’s next-generation hiring, and the path he pursued from starting out in his father’s advisory practice to eventually deciding to break the traditional industry mold and build the advisory business he wanted to build for himself instead.
What You’ll Learn In This Podcast Episode
- The Key To Being Able To Help Millenial Clients With Their Financial Lives [03:40]
- The Kind Of Client That Benefits Most From Douglas’ Planning Services [10:50]
- How Douglas Makes His Business Model Work [15:14]
- Why Douglas Is Letting Go Of His Insurance Business And Going Fee-Only [21:47]
- Douglas’ Current Transition To A Fee-Only RIA [29:43]
- What Changed For Douglas To Make Him Want To Transition Away From A Broker-Dealer [41:05]
- What Douglas’ Firm Looks Like Today [53:12]
- Where Douglas’ Clients Come From (And How He Convinces Them To Work With Him) [1:14:34]
- What Sort Of Marketing Works For Douglas [1:20:27]
- What Surprised Him Most About Building His Advisory Business [1:37:02]
- The Advice He’d Give To Younger Advisors Starting Out [1:42:26]
Resources Featured In This Episode:
- Douglas Boneparth
- Bone Fide Wealth
- Bone Fide Wealth Blog
- The Millennial Money Fix by Douglas & Heather Boneparth
- Episode 89 with Ric Edelman
- Commonwealth Financial Network
- Ladder Life for Advisors
- Lemonade Homeowners Insurance
- How The Financial Planning Process Differs For Young Clients: Not Simpler, But Different Complexities
- Self-Publishing Your Own Book As A Financial Advisor In 6 Months
Michael: Welcome, Douglas Boneparth, to the “Financial Advisor Success” podcast.
Douglas: Hi, Michael, how are you?
Michael: I’m doing well. I’m excited to have you on the podcast today. We’ve had a few advisors over the years that have kind of said they focused on a younger clientele. They’re focused around millennials and working with next-generation clients. But I know you have really kind of built a focus and gone all-in on trying to be an advisor for millennials as a millennial and living in that world. And I’m just, I’m really excited to have you on the podcast and talk about what that looks like in real life and what you’re building and what do you do for young people exactly. Because don’t you just put them in a simple index fund and tell them to spend less than they earn and that’s that? What’s the big deal?
The Key To Being Able To Help Millenial Clients With Their Financial Lives [03:40]
Douglas: There’s a lot of that, but it really comes down to one word, and that’s relatability. I think that, not to discount the financial planning process and the tools that we have at our disposal to help people with their financial lives, when you really dive into the relationship, you need to be able to facilitate it, and relatability is the key to doing that.
And what I had noticed and I was looking around my classroom when I was doing my MBA part-time at night, so work a full day in my practice, go to school, and I was asking myself, “Okay, how are we legitimately going to make a business here? How are we going to grow your business, Doug?” And here I am scratching my head, spending all this money to get this graduate education, and the answer was literally right there in front of me. It was the students that were around me, my classmates. And the light bulb went off because what I noticed was individuals going through similar situations to me. They were taking out huge amounts of student loan debt, working super, super hard to get ahead in life, and whether they are at a big company to get promoted or they were starting their own businesses.
That was it. That was it for me. I said, “These are the people right here that I’m going to help and work with. This is how I’m going to make my business,” which was a huge departure from everything that I was taught and trained to do, which was, follow the money. You found traditionally baby boomers or pre-retirees and retirees with assets and one way or another figured out how to do planning and asset management for them. And that’s how you made money. And for practically the majority of my career, I kept saying to myself, “This doesn’t make sense from a marketing standpoint.” And especially in the post-2008 era, where cold calling is dead, lunch and learns aren’t happening, what do you really expect me to do? Find a bar with like 60-year-olds that I’m going to…and by the way, capable of doing this. I’ve done it. It’s just not all that fun to me. But what am I going to do? Prospect that way? It made no sense.
So that relatability piece, that word right there was I think what made the light bulb go off and go all-in on servicing millennials. And today it’s mostly older millennials. So we’ve really refined what that means over the last five, six years. Maybe five, six years ago you could be a first mover and say, “Hey, I’m marketing towards millennials.” I think that was pretty big and unique if you were doing that in personal finance. Today, less so for all the right reasons, there’s just more younger advisors. And you know this. XY Planning is a good indication that it’s moving in the right way. But six years ago, if you were saying, “Hey, I’m working with millennials,” older advisors either laughed at you or thought you were onto something.
So that’s a little bit about how going into millennials works. And you have to look at what they’re dealing with. I know that, again, the fundamentals may be the same here, but if you have working spouses commuting into the city or dealing with their city commute, dealing with six figures of student loan debt, trying to make as much money as they can in order to build a life for themselves, you’ve got to know what that’s about. And that’s very difficult to do when you’ve been removed from that 20, 30 years or it’s nothing like what it was like when you were in your 20s or 30s.
Michael: Right. Right. Well, and I find there’s always kind of been a phenomenon in this in advisor world, that most advisors end out basically working with themselves plus or minus 10 years. Obviously, there’s a few exceptions if you’re working with very elderly clients who don’t necessarily an elderly advisor, but unless you kind of build a specialization somewhere else, like I’m a young advisor specialized in retirees, most of us end out with a client base that looks like ourselves plus or minus 10 years.
And I think a lot of that just comes from, as you’re saying, it’s a relatability thing. It’s a rapport thing. It’s just it’s, if you’re a young professional building a business, living in New York City, it’s pretty easy to relate to young professionals who are building a business and career and living in the city. Not only can you talk about financial planning things, but then you can chitchat about the same preschool challenges and the same parenting issues and the same neighborhood complaints. And like, just because you share that with them, right? Because you share a bond that naturally emerges.
Douglas: Well, you need that, right? You need that to address the financial challenges that they’re facing, that the generation is facing. You look to a $1.6 trillion student loan “bubble.” You look at low wage growth. You look at high cost of housing and transportation. You look at these financial headwinds that we face and you’re able to relate to those challenges and incorporate it into the planning that you’re doing, not just to show how the numbers work, but to be able to, again, relate emotionally to what those challenges are like.
My wife is a good example. Probably a lot of this is made up of recession-based stories. My wife and I went to undergrad together. She went to New York City to go to law school, takes out a quarter-million dollars in student loans, put herself through law school in the city on the promise that hey, you’ll place yourself at a really good firm. You’ll make $160,000. Who cares about these loans? It’s a good bet. And they show you stats and hold up some cards and sure enough, you take that bet.
And what happens now is you’re knee-deep in the recession, no one’s hiring, you’re left…you’re now a bag holder. And lucky for her, and I say this, lucky for her, she managed to get a job in the legal profession at pretty much half what was expected. Half of what she was planned for. And that is extraordinarily emotional. You now have a bright young person, like so many who thought they were doing the right thing by educating themselves and now they’re a bag holder, right? So now they’re knee-deep in debt trying to figure out how they’re going to get their way out of it. And it was really through her story and her experience. And, of course, I would then move to New York and take on more debt to go to grad school. It is kind of parallel stories here of what it looks like bad and what it looks like good. But there it is, that struggle right there.
So I knew if I could target on folks like her who are super smart, super hardworking, we’ll make it. If you bet on them long term, if you play the long game with them, you’re going to do really, really well. And more importantly, look at all the value you can provide. That’s a huge financial challenge, not just on the…dealing with the payments and refinancing and how it fits into cash flow, but being oftentimes a shoulder to cry on, being the emotional support system to realize that, “Hey, there is light at the end of the tunnel. It might require sacrifice. It might be harder than you thought it would, but we can get you there.”
The Kind Of Client That Benefits Most From Douglas’ Planning Services [10:50]
Michael: So, I want to come back in a minute deep around this, like, so what value exactly do you provide for them? Right? This whole, “what do you do for millennials for financial planning?” But I’m also just kind of, in hearing what you’re saying, connecting the dots even a little back to your advisory firm, your website. You’ve got this big tagline on your homepage #INVESTINYOU, which to me now…
Douglas: Got to have the #.
Michael: …makes even more sense. I was doing the # symbol with my fingers but you can’t see it because it’s a podcast, #INVESTINYOU, which now makes more sense…even more sense to me in the context here of like, this is very literally the target clientele that you’re going after. It’s upwardly mobile millennial professionals who are investing in themselves, which unfortunately means they’re looking for jobs with giant piles of student loan debt from grad school. But that’s part of a particular profile of someone who has very high earning potential, very strong opportunities to be very good clients and a unique set of complex needs that crop up if you’re a 30-something with an upwardly mobile career but a ginormous pile of student loan debt from some graduate school program, and you’re now trying to figure out, how do you put the pieces together and move forward in your life? Like, “Okay, I invested in me, now what am I supposed to do?”
Douglas: Yeah. So you really got your finger on the pulse of the tagline. There’s a second meaning behind it, which I’ll explain in a minute. But as far as investing in yourself, yeah, that’s what we’re looking for, right? I call it trajectory. I want to be able to look at someone and say, “Okay, what’s this person’s trajectory? Are they really going to work for it here?” Without getting into demographics or incomes or anything like that, that’s the type of client I’m looking for. I want someone who’s willing to work as hard as I am, as hard as the people around me in my life because they want to achieve the great things in life. They’re not going to quit. They’re not going to give up. They’re not going to let things like recession or multiple six figures in student loan debt get in their way. They will not be denied.
But to return to the tagline, there was a second piece of this that was really important to me. And the second meaning is that as a professional, I wanted to literally invest in you before you would ever, ever put a dollar in a brokerage account or a dollar in my pocket to deliver a financial plan. I realized that in order to really work with my generation and the people that I wanted to help, I would need to be the one first to make them move, not the other way around. And that opened the door to really the marketing and creative side that I spend a great deal of time in just creating content. And it started by creating free content for people to have and get the foundation they need. There’s so much of this that we can give people before they even need to spend a dollar. I’ll give it away for free. I want you to get financial planning-ready. Once you’re there, come on in, we’ll work together.
And that way, I could help people today. And yes, it’s free and it’s not going to put any money in my pocket. This is the long game that I committed myself to. And it answers the question, as a young advisor, how am I going to build a pipeline for growth? That was the single biggest challenge that I think I faced in my career was how am I going to grow organically? And when you’re starting in the profession at 19, that was a question literally asking myself from 19 to like 27. Eight years of asking the same question. It’s enough to make you go insane. But it got answered.
Michael: Interesting. So I get it now. There really is kind of this double meaning to the tagline. “Invest in you” means, for the client, are you someone that invests in you to invest in yourself? Because PS, if you do, you probably have a lot of earning potential and giant pile of student loan debt and we’re here to help. And that there’s an almost like an industry jab version of invest in you. Like, I, Douglas Boneparth, financial advisor, I’m willing to invest in you and work with you when frankly probably almost no one else will because you’re not already coming to the table with a pile of assets and investment accounts rollover.
Douglas: Yeah, take that, account minimums. That’s what that is.
Michael: Take that account minimums. I like that.
How Douglas Makes His Business Model Work [15:14]
So I think that actually leads to the very next natural question, which is, okay, so if they’ve got piles of student loan debt and no assets, how exactly do you make money, Douglas?
Douglas: Well, coffee influencership. No. I make money through financial planning. So that’s what’s so great about financial planning and it being really the biggest value generator for what planning professionals or financial advising professionals can do. You don’t need assets to make a profitable business. If you have the skillset, the knowledge, and the relatability to put that all together using the financial planning process, you can deliver a heck of amount of value to your client and you can charge for that. Just so you know.
Michael: So what do you charge for that? How does the business model work for you? I’m presuming we’re not an AUM model here, so how does it work?
Douglas: The firm actually does derive most of its revenue from assets under management. So you’ll see that we’re very much, very much a traditional AUM type of practice. That’s not to say a good amount of money doesn’t come from financial advisory fees. I’d phrase it to you like this. I want to start every relationship with a financial planning-first mentality. I feel very uncomfortable ever getting into investment management first without there being planning. It does happen. Give the clients what they want, if that’s what they want.
But we start with financial planning. And that’s a flat fee. It’s an annual financial planning fee. The range is from $2,000 up to $10,000, depending on how complex this is. Clearly, if you’re knee-deep in debt and just starting your career, you’re not getting charged $9,000 or $10,000 financial planning fee. But we start at $2,000. It’s going to allow us to work with you and see exactly what’s going on in your financial life. From there, we’ll see if you wish to add on or participate in asset management services.
We are saying goodbye to the insurance business, pulling a Ric Edelman here, and going fee-only by the end of this year. But we also offered mostly term insurance for this demographic. We viewed that as a value-add, not a revenue driver. And those were the kind of two product areas that we deal with. And we do look at investment and insurance as products. And we do think there’s limited value to offer there, although we’ve kind of opened up our investment management offerings into some tactical models. But notwithstanding that, we firmly believe that planning is going to be the largest value generator we can provide a client.
And just recently in preparing to leave the broker-dealer world and go RIA and fee-only, we realize that we want to give people the opportunity to work with us any way they want from a compensation point of view. Whether that’s a subscription model, whether that an AUM model or just a flat fee, or even hourly. We’ve worked with clients in all of these. And we can help them figure out what’s going to work best based on their needs. What we care most about is that we can ascertain what it is that the client needs, what kind of value we can provide them, and put a fair price on that.
Michael: So you kind of raised a couple of questions to me there because you had, “We’re dropping our insurance business, we went BD to RIA, we’ve got this flat planning fee but we’re anchored to a traditional AUM model as well.” So let me start from just the kind of planning fee and AUM fee business model end, because it sounds like that’s sort of the core driver. So you said there’s an annual flat planning fee of $2,000 to $10,000 a year, but you’re ultimately on an AUM model. So how does this work? Like, clients pay their $2,000 to $10,000 per year annual planning fee for planning stuff, and then if they have a portfolio and want some portfolio management help, you will also do the AUM, and that’s a separate service with a separate fee? And some clients may pay both if they’re utilizing both or they just pay one if they’re utilizing one?
Douglas: They will pay both up until reaching right now half a million dollars in assets. Then the financial planning is included every year as part of that. And the rationale here is we, again, feel that the most valuable part of the relationship is financial planning. By the time we’re charging on half a million dollars, we’re not here to nickel and dime. We want to make sure you’re getting that piece. And we do recognize the compression. And we do recognize the somewhat dilution. And this has been debated to death. And this doesn’t need to be the forum for it. But 1%, what are you getting for it? That conversation will continue to be had. What I don’t want ever is for my clients to question or wonder what they’re getting for what they’re paying. So there’s a number of ways to do that. And it’s mostly through transparency in terms of what they’re paying and what they’re getting for it.
Michael: So you start out with this planning fee plus AUM, you get to a half a million dollars, you kind of hit the crossover point, like, “We’ll waive the planning fee at this point because your AUM fee has gotten sizable?”
Michael: So what does the AUM fee itself then look like? Since you kind of have to do this, under $500k, the AUM fee is really just for investment-only services, over $500k it’s sort of investment plus planning. Does that get reflected in the tiering? Do you just have like a flat X percent fee all the way through? Is it graduated? What does that fee schedule look like when you’ve got that kind of crossover? Because I imagine like, a complex client, a $500k AUM fee could be lower than your $9,000 planning fee.
Douglas: Could be. Could be. That is a great question. So traditionally, 1% is going to be what we’re charging our clients on the AUM side. And that’s going to extend into several millions of dollars before we start to knock that down.
Michael: So just, it’s a flat 1% basically from your first dollar to your first few million? Don’t have separate breakpoints, just straight number.
Douglas: Yeah. So just did our ADVs for the RIA, and you will see the maximum the firm could ever charge is 1%. We can’t even go above that. And then everything from there is pretty much negotiable. But we do believe that clients should receive breakpoints once they start paying tens of thousands of dollars in asset management fees.
Michael: Okay. But that might be a $3 million, $4 million, $5 million threshold before you start coming to that conversation?
Douglas: Yep, that sounds accurate.
Why Douglas Is Letting Go Of His Insurance Business And Going Fee-Only [21:47]
Michael: Okay. So now, talk to us about insurance business as well. So you said like you were doing insurance business, more of a value-add than a profit center, although obviously, there is some little slice of term insurance commissions that do crop up. So, how do you think about, I guess both the insurance business when you were doing it and why let it go?
Douglas: Yeah. So the second part is easy. We let it go because we do want to take advantage of being a fee-only practice. And I don’t think the CFP Board would be too kind to us taking a commission for insurance and holding ourselves out as fee-only.
Michael: No. No, not so much. That’s kind of against the rules. So in essence, just the business decision, “We believe our marketing value by saying we’re fee-only is worth more than this fairly trivial amount of term insurance commission revenue that we’re generating versus the… We think the business trade-off is good.”
Douglas: Well, yeah. And I think Ric Edelman did a really good job of…that was kind of like a moment I got woke. I was like, “Oh, my God, he’s saying exactly what I think in terms of how we approach insurance.” Unfortunately, I don’t think we have the buying…quite have the buying power he does when it comes to outsourcing it. But what he said was true. Look, optically speaking, we want to be ahead of the curve. Fee-only is a better marketing play.
Truthfully, I have no problem with fee-based for the very reason that I’m going to explain, which is we viewed offering insurance to our clients as a big value driver, that they wouldn’t need to go elsewhere to get something that they could get in-house through us. We could control the process. We could make sure they didn’t end up with some permanent policy that they didn’t need or get cross-sold on something. And we made their life easy. Anytime you can make life easy for your client, you’re going to win. You’re going to pick up those value points.
Again, 2% of our revenue last year, that doesn’t really move the needle for us from a compensation point of view, but I know how much clients appreciated us taking that off of their plate. And we had a good partner in Commonwealth, our current broker-dealer and soon to be technology provider, in terms of their agency, which allowed us to really make a pretty seamless process about getting people through the application process. It’s like we had our own third-party outsourcing vehicle at our broker-dealer. So why not? Why not if you can really systematize something that probably for a lot of people is a headache?
Michael: Yeah. Well, except ultimately, you did decide not. So what, if only for the marketing value of being able to use the fee-only label? So if that’s where you ended out, what actually is the plan now for handling clients’ insurance needs? You just made a very eloquent case for all of this, like, high value-add, the service value to clients of doing all this work for them so that they don’t have to deal with this sometimes crappy traditional insurance application process, oh, except now we’re not doing it. So what happens to those clients?
Douglas: Yeah. So we still want to be able to make sure they’re getting the protection planning that they need. Just because we’re not the ones now executing on the policies themselves doesn’t mean that we can’t really do a good job of helping them get what they need. And interestingly enough, I needed to buy some additional insurance for myself primarily for buy-sell agreements for the practice. I wanted to check out this new disruptor here, Ladder, right? Have you heard of this one?
Michael: Yeah, yeah. Yeah, Ladder Life? Yeah, they’re one of the new upstart versions. Buy your life insurance without needing to go through an agent. You do it straight out on the website. And you can move the coverage amounts up and down over time as your life changes…
Douglas: Yeah, yeah, very millennial.
Michael: Very millennial, yeah. So as a millennial, what did you think of millennial life insurance?
Douglas: I needed a $2 million policy. I really didn’t want to go through underwriting. I’ve done this many times for my clients and for myself. And you’re telling me I can in a snap of my finger get the policy that I need? I went online, I put in my information, literally within 10 minutes got exactly what I needed. And I was floored.
Michael: And that was that.
Douglas: That was that. By the way, two weeks before that, ironically, I checked out Lemonade. By the way, no affiliation with anyone here. But I’d done Lemonade, which is the homeowners and renters insurance version of this, they’ve got millennial-disruptive-product-lines, and as a result of my current homeowner’s insurance going up 90% in 1 year…
Michael: Yeah, that’ll make you shop.
Douglas: Yeah. I was like, “What are you guys doing here? I’m about to literally can you. Can you do anything?” They’re like, “No.” I’m like, “Okay. Well, bye-bye.” And within, again, 10, 15 minutes through their app, managed to drop my insurance premium back down to what it was previously. So that got me into the Ladder Life thing.
We can bring them there. We’re also doing our due diligence on third-party RIA support-type companies that are getting really good at this. So while my staff runs due diligence and ultimately figures out where we want to bring our business, I like knowing that this Ladder Life thing, as I continue to use it myself. And again, if you’re going to run a portfolio, put your own money in it. If you’re going to make a recommendation on a product, did you run through it yourself? I’ll be first dollar in or first insurer in before we go tell our clients just to go through some app. But so far, it’s worth taking a look at. So far happy.
Michael: Well, and I know Ladder Life in particular actually is working on a like Ladder for Advisors platform, where just you can…you could be even more involved as the advisor. Obviously, you’re not underwriting the insurance. You’re not getting paid for the insurance. But as you pointed out, there’s just a kind of an administrative client hand-holding and support thing that we often want to do, because we want to make sure our clients have a good experience and just get the thing they’re supposed to get and also don’t get sold to a thing they’re not supposed to get.
That this sort of inexpensive, simple insurance, direct-to-consumer, people can buy it directly, and if an advisor wants to facilitate the process, the advisor can facilitate without being the selling agent to me is just a really interesting new channel that I think now is some insurers are finally starting to realize like, you can have an advisor-supported purchase that isn’t necessarily an advisor-sold policy. The advisor plays a role. They just play a different “client-side of the table” role but can actually still help make sure that clients that need insurance buy insurance.
Douglas: Yeah, that move is a no-brainer for them. I would very much like to take advantage of being able to see my clients’ policies if they’re going down that road. I think it’s even more fascinating that in speaking about millennials and practices here and bringing up two apps that are very much millennial-oriented is, if we dive a little deeper, what they’re doing with the insurance industry as a whole, in the context of Lemonade, they’re pricing their profits into the premiums, as opposed to the way a traditional insurance company works by keeping what it is that they don’t pay out. And it kind of makes me feel like they get it from the point of view that, again, back to the challenges the generation faces, like increasing the costs on things with wages not really getting much of an uptick here, is in a very macro way a way to kind of solve these financial constraints that we’re under.
Grandma and grandpa didn’t have to deal with a data plan. It just seems like around every corner, there’s this new monthly expense or subscription that you have to have or literally need to have, and incomes not really going up in tandem with that. So here comes along these companies looking at the old way of doing it, which really doesn’t take into account the cost component of it, and they put these products out here that actually help people manage their costs on something that they need. I really dig that. I really dig that.
Douglas’ Current Transition To A Fee-Only RIA [29:43]
Michael: So, on the insurance side, you’ve kind of made this shift to say, “Okay, well, we’ll try to still facilitate life insurance. So we’ll take in a Ladder. Maybe we’ll sign up for Ladder for Advisors.” There’s a couple of other players now that are trying to be intermediaries to support life insurance for fee-only advisors. You also mentioned transitions from broker-dealer to RIA, but also mentioned that you’re working with Commonwealth, which is a broker-dealer. So what is your status now of broker-dealer versus RIA versus hybrid? It sounds complicated. Are we in the “it’s complicated” phase or?
Douglas: For you and I, very straightforward, for almost anybody else, probably a little complicated. But we can iron that out here. There’s something to be said about, and I’ll tie it into that in a second, but what’s happening right now is taking advantage of the opportunity to transition somewhat seamlessly from the broker-dealer umbrella over to being what we call RIA-only. At least that’s the platform model that Commonwealth refers to it as. Everyone else would just say, “Hey, it’s your RIA.” Because you can’t affiliate with them any way you want. You can be just a IAR of their corporate RIA and drop your 7 or you can just go full-blown RIA and purchase your technology and back-office support and services. So like what you would do in terms of going to like RIA in a Box or having to go a la carte for your tech stack and everything. You can continue using what you’ve already been using with them. And they’re pretty much…they’re very good technology company. They have a good reputation for that.
So what they did here is, for lack of better words, cut a deal here or we’re forward-thinking enough to allow RIA to RIA business. So that if you’re me, right, and you’re pretty much doing fee-based business or fee-only-type business under their BD umbrella, you can essentially negative consent all of your accounts at your custodian, in this case, we’re talking about National Financial Services, you can negative consent those accounts. In other words, you don’t need to repaper your practice. Which I think anyone would normally have to do if you’re leaving your broker-dealer. You can negative consent your accounts after setting up your…registering your firm with the various states or the SEC.
Michael: Interesting. So that makes it much more appealing. If you’re doing the transition, you can go BD to RIA and not have to repaper.
Douglas: You got it. So you hit the nail on the head there. We’re taking advantage. We’re probably one of the first few practices at Commonwealth to take advantage of this. We’re in the middle of the process right now. We just finished registering in four states that we have five or more clients. Only to register with the SEC because New York is quirky. If you actually have $25 million in assets, you SEC-register and notice-file with the other states, due to the way we kind of staged this from a timing perspective. We made it a two-step instead of one, which is fine.
But nonetheless, you basically go from BD to hybrid, drop hybrid to RIA. And the actual conversion of accounts at NFS, you set a date on the calendar. You let them know you want to do this. That’s coming up at the end of next month. So the registration with states is done, the conversion will happen at the end of next month, followed by the drop of FINRA licenses, or really your 7, and then there you go. That we’ll drop insurance business and we’ll hold ourselves out as a fee-only RIA with our investment platform still being the wrap and associated managed accounts if we choose to use them over at Commonwealth. So it’s an RIA to RIA structure.
Michael: Interesting. And to me, this was fascinating when Commonwealth put the news out I want to say last fall, I think, that this first got announced at…
Douglas: Yeah, their National Conference in November. You’re right.
Michael: Yeah, that they announced, “We’re going to have on an RIA-only version.” Or I guess essentially, they provide investment platform support services. The Commonwealth technology stack, Advisor360, but they’re not your broker-dealer anymore. They’re just the advisor support platform. It’s like, take a broker-dealer, remove the FINRA and the products and then just take what’s left.
Douglas: To client, yeah, yeah, yeah, yeah.
Michael: Take what’s left. And that’s what they’ll still provide you, which to me is fascinating. I still get the question often or frankly more and more these days of like, is the whole broker-dealer model dead as advisors go fee-only? And I’ve long made sort of the case, the point like, I do think functionally, well, the broker-dealer model isn’t dead because there’s still a very pure portion of what broker-dealers were 100 years ago, which is, facilitate the public offering of securities for companies that are doing IPOs and facilitate just capital markets transactions as someone buys a stock that someone else sells. Those raw broker-dealer functions still have to exist. They’re part of capital formation and capital markets. But everything that comes thereafter, which essentially is almost the entire independent broker-dealer system…
Independent broker-dealers are basically intermediaries for product distribution. That’s the regulatory-sanctioned role that they play. And advisors are moving out of the product distribution business, because we’re going into the advice business. So the whole existential reason for independent broker-dealers existing to me basically vanishes over the next 10 to 15 years as advisors shift from product distribution to advice. But so much of what broker-dealers do these days anyways to validate themselves, because the product stuff is kind of commoditized, everybody can access the same product shelf, has all been about their technology, their practice management support, their consulting, their community, all of the other services that they provide around it. And to me, that’s what made Commonwealth’s leap so interesting was they were kind of the first ones to really very publicly and visibly break ranks and say, “Yes, you can separate out the pure broker-dealer function from the advisor support functions. And our business is just as relevant as an advisor support system without the broker-dealer core.”
And they’ll run both. And it’s not hard to imagine what’s going to happen. Like, over time, more advisors like you that have less and less commission revenue and more and more RIA revenue at some point say, “Why am I dealing with the broker-dealer? It’s this tiny slice. I’m going to go RIA.” And Commonwealth now has a system that says like, “Hey, you want to flip the switch? Sure, why don’t you flip the switch? Same tools, same technology, same community, same platform, nothing changes for you. We’ll just do a bunch of filings to change your FINRA and SEC registrations, and then we’ll flip the switch on your accounts.” Which to me is just, it’s a fascinating shift. It makes me wonder if at some point in 10 years we’ll see the press release like, “Commonwealth is spinning off their legacy broker-dealer that’s so-not-core-to-their-business anymore that they’re just selling it to someone.”
Douglas: That’s really interesting. Could happen. Don’t know. I won’t speak for them, but I can say…
Michael: We’ll see.
Douglas: …of course, time will tell. But I wouldn’t be shocked if you see this model replicated, if possible, across…
Michael: I would think so.
Douglas: Yeah, it’s got to be. Like, what happens next? And so much so that when you look to wirehouses, who see their…see these big teams, go to your HighTower, your Dynasty, what are they going to do? Just continue to hemorrhage these multibillion-dollar teams? They’ll have to also allow them to carve out their own RIA or IAR under…I could see more of the latter than the former. But here’s, I think, a glimpse into the future of how it’s going to work at broker-dealers and wirehouses. One, kudos and big thanks to Commonwealth here for being forward-thinking on it.
And I can tell you, a couple of years ago before they made this announcement, I sat down with them and I said, “Tell me…we all agree which way the wind is blowing here.” And everyone’s head is nodding, as I expected it to be. And within short order, wildly within short order, literally within a year, from National Conference to National Conference, the announcement comes out, and there it was. And I bite down. And here we are literally as I’m talking to you in the middle of a no-brainer move, for me at least, out of BD into RIA. It would have been a deal-breaker if I had to repaper. I’ll be very clear about that, at least today.
Douglas: I’ve done it before. I left Ameriprise for Commonwealth with a former partner of mine back in 2012, I want to say, or 2011. It’s been a while. And back then, whether you want to use junior…I certainly wasn’t the advisor I am today. I certainly didn’t have the mass that I had today. So when it came to actually repapering the practice, I was the one to do it.
Douglas: Yeah, yeah, yeah. It’s a cool story. It was my birthday. It was in the middle of the Superstorm Sandy. I was living in New York. And I’m sitting in my apartment on my birthday with four massive cardboard boxes filled with basically all the paperwork that needed to be sticky noted up. And this was, again, leaving Ameriprise for Commonwealth. Yeah, they can only go… By the way, any BD can help you a lot by organizing the paperwork, getting you what you need based on your accounts, this, that, and the other thing. But at the end of the day, you’ve got to put all the sticky notes on there and fill out the Social Security. They’re not going to put in client’s sensitive information.
Michael: Yep, you’ve got to handle your own PII, your own personally identifiable information. Yep.
Douglas: Yeah. So this is in the middle of…basically, I’m from South Florida, where I’ve basically grown up with hurricanes. So the irony is not lost on me that there is a “hurricane” smacking into New York City, not a hurricane. But sure enough, it did a lot of damage. And here I am sitting in my apartment, pretty much in my pajamas with food stains all over me because I haven’t left the apartment and had to repaper. And so that was the actual logistics of doing it behind the scenes. Then there was actually delivering the paperwork to them, UPSing everything out, getting it all back. I remember my partner and I, basically, we lost our voices and got really, really exhausted and somewhat sick by the time it was all done. We just ran ourselves into the ground, making sure this transition happened. And I’ll pat myself on the back, we retained like 96% of our clients and assets. And it was a huge success.
Michael: But not so pleasant.
Douglas: Yeah, yeah. And I have clients that remember that, now they’re going to get repapered for a second time in a decade? More importantly, I think, is that under the Commonwealth BD structure, and this is another tip of the hat to them, they never told me no. They never told me no from a marketing point of view. They never told me no from anything I wanted to do to grow my practice. And I think that speaks, again, very highly to them. And that’s how they operate. Again, what can we do for the advisor to help them work the way that they want to? So I really had…I had no reason to do it. And I still don’t. I would still be very, very happy in their BD world and running the business that I’m currently running. This, again, is the opportunity to do it because the price is right for the business. And more importantly, we’ll be able to do a lot more with our clients being our own RIA than we can under a BD umbrella, but no paperwork.
What Changed For Douglas To Make Him Want To Transition Away From A Broker-Dealer [41:05]
Michael: Yeah. So I was going to ask the second part of this, of just, you sort of said, “It was a no-brainer for us to drop the BD and go RIA.” So what is the status of the business or what was the evolution of the business that made it such a no brainer for you, particularly since you built at Ameriprise? Like, you built your career in a broker-dealer system, what’s changed or how were you looking at the business to say, “Spent a decade-plus in the broker system and now it’s no-brainer to drop the broker-dealer?”
Douglas: Sure. So I do a lot of marketing, and I’m okay with experimenting with marketing. And again, Commonwealth was certainly the least restrictive broker-dealer I’ve ever come across when it came to putting myself out there, whether that’s in the media or on social media, and things that are popping up all the time that we want to experiment with. I think that’s an edge for us, right? Where, “Oh, here’s a new piece of technology. Here’s a new way to communicate with people.” I’m not saying we’re going on Snapchat or TikTok anytime soon, but what if I wanted to, right? What if I wanted to push that envelope? And I know, they know, any compliance office knows like, oh, my God, what does this mean from a compliance standpoint?
Michael: Yeah. Let me get this straight. You want to have compliant archiving messages that self-destruct.
Douglas: I remember I had to explain what a…yeah, I had to explain what a Twitter chat was. And I’m talking down, I’m like, “It’s like a chat room and this, that.” And I’m just like, “This would be a lot easier if I didn’t have to explain anything to anyone.” Not for the purposes of doing something shady, but something that truly could be the next best thing.
It is extremely hard to organically grow as any advisor of any age, let alone a young advisor. And when you look to the tools of the trade today, which are basically social media and online and internet marketing, I need to be able to run fast and not break things, but run fast and figure things out. And I know that by bringing compliance in-house and putting that burden on me, and again, this is not to discredit them, they have to control 1,800 advisors from a compliance standpoint. And you scale that up to your Ameriprises and your LPLs where you’re talking tens of thousands of advisors, you become more constrained around that. That’s why you don’t have your custom website. You have to have some kind of closed architecture around that. I get it, but jeez, as far as growing into the future, that could be the single most business prohibitive move out there. And I have a very, very low tolerance for that.
Michael: Yeah, it’s an interesting phenomenon that compliance to me is one of those things that essentially not only doesn’t scale as firms get larger, it actually antiscales. It gets worse. Because if you’re a chief compliance officer, your job and your backside is on the line to whatever the one biggest idiot in your entire organization could possibly do that violates the compliance rule and gets you in trouble.
Douglas: Basically me.
Michael: Yeah, cutting-edge people like you. And so you end out with this phenomenon that I call LCD compliance, lowest common denominator compliance. That you have to write all your policies and procedures for whatever the one biggest knucklehead in the whole organization might do. Which means the larger your firm grows, the more possibilities are you have an idiot who’s going to do something really bad and get your chief compliance officer and the firm in a lot of trouble.
And so the larger the firm, the more restrictive they tend to make their compliance. The smaller the firm and the tighter the span of control, the easier it actually is to manage the compliance. Because if you’re in a small firm and you’ve got a personal relationship with the chief compliance officer and they know you and they know that you have a culture of compliance, that you know what you’re doing, it’s easier for them to be less restrictive and write super stringent rules because there’s a level of trust that they know you’re going to be a competent professional. So I find the smaller the firm, often the more manageable the compliance is. The larger the firm, the worse it actually gets, because the base gets bigger and the lowest common denominator tends to get lower.
Douglas: Yeah. Commonwealth, I think, proves that point out there. Because I don’t think there’s a BD… We do so much marketing that it got to the point where we needed a little bit more hands-on, a little bit more dedicated ad review from them.
Michael: You were the bad rep. Okay.
Douglas: I’m apparently a legend in the compliance department. And I’m still not sure if that’s in a good way or a bad way. But as long as they don’t kick me out, I’m assuming it’s a good thing. But yeah, we push envelopes in this department all the time. And that could be Instagram, that could be Twitter chats, that could be virtually anything we’re looking for that could help us grow our brand and continue to develop our funnel online and our presence, and all the terminology, from SEO to just keyword searching. We go hard on all of this because we know that that’s where the next client is going to be won. And we need it. We need it.
So that was…from a growth perspective, that was part of that kind of no-brainer thing. From a selfish thing, the money factor was better for us. The next dollar in was a more productive dollar. So if you’re a business owner looking to make money, because I think that’s what businesses are supposed to do, it made sense financially, even with dropping the insurance piece. So we definitely improved margins by doing that. And I didn’t think I needed much more motivation than those two things alone, considering the technology, the CRM and all of that would stay the same. And we’ve worked so closely with compliance for years that we’re just very intimate on these areas of the business. We’re not shy or fearful of needing to get what tools we need to do books and records or do capture or even deal with a regulator. And by the way, there’s great compliance professionals that we can lean on as consultants to help us along the way. So what’s there to be afraid of?
Michael: Interesting. So kind of the drivers for you, just even more control over your marketing, notwithstanding the fair nod to Commonwealth, their compliance department was more flexible than many others around, they let you to be creative and push the envelope. You just ultimately wanted to essentially insource your own compliance to your own RIA. You’ll live and die by your own sword, but at least you only have to answer to yourself and not an external compliance officer. And then a piece of just the economics of, I guess keeping 100% of your revenue as an RIA and paying Commonwealth as a platform was still cheaper than your dollars route through Commonwealth and they give you your payout.
Douglas: Yeah, yeah. Those are the two biggest factors. The third one I would add to that is, once again, kind of touching on compliance but now getting into the investment world a bit here, when you’re at a BD, you can’t sell away. You are prohibited from bringing your clients to really anything that’s not covered by their platform. And this is not to say like we’re chomping at the bit here to walk our clients to exotic deals and subscriptions. But I will say this. For the right client, and given that we are a very high-end shop in that when we look to the top of our book, we’re talking about 30-something-year-olds worth millions of dollars through their hard work and their businesses, a lot of times we need a little bit more than our core portfolios, which primarily are buy-and-hold low-cost ETF and index fund portfolios. We very much believe that’s a commodity and that’s what’s appropriate for the majority of investors.
But when you get to someone who has a liquid net worth into the millions and can now afford to take $100,000 or $200,000 or anywhere from 1% to 5% of their investments and have them look at opportunities that you normally would not be able to look at through primarily your own network. I think what separates us as a firm is where we’re situated. We’re in New York City. We are connected to some of the most fascinating allocators and asset managers out there. And I would be absolutely stupid not to, when appropriate, when more than suitable, have my clients take advantage of those opportunities. And would not be able to, I would not be able to do that at a broker-dealer. And that is an instant edge when catering to your ultra-high-net-worth millennial.
Michael: So I am curious about kind of the money factor dynamics. If you can share, how does it work on the RIA version of the Commonwealth platform? I know how the BD model works. Your revenue pours in the top of their funnel. They pay you their high 80s or low 90% on an IBD. So they take their, whatever it is, 6%, 7%, 8%, 9%, 10% slice, you get the rest, and then you go into your thing with your business. So how does it work on the RIA platform side? Because at the point they’re mostly giving you kind of a technology infrastructure, most of us are used for paying for tech on a flat dollar basis, not a percentage of revenue or a basis point basis. Is it still a basis point structure and it’s kind of similar to the BD world was or do you pay a flat monthly fee or annual fee to be on their platform, like a platform fee?
Douglas: Yeah, it’s all baked into the percent of what’s being managed on the platform.
Michael: Oh, so in essence, as long as you keep a certain amount of dollars in their managed accounts and they make their economics on their managed accounts, the rest of your technology, Advisor360 stuff is thrown in, because the economics already work. It’s kind of the advisor equivalent of, “If you give us enough AUM, the planning is free.” So like, if you put enough on our managed accounts, the technology wrapper is free?
Douglas: Yeah. Yeah. That, in essence, is what we’re talking about here.
Michael: So you pay them like a TAMP platform fee? Is that kind of functionally what you end out with?
Douglas: Yeah. And I think that’s…let’s keep it simple. It’s going to be a percentage off of that. If you’re getting paid 100%, you’re going to cough up a portion of that 100% back to them. And part of that is going to go pay the necessary parties playing the game here, which is NFS and Commonwealth still. They grid it out for you and they show you, “Here’s what you’re currently looking at under your current BD structure. Here’s what we’re pricing under the RIA. Tell us what you think.” And it’s based on how you’ve grown your business, how much you currently have on the wrap platform. It’s obviously not so much a negotiation, more or less, “Here’s what we’re offering,” and you look at that and you make a business decision around it. And you say, “Okay, wow.” For me it was, I’m breaking even, and my next dollar is more efficient. Say no more. By the way, with the opportunity to achieve breakpoints as you grow, “all the money” is ahead of me. My business is ahead of me. I have no problem at all growing into a situation like that.
And what’s ironic is I kind of made it clear all those years ago, and I said, “Hey, we should have something like what we’re doing right now.” I’m like, “You’re telling me advisors like me or forward-thinking advisors wouldn’t pay a premium for a turnkey solution to basically RIA here?” And I was just like, “Let’s do this.”
Michael: So you end out with an average fee that I guess is kind of similar to the 5% to 10% of revenue that you might have had on an IBD platform, it just got a different graduated AUM-based fee schedule rate, as opposed to being a grid style, total production payout rate?
Douglas: Yeah. Yeah. Yeah. And as much as I do dive into the numbers in the very beginning to make sure what I’m looking at here checks out, my mind tends to then immediately switch over to, like, is it a fair deal? Can I grow? And if so, this is not really an area I need to spend more of my time on.
What Douglas’ Firm Looks Like Today [53:12]
Michael: Yeah. So can you paint a little bit of a picture for us of just, overall, what is the size of the firm? I don’t know if you measure by revenue since you’ve got a mixture of planning fees and AUM. If you just measure it by AUM or number of clients. Help us understand just overall size of practice and client base.
Douglas: Yeah. So from an assets under management perspective, we’re knocking on the door of $80 million, which includes one large 401(k) plan. We’re talking, let’s use GDC. I think that’s a fairly common term.
Michael: Sure. Yep.
Douglas: North of $600,000 across roughly 100 households. Average age of the firm, if you tease out some legacy older clients, which is part of the story of…
Michael: Sure. A few people that came over from the old Ameriprise days?
Douglas: Well, sure. I almost view them as venture capital. They invested in me in my early days. And the ones that remain, there’s some cool stories here, which maybe we’ll get into, but the ones that remain are all like, “Go, Doug, go. We see what you’re doing. We love millennial Doug, but just don’t forget about us.” And it’s like, “I would never. I owe so much to you. You’ll always get my best.” Tease them out, you’ve got an average age hovering around 40, probably around 38. So it’s super young, right? And then I could care less about when they come in, assets and what they currently have today. Income is probably more of a driver for me. It’s probably a better indication of where they’re going in their careers and what they’re earning. So that’s the whole HENRY thing, I guess.
Michael: Yeah. Do you look at that? What is average income for clients that you’re working with?
Douglas: It’s around $400,000 upwards to $1.2 million.
Michael: Okay. So you are in a very high income earning households. Granted, $400k in Manhattan doesn’t quite go as far as $400k in some other cities, but we’re still like, you are in a very high-income kind of clientele. So now I get it, you’re in the kind of income clientele where charging them $2k, $5k, $10k, like, charging $10k to someone who’s making $1 million a year is less than 1% of their income. That’s an impulse purchase, as long as they think you’re an interesting guy.
Douglas: And it kind of breaks down like that sometimes. I’ve taken in clients who are making $800,000 to $1 million, and they want to do financial planning. They need that organization in their life. They won’t let you touch a dollar, and they have no problem cutting a $10,000 check for it, almost to the point where you feel like you undercharged. And then you have the complete opposite at times. So nothing really surprises me anymore. And that’s not to be like…I’m sure I haven’t seen it all, but if you start… There aren’t a lot of advisors aged 34 with 15 years of real experience of being licensed and an advisor in the profession. So a merger, done it, an acquisition, done it. I think this is probably the final thing I could probably do other than sell my own firm, which is go from BD to RIA. So I kind of just kind of take it as it comes.
Michael: Interesting. So then I kind of get it as I look at just the practice in the aggregate. GDC of just over $600,000, roughly 100 households, like, average client is about $6,000 of revenue per client. So you’ve got essentially a $2,000 minimum, because that’s what the planning fee covers. By the time they hit half a million, they switch over from a planning fee to a $5,000 a year AUM fee with planning included, and then they just grow from there. And when you’re working with clients that are making literally hundreds of thousands, hundreds, many hundreds of thousands of dollars a year, I would imagine you’ve got a non-trivial number of clients that like, they save $50 grand, $100 grand, $200 grand, $300 grand a year in cash savings. So investment accounts, even that aren’t necessarily large, get pretty darn large pretty quickly.
Douglas: That’s where we are now. And you have to remember, six years ago, five years ago, maybe even four years ago, I would have approached that and answered that very, very differently. And this goes to that whole growing with your clients. I’ve been making these investments in people since they were in their mid-20s, when we’re all kind of worthless. Really figuring the world out, our careers out, and all of a sudden, you grow up very fast in taking…coming out of the recession, realizing your career is worth something, finding your spouse, having kids, buying homes. I love the young 30s because while it’s not an asset accumulation phase from an investment point of view, it’s just this…is there a busier time, a more hectic time in one’s life, other than gearing up for retirement, which pales in comparison to maybe not emotionally, no, really, I think all around pales in comparison to coming of age and settling down. That’s what I love about it. There’s so much value to offer. I’m a little afraid I’ll have less value to offer in the 40s and 50s than I do right now.
So that’s happening right now as far as the dollar cost averaging and getting clients to commit to taking the cash they’re accumulating through bonuses, through long-term incentives, and putting it towards a more efficient allocation or investment portfolio. And look, you can go quarter to quarter and be like, “Wow, we’re DCAing in $100 grand a month? Now it’s $150,000.” That’s the part that really tickles me. And not to be so egotistical about it, but the reason it may come off that way is because you go to the typical advisor in the profession and it’s literally the opposite. Right?
Michael: Right. The average advisory firm is probably literally a net outflow. Not all their clients are retired, but at least some material chunk are. They’re withdrawing 4% or 5% a year or something. It’s some reasonable withdrawal rate. So even across the whole client base, they may be at 1% to 3% a year of just net outflows from client spending plus the few that die. And that’s before you lose any for retention. And that’s the negative outflow hurdle you have to beat every year just to leave your firm treading water. Whereas you’ve got clients that are banking $10 grand, $20 grand, $50 grand, $100 grand a month in contributions.
Douglas: Right, across qualified, non-qualified. Offer value here or there. And then, by the way, they’re just so busy. That’s another, I guess, part about this demographic and working with these really high income, mostly white-collar professionals and entrepreneurs in New York City and the surrounding areas, like, when they get a minute of free time, it’s going to their kids and their family or more work, God forbid. And they really, really appreciate the fact that you can take a lot of that heavy lifting off their plate, which is why you get very few phone calls generally. Markets almost don’t matter. They get it, they’re too busy accumulating wealth and spending time with their family. But when they do call, you better pick up the phone. You better respond very quickly, because they also know they’re paying you very well for that type of service.
So that’s kind of like, again, relatability. That theme really playing its role here. Because I’m the same way. My wife and I should probably be relaxing more than we do, but our lives are not allowing for that, whether it’s from the pressures of student loan debt and we want to get our own liabilities off of our plate, or we just want to keep achieving and doing our own great things in life.
But in the spirit of this podcast, I don’t want to have people be like, “Wow, really charmed life you’ve got there, Doug, as far as being a financial advisor is concerned.” There’s a tremendous amount of pressure that I’ve been blowing off over the last five, six years. And I alluded to it a second ago, which was that almost venture capital component, the older clients that have invested in me. And what’s starting to happen right now that I’m kind of hitting my rhythm, specifically in the type of demographic and client I want to attract and bring into the practice, is that doesn’t always play well with legacy clients. And I would tell, in the last 12 months, we’ve lost 2 $10 million accounts. This is me being very candid. Now, I think at any other point in my career, I’d curl up into a ball under my desk and be like, “What just happened here?” And my wallet certainly would be hurting. But the silver lining, if any, first of all, it does hurt. That’s not a…
Michael: Yeah, that’s a big client. Yeah, that’s never a fun day.
Douglas: No. No.
Michael: Wait, wait, what transferred out?
Douglas: Yeah. Yeah. And no matter how good your relationship is, when the money goes, you’re getting an email from your custodian, not an email from your client, let alone a call. But I think that’s just the way it works. It shouldn’t, but it does.
But nonetheless, you get over the shock of it. You’re at a stage in your career and you understand what’s going on well enough and you’re hopefully confident enough to get over the shock of that and really try and analyze what took place there, because otherwise, you’re going to become paralyzed. There’ll be paralysis.
Michael: Yeah, paranoid or paralyzed. Yeah.
Douglas: Yeah. And for me, it was, okay, was it me? First question, what did I do wrong? Did I say something? Did I offend someone? Did I not perform on the…was it about investments at the end of the day? I literally helped someone get to retirement, how are they not my client for life?
And sure enough, the answer was, come back to marketing, come back to branding, and you have to put yourself aside for a second and be objective and say, “Okay, Doug, you, no matter how good you are, no matter how good you thought that relationship was,” here it is again, relatability, “What do you know about actually retiring? What do you know about going to the tennis court with your fellow retirees from your same company, with all the same stories, talking about that stock your…literally, the stock your broker sold all of you, because you all go to the same person locally in town, right, that looks like you, talks like you, gets you, right? And what are you going to do? Well, the three other people you’re playing tennis with, they’re talking about that and you say, ‘Yeah, I use this 34-year-old guy in Manhattan that’s friends with my kids.'” So yeah, it’s like, that’s not a good look.
Michael: Well, and to me, it just, it gets back to, when people focus their businesses into some kind of niche or specialization or area that they get known, I often and still get these questions like does it mean you have to stop taking clients outside of your niche? And strictly speaking, no, I don’t think it has to, but what happens is the kind of effect that you’re seeing here, like, you can keep your non-niche clients, but look, at some point, they realize they’re not a great fit for you. There are other people that are more directly targeting them. You can try to make yourself more relevant to them, but then at some point, you’re taking away the time to market to the actual people you wanted to target, because you’re now distracted by the old non-niche clients that aren’t a good fit.
And if you look at this over time, if you’re going to bleed off some clients that don’t fit your niche, at the end of the day, would you like to put more time into holding onto a client who’s not a good fit anyways or trying to get the next client who’s a great fit, fits your niche and is exponentially more likely to refer you to other people? Right? Because your next high-income millennial client is going to be like, “Hey, you should work with Doug. He works with people like us.” Your boomer client goes out to the tennis court and says like…
Douglas: Never refers.
Michael: …”Wait, who do you guys work with?”
Douglas: Yeah, you’re never getting the referral, ever.
Michael: “You should work with my advisor. He’s just like your son. You’d really like him. You should work with our advisor. He’s like your grandson. You’d really like him.” Like, you kind of lose your credibility out.
Douglas: Yeah, you’re not looking real sharp on that one. But again, back to the boomer clients that are extraordinarily supportive. It’s either one or the other. There’s almost no in-between.
Michael: Yeah, either they’re into…as you put it, either they’re into millennial Doug, “Just as long as you take care of us, knock yourself out, man,” or they just feel you’re becoming less relevant and they start looking elsewhere.
Douglas: The irony is, for those who typically leave, their kids are also clients. So if you want to be…if you want to puff out your chest and be egotistical or cynical about and be like, “Whatever, I’ll see that money again.”
Michael: I’ll get the money eventually. I’m just going to wait a little longer.
Douglas: And they kind of know that, though, which is why they kind of don’t care that they’re leaving you. They’re like, “Oh, whatever, like, I was here for you.” But there’s also a point to be made there, which is like, I deep, deep down inside owe a great deal of gratitude for the fact that they’ve helped me get where I am. How can you really feel all that bad? Yeah, okay, it’s really sad day, but you look back over the last four or five years, I played a long game, a really difficult long game that definitely could not have worked out for me and that I would have to pivot to something else inside of wealth management. But they were there. They backed me. They got me here to where I could withstand that departure. And I’m over grieving, I’m over being upset. I’m just basically grateful.
Michael: And so do you ever worry or feel any guilt of like, “They staked my business early on so that I could grow a business that doesn’t serve them?”
Douglas: No. Not particularly.
Douglas: No. Because when I branded… So I had to reconcile that years ago when I broke away from my previous partner and launched Bona Fide Wealth. I think at the top of my mind was, “Oh, my God, what am I going to say to any client over the age of, let’s say 50? This is really where my relationship is going to be put to the test, because it is now…”
Michael: Because your former business partner was the older gray hair that validated this?
Douglas: He was actually quite young. He was actually only 10 years older than me. But his practice was very much like most practices out there. And he was an acquirer, and I think in the Ameriprise channel, having grown up in that channel, you did a lot of…their bread and butter is pre-retirees and retirees. So anyone coming through those channels likely has a book. And just anyone really in the broker-dealer space probably has a book with an average age north of 55.
But I leave doing this millennial thing. A lot of my clients at that particular time are definitely not millennials, and you’re going to have to explain to them what this marketing is all about. And my fear was, I’m going to see exodus. That didn’t happen. But I’m seeing it, at least those two cases that I just talked about, happen.
Michael: So it’s not an exodus, it’s a bleed, with the good news that as long as you’re focusing on your new niche or just focusing more deeply well, you grow faster with the new clients than you bleed the old ones. So maybe it’s a little bit of a transition. But then at some point, you’ve bled what you’re going to bleed and it’s all pure growth from there
Douglas: It’s inevitable. Well, I guess I didn’t do a good job explaining that that’s where all of my anxiety comes from and still exists since inception of the firm and even before then as I… Growing up in South Florida and Boca Raton has really given me a unique skill set of schmoozing very well with affluent, older people. And sure enough, my book was kind of laden with these ultra-high-net-worth retirees. One way or the other, our paths crossed, either from my roots or from connections and family and things like that.
And when you’re 30 years old and have a lot of assets in the door and it’s very concentrated at the top end, and you’re building a family for yourself, so this is where it gets real, and you’re buying a home, and you’re definitely dealing with your own multiple 6 figures of student loan debt from your own education, and you’re at the tail end of an economic cycle, or so we think, and your origin story is basically 2008, sleeping well at night is a premium, because you’re thinking, “What if my number one or number two client leaves or dies, and simultaneously, we get smacked with the next recession? Am I going to be able to pay my mortgage?”
That’s just straight-up scary. And you work like hell to mitigate that as much as possible. And you’re playing it but you’re mitigating it with a long game. You need time. You’re trying to buy as much time. Talk about basically the story of any young advisors purchasing enough time to grow. Just because I had at that point 12, 13 years of experience and a really good edge, I was not absolved from the same mind-numbing anxiety around growth that any young advisor has. I just think my stakes are maybe higher, given wanting to move forward in my life and have kids and all of that stuff. So it hasn’t been all rainbows and gumdrops. It is for me simplified as, could we hit a recession, could my number one client die and will I still be in business? And I think maybe in the last 6 months to 12 months, I can say that with confidence, yes. It will suck. That will be absolutely awful.
Michael: Yeah, it’s going to suck for everyone when we hit the next recession. Probably more so even than any one recession we’ve had in the past just because we’re 10-plus years into the AUM model from the last recession. So for most firms, they have more than doubled since the last recession. Or I mean firms like yours. You went from 0 to $600,000 of GDC and $80 million in the span of 1 bull market cycle. And so when the next recession comes, our businesses are just so much larger than they were in the past. Which means even the same percentage decline is a lot more revenue that vanishes and a lot more bottom line profits that vanish. Ultimately, that’s just part of the cycle of the business, right? All businesses have to deal with the business cycle. But the average firm will just feel a lot more pain in the next recession than the last one because we’ve just grown for 10 years, so there’s a lot more AUM dollars at stake.
Douglas: It’s interesting you say that. I often think about what that would look and feel like given…I think again, another edge in being a young advisor here is if you started your firm five, six, even seven years ago, you’ve only really known up, with the exception of a few years, which really weren’t all that bad on the downstroke. I got off the airplane at JFK when I left my father’s practice and took what he gave me to go work in New York City for another practice. I think when I got off the airplane, Lehman collapsed.
Michael: Welcome to New York.
Douglas: Basically, yeah. So it was drinking from the fire hose from day one. And I think that’s made me pretty thick-skinned as far as how I view that. I think there’ll be a lot of both young advisors in for a rude awakening in terms of how to deal with that from their own pocketbooks to their clients’ pocketbooks.
And to your point, older, more mature practices who have more older clientele, so now assets are going down and they still need to withdraw those assets. That’s a double whammy. I am maybe being overly optimistic but somewhat optimistic in a negative environment by saying, well, as long as my clients don’t lose their job and I can pay my bills, meaning, okay, so AUM went down 20%, whatever. Again, I think it’s more like, as long as my clients are still making money, we’ll come out of this. We’re young, we’ll see this again. This ain’t no thing. If they lose their job, that is the thing that…yeah, that’s the death note, because now you’re going to withdraw…now you’re going to start working backwards exponentially from a financial perspective.
Michael: Yeah. Which is just an interesting framing, right? The idea that your advisory firm is more at risk to unemployment than market declines?
Douglas: Absolutely. Absolutely.
Michael: Which is kind of an interesting phenomenon. You don’t quite realize how much all of the rest of the firms out there are almost entirely tied to the market decline. It’s not the unemployment.
Douglas: Yeah. And by the way, the more you shift and the more we…so we’re mitigating our risks two ways. And the first way is by continuing to bring in younger clients to hedge the older, top-heavy clients, of which there really is only one at this point. So as much as it was painful to watch two large legacy clients leave, we’re standing here with a rather large AUM doing really well and they’re gone. We would be at $100 million-plus now, but you really can’t and should not think like that. You think forward. You think growth. So that’s a big relief. But there’s a part of me that still always wants there to be that kind of pressure on me. There’s always a healthy amount of anxiety that keeps me. I don’t think I can escape that. And again, that’s probably more for my therapist than you.
Where Douglas’ Clients Come From (And How He Convinces Them To Work With Him) [1:14:34]
Michael: So talk to us a bit about the marketing side of things. As you’ve said, you like to be a little cutting edge, cut a lovely personal relationship with the Commonwealth clients, compliance department. So just talk to us a bit about the marketing end. You’ve just sort of thrown out there like, “We’re working with a lot of these clients that make anywhere from $400,000 to $1.2 million of income,” which is kind of a ginormous amount of income and not something a lot of people see anywhere, even or never mind New York City standards. And I get, a part of it is there is a density of city and density of wealth in New York City that at least makes a few more of those people around within a stone’s throw distance. But how do you actually get clients who are making $1 million a year? Where do you find these ultra-ultra-high-income millennials and then convince them to do business with you? What does that look like?
Douglas: It’s been five years of non-stop getting your name out there in almost any medium possible, and figuring out how to do that right and how to do it with systems applied to it. So whether that’s an internet marketing funnel using SEO and keywords, or just being literally everywhere. So I can kind of rely on…I have a degree in public relations, believe it or not, and I never, in the beginning, thought I’d really be leveraging that to the extent that I am. But it was, at least from an academic perspective, indoctrinated in me to really understand how relationships and media work.
So the first thing I did was like, okay, if we can create the credibility here, if we can create an image and a brand that basically exudes this credibility for who it is we want to cater to, we might give ourselves an advantage, actually approach some of these people and not just be a dime-a-dozen advisor. Like, say, “Hey, look, this is…” If you have to sell yourself, you’re probably doing it wrong. If your reputation and…
Michael: It’s a bold statement. If you have to sell yourself, you’re doing it wrong.
Douglas: Well, I think when it comes to going up channel like that, like if I have to do a lot of convincing out of my own mouth…you can either do that. And there are people who are fantastic at it. I’m pretty sure I could talk my way into it. I think what’s more powerful and what speaks more volumes is when you have the credibility through appearances on television, through your accolades, awards, leadership positions, and the press that you can develop around who you are and who you want to work with, that speaks louder. That speaks louder. And you can put that out there. You can put that out there through social media. You can put it right on your website. You can stick it in a brochure. There is no shortage of delivery mechanisms in which you can show that kind of credibility and start to attract the type of client that you want. I’m making it sound very easy. It’s not easy. It’s very hard.
Michael: But functionally, it’s kind of a credibility marketing strategy that says the…right or wrong, people who have gotten media exposure, the media creates a very strong implied credibility that people often…consumers often pick up on. So if you’ve got a huge amount of media exposure, it brings an immense amount of credibility. You can then talk about or share your media exposure, which then gets your credibility out there to anybody that’s seen your marketing and messaging.
And what it means is by the time they show up to you, they are already convinced that you must be a credible expert and your reputation precedes you. Hopefully, then when they meet you, you can actually validate that view for them. And obviously, you’ve got to do something to support it and not drop the ball, but it means they already come in expecting you’re a credible professional that they should be working with. You just have to close the deal, which is very different than, “I’m coming in to meet with you as one of three advisors that I’m talking to. Tell me about what you do and why I should work with you.”
Douglas: Yeah, you said that very well. At least these days, I seldom verbally have to talk about my bona fides. By the way, I actually find that uncomfortable, number one, because it’s out there. It’s right on the website. I would assume most people are…that’s the first place they go to learn. I want people to come to the website be like, “Okay, this is what he does. Let me go learn about him” and click the team or bio page. That’s literally the way I want. And then contact us. I almost don’t even want them going anywhere. If I had to show you my funnel, it’d be, all right, I found…getting found is the hardest part. Right? So I found them, cool site, let me see what he’s saying about himself. I’m ready to schedule an appointment. And then what you said right there is super accurate, don’t drop the ball. Now you’re getting a chance to step up to the plate. You’re either going to strike out or hit a home run. And the home run is a new client in your firm.
And I’ve been building out that funnel, that system for five years straight now. And what it looks like is 400 to 500 features, appearances, quotes, TV, podcasts, you name it, across 100 different outlets. And that’s all third party, right? That’s all other people having you on or using you. That doesn’t even account the first-party content you’re creating through your own videos, your own blog, your own, whatever it is you’re doing, your own website, your own book you’ve authored. If I were to add up all the hours that have gone into that, it’s probably rivaling the amount of time that’s actually gone into administration, operations, and client service. Which kind of says, hey, should you be worried about capacity constraints? And yeah, the answer is yes. We’re just not there yet.
What Sort Of Marketing Works For Douglas [1:20:27]
Michael: So talk to us about what you found in particular that works or that doesn’t work. I’m going to imagine across hundreds of media interactions, and as you’ve said, trying all these different social media platforms and marketing strategies and marketing funnels and the rest. What are you finding either that seems to actually work in the advisor world or just that doesn’t work? Great theory doesn’t hold up in practice.
Douglas: Awesome question. I try and…by the way, selfishly plug the blog here, I try and write about a lot of marketing in my posts. You write about the things you’re most passionate about. But what works, being authentic works. What doesn’t work, getting a quote or having a feature of some kind and thinking that in of itself is going to really do anything. It’s not. I’m glad you got quoted in “The Wall Street Journal,” your phone is not going to ring, your inbox is not going to get an email. You need to actually take these opportunities, at least when it comes to third-party content, and plug it into a marketing system of some kind that you need to build. And I’ve laid that out in a post before. That is the winning ticket. And you need to do that over and over and over and over and over again. You need to do, like, A/B testing for days until you figure out what works here.
What doesn’t work is thinking anything you do is a lock. No matter how creative or how good you think a particular piece is, I think what works is being unafraid to fail and accepting failure, or at least just assuming that probably 80% of what you do create if you are creating content is probably going to stink. And by the way, if 20% of what you’re making is awesome, that’s massive. I think people need to really just embrace failure and putting out a video that makes them cringe when they’re watching themselves, good, so the next one won’t be as bad as that, you would hope.
Michael: You make an interesting point there of saying if 20% of what you make is awesome, that’s great. I think for a lot of advisors, part of the challenge and fear to this is like, I write an article, I put a thing out there, and I guess not even just that it fails. Like, okay, I could try a thing and have it not work, but if I try a thing and it sucks, this actually reflects badly on me. What if I’m on video and I flub up the lines and what I’m saying and I don’t come across as professional, or I try to be authentic and I share too much and it gets a little weird?
I feel like there’s a lot of pressure on us as advisors, like, always be professional, appear professional. You have to be credible because you want to work with people that have lots of money. And it creates all this pressure of like…I think if you asked most advisors, “Would you be okay if 5% of the things that you put out for marketing didn’t necessarily reflect well on you?” that would scare the crap out of most people. And here you are like, “Oh, actually, an 80% rate is okay, because only 20% needs to be awesome. And that’s actually pretty good.”
Douglas: I think there’s a big difference. And I’ll walk it back a little bit here, the get over yourself, and then I’ll bring that right back. So let me clarify.
Michael: All right. So we’re going to build them back up and then we’re going to turn them down again. Okay, got it.
Douglas: You got it. So I think there’s a big difference between looking like a fool and embarrassing yourself and putting out a piece of content that is going to move the meter or have an impact. Let’s kind of reframe that. Eighty percent doesn’t do anything. It also doesn’t hurt. It also doesn’t reflect poorly on you. Like, oh, you didn’t get your line right, you looked a little awkward, nobody cares. And quite frankly, probably no one is going to see that or pay attention to it. You’re your own worst critic, right? So a lot of it is in your mind.
Michael: So true. I’ll admit even from our end, because it came up as a question with an advisor the other day that was kind of asking me about getting comfortable even with this podcast and the self-editing that we have to do. And I had to admit, after…so we’re on episode 138 now, I have not listened to my own podcast since episode 3. I literally cannot hear myself talk on the podcast without self-editing to the point that it makes me nuts. And I had to just stop listening to them. I listened to the first few just to make sure I was at least reasonably comfortable that we were putting out something that was kind of coming out the way that I expected, and then I asked for feedback from a lot of others. People I trust who will tell me if it’s good if it’s good and tell me that it’s bad if it’s bad. So I do have a feedback mechanism.
But I found I was completely incapable of viewing my own work and being effectively objective about whether it was going to be useful or good to anyone or not. But all I could see is my own flaws. And had nothing to do with the guests. I always liked what the guests said, I couldn’t hear myself and my portion, because we’re just so…we’re so self-critical that the only way I keep my sanity was to stop listening to my own episodes and find a group of other people who would give me the feedback that I needed.
Douglas: I think that’s very typical, certainly of those who’ve gotten very good at creating content across almost any medium. There are oftentimes where I feel the same way. I don’t want to listen. For me, it’s more listen than watch. I’m very interested in seeing what my body movement looked like on video, because I want to get better at it. I think that’s the motivation. I want to get real good at that.
Michael: Yep. I did some of that for self-feedback early on. And I’ve done that on the video end as well and speaking end.
Douglas: I agree with audio. I agree that’s where like, “Oh, my God, I said “like” like 40 times at the beginning of a sentence. I’m turning this off. I can’t do it.” But I think that this is a good problem to have, simply because what you’re describing, because it means you’ve done this enough that you’ve gotten to a point where you’re kind of like have earned the right to not listen to yourself. In the very beginning, you need to. You don’t know what you’re doing.
Michael: Oh, yeah, I had to for the first few just to make sure it was actually working the way it was expected. Yeah, I had to start there.
Douglas: So, with that being said, it’s not about embarrassing yourself or looking bad. I think it’s about creating things or contributing in a way that doesn’t have you take any steps backwards, but it gives you the opportunity to do better on the next round. And I was just on Yahoo Finance yesterday, or the day before, and before these types of live…like, that’s live, so it immediately goes up on the nervous scale of like, “You’ve got to get this one right when we go there. This is not recorded video.” When you’re doing recorded, I think if you don’t do enough of them, you’re just nervous the entire time. But you fail to realize like, you can say cut. You can be like, “Let me do that again.” And you get good enough to where you don’t even say that. You just stop and start and let them cut that. They know what they’re…they’re the professionals from the editing standpoint. Just give them what they need and try and shape the best version of it. You don’t get that luxury on anything you do that’s live.
And I think the best way, at least when it comes to live appearances or doing anything where you’re feeling nervous, I think the best way to know that you’re really coming into your own is when, number one, when you feel that feeling of being nervous, by the way, it’s always going to be there. If it’s not there, I think something is very wrong. You might be dead. And then two is, if you then smile after you feel it, like, “Hello, friend, there you are.”
Michael: Hello, fear.
Douglas: Yeah. Like, “Ah, I remember you.” And it takes on kind of a whole new thing. Yeah, you’re probably going to be very nervous in the very beginning, even so much just talking to a reporter. But my best advice is if you’re a good professional, you already know what not to say. You’re not going to do something stupid and say like, “Go buy XYZ at Y dollars.” Like, really, you did that? Wow. So I’ll bring it back. Get over yourself. You’ve got it. You can do it.
Michael: I think you make an interesting point as well, though, that ultimately, the key to this, if you actually want the ROI, as it were, on the media activity, it’s not enough to just get out there be seen, get quoted and wait for the phone to ring. The leverage from this comes when you do the stuff that gets you out there and gets you some visibility, and then you actually take the steps and the effort to market it, to communicate it, to put it out there. I guess in essence, to toot your own horn. And that that’s a part of the process. So, I don’t know, can you talk a little bit more about that? Because I think for some advisors, not only is sometimes a hard just to do the stuff and put yourself out there and the nervousness and the fear and the rest, but then it feels weird or even worse to try to trumpet it, to toot your own horn. A lot of us are kind of taught not to do that.
Douglas: Yeah. Well, I was reading someone’s tweet the other day, they were going through compensation models, this, that, and the other thing, and how they felt like they were…when they were working as an advisor in this capacity, they felt compelled to sell the firm. When they were an advisor in this capacity, they felt the obligation to sell the product. And then now they finally feel like, “Here I am, I don’t need to do any of that.” And I’m just like, no matter where you are, no matter what you’re doing, if you’re in a service business, aren’t we all just selling ourselves?
So my first question is, would you like to grow organically? Because if the answer is yes, if you want to do what I call the biggest magic trick in personal finance, we’ve really started to get into this “I’m just going to grow by acquisition” kind of mentality here. And you get Focus Financial over there doing that. You’ve got Dynasty and HighTower. By the way, very legitimate way to grow one’s business. I personally am not…why would I be a fan of that? It makes no sense. Look at what’s being sold, and that’s not what I want to buy. So it’s okay if you want to do that and deal with those headaches and growing, whatnot. But if you want to grow organically, which I would imagine a lot of people do, and you don’t want to just be like everyone else who says, “I grow through referrals from my clients, I have a great referral marketing system.” Yeah, I’m going to pat you on the back and probably walk away. Word of mouth.
Yeah, look, everyone wants referrals and wants their name to be spread around the people they love by great whatnot, but if you really, if you really want to grow organically, how on earth can you say, “I don’t want to go out there and sell myself?” How do you not sit down and devise a marketing system that you can stick to and get uncomfortable with until you are comfortable? So for me, it’s just a matter of, if that’s what you want, there’s no other alternative. There just isn’t. You can’t just say, “Oh, I’m just going to do SEO.” No, that needs to be matched with social media. It needs to be matched with content to put through the distribution channels. Those keywords aren’t going to show up on their own. You either got to make that content yourself through your blog, through your website, through whatever it is, through your medium, whatever it is, or someone’s going to make it for you. Ideally, you want both, okay?
And then you’re going to start to integrate all these things together. Well, what other cog can I put in my marketing machine? I’m going to author a book. Okay, go do that. Is it going to be an outstanding book? Probably not, but that’s not the game you’re playing. By the way, I hope it’s a wonderful book if you have an amazing story to tell, but this is personal finance, it’s few and far between a lot of times.
Michael: Yeah. Well, and even there’s a lot of systems out there that can help you create the book now as well, which I find is not often appreciated in our advisor world. There was an advisor I know who actually did a book and made the interesting statement, you don’t have to be a writer to be an author. And he was like, “Look, it’s all my ideas. I put all this stuff out there, and then I got a writer and editor who helped me turn all the things in my head and all the stuff that I can say into just a version that was written on the page. So it’s my words. It’s my thoughts. It’s my concepts. You can get a writer to help make sure it looks pretty in a book.”
Douglas: Yeah, that person was called my wife when we wrote our book together. And also the stories were obviously the story we were putting out there. But we went about that process real quick is we had a story to tell. We wanted to tell it. Her and I both knew how good it would be in the context of marketing the business. It instantly became a business card. Our goal was to sell. If we could sell 1,000, our egos would be good. I think we were more just like, “Oh, my God, we wrote a book together and didn’t get divorced or kill each other.” That’s an accomplishment of itself.
Michael: That’s a check.
Douglas: Yeah. Bingo. And our kids will be proud, and they’ll see it and all of this stuff. And I think we set our expectations pretty reasonably around that. So we exceeded those expectations, whether it was through book sales, or just through clients coming in or being able to give that book to a prospect when they left the office. Like, that one thing, that one body of work outside of all of the internet stuff and going on podcasts and talking about it and opening all the doors that you were kind of doing anyways, that was just a whole arsenal of things that was going to benefit this marketing machine to grow organic.
So you’ve got to do these things if that’s how you want to grow. And there’s so many advisors on that XY Platform I keep hearing about that blow me away. That I won’t lie to you, Michael, I’m looking through them to say, “All right, what are they doing that I’m not?” Because you’ve got hundreds of them building brands and doing new cool things. I’m feeling I’m old millennial, you’ve got young millennials doing stuff, I want that.
Michael: Yeah. Well, and that to me is part of the interesting effect that comes as well with what you’ve done in building towards a niche. That suddenly as you get clear on your target clientele, you can get even clearer on like, well, you didn’t just write a book, you wrote a book called “The Millennial Money Fix.” So guess who picks that up? The exact people who you want to reach, because it literally has “millennial” on the title and you’re trying to reach millennials. That’s part of the point to me that I feel like the more niche firms tend to be, the more I tend to see them out there marketing.
And I think part of that is because most of us get stuck in this analysis paralysis trap where, okay, I hear you, Douglas, I want to do some marketing but I don’t know where to start. And the problem is actually, well, you don’t know where to start because you don’t know who you’re going after. And so if you’re just trying to go after anyone on the planet, it’s really hard to figure out what on earth you’re going to do that’s going to stand out. You can throw some money at it, but you’re not going to get results because you’re not differentiated from nine bajillion other marketing messages we see every day
And then the fact that we so often struggle with marketing because we don’t have a clear target of who we’re going after is to me why we end out with so many firms that are now looking at inorganic growth through acquisitions or waiting for referrals to show up that to me like, well, if you’re not going to devise a marketing system, of course, you have to rely on acquisitions or referrals. That’s all that’s left when you don’t market. That’s not necessarily a best practice, that’s the only practice that’s left if you’re not marketing.
Douglas: Yeah. And that’s my point. Again, you have very little recourse here, very little alternatives outside of inorganic growth and relying on your existing book of business and network. I’m all about long games. And I’ve said that many times here on the call. If you’re willing to get uncomfortable, play this game. And I get it, most advisors, and I’m very fortunate that I’m okay and comfortable with putting myself out there and embarrassing myself, if worst-case scenario, I get it, most advisors are, I think, inherently not good at these things.
So here’s a tip. You yourself don’t need to be good, but maybe you can find someone who is and also understands your brand. And you don’t need to spend a lot of money doing it. You can still design a marketing system and find people to help you execute on that. I just think people get…to your point, kind of get in their own heads here like, “Oh, I’m not good at that.” It’s the same thing over anything you’re afraid of doing. “Oh, I’m not going to be good at that. I’m just going to go back to what I’m comfortable doing.” Well, how’s that working out for you if you keep saying to yourself, “I want to grow?”
What Surprised Him Most About Building His Advisory Business [1:37:02]
Michael: Right. So from your own perspective now being your 10-plus years in your career, what surprised you the most about trying to build an advisory business?
Douglas: Wow, it’s a good one. That I would actually be able to build it in a way that I wanted to, that I could actually get out from what seemed to be a lot of conformity, and that there’s this one way to do it. And you follow the money, and you eat what you kill. And it is really kind of that rebellion against the old-school thinking where I was right at the verge of it. There are very few of us that could go back six years now and say like, “No, I’m not going to do that.” And how to endure being ridiculed or looked at funny at carpet. This is real. This is real. From 19, the looks I would get at a regional conference when I’m trying to pick up some CE credits. There were people literally grilling you just for being…like, “What are you doing here?” I was like, “Why don’t you help me? Like, I’m clearly not like everybody in this room.” It still happens today, which is wild. But yeah, the fact that I could enter a pretty long-standing profession and shake it up a lot.
Michael: And so what led to that? What made it happen? What made it work? Was it just, “Damn it, I’m going to ignore all of them and do it anyways,” and holy crap, it turned out to work? Was there a certain turning point for you?
Douglas: I had set goals for myself. I fell in love with a wonderful woman. I wanted a life for myself. I didn’t want to necessarily…in watching what happened in the recession, I didn’t want a lot of things that I saw both in the profession and outside of it to happen to me. And with a splash of fear, motivation, a decent brain in my head, and being just, hopefully, a nice guy, I wanted to be able to take all of these things and make the great things in life happen for me. I wasn’t going to be denied of that. Also, a little bit of a habitual envelope pusher and line stepper, as you may know. And all of those things come together to have allowed me to take the liberties that I did in this profession and make a name for myself. And now I can tell you that this is the most fun I’ve ever had in my career. It only took 14 years.
Michael: So then along that journey, what was the low point for you?
Douglas: No offense to my father here, graduating from college, moving back home and working in the family business.
Michael: Because he was an advisor in the business as well?
Douglas: Yeah. Yeah. So I worked in my father’s practice for the first four years of my career, basically, through college. We didn’t really get into it, but essentially, I was getting licensed and learning how to operate a financial planning practice from 19. So I got my 7 when I was 19, I did my CFP when I was 25. I love and thank my father for giving me the greatest competitive advantage in, I think, the profession, which is primarily why I’ve been able to do a lot of what I’ve been able to do at my age and rack up 15 years of experience.
But working with a parent is extraordinarily difficult, and it’s just this weird mix of love and fear. I don’t think living and working with a parent after school at 24 is a really good combination, especially when the love of your life is going through her own hell in law school in New York City and you’re just all kinds of confused. And I think you then just make enemies out of the one person that’s kind of pulling all your strings at that particular moment. And that was a really dark and sad part all those years ago.
Michael: And so eventually you got to some point of saying, “Okay, I’ve got a few years of experience, I’ve just got to get out from under my father’s practice and go and do my own thing?”
Douglas: Yeah. It was actually probably more him being an awesome dad and realizing despite his own goals and dreams of having an heir apparent or wanting to see a multigenerational practice, to realize who is…he said to me, “Who am I to stand in the way of my child’s goals and dreams and ambitions? I have to get over the fact that if you fall flat on your face…” And keep in mind, I come from a family of New Yorkers, they’re fully, fully well aware of where I want to go and what I want to do. They’ve all sharpened their saws here in the Northeast. And yeah, he was like, “Why don’t you take a few months here? Still working, but why don’t you take a few months to figure out whether or not you want to remain here or take…do a reverse LeBron James, take your talents to Manhattan?” And I just instantly said, “I will be moving to Manhattan and try and find some people to interview with.”
Michael: Thanks for the permission. All right.
Douglas: That was March 2008, by October 2008, just in time for the sky to fall in the economy, I was in New York City, again, drinking out of a fire hose.
The Advice He’d Give To Younger Advisors Starting Out [1:42:26]
Michael: So what advice would you give young advisors looking to get started and become a planner today? I guess I’ll also say like, what do you know now that you wish you knew then 10-plus years ago?
Douglas: Well, I had the good fortune of not…of having what I call runway kind of given to me. Again, a big competitive advantage is I didn’t necessarily have to worry about finding a place to “earn your stripes” or learn the business or get comfortable with who you are as an advisor and get credentialed and all of that, and worry about a paycheck, especially since you’re working at home and you’re kind of on the family dollar, so to speak.
But if I strip that away, and in the conversations I have with a lot of young advisors that call up on a monthly, if not weekly basis, to take me up on the opportunity to ask what you’re asking me, it’s create as much… The biggest challenge for you is going to be creating the runway that you need to really be able to play this game. And the thing that bothers me, I think, most about the profession is that we still haven’t really solved the recruitment problem, which is more than likely, you’re going to end up in a sales culture, more than likely, you’re not going to succeed there, at no fault of your own. I just don’t think it’s engineered to do that, to succeed anymore. And more than likely, you’re going to become distraught and fed up.
And if you flip that on its head and say, “No, I’m going to go here to the sales…,” if that’s the only way in for you, in other words, it’s hard to find that awesome RIA with an amazing recruitment program that will grow you over five to seven years. That’s a fantasy. They exist, but good luck finding them. More than likely, you’re going online, going to wirehouse.com, looking at job postings, realizing you could probably get hired as a junior FA or a new recruit in almost any city across America to go try and call up your uncle, your mom, and your dad and get them as clients. Raise $10 million in 2 years or get out. And I want young advisors to know, that’s okay. That’s okay.
There’s a game you can play here. And it’s very bold of me to say that, look, if they’re going to continue to run a model that doesn’t work, maybe you can use that model to your advantage. And you need to, instead of focusing on your sales goals, focus on listening to your content and becoming a student of the industry. Start equipping yourself with the knowledge you need to be an advisor. So, if they’re not promoting, getting your CFP from day one, go get the books and start doing that outside. If you really want to be an advisor, you’re going to have to work just a little bit harder, given the fact that more than likely the recruitment program you’re in is not going to pan out for you. What are you doing outside of those cold calling hours to basically be that next candidate at the firm you want to work at or be so bold as to go out on your own because you’ve already started your blog, because you’ve already started to think about who you want to market to. And now you can go play.
Basically, it’s like being one step ahead of your sales manager, right? It’s a, “Yeah, boss. Yeah, sure, sure.” “Yeah, okay.” It’s a little devious. I’m sure there are HR professionals at big banks and wirehouses that absolutely cringe with what I’m saying, but I feel absolutely no remorse. You’re running a system that doesn’t work and doesn’t help the profession. So get gamey with it. Get a little dirty with this and give yourself the runway that you need to evolve into an advisor that’s capable of developing business ultimately, assuming that’s the kind of advisor you want to be, that intrapreneur or entrepreneur. And if not, maybe even figure out that you’re cool working at Vanguard or Fidelity and servicing amazing people and providing value that way. Or look, if this is not for you, at least you gave it a good shot and you don’t have any regrets about the experience you got. And at least you figured out while you were still young that this wasn’t for you. You actually maybe found out what it is you do love to do, and you go do that.
Michael: So what comes next for Bona Fide Wealth from here?
Douglas: So I think we continue to scale up as far as bringing in the right types of clients. I think we’ll inevitably…the technologies get so good and just continue…as we lose capacity, we gain it back with technology. So that’s pretty interesting. But I think ultimately, the day I can’t deliver the same type of service that I’m currently giving my clients. And I don’t want to scale my business to $1 billion RIA, at least not now anyways. I’ve done a lot of those things in other capacities. I want to work with a great set of clients and a rather robust practice of people I love to work with.
And I want to continue going down the media road and the content road. I think there’s a whole avenue to explore here when it comes to delivering financial education and literacy to the masses. I think I can make money doing that. I think it can supplement the marketing I’m already doing for my firm. And I don’t think it has to come at the cost of the value and service that I’m giving my clients in my wealth management practice.
Michael: So as we wrap up, this is a podcast about success, and one of the themes that always comes up is just even the word “success” often means different things to different people. So you’re on this incredibly successful trajectory, $600,000-plus of GDC after 10 years and compounding, seems to be accelerating from here. So you’re certainly on the track or have already arrived at building a successful business, but I’m wondering, how do you define success for yourself at this point?
Douglas: I think it comes down to my family being happy, and it comes down to my own happiness. I’m, of course, happy when my family is happy. I would define it as not having to worry about money in the context of being able to support, and this is obviously subjective, lifestyle me and my family deem to be comfortable. I’m not trying to make $1 billion here and have yachts all over the world, but I’d like to make sure that my kids cannot have to worry about certain things that maybe I did or my parents did. That we can travel and enjoy a summer vacation, like I did as a child, and my wife and I can feel that we’re financially independent, and all this student loan debt we took on has been more than worth it. I know we already feel that way to a great degree.
So if you take all of those things and put them in a box and put a bow on it, that’s success to me. It can all be quantified. I doubt I’ll share that with you or anyone, but we’re on our way there, and that puts a smile on my face. And I’m able to help people. My dad always said, “This business is having the heart of a social worker and the brain of a capitalist.” That’s one awesome job if you ask me.
Michael: I like that. This business is having the heart of a social worker and the brain of a capitalist.
So I’ve got to ask then one follow-up question. You’ve kind of said, it sounds like you’ve got a pretty clear target in your head. There is this financial independence number when you’re really at the point now where you no longer have to work for the money. Is there a plan for what comes next when you hit that crossover point?
Douglas: I haven’t really thought about terminal value, if I’m taking it all the way to the end here, like, where does Doug say goodbye to his practice? I don’t think I need to. I kind of put a question mark at the end of that. And I’m so very much in love with where it’s gotten to at this point, given that I’m really in the lives of clients right now. We’re going through so much. It’s a little bit of an echo chamber, but it’s also a nice feedback loop. Right? I think that’s really cool.
As far as hitting that goal and then what happens, I probably start to maximize the work-life balance. I have two young daughters. And being the son of an advisor, my dad was able to go to all of my sports games, was able to go to all of the big things in my life, and go on vacation. That never got in the way. I want to be able to do that two times, twofold. I just want to be able to be there for them and enjoy them and watch them grow and turn them into their own version of being a superstar and not have to worry about…again, it’s every parent’s dream for their kids not to have to worry about things that we necessarily do. So if I can do that, I think that’s what it looks like in a very high-level sense.
Michael: All right. Well, very cool. Well, I know we’ll check back with you in 5 or 10 years to see how you’re doing on that trajectory or if you’re there and what actually came next.
Douglas: Maybe I’ll have a coffee farm and be brewing my own or roasting my own coffee. That seems to be a passion these days.
Michael: Fantastic. Financial planner coffee is I think a niche opportunity unto itself.
Douglas: You might see something by the end of the year. We’ll see.
Michael: Fantastic. Fantastic. Well, thank you so much, Douglas, for joining us on the “Financial Advisor Success” podcast.
Douglas: It was a pleasure.