My guest on today's podcast is Eric Roberge. Eric is the Founder and CEO of Beyond Your Hammock, an independent RIA based in Boston, Massachusetts, that oversees $47 million in assets under management for more than 80 client households.
What's unique about Eric, though, is how, 10 years after launching his firm and enjoying strong and steady growth, he hit a capacity wall as a solo advisor and suddenly found the business going backwards, as a $4 million client decided to relocate, and market volatility caused several other clients to leave his firm (which meant a loss of $100,000 in recurring revenue), all while he and his wife had their first child… leading Eric to go through a year of rebuilding multiple components of his business from staffing to technology to their client service calendar to get back on track again.
In this episode, we talk in-depth about how, in 2022, Eric and his wife Kali faced a tumultuous year the firm dipped from $600,000 to $500,000 of revenue run rate in just the first few months and because it coincided with the arrival of their first child they didn’t have the bandwidth and capacity to adapt, how, to help with capacity constraints, Eric decided to ramp up part-time outsourced assistance (from Nifty Advisors for a part-time virtual assistant and East Bay Financial for a part-time virtual Chief Investment Officer), and how, to create even more lift in capacity constraints, Eric changed the firm’s meeting cadence from meeting with clients 3X per year to only twice a year, utilizing a surge meetings structure to both give him months of time back to focus on the firm as a whole (and also to be able to respond more quickly to client needs throughout the year as they arise).
We also talk about how Eric’s decision to get a formal valuation from FP Transitions not only helped crystallize the significance of what he’d built (when he saw the valuation from a third party) but also created a new perspective on where to focus his time to best increase enterprise value going forward, how Eric is focusing on increasing connections with prospects by creating content on his website and hiring a PR firm to help him get guest podcast appearances and then drive traffic back to his website and grow the firm’s marketing funnel, and why Eric offers a fee calculator on his website (that allows clients to enter their assets and see exactly what the fee will add up to be in actual dollars) because he’s found that prospective clients knowing exactly how much they would be paying in fees is helping build trust early on.
And be certain to listen to the end, where Eric shares why, even though he experienced a lot of challenges in 2022, he is grateful for the opportunities it brought him as he feels it helped better his communication with his wife, how Eric came to realize that in building a business, the solution to challenges early on was to work harder, better, and more efficiently, but that eventually there comes a point where you have to re-tool the business’s systems and processes or you just run out of time and energy, and how living through the challenges of 2022 has helped Eric become more intentional in how he builds his firm, with a newfound appreciation of the benefits that come from focusing – really focusing – on changing what you can control and letting go of the rest.
So, whether you’re interested in learning about how Eric struggled to find a lead advisor that was both a good fit and was willing to take on some business development which led him and his wife to revamping their processes instead, how, even though Eric and his wife experienced a downturn in the business, he was prepared economically as he had saved a large amount of money in case of emergencies, or how Eric leverages his FP Transitions’ subscription service to receive benchmarking data that helped him realize he not only has a younger clientele than most firms of his size, but that his average fee per client is larger than other firms, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Eric Roberge.
Resources Featured In This Episode:
- Eric Roberge
- Beyond Your Hammock
- Nifty Advisor Support
- East Bay Investment Solution
- FP Transitions
- Tiny Frog Web Design
- Interview Connections
- XY Planning Network (XYPN)
- OnceHub (Formerly ScheduleOnce)
Looking for sample client service calendars, marketing plans, and more? Check out our FAS resource page!
Are you a successful financial advisor, or do you know of one that would be a great fit for the Financial Advisor Success podcast? Fill out this form to be considered!
Michael: Welcome, Eric Roberge, to the "Financial Advisor Success" podcast.
Eric: Thanks, Michael. I think I'm more excited this time around than I was the first time.
Michael: It's awesome. Yeah. I really should say welcome back to the "Financial Advisor Success" podcast. You had joined us all the way back in year two, which is now 5 years ago, as time flies, when, at the time, you were 5 years into the business, having launched almost 10 years ago and had this wonderful growth spurt out of the gate. You jumped from 0 to 300,000 in revenue very, very quickly in the first 5 years and kind of getting into a focus market that you were serving and kind of living in this journey of, "I'm marketing what I do to be my authentic self and find work-life balance to professional and appealing to other people that were going through similar journeys and wanted to seek an advisor." And so, I now know this growth journey has continued. The business has doubled again from where it was five years ago, which, of course, comes to some other complexities, because as you grow enough, you can't literally just do it all you, at a certain point. So, when there's just the amount of clients and revenue that it takes more, so you've had to start hiring and expanding the team and a lot of dynamics that change with that.
And so, I think, in part, I'm excited to just get the update of all the things that have changed and evolved for the business over the past five years, but particularly, because I know you started down the road of, as many of us do with businesses, they grow to a certain size, going out and getting a professional valuation and figuring out, "Okay, I used to make this thing because I was just trying to make some income. Now, I've kind of got an income from my business, but also the business itself is an asset." There's a lot that starts to change. The first time someone puts a valuation on our business and then tells you what's "good and bad" about it, from a business valuation perspective, it's a whole new way to keep score about how you're doing in the business, and it sometimes brings a really different perspective when you start saying, "Well, what am I doing that's managing this growing business as an asset," rather than "I'm managing this growing business as an income stream." So, just excited to dig into all of that because I know you are living in that journey right now.
How Eric Handled The Complexities Of Starting A Family As Business Owner [06:00]
Eric: Yes. And you're right about just the ever-increasing level of complexity. And I think that goes for not only my business life and my personal life. When I was on this the first time, I had just gotten married. So, there's a little bit more complexity there too in 2018. And then having a child, buying a house, and just expanding personal life so that not only is it me trying to build a life and income stream for myself, but now you have the family to support, and then you have this business that's expanding, and you have employees to support as well and then more clients to support. So, it just becomes this ever-expanding community, which is a completely different place to be than just being dropped in the middle of the woods and trying to get to grow there.
Michael: Yeah, it really is striking just what it's like for those of us who launch businesses when we're still early in our careers, we're still single, there's not necessarily just employee and family and child and mortgage dynamics and all the rest. And I like your analogy, your dropped-in-the-middle-of-the-wood survival style go-to. And then business grows and client count grows and staff count grows. And then we get married, and we have kids, and we buy houses, and all of it just gets a lot more complex. On the one hand, for all the folks out there that raise these questions, "But if you're going to work with people in their 30s and 40s, what do you do for them? Their lives aren't that complex. They don't have a lot of assets yet." And I'm just like, "Did you not build your advisory business in your 30s and 40s?" I don't know anybody that actually describes that stage as life was really simple and boring. There's all this complexity that comes with us.
I notice that's the clientele you serve as well. So, we live as advisors as well as who we can serve with peers. But I was struck even as you're describing this, yeah, thus, so many of us live when we're building careers in professional services jobs, even beyond financial advisor world, but including financial advisor world. And, yeah, life gets complex. This stuff gets complex. It also grows bigger and can be more financially rewarding. There's pluses that come with that as well. But it sure doesn't get simpler as the layers just keep getting added on.
Eric: Yes. And not only are there more things but they all are attached. You pull this string over here, that thing over there moves, and vice versa. So, you're building more complexity, and everything is part of the same whole. And you have to divide your time, energy appropriately and make sure that if you're making a decision in the business, you understand maybe how it's going to affect your personal life. And if you're making a decision for your family, you have to understand how it's going to affect your business life. And I think that's part of where the biggest challenges have come in for us over the past couple of years, as we've expanded both.
Michael: So, can you share more in that direction? How did that show up in practice? How did you swing that pendulum between "I got to do this in the business, it's going to have a certain impact in home-family life," or "I've got to deal with this home-family life, it's going to have a certain impact on the business?" Where did that show up for you in practice?
Eric: It showed up everywhere, and it was pretty challenging. So, I was talking to Kali, and for those of you who don't know, Kali is my wife. She's been in the industry as well. She's at my firm, and she was and is still the full-time marketer, the operations manager, chief investment officer, whatever you want to call her. She's everything in the business. And I was talking to her about this, and both of us have this mindset of, well, we're just going to move down the line and work harder and harder and harder to achieve the next level of whatever it is we're trying to achieve. And that worked for us really well for most of our lives. Until our daughter came along.
Michael: Oh, kids.
Eric: The minute she showed up, you realize that we can't just do that. It doesn't work when you have a child to just do whatever it takes to survive and expand. We couldn't just work 10 hours a day. And I work 11 hours a day. We weren't able to do that anymore. So, we had to become more mindful, and we actually had to take a step back and turn down the volume on the business to make sure the family stayed intact. She was born in 2021, and so she's 19 months now. And we're really coming out the other side in 2023, and we feel really great about it, but it was pretty dark for a bit.
Michael: So, what does that mean when you say, "We had to be more mindful, take a step back?" I think the label used, turn down the volume on the business, just what did that mean in practice? Is that like "We had to shed some clients," "We raised our minimums," "We just took a hiatus where we weren't taking clients for a while?" Just what do you do when you're suddenly feeling the squeeze of, "Okay, my home life just got a whole lot more complex, and, crap, this just isn't going to work the way it's been working before?"
Eric: Well, if you asked me that when it showed up, the answer would be I have no idea what to do, and that's how I felt for most of the time. So, Kali was working full time up until she had Thalia. Thalia was born, and obviously, Kali can't continue to work. And we knew that, but we didn't really plan for the size of the impact that that happened. And so, October, November, December, those 3 months were really difficult because we had no support family-wise. We had no childcare. Kali and I were full-time in the business with our associate advisors. So, there really wasn't a ton of people to support the business. And she came back to work probably sooner than she should have, and she was working 15 hours a week while trying to be full-time mother, while I was trying to be part-time dad and full-time business owner. And that's where I realized that, uh-oh, I need to make sure that I'm giving my full self to Kali and Thalia, but also my full self to the business. And I only have one full self, so what am I supposed to do?
Michael: So, how did it show up in practice when it was starting to get squeezed? Were you suddenly working long hours and then still having long hours of family and just time started blowing out, or was it showing up other ways? What was happening at the moment that was making it not good, not working?
Eric: Well, from my perspective, I was trying to continue to provide my full effort in the business and for clients because that's really important to me, but obviously, my business is not as important as my family is. If I'm going to put them right next to each other, I'm going to pick my family every day over the business. But the business supports my family. So, I was thinking, and Kali was saying, "Maybe we should back up. Maybe we should let some clients go and just tone down the business to more of a lifestyle practice and not grow it." And I was thinking in my head, "Well, if I don't grow it, it's dying." And I need to continue to expand it to provide for the family who is now three.
So, I just felt like it was such a delicate place that I didn't know what to do. I didn't know where to go, where to put my energy, and it just became this ripping of sorts. I feel like I was getting ripped in half because I'm trying to support Kali, who, by the way, and I talked to her about this, she said I'm fine to share, was going through postpartum depression. She had depression after the child. And so, she's trying to work and be a mom, and she doesn't know what she's doing on the mom side because it was the first time she's doing that. It was crazy.
Looking back on it, I don't know how we functioned, but it was...
Michael: Human beings are wonderfully adaptive. We sort of figure out how to survive in some of those moments, at least for a little while. You burn out if you do it too long, but we do somehow figure out how to get through some of those dark times.
Eric: Yeah. And then the positive spin on this, and again, I was talking to Kali about this, and she was like, "It's made us better people. It's made us a stronger family," because we were both willing to put in the effort and keep lines of communication open even if those communications were falling short at times because of emotions and other things. We really worked hard to get to where we are now. And now she's back. She works about 20 hours in the business. We have finally childcare for Thalia, so she's not in the house all the time now, at least, to give a little bit of space to do things other than take care of Thalia. But we're also mindful that she needs us as parents, and we're very much attentive to her when she is here.
So, it's just a better balance now overall, and this is a lot of the stuff maybe we'll get into too. 2022 was very much a transitional year because that was happening, and we're also trying to figure out what strategy we need to implement in the business. And there's a lot of things we've put in place to now make 2023 a much better situation.
How Eric Dealt With Reaching A Capacity Wall And Declining Revenue [15:55]
Michael: Well, so what else was going on in 2022 that was changing this, I guess, beyond this or alongside this?
Eric: Well, I would say, probably, June 2022 was where I would say rock bottom was in my last 3 years, because my biggest client of $4 million in assets was leaving, because he was in Germany, and he was going to stay there. The market was crashing, right? So, June and October of 2022 were the bottoming out of things. So, it was crashing. Kali was barely able to function and working 15 hours a week. We had no child support. The revenue...I always look at the forward-looking revenue, the forward-12-month-looking revenue, and that was down about 100 grand from where it was in January of that year. And I had no more capacity. I had no more capacity to do anything more. So, I was just stuck.
Michael: And where was...can I ask, where was revenue or revenue run rate at that point? Just so we have context here.
Eric: Sure. Going into 2022, the recurring revenue was about 600,000, the projected 12-month revenue if I didn't do anything else and just kept what was happening in place. And by June of 2022, it was down around 500 projected.
Michael: And of course, the joy of advisory business and kind of operational overhead is, as you start hiring up, when markets are down, or clients leave, and topline revenue goes down, any staff and team expenses you have, that's still fixed. They don't really care that much that markets are down or you lost someone. I get a salary paycheck around here. That's the deal. I'm still expected to get mine. So, revenue that falls off the top basically comes straight out of our pocket as founder/business owner. So, I'm just imagining, that means you're feeling 100% of that pain in watching expected take-home pay basically drop by 100k out of the gate in the first 6 months.
Eric: That is very accurate. Yeah, we did add a lot of business expenses in 2022 as well. So, just the combination of things was hard to handle. But I wouldn't change anything now that I'm looking back on it.
Michael: So, you also said you weren't feeling like you had capacity to do more, which makes it particularly sucky. My revenue is down, and I can't really grow it back because that involves getting new clients I don't feel like I have capacity to get. So, what did the business look like from that perspective by mid-'22? How many clients was it? And then, what was the team around you at that point?
Eric: Client-wise, I think we were probably 78 to 80, because we had...not only was the biggest client gone, we probably lost another 9 that year. And I think it was coincidental more than anything else, but you got to wonder if that was the case. And we had...
Michael: Meaning what, you wonder if other clients were leaving because maybe you were at capacity and tapped out, and so maybe you couldn't give them the level of attention you wanted so they were not happy and leaving, that dynamic?
Eric: Yeah. I can't shake that thought. In my head, I've put in effort. I never gave any less than I had before. But if my mind is taken up elsewhere, it just may not have been as effective. The communication may not have been as effective as it was in the past, and I could have been partially why people went. I do have very specific examples of why people left. Otherwise, it had nothing to do with us, the business. It just was their life was changing. And so, not everybody was leaving because of that.
Michael: But you can't help but look and say, "Okay," but there's clients that leave for random reasons, but then when a larger than usual leaves in the aggregate, "Okay, maybe it's random chance," or "Crap, maybe this is actually showing up in some other indirect ways."
Eric: Yes. My default mechanism when I'm in most situations is, what could I have done differently?
Eric: And that was the question I put out there to myself. And I think there's a lot of things. If I had more bandwidth, then I could have done things differently.
Michael: And then, what was the team structure? So, you're at 600,000 of revenue, dipped down to 500 with client loss and pullback. You're sitting at about 80 clients. What was the team around you?
Eric: We had me, Kali, a full-time associate advisor. We also, in the summer, were saying, "How can we build some capacity here?" So, we reached out to Nifty Advisors and brought on somebody over there who is still with us and works 12 hours a month, which was super helpful.
Michael: Doing what?
Eric: Operations tasks. So, at this point, he is the TD/Schwab expert and process paperwork and just really communicates on the investment paperwork and just management of tasks on the custodian platform.
Michael: And so, Nifty Advisors, just for those who aren't familiar, does outsourced operations and assistant support for advisory firms. So, you had them plugged in for their ops support on TD/Schwab.
Eric: Correct. We got him working with... Actually, he used to work at Schwab, so he’s very in tune.
Michael: So, he really knows it.
Eric: Yeah, he's incredible. He's great.
Michael: Very cool. And so, can I ask, just how does that work payments-wise? Just how do you hire and pay for that, or how does the structure work when you're buying 12 hours per month?
Eric: It's a flat rate, and if you don't use the hours, it's still the same flat rate. And if you go above them, there's an hourly charge that you have to do to make up the extra hours.
Michael: Okay. And do you know just roughly what it comes out to be? I'm just trying to visualize from the business end. I'm sure everybody's got to go through, "How many hours do I buy before it's just a better deal to hire someone full-time?" Unless you really don't want to manage them, then maybe you still outsource it. So, I'm just curious how you price it or think about the cost of services like that when you're trying to decide, do I hire it in or do I send it out?
Eric: Yeah, we went through that process, and it was very clear to us that we should be outsourcing this to a 1099-type person who is an expert in that area that we want to hire for. And we pay $780, I think, and that's obviously a number that is not consistent because we started a year or 2 ago. So, Nifty could be somewhere different right now.
Michael: Right, right, right.
Eric: That's where it may be.
Michael: Yeah. Business rates change over time.
Michael: Okay. And so, was that the full team? It's you, it's Kali, to the extent that she's got time, you have a full-time associate advisor, and then you're leveraging Nifty's outsourced team support to help on the operations end. Does that cover all of it?
Eric: Yes, plus a little bit...there's one more person that's involved in the business but not from an employee perspective.
Michael: Who's that?
Eric: We use East Bay as our investment experts, if you will. So, Mario Nardone and his partner, Eric. I basically talk to Mario once a month to make sure that our investment strategy and any specific client-related account questions, management, things that I may not know about, are betted through them just to make sure that we're keeping up to date on our investment management strategy. They do research on the funds. They help us choose our portfolios on a continual basis. So, it's very supportive. It's certainly not a TAMP, because I'm still doing the operations of the investments and everything in-house, but I'm getting the confidence in the extra research that I need to expand my abilities for my clients through East Bay.
Michael: Interesting. So, not TAMP style, because you still got the trading and the management, more of outsourced chief investment officer support.
Eric: I would say that's accurate, yeah.
Michael: Okay. And out of curiosity, how do you pay for that? Just how is that priced, or how does that relationship work for you?
Eric: That is a flat fee, increasing by 3% a year, automatically. Kind of like XYPN.
Michael: Okay, okay. So, you've got core servicing clients, 80 clients. You and an associate advisor who's supporting them, sort of the core that's working on them, but your time even is being torn between what you're doing in the business and family demands and growing home life demands, while market's in turmoil and a big client leaves. So, what happens? What happens in that moment? What did you do when you're sitting there in June and staring in that down?
Eric: Well, just like when any other situation where things might feel out of control. Oftentimes, the things that feel out of control are maybe out of your control, actually, and there's nothing you can do about it. And so, the best thing to do is focus on those items that you can control. And so, that's where I went into July to say, "What can we do right now to get back in control to improve our situation both personally and professionally in the business and make a real impact?" And so, we generated some ideas, and we said, "Okay, this is what we're going to do. We're going to bring on Nifty." So, that was right then. That was the decision to bring on Nifty in the summer to...
Michael: Because before that, you didn't even have Nifty's support. Just you and your associate are handling these operations tasks.
Eric: Yes, plus Kali as well.
Michael: Okay. So, take me for a moment into your head though, so just to be clear, revenue is down 100 grand, which just basically means profits are down 100 grand, "So, let's hire someone and spend more money."
Eric: Yes, that was scary, but...and this is something that I've always done is keep a really healthy buffer room between me and running out of money. My personal and business spending has always been well off the topline. And we've saved a ton personally. So, if we ever needed to increase the expenses on the personal side, we can do so because we would just save less. On the business side, similarly, I was focusing on making sure that my distributions were there. And so, we would just push down the distributions a bit to increase the expenses to make sure that everything stayed where it needs to be.
Michael: So, can you share more just how you do that in practice? How are you deciding? Is there a cash reserve target that you leave in the business? Is there a percentage of revenue or profits you take out of the business, and whatever is left just stays there and builds reserves? How are you literally managing, okay, if the business generated X dollars of profits, what stays in, what comes out, what comes out but goes to savings on the personal end, and we save in this bucket versus that bucket, versus what rolls down the line to get spent?
Eric: Well, as a small business, you're initially wanting to make sure that your family is supported. So, Kali and I have our personal budget very clearly outlined, and we know what we actually need to survive, and we also know what we want to save every year. And so, on a quarterly basis, we are looking at what's available in the business from a distribution perspective by me focusing on the next quarter of business expenses and keeping those in the business. And then looking at our personal life and saying, "Well, what do we need to allow the business to satisfy our general expenses?" And then, "Is there anything left for things that we might want to do?" Like a big house expense, more money to invest in the market, or maybe a little bit extra to keep in the business because we see that the second quarter coming down the pike, there's something extra that we just want to prepare for now. So, it's just a constant projection quarter to quarter to make sure that everything is where it needs to be. And again, if we have a buffer room in the business, we can shrink things down from a revenue perspective and still, although scary, be okay.
Why Eric Chose To Reinvest In His Firm To Get Back On Track [29:18]
Michael: Okay. And so, this became one of those moments as you're staring down, okay, profits are going to be off here from where they were and where we were running at the beginning of the year, but we still feel good about bringing on Nifty because we've got to fix this capacity, work-life balance problem.
Eric: Yes, yeah. And it was a situation where I said, "We need to reinvest in the business significantly here." So, not only was Nifty happening, going back to that initial, what else was I thinking? We hired a web designer to rebrand the entire website, along with the logo for our business, because we really wanted to make sure our messaging was clear so that we can reduce any friction that was existing online where we do most of our marketing. And so, that was something we were going to do.
Michael: Were you feeling like messaging wasn't clear? Were you seeing slower growth or other signals that it was not working as well and needed a change, or you just wanted to fire up more action because we're trying to grow to recover a pullback?
Eric: I think it was a little bit of several of those things. Initially, 2022, we brought on 3 clients. We lost 10. First negative year of clients ever, but again, I'm not surprised because capacity, both mentally and physically, was thin to nonexistent.
Michael: Well, I guess the irony is if you had brought on enough clients to offset the ones that you were losing and had to onboard and do first-year planning for 7 more clients, it just would have been more awful.
Eric: Correct. Yeah, it wasn't...I was upset, but I wasn't beating myself up too much because it just adjusted to what naturally needed to happen.
Eric: And so, that combined with...I'm almost 10 years into the business now. So, if I started my business when I was 33 and my clients were in their 20s and 30s, there's a certain brand type there, the colors, the conversations, things like that, and we never really upgraded that too much until this past year when we realized that we had to because the clients that we're bringing on are now they're in their 30s and their 40s. They're at a much higher level of income, $500,000 or more household income is typically where we're working now, and we wanted to be speaking to them. And to speak to them online, which is where most of them are, we had to look legitimate. We had to look trustworthy and substantial, in a way, to have them reach out to us to have a conversation. So, although we were writing content that was starting to speak to them, the branding wasn't necessarily there yet.
Michael: Okay. And who did you hire or work with to do that?
Eric: A company called Tiny Frog.
Michael: Okay, which is this website design.
Eric: Web design, yep, and web maintenance, and they've worked with several advisors that we know. So, we kind of got to see their work before we hired them, and that was helpful to know what they might bring to the table.
Michael: And so, what's the cost or what do you budget for doing an entire website overhaul these days?
Eric: Well, that was much bigger than I've ever spent on a website in the past, because I was looking around, and I was getting everything from 10 grand to 15 grand to 150 grand for your website. How could this possibly be that much of a range here?
Michael: I understand complexity. I really don't feel like my business is that complex.
Eric: Right. And so, after several conversations with various web designing companies, everybody from individuals to big companies, we settled on Tiny Frog. I think we paid about 27,500 for the website in the end.
Michael: So, that's a big investment. It can be very good investment for bringing growth. That's not $250 a month to a basic website template system. That's a big number.
Eric: Yeah, we didn't want to template as much as maybe we could have gotten by with one. We wanted everything from scratch. And they broke it up. We had the strategy segment, and then we had the design segment, and then we had the build segment. So, it stretched over 8 months, 8 painful months, a lot of brain space taken up by that kind of thing, and especially when you're doing your own content. We did our own content, for the most part. They helped us with headlines, but Kali was driving the content creation there.
Michael: Well, that is her marketing background, right? So, that's her natural space, with the caveat that it still takes a lot of time and effort when you remake your own darn website from scratch.
Michael: Okay. So, you've got the Nifty hire. You've got the Tiny Frog buy for redesigning the website to try to get growth going again and connect more with the audience you're trying to reach. You've gotten older in the business, gotten older, and they've gotten older, so you wanted to show up differently. So, were there other things that you were changing and putting through as you're coming up on 10-year anniversary and the squeeze transition that you were in?
Eric: Yes. As you can tell, I'm an aggressive person by nature. Maybe you can't tell that on this podcast, but I'm an aggressive person by nature in that I do want to take control of the situation and not leave things to chance.
Eric: So, I was putting a lot of effort, both time, money, and mental space, behind this stuff. So, I also wanted to hire a lead advisor, which ultimately didn't happen, but we put out a lead advisor job role and had interviews with various people. We were going to be very specific for that person, and it just didn't turn out that we found someone to fit that role. And then we squashed it and moved on as well.
How Eric Fixed Capacity Issues By Redesigning Processes And Meeting Cadences [35:48]
Michael: So, help me understand more. You had an associate advisor at this point, right? So, it's you and an associate. So, I guess just take us through the thought process of you can hire a lead advisor. You can try to move your associate up and hire an associate behind them. You can just sort of try to hire a second associate advisor and just have more people supporting you to delegate or free up time. So, I'm just curious, well, both, what led in the direction of lead advisor and then what led to not lead advisor, undoing that after going out and looking for it.
Eric: The initial thought was I need to expand capacity, and very specifically, that capacity meant meetings for clients, available time to meet with clients. And if I wasn't available to do that, for various reasons, I just didn't have the time to do so when I wanted to expand, I needed somebody else to step up and be a lead role with a client. My associate was not ready for that because she was brand new to the industry when we hired her in 2021. So, she was not ready for that, and therefore, a lead advisor needed to be that person. So, if I had hired somebody several years into the business and they were an associate role and, within a year, year and a half, could have been a lead advisor, that would have been one option. But we weren't there, so we had to fill that gap somehow.
Michael: Okay, okay. So, that's what was leading for a lead advisor. So, how did you go about trying to find the person or the role?
Eric: Well, we used LinkedIn, Indeed, maybe a few other places to try to put the word out there, my natural network as well. And we didn't find a ton of people that we wanted to talk to. And of those people that we did talk to, maybe of 4 of them, one of them was someone we've really wanted to work with, and he ended up saying no, for various things, in his own life.
Michael: That's got to hurt or be frustrating, going all the way through the process and getting to the end. We found a person, and now they don't want to job with us.
Eric: Yeah. No, we were both ready to go. And then I was like, "Just so you know, here is a situation. There's going to be some risk on both of our parts here." And I think when I raised that topic of risk, he kind of went back and had some conversations with his family, and it just wasn't the right time for him to take on the risk.
Michael: So, what was the risk for him and, I guess, the role or how it was being structured?
Eric: He was taking a pay cut initially, with the option on the bonus side to make more than he was making. And the bonus was going to be directly related to company revenue growth, topline company revenue growth. So, if we could pull that off and grow revenue to, I forget exactly how much we need to grow revenue, a reasonable amount to get him to a place where he'd be making more, that would be fine. But it would require him to generate some business as well, and that's where the risk came in.
Michael: Because he wasn't necessarily inclined or confident that he could do the business development it would take to actually make the numbers add up.
Eric: At the time, yes. I think, from a skillset and commitment standpoint, I think he could have done that. It was just kind of like I was talking about before, there were certain things going on in life that just was taking his attention away from that, and he just didn't trust that he'd be able to be fully committed, which I really appreciate. He was very honest with me, and he was saying this. And as much as it stung, I think it was the best decision for everybody.
Michael: So, can I ask just some further detail of just how were you going to structure the comp? It sounds like it's a salary base plus bonus. Where were you going to set these levels? How was it going to work? So, I think we all struggle with what is the right comp level to hire an advisor in to take on these types of roles.
Eric: Well, looking at the landscape, trying to understand what it would cost to hire a lead advisor, the range, because there is always a range, was 120 grand to 170 grand for this role. And we weren't going to pay out 120 grand and certainly not 170 grand based on where we were in the business, because that's just flat expense where the business needed to grow to be able to afford that flat expense. And so, we had to pull back a little bit and say, "All right, we're willing to pay you just over $100,000 in base salary," and then that's where we just said, "All right, and your bonus money is going to be paid out on annual basis,"first-year bonus tied directly to topline revenue.” So, if the firm grows by 5%, you receive 5% of your salary back. If the firm grows by 50%, you'll receive 50%.
Michael: Oh, okay. So, it's not literally a percentage of the firm. It's not a percentage of the new revenue the firm generated per se. It's just literally whatever the growth rate of the firm is, that is the bonus paid on your salary. So, if we grow 20%, you get a 20% kick to your salary. So, you go from 100 to 120.
Eric: Correct. And that's where I thought, "Okay, this is where...I think this is a good blend of us taking a risk and you taking a risk, because you could blow it out of the water. If we really kill it this year and you're part of that, you're going to get paid a lot. If we don't, you're not going to get paid as much as you're making now."
Michael: And recognizing like, "Hey, I'm a little capacity constrained, so you really have to come in and help drive growth. We can achieve 20% growth, but this isn't going to happen automatically. Everybody will have to be in, helping to support growth to make this happen."
Eric: Correct. We certainly have always had prospects reaching out to us through our website and various other things we can get into if you want to. And so, there was a stream of prospective clients, it's just that I wasn't going to be speaking with them. It was the lead advisor was going to step in, have that sales conversation, walk in the client, and then take on those clients.
Michael: So, the candidate doesn't take the offer, and you decided not to go back out to the market again.
Michael: So, what changed between the first time you went to hire this and the second time that you decided you didn't want to hire this anymore?
Eric: We just got confident in the fact that we could take this on, and we just had to improve our efficiency and our processes. So, this is where...
Michael: So, you went from, "Wait, maybe we don't need more people to solve this. We just need to refine our systems and processes to solve this.
Michael: Did something happen in the window that made you realize, "Oh, it's that maybe we don't need to hire," or was this more of, "I'm not feeling it on hiring again. We got to figure out something else. Let's look at our systems and processes?"
Eric: I think the process of just talking to people and dealing with that situation had us pull back on the risk ourselves and say, "You know what, we don't have to risk everything here to pay someone more than we really want to pay somebody right now to grow the revenue. Let's ride this out a little bit. Let's let the market come back a little bit, which would increase our revenue because part of our revenue is from AUM. And let's see what the website is going to do for us going forward." And at the same time, we were managing our tasks differently too because we brought on Hubly as an overlay to our CRM, which is Wealthbox, to better manage our workflows. And so, we had a better eye on what those workflows were. There was more automation involved. And we could be more efficient and have our arms around the business in a much better way by using that system and Nifty combined.
Michael: And did Hubly work well for doing that? Have you been able to layer on more workflows?
Eric: Yeah. I mean, Hubly has been great for us, because now we're not much more from a capacity perspective or I should say a people perspective. We're in a very similar place as we were last year in June. We have the associate advisor. We have me, Kali, Mario, and an intern right now, and then we have Nifty. And so, we feel like things have drastically changed harshly because of something we haven't talked about yet. In 2022 and previous to that, when I started my business, I was meeting with people, clients, 4 times a year. Then I went to 3 times a year. And then, in the fall of 2022, out of just necessity and efficiency's sake, we said, "2023 is going to be the year we transition to more of a surge-like structure and have 2 meetings a year for existing clients. And so, we did that for 2023. So, now we took our meetings from over 200, with the 80 clients or 85-ish clients that we had, to now having 90 clients and having 168 ongoing meetings. So, that hugely increased our capacity.
Michael: I think there's a powerful consideration there to reflect that for so many firms that I see, the process is always, you know, we do all these things for clients, but we're having capacity issues. And so, the solutions are either "Okay, how do we do all the things we do more efficiently," so systems, process, workflow, technology, automation, or these require too much individual client work and personal touch, we have to hire people for these. And so, we hire advisors or other staff, and sort of as the saying goes, you throw bodies at the problem. You just hire people to have enough time and capacity to stamp out the problem. And rarely do I find does anybody take a step back and just say, "Maybe we just have more meetings than we need to have." And if we just don't have that many meetings, then there's literally not as many meetings in work, and pretty much all the other capacity problems start going away if you just do less or do less and recognize that maybe your clients really will be totally fine if you do less and that you're actually just giving them more meetings and service than they literally needed or even wanted.
So, what happened when you told clients, "We're going from 3 meetings a year back to 2 meetings a year?" Because I can easily tell the disaster stories and our heads of the clients are like, "How dare you do this? You committed this to me. You can't dial back services," and the indignant outrage that comes. But what actually happened when you said, "We're going from 3 meetings a year to two meetings a year?"
Eric: You are correct. I was scared to death to voice this to any of my clients. And so, we put out a message via our newsletter on August of 2022 that this was going to happen for the spring of 2023. One client left, and the rest of them were...I shared that with them in the meetings for the fall as well just to make sure everybody was clear, "Did you see it? Did you understand it? Do you have any questions about it?" And part of it was, listen, we are not taking down the value here. We feel, now we've been in the business for 9 years, we feel the way that we add value best is to certainly have the proactive meetings, right? So, we're still going to be scheduling the next meeting in the meeting we're currently in, we're just going to have them in the spring in the fall, but we're always going to be here for you on-demand.
As we talked about at the beginning of this conversation, people in their 30s and 40s have crazy lives, right? When jobs change and they have a new benefits package or a negotiation to jump into when they have a baby, when they have to sell their house and buy a new one to expand, or any number of things, that's a big deal. And so, we feel that our on-demand access is hugely valuable to our clients, and people use us for those things. So, it's not like, "Oh, we have no meeting in the summer. Now, we can't take to Beyond Your Hammock until the fall. And if we have something to deal with, we're just going to have to suck it up." That's not the case. It's, "You have access to us when you need us most." So, this is not a reduction in value. It's more of a restructuring so that the value shows up even stronger.
Michael: And so, as you framed it, the fact that we're going to have fewer committed meetings just gives us more flexibility to meet with you when you want to talk. When you got something going on, this gives us more capacity to be there exactly when you need us to be there.
Eric: Correct. And a lot of our clients, because, again, their complexity is increasing, and they have equity compensation or other tax factors, we're involved especially when they use our designated CPA, people that we refer them to, we're involved heavily in that process too. So, not only are we having a meeting in the early part of the spring, but we're probably communicating around tax time. They're sending us their tax return. We're using Holistiplan to kind of double-check things on our end. So, there's things that we continue to add from a value perspective, outside of what they even realize we're doing. And we just have to make sure we share what we're doing and where things have been. It's easily forgotten where we were 5 years ago to where we are now. So, they have to know that to make sure that they can see the substance behind what we're saying.
Michael: So, one client left.
Michael: So, how did that feel just when you got through and looked back? For what I know, it was all the fear in going through that and building up to it.
Eric: It feels incredible now. This has been the year of me talking straight when I don't really feel comfortable talking straight to people, in general, and that was one of those times. Because on the other end of it, it's like, "Wow, why am I not doing this to everybody that I feel like I need to say something to that I'm afraid to say something to?" And the impact was we had two and a half months without client meetings in 2022. In 2023, we have about five months without client meetings. So, we've doubled our, I wouldn't say months off, because we're certainly not off. But no client meetings means more flexibility, some time off, some time to work on the business rather than in the business, and it just feels so much better.
Michael: So, it's quite a list of stuff that you went through. So, I'm just thinking about, "So, we hired Nifty for ops admin support," so as I was thinking, it's like, "so I never have to call Schwab and Trade again." Because they call and figure that paperwork you stuff out did a rebrand of the website, picked up Hubly to build out more workflows on top of Wealthbox, and then cut the meeting cadence from 3 times a year to 2 times a year.
Eric: And there's more.
Michael: And there's more. It's quite a revamp-y year already. All right. What else happened?
Why Eric Decided To Have His Firm Formally Valued [51:33]
Eric: Well, in order of things, the next thing that we did was we hired FP Transitions. And for people who know FP Transitions, that might sound strange after what we've talked about as far as my business is 10 years old, I am certainly not retiring anytime soon, I'm not selling the business, why get involved with them? They have this program called EMS Grow, and it's basically a subscription program. I think I pay $250 a month, so 3 grand a year. And it gives me access to a full valuation of the business, a benchmarking comparison of my business to similar businesses that have the same revenues, and also those who have twice as much in revenue to see where we're different and where we're the same. And also, I can use them as a stopgap for a contingency plan until or unless I get something more significant in place.
Michael: What does that mean? Stop-gap contingency plan for what?
Eric: Well, the business, right? So, if something happens to me right now, because I don't have anybody internal that's going to take over the business, I don't have any handshake deal with another advisor who would take over the business, my family is out of luck, right? My clients are out of luck. And so, by tapping into FP Transitions' network, I'm able to sign an agreement with them that can be squashed at any time. But signed an agreement with them where they basically will, if something happens, get the word out to advisors who are looking to purchase said business. And from what they say, the valuation doesn't really drop a ton as it would in a fire sale or you're just trying to get things done. So, that's why it's like a stopgap because, right now, I have nothing. So, this is better than nothing, and it's actually a pretty good deal.
Michael: Because they broker all these transactions just already from what FP Transitions does. They've got a long list of people who are interested in buying firms that would do it on relatively short notice. So, the commitment is, essentially, just they'll put out the word to their network if something happens to you and we need to activate an emergency sale because you're hit by the proverbial or literal bus. And because they've already done the valuation, have the details, they can arrange the sale quickly, which means it can, in theory, happen fast enough that there's not much loss in value in that transition scenario.
Michael: Okay. And so, what is it like in a business in your context going through and getting a valuation when, as you said, you're not necessarily looking to sell anytime soon? You still got a long time horizon on the business, but as we were sort of talking about the very, very beginning, it is just a different angle when you see how an external party values your business, and in particular, what an external party cares about and focuses on. Which levers actually impact the value of the business from an external buyer's perspective?
Eric: I agree. It was an interesting process to go through. And part of the reason I was doing this was just to try to figure out, continue to figure out, what to do next in the business. Because we talked about I was trying to hire, and I then tried to change the processes, outsourcing things. I was just trying to figure out, if I want to grow this business, what am I supposed to do? So, I had talked to coaches, I had talked to mentors of mine, and I just wasn't getting the answer that I needed to take the next step. So, that was just another thing to try there. And when they shed light on this, I realized, for one, which was very helpful, my business is worth more than I thought it was, not necessarily because I was doing the math before and it was just better math. It was just that, "Yeah, is my business really a business? Is it really valuable? I don't know. Should I treat it as an asset? Should I not treat it as an asset?" That's kind of the conversation I was having with myself previous to this.
Michael: So, how did the valuation come back? How did they look at the business?
Eric: Essentially, they were saying it was about 3 times revenue, and the reason it was 3 times the revenue is because all my revenue now is recurring revenue.
Eric: So, the recurring revenue in the annual growth rate, which this was a surprise for me, they said anything under $2 million in revenue, any business, any advisory business under $2 million in revenue, the things that move the needle are recurring revenue and annual growth rate, not the SEO, not the processes, not the systems, the tech, the people, none of that. It was just those 2 things.
Michael: Because in practice, you're probably getting bought by a larger advisory firm who, at the end of the day, is more likely to put it onto their systems and their process and their website and the rest. So, they're not necessarily going to buy that stuff from you. They like strong recurring revenue and a growth rate on top of it.
Eric: Exactly. Exactly, which makes sense. It's just that I was like, "With all the things we've done here though, it just means nothing." But in actuality, if you do those things, you have the SEO, you have the processes and the systems and the tech, that actually should, hopefully, if you know what you're doing, increase your recurring revenue and also your growth rate. So, it kind of all works out that way, but it's just very specifically not those things.
Michael: Interesting. So, any other revelations from just going through this valuation process?
Eric: Yes. One of the things that was great to see was that, in my peer group, so again these are the companies that have a similar revenue to mine, 70% of their clients are over the age of 50. If you look at my client list, 94% of my clients are under the age of 50.
Michael: Because you had this focus from the start on working with younger, upwardly mobile professionals.
Eric: Correct. And so, that gave me a lot of confidence in the future because if I'm doing good service for these clients, they're not, hopefully, dying anytime soon. They're continuing to save and expand so everybody wins in that manner. Another thing that came about was they compared me... So, my peer average growth rate was 7%. Over the last 8 years, my compound growth rate is 44%. My households, at 90 households, was much less than the peer group, which was 146. I think the last thing that was a big deal, for me, anyway, was my average fee per client was over $7,000 versus my peers at under $4,000.
Michael: So, you have, overall, say, a faster growing, younger, more focused clientele of people who are paying higher fees. And so, all of that, I guess, is part of what comes together to say, "This business gets valued at almost 3 times revenue."
Michael: So, some of these guys, how do you think about it when someone comes back and says, "Yeah, your business is worth $1.8 million, give or take a little," I think you said earlier. Your run rate revenue was 600, dipped down, has been recovering back again, so give or take a little. But how do you think about that when you're drawing whatever income you're drawing out the practice, but then someone's like, "Yeah, I think you might get a $1.8 million check for this thing?"
Eric: It was an interesting feeling that I had. Our projected 12-month rolling revenue is now 637. So, it's definitely back up and beyond where it was. So, it's probably even higher than they said for a dollar amount. And just to understand, again, I've been trying to mentally shift from advisor to business owner over the past several years and see my business as its own entity. And part of the website, I am no longer on the front page, which I started to really despise having my face on the front page of my website, and now I am just in the background. Because this business is not me, and I'm not the business anymore. It's its own thing. So, this just further established the separation between the two. And now I can see that there is a true value here, and it's not just me pretending that I know how to value my business. It's FP Transitions who has done over 17,000 valuations telling me this.
So, now I'm saying, "All right, I have this business value." I actually understand what is going to move the needle from a growth perspective and increase the value. I have, what, 20 years to go now, so I'm doing this at a much earlier stage than most advisors who start to do this when they're transitioning into retirement. And so, I just feel like I have a big advantage just like any client that starts to save at a young age for the compound nature of this whole thing.
Michael: So, what was driving this shift? You said, "I've been trying to go from advisor to business owner, make it an entity, I don't want myself on the homepage anymore." What's driving that shift for you?
Eric: That's a good question. Part of it is I know that for me to actually have true vacation time and time away from the business, I need this business running without me being here 24 hours a day. And so, that means more people should be involved. I also realized that I don't want to spend all of my time in the business every single year working directly with clients, because I love the business strategy part of business and just the competitive nature of growing a business and the ability to see something grow that I've put so much effort into. And I need to be outside and work on the business to be able to do some of those things. So, I would much rather be working with a few clients and staying in tune with my advisory skills that way. But being more the business owner and growing through hiring, and who knows, maybe even acquisition someday, but just making this more of an established business and then seeing where we can go with it.
How Eric Revamped His Marketing And Prospecting Processes [1:02:04]
Michael: So, as you've gone on this journey, you were highlighting that the business sort of has shifted or the website had to be redesigned and rebuilt because just the clientele and the way you showed up 5 to 10 years ago when you were getting started is a little bit different than today. Some of that is just you've grown into a more established advisor, but some of that is your clientele have kind of shifted, I guess, more affluent have moved upmarket a little, which tends to happen to almost all of us as the businesses grow and we get more established. So, I'm curious, just as you're staring down, 10-year anniversary, and had been doing these refinements, what else is changing from the way you did it, the way you got to serve clients 5 years ago from what you're doing and executing on today?
Eric: And there are a few more things in that realm. Just doing the marketing itself, I think, has...at least we're starting to think about different ways to do the marketing. In the past, we've relied solely on content, right? We've been doing content since day one. I was initially doing it, and then Kali took it over. And that's really helped. We have a lot of web traffic. I think we're up to over 7,000 views a month on our website, 7,500 maybe in 2023. And that SEO is driving a lot of our prospects. So, we don't spend a lot of time on going out and doing on-the-ground networking and calling people and doing that kind of thing. People are coming to us. There's a lot of inbound marketing happening already. But in order to get to another level, we've continued to do our podcast. It's taken a hiatus for a couple of months for various reasons, but we continue to do our podcast now, which gets out to another level of people who aren't reading their content. They're listening to it. And now I've heard I guess you'd call them a podcast PR firm to get me on other people's podcasts. So, I'm expected to be on 24 podcasts over, I don't know, it doesn't really have a time on it, but let's say a year, so 2 to 3 a month, to see what kind of expansion we can do that way.
Michael: Interesting. So, they go find podcasts for which you might be a good fit and then pitch you as a guest to get on to those podcasts.
Eric: Correct. Yeah, they take in a bunch of information in what you are looking for, who you're looking to get in front of, and then they are pitching you, and then they connect you with the hosts, and they schedule a time to record the podcast.
Michael: Very cool. So, who did you hire to do that?
Eric: Interview Connections is the name of the company.
Michael: Interview Connections, okay.
Eric: And I met Jessica, she's one of the owners of the company, back at FinCon, I think 3, 4, or maybe even 5 years ago at this point, and we've just stayed in touch because it wasn't our time, and we weren't ready for that yet. But we just pulled the trigger this year.
Michael: And can I ask, what does it cost to have someone try to go get you 24 podcast bookings?
Eric: I think we caught a deal at the end of the year, and we paid it all upfront, which is even additional reduction. So, I think we paid 12 grand. So, it came out to $500 a podcast to see what happens here.
Michael: Okay. So, 12k to try to get on to 24 podcasts. Is there a plan of how you're doing to try to convert podcast guest appearances into business? I'm just trying, because I know some people are like, "I just go and show my expertise because I've got a pretty clear niche. So, anybody who resonates with it just tends to show up." Others are like, "I made an eBook that I'm going to offer to all the listeners. And then they go to this landing page, and then we put them in our marketing funnel," and they have a big whole process to it. So, I guess I'm just wondering, how are you thinking about trying to actually turn podcast appearances into prospects and clients?
Eric: Well, 2 things, and part of the reason we hung on and didn't pull the trigger was until we got our website revamped, right? So, we do want to drive traffic back to our website. We want to create backlinks, more backlinks for our website, and we also want to get more podcast listeners as well. So, if those 3 things happen, I think it just increases the web, being the spider web of things, and we have more people in the ecosystem, which means more potential for great clients to come on board.
Michael: Okay. So, you're not necessarily coming to this with "I need to see five clients directly attributable to these 24 podcasts to stamp this a win." You're not necessarily putting that level of expectation onus on it. This is a build our backlinks, build our traffic, build our own podcast listeners, and just see if we can expand the ecosystem we're in.
Eric: Yeah. I know that if I bring on 2 clients, I'm basically covering my costs right over time. So, I'm not too worried about covering the cost part. I also would want to expand my exposure to be the rainmaker for the business. So, if I could then take the podcast that I'm on and leverage that to get on other podcasts, then great, because then it just further expands where I am speaking, and I feel like I have a lot of good things to share when we talk about topics that we're focused on for our clients. So, that is exciting to me as well. It kind of goes back to the CEO part of my role where I really enjoy working on the business and speaking about the business.
Michael: Okay. So, Interview Connections and a podcast push is one end of things you're doing differently to show up differently. You are sort of raising this context of marketing. Are there other marketing changes that you're looking at or working on here?
Eric: I don't necessarily think there's other marketing changes per se. I think it may be the prospect process is something that we have revamped, which is obviously connected to marketing. We've always done a 30-minute conversation, sometimes it goes to 45 minutes, with our prospects, and that's really essentially what we do, right? And then we're following up with them via email, and they go back and forth. And they either become a client or they don't become a client.
Michael: So, it's just like a one-meeting close, just, "We're going to understand your situation a little, and we're going to talk about ourselves a little. If this feels like a good fit, we should be off and running. And if it's not, that's okay too."
Eric: Yes. And that worked fine for us. We've measured our close rate over the past, I think, 5 or 6 years, and it's 40%, right? So, we're not worried about the close rate there. However, as we continue to increase our fees, which we have over the entire time we've been in business, not only for inflation purposes but also because we have more value in what we do for clients. We want to make sure that we're helping people understand what they're getting, right? If you raised the fee and you say, "Here's 30 minutes," and that's it, it becomes a little harder to transition them from prospect to client.
And so, this year, and this is outlined on our website, if you click on the Work With Me button in the top right corner, it says where you're going to have an initial conversation. And then at the end of that conversation, if it's going well, we're going to gather some data from you, we're going to build a one-page financial plan outline, and then we're going to go back on the phone. In this case, actually, phone is first, and then Zoom would be second, Zoom video. And we're going to share this one-page outline, which helps you focus on the areas that you need to take on next and some of the things that we think would be great for you to do, regardless of whether you work with us or not. So, that second meeting, you're going to get this one-page outline, regardless, and it does give us another chance to further show our value by doing specific things and directing them to what we'd actually do for them and not just talking in generalities. And we made that fix in January. And we had 8 people go through it, and we had 8 new clients because of it. So, we have a 100% close rate on that new process. Coincident or not, it's just been amazing so far.
Michael: So, help me understand this a little bit more of the structure in what you're doing. So, first, it's just initial phone call. I think you said 30 to 45 minutes. So, what exactly happens in that call now? What do you cover? What's the agenda in that?
Eric: My main goal is to get grounded in why this prospect reached out to us and what they're looking for, current financial situation, the questions they're asking, the goals that they might have, the opportunities or challenges that they're facing. So, I know firstly if I can actually add value here and how, and even more so, are they similar to other clients that we help? Because our whole value system is based on the fact that not only are we now experienced in the business, because I've been in the business 15 years, owned my business for 10, but we also work with a very specific type of clientele, and we do it over and over again.
So, the things that they're dealing with are usually things that we've dealt with through clients 50, 100 different times, like buying houses and having children, so things like that. So, if they are sharing things that fit into what we do for other clients, we know that this is a good fit for us. And also, when we understand what their income level is, because that's a major factor, it's not the asset level, it's the income level that we determine if they're a good fit on the financial side of things. If we can see that in that meeting, then we feel more confident that, yes, we should move on to the second meeting. But if we don't see that, it also gives us an out to say, "All right, great talk, but we don't think we're a fit for you either."
Michael: So, is there anything that they do or have to fill beforehand in coming to this meeting to sort this out? Do you have a data or screening stuff they do in advance, or is the whole idea, "We're going to get that from in the conversation in this meeting?"
Eric: When you sign up for a meeting with us, we use ScheduleOnce, and there's a bit of a question there. We've actually shrunk it down recently, but it basically says name, email, address, level of income, total assets, and do you want an advisor to manage your investments or not? Because we want to understand that too. We might work with them even if they don't want us to manage their investments, but we want to understand that because the combination of income level and the answer to that question is going to tell us whether it's an ideal client or not so ideal. We have that information going into that first meeting.
Michael: And so, you come through the first meeting, you got some census to whether they're a fit or not. And I'm presuming, in practice, the first outcome is just literally, "Am I going to even try to schedule a second meeting and continue this conversation, or are we done right here because this just clearly isn't fit?" So, assuming you got through the first one and this is otherwise going well, so what exactly happens next? What do you do and you're creating next?
Eric: Well, at the end of that first call, I'm collecting their financial information. So, how many accounts do you have? How much cash do you have? How many investment accounts? What are the balances in those accounts? What do you have for debt? What are your top 3 goals? And just collecting that data so that, at this point, if I have that information, and I've talked to them for 30 to 45 minutes, I'm pretty good at understanding where we need to go. So, I will take that information and then come back to them with, "This isn't mind-blowing stuff because other people do this." But that one-page financial plan that covers various topic areas.
Here's the topic of savings and cash. What should we be doing over here? Here's the topic of protection planning. Do you have an estate plan? Do you have the insurance that you need? And based on your circumstances, we would suggest X, Y, and Z. "Based on your goals, you should be doing this or that. From a tax perspective, we think that these are things that you probably should look into, whether talking to your CPA or working with an advisor on." And so, it gives them this level of insight that they may not think is something that an advisor might do for them, and/or it differentiates us from the next advisor because we're giving very specific advice. I'm going to give them what I know from what they've given me and not say, "You know what, I'll give you a little bit, but you're going to have to come on board if we're going to give you the rest."
Michael: I was going to say, just how do you think about drawing the line between how much do you give them to show value? And where do you draw the line so that they have to actually hire you to help? And where do you draw the line so that you don't make it so forced to give help that it's awkward because you don't actually tell them anything because it's all too nonspecific? Just how do you think about trying to find that balance of the right amount to give them that's not too much nor too little?
Eric: I don't necessarily think about it too much. No, I think I'm just looking at one right now. And just some basic stuff from a cash and cash flow perspective, calculating your emergency reserve target, and understanding how much you need in cash for short-term spending, bigger payments, cars, or down payments, or whatever, outside of that to figure out if you have enough or too little cash or too much cash in the bank and what to do with that. And if I've already asked them about their saving today, "Where are you putting money now?" So, if they come back and say, "Oh, we're saving money into our 401(k) and maybe a little bit of money into taxable investments," and I know their level of income, I can say, "All right, well, you're saving 10% of your gross income, and your gross income is $500,000. That, to me, is really low. So, you should probably think about bumping that up to 20%, 25% of your gross income." So, that's a very actionable item for them.
And then a default one is always reviewing your investment strategy to understand, do you have proper diversification aligned with your goals, things like that. "Are you taking advantage of your ESPP plan at work? Because I know you said you had one of those. What's your strategy for ISOs, RSUs? And here are some things to think about with those." I can't tell them what to do because I don't have all the information, but I can give them some direction. So, they're looking for an advisor, right? It's not like they're not going to use a nobody. They're either going to use me or use another person. And I say, "This can help you with the other person as well." So, it just gives them that first leg up on their planning.
Michael: And so, if they decide to become a client, where does the financial plan go from here? Have you kind of done what you're going to do and now we just get a little more into implementation, or is there still, "Well, now that you're a client, let me crack out the full financial planning software, and we're going to do a full one of these now?"
Eric: A little bit of both. I did find that doing this first allows us to jump off quicker in the financial planning process on meeting one. My meeting one is usually clarifying goals, making sure that everybody's on the same page, because sometimes I'm talking to both spouses, sometimes I'm not, most people are married, and then looking at their established balance sheet and cash flow through the information I'm collecting so that we can at least have a point A, their financial foundation, where things are today, and also a point B, the goals that they have talked about for tomorrow. And if we have time, we're going to run an initial projection in eMoney to show a long-term projection and a short-term five-year cash flow to see if there's any bottlenecks or things that are really big red flags. That's going to happen, regardless. And so, I haven't done that yet. I'm going to do that in meeting one.
And then in meeting two, we're going to talk about investment strategy to make sure that, "Oh, my clients are making a lot of money, and they're supposed to be saving a lot of money." So, we really need to make sure that their asset allocation is appropriate and they're using the right accounts, because that can build up very quickly. And if they're out of balance, that can be a disaster too. So, that's meeting two.
And meeting 3 and 4, we go into the protection planning, like life insurance, disability insurance, health insurance, estate planning. And along the way, things are happening that are very specific to them. And so, we're taking time to get into the details, whether it is buying a new house and talking about affordability of housing or not or changing jobs. That all kind of fills in the blanks. And then we move forward from there, fully supportive of them, because we now know what their situation is, we've learned more about them, and I think we can help a lot better in years 2+.
Michael: So, you end out with a two-meeting sales process, initials or screening, get to know you, create this one-page outline of initial action items, deliver it in the second meeting to see if they want to become a client based on the value you're demonstrating from the one-page outline. If they say yes, then you get into, essentially, a 4-meeting structure, present a plan, get into investment strategy, then dig into protection planning, estate planning, and client-specific issues. And then they're into the ongoing client phase at that point.
Eric: Yeah, they get jumped into the surge process.
Why Eric Implements A Fee Calculator To Give Clients Fee Transparency [1:20:06]
Michael: So, out of curiosity, you had said earlier, your business model has a big AUM component. So, you got hit when markets were down in 2022. But you had also said, in the screening context, you're often looking more heavily at client income than you are at client assets. So, can you help us understand just what the business model is at this point and who the target clientele actually is?
Eric: Sure. If I'm going to be very specific, it's the 40-year-old client couple. They're both working, they have one or two children, and they make $500,000 household income, up to 750 in some cases. And they are really looking to take advantage of that cash flow by growing their wealth, because they're not typically coming from wealth. They're kind of self-made in that sense. But they also know that they want to enjoy themselves today. So, there's a very delicate balance between living it up now and being able to pay for college and retirement down the road while also having flexibility to maybe do something different than they're currently doing in their job when they're 50 years old.
And those clients, regardless of whether they have investments or want to use us for investment management, are in need of services. And so, again, on my website, if you go to the Work With Us button, there's actually a calculator on there that kind of shows the breakdown of our services in dollar form, which is super transparent. I'm a little bit afraid of it, but we've put it out there in January to see where it goes. But we start everybody off at a $5,000 a year paid monthly service level, and if they change to use us for AUM, which is all built into the contract, initially, there's no extra things to sign, they say, "We're signing up. We're going to pay $5,000 if we have 0 assets up to $200,000 of assets with Beyond Your Hammock." And then, once they get over that $200,000 marker, we start to reduce the financial planning fee, and we add on a percentage for assets under management. So, over time, it gradually increases, and we feel like it's a good reflection of our value as people get bigger.
Michael: So, you end out with a blended fee model? It's not just once you get to $200,000 in assets or once you get to $500,000 in assets, 1% of AUM covers your whole thing, so your planning base fee goes away. You keep a planning fee and an AUM fee throughout. Just the planning fee scales back as the AUM gets going.
Eric: Correct. And we've always had that blended fee. It's just been altered over time.
Michael: So, can you give us just some more sense of just how does that offset work? Is it dollar for dollar, or is it some other tweak? Just how quickly does the planning fee step down as the AUM fee steps up, or how far do they have to go before the planning fee goes away and it's just AUM only?
Eric: Well, I don't think it really ever does unless they have...circumstantial when they have millions of dollars, and we don't have a ton of money or a bunch of money with us. Say, our top end is probably 3 million in assets. So, we're not talking about 5 million, 10 million in assets right now. And so, like I said, if they have 0 to 200,000, it's just a $5,000 flat fee, no AUM charges. If they $201,000, their annual fee goes to 3,000, so 5 to 3, and then they get charged 1%. So, it's essentially the same exact fee, just switched to be paid differently. But then, as their assets grow, we do get paid a little bit more. So, if they get up to the $500,000 mark, now they're paying 2,750 in financial planning, and they're paying 4,750 in AUM. And so, the total price is 7,500, which I think is still very reasonable for that type of clientele.
Michael: Okay. All right, interesting. Interesting. And so, as their assets grow higher, you slightly bump the base planning fee down, but you never eliminate it. You just ratchet it down a bit.
Michael: How low does it go? How far down does it come as their assets grow? Is it formula-based that you just got tiers that you made?
Eric: Why did I just picture limbo when you said that? How low can you go?
Michael: How low can you go?
Eric: The $2,000 is the low right now. So, if you have $2 million with us, you're paying 2 grand in planning, and you're paying 16 grand in portfolio management, so 18 grand.
Michael: Okay. Because your fee schedule is 0.8% by the time you get to 2 million.
Eric: Correct. Which, again, I think some people are charging 1% on that. So, I think we're undercharging. I've done a lot of thinking and work with it, so I just feel very confident in it right now, which is why I put the calculator online.
Michael: Yeah. I guess just help us understand a little bit more why the calculator online. It's one thing to say, "I'm going to put the fee schedule online, and they can do their math." It's another to say, "No, no, we literally built a calculator. It will math it for you." So, I guess I'm wondering, why the fee calculator? What took you there?
Eric: I have a chart that is on my PDF that I send prospects after the first meeting, and it outlines based on level of assets, what your planning fee is, and what the percentage of AUM charge is. But when I'm talking about it on a call, it's very hard for them to not understand, to grasp it if they don't have it in front of them. So, I wanted to just make sure that everybody knew that I wasn't trying to pull a fast one. It's very clear exactly what your price is going to be. And I just wanted to go over the top with transparency so that there were no questions about it. Nobody could say, "You didn't tell me something."
The Surprises And Low Points Eric Encountered On His Journey [1:26:05]
Michael: So, what surprised you the most in just this journey of continuing to build the advisory business?
Eric: How volatile it can be. And when I say volatile, revenue, functionality, emotions. It becomes this completely separate, sometimes uncontrollable feeling thing, and there's almost a magnetism to it though, because it's like, I'm not running from it. I'm getting pulled further into it. And it just feels incredible to be around for 10 years and be challenged by the business and know that it's going to be no less challenging the more experience I get, right? So, a lot of times, you could say, all right, more experience, it's easier. This will never get easier. It'll get more and more challenging the more experience I have, which, to me, as a competitive person, it just really is exciting.
Michael: And it's a good framing. This won't get easier even as I get more experienced. I just earn the privilege of tackling more complex problems.
Eric: Yeah, exactly.
Michael: So, what's been the low point overall in just the 10-year journey of building the business?
Eric: A hundred percent the June 2022 situation, clients going out the door, markets falling, Kali on the brink of just depression, and me trying to keep all of the systems going in personal and in family life, personal and business life. It just felt like I was getting ripped into pieces.
Michael: And so, how does this, I was going to say, balance for you? Maybe balance isn't the right word. How do you manage this dynamic when your spouse is also your key team member? Just for better or worse, there is, if I'm a business owner and my team member is not showing up the way that they need to in the business, there are certain conversations I can have as the business owner about how to manage this, how to navigate this. That's a little bit harder when the person is also my spouse, and the challenge has to do with raising our joint child. So, I guess I'm wondering, obviously, there are benefits to having spouse in the business for your opportunity to build something as a couple, and there just tends to be a different level of buy-in relative to employee when the family is part of the business. I guess I'm just really wondering, how do you reflect on the dynamic of what happens when your key team member is your spouse and then business and family life are getting more complex at the same time?
Eric: Well, the first thing I thought was...I don't know the name of the game, but you know the game, there's a pole that is in the ground, and it goes straight up, and there's a ball that is tethered to that pole, and you hit it, and it goes around and comes back to the other side of the pole.
Michael: Yeah, I always knew it literally as tetherball, but I think there's different names depending on what region of the country you're from that used to play that.
Eric: So, that, right? You hit the ball, and you think it's gone. And then you turn around, and you get whacked with it in the forehead. It's kind of like that in that nothing gets released and put out of your sights, right? Because if you say something in the business, if you get in an argument in the business, you're going to sit down with that same person at dinner that night, and you have to have a conversation again.
Michael: And the ball comes swinging back around.
Eric: Right. And vice versa. So, it's a constant that kind of risk, but I think it is very fruitful because it certainly has had us get so much better from a communications perspective because there is no escaping the fact that we're going to be together. So, we work from our house. We work virtually right now. So, we're together a lot, and it's just the communication that has increased and has really benefited our relationship. And I would never trust anybody more than I trust Kali to do what she does, and she is an absolute maniac when it comes to getting s*** done. And it's something that I really felt confident in, and she can do well for the business for years to come because she wants it as much as I do for this thing to work out.
The Advice Eric Would Give His Former Self And Younger, Newer Advisors [1:30:32]
Michael: So, what do you know now you wish you could go back and tell you 10 years ago as you were starting down this path?
Eric: Part of it is to don't look for the destination and not pay attention to the journey along the way. And part of that means the destination being more money, more income. Get me to a place where I'm making no money. Get me to a place where I can at least be satisfied because I did that and I went by that point and didn't necessarily build the structure and the business that I needed to to sustain the growth, which I think is a common story, but if I had known that, I may have paid more attention to the processes and maybe hiring people a little bit earlier than I did so that it wouldn't have been such a big impact, essentially, shooting me back almost get governor on the business when we hit the capacity wall.
Michael: So, I guess, help me understand more of just this "don't just look at the destination, pay attention to the journey along the way." Is that a "be more aware of the capacity and other limitations that are coming as you're chugging along?" Is that kind of the context? Because my interpretation to what you said, it sort of felt like you got blindsided a little or ran too hard too fast into a capacity wall you didn't realize was there until you were already in it, on it, hitting it.
Eric: Essentially. Because, again, my answer was always just work harder. Work more, work harder, do it better. And that only works for so long because you are still only 1 person. And at some point, if you really want to be more efficient and continue to grow and have a life, because a life in the process is such an important piece to this puzzle for me. I had mentioned 5 months off of no client meetings. I want to build that in, and my capacity is based on that, not based on 52 weeks a year of client meetings. And so, it's really important for me to build that in, and I didn't pay attention to that because I just said, "I'm just going to get stuff done." And I wish I hadn't done so much of that because it would have helped me get through some of these more challenging times. Certainly, when we had the baby, we did not do enough planning for the baby coming around.
Michael: So, what do you wish you had done in retrospect in preparing for the baby?
Eric: I think hiring earlier and having someone that was more experienced with the business to help us going through that time frame, landing some sort of childcare to protect Kali from what we now see was a super challenging time for her as well, because we didn't do that well.
Michael: So, any advice you would give younger, newer advisors thinking about coming into the industry and starting their careers today?
Eric: You don't have to know what you want to do, as long as you understand that this business can give you what you want. It's crazy to think, "Well, you know what, I need to have a game plan. I want to have a business plan. And this is how it's going to go," and then think that it's actually going to follow suit. Because there are so many things that shift and turn along the way that you'll never know where you are going to be in 10 years when you haven't even taken a step into the business yet. So, be flexible and be dynamic. Be willing to change and transition. And when you fail, learn from it and discontinue. Because it's a constant. That's never going to change. Like I said, it's never going to get more or less complex. It's just going to get more challenging, and you're going to fail more. But it's those times that you do it right that keep you going. Warren Buffett said in his letter this year or I think it was in a Wall Street Journal article that was talking about the letter, but something like he's made 12 great decisions over his lifetime. Twelve, his entire journey. So, you don't have to get everything right. Just get the most important things right.
What Success Means To Eric [1:34:30]
Michael: I like that framing. Warren Buffett only made 12 great decisions over his lifetime. Get the big ones right. So, as we wrap up, this is a podcast about success, and one of the themes that always comes up is the word success means very different things to different people. And so, you've now built this successful business that, per valuation, you have a multimillion-dollar business of enterprise value. And so, the business has gone and grown very well. How do you define success for yourself at this point?
Eric: Well, I'd be lying if I said I didn't think about this question since I've listened to 100 of these episodes. I think success, for me, is building my business and my life intentionally and being at peace with me so I can be present for my family, friends, and clients and enjoy the journey and the moments that matter most.
Michael: I like that. I like that. I'm struck by just your emphasis on building with intentionality, which means getting clear on what you actually wanted to be so that you can create it intentionally in the first place.
Eric: Yes. And knowing when you can make decisions and be wrong versus when you have to make decisions and be right, because you can test the waters and then adjust in most cases. But sometimes not.
Michael: Well, thank you, Eric, for joining us and sharing more the journey on the "Financial Advisor Success" podcast.
Eric: You're welcome. And I really appreciate you inviting me on. This has been another fantastic conversation.
Michael: Likewise, likewise. I feel like we're now obligated sometime in 2028 to come back together again and do the next 5 years of the journey.
Eric: It's a 5-year bug.
Michael: Absolutely. Thank you.