Adding Deeper Tax Planning Capabilities (And Generating More Google Reviews In The Process) To Grow To $600M Of AUM: #FASuccess Ep 475 With Erik Brenner

Podcast Player:

Resources Featured In This Episode:

• Erik Brenner: Website | LinkedIn
• "Our Clients Personal CFO" presentation – Download (PPT)
• Kitces Report: How Financial Planners Actually Do Financial Planning
• Holistiplan
• The Walters Institute
• Income Lab
• LeadingResponse
• AcquireUp
• Amplify Reviews
• ActiveCampaign
• think2perform (formerly Lennick Aberman Group)
• "Good to Great: A Study of Management Strategies of Companies with Lasting Growth" by Jim Collins

Full Transcript:

Michael: Welcome, Erik Brenner, to the "Financial Advisor Success" Podcast.

Erik: Michael, thanks for having me. I really look forward to sharing the information. It's great to be here.

Michael: I'm really glad you were able to join us today. I'm excited to get to talk a little deeper about this ongoing industry push of getting deeper and deper and helping clients with their taxes. It's a really interesting evolution to me, because for a lot of years, there was this trend of tax firms coming into wealth management, the big CPA firms that have all these existing accounting clients that they can cross sell to wealth management, even smaller CPA firms that could sign on with a temp that specialize in CPAs or one of the broker dealers like HD Vest and 1st Global, which are now all rolled up through Avantax, were reaching out to CPAs and showing them how to expand into the brokerage and wealth management side of the business. The AICPA even has its own version of the CFP financial planning designation they call the PFS.

But I find in the past few years, the pendulum seems to be swinging the other direction now. So, it's not tax firms coming into wealth management, it's wealth management firms going into tax. So, we're going deeper into tax planning with all the new software tools like Holistiplan and FP Alpha. Our Kitces Research Study last year found almost one in six independent firms are now doing tax preparation in-house for at least some of their clients, either building out with staff, or even acquiring a CPA firm to bring it in-house. And I know you have been down a similar path in recent years with your firm as you've gone deeper and deeper into tax offerings with clients as a way to grow the advisory business. The thing is, I'm really excited today to get to nerd it out a little on lessons learned and what it really takes to build a tax practice alongside an advisory firm.

Erik: Yeah. I'm really happy to share our journey and how we've decided to evolve and continue to evolve our tax planning and preparation business.

What Hilltop Wealth & Tax Solutions Looks Like Today [04:55]

Michael: So, I think to kick off, just to help us get oriented, tell us, Erik, about the advisory firm itself as it exists today.

Erik: Yeah, sure. So, we are an independent registered investment advisory firm. We have four main offices: one up in Detroit, Michigan, one in Florida, and two in Indiana. And we currently are north of $600 million in assets under management. On our advisor team, we have six advisors with one of them actually retiring next year. And then we have a team of nine folks in staff, a couple of part-timers on the wealth side. And then on the tax side, we have seven. And I have a partner on the tax side. So, the tax side of the business, we not only do individual returns, estate returns, trusts and, so forth. We also do a fair amount of ongoing bookkeeping for small businesses, payroll processing. We certainly can dig into more as to our thoughts and why we're doing that. So, it's more than just tax preparation.

Michael: Can I ask revenue overall for the firm?

Erik: Yeah. So, on the wealth side, wound up about $5.2 million. And then the tax side, over 12 months, about $825,000.

Michael: Okay. So, about $6 million combined, roughly 85% wealth, 15% tax?

Erik: Correct.

Michael: And how many clients is it?

Erik: So, total clients, we're talking wealth clients, is about 830. And then on the tax side, we have about 60 ongoing business relationships. And then we obviously do a lot of the tax returns for our wealth clients. And then we still at this point do some tax returns for non-wealth clients. Although one of the goals that we have is that that will not be the case at some point in the future. Once we get the tax business to a sustainable business in itself, which we can talk more about...I really started out this journey of I didn't want it being a loss leader. A lot of firms that I talk to, they say, "Oh yeah, we do tax, it's a loss leader, we don't make any money." I really wanted it to be sustainable business on its own.

Michael: Okay. Do you know, even roughly, how many returns do you actually sign and go through on the tax side?

Erik: We just had an acquisition. So, on the tax side, we've actually done two acquisitions. We just had one a few months ago, so we'll go in. But next year, we'll be in the range of 700 to 800 returns.

Michael: Okay. And thus also why you've got both client returns and non-client returns because you bought a business of people doing returns that were not your clients, so even if you're going to consolidate that to be client focused, it takes time to do that transition?

Erik: It takes time.

Michael: You don't want to blow up the business?

Erik: Yeah. And our strategic plan was such that, as I said, we wanted it to be a sustainable business on its own versus this loss leader. And so, by having the revenue on the tax side of it, certainly also look at the opportunity of cross-marketing. But we just feel like it was the right steps in the way we wanted to go about it.

Michael: We all have a range of clients we work with, from small to big, but If I napkin-math here, $600 million of AUM, 830 wealth clients that you're working with. So, your firm is squarely in the mass affluent space, that's an average account, household of $700,000 or so. Is that fair? Your clients, the half-million to a million-dollar folks is your sweet spot.

Erik: Yeah, that is fair. Our average has gone up over the last few years because we've been focused more on the million-plus. And our average, actually, new client this year is a little over $1.3 million average.

Michael: So, you've been trying to move a little bit upmarket over time?

Erik: Exactly. We have a fair amount of those that are kids. Those clients have been clients a long time. We have a very tenured advisor team, so they've got clients that's been with them for 25 years. So, it is moving up.

Michael: It is striking to me though that when you talk about these numbers for the business, seven on the tax side supporting $800,000 of revenue, 15 on the advisory side, supporting over $5 million of revenue. The advisory side is 2x the team and 5x the revenue, which I guess just gets to the joys and challenges that we'll probably talk about of like how to run tax businesses so that they're not loss leaders to wealth management.

Erik: Yeah, it really is. Although a couple of those would be part-time, based on tax or part-time workers. But I thought, "It's a financial business. It's going to run similar." Well, that's really not the case. And certainly, knew that the margins aren't there that we have on the wealth side and so forth. But they are definitely two distinct businesses.

Offering Both Tax Preparation And Tax Planning Services For Clients [10:45]

Michael: Interesting. So let's dive in a little bit further there. I guess to start, I'd love to understand a little bit more about how the tax side of the offering actually works. What do you do? Who do you do it for? How do you deliver it? What do you charge? Tell us more about the tax solutions here under the umbrella.

Erik: Yeah. I think it might help a little bit of the journey and then getting to how we work within our models. Like many advisors, I worked at networking with CPAs, professionals, attorneys and so forth, and we just never really got traction. It was always a one-way street, and we never really got traction with receiving referrals, getting CPAs licensed, those kinds of things. And then when I go to conferences, they would talk about it and then they'd ask people in the room, "How many people have had success of five or more relationships, three or more, or one?" Very few people ever really stood out. And I thought to myself, "There's got to be a trend here. if I'm doing other marketing and I'm just throwing money at marketing, there's a point in time where I have to consider, this ain't working. And so that was part of it.

And then the second piece is really where we wanted to take the vision on being a really true comprehensive advisor, and we wanted to really do comprehensive tax work, planning. So, it was all led around the planning part. And we feel more and more people we are seeing want that tax planning piece. So with that, we said, "Well, if we can't find somebody, we're going to build it." So, what I did is, I started looking for somebody that wanted to be in the tax business, had some experience, wanted to own a firm, and partnered with them. And said, "Look, I have an opportunity. I want to establish this business. You want to establish a firm. I will give you some ownership day one. I'll provide the funding. Let's get this thing up and running. We have some built-in client base. We want to make sure we're integrating the tax work as well, the tax planning." That's really the key. If I could have not done it and not done tax preparation, that would've been fine. But our firm wasn't of size to have CPAs on staff that are not doing the tax or not producing that, non-revenue, so to speak.

So, the journey then went down, and we started building this. We actually have a separate entity for the tax, but market under one name. So, we market under our brand name and we market under one name. And then we really stuck...

Michael: Oh, interesting. I just want to be clear. But it's two separate entities that are underlying, separate engagement agreements, the tax return engagement letter is to a different entity than the advisory agreement letter when you get down to the paperwork contracting level?

Erik: That is correct. We were doing this tax planning, and we've gotten into more even tax planning and tax mitigation work. And so, we were doing that on the advisory side, and we wanted to have this backup with the tax. We also saw that we wanted to have an offering. So, how we set it up was, clients could utilize the tax, and certain level of clients, certain assets, what we call the category of client they could certainly pay to get their taxes done. And they get a discount from someone walking in the door, they're going to get a discount. But our elite clients, our million-dollar-plus, our $2-million-plus clients, we wanted to offer the opportunity to have their personal tax done inside the agreement.

Michael: Done inside the advisory agreement?

Erik: Correct. Because a lot of clients were saying, "Why can't you just do this?" And quite frankly, we have a lot of more complex tax returns, but we also work with a lot of clients. They need tax planning, they have required minimum distribution issues, they have other issues, IRMAA [Income-Related Monthly Adjustment Amount] and so forth, but they don't really have a tremendously complex tax return as far as preparation. It's more the planning. So, we offer that with clients and say, "Look, you are an elite client with us. This is part of our service. And going to, I didn't want to make it just a loss leader, tax charges wealth a discounted fee. So, every client that tax does, a wealth client tax return, we charge it. And so that keeps the revenue.

Michael: It's a debit to the expenses of the wealth business to recognize the cost that you're covering down on, and then it shows up as revenue on the tax side.

Erik: That is correct. And so, what's happened is, we've seen where clients like that, especially as they get into life and into retirement, often simplification. They really like the simplification part. And we're able to do the planning as needed, and we're able to do the tax. And we're not asking tax to do it for nothing. So, they support each other. And we just looked at it and said, "Look, it's worth a tax return that really is minimal compared to the AUM and how we get compensated for the other work we do, that this is a value add."

Michael: Can I ask, what are you charging as the crossover fee, as it were?

Erik: Typically, it'll range $400 up to $800, $900, $1,000, somewhere in that range. A thousand is going to be more. We also limit. So, if somebody's got a bunch of partnerships and real estate and Schedule Cs, the clients know that they're not going to get all of that wrapped in. We're talking your personal return. So, in those cases where they've got more complex, we give them a credit towards it, but we're not paying for the whole boat.

Michael: And then, what's the advisory fee? Are you the stereotypical 1% on a million, or is your fee schedule a little bit different?

Erik: Yeah. So, on a million we'll be at 1.1 [percent]. So, we have a graded, you have more, obviously, it goes down. And we do mainly AUM, and don't really separate the planning. This is just what we do. And so, that's how we share with clients is, "Look, we're doing this comprehensive approach. And you're going to get all of this." Our differentiator, one of them, is, we're also going to really do tax planning that, quite frankly, I think that those two words, "tax planning," together get thrown around a lot. And it really is just basic tax planning, and a lot of times, obviously, due to limitations of advisors and what they can talk about.

Michael: So, I can see how it comes together if we want to benchmark a median fee of 1% on a million, but most of us aren't doing tax preparation in-house, your 1.1, it's a little bit more premium, but you have a more premium service where you actually do the tax return in-house and cover it if you have at least a million dollars. The extra 0.1% on a million is $1,000 of fees, which covers the tax return that you're then paying internally. The math lines up very cleanly. You've effectively bundled it into the AUM fee, but you actually did set the AUM fee at a level that will cover the bundling costs.

Erik: Yes, exactly.

Michael: So, did you actually have to change the fee when you started doing tax, or were you always 1.1 and this was a reinvestment tactic for you?

Erik: No. We have right now, two schedules that we have our IA [Investment Advisory] agreements and so forth. So, we had a base of clients. We broke out of an independent broker-dealer in 2018. And so, when we did that, we had clients at a certain level of fee and we were actually able to establish them, didn't have the tax business then. And we were able to establish a fee schedule with them. And oftentimes, we were able to drop it because we were saving money not being affiliated, a lot of money where...

Michael: You cleared so much eliminating the BD cost layer that you could drop fees slightly for clients and actually still net equal or better as an RIA?

Erik: Yeah, exactly. Because the 1%, as you brought up and talked about, well, to get to 1% in an environment where you have the haircut, you sometimes have to charge 1.25, one and a quarter, to get to the one just because of the haircut. So, we were able to in most cases, change fees for those clients. So, then we rolled out, and then since then, we also have any new clients coming on, "Here's the schedule." So, they're pretty close regardless, both of them. And we keep an eye on benchmarking studies and so forth where we're at and what's it going to take to be competitive.

Michael: Do clients, do prospects ever bring it up? I know we in the industry love to take shots at each other's fee schedules and fee structures. But you got north of 800 clients now. So, do clients bring up or raise any concerns of, "Erik, why 1.1? The other advisor up the street only charges one? Does it come up?

Erik: No. Really, once we show them our model, which is tax, comprehensive planning, even estate planning, once we show them what we're delivering, the value there, it just doesn't come up. And oftentimes, we've even seen it still is lower than another firm. We lead a lot with tax and tax planning just because those are the folks that we're running across, and they're going to have these issues or have these issues beyond, "Do I have enough? Am I saving enough?" Most of the folks we work with, they're not, "Okay, how much do I need to save so in 15 years, I can retire?" We do work with some young professionals, doctors and so forth, we need to do that. But a lot of them are, "Okay, now I know or realize or have a fear that taxes could be and probably will be my biggest expense in retirement. What do I do?"

Michael: So, how do the economics work on the tax business side of things? I guess I'm trying to visualize, it sounds like you started the tax business with a partner. The wealth business was one you created yourself. So you've got different cap tables where you've got different ownership of the separate entities. So, I'm presuming that means they really have to each run their own P&L. That's also why you cross over the fees from the wealth side to the tax side because you've got a tax partner who needs to participate in the appropriate profitability on the tax side of the business.

Erik: Yeah, that's exactly right. So, we run separate P&Ls. As we said, they're separate businesses. And they certainly have our wealth clients as priority when it comes to tax, but they have the other businesses as well and the other tax and businesses they work with and run that business as if they were on their own, but we have the integration.

Michael: Okay. Except it sounds like the goal over time is that eventually, they can shed other clients outside of the wealth management firms because you think over time, you can fill them up and keep them busy with just wealth clients as you grow and roll this out for a growing client base? Am I following that correctly in terms of the longer-term plan?

Erik: Yeah, you are. Individuals, for sure. Businesses, we see still growing that business. We have a business, and one of them that we acquired had ongoing revenue business clients. So, it was established similar to our business. We're going to do this in payroll, and your books and your financials, and here's what it's going to be for the year, broken down monthly. And I've noticed that those business tax accounting, CPA businesses actually are starting to see our businesses, and they're starting to put that in place. So, we like that business there because obviously, it's ongoing, you can plan for it, and it also can be attractive to the business owner. They know, "Okay, I'm going to pay $800 a month", or whatever it is, for these services, versus, I don't know, this month over next month. So, we want to grow that business part of it. And then the other part of it is, some of that business could lead over to the wealth side as well.

Michael: Because the tax businesses, small business accounting clients can eventually be wealth management prospects who already know and trust the company and the brand because you've been giving them lovely payroll and bookkeeping services for some number of years.

Erik: That's correct. And we do think about bringing those clients over, but I often have run across firms that that's their number one goal, is, "I'm going to get an accounting practice. I buy at a lower multiple. And I'm going to bring clients over." I've had many conversations where that is not as easy as it sounds for whatever reason. And we're still working on making what I would call successful. We looked at it more as a service advice deliverable for the wealth clients, and get leverage there, and bringing in newer clients, newer money because we have this service which...now, we're in our fifth year of this business, and it's gone pretty well. We've got people that we know have come over, or at least what we brought to the table, they said, "Yeah, I need this." And so that's worked. We certainly want both of them going back and forth, but we approach it a little different I think than I've heard of: buy the tax and accounting and then get everybody over to the wealth side.

Michael: Thus, again, getting back to, because you actually want to run the tax business as an economically viable tax business, not just, I guess, a loss leader or lead gen funnel.

Erik: Correct.

Comparing The Margins Of Erik's Wealth Management And Tax Businesses [26:20]

Michael: So, can I ask, what kind of margins do you shoot for? I don't know if you have a goal margin for the tax business a goal margin for the wealth business, and just think of one as a lower margin than the other. What do you shoot for? I guess for folks who are enlisting, what is a realistic expectation of what kind of profitability can you support from a tax business as contrasted with the wealth business?

Erik: Yeah. The tax business, certainly, is lower-margin. It's obvious based on revenue. There are times within the tax business that, obviously, you do a tax return for someone and you don't see them for a year, so you're not servicing the client. There aren't other issues as it relates to that. We shoot for the industry standards. The tax business has been at about break-even up to this point, which is fine with us because we've had some acquisitions. It's maintaining itself. And like I said, we want it to be a profitable business, but it's also providing us really a big piece of our ultimate vision in being comprehensive in nature.

Michael: What's the industry benchmarks for it then that you hope to get to? is that a 10% margin business as it grows, is that a 20?

Erik: Yeah. I'd say in the 15 to 20, you're in the a top percentile on the tax side.

Michael: That's a good percentile in the tax side to be at 15 to 20?

Erik: Mm-hmm. Yeah.

Michael: It's just a good expectations re-anchoring maybe for some of us that are used to 20-something, low 30s even sometimes for wealth businesses.

Erik: Exactly. Yeah. And I knew that going in, and again, just knowing that, "Okay, it wasn't just about this business, we want profitability and all of that for sure." But there was a bigger picture. There was a bigger goal in mind, and there still is a bigger goal in mind moving forward. Now we've got some synergies a bit across employee, synergies certainly on, as I mentioned, the planning side, a lot of synergy there. We've got tax software that we can do planning with. So, we can do verifications and we tell folks all the time, we don't hide behind it. Our advice, we don't hide behind tax. We don't prepare a high-level projection and say, "Okay, now you got to go see your CPA."

Michael: "We are your CPA. We saw ourselves before providing you this analysis."

Erik: That is correct.

Michael: So, I'd love to understand a little bit more there of just how you weave this in now and the vision for the future. I think you said earlier, it's automatically covered for elite clients that want to use the service, and you pay from one entity to the other to keep the P&Ls [Profit and Loss statement] true. What's the long-term vision for this? Is it elite clients, you pay everybody else, they pay, but you want to do it for everyone? Is the goal that this is specifically an elite client's service and it's part of segmented service tier? How do you see this playing out over time?

Erik: Yeah. How we see it is certainly, as number one, the elite client service, and continuing that and continuing what we're doing there, and truly tax planning every year and offering it within our advice model. The other clients we also see offering that as a benefit still. I don't think we see those other clients...if they want to use us, they're not an elite client, you still have the opportunity to use us. Because I think a lot of people, client-wise, we don't want to leave them hanging on the tax. They don't get the extensive tax planning. It's more about, "Here's the preparation," similar to what they would do at another firm. In the industry, there's a lot of smaller firms closing shop, there's people retiring. So, we don't want to leave them hanging out there as a client. So, we really do see them as a client. Eventually, we may have to think about a bit more segmentation, but if we eventually shut off the person walking in the door for a tax return, then I think it can be manageable. The other thing that's going to increase more and more is the intenseness of the planning part. The preparation is one thing, obviously, numbers in the box, but the planning part. So, there's going to be more and more of that as the firm grows and those types of clients grow.

Erik's Multi-Tiered Tax Planning Process [31:32]

Michael: So, help us understand more of what you're doing then on the tax planning side. I'm curious, what are you doing? Which clients are you doing it for? Who actually does it in the firm?

Erik: Yeah. So, we start with our elite clients. So, our elite clients, we start with. We ask for tax returns. It's amazing, Michael, we do a fair amount of seminars. And when I bring it up, how many people's advisor has ever asked for their tax return? And it's very few hands, typically.

Michael: You're talking to consumers?

Erik: The consumers. So, the point is that we actually ask. So, clients, they know they bring their tax returns. So, the planning starts with a tax return and we use Holistiplan for our tax planning. The wealth advisors start with that. So, they load up a Holistiplan. They take a look at, "Okay, what happened last year?" But then really scenario planning for this year. So, they start working through the plan of, "What's going to change? Is this going to change? Is that going to change?" And working through those scenarios, and could be creating multiple scenarios. If they want to do a Roth conversion, if they want to do a Roth conversion with a mitigation. So, we do a lot of mitigation, oil, gas, solar, things like this, more complex situations. So, the wealth advisor gets a high level on the plan, on the tax plan.

And once the once that gets established and we know a direction, then we bring in the tax side. And we always say, "We're going to walk through this and get a pretty good plan and think we know where we're going. And then we're going to bring in the tax side, they're going to take a look at it, run it through our super duper software. Make sure everything's in touch. Do you need to change withholdings? Is there anything in the background?" And so, they will do a double check. They will not rely on Holistiplan fully. So, it runs through that. And then we come back with, "Okay, this is the plan that we're at. We need to do this, do this, do this prior to year end." So, that cycles, and it does it the next time. So, we have those clients that are the elite clients. And granted, some of them doesn't change a lot year to year. Some of them, situations change quite a bit. So, starting September, we start to spend a fair amount of time in that area with those clients.

Michael: So, starting September, so Q4, last four months of the year, you're trying to queue up Holistiplans with elite clients to do an end-of-year planning and projections?

Erik: Correct. And then, on top of that, an important point is, we actually have a partnership with a firm that's a CPA firm that does nothing but high-end tax planning work. And you may say, "Well, Erik, why do you have that? You have a CPA?" Well, yes, we do, but this firm does nothing but high-end tax work: mitigation, sales of business, high-income earners. And so, we will work with them on cases. So, we have the advisor looking at it, we have them looking at the higher-end tax, and we also have our accounting side, our tax and accounting business. So, we have a collective group really looking at a client situation in determining what might be best.

Working With An External Firm To Support Clients With Complex Tax Planning Needs [35:22]

Michael: So many questions here. Working with an external firm for the more, as you pointed out, high-end tax planning work. So, can I ask, who are you working with there?

Erik: Yeah. It's called the Walters Institute. Heath Walters is great, him and his team, and they've done it for a long time. They work with firms, they work with individuals, high income, high-net-worth individuals. And again, that's all they do. So, they don't do any prep. So, they have time to spend time in the tax code and working on those situations.

Michael: So it's planning only?

Erik: Planning only. Right.

Michael: So this doesn't displace the tax preparers internally, this is an expert resources thing for you to have someone to tap when you get into very complex client scenarios where it just helps to have more expertise at the table?

Erik: Exactly. And we look at it as, like many of the different services that are available, it'd be very costly to have that, ramp them up, have somebody experience they do on the team. So, they're a part of the team, and they'll even meet with clients along with the advisor as the team. And we tell the clients that. So, the clients that we utilize their service, they know, we have an expert we resource, in addition to our tax team. And it's been very well received in the sense that, "I really appreciate you have a team, it's not just, I'm talking to my advisor."

Michael: In that vein, who pays for what? How does Walters get paid? Who pays them? And what do they get paid?

Erik: Yeah. We have an arrangement. They have different arrangements, but we have a retainer we pay them. And within the retainer, we get a couple of things. One is, we get ongoing support and case work weekly. So, we can do case work with them on the higher-end cases. We dig into the case weekly. So, that's part of it. They also have ongoing education where we jump on Zooms and they talk about other strategies, captive insurance and other strategies that quite frankly, we don't run across all the time just because it's a specific case. We have not passed that along to the client. We may look at that differently, but right now, it's working, and it's also teaching the advisor and teaching the tax and accounting side. We could get to a point where we may need that in-house. But right now, it's working and it's cost-effective that we have found in dealing with those types of situations. So, we're pretty particular on who we're using, what client we're going to take through this external planning.

Michael: Because you get a certain number of hours per week or month for doing these consults, so you have to decide which clients are appropriate to utilize the resource of this retainer agreement?

Erik: That's correct. Yeah, that's exactly it.

Michael: And can I ask, how much do you spend on this relationship, to set up this relationship?

Erik: I think it's about $2,500 a month.

Michael: Okay. So, that is way less expensive than hiring a super nerdy, highly advanced, mega-experienced CPA advanced tax expert. You're talking $2,500 a month, is 30 grand a year, instead of spending a lot of six figures on a very expensive, super-experienced person that you may not be able to keep totally busy anyways.

Erik: Yes. Way less with, chances are, a lot more experience. And we're really able to say, "We've got a situation where even though we're experienced advisors and someone is selling a business or someone is doing something that could use some of that advanced planning, that we now have a resource for it." So, all in all, it's been a good relationship.

Michael: I guess I can see in that vein, if they're charging you a flat retainer for a block of units and time available, it's awkward and hard to pass it through and bill it to the client anyways. At some point, you could have a staff member, and then you would eat the whole thing because just part of the wealth services, you could buy fancy software, you would absorb the cost. Instead, you've got an expert resource in people and a team, and it's just a cost of doing business, like a resource, to be able to deliver good tax advice to clients.

Erik: Yeah, that's exactly right. And I know they work with some individual clients as well. Often, when they get an individual client that they want them to work up a tax plan, that alone could be $10,000, $15,000 for that client. We would have the choice that we could have the client pay them directly and say we're working with them.

Michael: Just probably some threshold where it's so messy, they're going to blow out your hours for the next three months combined. We just need to have a separate agreement and have the client pay.

Erik: Really could. The other thing that we've appreciated is, we have a set time every week. It's just almost like having really someone down the hallway that has this expertise. The business is so difficult and complex now, you don't know it all. So, you just have this expertise. And so, they've been really good with just being able to do that and talk to clients as well, and they know that. I just can't tell you the amount of praises that clients have said to us. We ultimately look at that and say, "We'll get more assets." We've had a couple of clients, one that's a CEO of a business that's taken a company public. He's like, "You're getting all the money," because he knows we have these capabilities. And so we feel like the AUM that will come from it also will certainly more than pay for what we're paying for that resource.

Michael: It's a fascinating model to me. For folks who are listening, if you're curious in checking this out, we'll have a link out to the Walters Institute in the show notes. So, if you go to kitces.com/475 for this episode, 475, just scroll down a little bit to the Show Notes section. We'll have a link out for others who may be curious in exploring this as well.

Michael: So Erik, I'm wrapping my head around the layers here. So, it feels like there's sort of three tiers of services, of stuff that you do. There's the planning work, there's the in-house tax preparation, you cover it for elite clients, others can pay directly if they wish. There's the tax planning, which is driven by the advisors using Holistiplan and maybe checking in with the tax side of the firm to gut check or validate the numbers. That's included as part of the advisory fee. And then, there's advanced planning scenarios, which is part of the advisory fee because it's good relationship for high-value clients, you may even win more business. But you spend $2,500 a month on Walter's Institute to have this additional resource available to make sure that you really can bring the right expertise on complex client scenarios for tax planning.

Erik: Yeah, that's exactly right.

Michael: So, how has this shown up for the business? I think you said you're five years into this now, so, I don't know, is it working? I don't even know how you evaluate what working means, but you had this vision of bringing tax in. Is it working?

Erik: Yeah. We think it is for a couple of reasons. We just finished a client survey. We hadn't done one in a few years. And on the client survey, there was a lot of appreciation. There was some questions around the comprehensive and so forth. So, we're getting feedback from clients. We also get feedback from clients on the fact verbally with advisors, "I really appreciate this." So, that's another piece of it. The other piece of it is, we continue to pinch ourselves as advisors as we're bringing on new clients. It's becoming pretty rare that we even talk about their portfolio because we're really preparing...we're going to prepare some preliminary information. It certainly could be on projection of assets and future required minimum distributions. We could prepare a snapshot on a tax plan. We take clients to a second meeting, so we basically gather some information and take them to a second meeting. And it's amazing that they'll transfer $2 million and they didn't ask us, "So, how do you manage money?" That's becoming more and more common, quite frankly. And so, we've pinched ourselves over the last couple of years, going, "This client just came on, and they never asked about how we manage money."

Back in 2022, we were at $317 million, and now we're over $600 million. So, the markets have been good, but we've also doubled. So, I think what I said is that we weren't just focused on the accounting's tax side to bring those clients over, we wanted to enhance our offering and strengthen our offering so that when new clients come to us, and current clients, we could strengthen the offering that, "Here's what we offer." So, those pieces together, I think, really says to us, the clients we're looking for and the ones that we mesh up with, "This is what they're looking for."

Using In-Person Seminars To Attract Good-Fit Prospects [45:58]

Michael: And so, then tell us about how growth works. Where are all these clients coming from to find out that you have an integrated wealth and tax offering? What's the marketing or business development process for the firm?

Erik: This is my 32nd year as an advisor, and all of those years on and off, I had done seminars. And they worked for a while, and then you go away, and they work for a while. So, we got back into seminars after COVID and doing dinner seminars. So, really, a lot of the clients have come through that resource. A lot of them, not quite all of them, but this year, about 44% of the new clients came from there.

Michael: How many new clients come in a year for you? I don't know what the normal number is for you.

Erik: 50 to 55. And this year we had $60 million of new money. As of to date, $60 million of new money relationship. That's not new money from new people or existing clients, that's just new relationships. So, part of it, I think, with the seminars is the advice in our advice model and people are attracted when they come. And we have very similar numbers that so many show up, so many book an appointment, and so forth. But because we're not product-based at all, we're advice-based registered investment advisor, they often go, and it ends up being a product or some sort of product. So, they're open to that. And so, through that education and connecting with those people, that's where a piece of it comes.

Michael: So, can you share more about what the seminar content is? What's the session? What do you deliver? How do you convert them at the end? What is the actual seminar event?

Erik: So, the seminar event, the titles have been differently. "A Tax Bomb is Coming," retirement and things that you may not be aware of, different titles. We take them through required minimum distributions. So, one of the things that got me thinking about this years ago, Michael, with the tax, was I had a client that had very large IRAs and their required distributions were going to be large, and we were trying to talk about it well in advance of required minimum [distribution] age. And so, worked up, this is before we had the tax business, I worked up a plan, and I said, "Okay, now we're going to need to go see the CPA." And I knew the CPA. So, he goes to see the CPA, which I referred him to, by the way, to get his taxes done, and the CPA a said, "No, that's not a good idea."

And so, I ended up calling him, and I said, "What'd you base that on?" He goes, "That's just not a good idea." I said, "Did you ask him how much qualified assets he has?" He goes, "No, I never did that." And when I told him the amount in the millions and his projected required distributions, I said, "Now, how do you think about it?" So, that was a moment that I said, "We've tried to connect with these folks and they're doing their work, they're busy in their work. We need the true planning piece, and then we need to connect the tax side." And so, in the seminar, we talk a lot about required distributions. I think it's going to be something in the next decade or so, people are going to have these quarter-million-dollar-plus a year forceouts that don't need the money, and it's a tax bomb waiting to happen, especially with the SECURE Act.

And so, we talk about that. We talk a bit about estate planning, and then we actually show a couple of cases, change the names on a Roth conversion…what's that mean? Tax mitigation and tax planning, what are the differences? What's that mean? And then in the end, we just offer up the opportunity to sit down, no cost, no obligation. I'm interviewing you as well as you're interviewing us. We don't know if we can help you. And if we can't help you, we'll certainly tell you that. But if you think you want to take a second shot, if you're already working with someone, or if you want to take a shot and you're getting close to retirement, and that's the wrap-up. And it's worked. We typically get 40 to 50% of the households in the 40s, low 40s. And then we work through our process. Some of them don't qualify, but ultimately, the numbers, in 32 years, hasn't changed a whole lot. So, we don't really convert, I don't think that much more, but they're also coming in with knowing what we do and how we paint that picture.

Michael: And how many people are typically in the room for a seminar?

Erik: Typically, 20 to 25, maybe 30.

Michael: And then 40% convert to what? To schedule a meeting?

Erik: Yes.

Michael: And then what percentage of those actually end up becoming clients?

Erik: So, typically, what'll happen, we'll have 40% to a meeting. And then those that show up, about 70% of those will schedule another meeting. Because again, we don't close in the first meeting. We say, "We're going to gather information." And we've just found for us, that works best for us. And then if it makes sense, we move on to the next meeting. And so, you've got about 70% that will go to the next meeting. And then if they're at the next meeting, it's more than 50%. We're at about 55 to 58% right now. Of those 70% that show up for the second meeting, more than half. And by that time, we know they're a fit because we have their information. We don't ask for extreme detail, but we won't meet with someone if they don't get us at least what we're asking for. We just don't.

And so, by the time they come back, we know their information, we've loaded up and showed them their numbers. One of the things I've learned is that ultimately, they can see a seminar, but when you get to your number, your number, that really then drives home. So, we show them some numbers and depending on the situation, we may show them some projection in Income Lab, "Here's your projection of your required distributions." We may show them a list of plans. We may show them some other things. And then ultimately, drives them to levels of concern, "Maybe I need to bring this together."

Michael: Can you explain where you use Holistiplan versus Income Lab actually doing with each?

Erik: Yeah. So, Income Lab we use in the sense of all about someone has enough, what's your lifetime tax or can you do other things? Can you do Roth conversions? Can you lower your lifetime tax? That's what Income Lab is. And we found that to be visually really good, does it make sense to do this. We get questions all the time about, Roth conversions, does it make sense. And we certainly, in the seminar, talk a lot about it and show examples. Holistiplan is more of the direct scenario planning. So, we may throw in there Holistiplan, "Here's a projection, here's where you're projected to be, but here's an example if we ended up working together, if we did this, if we did that, this would change your overall tax nut by this." So, list of plan has a really nice tax report that is easy, pulls up, and it's amazing how much value that tax report can provide to not only clients, but also prospects.

Michael: So, Holistiplan is your last year's tax return scenario planning for this year and where they are. Income Lab is the super long-term over your lifetime, what your taxes cumulatively are going to be, and then how can we bend the tax curve and bring that down with Roth conversions, minimize IRMAA, manage RMDs, all the different things that we can model over multiple decades.

Erik: Yeah, that's exactly right. And then if it's basis planning as well, we'll bring in MoneyGuidePro. So, if we need that comprehensive planning, the more pieces, we certainly use that in conjunction with Income Lab. We haven't found, and an Income Lab seems to be it, where it's very visually easy, it lays it out. You can do side-by-side scenarios, gives them the actual raw numbers. So, we use a combination of those to get us to what the advice is going to be.

Michael: So, if I take a step back for the seminar, from thinking about numbers, 25 people in the room, about 20 to 25 in the room, 40% convert to a meeting. So, eight to ten convert to a meeting. It's a two-meeting process, 70% follow through with the occasional no show. So, I'm assuming like five to seven show up for second meeting, and a little more than half three or four close. So, if you do a seminar, 20 to 30 people come, three or four clients at the end of the funnel. Am I thinking about that right?

Erik: Yeah. You're thinking about that right. I would say, one of them might be not now, but maybe in six months, it's activity. We think about the seminar, if you can get four to five people interested and scheduled per session. If we can walk away...if we do two seminars or three, ten to 15 appointments scheduled. And then the numbers just work itself through.

Michael: And so, how many of these seminars do you do in a year?

Erik: We do in the neighborhood of 15 to 20. And they would be one campaign, but you might have three nights or two nights.

Michael: I'm sorry. So, they're evening events. Is this like local library, community college, restaurants? What's your seminar setup?

Erik: Restaurant. So, we've tried the restaurant and often it is the good old mail. It comes back to what I did 32 years ago. You can target it. You have a campaign. We've tried to do social media some, it can waver a little bit on the quality that shows up. And the math, we just work it backwards. And so, we do those campaigns either two or three nights, depending on the volume and what we want to do. And they've worked out. Michael, I always tell the team, "Okay, it's working this year. We'll see, maybe something." But we've had a lot of change, SECURE Act, and tax laws over the last five years. So, right now there's an interest there. And it's worked.

Michael: Particular restaurant of choice?

Erik: Yeah. We use steakhouse, nice restaurants. Not the highest end, not the lowest end, set plate. Everyone gets the same or once in a while, you can order this or this. One of the things that we found is we do feed them and speak. So, I think people appreciate it. I've done both where you feed them first and then you talk or you talk and then you feed them.

Michael: So, you'll speak while they're getting fed. So, the time is more expeditious, so you have to deal with the occasional clinking of knives.

Erik: Exactly. And we just tell them, "We're going to speak while we present so that we can get you out of here before 11:00 tonight" as a joke. And if you could just keep it to a minimum table talk." And people really appreciate it. I used to do it where we did it different ways, but now, it just got too long. People are looking at their watch. So, we've done it and it's worked well. It hasn't really affected the results at all. So, we're going to continue to do it that way.

Michael: So, how long is the session then?

Erik: Usually a session is hour and a half. We try to do the seminar maybe hour and forty, not counting check-in. But the actual presentation, an hour twenty is about where I run. So, it's not 45 minutes, but it's not two hours. And we've just gotten a lot of really good feedback. People seem to be engaged, and like I said, the numbers work.

Michael: And then, do you do follow-ups to get them to sign up? Or you schedule meeting onsite while we're right here already?

Erik: We do the onsite. So, we start off with, "Schedule a meeting now." There's usually a giveaway, a book or something of that nature that we give away, and have a calendar, have a staff person there, a team member, they sign them up. And then for those that don't, we do a follow up. So, we will follow up with them, and we call it the three-strike rule. So, we'll follow up with email them, we'll reach out three times. If there's no response, then we're going to put them on a drip. So, we're not going to hound them forever, but we want to give them the opportunity. And like any marketing, we get a couple of year, that say, "I came to your seminar two years ago and it wasn't good timing, but now I'm ready. I want to meet." So, activity breeds to more activity. So, we see that as well. And now that we've been doing it for the last few years on a consistent basis, after COVID, we're seeing some more of that as well.

Michael: And then who's your provider to do the campaign that's actually getting successful turnout results for you?

Erik: We use a couple of different groups. So, LeadingResponse is one, LeadJig. We can put it in the show notes as well and share those. We've worked with a couple of different groups to mix up the list, the way they search.

Michael: How do you decide which provider you're using or why multiple providers?

Erik: Well, the decisions come in a couple of things. One is results. And so, we got to be careful on crossing. So, if we're doing a campaign in an area, we want to keep that same provider throughout the campaign in the spring or whenever we're doing it. So, that's a factor. I also we've mixed up... I still don't quite understand how exactly they get to the names. They say they take this out and that out, and sometimes get someone that has investment profile of $3 million-plus, and then they come in and they don't have a dollar. "Okay. How'd that work?" And I know it's not perfect. So, we've just mixed it up. We've had success with both of them. The thing is that I think it's got to have a good message. They take care of all the signup. All we do is show up.

We do have a process of confirming. We make sure we confirm them. But again, we have falloff. And then, it's about mailing enough, and how much do you have and about mailing enough in the area that you're doing it to get the people there?

Michael: And so, how many mailers do you have to send on a campaign to get a good turnout?

Erik: Usually, if we're doing two nights, you're talking 7,000, 8,000 mailers. And any of these companies can boost with Facebook if you need to. Although we have found that to work subpar, because again, then it opens it up, it's a little harder to target-invite. If we're going to go three nights, then typically we go 12,000 mailers. And we really leave it to, "Here's how many we want in the seats, and you tell us what we need to mail." And then we also stress that we don't want to minimize mail. Because we look at it and say, "If we're going to be there anyway, whether we have 12,000 or 20,000, we're there." Our time is there.

Michael: So, we may as well fill the room.

Erik: Right. We're not going to just pinch the penny. We might as well fill the room with hopefully targeted, good candidates. And that's how we go about it.

Michael: And I take it you're in a city or metropolitan area that has enough density that there are 12,000 people to send to get your desired turnout numbers?

Erik: That's a great question. It depends on our area, because we are in different areas. Some areas, we can't get to the area as much. And we can't get inside IP.

Michael: You're Indiana and Detroit...

Erik: And Florida.

Michael: Somewhere in Florida.

Erik: Yeah. So, Detroit, Florida, a lot more to mail to, just based on the demographics. And so, we don't have a problem getting to our demographics there. The other areas, you don't want to overmail. We have to be conscious of that. We typically don't do as many seminars there. So, we just go based on the area.

Michael: And then, what does it end up costing you to do just a whole cycle, the campaign mailers, the restaurant food, what's the cost of a marketing cycle for you?

Erik: It's about $10,000 to $12,000 all-in, depending on the number of nights and so forth. All of our marketing campaigns, we're running under $3,000 per new client right now, which is awesome.

Michael: And your average client, you said earlier is $700,000 and new ones are over a million.

Erik: That's right.

Michael: You're 2-3Xing your marketing spend in new client first year revenue.

Erik: That's correct. We're going to push this year about $35 million just from seminars. So, I look at it, the seminars that we did in that timeframe, if there's $100,000 spent in seminars, $33 million, 1%. You can do the math. And I look at break-even at that two-year mark, which we're there, long-term client, ongoing revenue. So, the math for us, fortunately, has worked out.

Taking A Two-Pronged Approach To Generating Compliant Client Reviews [1:06:14]

Michael: So, anything else you're focused on from the marketing end or this is the driver, this is what you do, it's working.

Erik: We do have multiple things we're working on. We have worked on increasing our SEO and increasing our Google reviews and trying to be more present in the SEO world, people finding us, finding advisor near us. We've really increased our Google reviews and we had a campaign that we've been just asking clients in certain ways, "Hey, can you leave us a review?" And we refreshed our website and now we're working on more of a digital presence. We want more people to come to us. We get some of that, but we want more people to come to us.

Michael: So, what's your process for asking clients for Google reviews? I know some advisory firms have been nervous about how to do that and make sure they stay compliant.

Erik: So, what we did is, first off, from a compliant perspective, certainly we want to make sure that it's compliant and that we're asking everybody. We can't narrow people out. So, we have really two reviews. We have a Google review, and then we use a company called Amplify. Amplify is an internal review system, star system, and so forth. Because a lot of people don't have Gmail, so we wanted to build the reviews and be able to have it on our website. And so, what we built was a process of when a client came in for a service review, after the meeting, it was automation that was built that an email would go out to the client and say, "Thanks a lot for meeting. We'd love to have you leave us a review." That simple. But it was automated because the advisors would forget. I got to ask them, "Oh, shoot, I had other stuff."

Michael: Or worse, you forget. Except you don't forget for your best clients, and now you're doing the cherry-picking thing that the regulators don't like.

Erik: Exactly. And then you might say, "Well, okay, how do you get beyond that? Because what if someone doesn't have an email or a Gmail?" So, the automation says, if they don't have an email, and we still have a few of those, there's an automatic to do that goes to a team member and they send a postcard. So, it's interesting how to get by this, because they don't have an email, so how are they going to leave a review? But by documenting within our CRM system, we send them a postcard, "We really love a review." So, we don't leave anybody out.

Michael: Okay. So, it's not necessarily because you're literally trying to get postcard reviews so you can take a snapshot of the postcard and post it to your website. This is compliance documentation validation of, "No, we're trying to really systematically ask everyone. So, we're doing it fairly and we're not being selective. Heck, even the people who don't have an email, there's a system to make sure they're getting asked as well with the postcard."

Erik: That's correct. That's correct. And the system is built, so, they come in again, if they're already asked and they opened it, they're not going to get another one. So, we're not going to bother them, like, "You didn't do it last time." If they didn't open it, then we'll send them another. And so, we did that this year to boost our reviews and really try to boost the SEO part of it.

Michael: Because I was going to ask, do you then get the problem where clients have already done a review and you're still systematically asking them, and now they're like, "Why do you keep asking me? I already did that."

Erik: That's a great question. The answer is no, because in the background, it's automated. So, if they leave a review, we use ActiveCampaign. Our marketing leader, she runs ActiveCampaign. It automatically knows that, the review was left, don't send them another one. How they connect it, I don't know, but there's those. I absolutely was adamant about exactly what you said, Michael. I don't want people being bugged, "I just left you a review."

Michael: Yeah. So, you built it into the marketing campaign?

Erik: Built it into ActiveCampaign, it knows if it left a review or not, and if, then. And so, it doesn't continue to bother people from a review. We also make sure a couple of things, we respond. So, we have a team member who responds, "Thanks a lot for the reviews." So, we went from four or five to, we're well into the hundreds, and I think we're at 120 or something for all sites, which, for a financial firm, I think is pretty good. We actually have several hundred when you add in the Amplify reviews.

Michael: Oh, interesting.

Erik: Yep. So, we've had a lot of people leave on Amplify for multiple reasons.

Michael: Why are they leaving on Amplify instead of leaving a Google review?

Erik: A lot of them, they didn't have Google.

Michael: So, they don't have a Gmail account to leave a review?

Erik: Right. The other thing we did is we originally started with Amplify, just because it was a little bit more controlled, we could get how we were going to do it, and we wanted to have these reviews on the site. And then we were like, "Okay. The next level is the Google review." And so, they really have a choice. So, it's worked really well.

Michael: Because Amplify gives you something you could put on your site, but Google reviews are happy in the Google ecosystem for all the people who Google search. If you want to do well on Google, you actually need the Google reviews.

Erik: That's correct. So, I think making sure it's compliant, but having those systems in place, and then when they do post a Google review, we respond, "Thank you so much. Appreciate it." And so, the whole digital area, I think, is an area we want to work on. And I've seen a lot of statistics that a lot of new clients are finding advisors digitally.

Michael: Well, I'm fascinated with just this idea of running it as a two-pronged approach. Because if you're as great as Google Reviews can be because of all the Google SEO benefits, if the clients don't have a Google account, they can't do it. So, if you give them a second pathway like Amplify, you get some way to capture the review that they were willing to leave. So, I guess, what do you do with the Amplify reviews? The Google ones are on Google, so anybody who Googles you is going to see them and click through. What happens to the Amplify reviews?

Erik: They run on our website. So, they run on our website, they pop up, and then they also run by advisor on their bio page for their clients that have commented.

Michael: So, just like Amplify has website integration, e-things that they do so that they can make the reviews appear for particular advisors on their individual advisor page.

Erik: Correct. Yep. So, we do that. We'll throw up some reviews on a presentation, "Hey, here's some of our reviews. Google or not, we've gotten these reviews, we've got X number of views." So, we use it for that piece. And it's all about when people land on the site, it's verification. We're going to now work on testimonial, even the next level of a client thumbs up and how we're going to do that process. But it's all focused around the SEO and building our SEO.

Michael: Because I know this is just a fear for a lot of us, do you ever get a bad review? How do you handle a not good review that shows up?

Erik: Knock on wood, we have not.

Michael: It just hasn't happened. You got 100-plus, and it turns out happy people reply.

Erik: Yes. It does. And I'm sure that's going to happen. And we actually have a process. As we said, we answer all reviews, all Google reviews. So, we have a process on how to still respond. One of the things I learned from just setting up the process and was advised on, you got to respond to all of them. You can't ignore if it's one that's not positive. But I just felt like it was going to be something that we need to do. Everyone shops by reviews.

Michael: Well, at the point you have 100 good reviews, it reminds me, I forget where it was, from the study that came out a bunch of years ago that actually found that consumers were more likely to buy from something that was rated like 4.8 or 4.9 stars than they actually were to buy from something with five stars. Because with all five stars, you got to wonder a little bit if it's padded. If it's 4.8, it's like, "Oh, okay, they got to be pretty good, and someone is always cranky."

Erik: Exactly.

Michael: But weirdly more trustworthy.

What Surprised Erik The Most Building His Firm [1:15:09]

Michael: So, now I'm curious, as you reflect back on just this journey of building the firm, of going deeper with all the tax solutions tied to the firm, what surprised you the most of this pathway of going deeper on tax planning and tax preparation in this business that you were running for 20-something years before you ever added tax?

Erik: I think what really surprised me the most was I thought financial, financial, that it was pretty similar, and it's really in multiple facets, a different business. I didn't think it was going to be exactly the same, but we've had to make some adjustments along the way and thoughts along the way in that business.

Michael: What's so different?

Erik: Well, a couple of things. One is the tax return clients. So, that book of clients, and we shared with you about the acquisitions. There's a book of return clients that you get some that don't come back and you get a group that shows up. That's a different part of it.

Michael: So, it's just like a capacity planning thing, "I have to plan for maximum capacity, but I don't have to wonder next year are 50, 70 or 80% of my clients coming back." It's just, "Are all of them or all but one coming back?"

Erik: Yeah, exactly. Planning for the just crazy rush, the timeframe, and coming in and doing from data entry to check to signoff of the return is a different process. Really allowing to dig more into actually the tax return. A lot of us, I think wealth advisors, we had pretty good understanding of it. But that surprised some of the things we've learned under the hood that was a bit of surprising. And that also has also been helpful. And really the response. I'm pleased with the response of the client. I did some talking with top clients, "We're thinking about doing this, what do you think?" And we're really pleased with the overall response. And one of the things that all the time I think about is, if something happens on the tax side with a client and they're just a tax client, you might lose a $600, $700, $800 return, and they leave you. But if it happens with a wealth client and you're managing $2 million, $3 million, $4 million, that's a lot of revenue that goes out the door over something on the tax side. So, that's...

Michael: That sounds scary, daunting in the other direction then.

Erik: It is. And you just have to work for that. One of the things we do is any of the wealth clients of elite, and our top clients, once the tax return's done, it goes to the wealth advisor and they review it. So, they're not looking for the tax side, but they know the client situation throughout the year. So, they take a look at it, and we promote that to clients. And what we say is, "It's going to get done and we're going to do a review for you. Me as your advisor, I'm going to take a look as well, another set of eyes." And that's been a really nice add that people know. So, trying to tie that in, but I really didn't think about that getting into it, going, "Well, if a wealth client's not happy because of something helping tax wise..." And I knew people freaked out about taxes, but having the tax business now, $200 difference, people can flip out about taxes.

Michael: $200 difference in the taxes they owe or...?

Erik: Yeah. I remember one case, we had a client, they did an $11,000 Roth conversion, and they agreed to it. And they got their taxes back and their taxes were different than what they thought, and they just were not happy. But they had forgotten they did the $11,000 Roth conversion, and it really only changed the tax by a handful of hundreds, $300, $400. It wasn't a tremendous amount. You would've thought it was $20,000. And luckily, it was resolved, but when we were doing just the planning side and sending it off, we didn't hear it. Now we hear it all. And it was surprising to me that just a small amount of change, people can have bad feedback.

The Low Point On Erik's Journey [1:20:16]

Michael: So, what was the low point on this journey for you of building the advisory business over the years?

Erik: My low point would be, when I started in the business and I grew up in an entrepreneur family, and then we sold the business and I got into this and I'm like, "I can do this." And I got in, and after my first year, I just about failed out. So, I was with the broker-dealer, just about failed out, and they let me stay. And young family and all of that, really questioning like, "Should I be doing something different?" And I stuck with it. And it's well worth it. But that was certainly a challenging time, new marriage, new family, all of that, and wondering, "This maybe is not for me."

Michael: So, what pulled you through?

Erik: Perseverance and working hard. And if someone said, "No," I said, "Next." And said, "You know what, I think I can do this," or I said, "I know I can do this." And it pulled me through. And certainly having the goal of providing for my family, when I got into the business, I told the person that was hiring me, "I want to have my wife be able to stay home and be with our kids as they grow up, and I don't want to live on ramen noodles, so I'm going to do what it takes." And so, that really carrot out there made me do things that were tough at times, but it was worth it.

Michael: And when did you know it was going to work? Was there a moment of, "I think I've made it, I'm actually going to stick with this. It's going to turn out okay"?

Erik: Yeah, I did. It was probably almost two and a half years to three years in. Two and a half years really going, "Okay, now I've got this." There was some momentum, the work was paying off, still absolutely hard work. But I just saw so many people fail and have seen so many people fail, and I just knew there was something better, and I'm glad I stuck with it.

Erik's Advice For His Younger Self And For Newer Advisors [1:22:40]

Michael: So, what else do you know now you wish you could go back and tell you ten, 20 years ago about this path of building a multimillion revenue advisory firm?

Erik: I wish, Michael, I would've known to develop my leadership skills more. I grew up and I was trained, I think, well, as an advisor and as a financial planner. And I did that from day one, really. And did planning, but who knew that, "Oh, we got to run people." And a lot of leaders that are in large corporations, they get mentored and schooled for years, right?

Michael: Yep.

Erik: And yes, I did some leadership training and so forth, but really didn't take it like, "Oh, I'm running a team now." And it's a different skillset. So, I really wish I would've wrapped my arms around more of development from a leader perspective. On the other hand, I look at it and go, "Well, I don't know if at that time if I would've been able to split enough time off to actually do more development," but I think I would've figured it out and put a little more emphasis on my leadership and building a team and my leadership development that I think would've been certainly helpful along this journey.

Michael: So, how did you ultimately solve for this? Was it all school of hard knocks, or did you find training or resources or other solutions later in your career to fill in for this?

Erik: Well, it's both. So, I've lived and learned along the way. I certainly, as I said, grew up in an entrepreneur family. My dad was my biggest mentor, and all of that. So, I had some of that. But I was young. I've also hired coaches along the way. We have a coach now that we work with. So, it's a matter of getting professional coaching that I can bounce ideas off of. It's also helped to be involved in a couple of focus groups of other firm owners, bounce ideas off of. Reading, development, listen to podcasts. Podcasts overall have been a big help, picking pieces out from different podcasts. So, I felt like I've made up a lot of ground, but I feel like if I would've known that or saw that coming, I could have been a bit more prepared.

Michael: So, can I ask what coach or coaching organization you work with that you're having good experiences with?

Erik: Yeah. The firm's Lennick Aberman and Ray Kelly is the coach that I work with, and he's doing a great job of just helping us develop as a leader and developing other leaders within the organization. So, we feel like we're not going to be able to raise it up, we need to develop other leaders within the organization. And so, that's one of my focuses going into the next year.

Michael: And then, any particular books or podcasts that have clicked for you?

Erik: A lot of them. Your podcast has been great. I listen to a lot of different podcasts. I really don't have what I would call one that just absolutely sticks out. I bounce around a bit. I've read "Good To Great" and those kinds of books as well. Getting the right people on the bus. So, that's a big piece of it. So, I've just tried to put it together. But again, I don't feel like I've been schooled in it. And some of it was the school of hard knocks and learning along the way, make a mistake and get up and figure it out going forward. So, it's been a good journey though.

Michael: So, what advice would you give younger, newer advisors coming into the profession today?

Erik: The advice I would give is that this business is complex. You need to find a place where you feel like it's a fit for you, and you need to just take it all in. And you are in your residency, so you don't become a doctor overnight just because you have an education. So, you need to take it all in. And learn not only the advice side, dealing with clients, it's so complex now, which we talked about, planning, tax. And then really find where you really will thrive, what area will you thrive in, but give it some time. Give it some time really to really get to understand the business and find where you'll thrive.

Michael: And when you say, "Give it some time," what kind of time are we talking about?

Erik: In the business, I think anyone between two, three years, four years can get a really good sense of the business and what a fit is. And I think most people have a good sense. They certainly could change a little direction, but they'll have a good sense of it, I believe.

What Success Means To Erik [1:27:57]

Michael: So, as we come to the end here, this is a podcast about success, and just one of the things we've long observed, that word success means very different things to different people. And so, you're on this wonderful path of building the business successfully as you're crossing $5 million of revenue and $600 million of assets. And so, the business seems to be in a wonderful place now. How do you define success for yourself personally at this point?

Erik: I define success as just wanting to have my team be successful, whatever that means to them. Which in turn, the clients are successful. So, I get really motivated when I hear of a client story, and they've done this. They've helped pay off a house of their kids, or they're taking this trip with the family. And in turn, I really like having the team develop and grow, and in turn, have their success. That just sums it up for me. That's what motivates me now, is wanting people to succeed that's in my tight world.

Michael: I love it. I love it. Thank you so much, Erik, for joining us on the "Financial Advisor Success" Podcast.

Erik: Michael, it's been a pleasure. Thanks for having me.

Michael: Thank you.