Welcome back to the 267th episode of the Financial Advisor Success Podcast!
My guest on today's podcast is Jared Siegel. Jared is a partner of Delap Wealth Advisory, a fee-only RIA based in Portland, Oregon, that oversees nearly $260 million of assets under management for more than 70 client households.
What's unique about Jared, though, is how he outsources middle- and back-office operations to help his firm concentrate on creating a high-quality, high-touch financial planning experience for its clientele of affluent business owners and real estate investors.
In this episode, we talk in-depth about how Jared expanded his firm’s offerings beyond accounting services and into financial planning and asset management to do more work for their existing accounting clients, the way Jared leverages Jay Hughes’ “Qualitative Capital” framework to have better non-financial conversations with new clients, and how Jared focuses his financial planning conversations to help his clients use their money to delegate household tasks and leverage their wealth to create more time for themselves.
We also talk about how Jared was reaching a point of unhappiness when he realized he was spending far too much of his own time on tasks he didn’t enjoy (and wasn’t very good at), how Jared’s self-awareness motivated him to center his career on doing the client-facing financial planning he loves rather than dealing with the everyday back-office minutiae, and how Jared was inspired by the outsourcing success of other financial advisory firms to hire a TAMP for himself and outsource his own investment operations.
And be certain to listen to the end, where Jared shares how he was inspired by Angela Duckworth’s book on “Grit” when he was faced with his own challenges in the early days of his business, how Jared eventually got comfortable with the good that comes from adversity and gained an appreciation for how the early failures in his life ultimately shaped him for the better, and the metaphor that Jared learned from a tech entrepreneur about the importance of “finding your tennis ball”… a recognition that like the Labrador that loves to retrieve a tennis ball, when you find the work that truly fits you, it just comes naturally and feels more like play.
So whether you’re interested in learning about how Jared refocused his firm to center his efforts on his financial planning strengths, how Jared concentrates on why money matters to his clients to develop deeper relationships and better outcomes, or how he uses the lessons he learned to motivate him to spend more time on the work he loves, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Jared Siegel.
Resources Featured In This Episode:
- Jared Siegel
- Delap Wealth Advisory
- Buckingham Strategic Partners
- #FASuccess Ep 131: The (Nearly) $1B Solo Advisor: Scaling Up Client Focus By Outsourcing Everything Else, with Dan Goldie
- Jay Hughes' Qualitative Capital
- Transcend: The New Science of Self Actualization by Scott Kaufman
- How Much Does A (Comprehensive) Financial Plan Actually Cost?
- Grit: The Power of Passion and Perseverance by Angela Duckworth
- eMoney Advisor
- Redtail CRM
- Certified Exit Planner designation
- Jim Collin’s “The Hedgehog Concept”
- The Fama-French Three-factor Model
- Dimensional Fund Advisors
Michael: Welcome, Jared Siegel, to the "Financial Advisor Success" podcast.
Jared: Michael, excited to be here, and looking forward to today's conversation.
Michael: I'm really looking forward to the discussion and talking about what I find a very common, not nearly discussed enough phenomenon in our advisor world, which is just this dynamic that happens where we start advisory firms and it's awful for pretty much everyone at the beginning. This is really hard to get initial clients get going. You start getting going, clients are coming in, they're engaging, they're paying. You're getting more of them, a few of them are even referring. The dollars start getting a little better, things start adding up. And then it gets so busy that you're just like, "Geez, I need some help around here." And we start hiring, and then hiring lets us grow a little more. And then we need to do a little more hiring, and then we grow a little more, and then we need to do more hiring.
Then all of a sudden, at some point, a couple of years in, you don't actually do very much stuff with clients anymore because you're mostly stuck in this world of hiring, and training, and managing all of the people, and dealing with all of the back office, and the systems, and the infrastructure that goes with it. And I know for some of us in the advisor world, that's fun, that's cool. We want to be enterprise builders and we want to do the hiring, and training, and development. That's really fun.
But for so many of us, at the end of the day, it usually comes down to, "I became a financial advisor because I like working with clients, and it's really not so fun when I don't get to work much with clients anymore." And if you get to that not-fun place, then you got to figure out, "What do I do to get it back to being a little bit more fun again?" And I know you've lived a version of this journey. It got going, it got not fun, and you had to try to figure out how to get it back to being a little more fun again. So, I'm looking forward to having the conversation about what that journey is like and how you navigate and make the changes to get from a practice you're not enjoying back to one that you enjoy again.
Jared: Absolutely. It's been quite the journey, and I'm still on it. Still enjoying it, still learning, still growing. And I've gotten so much from this particular podcast, this particular community. I'm excited to share some experiences.
The Internal Structure Of Delap Wealth Advisory [4:40]
Michael: Awesome. So, I think as we get started to dive in, why don't you start by just painting a little bit of a picture for us of your advisory firm as it exists today.
Jared: Yeah. I was a partner in a public accounting firm here in Portland, Oregon. Back in 2016, my partners and I were sitting around one of our meetings and we decided 20 years after many other firms that it was time to get into wealth advisory, financial planning, and investment management. And so we opened our first account back in 2016, and as we kind of put a bow on the year, we're about $260 million across about 70 external client groups, and just excited about the challenges and opportunities in front of us.
Michael: So, your advisory firm was born out of an accounting firm, and I take it's still attached to an accounting firm as the business?
Jared: Yeah. The accounting firm is 90 years old. We're about 125 people within our organization, and we serve business owners, real estate investors, and operators.
Michael: How interesting. So, focused particularly into, I guess, the niches in accounting firm of real estate investors.
Jared: Yeah. We launched the practice to serve our current clients. And the needs that they had involved financial planning, estate planning, and coordination across their entire balance sheet, including the liquid assets, to optimize the after-tax outcomes of their decisions and strategies. And because those were the clients that we already were working with, that was our primary focus. So, we've attempted to continue to narrow our focus so that, hopefully, individually, we can expand our impact.
Michael: So, I am curious just hearing this out of the gate. Like, niched with folks who are real estate investors, which I know at least relative to our advisory industry traditionally, we're frankly kind of hard clients to work with because we tend to do managed accounts on custodial platforms, and they tend to directly own real estate that doesn't necessarily fit on our traditional investment platforms. So, just how does that work serving clientele who tend to have a strong real estate focus? Do you get the ones who actually are less real estate-focused? Do you get the ones who decide to stop doing real estate and now suddenly have a bunch of assets they want to reinvest? Or do you end up still doing investment dollars for real estate investors for whatever they've got that is not getting plowed back into real estate?
Jared: It's probably the latter. More recently, a lot of developers have refinanced projects that's increased their cash flow. Deal flow on the real estate side here in the Northwest is slowing. There's this positive paranoia that many of them operate with, kind of what happens during the next real estate correction. And so they're always looking to make sure that they preserve liquidity. And right now, with high inflation rates, there's a desire to preserve the purchasing power of that liquidity. And so it's kind of a niche opportunity where not a lot of advisors are focused, and though the lion's share of a balance sheet still might be invested in real estate, there's still significant opportunity from a financial planning perspective as well as investment management perspective.
Michael: Well, and at the end of the day, I think you'd said $260 million of assets under management, 70-plus client households, just, right, doing my napkin math here, the average client then is still $3 million to $4 million of liquid assets potentially on top of whatever they're doing in real estate.
Jared: Yeah. If you look at the richest people in the world, there's a high concentration of people that have either started companies or own real estate. And real estate's a really tax-advantaged asset class, and so translates to liquidity, and over time, those individuals begin to accumulate some liquidity. And so we're just partners to help manage some of these tax strategies on an after-tax basis, and managing that liquidity is important. So, they still might have significant assets that are non-liquid, but that doesn't preclude us from really leaning into that particular industry group.
Michael: So, help us understand a little bit more of the team structure and staff structure. Like, who's on board? Who supports 70-plus clients and $260 million under management? Then we'll talk a little bit more about just what you do for them. I want to understand kind of team structure first.
Jared: Yeah. We started the wealth advisory practice with myself and then one of my other tax partners was probably about 25% allocated to the financial planning and wealth practice, so we both got licensed and started. And so he's still probably about half-time focused on the wealth advisory practice while continuing to manage his tax and estate planning practice. I have another advisor. He's an MBA, CPA, CFP, so kind of comes from a CFO pedigree, acclimated to serving the business owner demographic and psychographic. And then we have two client service associates that are serving those clients, and then we're supported by Buckingham, which is essentially our virtual back office.
Michael: Okay. Oh, and so, thus, from a team end, I heard $260 million of assets under management, and I didn't hear trader investment team, like the stuff that comes on that end. So, that's outsourced. The internal for you is essentially advisors and service associates that support the advisors?
Jared: Yeah. I'm sure we've all heard Jim Collins' analogy. I think it's a Greek proverb, the fox knows many things, and the hedgehog knows one. And in a moment of capitulation, in a moment of deep pain, I really wanted to focus on what part of the job am I good at. What part of the job are we collectively as a team good at? And how do we get the parts of the business that we're not uniquely gifted at, parts that aren't creating unique value for our clients built quickly? And so you can either build it or lease it. And so, in that moment in time, there was so much opportunity in front of us. We just decided that we'd be better off partnering with existing infrastructure and virtualizing the back end of our business.
Michael: Okay. And then help us understand just what you do. What are you doing for clients and practice? What does financial planning and wealth management look like for a typical client of yours?
Jared: Yeah. Prior to starting the wealth advisory practice, I had spent probably 6,000 hours in advanced tax planning meetings with people that owned and operated businesses and real estate. And so that's still the focus of what we're looking at, but we've attempted to elevate it from kind of the tactical annual tax planning to truly long-term strategic planning. And there's that discomfort that exists, the dichotomy that exists that sometimes minimizing your cumulative lifetime taxes comes at the expense of minimizing taxes in a particular year.
And so our financial planning practice really looks to optimize those decisions over one's lifetime, looking at really where the dollars will be consumed, whether it's by the particular client, by their heirs, dollars that they give to charity, and/or taxes along the way. And so we try to simplify the investment processes. Investments are merely a waiting room for the ultimate destination, so let's identify where the growth's going to occur so that we can locate it appropriately to minimize taxes. From an investment thesis perspective, we're efficient-markets oriented. We believe that Gene Fama's way more right than wrong, and so we're not trying to add that value through predictive economic active stock picking.
Michael: And thus the outsourcing to Buckingham, which is a DFA value small-cap tilt oriented investment shop, so following Fama-French models.
Jared: Correct. Yes.
How Tax Issues Are Incorporated Into Comprehensive Financial Planning [12:29]
Michael: So, talk to us a little bit more of just what does this tax planning look like in practice. You talk about minimizing lifetime taxes, which I understood may not minimize in a particular year. But what are you actually doing? What kinds of planning issues are you getting into where that crops up? Can you give me an example?
Jared: Yeah. The moment that a client inevitably encounters is there's a lot of planning around estate planning. And so you have large, rapidly-growing balance sheets, generally illiquid. And here in Oregon, the estate tax kicks in at over $1 million per person. And so a lot of our clients, almost all of them, essentially, they have estate tax issues at the state level, many of them at the federal level. And so the coordination of an estate plan within today's business plan is also part of that process. And so it really does require the collaboration of a variety of different service lines. And so we're regularly in meetings with our CPA counterparts within the practice looking at some of the more advanced tax planning opportunities from an estate planning perspective, an income tax planning perspective.
We deal with a lot of money in motion. When we're looking at a potential capital gains rate change, that really stimulated a lot of M&A activity within the lower middle market. And so a lot of our clients all of a sudden wanted to learn, "How do I maximize the transferrable after-tax value of my business?" And there's a lot of moving parts in that, and so, again, it required the integration of income tax planning, estate tax planning, financial planning, and, in many ways, life planning. What does life after the exit actually look like? And so that's kind of our focus is there's a really small percentage of Americans that actually own and operate businesses. Generally, they have pretty illiquid balance sheets. And so though a lot of financial advisors indicate that they would work with them, in practice, probably the majority of their clients don't fit that fact pattern.
Michael: So, you were a firm where, as the buzz was going around in mid-2020 with the early versions of the Biden proposals of a potentially very significant change in capital gains, you were a firm that was actually in there with clients who owned businesses having the conversation of, "Are we going to potentially try to sell your business the next three to six months to lock in current capital gains rates before this change goes through or potentially goes through?"
Jared: Absolutely. When the original proposal first kind of started to get shared, it looked to be significant. A 39.6% capital gains rate on gains over a certain threshold, and surtaxes, and estate tax limit reductions, and the elimination of a step-up in basis. There were all kinds of planning levers that were of high concern and focus of our clients. Michael, one of the planning things that we're really, really focused on is generosity. Business owners are, in my experience, unbelievably generous. They recognize that their generosity is somebody else's miracle. There isn't necessarily a desire to silver-spoon their children or heirs. And so the integration of legacy and generosity planning is one of the things that we spend a lot of time doing, whether it's private foundation work or donor-advised fund planning, because of the tax benefits of being generous during one's lifetime.
On-Boarding New Clients And Building The Financial Plan [15:49]
Michael: So, walk us through what the planning process looks like when a new client comes on board. I guess that's an interesting dynamic because there's a good chance they may already be an accounting client on the CPA side, I guess, with real estate or small business accounting, but they've said, "I want to do more of this wealth advisory thing. Sounds like you guys are doing some good stuff. I want to go through your process." So, when a client says, "I want to get started with you," how does that work in practice? What do you actually do? What's the process with a new client?
Jared: I want to separate the financial planning process from the investment management process. And so, generally, we start with a fee-only or a flat-fee financial planning engagement where we generally execute across three meetings. In meeting number one, we're laser-focused on what James Hughes refers to as qualitative capital. And so it's helping us understand if money is kind of agnostic, if it's soil, if it's neither good nor bad but what seeds are we planting in it, we want to understand what does the family want more of. And so the first meeting is incredibly just qualitative capital-oriented, values-oriented.
Behind the scenes, we're gathering that financial information so that in meeting number two, we can show or present an initial rough draft of, "Hey, here's what we're seeing. What's right, wrong, missing, or confused?" And we're showing, essentially, the life map, "Here are the things that you said were most important to you." And then we're using generally MoneyGuidePro. We've got a variety of different planning tools, but just the cash flows out of MoneyGuidePro that represent the client's goals and showing them that they're accounted for.
And what I found is there's generally a financial decision-maker or a financial leader within a family, somebody who takes a greater interest or ownership of the finances. And we're attempting to tease the non-financial partner into the process, and we found that it's the qualitative discovery process and also the connection with the goals that get them to engage in the process so that there's really a shared vision for the family and an understanding of what they're trying to accomplish with their finances.
The third meeting, we present the plan. But much like medical advice, we probably all have experienced that it's easy for people to get the three-ring binder and not actually implement any of it. So, we're trying to distill it down into an actionable one-year plan. And at that point, the client has the opportunity to implement on their own or partner with us as an execution partner for ongoing implementation, and that's where we would transition to more of your standard AUM revenue model.
Michael: So, I want to understand these a little bit more in detail. So, when you talk about meeting number one is focused on qualitative capital, just what does that mean? What are you actually doing, or what conversations are you having, or what tools, or questionnaires, or whatever it is that you're using? What is that conversation?
Jared: So, it's informed by a framework that James Hughes talks about. In terms of intergenerational family wealth, most of our clients are already financially independent from a Monte Carlo perspective. I punch in the data and it's going to tell me 99% chance of success, but they're not emotionally free. And so we're attempting to speak to the family's human capital, intellectual capital, social capital, and spiritual capital. And so that process of just helping us understand why the money matters, and I think a lot of financial advisors approach it kind of in this way. And I've just found for us that James Hughes framework for capitals that are non-financial is an incredibly important place to start. And so it's really client-specific, and I'm attempting to tease out or engage the non-financial partner as much as possible so that they have a voice in the plan.
Michael: So, how does this conversation flow in practice? Because I'm envisioning a client who's been working with the CPA accounting side of the business, which I'm going to guess is probably not having a lot of conversations about social and spiritual capital. I'm maybe overgeneralizing on CPAs a little bit, but I'm going to guess it's a little bit more the taxes in the books and a little bit less this. They're saying we've got more complexity. We want to engage with wealth advisory because we've got liquid assets that we need to make some decisions on, and more estate planning, and more tax planning. And then here they are in the first meeting, you're having this conversation about qualitative capital.
So, just how does that work from a client conversation perspective, from an expectations perspective? Are new clients surprised when they get into these...that these are the conversations you're bringing them in the first meeting, or are you introducing it in a way that they were expecting that and comfortable with it?
Jared: Yeah. I once heard that expectations that are uninventoried can be resentments in waiting. And so that stuck with me, and I've always wanted to make sure that I inventory expectations and/or share mine. And so prior to ever engaging, we walked through what you could expect from the financial planning process and what that looks like, and maybe why we're approaching it that particular way. And so the clients certainly wouldn't be surprised that we're going to spend time talking about it because we've talked about it during the initial kind of fit meeting, "Hey, is this is a fit," and discussed it in the planning process leading up to meeting number one, "Hey, here's what we're going to be discussing and why." Essentially, meeting number one is we're not going to be really spending a lot of time talking about anything financial. But then, hopefully, making that connection during meeting two and three where we're connecting meeting one and the values discovery to meeting two and three in terms of execution.
Michael, a different framework that I more recently discovered...again, just I'm always learning and reading. I'm curious that there's more things I don't know than I do know. Many of us have studied psychology and understand the importance of behavioral finance and behavioral psychology as it pertains to people's money and the importance of behavioral coaching within this particular industry. But Scott Kaufman is a gentleman I recently encountered, and his book, "Transcend," has positively impacted me in the way I have conversations with my clients. He's reimagined Maslow's Hierarchy of Need not as a pyramid but as a sailboat. What's notable is Maslow never actually published a pyramid. That was stolen by managerial consultants and sold to Fortune 500 companies after the fact.
Michael: Oh, really? So, Maslow's hierarchy may have been a hierarchy of stuff but he never drew a pyramid?
Jared: No. He didn't represent it that way because it implied almost a video game existence of life, that level one led to level two and that you wouldn't go back to level one.
Jared: It didn't represent how dynamic life is. And so Scott Kaufman, who's a psychologist and a huge Maslow fan, spent a tremendous amount of time reading his journals, his unpublished papers, his lectures. And what he reimagined it as is as a sailboat where the hull of the ship is safety, connection, and self-esteem. And his point is he likes that metaphor because the world around us is unstable, our own lives are unstable, and so it's ever-changing. But to the extent that you have safety, connection, and self-esteem, and a role, part of that is finances, it allows you to navigate the rough waters of the world we live in.
But then he connects it to the sail via a mast, right? And that's kind of...I'm focused right now on the mast and the role that that plays and the role of the advisor to connect the sail to the ship. And the sail is labeled exploration, love, and purpose. And so if all we do is spend time talking about how to build Noah's Ark but we never talk about how to build the sail, we don't go anywhere. And so I'm really focused on understanding how do we do a better job as an industry connecting the hull of the boat to the sail so we have more meaningful impact in clients' lives beyond stuff that would just show up in an Excel document.
Michael: So, how do you get to these conversations in practice? Is there a questionnaire? Is there a system? Is there a series of conversation steps that you go through? Is this just something you've personally become so steeped in, you can just kind of plow into this conversation and have it in the works? How does this qualitative capital conversation work in practice?
Jared: Mixed, right? I think there are certain people that are more comfortable getting authentic quicker. Certain people are more willing to be vulnerable. And so, to some extent, it's choose your own adventure. A favorite question I enjoy asking, it's kind of an odd one, but it's like, "Hey, if I really wanted to know how you're doing, what question would I ask you?" And if people want to share something that's meaningful or deep, they will in that moment. And if somebody wants to keep it superficial, they will as well.
So, it's not as though everyone embraces this process, but I think the opportunity to go deeper is there. And for somebody who's already financially independent whose Monte Carlo is saying 99%, it's a challenge, I think, for the industry to help them better understand, okay, so how does this wealth impact your community, your family, and those around you in a more meaningful way.
Michael: It's a really cool question. If I really wanted to know how you're doing, what would I ask you?
Jared: And people will say, "You'd ask me about my marriage," "You'd ask me about my oldest daughter," "You'd ask me about my largest client at the office," or they won't. And, you know what, they'll take it where they want to take it.
Michael: So, that's the first meeting. You said the second meeting is you'd said a life map and MoneyGuidePro. So, what is a life map, and how does MoneyGuidePro fit into it?
Jared: Yeah, we're just trying to summarize. Essentially, we started with why money matters, essentially, how do you want your wealth to impact your family? How do you want it to impact your children? How do you want it to impact your kids? at the end of the day, those are the destinations for wealth. You'll spend it, kids will get it, heirs will get it, charity will get it, and the government's going to get some. I haven't met anyone that's filled out their beneficiary form with the IRS. So, it's generally a combination of kids and charity when they're already financially independent.
And so we share kind of, "Hey, here's where we started." I share a picture of the client kind of in the center with these, "Here's what you said was most important. Here's kind of what you're attempting to accomplish from a career perspective. Here's what you're attempting to accomplish from a charitable perspective. Here's what you said you were going to try to accomplish within a marriage or within the family. Here are some, maybe, unique nuances, risks, or concerns that we're trying to address." You could obviously turn that project into a multi-day project in terms of what's most important to a family.
So, we're trying to summarize it. Just more importantly for anything else, later on, when we encounter market volatility and, all of a sudden, there's some fear and uncertainty around a plan or a strategy, I want to get back to kind of the roots. Generally, the destination doesn't change, but how we get there, it might, or it will, actually. So, getting clarity around those destinations is pretty important. And then we're just visualizing kind of the cash flow out of MoneyGuidePro where it's showing, "Here are the goals that you said we're most important for and they're all accounted for. And the cumulative cost to this plan is X, and now we're able to test the liquidity and capacity of your balance sheet."
And so if we know where the income's coming from, then we can tax plan around it both from a tactical perspective and from a strategic perspective, and the probability of success is X. And so what's most important over the next 12 months is this. And planning is probably a lot more like hygiene or fitness than anything else. You're never really done. You're perpetually updating it. And so then the planning process isn’t a singular experience but an iterative experience.
How Jared Utilizes A ‘Life Map’ To Visualize Financial Plans [27:12]
Michael: So, I guess two follow-ons here. The first is, so what literally is the life map? You're giving it a label like it's a concrete thing. Is this like literally a deliverable that you create? Is this what you call the financial plan and the MoneyGuidePro output, or is this a separate thing? What is the life map as you're framing it here?
Jared: Essentially, it's just an overly simplified visual, probably very similar to something that you could pull out of SmartArt and PowerPoint with the client in the middle, and the top, we've tried to distill down what is the most important thing to those particular families and phrasing it as concisely as we possibly can. We're not trying to turn it into a monstrous deliverable. We talk about what's most important from a family perspective, what they're attempting to accomplish with their kids or grandkids. We talk about what their career objectives are and how they think about work. Is retirement financial independence, or is it the absence of an employed paycheck or ownership paycheck? We talk about charitable giving goals now and when they're not here.
We try to inventory goals and concerns, and it's all on a singular piece of paper, essentially just a true north. If we're pointing directionally of where we're trying to go... We often use the metaphor of GPS. Where are we today is a prerequisite for GPS to work. Where are we going is a prerequisite for GPS to work. And how we get there is a byproduct of those two parts. And so we're just trying to, in an overly-simplified, non-quantitative way, attempting to point to the direction that they told us during meeting one is most important to them.
Michael: And so just walk us through really quick...because you mentioned a couple of boxes of the life map. I think you'd said there's what's the most important to the family. There was something about career or there's something about charity. So, what are all the things that you're mapping and reflecting back to them?
Jared: Well, money can get you things, experiences, and impact, and so that's somewhat of a framework of what we're trying to capture. The destinations, as I've mentioned, or you can spend it, give it to kids, give it to charity, and done in a way so that the government gets as little as possible. And it's really just trying to keep the client directionally and emotionally connected to the plan, again, because there's always a client that's more oriented towards the Excel document, and then there's the non-financial partner that quickly loses interest. And so by combining something that is qualitative, and directional, and a more visual way with something that's more quantitative as in the financial planning deliverables, it's a way to keep both parties engaged.
Michael: And then you said you're creating a, like, MoneyGuidePro output as well. So, if meeting number one is all of the qualitative discussion, where do you get the data you're plugging into MoneyGuidePro to do a plan? Is that you just already have it because they were probably CPA clients already so you can pull the data separately? Is there a data gathering form or process that happens between meeting one and meeting two? When do you actually get into this part?
Jared: Most of our clients generally work with banks, and so they're regularly creating personal financial statements. And so a personal financial statement in a prior-year tax return and maybe some brokerage statements, we can generally capture the lion's share of what we need. And so those are often extra zeros behind our client's net worth. Concentration creates a lot of wealth, but it's diversification that preserves it. And so for a lot of our clients, the lion's share of their net worth can show up in the value of the real estate occupied by the business and the value of the business. And so, a lot of the time, they're trying to create a diversification strategy, or liquidity strategy, or going through the planning process to understand how much they need to sell their business for and walk away with on an after-tax basis to really support all of their financial goals as a family.
Michael: Okay. And then the third meeting you said is presenting the plan, but you've also said you're showing MoneyGuidePro results and outcomes in the second meeting. So, when you say the third meeting is about presenting the plan, what's the plan for you? What's actually getting presented in the third meeting?
Jared: Here's what we updated from meeting two to meeting three. So, meeting two to three, there's some refinement or tweaks, updates that the client has requested. We've disclosed our assumptions. We've, again, shown the probability of success is high, and then we're working into the one-year plan. Candidly, because the world is changing all of the time, we underemphasize the plan as anything that's longstanding. The plan is outdated the minute that we're done with it essentially, and so an important part of the planning process is getting clarity around what you must do, not what you could do, and creating some action around it.
And so rather than making it sound like the planning process is a singular experience and say, "Hey, that's a little bit frontloaded," we're going to spend some time creating this strategic scaffolding together. Understanding where we are now, where we're going, and how we get there, we'll inevitably respond. Just like when we're going to get groceries and there's a car accident, or we miss a turn, or we need to get gas. This plan will be like GPS and allow us to quickly iterate and update because very rarely does the true destination change. And so I'm underemphasizing the plan from a long-term perspective but distilling it down into what's most important over the next 12 months to create a level of focus, urgency, and execution.
Why Delap Separates Financial Planning And AUM Fees [32:33]
Michael: And then what does all of this cost for you? Because you said you did this on a standalone basis for clients, and then you get into assets under management and ongoing. So, what are you charging as a planning fee to go through this three-meeting planning process?
Jared: We're charging $3,500 currently.
Michael: Okay. And how did you arrive to that number?
Jared: Pretty unscientifically. We're only a handful of years into this business, and so there's just a tremendous amount of iterative learning, build, measure, learn, and that iterative learning of what are we doing, what is it worth, is it working. We're perpetually learning. So, it's this curiosity to figure out can we do it differently or better? Pretty unscientifically. I think I looked at the Kitces Financial Planning report survey, and that seemed to be about in the middle, and so I said, "Let's start there." Because to some extent, it gives us an opportunity to take the client for a test drive. It's an opportunity for the client to take us for a test drive, and I think that we can add a lot more value through planning than we can through predictions. And so it's an opportunity to build a shared vision together, whereas, previously, we weren't as much focused on the financial planning process. That was just part of what we did previously under an AUM model.
Michael: What I was going to ask, what led you to do this separate planning process and then investment management and AUM? Why separate them out?
Jared: To some extent, it was an opportunity to further align the client with who we were. Obviously, we're not a good fit for everyone, but we can be for some. And so if you're unwilling to create the time, and space, and investment in the plan, it means that you might not value what we believe is our primary value proposition. If you're just looking for performance and we're an efficient-markets firm, you're probably going to get itchy if you hear about the performance of a particular asset class out on the golf course with your buddy. And so, for us, it's an opportunity to also create alignment. And it also allowed us to better answer question during turbulent times from a behavioral coaching perspective. I was a better advisor to them if I had a better understanding of where they were attempting to go, and, more importantly, why they were attempting to go there.
Michael: So then help us understand what the investment management AUM side of the business looks like in practice. They go through this planning process, and then at some point in the end, there are planning action items to implement the coming year that you've tried to sort of scaffold out so that they're not getting hit with everything at once. There's an implication or an expectation that you're also going to help them implement the investment management side along with this. How does this transition flow? How do you actually get from planning fee to investment management going forward?
Jared: We describe the decision at the front end of the process, and, again, describe the pending decision after meeting number two, and the decision whether they want to implement it themselves or with somebody else or the decision to hire us and implement. And, obviously, how we craft or draft that one-year plan is informed by the client's predisposition of, like, "Do I want to do this on my own, or would I rather hire somebody else to do it?"
And our clients, a byproduct of wealth is complexity, and often the clients have more financial resource than they do have time. And so we talk about repurposing money to create time, and the cognitive research around that control of your time can actually create more happiness and just more money. And so our clients believe that, and they're not trying to be an expert in everything. And so probably 85% of the people that we take through the financial planning process ultimately hire us going forward to manage the liquid net worth and help implement whatever was crafted in the one-year plan, and then we draft that plan and begin execution the following 12 months.
Michael: So, it's an interesting framing, but all the research out there on using money to create time leads to greater happiness. And so when you get clients that are a certain level of affluence where, as you've noted, their Monte Carlos all show 99%-plus because there are some pretty substantive wealth there that they're past the point of, "I need to grow my dollars just to achieve my goals." They're there. They're at the point of, "How do I maximize the use of my dollars to maximize my enjoyment of my days on earth?" And conveniently, that leads them quickly in the direction of, "So, do you really want to be self-implementing all of this stuff, or can we help you implement this so you can go back to doing the things that you actually enjoy doing in life which is probably not worrying about your taxes in estate and portfolio?"
Jared: Absolutely. Generally, when you share with the client more money doesn't create more flourishing, you get a nodding head. They understand that. They've experienced that.
Michael: And so then what is the investment management fee that you charge? How does AUM work on an ongoing basis after you get through the initial planning process?
Jared: We have a standard waterfall fee schedule where we're charging 95 basis points on the first million, 85 basis points on the next 4, 70 on the next 5, 50 basis points on the next 10, and anything over that amount is 30 basis points.
Michael: Okay. And for your clients, that fee schedule bundles in, like that's the investment management, and all the planning work, and all the implementation, and all the stuff is bundled together into one at that point?
Michael: And do you ever have clients that are like, "Hey, enjoyed paying you a planning fee. I would like your help doing the planning work. I don't need you to manage my money. Can I just pay you to do the planning work separately?"
Jared: We haven't actually really encountered that. Obviously, the industry is changing and the AUM model has some limitations. And within the client group that we're serving, there's significant complexity in planning and worth that isn't represented in what's a custodian. And so kind of exploring what are some alternative revenue models that would enable us to serve those clients on a model that's independent of AUM because, again, AUM, I think, is great in some ways but also has its limitations as well.
And I haven't really discovered anything, but continuing to iterate conversations with clients like, "Hey, what do you think would be fair?" Again, we're serving entrepreneurs that, in many respects, I'm talking to peer-to-peer like, "Hey, from a value-capture perspective, how would you build for this if you were me? What is interesting? What's attractive?" And kind of trying to focus-group the business owner or entrepreneurial community that we're already working with that understands our value proposition. So, I guess if I ever figure it out, I'll have to let you know.
Michael: Well, I guess the core of it to me, right, for... I'm sure there a lot of advisors, at least, who would be concerned. Like if I start charging planning fees and then I try to shift them to AUM, they're going to say, "Can you just keep doing the planning work and not the AUM?" And it sounds like, at least for your clientele, no, not actually a problem.
Jared: Yeah, we haven't encountered that. In general, people coming from...consuming accounting fees or legal fees on an hourly basis independent of the value received, I don't think a lot of people love that business model either within those industries or outside of those industries.
Michael: So then help us understand just from this ongoing AUM model. As you said, you're kind of efficient-markets hypothesis folks, right, building on Fama's work. You're managing portfolios that are ultimately delegated to a back-office firm to support. So, I was just wondering, do you get concerns around clients saying, "Why am I paying you an AUM fee for 'a passive portfolio?'" They probably don't literally say passive portfolio, it's an industry term, but, "You're telling me not to try to beat the market and just hold on to stuff. Why am I paying you to just hold stuff while you talk about how markets are so efficient? Maybe I could be doing this on my own." Again, maybe that's an advisor fear and not a client concern in practice, but do you get concerned about we're charging these AUM fees for heavily passive-oriented portfolios?
Jared: No. I look at Vanguard's research around what opportunity to add value does an advisor have, and a significant portion of it is behavioral coaching. And, obviously, it's during specific moments of time that you're coaching. We're laser-focused on the deep tax integration across the client's entire financial statement. And so the opportunity to coordinate with their tax team on a quarterly basis, running tax reports. Towards the end of the year, we're looking at charitable giving.
And so just as they're being served by our CPA counterparts, the portfolio is part of that conversation, looking for planning opportunities of losses that we've harvested, charitable giving to donor-advised funds, estate strategies, and gifting to heirs. And so we're just an extension of the planning team, and it's just one of the assets that we're helping to plan around. Often, it's heir preparation, and it's continued the exploration around the qualitative plannings in ways that we can use our knowledge network and influence to support their qualitative capital that we talked about at the frontend and connecting that to their financial capital as well.
How Jared Leveraged Technology And Trust To Grow Delap Wealth Advisory [41:49]
Michael: So, now help us understand some of the journey of the growth of the practice itself. So, you said this wealth management offering started back in 2016 as an extension off the accounting firm. Obviously, it's had some really good growth overall to be at $260 million after barely five years. But help us understand just how that growth and evolution has occurred. What was it like in the first year or two? How did it get going?
Jared: I think you use the iceberg of success metaphor that people can see the tip of the iceberg but the remaining 90% that they can't see goes unnoticed.
Michael: Yes. It's where all the hard stuff happens, right? Beneath the surface in our businesses, yup.
Jared: Absolutely. I was at a spot in my life and career where I was incredibly focused on a specific set of tasks and opportunities. I came from the accounting practice, not from the financial services practice. I wasn't an associate advisor. Day one, I was our chief compliance officer, our lead advisor, our client service associate, everything. And if you had to organize knowledge into three buckets, there's the things you know, the things you don't know, and the dangerous third bucket, the things you didn't know you didn't know. And I swam in that third bucket during the early years. It was brutal. So, we have grown a lot, but the hidden implication is that could be a proxy for learning. I had to learn so much, and along the way, learning in real life looks like mistakes. Learning in real life looks like failure. And it's difficult to not stumble into despair.
There was a moment in 2019 where I was sitting there and we were having a lot of success with clients, but the operational implementation of how do we get these things papered, how do we get our portfolio management system operating so that we can rebalance on a household level? How do I do it in a way that's compliant with the State of Oregon? And we're quickly becoming SEC-registered. And the amount of learning that was required to go from zero to where we are today is immense. And Angela Duckworth's emphasis on her research around grit, holy smokes, does this industry require a high level of grit, that combination of perseverance and passion for what you're doing. It'll test your metal.
Michael: So, how did it actually get going? Did clients basically start showing up immediately because you had this existing base of clients in the CPA practice so you could do a rollout and just say, "Hey, we're now offering this new additional service. As a client to the firm, you have an opportunity to take advantage," and off it went? Did it get going that quickly, or was it still slower and grindier?
Jared: Probably yes to both. There's a high level of trust. Survey after survey that's done, a high percentage of people that own and operate businesses would indicate that their CPA is their most trusted business partner. And so we all see that and know that, but there's probably some psychographics to why they're the most trusted business partner. If you're just kind of looking at the psychographics of who starts businesses, it's risk-takers. It's people that see opportunity. The metaphorical gas pedal and the CPA can often be the person that sees risk, sees uncertainty, and they represent the metaphorical brake in any sort of decision. And so that's why trust takes a long time to develop with a CPA.
And so my business partners all had an incredible amount of trust in my character. They knew who I was, but it took a little while to develop credibility in terms of professional aptitude. Do we know what we're doing here? Because we never wanted to do something to harm a client. And so we grew and learned a lot along the way. What software to use, what investment thesis to use, how to build a portfolio, what portfolio management software to use, where to custodian. So, I got a lot of things wrong, but right out of the gate, one of the decisions that I feel like for us that I made that was the right decision is to be a fiduciary partner to these clients. And so we structured ourselves as a fee-only RIA so that we can continue to just create that alignment that they knew of our firm culturally as a CPA firm.
Michael: So, what came next as the business started growing and getting underway? What was the first challenge point that cropped up then?
Jared: Probably our investment thesis. Right out of the gate, we hired a subadvisor that had a 30-year track record, had billions of dollars of assets under management. Because I certainly wasn't a portfolio manager at that moment. And so, real quickly, I started to research, from an investment thesis perspective, what I believed, what my partners believed, and how we could structure a portfolio to mostly add value to the clients. And so shortly into our journey, we iterated and updated our investment thesis from an active one to more of an evidence-based implementation of kind of the Fama-French approach.
Michael: Interesting. So, your evolution towards a more efficient-markets hypothesis framework was because you lived with a firm that was more active and wasn't delivering for you?
Jared: Yeah. Right out of the gate, it was just operationally I'm looking at, "Does this make sense," and spending time looking at a lot of the empirical research. And I went back to some of our earliest clients and said, "Hey, I've continued to learn and grow, and here's what we believe to be true, and I would be doing a disservice if I didn't have this conversation with you." And everyone said, "Great. I appreciate that, and let's implement." And so next came the implementation of a performance management software. Had to figure out what the right software was from a financial planning perspective and portfolio management perspective.
Michael: And what did you implement?
Jared: Implemented eMoney from a financial planning perspective and implemented Orion from a kind of portfolio management perspective.
Michael: Wait, so what are you using eMoney for? Because you had said earlier your second step of planning process was MoneyGuidePro-based.
Jared: Yeah. Early on, looked at the opportunity to do kind of more advanced tax planning, estate tax planning. Liked eMoney out of the gate and implemented that. It was a nice thing because of the ability to demonstrate the implications of decisions, the opportunity to simulate a decision in front of the client and visualize data. I thought that was a very powerful tool.
Michael: Particularly around tax-related decisions, I take it?
Jared: Yeah. A lot of kind of the Decision Center implementation of scenario analysis, like, "Hey, here's what happens if we gift today or don't. Here's what happens if we..." So, kind of that AB testing in front of the client so that you could visualize the data. Because, obviously, the clients don't understand kind of the impact of compound interest over long periods of time. None of our brains do.
Michael: Well, I know MoneyGuide has some Play Zone capabilities to facilitate that as well, but I guess Play Zone's a little bit more around the retirement projections. Your clients don't actually have retirement issues because there's already enough dollars, their goals are typically getting checked. So, Decision Center in eMoney works better for you because you can actually start modeling some of the gifting and tax implications of decisions as opposed to the retirement projections portion. Is that a good characterization?
Jared: Yup. And then the decision to move towards MoneyGuide was in part inspired by that. That was part of the tech stack that was already developed and existed at Buckingham. The technology worked way better together than I could ever get it to work, and there's a simplification in goals-based planning that I really appreciate about kind of the MoneyGuide process. So, we continue to subscribe to both and we continue to use both, but MoneyGuide currently is our primary tool. And if we need something more rigorous from an estate planning perspective, we're either using tax software from the CPA firm or eMoney.
Michael: And then where does Orion fit in the picture?
Jared: Yeah. Orion, it's where the reports are run. It's where a lot of the operational dashboards reside. It's where performance reporting resides. It's where our client portal currently resides, kind of the hub.
Michael: And so you use Orion as a client portal as opposed to eMoney? Because I know they've got their own client portal offering.
Jared: Yup. Correct. Currently using Orion for the hub, and then from a CRM perspective, using Redtail.
Michael: Okay. And what led you to Orion?
Jared: I demoed a bunch of the different products, looked at satisfaction scores, some industry reports, and probably the sales process. At the end of the day, it felt right. Seemed like it was a tool that was rapidly growing. They were investing in the tool quickly. User interface looked a little bit more intuitive, modern, and, candidly, it's been a good platform for us. I think we've been serviced well, and it's met our needs.
Michael: And then what about Redtail? What led you to Redtail, or what else were you looking at to decide on Redtail?
Jared: Yeah. Initially knew we needed a CRM, and from a macro perspective, it seemed as though the industry leader across the country is Salesforce. So, initially started with Salesforce, but it was overkill for where we were at and what we needed. It kind of felt like I had a six-speed Porsche but didn't know how to drive stick. And so I ultimately liked how the user interface of Redtail, how intuitive it was. The price was attractive, and it was a way to begin to build the habits and workflows necessary to scale the practice on.
Why Jared And Delap Decided To Outsource Middle And Back-Office Operations [51:07]
Michael: So, talk to us more about just how the firm kind of grew and scaled up as you've just gone from getting started to $260 million in 5 years. What does that look like from a growth in infrastructure and hiring perspective?
Jared: Yeah. It's continuing to evolve. It's definitely non-linear. The first hire I made was a client service associate, somebody to help paper these accounts and to interface between our firm and the custodian, somebody to serve the client. So, that was the first hire. And then the second hire was another client service associate because my first client service associate pursued their CFP, earned it. They had 20 years of industry experience previously, and so they started to function as our first planner.
Jared: And that seemed to help emphasize our planning capacity and focus. And so then we hired another client service associate because we were onboarding a lot of clients and didn't want to compromise the client experience. I believe there's opportunities to automate client service more than there is the client experience, and I want it to be a high-quality client experience firm. That's the demographic of client that we serve. They stay at the nicest places and are willing to pay more to be served well, and wanted to make sure that we were adequately resourced from a service perspective to be high-touch and responsive.
And my business partner that started in the wealth advisory practice with me has continued to invest more and more of his time and focus in the wealth advisory practice, so that expanded our advisory level support. And most recently have hired another advisor who comes from public accounting and CFO experience but was also in the family office for a large family as an analyst and so has an understanding of a lot of different industries. And so from a talent stack perspective, I thought that was an interesting skill set. And they jumped on, and it's been really additive to the team.
Michael: So, that's kind of the hiring of advisors and CSAs. So, help me understand again where back-office outsourcing fits in for you. Because it sounds like you were essentially using some level of subadvisor out of the gate and have always lived in this world where advising work is happening internal of the firm but investment stuff is happening outsourced from the firm. Is that a good characterization?
Jared: Yeah. When we quickly moved from an active portfolio to an evidence-based portfolio, we brought portfolio managing in-house. And so there was from probably 2017 through the end of 2019, so for about '17, '18, '19, we were managing the portfolio in-house on our own with Orion attempting to get Eclipse implemented. At the end of 2019, we were at about $100 million, but it was having personnel challenges and operational challenges. It's just there was more things to do than there was time to do it, and I just was trying to figure out, "How do I make my job fun?" I was not having fun. I was ready to kind of bag it. Like, hey, we had $100 million, but I hated my job. I wasn't looking forward to Monday. I spent 90% of my time in tasks that took energy from me, and it was joyless.
And I just said, "How do I create time as quickly as possible and start spending more of my day in the things that I'm good at, the parts of the job that I authentically love?" And that's when I stumbled into your podcast with Dan Goldie. I think it was Episode 131, and I was driving, and I heard it. And I sat in the car, and I listened to this guy who had grown his practice to, at that time, almost $900 million of assets under management, I believe, with just one client service associate and a back office. And I was just blown away. That was unfathomable to me that somebody could do that, clearly a very talented and special person. But I knew that virtualizing a component of the operations had to have played a critical role in that processing. So, that's where I started the due diligence of how could we get capacity quickly to go positively impact clients' lives where they actually value our time, energy, and effort versus some of this back-in-middle office stuff where it's kind of permission to play.
Michael: I'm just wondering, you would frame this as personnel and operational challenges. What was coming up at this size and stage that was so dragging you down that you said 90% of your time were tasks that were joyless for you. What was going on that was dragging you down so much?
Jared: On a daily basis, I'd encounter countless questions that I didn't have answers for. How do I get eMoney to do this? And no one in my firm had ever worked with it before, so then I'm on 1-800 and I'm on their customer service line. And then I'm dealing with a complicated client fact pattern with a trust and intergenerational heirs, and I don't know how to get the paperwork at Schwab done right. And when you're less than $100 million, you're serviced differently at a custodian than you would be if you had $1 billion, and so we were struggling with our relationship at the custodial level.
How do you implement a household rebalancer? And so, you're just perpetually just...you're overwhelmed with questions that I didn't have experience or aptitude in, and it was stuff that I wasn't attracted to. And so I'm just slugging through all of this stuff that I didn't really particularly care for. I just wanted to spend time with current clients and prospective clients, hearing about their hopes, dreams, and wishes, and I'm bored by the back end of the business. I'm not good at it.
Michael: So, ultimately, the appeal then was sort of Dan Goldie's style like, "I just want to send this all out to someone who can deal with this stuff so I can get back to the client stuff I enjoy doing?"
Jared: Absolutely. And, obviously, there's incredible firms that have built it from the ground up. I just knew that if I was looking to have a significantly improved infrastructure going into 2020, the fastest way to get there was through a back-office partner.
Michael: And so how did you decide who to go after and who to partner with? Because there's no shortage these days of platforms that are willing to be outsourcing for advisors.
Jared: Absolutely. I started with people that I trusted. I called throughout our global alliance of public accounting firms. Some partners of public accounting firms working within their wealth advisory practice started there. But I also started with who Dan Goldie was working with. And so I put in a call to...it was Loring Ward at the time that had already kind of started the process of becoming Buckingham after their merger. And the other half of the partner, Buckingham comes from that CPA heritage. And so that orientation of tax efficiency and planning culturally felt aligned, and that relationship from an investment thesis perspective felt really aligned. But it takes a tremendous amount of trust because it's tough to take a back office for a test drive.
Jared: You go through the sales experience and you just hope that they're going to be able to deliver the way that they say they are. And you know that you're doing everything possible to not violate the trust the clients have extended to you, and you certainly don't want to create any sort of unnecessary disruption.
Michael: So, who else were you looking at? Were you vetting and talking to a bunch of different firms or narrowed down pretty quickly if it weren't for Dan Goldie getting at almost $1 billion, it'll probably work for me too?
Jared: It was a lot of social proof. If it worked for Dan, it worked for me. Other people had said great things about Buckingham. Dimensional had said great things about Buckingham. And so...
Michael: Because you were already using... Were you already using Dimensional when you were doing it internally from 2017 to 2019?
Jared: Correct. Yes.
Michael: Okay. And so were there particular deciding factors of just either pulling the trigger in general or pulling the trigger with Loring Ward/Buckingham in particular as to...? What got you to say, "Okay, it's go time. We're going to do this?"
Jared: I wanted to like my job again, and I knew that I wasn't going to last in the role much longer if I didn't change what my days looked like and felt like. And so there was that desire, knowing that I was really the partner tasked with growing the service line, how do we expand it. And there was also the desire to increase our impact with our clients. I knew if I freed up more time to go spend time doing what we did best, my opportunity to positively impact our clients and scale it would be significantly increased. And so I just viewed it as an investment in the business to create scale, and speed, and impact. And if we're creating more impact for our clients, they're obviously going to be willing to compensate us for it, and, hopefully, if we do it well, tell our story in the marketplace so that our sales efforts would be more virtualized by having our clients tell our story for us.
Outsourcing Back-Office Work To Accelerate Firm Growth [59:49]
Michael: And so as you decide to move forward, how do you think about this just from a business economics perspective? Because outsourcing back office is not inexpensive unto itself, so how do you think about the cost of paying a platform for doing this?
Jared: At that moment in time, it was something I thought about, but, at the end of the day, I looked at what is the opportunity in front of us to scale, and it was immense. I think within our own existing client relationships from the accounting firm perspective, there's a billion-plus-dollar opportunity with the clients that we already serve. And so the opportunity to begin to pursue that more quickly and effectively to me was a bit of a no-brainer.
I think down the road, you can always revisit expense. Revenue is infinitely scalable, but expenses aren't infinitely cuttable. And so if we focus on growing our revenue and growing the value that we're creating for clients and the value that we're creating within our firm, I figure we can always circle back and expense-optimize down the road. But it's been a spectacular move for us to really lean into our strengths and our metaphorical hedgehog.
Michael: Interesting. So, the framing for you was I'm not necessarily doing this as a cost minimizer or profit maximizer. I'm doing this because I actually see enough growth opportunity in front of me that if I just make scaling the back office their problem and not my problem, and have reasonable trust they can do that successfully, I can focus on growing the revenue. If I grow the revenue enough, I may not even care that much about the actual expense at the end of the day as long as it's net profitable overall because we're just going to grow so much. There's going to be plenty of dollars on the table for everyone.
Jared: Probably that. At the end of the day, I wanted to be a better firm. Better is more important than bigger, I believe. Bigger is a byproduct of better, and I wanted to get better faster. And so kind of a tongue-twister there, but I just wanted to level up our game, and I knew if I had more time, we would. And so, no need to create something that's already been created. It's why I'm an avid, avid reader. What I love about reading is kind of that Abe Lincoln quote, "A capacity and a taste for reading gives you access to whatever's already been discovered by others." It's the key or one of the keys to solving problems that have already been solved. Somebody had already solved this problem, and so there's no need for me to go solve it again. And so I just wanted to get back to the business, create more value knowing that revenue would follow.
Michael: And so what came next as you made this transition? Say, okay, we're going to stop doing this internally. We're going to start doing it externally because we think that lets us scale the revenue more quickly. So, I think you said you were coming up on $100 million at the time at the end of 2019, so what happened as you made the transition? How did that go?
Jared: COVID happened shortly thereafter.
Michael: Well, that was good planning.
Jared: Yeah, yeah. Certainly, it was fantastic to have a highly competent, nimble trading team able to trade the portfolio with the level of precision that I was delighted to talk to our clients about during COVID. But I guess I back that up too. At the end of the day, I wanted to start with creating trust and understanding of what our value proposition was across the entire firm. And so, over the years, I've really focused on making sure that our own team understood what it was that we were doing and why we were doing it so they had the knowledge to speak with confidence and conviction around the solution. And so there was a lot of education across the firm. Many of my partners have attended advanced trainings around planning and investment management just so that they could be confident speaking to these various things. At the end of day, we all have our circle of confidence. They're all laser-focused on whatever particular service line discipline that they're in charge of but trying to create shared vision across the organization.
Michael: So, what's growth been since then? I'm just trying to patch together a timeline. Ultimately, you were at $100 million at the end of 2019. You had said earlier you're at $260 million now. So, it sounds like, notwithstanding COVID and the disruptions of COVID, a lot of growth has come over the past two years.
Jared: Yeah, yeah. And so probably like a lot of places, Oregon's probably more shut down than other states. Our office isn't really open even at the moment of this recording, and so the vast majority of that growth has occurred in a virtual environment. And so it required us as a team to figure out how do we execute these plans in a virtual environment and how do we virtualize our sales process in a way that gets people comfortable quickly in a virtual environment. And I think the move to virtualize our back office gave us a 90-day headstart on how to be better prepared for COVID. And then I also continued to have the time to meet the needs that our current clients had during COVID but also be available for the business opportunities that COVID created.
Michael: And so just where is this acceleration in growth coming from? Is it still ultimately driven by clients coming through from the CPA side of the business?
Jared: Yeah, I think it's further refining what it is we do. Strategy, to some extent, by nature, I think Michael Porter out of Harvard talks about strategies about making choices and trade-offs, deliberately choosing to be different. And so, for us, kind of narrowing our focus of who we're serving allows us to be more effective in those clients that we're serving. So, to help our business owners that were looking to transition businesses more efficiently, work that we were doing a little bit before, my business partner and I went and earned our Certified Exit Planning Advisor designation just to have more knowledge and framework around how do you increase the value of a business and transfer it more tax efficiently to clients on an after-tax basis, and part of that process involves financial planning.
And so it seems as though if you were to begin with the end in mind, generally maximizing the value of a business is a business owner's goal. And so it allows us to partner with those clients ahead of time well before the exit, and so the trust and plan has been built prior to the liquidity event occurring. And so a lot of that growth has come from money in motion, but we were helping to architect the post-exit plan long before the liquidity event versus just showing up after the story hit the news.
Michael: So, was that program, the certified exit planner designation, actually helpful for you in practice in facilitating those conversations or helping to give you better conversations around maximizing enterprise value for business owner clients?
Jared: It's helpful to understand kind of a general framework to communicate more effectively. It helped us put a stake in the ground a little bit that this was something that we were focused on that combined with the tax focus, the tax integration, at the end of the day, that's money in motion. There's a tremendous amount of planning opportunities that occur when somebody's taken 20 or 30 years to create the wealth, to transition it tax efficiently. And that typically involves estate planning and philanthropic planning, asset allocation decisions, cash flow planning. Yeah, so the CEPA was just kind of it gave us some scaffolding to go have more meaningful conversations, and it also allowed us to leverage a lot of the experiences and insight that we already had but in a more coherent delivery.
Michael: And so what ultimately has brought the acceleration for growth? I'm just sort of doing math overall, like $100 million in the first 3-plus years, $160 million over just the past 2 years. What changed that led to the inflection of the growth? Was this the outsourcing decision? Was this the COVID environment? Was this the deeper focus on business owners? What's driven the inflection?
Jared: I think it's all of it. It was that heightened level of focus. The impact of the focus was enhanced when we created more time by the decision to outsource. I think the humility and courage to perpetually invent, fail, learn, and grow was certainly part of it. Phil Jackson, the basketball coach, had a quote that I love, "The strength of the individual is the team, but the strength of the team is the individual." Clearly, I'm not doing this alone, and it takes many people and an incredible amount of trust that has been developed over the course of many, many years.
And so it's all of those decisions and inputs in aggregate is really where it's gotten us to where we are today. And, candidly, I think we're just beginning to scratch the surface. There's still significant opportunity that hasn't been realized, aptitudes that haven't been developed, and just opportunity to, I think, further create efficiencies on the back end of the business that allows us to spend more time with the client, which is really where I think we add the most value.
The Surprises and Low Point Of Building Jared’s Advisory Firm [1:08:38]
Michael: So, what surprised you the most about just building an advisory business?
Jared: I guess what surprised me was how complicated it was. I think you look at the world's perception of it and you just see the top 10% of the iceberg. And so my perception was you invest the dollars, the market goes up, that you play a lot of golf, work short hours, and make a lot of money. And, man, I was humbled immensely by the complexity of all the different inputs that have to go into successfully scaling a financial planning and investment advisory practice and, candidly, continue to be stretched in new ways that I wasn't previously. Growth creates new opportunities but also creates new challenges, and so we're still well within that iterative learning process.
Michael: So, what was the low point for the journey?
Jared: The low point was in the fourth quarter of 2019. It was around the time that I listened to the Dan Goldie podcast. We had had clients say yes. Getting clients to say yes wasn't the hard part, but it was getting everything through the funnel in a way that was scalable that I was struggling with. And so I was just...two things can exist simultaneously. Something can be both good and bad. And so we were having success with clients at the front end, but then it felt like there was this traffic jam in the middle back office that I just couldn't seem to fix fast enough. And the opportunities were coming to us faster than I could fix the middle back office.
And so I don't like feeling like a failure. Most people don't. And so I just was like, "Do I have the skill or aptitude to honor the opportunity that my partners have extended to me in this wealth advisory practice?" I didn't want to be the guy that squandered an opportunity. I knew that there was an incredible opportunity in front of us, and I just felt inadequate, I guess. Like, how come I can't figure this out? It shouldn't be this hard. I wasn't inventing an industry. I wasn't inventing a technology. But trying to get it all to come together in a way that worked well internally and externally was shockingly difficult.
Michael: And that was what ultimately led you in the direction of, "I'm just going to find a partner who's figured this out and let them do that part, and I'm going to get back to the part that I enjoy doing?"
Jared: Totally. Why do I need to build something that's already been built? I'm not having fun doing it. I'm not uniquely great at it. It's not a differentiator in the marketplace. How do I get back to what I like?
Michael: And for you, just the cost of that was a comfortable trade-off?
Jared: Absolutely, because I knew we would be rewarded ultimately by creating more value for our clients that would ultimately be followed by growth and revenue.
Advice Jared Would Give His Former Self [1:11:24]
Michael: So, what do you know now about just building and growing the business that you wish you could go back and tell you from five years ago when you were getting started?
Jared: That's a great question. Generally, you learn something from all of your experiences. And so there's always something good that comes from the adversity. It allows you to have experiences, create talent stacks, understandings that you wouldn't have otherwise had. Sometimes I appreciate the failures that I've had in life because it allows me to be more grateful today for where we're at. Tough to appreciate the peak if you've never been in the valley. But in hindsight, if I was trying to create the straight line to where we are today, I would've just started with a virtual back office versus having to struggle with creating it from scratch. Because I would've rented the infrastructure so that I could get to work in the part of the business that I'm particularly interested in and feel like I'm more talented in than the other parts of the business.
Jared’s Advice For Newer, Younger Advisors [1:12:19]
Michael: So, what advice would you give to younger and newer advisors that just are looking to get into the business today and figuring out their path?
Jared: Well, if knowledge is power, knowing what we don't know is wisdom. And so I'd say approach it with this desire to learn and grow because complacency is rarely rewarded. An advice I once heard from a tech entrepreneur was kind of find your tennis ball. And the tennis ball metaphor was meant to be you don't have to teach a Lab to retrieve a tennis ball. It's not work, it's play. And so find parts of the job that you're naturally attracted to so that when the metaphorical tennis ball gets tossed again, it's not work but play. And the more time I spend with the metaphorical tennis ball of our industry, the more joy, more happiness, more fulfillment I have, and that's translating into more success, And it's kind of this virtuous cycle once you can spend time chasing the tennis ball.
Michael: So, how do you figure out your tennis ball if you're not sure what your tennis ball is yet?
Jared: I think it just probably requires you to try a lot of different things, right? Very rarely do people meet, and date, and marry the very first person that they hang out with, right? And so I think you kind of have to try a lot of different things to figure out what you like, what you're good at, and where you can add value to an organization. There's this concept of...like an ikigai is the name of it. It's kind of a Japanese concept of the intersection of what you're good at, what the world needs, what you can get paid for. Kind of a Venn diagram, Carl Richards style, has a complicated concept visually.
And I think it just takes some experiences in life. And so understanding that it's going to be an iterative process, understanding that you can't start today where you want to end up, that it takes continued learning and growing. Yeah, I guess patience and humility, something that, at times throughout my career, I've lacked is probably a wonderful character trait to have if you're going to try to be successful within this industry because it's forever changing, and, again, more difficult than, I think, outsiders realize.
What Jared Has Planned For The Future [1:14:17]
Michael: So, what comes next for you?
Jared: For me, again, the growth is exciting, but it also creates some new challenges. And so how do we scale this beyond just one and a half advisors to now we're at two and a half? How do we scale that effectively, and how do we scale it to three? And so how do we harness this power of a shared vision across various service lines? All these things create challenges because, at the end of the day, a lot of our value proposition is our personnel.
I think any professional services business, your primary asset goes home metaphorically back when we were in the office every day. And so how do you attract, retain, train people that share the vision but also share that aptitude? Because the aptitude that we're selling, so to speak, is an aptitude that takes a long time to build. For me, it was 5,000 or 6,000 hours in advanced tax planning meetings before even stepping foot into the "RIA" space. And 5,000 or 6,000 hours doesn't replicate itself quickly, and it's continued to expand over that period of time.
There are no shortcuts, I guess, to developing that expertise, but I guess I'm joining the challenge. It just requires new learning, and I'm energized by new challenges and new learning. And I'm also trying to get better at the “sail” that we're talking about earlier. How do we help clients discover the desire to explore, and love, and pursue purpose? And how, from a financial advisory perspective, can we be the mast that connects the sail to the stability of the boat, which is often their finances?
Jared’s Definition Of Success [1:15:49]
Michael: So, as we wrap up, this is a podcast about success, and one of the themes that always comes up is just the word success means different things to different people. And so you're on this track of building a wonderfully successful business and hundreds of millions of dollars under management in just a relatively few years. So, the business is going very well, but how do you define success for yourself at this point?
Jared: I think there's an internal definition of success that closely aligns with Warren Buffett's definition of success that when you get to the end of your life, the people that you want to love you actually do. And so I just want to be somebody that leaves people better than I found them. And I'm excited about the opportunity to create a unique culture within our RIA community and in the firm that we're growing to positively impact business owners throughout the Northwest. Help encourage them to explore their purpose, love, and, ultimately, kind of the transcendence of wealth from power to impact so that they leave their families and communities better.
Michael: Very cool. I love it. I love it. Well, thank you so much, Jared, for joining us on the "Financial Advisor Success" podcast.
Jared: Thanks, Michael.