My guest on today's podcast is Jim Dew. Jim is the Co-Founder and CEO of Dew Wealth Management, an independent RIA based in Scottsdale, AZ, that provides virtual-family-office-style financial planning on a monthly retainer basis for 150 small-business owner entrepreneurs.
What's unique about Jim, though, is how he has scaled his retainer-based boutique firm to more than $7 million in revenue, a $31 million enterprise valuation, and is growing organically at a 40% growth rate, by providing a high-touch comprehensive advice offering for his business owner niche clientele.
In this episode, we talk in-depth about how, despite not implementing an AUM model, Jim’s firm was independently valued at $31 million of enterprise value based on the strength and growth rate of their retainer-based pricing model, how Jim arrived at his retainer-based model that charges $4,000, $6,000, or $10,000 per month to cover the breadth of the ‘financial quarterback’ services he provides to his ideal target client (business owners with more than $1M of EBITDA per year), and why Jim and his firm not only provide a deep-dive financial planning assessment to prospects but have evolved it to the point of charging an upfront fee of $25,000 to prospects just to go through it, after learning the hard way in feedback from existing clients that giving away the assessment for free was actually undermining their perceived trustworthiness.
We also talk about how Jim has structured his virtual-family-office-style approach not by delivering tax, legal, and other services in-house but instead by continually building a list of external tax, legal, and other professionals that he and his firm don’t just refer out to but have actively sought out and vetted based on their credentials, education, experience, and personality and follow-through. Jim describes how he and his firm provide what he calls a 'time energy shield' for their busy business-owner clients by helping them find the right professionals they may need, managing the projects with their professionals, and even fielding the inevitable business pitches that come at their clients, and why Jim and his firm use Monday.com instead of a traditional CRM to both map out and manage workflows and tasks for clients but also to keep detailed information about their vetted professionals and COIs… while also creating a dashboard so that clients can track the progress of all of the services that the firm provides them.
And be certain to listen to the end, where Jim shares how, after a couple of years of struggling to hire the right candidates for his firm, he realized that the recruiters he was using were not delivering and decided to implement an ESOP to attract candidates as well as hiring a director of operations who executed a marketing-esque hiring funnel to bring in more advisor talent, why Jim feels strongly about developing a niche focus because he learned that by becoming an expert in a particular field, it is easier to market and clearly communicate services and helps the right clients find his premium services, and why, even though Jim has received offers in the past, he feels he won’t be selling his firm anytime soon despite its strong valuation multiple because he believes his unique business model contributed to the 10X growth of the firm in the past 8 years and wants to continue his legacy and impacting how financial planning is provided for business owners for the foreseeable future.
So, whether you’re interested in learning about why, because Jim is a business owner himself, he wanted to work with business owners to give them the support they need to be successful, how Jim’s wife Mimi develops and supports the firm’s team culture, or why Jim feels a retainer-based model is more suited for his clients because they enjoy knowing exactly how much they are paying each month and don’t have to worry about long-term contracts, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Jim Dew.
Resources Featured In This Episode:
- Jim Dew
- Dew Wealth Management
- Team of Rivals: The Political Genius of Abraham Lincoln by Doris Kearns Goodwin
Looking for sample client service calendars, marketing plans, and more? Check out our FAS resource page!
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Michael: Welcome, Jim Dew, to the "Financial Advisor Success" podcast.
Jim: Thank you, Michael. I am really excited to be here with you today.
Michael: I'm really excited to talk about today's episode. And what I find are sort of 2 interesting trends and shifts in the industry that to me you are bringing together in a very striking, distinct way. One is this kind of ongoing shift that's been happening of...we'll just sort of broadly call it alternative fee models which basically means things besides AUM most commonly known as some kind of retainer subscription style fee so we can get recurring revenue and not necessarily need to be reliant on assets or product sales. But most retainer firms...I guess most of the criticisms I see around retainer and subscription firms is, "Okay, but how big can this really grow? Do you have to ultimately have the assets in order to get the long-term retention because assets tend to be sticky or just to be able to generate enough revenue to work with some more affluent folks who write some bigger checks?"
And commonly, one of the places that the industry has gone for at least people who are able to write bigger checks is business owners. But business owners for a lot of our industry's history...I remember back to my start a long time ago. We loved working with small business owners because we could sell life insurance for their buy-sell agreements and that was the only reason why we really wanted to talk to business owners, to sell life insurance or maybe a fancy split-dollar insurance arrangement for some tax strategies that the IRS shut down a long time ago. But once the industry started shifting to AUM, I actually feel like advisors got more distant from small business owners because we weren't necessarily selling the insurance products from the buy-sells and AUM is really hard for business owners because they either are not liquid or when they...the serial entrepreneurs, they don't even want to invest when they're liquid. They just want to put the money into the next business and start the next thing.
And so, I know you live at this interesting intersection of building around a subscription retainer model, building a very large firm, as we'll talk about. You have many millions of dollars of retainer fee revenue and several dozen staff and much larger than most other retainer firms that I've seen. And you're doing it squarely in this domain of small business owners. That's not about products or assets. It's literally about the advice that's provided for this ongoing retainer fee. And so, I'm just really excited to talk about how you found and managed to drive success with this intersection of monthly retainer model plus business owners for enough dollars that you can really build and scale this.
Jim: Yeah, it's been a great journey and it's...every overnight success took 20 years. I've kind of bumped my head against the wall, my wife and I who've built the company over the years and figured our path out which is...turns out to be a good one for us.
Where Dew Wealth Management Stands Today [06:27]
Michael: So, I think to start, just paint us a picture of the advisory firm as it exists today. How has this come together over 20 years of overnight success?
Jim: Yeah. Well, today we're a firm of 27 employees. Twenty of those employees are advisors. This year we project we'll do [$]10 million of gross revenue. We're Inc. 5,000 fastest growing...one of the 5,000 fastest growing companies in America. We were happy and proud to be certified as great places to work through. Secret surveys that they give to the employees and those kinds of things. We became an ESOP in September of this last year so now we're employee-owned and there's a whole thought process that went behind that. And we feel like it's a blue ocean. We're just growing so fast. We're hiring and recruiting constantly. We feel like this is a great home for advisors who want meaningful work, who want to do real planning, and who want to be owners of this company along our side. So, that's where we are today and with my wife as president and me as CEO and our managing director and our director of ops and some of the other executive team positions, it's kind of weird to even think of where we are from where we originally came.
Michael: So, help us understand from the client side. So, you said projecting 10 million of gross revenue this year. How many clients is it?
Jim: Yeah, we're right at about 150 entrepreneur business owners right now and we've got...we've had a 6-month waitlist. So, a new client that comes forward, we put them on a waitlist for 6 months and we've just eaten into that now with our hiring and recruiting. So now we're about 4 months out on our waitlist for our new entrepreneurs to come on board.
Michael: So, I'm just trying to think about the math of this. 150 clients...is projecting 10 million of revenue this year, is that where you are now or with growth because you're going to have more than 150 clients by the time you get through the year? Where are you now?
Jim: Just last year we did just under 7.3. And we're adding 5 or 6 new clients a month. That's the max about that we can take on. And so, with that projection and with those new clients coming on, that's where we get the 10.
Michael: Okay. So that's a big just raw math of revenue per client. That's a big number. 7+ million going on 10 million revenue, 150 clients, probably approaching 200 by the end of the year at the pace you're at. You're talking about a neighborhood of $50,000 of revenue per client. Am I thinking about that math correctly?
Jim: You are. So, we have 3 service models for our entrepreneurs and the lowest is [$]4,000 a month, the highest is 10,000 a month. So, we go low, mid... 4, 6, and 10 per month.
Michael: Per month? Okay. Because a lot of advisory firms are like, "4K is our annual retainer, 10K is our annual retainer." So, you're at 4K, 6K, or 10K per month in ongoing advisory fees, and ongoing retainer fees?
Jim: That's correct. And we have no long-term contracts. Everything's on a month-to-month basis for the business owners. And yet, that's one of the reasons they love it. They like to just know what they're paying and what they're getting. And they're not locked in. And really...the advantage Mimi and I have had, my wife Mimi who we started the business together over the years is we're entrepreneur business owners. We just asked ourselves along the path “How would we build it for ourselves as business owners? What would we want?” And we just kept answering that over and over and changing the model as we went and we said, "Hey, we wouldn't want anyone to be focused on anything other than us. We don't want them to get paid in some other way other than by us. And we don't want to be stuck in long-term contracts." And that's kind of how we created the model.
Michael: So, I was just thinking through this from sort of the math of the business. So, 150 growing on 200 clients, 20 advisors. So, advisors may only have 7 to 10 clients, or I guess an advisor, 2 advisor team might only have 15 to 20 clients. Is that the neighborhood of how this plays out?
Jim: No, because it looks that way just because we've had to hire up. It takes us some time to train our advisors to be able to do this work. We can't find anyone we can bring in that immediately can do this work with business owners. So, there's a lag time. And we need capacity with the growth rate. But we figured out that an advisor can handle between...depends on which service level but between about 15 and 30 clients per advisor. And then we handle it with a team perspective. So, we've got an advisor for the client, we've got a senior advisor above and we have an associate advisor helping from below.
Michael: Okay. So, help us understand then just what on Earth are these advisors actually doing that you can only have 15 to 30 clients per advisor? I don't mean to diminish that but for a lot of advisory firms, the numbers are bigger. But you're doing $50,000 plus, sometimes $100,000 plus of revenue from a single client. So, advisors with 15 to 30 clients can still have million-dollar revenue books in this model which is a really, really, really healthy number. So, just help us understand what on Earth are you doing for the clients at 4K, 6K, 10K per month. It sounds like that's very structured, like there are service tiers and defined things of what you get at each tier. So, what do you get at each tier? How does this work?
Jim: Yeah. Well, that's where the magic is, right? It's hard. This model is very hard and takes a lot of work and you have to deliver a lot of value to have business owners want to pay that kind of money. And they do want to pay that kind of money for the services they're getting. And it takes me back to my early days when I started in the business. I was told by one of my managers, "You want to be the quarterback. You want to be the quarterback so that you're bringing them the estate attorney and the CP and those kinds of things." But what that really meant was you were introducing the client to these different professionals and that was kind of your job. But with this model, we always say, "We think about a wheel." We call it the financial flat tire when an entrepreneur comes to us because business owners over their lifetime, they pick up an accountant, an attorney, an insurance agent. They get these different professionals. And if you picture those spokes on a wheel, they're usually not all A players. They're not talking to each other and collaborating. No one's holding them accountable but the worst part is the entrepreneurs in the middle of that wheel managing that team when the entrepreneur doesn't have the time or the expertise to speak all those languages of tax, legal, insurance and investment.
So, what we really do in essence is we run that team but I mean to a very detailed level with how we do the tax planning with the CPA, with how we review the work the attorneys are doing. We're deep in all those documents and all of those projects and we're running the project. We're not in the back seat with the CPA driving or the attorney driving. We're actually driving the vehicle and using those experts for their expertise and making sure they're delivering and not overcharging and getting the outcomes and results that these business owners need and desperately want but are not getting when left to their own devices.
Michael: Interesting. So, I'm just trying to process relative to...as you said, a lot of advisors, we like to talk about ourselves as the financial quarterback at the center of all of those different affiliated professionals. So, I'm just trying to make sure I'm understanding the distinguishing of what you're doing versus what other advisors who say this are doing but apparently not doing what you're doing because they're not charging the fees that you're charging. So, if I'm understanding, the 2 big distinctions here is you're not just interacting with their professionals. You're evaluating their professionals. You're making recommendations to replace their professionals. You're actually bringing in and introducing new professionals. I guess you've got your own network of people or your own way of evaluating and vetting to try to find good people to do this. So, you're actually making the people in that team the good people that they need to be. So, that's one distinction.
Jim: Absolutely. And we've got...now we have advisors in 12 states. We're headquartered in Scottsdale but we have remote advisors in 12 states. We have clients in 40 states. We have a deep network of professionals all across the country. And so yeah, that's part of it, is evaluating, holding accountable and replacing professionals when appropriate. And entrepreneur business owners, often they outgrow their professionals and they don't know when they do and how to replace them and what they're doing and they just say, "Hey, I like the person and she returns my calls." That's why they keep a professional and that's not always the best reason.
Mimicking A Family Office Approach By Developing A List Of Vetted Professionals [15:48]
Michael: I just want to understand how you actually do this “We’ll build the team.” How are you finding the professionals to do this? Do you have a set quarry of folks that are really good and you're just actively referring them? Do you have a whole, "Oh, you're in the LA area. Well, we've got a process where we find 10 LA attorneys and interview them and then winnow it down to 3 and then pick the final 1 and then make that your..." You go into that level? How do you actually plug in, find and vet and plug in the professionals they're using?
Jim: Yeah. And it's all of the above, what you just mentioned. So, some is relationships that we've built over...I've been in this industry for almost 30 years, pushing 30 years. So, over my career, it's professionals that we have created a COI list. And then it's also...once you know a great professional in an area, often they know other great professionals. So, if you have a great CPA in LA for example, that CPA probably knows a great asset protection attorney in LA. So, we can get those contacts and then we run them through our vetting process. So, we have 5 areas we look at. We have...we go to regulatory websites which a lot of advisors...I'm still surprised they don't go to regulatory websites to look at complaint histories and all the things you can find out from the bar association or the State Board of Accountancy for CPAs. We look at education credentials, we look at specialty, we'll look at personality and follow-through, we look at experience. So, we really drill down and have a process to evaluate those professionals.
How many years have they been doing this, those types of things. Were they always working in California? Did they move from another state? Now typically people leave out of California, not to California. That's maybe a bad example. But what's their experience look like. What's their specialty because in what we do, we really need specialists who know what they're doing. And then finally, personality and follow-through. We always tell our business owner entrepreneurs a mistake a lot of business owners make is they find people on their team that they feel are like them. And I usually tell them about the book about Abraham Lincoln called "Team of Rivals". Abraham Lincoln, like no president probably since, he put rivals, people who hated each other and had different perspectives on his cabinet. So, we say, "You don't want to have everyone on your team that you love and you feel like you see eye to eye but you also want to have personalities where you feel like you understand each other and you can communicate and work together."
Michael: So, you're evaluating them across all of these dimensions. So, I guess what does that look like? You'll reach out cold to a CPA and say, "Hey, you were referred to me by so and so. I've got a client in the area that may have a need but we evaluate the professionals that we refer our clients to. We'd like to spend 30 minutes with you getting to know you and more about your background." And then you start going through this questionnaire list?
Jim: That's a very good example. So, these professionals, they want good business and the professionals we refer to love our model because often the very good professionals in the different disciplines, they get frustrated because these entrepreneur business owners won't follow through with what needs to get done to implement these things. And so, we're making sure that all the titling when they're doing some sort of asset protection trust is done correctly and the gifting of things and the documentation or the CPA with the tax planning. We're making sure everything ends up in the file. So, all those little things that don't get done, we're making sure they get done. So, the very best professionals, they love it and because we're in charge, it's not like they have to worry about these off-the-rail entrepreneurs who don't even know how they're evaluating these different things. And so, we're guiding the process.
Our entrepreneurs aren't even going to be on a call with a professional until we've vetted out kind of the ideas and the strategies and what will and won't work before they even get involved.
Michael: So, who does the vetting internally? Do you have your chief vetting officer who's someone on the team who's just really good at doing these interviews and sussing people out? Does each advisor do it for their individual clients and you have to train all the advisors how to execute on this skillset? Just as a business, how do you actually manage this growing network that you're trying to refer out to and work with?
Jim: Yeah, part of it is documentation organization of the professional. So, COIs. Who are they? How have we vetted them? How have we used them? What's their expertise? Where do they work best? And so, we have a Monday board. We use monday.com. A Monday board to keep track of all of that stuff. So, part of it is just not losing the information and the details on each professional and how they match up so that an advisor can say, "Hey, I'm looking for a professional that does specifically this maybe in this area." Because sometimes some planning could be any state a person could live in. Other types of planning, you need an attorney for example in that state. So, then they can go look at the COI list. They can see who actually was the one who vetted that professional and who's worked with that professional and then go to that advisor and say, "Hey, here's my situation. Is that a good fit?"
So, there's some of that which is just stacking on top of itself. And then there is also what happens if we need a space filled that we don't have filled. And then we take them through the process. Typically, that would be one of our senior advisors who has the most experience, has vetted these professionals before. And then sometimes we do a group thing depending on the position and how important it is for the client. We might have a couple of advisors on the call so we get a couple of different perspectives about that professional and how they're answering the questions and how we feel that they're going to fit with the client.
Michael: Interesting. And so, I'm assuming this is just...all the "usual" professionals that I would envision here are an accountant doing tax and books work, probably a couple of different attorney types because there's someone that's going to do the estate side and there's someone that's going to do a bunch of the business law side if they're doing mergers and acquisitions or corporate restructuring or something along those lines, something on various types of business insurance and personal insurance, that kind of stuff?
Jim: Absolutely. Very much so. All of the above.
Michael: What else is in that network list?
Jim: It could be outsource CFO services. Sometimes our business owners aren't ready to hire a CFO but they need outsource CFO services. So, we'll help with that along the way. Sometimes they need something specific like a litigator. They get sued, they have to defend. Really anything you can think of that would happen to a business owner, that professional, we're going to be involved in. Even helping them build out their C-Suite. So, we'll help with that process as well.
Michael: Interesting. So, I get it now just to get in the moment of, "Oh, we had this interesting opportunity where we could do an acquisition of another business in the area and we've never acquired a business and we literally have no idea what we're doing and all the legal stuff. Jim, find us the lawyer people we need."
Jim: Absolutely. Or out of the blue, they have no plan on selling their business and all of a sudden, they get approached by a PE firm that says, "Hey, we're interested." They don't know what to do. And that's what we always tell our business owners is, "Just come to us. Just throw it over the wall to us. If you don't know what to do..." Because remember, business owners are talking to other business owners and they're coming up with sometimes great ideas and sometimes crazy ideas. And so, they get these ideas all the time. We say, "Just don't worry about it. Just flip it over the wall to us." And that's something that we call in the business the time energy shield. So, we tell the entrepreneurs, "We're your time energy shield. So, anything that comes across your desk that has to do with your business, business or personal, financial, anything, you just throw it to us and we're going to protect you for professionals, pitches, and projects." Those are kind of the 3 Ps we protect our business owner entrepreneurs from.
Michael: Interesting. Wait, wait. Give me the 3 Ps again. I want to capture this.
Jim: Yeah. Professionals. So, we tell entrepreneurs, "You shouldn't be talking to your CP about tax planning. That's something that we would do and then we're going to bring you in once we vetted all the strategies that fit your unique circumstances. We don't think you should be talking to your insurance agent about do we need to increase our cybersecurity or EPLI on the business side or on the personal side how much do we need an umbrella and what exclusions in the umbrella would be a problem for you in particular." So, we protect them from those conversations with their professionals which quite frankly are usually, the initial calls anyway, a waste of time. They don't even know what the person's talking about.
Jim: Pitches. So, entrepreneur business owners, as they get wealthier and wealthier and their incomes goes up, they get pitched all these ideas, private equity, VC deals, real-estate syndications, cryptocurrency. So, we just say, "Just flip it over the wall to us. We can take a look at it before you go down that rabbit hole." And then finally projects. So, everything that we do is really a project to be managed. And usually...and we tell business owners, "If you have something in your company that's a project and either no one's managing it or someone who doesn't know what they're doing is managing it, what kind of results are you going to get?" And the results are going to be poor or it's not going to get done. So, we manage those projects to make sure things are getting done on a timely basis and that we're driving that process forward so that an estate plan doesn't sit for a year like it does oftentimes with business owners because the attorney thinks that the business owner is going to take the next step and the business owner's off doing who knows what and, "Oh, yeah, I need to get around to that."
Michael: Interesting. So, I like that framing now because that helps visualize it. So, professionals, pitches, projects. So, this whole finding, vetting...hey, we even have a network role. You're getting pitched off. We'll help screen it and bat it down for you. And then all the projects that have to get managed as you're integrating these professionals to do the things that they need to do. So, help us understand further now the project then. You said you help them put this team together and then you're literally running the projects and managing these things across the professional. So, help us understand more now what this sort of project management end of things really means for you.
So, we're just digging into the minutiae and then driving the projects. And it could be simple things like making sure annual minutes are there for the entities and making sure they're documenting all the things that need to be documented so that they don't have to worry about getting the corporate veil pierced because they're not doing all the important things you need to do to ensure that you have an entity that's in proper condition and being managed properly. So, that's kind of a flavor of the stuff that we're going to do. Really dig into the deep planning with the professionals on behalf of the entrepreneur and not CC-ing the entrepreneur in every email, not having them on every phone call, vetting those things, then coming back and saying, "Okay, here are the options that we think fit with the attorney, with the CPA." And then go through and see how that feels good or doesn't feel good to the entrepreneur and then we do a call with the professional and kind of get it done and take it to the finish line for the entrepreneur.
Why Jim Uses Monday.com Over A Traditional CRM [29:04]
Michael: And so, is all this getting managed in Monday as well?
Jim: It is. So, every client has a Monday board. We have all the projects listed out. In fact, sometimes we get business owners who are skeptical and they say, "Yeah, sounds great but how am I going to know you're actually delivering all these things, especially if you're not copying me and I'm not on the phone calls. How do I know you're even doing anything?" So, we always say, "If you want to have access to your Monday board, you can." And what we find invariably is a business owner might say, "Yeah, I'd love to have access to that." And then usually about 3 or 4 months later they say, "Okay. All right. You guys are doing a ton of...I do not want to look at that board anymore. That is ugly. There's just too many things on that board." And so, okay, you don't have to see it. If you want to see it again, let us know. We'll let you see it.
And that's how we manage it. There's a Monday board for every single client. And that way we can easily look and see where we are on different projects for that client.
Michael: So, for advisors who aren't familiar, just can you explain Monday?
Jim: Our director of operations is a genius when it comes to things like monday.com. In essence, it's a software where you have these boards. And it's project management software, I think is the best way to think about it. But almost everything in any advisory firm is a project to be managed. So, any kind of project is going to have a board and, on that board, you have kind of what happened last, what happens next. And by clicking a button, it will send notifications to different people, "Okay, now here's the next step that you need to take in this particular situation." So, we've built out SOPs for a lot of the things that we know every business owner is going to need so that that project has a step-by-step Monday board and when you finish one, it automatically pings the right people to go to step 2.
Michael: All right. So, this is essentially your sort of project management workflow engine. I'm thinking Asana, Trello, MeisterTask are other things I know that just manage projects and tasks in boards. So, this is another version of that flavor of tools.
Jim: That's exactly right.
Michael: But you're literally using it for...I guess, as I think of it, of workflows. So, it'd be, "We did this and we check the task off and it automatically queues this next task to this other team member. When they do their thing, they check it off and it queues this next task to the next team member." Your director of ops is building those kinds of flows into Monday.
Jim: That's exactly right. It's going to be our primary driver to in essence run the day-to-day activities and making sure stuff's getting done, how it's getting done and when it's getting done.
Michael: Okay. And so, where does CRM sit relative to this? Because a lot of what you're describing is usually what advisors handle on their CRM systems.
Jim: Yeah, and we've used Redtail for many years and what we found especially when we went multiple states, it just could not keep up. It can't do what we need it to do. There's glitches in the software that are not working for us. I know a lot of advisors that love Redtail but it is just...and I've had conversations with Redtail.
Michael: What's the problem across multiple states?
Jim: It has to do with scheduling. Their scheduling system working with things like Calendly and Outlook. You have to use this interface that is clunky and often doesn't work. So, the advisors were being really frustrated because their calendars were getting messed up.
Michael: Because of all the time zone differences?
Michael: It's the time zone issue of, "I'm in California and need to schedule a meeting with a client in Chicago that also includes a team member who's in Arizona which will have a different time zone depending on whether we're in daylight savings or not." So just all that stuff was not getting scheduled. The scheduling wasn't coming out right when you're doing it through Redtail.
Jim: Yes, and we're in Arizona so Arizona, as you might know...
Michael: Yeah, yeah.
Jim: Our time gets funky because...
Michael: Yeah, your time zone changes within the year as you go...well, I guess as the rest of the world goes in and out of daylight savings that you have opted out of.
Jim: That's exactly right. We don't change but everyone else does so it creates this other complication.
Michael: But does that mean you're...are you doing scheduling and calendaring in Monday as well? Is it a calendaring system as well as project management for you?
Jim: Not yet. But that's what our director of ops will...he's working on and this year we will have that be our system that runs everything.
Jim: We're going to get there. But that's the goal, is just to make things much more streamlined, much more effective and efficient. And right now, it's been clunky with using these different softwares. So, we're trying to make that really being driven by 1 which for us is monday.com. It has the capabilities to do everything we want. I couldn't do that certainly but that's why we have experts on the team which is a good lesson I think for all the advisors out there, is if you're building a practice, what got you from A to B may not be what gets you from B to C. And we've learned that along the lines and I've had to...Mimi and I have had to...my wife Mimi who...we started the business together. We've had to realize that we have to let go of certain things and find people better than us in areas that were just not good at.
Why Jim Charges Premium Fees For Premium Service [34:29]
Michael: So, I want to come back to the client end. You'd said there are 3 tiers to pricing, at 4K, 6K, and 10K per month. So, what's the difference across the tiers? Is it differences in the 3 Ps or is it other things? What determines whether I'm a 4K, 6K, or 10K client?
Jim: The simple answer is complexity to the situation. And the starting point for any business owner to work with us, they have to be doing a million dollars of personal income, not gross revenue. Personal income. Between EBITDA or profit from their business and if say there's an S-Corp salary they pay themselves, that has to be more than a million dollars that's coming to them personally. That's where it makes sense to hire us at the first service level. And really, we're driven more by income than by assets. We couldn't care less whether the entrepreneur has 50 million of assets or 0 other than the business because it's really driven by complexity. And if you think about it, when a business owner is making more personal income, that's when they have tax problems. That's when they start accumulating assets and they need to know where to put their money and they have asset protection problems. So, that's our starting point, is a million dollars personal income to the business owner. And a nuance, we only work with owner founder entrepreneurs. We don't do the son or daughter of the founder. We find that we just don't jive with those people as much.
And then the service level really depends on complexity. So, for example, at our lowest level, they're probably not going through a full-blown exit. That's not even in the cards. So, that would be something at the highest level where we hire the M&A attorney, we negotiate investment banker fees, we're working with asset protection estate attorneys, tax attorneys off and CPAs for all the tax planning. So, it's just really a level of complexity. And that also drives how much time they need. So, for example, our first service level, we do tax planning twice a year. In the summer when you have 6 months of the P&L and then in the fall obviously. So, we get stuff done before year end. When we move up a level, then we're doing it quarterly. And when we move it up a level, every couple of months we're doing tax planning with the highest level of client. So, it's really driven by complexity and that also drives how often we need to be involved in these big chunks that need to get done.
Michael: Right. Again, you got to a certain level of income complexity, activity and just if you're managing projects, the sheer volume and frequency of projects starts amping up when they've got more stuff, more income. They're buying more houses, they're going more places, they're growing, expanding the businesses in new and different ways. There's just more things coming at you, at least on average as income rises. So are...
Jim: That's exactly right, yep.
Michael: So, is there actually a formulaic thing? If your income's at least 1 million, you're a 4K client. If your income's at least 2 million, you're a 6K. If your income's 3 million plus, you're a 10K. Is it a formulaic threshold kind of thing like that or is this a more subjective we've evaluated your situation and based on our understanding of your situation and the anticipated complexity in projects, we are quoting you blank?
Jim: It's both.
Michael: And it's a little more subjective.
Jim: There's a little subjective to it but it's...it's funny you mentioned that, Michael, because you've kind of nailed it. A business owner that's doing more than a million would be our first tier. More than 2 million would be our second. More than 3 million would be our 3rd. And we've got some entrepreneurs that are making $10 million or $12 million personal income per year on the high end. But that's kind of the delineation. But then it becomes a complexity thing because even if someone's doing a million a year but they're about to sell their business and they have a bunch of family issues they want to plan around and they've got a lot of assets in different places. So, there can be times when we have to say, "Okay, you look like you'd be a tier 1 but you're really a tier 2 for all these reasons." But we also give them that kind of easy way because business owners like to know very simply how do I think about it. And we tell them, "A million or more, you're at the 1st level. 2 million or more personal income, you're at the 2nd. 3 million or more, you're at the 3rd." And that's per partner. So, we might have...if you have 3 partners, for them to all be at the highest tier, they'd be doing 9 million of net from the business between salary and profit. And by the way, we charge the partners the same. So, they would all pay 10 if they're the highest level.
Michael: So, inevitable challenge I find that comes up for a lot of advisory firms by the time they get to multiple advisors that are doing this...how do you make sure everyone's quoting fees the same way and that some advisors aren't overquoting or more commonly underquoting and underestimating? Do you let them quote their own fees? Do you do that centrally? Do they have to get approval for a fee on a new client? How do you make sure you actually set the fee at the right level?
Jim: Yeah, the advisors don't set the fees. That's our managing director who would set the fees. They know the guidelines like you just said. So, if they're in those guidelines, then that's the fee that they're going to pay unless there's an extraordinary situation, something different. So, step one, we do an assessment on a new business owner and that's where we've got the 6 month...now I think it's a 4-month waitlist and we charge [$]25,000 to do the assessment. And that takes our team just a lot of time and effort to dig into all the things, the tax returns, the P&Ls, the entity structure, the legal documents, the insurance policies to really get the lay of the land of all the projects and all the gaps and all the opportunities for that business owner. So, through that process, we know which of the 3 categories. But if they're not sure, they go to our managing director and then they say either this is a person who's making enough money for our lowest tier but they really should be the middle tier and here's why or this person's making enough money to be the highest tier but really, they have a really simple situation. We're looking through all their stuff. Their goals and aspirations really put them where it's not going to be as much time on our side so we put them in the lowest tier. And then we have an open conversation with the entrepreneur about here's where we believe you should be. And they can have some pushback but if we really believe they should be at a certain tier, we'll just say, "No, no. We can't do that."
And then we tell them...we revisit. So, every 6 months, we do a relationship check-in. Because let's say they're the highest tier and then they sell their business, they have a liquidity event and all of a sudden, their situation gets way more simple without the business. We might move them all the way down to the lowest tier. And we find most business owners will start another business or be involved in something. So, they still fit kind of our niche. But we can move them up or down or we might move them from the lowest tier to a middle tier or a higher tier if they say, "Hey, we've got LOIs. We're thinking about selling our business." And then 6 months later, they decide not to do any of the deals. Okay, now let's move you back down to tier 1.
Michael: So, if I heard correctly, prospects who are getting to know the firm have to pay $25,000 for an assessment to decide if they're going to become a client?
Jim: Yeah, I call it...I like to say...so my wife, Mimi, and I dated for 3 years and we just celebrated our 30th wedding anniversary last year. So, I like to tell business owners, "We like to date our clients before we get married and the dating process is the assessment." But the assessment, they're going to walk away with very specific things that they can do to improve their situation that we believe is going to be way more valuable than the $25,000 fee. But yeah, if it doesn't work out for either one of us, business owners like it because they want to be able to not be stuck. They want to see what we can do and we don't want to be stuck either. We say, "So, this is the first step but we're not going to do that first step for free which..." I did a lot of that early in my career. And we don't need to. We have a waiting list. If you want to be...if you want to have the assessment done, jump in line. If you don't, you want to do something else, do something else.
Michael: So, I guess I just...talk to me about that journey from we don't charge anything because we're just trying to get in front of prospects to show that we can give value and get their business to I'm ready to charge them $25,000 for the privilege of dating as it were. That's a really big shift, business shift. Outright business shift because that's not a small amount of revenue for going through the prospecting process. Nice to get paid to prospect. But just how do you get comfortable and shifted to quote a number like that to a prospect to say, "No, no. You have to go through this just to even make sure we're a good fit and so that we can understand what we would then charge you ongoing if you like this."
Jim: Well, just a process like everything else. It used to be...long time ago when it was just me doing the analysis and if I wasn't doing the kind of analysis we do today which I was not and it didn't take me that long and I was really just trying to get the investment accounts over, then I'd be willing to do that. Plus, I was willing to take someone, anyone who had AUM and if I could do some stuff to show them I was worthwhile, then I'm all in. But that changed as we started doing more and more and more in-depth really detailed analysis on what they're doing. The hours are just so...there's so much time put into it. It just didn't make sense as a business model. And then I had a good friend of mine, very smart business owner, former tax attorney who went into entrepreneurship and owned businesses...and we had moved from nothing to $2,500 we would charge for the analysis.
Michael: I was going to say I'm assuming the first time you started charging, you didn't go from free to 25 grand. So, you went from free to $2,500.
Jim: Yes. And so, that's what we were charging and we're...I'm talking to this friend of mine who's very smart in business. And he's asked me kind of the questions you're asking me about. Everything we do with the assessment, everything else. Because he's referred us a lot of business. And he was trying to get comfortable before he started referring us. And then he said, "I can't get my head around the $2,500." I go, "What do you mean?" He said, "You have to be losing money on the $2,500." I said, "Oh, yeah. We lose a lot of money in the $2,500." He goes, "Why would you build into your business model something that takes a lot of time that you don't make money that you lose money on?" And I said, "Well, I just want to have the opportunity to show them what we can do." And he said, "Yeah, but I have 2 problems with that. Number 1, you're losing money on that part of your business. And number 2, I can tell you from my personal situation, if you told me you're going to do all those things for $2,500 I wouldn't do it because I don't believe you. There's no way you can do that for $2,500. So, to me it's a bait and switch. You're just trying to get me in there to try to get me to do something else where you make money and that makes me uncomfortable."
And I said, "Well, what do you think I should charge?" And he said, "For what you're doing, $25,000." And after my heart almost stopped, I said...
Michael: You’re at [$]2,500. Jim, how about you 10X your fee, man? Come on.
Jim: Right. And I said, "No, I can't do that. I can't do it." He said, "Well, you can do that and you should do that." I said, "No, I can't do that, I can't do that." He goes, "Okay. Well, do something because 2,500 is silly." So, then we went to 6,000. And then we went to 9,000. And then we went to 12,000. And then we went to 15,000. Then we went to 20,000. And so, over this long period of time, we finally got to the number he originally said and that's the right number for us and I think that's a fair number for us to make a fair profit and also for the business owner to go, "This is serious business. We're not just going to throw you in a retirement account or an eMoney plan or a retirement projection and we're not going to just look through the A portfolio and give you some ideas." This is a real analysis with real value.
Michael: If you actually just charge me full value for the thing that's supposed to be so valuable, it's actually mentally easier for me as a business owner because I don't have to play the game of what comes next, next, next. I can just evaluate the thing in front of me and know and have confidence that you're going to try to deliver value for that because if you don't do a good job for the 25 grand, you definitely ain't getting my $100,000 retainer.
Jim: Right. Absolutely. No, that's very true. And that's how business owners think. They don't want to second-guess where your motives are. They want to know what they're paying and what they're getting.
Why Jim Focuses On Small-Business Owners As A Niche [46:50]
Michael: So, I also just want to understand kind of this focus of founder business owners with at least a million dollars of EBITDA. How strict are you about this, right? The challenge forever for people even as they start moving in the niches is how stringent am I really going to be about some of my lines and thresholds. If someone came to me and they only have half a million dollars of EBITDA and they say, "Jim, I like your services." Are you still turning them away? Is there leeway in some of these provisions? How firm are the thresholds around your niche of business owners with at least a million dollars of EBITDA?
Jim: Pretty firm. And we've gotten more firm over the last few years because when we let someone in doing half a million, then we find that there's not enough complexity for us and then the fee becomes an issue to them. We don't want to be a line item on the P&L where every month the business owner has kind of this, "Okay, should we keep paying that? Yeah, we should keep paying that." We don't want them to have stress over that line item. So, that's one of the reasons is if they're making enough money, they don't see that as a huge P&L item. And also, as I said, just the work that we do. So, we're pretty strict about it. If someone is doing $800,000 and they're growing very fast and they're going to be there probably by the time they're off the waitlist, yeah, I can get talked into it if they're a really great fit and I like them. Because right now I'm still doing all the intro calls with the entrepreneur business owners just to make sure we're getting the right ones in. But yeah, half a million, no. That would be a hard no. They have to be much closer to a million. But we're pretty firm. Or if they're 800,000 and they're not growing, they're flat, that's a hard no or if they're 800,000 and I just don't get a feeling like they're really in with the concept because I want this to be us working together for the best interest of the entrepreneur. I don't want it to be like we're a vendor and they see us like that. We've got to be a partner in their future.
Michael: And again, I get it. The whole point is complexity and ongoing complexity and just if the dollars aren't big enough, the complexity...or at least the ongoing complexity doesn't tend to be there. They might come for a year or 2 and you help them solve some stuff but if they're not growing and the dollars aren't high enough, you'll solve their problems and they'll go away in a year or two. Great, you solved their problems but they don't become long-term clients. The long-term ones had bigger numbers that are still getting bigger because they have complexity and the complexity only adds as they get bigger. So, you get more opportunities to show value ongoing.
Jim: That's exactly right. And if you think about it in different way...and this is not anywhere near the importance of what we do. If you think about people who hire a house manager who meets the plumber and makes sure that the landscaping people are doing it right and brings the groceries in, all that kind of stuff, there's a certain level of income where if someone's going to do that and they're going to say, "I would never get rid of that service." There's another level of income where if someone's like, "That's not that complicated. And besides, that would be a big number to hire someone to meet the plumber. I can meet the plumber." It's the same kind of thing. Someone who says, "I don't want to talk to my insurance agent. I don't want to talk to my CPA at tax time. I'd rather do these other things." And they have this opportunity cost that's unlike business owners that are doing small and they're like, "If I'm doing a million net personal income and I can double that to 2 million because I'm not messing around with all this other stuff that I know is important but I don't have interest in," that's the big win for them. So, it's not just the money savings, the tax savings, the savings on legal fees, all those things. But it's the time savings that allows them to redirect that or even, "Oh, I get to see my kids more. I get to take another vacation."
Because as you and I know as business owners, a lot of times we're the hardest working people in the organization and it would be nice to have some time to actually do some other things. So, they value that a lot too.
Michael: Yeah, just when you get to someone that's at a million dollars of income, call it roughly 2,000 working hours in a year, every minute of their time throughout the year...their time's worth the equivalent of $500 an hour. And that's as though they could do income generating activity with every hour of the working day all year long which you still can't really do. So, these are folks whose time value is easily $500 to $1,000 an hour and up. Some will have value at higher than that if they're in growth mode. And so yeah, all of a sudden, now you're like, "Do you have enough complexity? I could save you literally just a couple of hours a month." It's like, "Oh, my Lord. The first time you take a phone call and follow-up email from my CPA and my attorney in the same month, you have saved me 4 hours." That's not a high bar at that point. And bigger numbers just get bigger.
Jim: Absolutely. And it's going to take them probably 4 times as long to get to the same outcome trying to deal with their accountant or their attorney or their insurance agent because they just don't even know the questions to ask and how they should think about it. Or no time's going toward that and then there's usually a mess of all these different things just because they're, what we call, the ostrich. They're just ignoring and avoiding like, "I'll get to that later, I'll get to that later."
Michael: So, I guess then I'm wondering what does this look like from a churn, retention perspective. Because I know for a lot of firms, they're...a lot of firms have been looking at retainment models are concerned is it going to be as "sticky" as AUM if you don't literally have the portfolio as the main anchor point. Are they going to want to keep these paying these fees? At some point, are they going to look at the line item and say, "Geez that's a lot of money. What have you done for me lately?" So, I don't know how deeply you track this but what does churn look like as you've been building and scaling this model?
Jim: Yeah, it is not as sticky as AUM. So, the people who say that are absolutely right. AUM is a lot stickier and I think...and you could tell me, Michael. I believe AUM is something like a 95% retention on average. Is that kind of the number you...
Michael: Yeah, that neighborhood. Even the "bad firms" are often at least in the low 90s if you look at some of the data around brokerage firms and a lot of the high touch AUM firms...I've seen numbers that get to 97%, 97.5%, close to 98%. It's hard to get much above that because you literally get to mortality tables, the rate of death of a large number of clients is a nontrivial number. So, you can only get so high on this.
Jim: Right. So, just to give an example, our retention's more like 85%. So, we're clearly a lot less sticky. But still pretty sticky because of what we do and part of the reason why we're not as sticky is...you just called it. It's so much easier for someone to leave us. And with business owners, they're much more volatile than...let's say you have a practice that's using retirees. They have the volatility of the stock market but they don't have volatility of their life and of their income the way a business owner does. So, if a business owner...let's say they're an online business and they use paid advertising and Google or Facebook changed their algorithm, they could go from making millions of dollars to barely keeping the lights on. And if that goes on too long, often we're the ones they go to the entrepreneur and say, "Hey, let's press pause until we find out if you're going to make it. You don't need to be paying us. You need to try to keep a couple of employees." So that can happen.
Michael: And I guess it's like you're tied to business cycle and what goes on in the economy a little more directly. I've got to imagine there's a couple of business owners that you lost in the pandemic because their businesses evaporated in the pandemic if you were in the wrong industry. That was really, really ugly for a year or two.
Jim: Yeah, very much. And in fact, it's funny you mention that because when COVID hit, we were really concerned about...hey, all they have to do is say, "I don't want to do this. This is my last month with you." And they're out. It's not like they've got to figure out where to move the portfolio and the capital gains and all that stuff. They just say, "Hey, we're going to not continue for now." And there was one of our clients and he was right in the worst place. So, he coaches gym owners how to build their business and...
Jim: Right? So, he had an 80% drop in revenue in 1 month during COVID when all the gyms across the country were closed down. 80% drop in revenue. So, my managing partner came to me and said, "He's going to fire us. For sure he's going to fire us." And a couple of weeks later he called me up and said, "Yeah, this is the call." And he said, "Would you go on my podcast?" I said, "Sure." So, the next month I go down to go on his podcast and the first thing he said to me is he said, "When this hit and we lost 80% of our revenue, the first thing we did is we sat down and said what can we cut. And the first thing me and my executive team said is well, who we can't cut is Dew Wealth. We can't cut Dew Wealth Management. They're just too important to us. We'll figure a way through but we have to keep them." So, I came back to the office and I had a big smile on my face and I told the managing director, "I don't think we're getting fired."
And the funny thing about that is this guy...and this is where I love entrepreneurs. Their revenue was way down for the year but they actually made the same profit because he pivoted so fast and started teaching gym owners how do you make money when your gym's closed, how can you do virtual classes and all this kind of stuff. And he had to cut...he got rid of half of his employees. It was a terrible year. But it turned out he made the same exact money in profit at a much lower revenue because he cut expenses and because he pivoted so fast. But that was a good example of where we said, "Hey, maybe it's stickier than we thought it would be because we thought we could..." We were factoring in... if we lose half our clients, how do we function? And we ended up losing very little and because of PPP and the Cares Act and all that kind of stuff we ended up getting a lot of clients, business owners searching for someone to help them to fill out the PPP paperwork to find out if they qualify to help them navigate all the twists and turns of COVID. It was actually a good thing for our business which I wouldn't have guessed that before it happened. That was like the stock market crash of 2008 for a fixed-fee retainer model, I think.
Michael: So, how do you think about just the dynamics of, "Hey, man, if you just were an AUM firm, you could probably get a model that has higher retention." Do you think about that? Is there a pull to that? Are you happy where you are?
Jim: There's zero pull to that. And the reason why is when we went this route, it was Mimi and I sitting down and saying...and it was really I started it when...I said, "You know what? I don't want to work with just anybody because who gets me excited are the business owners. I love working with business owners." And when we started focusing on that and niching in that, then I started saying, "Well, who knows how to serve business owners the best?" And we've been serving them for a long, long time but who would be the very best? And then I heard about this concept called a family office. And someone explained to me that a billionaire hires all the needed tax, legal, insurance and investment professionals as full-time employees working for that one billionaire and his or her family and that's how they manage their wealth. So, I started asking around and by chance, just by chance a very good friend of mine is close friends with a grandson of a New York billionaire. He connected us. We hit it off. And once he learned I was really interested in the family office thing...and this is years before people were talking about it. Now I hear a lot more people talk about the family office concept. So, he said, "If you want and you want to fly back to New York, I'll get you a meeting with our CEO of the family office.
And I said, "Absolutely." So, I flew back to New York, had breakfast with this guy. But we had a 3 ½ hour breakfast and at the end, he said, "Jim, you're really interested in this stuff. If you want to stay for a few days, I'll show you our systems and our processes and everything else." So, I said, "I am in." And at the end of that time, I'm on the plane flying home back to Phoenix and I have all these notes and I'm looking through all my notes and it just struck me like an epiphany. This isn't just the best structure for a billionaire. This is the best structure for any entrepreneur. There's just one problem. You need probably north of $400 million before you can build your own family office because they're very expensive to build and to run but they're so good. They're so valuable. That's why all the billionaires have them. Bezos and Gates and Oprah Winfrey and Sara Blakely. So, I thought, "Well, I wonder if we could create one first for our own family because we don't have $400 million. Because we wanted that for ourselves as business owners but maybe we could do that for other entrepreneurs as well.
So, then we started figuring out how could we do that and make it cost effective. And then we figured out that instead of having all those full-time employees, if we can just evaluate the current team, get rid of the ones that are not A players, build a team of A players and run that team, we in essence have the family office outcomes that billionaires are getting at a fraction of the cost. And then we just had to figure out what's that complexity level of business owner where this makes sense. And so, we had to reprice everything as we went along. And I think we're in the right place right now. It feels good. We feel like we're not getting the wrong kind of business owner as you kind of mentioned earlier that's saying, "I'm making 400 grand. I really want to join your thing." The pricing makes them feel like, "Ah, yeah, you're right, Jim." When I tell them, "You're not ready for us," they go, "Yeah. Yeah, I think you're right. Let's check back in in a year and see how you're doing." Where it used to be someone making $300,000 or $400,000 really trying to convince me to work with us till we got the pricing right.
So, I think...I believe the pricing is right, the value is there and along the way, in answer to your original question, we fell in love with the idea when we sorted that all out and started asking ourselves...we're business owners. How would we build this model for ourselves? And we came up with this model which was we don't want anyone taking a commission or selling a product. We don't want anyone trying to drive us to their AUM platform. We don't want long-term contracts. We just want to know what we're paying and we want that fiduciary only to represent us and only to get paid by us.
And then once we created that model, I went to 2 people I know with a lot of experience in financial services. One actually built one of the first multibillion dollar RIAs in the '90s and sold it for a bunch of money. And I remember I went to both of these people I respect and I showed them my model and both of them said, "Jim, that's a terrible idea." I said, "What?" And it was kind of deflating because Mimi and I were so excited. It just felt so right. And I said, "Why is it a bad idea?" And they both said 2 things. Number 1, kind of to the sticky thing. Your clients aren't sticky. They can leave you any time. That's not a good model. And the one gave me an example. He said, "Take Wells Fargo for example." He said, "Wells Fargo has a lot of banking customers that don't like Wells Fargo but they can't leave because they've got their checking account and their business account, their portfolio, their line of credit, their mortgage. It's just too hard to leave." And here was...when I thought about that, 1 of the 2 things he said, here's how I thought of that. And this is probably not the way to think about it. Sometimes this is how I make life decisions. I say to myself, "If Mimi ever said the only reason I stay married to Jim is because it's too hard to divorce him," I don't like the sound of that. I want her to be with me and...by the way, our life's gotten pretty complicated. It probably would be hard to divorce me.
But I want her to be with me every day because she wants to be with me, not because she's so entangled with me, she can't get out. And this has been another advantage. We can fire someone we don't like. If you're in the AUM model, it's very hard to fire someone you don't like. So, the 2nd thing he said was, besides the sticky thing, is you're giving up so much revenue opportunity and ways you can make money that you're just going to hamstring yourself and not going to be able to make as much money doing that kind of a model. So, those are the 2 things. And Mimi and I sat down, we talked. Okay, they have valid points. Then we said, "Who cares?" I started out as a public-school math teacher making $20,000 a year. We were already making way more money than we ever imagined and we just said, "You know what? It feels good in our heart. It feels like the right thing to do. It feels like something we would love to have as a business like that." So, even if AUM's stickier, even if someone could demonstrate that I would make more money and we would make more money, I feel in my heart...Mimi feels this way, that this is our passion. This is our calling, is to serve these business owners in a way that they're not being served other places and to be able to hire and recruit advisors who want to do real planning, meaningful work, work that matters, work that makes a difference and, now that we're an ESOP, have an ownership piece so we're growing the value of this enterprise together. That feels fantastic.
And not for a second have I felt like, "Oh, we should go back to that AUM model. That seems like that's a better way to do it. No."
Using A Marketing-esque Hiring Funnel To Find The Right Candidates [1:03:33]
Michael: So, help us understand how this works from the...I guess the advisor hiring end. Most advisory firms struggle to some extent. You have to find this semi magical unicorn balance of skills, someone that's got enough technical knowledge and expertise that just they can bring the expertise, they can bring the knowledge, goods to find planning opportunities for clients. But then you also have to be a really skilled communicator to be able to...everything from talk clients off the proverbial ledge to just managing the relationship to...it's great if you know a good strategy but can you actually deliver to a client in a way that they're excited about and want to implement it. So, there's this domain of technical and then there's this domain of communication. And that in and of itself is a hard thing to hire for. I feel like you've got this whole other layer which is...then there's also this project management, people management thing of holding outside professionals accountable and making sure that everybody's doing their tasks and checking things off and that things are moving through the pipeline and that...overgeneralizing a little but I feel like that's a whole other kind of skillset even aside from CFP technical knowledge and aside from just the communication dynamics and the communication skills.
So, how do you think about typical hires across these dimensions? Are you hiring for one more than the other? Do you have some kind of team structure where someone's the project manager-y person, someone else is the technical CFP knowledge kind of person? How do you manage the demand across not just through 2 but 3 distinct kinds of skill sets to be able to deliver on this?
Jim: Yeah, it's not easy. And really, we have learned over time...first of all, it's just like when you're trying to think who your client is. And often I see financial advisors not really go deep enough on who their client is and niching. And I know you've preached niching for your entire career. And I still see most financial advisory groups are generalists and most financial advisors are generalists. So, the same thing with niching on your particular client, niching on the exact type of advisor we need for the firm. So, understanding that avatar was a big step. Originally, we thought we'll hire someone with 20 years of experience. And what we found is people with 20 years of experience are expensive, they have baggage and they really don't know as much as most people think they know. A lot of them have 1 year of experience repeated 20 times. And I know because I've interviewed a lot of these people and when I ask questions like, "Tell me something specifically on a tax return that you have helped a client save in taxes or an idea that you brought to the CPA." And I'll hear things like, "Well, the tax inefficient investments were in the regular account and I had them move into the IRA and we did ROTH conversions and we did tax loss harvesting and..."
Right away I know that they know nothing about tax planning for a business owner. So, we realized we have to train and teach people to do what we do here. And so, our kind of ideal avatar is usually somewhere between 2 and 5 years of experience actually at a planning firm. If someone's working for a big brokerage firm, a big insurance company or a big bank, they don't do the deep planning. So, it has to be some sort of firm that focuses on planning. And they have to be hungry because our advisors and our culture is about...one of our core values is hustle the GSD. And we'll just say for the podcast, GSD stands for getting stuff done. But it's hustle. So, we want people who want to hustle, they want to make a career, they want to make a difference. And we tell people when we're interviewing all the time, "This is not a job where you...if you want to come in and put your feet up on the desk and make the most per hour you can possibly make, this is not the home for you." We pay our advisors well but we tell our advisors that they're very talented and they can always find somewhere else that's going to pay them more. We're going to pay them well but they're also going to get the ownership in the ESOP. So, over time we believe they'll have more wealth creation working here than anywhere else, but, the highest income, you can always find someone to pay you more. Especially if you don't want to work this hard.
In the beginning it is massive immersion. So, we've created an online course for our advisors. We use Kajabi to create that. We have quizzes along the way. We can monitor their progress. We have Dew Wealth U that meets every Friday to go over case studies and planning opportunities. We have one pagers on all kinds of planning opportunities and a library that we keep growing. Once a week, every advisor blocks off an hour to pick 1 thing that they're interested in, and they go deep on that and then do a one pager of what they learned and then we put that in the library together. So, we're constantly growing and learning together. Curiosity leads to excellence is one of our other core values. We've got 5 core values that we push very hard.
So, training them up. We'll say, "In 6 to 18 months, you're going to be an advisor like you've never met in your career when it comes to serving a business owner. Not all niches but when it comes to serving a business owner." So, the first thing was understanding who are we looking for and then how do we get them to be amazing at what they do. And I could tell you stories of what I've seen and transformation of these young advisors who work with us from when they started to where they are today. The conversations they can have with tax attorneys, asset protection attorneys, CPAs, insurance agents. It's amazing and exciting and our team loves it. They love that kind of thing.
So, that's 1 piece. The other piece is how do you find these people and hire them? And for a long time, we were using recruiting firms. And we've had several and they all tell us the same thing and then you start working with them, is they get paid a percentage of the first-year salary you pay an employee. And it's usually something like 20% or 25%. So, right away their incentive is to get us to hire someone for the highest possible salary. And the other thing is...you've probably been through this. And the other thing is the way they recruit people for us is, I think they take the road of least resistance. So, what they do is they reach out on LinkedIn or whatever and they say, "Hey, would you like to make more money? Because if you want to make more money, I have an opportunity for you." And so, what happens is...
Michael: Because they talked up the salary for you to be competitive. Then they pitch the salary to the candidate to try to get them to move because of money and then they get paid the most possible money for doing that because they get paid a percentage of the salary.
Jim: That's exactly right. So, it ends up this bad deal. And then it attracts advisors who only care about money. And as I tell our advisors all the time, "We're going to pay you well but you're not going to be the highest of what you could get in the industry you can find because we're also building enterprise value for you and for us." We want advisors who...they want to grow. They want to do meaningful work. They want to learn and find interesting things they didn't know before that they can apply with these business owners. So, we said, "That's not working." And we had 3...at one time we had 3 going because we just couldn't find and hire the good people fast enough. And that's where we got our director of operations in this last year who's just brilliant and he...the last company before us, he took from 15 employees to 150 employees. And the first problem they had, hiring and recruiting. And he solved that for him. So, that was one reason he was attractive to us.
And when we were talking to him when he first came in and looked at everything we're doing, he said 2 things. He said 1 thing, "You have a waiting list of 6 months, and you do no marketing?" "Yeah. I guess so. I guess that's our situation." But the other thing he said is, "Your hiring and recruiting is your bottleneck but you're thinking of it like an HR problem. It's not an HR problem. It's a sales and marketing problem. The same way you think of a sales and marketing problem for getting new entrepreneurs, you need to think of getting new advisors, that you need to market to them what you have and what's unique to them that will get the right advisor excited and attract them to you rather than you going out there and having recruiters just offer more money left and right to try to get them to come over for more money."
So, he said, "I'll fix that in 90 days." We were like, "We've been working on this for a couple of years. Are you crazy? You're not going to fix this in 90 days." I said, "How sure are you you'll fix this in 90 days?" He said, "One hundred percent." Last time I checked, that's a pretty high percentage, 100%.
Michael: Yeah, it's kind of gutsy. You've got to at least say 98%.
Jim: Yeah. Yeah.
Michael: I'm really sure. Hey, stuff always happens. I'm really sure, 98.
Jim: Yeah. And sure enough, in 90 days he fixed it. So, he created a funnel, a marketing funnel that attracts advisors based on our culture, based on our vision, based on what we're doing for business owners and then he has...they watch a video that immediately tells them, "Hey, if all you care about is money and not working hard, run the other direction. This is going to be the hardest job you ever do. And if you're the right fit, it'll be the job you love more than anything you've ever done in this industry. It'll be the career path that is yours forever." And so, they go through all these funnels and they have tests they take along the way. He uses a predictive index, both the regular and the cognitive predictive index. He scores them. He has a whole scoring thing after they go through all these exercises and things like a school. So, this is an A plus candidate fitting on all these areas including culture, including the cognitive piece, including the experience. Here's a C minus who we're not going to talk to the C minus. And just to give you an example. And we're constantly hiring and bringing on new people because of our growth. And the last 2 positions we hired for associate advisors, 2,000 applicants started at the top of the funnel to get to the 2 and these 2 are incredible advisors, hungry, smart, driven. And it's just night and day versus what we were doing before with these recruiters.
And really it was just me and Mimi and our managing director doing interviews and trying to ask the right questions and look at their resume and really it was just woefully inept. But of course, when you're growing a business, you think you're doing the best you can till you find a better way and then you go, "Oh, duh. We should've actually attempted to do something that matters and not just go oh, yeah, we'll do what everybody else in the world does. Hire a recruiter and do a Google search for interview questions."
Michael: So, help me understand more just what your director of operations builds. You said you have a funnel but what does that actually mean? There's a mailing list of career opportunities and you drip market to them like other types of funnels? Is this something about the...how the application process works? What exactly got built that now you're getting 2,000 applications for an advisor position?
Jim: Yeah, so he uses LinkedIn Professional and then the system he created will actually search for certain qualities. So, CFP or CFP candidate would be one. Certain number of years in the business. A company they work for that's not a brand name that you would see out there. So, it filters through and then it pulls or collects kind of a pool of the people that look like they would be good candidates. And then it pings them with some message about, "Hey, if you're interested in this type of work with this type of career path, it's hard. It's in-depth planning, those kinds of things." Then they opt into the funnel and the first thing they do is get a video from our director of operations that kind of spells out in a short video...really, he built it, he said, to turn off more people than it turns on. And that's one I think problem whether it's marketing for new hires or marketing for new clients, is your marketing should turn off many more people than it turns on because otherwise, you're not niched enough. You're not really going after the right people. And so that's the...
Michael: Because the ones who break through that filter, they must really want this.
Jim: Yes. By the end...because then they have different tests that they have to take. Even before they talk to a human being, they have to take the predictive index and the cognitive piece and they have to do all this testing before they ever talk to a person. And then once we're like, "Okay. This looks like a potential candidate." Then they get to start to talk to human beings. By the end of the process, the last 2 we hired, they're leaning forward saying, "Please pick me. Please pick me. I want this position." So, it's a much better way for someone to enter your organization than with their arms crossed going, "Okay, I know I'm making more money but what else am I going to get here that keeps me happy?" And that doesn't bode for a good culture. You want...just the way I show up every day to want to grow and to serve and to do better for our business owners and for our team. I want our team to get better. I want to support our team. And that's what makes a great culture is everyone is saying, "What can I do to make this team better?" Not leaning back with their arms crossed going, "Okay, what's in it for me?" That doesn't work.
Michael: So, this initial outreach that he does, so he uses LinkedIn professional, he does the search to get down to a list of people that might be interested. And I think you said he pings them. So, I'm presuming that's like a LinkedIn mail. That's an outreach through LinkedIn to say, "Hey, we've got this opportunity. Here's some info about it. If you're interested, please go to this video and check it out." And then at the end of the video it tells them what to do next if they want to keep moving forward to an assessment. Is that the flow?
Jim: Yes, exactly right. And then sometimes...lately, we're getting people that find us for whatever reason and they go to our website and they go to the career page which is...we're always hiring there. And then that puts them right in the top of the funnel. So, it can go either way. Us reaching out or them finding us.
Michael: And I guess at a high level you're putting them through a lot of stuff because they're getting the outreach. Then they go to the video that they have to watch. Hopefully it's interesting. They have to watch the video. Then they have to take a bunch of assessments. You're putting them through a lot of work before they get to talk to anyone, which classically to me is I'd get really nervous. You're going to lose too many good people because they just...they don't want to go that deep with you because they're still getting to know you as well. I guess the flipside is you're casting such a broad net on LinkedIn in the first place because you might screen 2,000 people who fit the parameters that...like, "Hey, it's totally cool. If we do this and it bothers 99% of the people that we reach out to, we've still got 20 really highly qualified, highly motivated candidates which would be a better pool than most people hire from."
Jim: Absolutely. That's the way we think about it. And yeah, certainly, we probably lose some good people through that but it's the same thing with business owners. We lose some business owners that say, "I don't want to do an assessment and pay you 25 grand. Let's just start on the monthly and we'll figure it out and I'll tell you if it's of value to me." Well, you know what? I understand that and just...maybe we lose a good client by doing that. But in the end, I feel like there is plenty of young, hungry advisors who want an opportunity like this. We feel like our culture is...and that's really due to Mimi. Mimi is very focused on our culture and the team and that's an important thing. We fly everyone from all over the country once a quarter to get together in person, do some teambuilding, go through all the numbers. When we did the ESOP, we were very transparent. We showed all the employees we did the transaction at a $31 million valuation which by the way, I did the math. As a teacher, I would've had to work 1,500 years to create that kind of value.
But at any rate, we're very transparent about those kinds of things and we know it's not for everybody. This is not a position for everybody but we do feel we have something special, something to offer. And I have to tell you. When I was a young advisor, I would've jumped at this opportunity. This would've been exactly what I wanted because I always wanted to do planning and I wanted to do complex, interesting planning. And I wanted to work hard. I was hungry. But I just never had those opportunities until we decided just to create it.
How Dew Wealth Management Received A $31 Million Valuation [1:19:25]
Michael: I'm struck even by what you're noting around ESOP valuations. I think you said you were a little over 7 million of revenue last year. You're coming in for 10 million this year. So, you're talking about 4 times trailing, almost 3 times forward, 12-month revenue as a valuation on the firm from an external valuation. Just I'm struck. For all the advisors, I still hear a lot say, "Yeah, but do...will retainer-based firm still get similar valuations?" It's a very good valuation multiple on the business I guess in part because if you grow from 7 million to 10 million of revenue, you're growing at 40%.
Jim: Yep. Yeah, and...
Michael: And that's all...I'm presuming that's pretty much all organic growth because your revenue is not going up because the markets are up because you're not an AUM firm so you don't go up when the markets go up. You have to actually win new clients and move them up tiers to make the revenue grow. So that's all client growth.
Jim: That's exactly right. And it was interesting. The valuation firm, they really had trouble getting their head around it because they kept...when we first sat with them to do the first interview, they were asking all these AUM questions. How much AUM do we have? And we still have AUM from years ago and we kept it as an optional service. We just...
Michael: Is some of your revenue AUM then? You do still have some?
Jim: Yeah, so last year 85% was from retainer fixed fee and 15% was AUM. And it'll be less this year. It goes down every year because we're not actively seeking assets. Not one of our advisors working with a client has a quota or an expectation. There's no biz dev by any of our advisors. No one even gets acknowledged if assets come over. So, what we did is we kept that because we found entrepreneurs sometimes need portfolio management, don't want to do it themselves because we tell them, "If you want to do it yourself, we'll help you set up a Betterment or a Personal Capital or a Vanguard or a Schwab and we'll kind of coach you on it but you've got to do it.” Or sometimes they look for options and the options are expensive. I believe if you're just doing investment management, 1% is too much. And so, we're usually 60% to 70% cheaper because we only price the AUM to cover our costs. We didn't price it for any profit. So that's why we don't care whether any of the AUM comes over. So, there will always be an AUM component because we looked at just getting rid of it, we just got pushback from business owners that said, "Well, what if I need you for that?" So, we said, "We'll just do a super low cost, no profit type AUM level."
But when they looked at the growth rate, they looked at the retention, they looked at a 6-month waiting list with no marketing, they looked at the unique offering and the product market fit, the way our offering fits what the small business owner who's making enough money really wants, that's how we got the valuation that we did is for all those reasons that make a valuation go up. So yeah, I believe retainer models and fixed monthly fee models can be worth a lot of money, case in point. But you've got to have all the other things. And it's no different than even an AUM model if your revenue has been flat and is only moving with the markets. You're not going to get as good a valuation as if you're growing at 40% a year because that has to come from organic growth.
Michael: And then how does compensation work for advisors? Just because for so many firms I see...particularly in the scaled-up AUM world, advisor comp is very commonly tied to assets that you're managing in your client base or AUM fees that you're tied to for your client base. Are you a percentage of revenue structure still? Are you straight flat salary structure? How does compensation work in your model?
Jim: It's salary. And then bonus based on 2 things. It's based on retention and it's based on core values, demonstrating the core values in the company. And that's it. There's no other tied to revenue or anything like that. And the reason why is because we work as a team and we have kind of these pods, it would be hard to separate revenue per person type of thing. In addition to the fact that I think running a business, it's hard to do that rather than the salary plus the bonuses. And where our advisors are making more money quite frankly is they're getting promoted. Because we're growing so fast, the path of going from associate advisor to advisor to senior advisor is a real path. It's not like you're going to have to sit there for 10 years. If you're hustling, you can get promoted and make more money that way. But yeah, right now it's salary plus bonus split between retention, are the clients staying and...so I guess retention would...you could factor that into that's based on revenue because retention goes right to revenue. And then core values which again it's really important for our culture that we're demonstrating the core values.
The Surprises Jim Encountered On His Journey [1:24:24]
Michael: So, what surprised you the most as you've gone down this path of building an advisory business?
Jim: 2 things that surprised me the most is number 1, how...well, I guess I'll say 3 things. So, the first thing is every great idea is great on paper and the amount of work and effort it's taken to figure this model out...when Mimi and I came up with the model, "This is perfect. This is what we would want for ourselves." Then we found out managing those things, the people, the process and the projects in that kind of a deep level is incredibly hard, incredibly time intensive. As you said, it takes this technical knowledge but also this personality of being able to manage people and have relationships and talk to the clients but also talk to the attorneys and accountants. Now we're running the show. So, the CPAs and attorneys, they figured out very quickly that we're the ones that can hire and fire them. We're running the show. It's not like often in the old system where I'd feel like the CPA or the attorneys really...when they're involved, they're really running the show and I'm taking a side position. So really hard. Mimi and I have often contemplated if we knew how hard this was going to be, I'm not sure we would've built it. It was just...we went periods of time where we'd say, "It'd be nice to have a Saturday or Sunday off after months and months."
So just really brutally hard. That would be one thing. I was also surprised at how once we got the model figured out, how attractive it really is to business owners. Almost like I'd be surprised at how many people who make a lot of money have a house manager. It's probably more than I would think because it's so attractive. So, it was really surprising how attractive it was that I didn't have to try to go out and market. It just had to be we get a few really well-known entrepreneurs and they tell other entrepreneurs who are their friends who say, "Yeah, I want that too. That sounds great."
And then the 3rd thing was once we had that piece figured out, then...okay, now we just have to go find advisors that want to do the work. And then how hard it was to find the right fit advisors who are hungry and want to make a difference and want to do this kind of work. And that's one reason why we did the ESOP. When we looked at...once you get a business to a certain perspective...because I can tell you for years, I never thought we'd have a sellable business. I just thought it was kind of a little boutique shop and at some point, you get some young person to come in and pay you out over time or something like that. And I did get...we got offered...8 years ago, we got offered $3 million for our company from a private bank. And no, I don't think that was the right time to sell. And so, we 10 times the value of the company in 8 years and our goal is to 10 times the value again in the next 10 years with the people we have in place now. And I think we can do it. At first that sounded crazy till our director of operations and our managing partner kind of walked me back from 10 years to today and I said, "Yeah, I actually think we could do that."
So, we started looking at exit. And a lot of PE firms were showing interest. And then it hit us. We love this model and a PE firm is going to destroy this model because they're going to come in and they're going to say just like that friend of mine, "Your clients aren't sticky enough and there's other ways you can make money. Let's change this and let's get rid of half your people and roll them up into our deal." And all the things that happen when PE firms buy advisory firms, especially ours. And we just said, "We don't have kids. This is kind of our legacy. How can we continue it and how can we also get money off the table? And then how can we help our employees benefit too?" And so, we've done the math and we believe and we tell our team this. Every one of our employees today is going to become a millionaire or a multimillionaire in 10 years with this company. And that's a huge goal and something that really excites us is that people that help us get there, they get a piece too.
So, for all those reasons, the ESOP was a good fit for us. And that's why we went down that path. And then we got a valuation that a lot of the advisory firms would probably be surprised at. But as I said, if you have great product market fit or service market fit, I guess in this case and you have a great growth rate and you have retention and you have a model that's sustainable that we feel like is going to continue on for a long, long time, then you can get a high valuation for a retainer model.
The Low Points Jim Encountered On His Journey [1:28:31]
Michael: So, what was the low point for you on this journey?
Jim: I can remember it. It was when we first started the company in 1999 and I didn't know how to market the company, what I was going to do and I was flipping out because for the first time, I had to pay for the assistant, I had to pay for the computers, I had to pay for the office space. So, all of a sudden, these expenses that I kind of knew but kind of knowing and actually knowing are 2 different things. Man, it is expensive to run a business. And that brokerage firm was covering a lot of my expenses. So, then I had this panic, this almost like a meltdown. And actually, Mimi was great. And Mimi's family immigrated from Korea when she was 5 years old, and she was the oldest. So, she was helping her dad run his company when she was 8 years old because she was the first to read and write English. And so, she is very helpful along the process. And she said to me, "Honey, if we fail, we'll just sell the home on Scottsdale, we'll move back to a little place in Gilbert. It'll be fine. We had a great time then, we'll have a great time now. Doesn't matter."
And that helped me a lot but I was still freaking out. So, I started asking advisors, looking at how can I bring in clients because I've got to bring in clients quick or I'm going to be out of business. And so, someone said, "You know what? You should do these free dinners where people come in and then you set appointments and then you schedule appointments and you get clients." So, I said, "Okay. Well, how do I do that?" And they say, "Well, you mail to a wealthy area." So, here in the Phoenix, Scottsdale area, one of the wealthiest areas is Paradise Valley which by the way I found out is a terrible place to mail. No one goes to a free dinner who lives in Paradise Valley, hardly. So, I mailed 10,000 pieces which was a lot of money in those days to Paradise Valley. And I go to the Marie Callender's that's kind of on the edge of Paradise Valley and I go in there and I'm asking these people who've done it before how many people can I expect from 10,000 mailings. They said, "Oh, you'll probably get 80 to 100 people."
So, I go into Marie Callender's. They have this private room, this big private room. I said, "How many can fit in that room if I reserve that whole room?" And they said, "We can fit about 60." I said, "Okay. Well, then I'm going to need to do it for 2 nights. I'm going to need the room for 2 nights because I'm going to have probably 100." So, they said, "Okay." So, I had the room reserved, everything else. I had this big projector with a screen you pull out. I had my projector and my screen and my computer and I had my presentation. I was ready to go. Well, as we get closer to the date, I realize those reservations are not coming in. And so, I have to call Marie Callender's and tell them, "You know what? For the first night, I've got 5 people coming and the 2nd night, I've got 3 people coming."
Michael: Oh, no.
Jim: And the Marie Callender's, when you're getting scolded by Marie Callender's about how...well, you're not going to get the private room and...so they put me in a corner of the restaurant. So, I was in the corner of the restaurant with these 5 people the first night. We sat at the same table. And I pulled my big screen up. I had my projector on the edge of the table. The other tables were looking at us like we were crazy.
Michael: So, you're just at a table in the corner of the main area and doing a presentation off a little screen on that table? Okay.
Jim: Yes, but I had a full screen, one that you would pull up. And I was so committed, I'm like, "What else would I do? I've got to show the..." So, I pulled my big screen up there in the corner and other tables kind of watching the presentation as I go through. I was very embarrassed. And so, one thing I did is I had tickets. I was going to do a raffle and whoever won the raffle, I'd give a free pie. So, I'm passing out 5 tickets to these 5 people. They've got a pretty good chance of winning. And I start my presentation. This guy raises his hand. I'm thinking he's going to have a good question. And I said, "Yes?" And he said, "By the way, do we get to keep the pie tin deposit?" I was like, "Excuse me?" "Do we get to keep the pie tin deposit?" So, I turn to the other people at the table. I said, "What is he talking about?" And they said, "Oh, well, when you get a pie, it's in a pie tin and if you bring back the pie tin, they'll give you 50 cents back on the cost of the pie because of the pie tin." And I remember thinking, "I have all this education, I have an MBA. I was math department chair at a high school. And here I am deciding whether to give away a free 50 cent pie tin." I said, "Yes, sir. You can keep the pie tin deposit. You can go crazy on that."
So, I remember at the end of the night...and by the way, from that seminar, I got 1 appointment, no clients. So, at the end of the night, I'm walking out of Marie Callender's. There's no one left in the building except the workers. There's just a few cars in the parking lot. I remember I'm walking out carrying my huge projector and my big screen and I stopped. And I just looked around and it just hit me. I said to myself, "This is going to be a low point in my life. This is tough." I was really embarrassed.
Michael: There's nothing like knowing it in the moment like, "Oh, wait. This is the low point right here."
Jim: I said, "This is...I don't know." I was so scared. I was terrified. I thought...I was raised from a family that...my responsibility was make sure the family's okay financially and even though my wife was like, "We're going to be fine," I just felt like I'm a failure. I'm going to be financially ruined because I decided to be independent and go out on my own and I can't do it. So that was the moment. That was...my low point is in the parking lot of Marie Callender's after...I probably should've said, "I need the pie tin back because that 50 cents might've helped me at the time."
The Advice Jim Would Give His Former Self And Younger, Newer Advisors [1:33:48]
Michael: So, what do you know now you wish you could go back and tell you 20 plus years ago?
Jim: The first thing would be niche. Niche heavily. Find out the kind of work you love to do, find out the type of client that needs that kind of work and go narrow focused, all in on that. Because I heard about niching. You've talked about niching for a long time. But I was so afraid to do it because I thought, "If I do that, I'm going to miss out on all these other clients." But the truth is when you're really niched and you really know that work well, those people are attracted to you. You don't have to work so hard to get them because they want to work with you. So, I'd say that would be 1 thing is to niche heavily early and don't worry about it. Just go. It'll take care of itself. But not just a niche where it's like that would be a way I could make money but niche in a way where you learn how to do the planning, you grow, you train and educate yourself so that truly you're a master in that niche. And when someone in that niche meets you, they can't compare it to anyone else. Nobody knows what you know in this niche. So that'd be 1 thing is really niche heavily.
Michael: So, I was just going to ask when you made the decision to start niching in, how long did it actually take before you saw any momentum from that? And was it immediate once you shifted or was it like, "No, I did and then 3 years later, some results started coming."
Jim: No, probably 12 to 18 months. Because I had always worked with business owners. Some of our biggest success stories came from business owners that we've worked with that had exits. We had a business owner that exited, sold their business for [$]1.6 billion to Blackstone a couple of years ago. Great friends of mine, 4 business partners. So, we've had some tremendous success. So, I loved working with business owners in that complexity. But when I went all in, really about 8 years ago when we said we're only going to take business owners, the first thing I realized is when that's all you're doing all day, your deficiencies become much more apparent. The areas that you need to get better, the knowledge that needs to increase rather than if you're dealing with them and others. Sometimes you don't notice as clearly where you need to get better.
So, I think that was part of it is me getting better. And then the other thing was just learning how to actually tell the story. So, I had one entrepreneur hire us and 12 months later he said this to me, he said, "Jim." And that's what I love about business owners. They'll tell you straight to your face exactly directly. He said, "Jim, you're so crappy at explaining what you do. I had to hire you and then 12 months later I realized how amazing it was." And that stung a little bit but it made me realize that not just niching but being able to communicate to your niche why you're different and why you're the best firm to serve them in their particular circumstances. So that was another big learning lesson. So, once I got those figured out, got the execution dialed in and really learned, "Okay, these little details are where the magic is." Knowing these things that no one else knows about business owners and then communicating to them in a way where they could get it right away. And today I could be sitting next to a business owner entrepreneur who's a right fit client and over a 2- or 3-minute conversation, that business owner will say, "Gosh, I haven't heard anything like this before. I think I need your services. Can we jump on a call?"
And that's when you know you've got the message dialed in and where you've niched really heavily. So those are the things I've learned that I wish I could tell myself years ago is just to believe in that process and niche heavily.
Michael: So, any other advice you would give younger and newer advisors just getting started today?
Jim: Be curious. That's been a thing, even today. Yeah, I am so curious. I love to learn. I love to get more planning education and knowledge. And that's one reason why I love this team is because they push me too. It used to be I was the one that knew the most in the firm and now there are certain topics that I go to other advisors and say, "Hey, tell me what you think about this." Because I learned that having 20 advisors working together gets a way better result than 1 advisor or 2 advisors. So, I think about if...I'd tell a young advisor, "Think about the culture you're in and think about learning and growing and just being curious." Because sometimes I think some advisors who are young, they worry so much about, "Am I getting paid, this, that, what's in it for me?" Just be curious. If you're curious, that will make all the difference and that's one thing I admire about you, Michael, is I have always seen you as someone who's curious. You're constantly learning not just for the thing of to make more money or so that people think you're smart or clients think you're smart but just because you love to do it. And that's I think what I would tell anyone who wants to be great really in any profession. Be curious and never stop learning.
What Success Means To Jim [1:38:13]
Michael: So, as we wrap up...this is a podcast about success and just one of the themes that comes up is the word success means very different things to different people. And so, you're on this wonderful path for success with the great growing business that has a fantastic ESOP valuation now. So, the business box is checked pretty well. How do you define success for yourself at this point?
Jim: Number one thing is my marriage. My wife Mimi is such an extraordinary person and I feel like our marriage is stronger today than it was 30 years ago when we got married. And just we've grown together and built a business together. She's president of the firm. Number one thing in my life is my marriage and that relationship. And then I'd say after that, the legacy of this model that we're creating. I really believe that this can go on for decades and decades and be something that in some small way changes the industry for business owner entrepreneurs. And then the other piece is our people, our team. I can't tell you how excited we're going to be when we make millionaires out of our advisors. So, I would say that's it. My marriage, number one. Number two, continuing this model to help and serve entrepreneurs and helping our team get wealthy, not just through their salaries and their income but through the value of the business because that's really where we measure success on the business today, is the valuation. That's the number one thing. And because we're all in it together, it's not just as business owners. It, I think, brings us together in a way that's powerful and meaningful and that's how I define success.
Michael: Great, cool, Jim. I love it. I love it. Thank you so much for joining us on the "Financial Advisor Success" podcast.
Jim: It's been a pleasure and it's something I wanted to do for a long time. And it's as advertised. I really appreciate the time with you, Michael.
Michael: Absolutely. Thank you. Thank you.