Growing To $500M AUM In 7 Years By Connecting With Your Ideal Clients On LinkedIn: #FASuccess Ep 482 With Justin Brownlee

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Resources Featured In This Episode:

• Justin Brownlee: LinkedIn | Website
• 7 Actions To Take: Financial Planning For ExxonMobil Professionals And Retirees - Download (PDF)
• Brownlee Wealth Management Fee Structure - Download (PDF)
• Kitces Report: How Financial Planners Actually Market Their Services (2024)
• Financial Planning for Oil & Gas Professionals: The Podcast
• Slack
• AdvicePay
• Kitces & Carl Ep 23: Following Through On Your Business Creativity By Saying ‘Yes' And Figuring It Out Later

Full Transcript:

Michael: Welcome, Justin Brownlee, to the "Financial Advisor Success" podcast.

Justin: Thanks so much for having me, Michael. It truly is an honor to be here.

Michael: I'm really excited to get to talk to you today about the pathways we can take to actually get clients using social media platforms like LinkedIn. I feel like when social media first burst on the scene, I guess 15, almost 20 years ago now, the buzz was, "This is the future of everything." You had to be on social media, platforms like Hearsay exploded onto the scene to help advisors, especially the big, large enterprises do this compliantly at scale.

And now, as we fast forward a decade or two later, and we look at it, the results are very mixed at best. By our own marketing research on advisors that we do at Kitces, we see about 40% of advisors are trying to do something on social media market themselves, which actually makes it the fourth most popular marketing tactic besides client referrals, centers of influence, and just showing up for in-person networking activity.

And then our research also finds that, literally, the majority of advisors doing social media have not gotten one single client from their social media efforts in the preceding 12 months. It's the fourth most popular tactic, and the majority of us are batting zero. And I think in part that's just because it got really crowded on social media when "everyone" showed up, and it just gets harder to stand out, and get noticed, and build any kind of sizable audience.

I know you have had great success in driving very rapid growth to the firm, sort of sprouting forward to almost half a billion of AUM in seven years with a marketing approach that led heavily with LinkedIn. So, I'm excited to get to delve in the discussion of what are you actually doing on LinkedIn that is working when so many other advisors seem to be struggling?

Finding Success On Social Media By Pursuing A Local, Specific Target Client [04:38]

Justin: Michael, I love that question. It is certainly interesting because I wouldn't say that I enjoy LinkedIn, and I don't know really many people that would say that they do. But it truly is a testament to something that you've talked about a lot, and that is having a very defined local specific niche. And so, we've certainly found that it's just tremendously easier to talk to a very small subset of people that has the same themes or problems in their financial plan than it is to go onto any social media platform, and try to talk about topics that are relevant to 300 million people.

Michael: So, I want to connect those dots even there out of the bat though, because I feel like I heard what I would consider two contrasting things, which is building a very focused specialization in my local market and being on social media. I feel like for a lot of advisors, if I'm going local in marketing in the companies I go after, I go local. I go to the Chamber of Commerce, or networking meetings, or wherever I physically in person meet local people. So, I guess connect those dots for us a little bit more of, who are you serving? And if it's locally based, why are you on the interwebs instead of just going in person to find them?

Justin: Absolutely. Now, I do think local could be geographically local, but there's also an element of being local online. And I think another way to say this is simply the idea of, "Is my niche findable online?" Now, in our situation, we specialize in energy professionals, so oil and gas. And thanks to two straight decades of enormous amounts of mergers and acquisitions, what was once an industry that was really, Michael, spread all over the country has largely been consolidated, not entirely, but largely been consolidated to Texas.

Michael: You used to be spread across 50 states. And now the question is whether you're in Houston or Dallas.

Justin: Yes, that's right. We have offices in Houston, in the Woodlands, which is a suburb about 40 minutes north of Houston, and an office in Fort Worth. And so, you really hit the nail on the head in our situation. There is a local element to it because so much of the industry is found a lot in Houston or Midland-Odessa, which is more in the western part of the state, as well as Fort Worth. In our situation, we have a clearly defined niche, and they are largely in one geographic state. But I think the most important thing is there's almost a local element in the sense that online, on any social media, they are findable.

Michael: Now, connect this to me a little bit more directly to, so what are you doing on LinkedIn? Again, I'm still just trying to process through. I don't know why not try to make friends with the HR and benefits department at local energy companies, and get your foot in the door, and do seminars, and try to get locally visible. What's the LinkedIn aspect or angle of this?

Justin: That is actually a great idea. And you mentioning that makes me want to try that more.

Michael: Cool.

Justin: So, I may have to give that a go.

Michael: Collaborative marketing strategies. I love it.

Justin: Absolutely. But LinkedIn for us was really critical, especially in the early days, because as we all know, you have an employer listed on your LinkedIn profile. So, we are able to identify, "Okay, these 40,000 people are at ExxonMobil, or Chevron, or Shell, or BP." And so, that element was important. And a lot of our early content, and this goes back to just being hyper focused, a lot of our early content was answering very specific financial planning questions that you would only ask if you were at a certain position in one of these publicly traded oil and gas companies.

I think that was a huge reason why we found some success on LinkedIn, just because we were able to write hyper-specific content. And really, the original idea for my business was I went to my wife one day and told her, "I really think that I should quit my job and I should just start a blog. And I should just write articles that are only relevant…you're only going to read these articles if you're at a certain level in an oil and gas company, or maybe if you own your own privately held oil and gas company." And so, that was the origin. And LinkedIn ended up becoming an incredibly strategic platform for us, just because when you think about the groups of people that I'm describing, well, you're able to find them on LinkedIn.

Michael: So, lots of questions here. I guess the first, maybe can you give us some examples of what you wrote? When you say content to answer specific questions for specific positions at specific companies, can you give us an example or two of what kind of content or articles you were creating to try to be findable, get found?

Justin: Yes, a couple of examples come to mind. One of the very unique things about our niche is a lot of the publicly traded oil and gas companies, and the largest ones in the industry, they're known as super majors. So, think Chevron, ExxonMobil, energy companies of that size. A lot of them have Net Unrealized Appreciation (NUA). And so, they have their stock plan embedded in their 401(k), which, as we know, that creates a host of planning problems and huge planning opportunities. And so, what I noticed in my previous job at Fidelity Investments, just as a director and lead advisor, was that whether a client was coming from ConocoPhillips, or ExxonMobil, or a number of the large super majors, they all had this huge NUA opportunity.

I just was very curious, and this is, gosh, ten or more years ago. I began reading as much as I possibly could about it. And I would read just the different parts of the tax code that are relevant to it. And you begin to learn the different intricacies with NUA. You begin to learn how it's treated at distribution, and why that actual distribution itself is so sensitive and has so many rules around it. And then you also think about the future planning implications, both with your tax plan, your portfolio, and eventually your estate plan, since they do not get a step up in basis like most assets. And so, that experience, working with so many people at energy companies that had stock in their 401(k) that was eligible for an NUA election, that was the guiding force for a lot of our early content.

And then there was another really large situation where a giant oil and gas company was purchased by another. So, Anadarko was purchased by Oxy. And so, it triggered a change of control. And so, we were able to write a lot of specific content all centered around the details and nuances within that change of control severance package. And then, Michael, I think this might be the most interesting example of articles and LinkedIn content. So, we kind of like to have a general marketing plan. My partner Jared and I, we kind of talk about it where maybe half of our content should just be really excellent financial planning content that is probably relevant to anyone with money. But then the other half of our content should really only be relevant if you are in our specific niche. And so, it should answer a very specific question that you're only asking if you're in this kind of industry that we're targeting.

And we actually had one article, and this is maybe within our first year or 18 months of starting. And I wrote this article knowing that the total audience in the world for this specific topic that I was writing an article on, it was maybe ten people. And so, I was writing about a specific 401(k) nuance for kind of a newer publicly traded oil and gas company. And they kind of had a strange deal with their 401(k) match being so large that there ended up needing to be some different planning around it. But it was only relevant if you had more than 15, 20 years of experience within kind of their prior parent company.

And so, I wrote this article. It legitimately had maybe ten or 15 people in the world that it had any relevance to. We ended up getting four clients from that article. And so, we quickly found out that if we made content in whether it was an article, but especially on LinkedIn, there was kind of this inverse relationship where if the smaller the audience that we would write to, the more productive, the more beneficial, the more that article produced for us.

Michael: The smaller the audience, the more productive it was.

Justin: Exactly.

Michael: All right. Your last example here of...we're going to talk about a particular phenomenon that only crops up if you're at a specific oil and gas company that has this particular huge match that really only matters if it interacts with the legacy, because you came over from a predecessor company where you also have 15 years plus of experience, assuming there's some 401(k) plus pension overlap-y thing going on here. So, what did you write? Is this a short-form, "Hey, if you've got this situation, here's a thing to watch out for and contact us." Did you write the definitive article? It's thousands of words, and gets into all the details and nuances that even the engineers will glorify. What were you writing? How deep were you going? What did it take to get noticed with content like this?

Justin: So, on that article, it ended up being pretty meaty. And the interesting thing is the benefits team of that company quickly found out that there were some opportunities for them to kind of sharpen their benefits and make them better. But in the original year that they kind of separated from their larger company, they had some executives with what ended up being a 19% to 23% 401(k) match. And they did not yet have kind of a non-qualified plan that would make them whole.

And so, they were going to quickly run into some IRS limits with their own contributions. And it really ended up being a situation where they needed this non-qualified plan to kind of fill in the gaps so that they could make normal contributions to their 401(k) and receive the entire match. But for the very beginning days, they were actually incentivized to contribute less in their 401(k), and get less of one part of the match because the other facets of the match would already hit the limits.

Michael: Okay. Now, I can see the context of...and then HR comes in and says, "Oh, wait, we didn't actually want to incentivize people to do less." I'm going to assume that's because one of the executives or leaders was like, "I read this guy's article, and according to this, you all are messing us up. You got to fix this." You actually drove employee benefits policy changes. That's pretty cool.

Getting Specific Content To Ideal Prospects On LinkedIn [16:11]

So, help me understand, I feel like this is just a neat concrete example because it's so narrow and focused and specific. So, how does this get in front of your ideal prospects? I mean, even first question, did you literally post the whole article to LinkedIn in their post newsletters area? Or is this an article you write on your company website, and then you post on LinkedIn, "We wrote this neat article about this neat thing on our website, come check it out."

Justin: That's an important distinction. So, we would post the article on our website and then write parts of the article or just LinkedIn posts describing the article. Now, what's really fascinating, and this kind of goes back to...I think I mentioned that I'm not someone that thoroughly enjoys LinkedIn. I think we can all laugh because I don't know of anyone that thoroughly enjoys it as a social media platform. But because of that, on really day one of starting the company, I really just decided I don't really care for this to be my personal kind of social networking site. So, I actually tried to tailor my LinkedIn connections to only be people in oil and gas.

Now, the interesting part of that is, as you can imagine, most people who like your LinkedIn posts are friends, family, college friends, high school friends, people you actually know. I really wanted to disconnect from those people because I knew the algorithm, especially circa 2019, was hypersensitive on LinkedIn. And so, if you have a college friend who likes your post, LinkedIn is going to boost your post to their audience. The problem is college friends from Kansas State University, that's just not helpful at all if I'm trying to reach an audience largely in Houston, Fort Worth, Midland-Odessa.

And so, I ended up trying to tailor my LinkedIn connections to only be people in oil and gas. But then there is a consequence of doing that. And that is you get way less engagement. And so, what's funny is, Michael, we would actually have stories, and people would tell us this later, where someone would print our post on LinkedIn or the article that we linked, and they would print the article, and they would hand it out physically in the office. And again, this is pre-pandemic, so everyone is in a physical office. And in many ways, that's how some of our early content spread. And so, I might have two or three likes on this post, and then I find out months later that, hey, this is being shared constantly inside the office because it's that specific, that helpful.

Michael: So, don't underestimate or get discouraged by your reach if you've got a focused audience and only get ten or five or two likes to a post that you put forward. If it's that relevant to your ideal client, it might be getting shared more places than you realize. Then it's getting printed and shared around the office. Now it's probably getting dropped into a Slack channel or a Teams channel in a similar way.

Justin: I could not agree more. And I think it is critical for any CFP who is considering going out on their own to really grasp this idea. The reason that works is, as you and I know, Charles Schwab, Merrill Lynch, they are not going to write content that's only relevant to 100 people or 10,000 people. That's just not what they're in the business of doing. And so, if you're willing to solve very specific problems that a small number of people have, there is a huge opportunity there. And I think that same theme has morphed into where we are today, where I would say that our email newsletter is one of our biggest assets. Our podcast is easily one of our biggest assets.

If I am at, let's say, a general marketing conference of sorts, and talking to people in different industries, they would look at our podcast and our email newsletter, and they would legitimately laugh at how few subscribers and listeners we have. The number is just so much smaller.

Michael: Can I ask, what are the numbers? Anchor my expectations here.

Justin: So, I'll dive into our email newsletter. I believe we have right at around 500 email newsletter subscribers. And as you and I know, that is just a comically low number. But here's the thing, the hit rate on that 500 email newsletter subscribers, the hit rate of people who would be dream clients is extraordinarily high. And so, that really has been a key focus for us from day one. I don't really care how many people read the blog, read the newsletter, listen to the podcast, if it is the right people, we will be wildly more successful than we could ever imagine.

Michael: If 2% to 4% of that list reaches out to engage in any particular year, that's one or two ultra high quality clients per month every month of the year.

Justin: Right. Right.

Michael: And then what is podcast listenership reach for you?

Justin: So, with our podcast listenership, we have about 120 downloads for each podcast. Total listeners across our 100 plus episodes are about 17,000. So, again, we're talking about pretty small numbers for a podcast, but the typical listener is precisely who we want it to be.

Michael: And you get outreach from them? Does the podcast drive outreach? Does the email list drive outreach? Do they just kind of show up, and later you find out they were on one of those?

Justin: Right. I would say LinkedIn is a channel, podcast is a channel, email newsletters are a channel. Sometimes we have overlap and one person will be on all three. But you are correct that all three of those are really working concurrently, and we're getting clients from all of them. As well as just kind of organic SEO [Search Engine Optimization] or just a different content on our site or our YouTube channel.

Michael: So, take me back now for a moment to the article about the weird niche-y scenario of the excess 401(k) match contribution that doesn't have a non-call plan to overflow. There's 10 to 15 people in the world who match the one company in the one circumstance with the one of prior years of service at the old company to make this a problem. So, how does your highly esoteric article actually get in front of the 15 people out of 7 billion on the planet who have this problem? I feel like the fear or perception for most advisors is...this is like dropping a few raindrops in the ocean, hoping you hit the right fish. How did you actually get the article in front of the people?

Justin: That is such a good question, and I think I kind of have two answers. I do think there is an element where there is a little bit of luck. And Carl Richards likes to use that phrase, play in traffic. And there is an enormous amount of truth to that. When this happened, well, for the previous six months, I was regularly posting several times a week on LinkedIn with very specific oil and gas content. This specific company, I mentioned that I had a lot of posts around Anadarko and Oxy and their change of control. This company, pretty much everyone from the company came from Anadarko. So, there was already a little bit of a track record of, "Hey, this person is the only person on the internet writing these super tiny niche articles that's relevant to us." And then, I posted about that specific issue, and I posted about it several times on LinkedIn.

So, I think answer number one is you have to play in traffic. And you have no idea when you're going to get fortunate and see some of this start to pay off. I think there's another element. So, my second answer is, well, that is the value of LinkedIn specifically. That you can tag a company, and that doesn't necessarily mean that it's going to be broadcast to everyone in that company. That's certainly not the case, but you at least have a fighting chance of having an understanding of this is who these people are. This is where they're located, and I can try to make content for them.

Building A LinkedIn Network Of Potential Prospects (Rather Than Personal Connections) [24:49]

Michael: And I think I heard you say earlier, you intentionally weren't friending, connecting in LinkedIn context, your friends and family, because ironically, this was not actually your social media platform of choice for personal engagement. So, you primarily just connected with folks in the oil and gas space that you were targeting. So, I guess I'm wondering in that context, were you just periodically getting people who reached out, and you accepted their connection because they seem to be oil and gas and that's interesting? Did you have a proactive strategy, "I'm going to find, reach out, and send friend invites to four oil and gas people a day, and build my audience." Was this an outbound proactive strategy, or something that was occurring more passively simply because you're posting content on the subject, and as they find it, a few people say, "This person seems to know what they're talking about. I'm going to follow them and connect with them."

Justin: That is an important note with LinkedIn. So, we had a very targeted outreach strategy to connect with as many people in oil and gas. I want to say we kind of targeted 12 different companies. And so, that was both, I would personally try to just connect with a few people every single day, and then we also used one of those third party platforms. And I can't even remember which one, Michael, and this is 2019, so it was already annoying, but there was still a fraction of the noise on LinkedIn that there is today. When I log into LinkedIn, I have several connection requests that I know were AI generated, and they sent me a message and stuff like that. So, I will admit it was a lot easier to do this six years ago than it is today.

Michael: And so, I'm hearing there was a focused strategy at the time of, "A couple of people every day from my list of 12 companies to try to start building a network of people in the space who, fortunately, if I'm connected to them, will see what I post about oil and gas companies because LinkedIn shows you the things that people in your network are posting."

Justin: Right. That's right.

Michael: So, what was the outreach tactic? Who did you go after at the companies? How did you figure out who to go after? And what do you actually say when you reach out and go after them?

Justin: So, my original plan was I was using one of those services in addition to manually connecting with as many people as I could. And they were probably sending dozens of connection requests every day with a simple message of, "Hey, I produce content for oil and gas professionals. Connect and follow along if you're interested in reading financial planning content tailored to people in oil and gas." And that's got us where we are today. I've got thousands of connections on LinkedIn, and legitimately 99% of them are in oil and gas.

Michael: And so, just that cold, that...I don't mean this in a bad way, but that generic, that didn't feel like there's no cute hook, or elevator pitch, or sentence thing. You just literally said, "I make content on financial planning for oil and gas employees. Follow along if you want content on financial planning for oil and gas companies, because you're a person that works in an oil and gas company." We're not trying to get any fancier than that.

Justin: Right. And what's funny is, just like I mentioned, there have been so many people just flooding LinkedIn with marketing noise that I would almost be tempted to just make connection requests if you're automating them through AI or something. I would be tempted to do no message because, oddly enough, that is now far more personal today to have no message with a connection request than a message that we all know is AI generated. Or maybe have it short, very simple, to the point. If you're producing content for a very specific company, just say, "Hey, I have this podcast episode specifically for people at company X."

Michael: And I guess I'm recognizing in that direction that theme as well. When I pull up your profile and look at you on LinkedIn, it outright says like Justin Brownlee, owner, BWM, Brownlee Wealth Management, host "Financial Planning for Oil and Gas" podcast. I think that layer of title shows up in LinkedIn requests, outreaches as well. So, presumably if you're reaching out, they're seeing outright...you do a thing on financial planning for oil and gas, it's right there. So, if I am oil and gas, and have any interest in financial planning related things, you seem someone relevant to connect with right away.

Justin: Exactly. That's the goal.

Michael: So, are you still doing the cold outreach networking building, or did there get to some point where you say, "I've got enough now. It's growing organically from the content. I'm going to shift my energy elsewhere."

Justin: That was a real struggle. And I would say that was a real struggle right after the first year and really continues to be today. But as you know, you spend an enormous amount of effort building content, trying to disperse content. And then the funny problem is that all these people end up becoming clients. And so, then your time is just very...it's very difficult to continue at that pace, especially when, day one, it was organic. I didn't partner with Jared until about 12 months in. And so, you begin winning clients, and it becomes very difficult to keep up with the same pace marketing-wise, especially when it's super, super niche. So, it's not like you can just throw out a canned AI article for what we're doing, and continue to serve onboard clients and run the business.

Michael: So, where does it stand today in the outreach strategy? I mean, it sounds like you're still doing content because you got the podcasts and other things. Are you still trying to build the connections list as well?

Justin: I would say the connection list has really gotten on the back burner. And so, we already have just...and I personally have thousands of connections. And so, I think a lot of our content has kind of morphed in, day one, year one, it was all centered around a blog. So, a website with long form articles. I always wanted to start a podcast. And so, we do "Financial Planning for Oil and Gas Professionals" is the name of the podcast. And a lot of our resources and time and effort goes into the podcast. And then we certainly have clips, and we disseminate them on different social media. And we post about them and write about them in the newsletter. But a lot of it has shifted from, year one, we really got our start. I really can't imagine how we would have survived without LinkedIn. But it's really morphed more into kind of podcast, and just some of the other channels.

Michael: Is that because you find podcast works better? LinkedIn doesn't work as well now? You just wanted more different channels? Help me understand the shift or the driver of that shift?

Justin: A lot of it is I wanted more channels, but also, now that I have thousands of connections, it's just so much easier to see some productivity on LinkedIn because we already have that base of connections built. And we're able to simply just post about our most recent podcast a few times a week and continually update with new content that we're producing. And so, it's just a lot easier and takes so much less time today now that we have so much more content, and so many more connections than we did in year one. So, it's kind of that idea that you begin getting momentum on a project, and it ends up being a lot easier to keep the ball rolling four or five, six years in than it is month two, month three.

Michael: I guess practically speaking, from the business end, we need enough people on the list of email, and podcast listeners, and LinkedIn, and the rest. I need enough people on the list to bring in the number of clients I need to grow the firm. And beyond that, I don't necessarily need more people on the list because if I get more and more clients, and I don't actually have capacity enough to make waiting lists or have other problems, it's not helpful. Real time, it's not helpful to the business past a certain growth point that we can absorb in actual growth capacity in the firm.

Justin: That's right.

What Brownlee Wealth Management Looks Like Today [33:30]

Michael: So, do you feel that growth constraint? I guess that kind of evolves into state of the business itself. So, I guess tell us about the advisory firm as it exists today so we can understand what this is funneled into and built for you.

Justin: Right. So, Brownlee Wealth Management is a fee-only independent firm. We have about 75 clients and we manage around $500 million in assets for them. And so, that is the structure today. Staff wise, we have, let's see.

Michael: Interesting. You have high dollar clients in that context. I know they always skew because we have a few large ones that pull up the numbers, but nominally, that's an average client that has one or several million dollars.

Justin: Right. And so, we like to say our sweet spot where we see a lot of is someone in oil and gas that invests about $6 million to $7 million with us. Their net worth is typically just a little bit higher than that. And we kind of have three different segments. And so, one segment is just the retiree from oil and gas that might have $3 million or $6 million or $7 million. And then the second segment is there might be a family where both spouses worked for an oil and gas company. Or maybe it was just one spouse, but they ended up making it a little bit closer to the C-suite. And so, they kind of made the vice president level, and had income in the seven figures. And so, they often will have $10 million to $20 million or $30 million.

And then we've also seen a lot of traction, and some of this was not entirely expected, but we've seen a lot of traction with taxable estates and more family office work. And I think that is in large part due to our very focused niche mixed with our unique fee structure. And so, we are fixed fee. And so, that's a little bit of a rundown.

But as you mentioned, as marketing became more and more successful, that had an immediate impact on who are we going to bring on as clients. What do we want the business to look like? So, I remember year one, we kind of had an initial fee structure that started with a $5,000 fixed fee. And that fee went up as your assets or net worth went up. But today, our minimum fee is $25,000 a year. And so, we are very much built to be the best firm in the world for a very specific demographic and a specific industry that often has assets that are above $5 million and, you know, sometimes well above $10 million.

Michael: So, help us understand what this looks like from a revenue perspective, a team perspective, just to fill in the rest of the picture on the business side.

Justin: Right. So, revenue is around $2 million a year. And team wise, we have six full-time staff members on our team. And so, those six serve the 75 clients. And I do think that is a very critical facet of our firm from day one. We wanted to have an exceptionally low client count. As we both know, there's so many large big box firms where you end up having a lead advisor that might have 300, 400, or 500 clients. And we're in a situation where we just have a an incredibly low client per employee, and low client per CFP count. And we're pretty excited about that. And that's something that we want to continue.

Michael: So, I'm curious to delve further there. I guess first, what are the seats of the six team members? Who does what? Who's advisor? Who's admin? Whatever other roles are like, what does that org chart look like?

Justin: Right. So, primarily myself and one other partner, Nathan Steele, manage a lot of our lead advisor relationships. And then my largest partner outside of myself in terms of equity stake in the company is Jared Machen. And Jared and I partnered together after about 12 months. And he helps lead some of our largest client relationships, as well as he's also our COO. And so, he really has his hands in every facet of the business. And then we have a few service associates and associate advisors.

Michael: How does that split up for you between...I guess as I think of it, associate advisors tend to come along with lead advisors, and sit in meetings and support directly. Admin client service staff is usually more behind the scenes. So, I guess I'm curious, what's your split of associates that might be in meetings versus admin that are doing the pure essential back office work?

Justin: Great question. So, a typical client experience with us will have a lead advisor, an associate advisor in the meeting. And then they will also have pretty consistent communication via email or phone with one specific service associate. And then we also have one of our service associates that really is the architect of both our onboarding experience and the client planning process. So, the end result is that a client will have pretty consistent communication with three or four members of our team.

Michael: Okay. And so, if you and Nathan are leading clients and Jared is supporting some as well, I guess not quite perfectly evenly distributed amongst you, but you're averaging basically 25 clients per lead advisor across the three partners.

Justin: Yeah, that's a great way to look at it. And as you can imagine, it's certainly a moving target, because our growth rate has just been more than we could have ever imagined. And so, we try to think about it that we want lead advisors to not have more than about 50 relationships. And so, we're under that now. And that's a little bit of a moving target, because last year alone, I believe we brought on 20 clients. And so, it's certainly something where every three months, those numbers tend to look different. But yeah, directionally, that's accurate.

Michael: Okay. And so, what happens as you approach 50 clients? I guess that's 50 clients kind of per pod unit, as it were, of the lead, and the associate, and the service associates, who are assigned to them.

Justin: Yep. And so, it certainly is a process where we have to either hire or promote an associate advisor to the lead chair, and continue to build out their team as we grow.

Michael: Okay. And so, at that point, I'm just curious what your vision is, do they expand the team and the team gets bigger? Or do they spin off to their own team? And you rotate a new associate into your client base?

Justin: We are very comfortable with both. And so, one thing that I really want is to continue to give our staff a great deal of autonomy. We like to say within our firm that you can choose your own adventure, and you truly can build the career and work life that you're targeting and hoping for. And so, I think we are excited about the idea of building out a new advisory team with 50 clients. And then if they want to stick with that number, that's wonderful. And we're also excited if there's a team that says, "Hey, what if we staff up and make this a bigger team, but we're then able to serve 80 clients, 90 clients, but we're still able to retain this incredible high touch experience with a low client-per-CFP count?" That's also something we're excited about.

Michael: I'm struck just, as I think about it from the business end, the math works quite well. You're $2 million of revenue with 75 clients. So, average client fee is right around $25,000. If you cap out of 50 client relationships, you're going to cap out at $1.2 million, $1.3 million of revenue, which is a fantastic revenue productivity for that core three-person team. You can run that very profitably and sustainably in advisory firms all day long. It just strikes me that you're low client count, high touch, but you've got the client capacity to do it, and you're charging enough that you can service and staff it well, and be very financially healthy and profitable at 'just' 50 clients per lead advisor, per team unit.

Zeroing In On Revenue Per Client As A Key Firm Metric [42:05]

Justin: That's right. Michael, I would say around 2021, so this is maybe two years into starting the business, obsessed might be a strong word, but I did become a little bit obsessed with the metric of whether you are AUM, percentage of assets, fixed fee, whatever it is, I do believe that an RIA owner must have a very strong pulse on revenue per client. And you're exactly right. We do have one downside with our business model. And that is the math, the numbers simply do not support trying to work with a lower revenue per client number.

And so, I want to say that we hit the SEC registration mark. So, we hit about $100 million in assets in something like two and a half to three years. And at that time, I think our average revenue per client was still under $10,000. And today, like you mentioned, it's mid-$20,000. And for new clients, that's now our minimum fee. And so, we continue to move in that direction because, one, it allows us to achieve this low client count. We're in a service business. And so, Jared likes to say in our business that in any service business, everyone will say that they provide great service. That's the point of being in a service business.

But a better question that you should ask potential advisory firms is not, "Do you provide great service?" It's, "What is your capacity to provide great service?" Because if you have lead advisor client teams with 200 people, well, how is that person going to review 200 tax returns? How are they going to read 200 revocable living trusts? How are they going to see the underlying or embedded liability coverage in your home and auto policies, and match that with what you need in an umbrella? And the answer is they can't, they don't have the capacity for that level of service. And so, the downside for us is we're really not suited to be a solution unless an individual or family is at some of these higher asset levels.

Michael: And so, that becomes, I guess, a honing, a winnowing, a refining for you, because it sounds like the target clientele and the minimum fee has essentially moved up for you over time.

Justin: That's right.

Michael: Because you were at 10k revenue per client at 100 million, but now you're at 25k revenue per client at half a billion.

Justin: That's right. Yeah. I would say we've strongly leaned toward this idea of whoever came on in those first early years, we continue to honor it. Now, as their assets and income has continued to rise, their fee continues to go up a little bit. But that is the reason we still have several clients from our early year or few years where they're still below our minimum. And we're thrilled to continue to serve them.

Why A Fixed Fee Model Suits Justin's Client Base Well [44:59]

Michael: Now help us understand more about literally what this fixed-fee model is and how it works. I think I heard you very sort of intentionally say you're fixed fee, which I'm referring to mean not AUM based. But it does sound like there's some way that fees change as clients grow over time. So, can you explain more? Or just literally, what is the fee model? How does this work?

Justin: I'm glad you asked. I truly believe that we have the greatest fee structure in the world for the specific industry of people that we're serving. And I also like to think that our growth is because we just do incredible detailed planning for this niche. And I think that's true. But if I'm telling the truth, I strongly believe a massive reason why we've seen the growth that we have is because of our fee structure. And so, we do a fixed fee that is tiered on assets. And I'd be happy to just link that, and I can give you the PDF that kind of illustrates that.

Michael: Yeah, that would be great. I'm going to ask about in a moment, but just for folks who are listening, if you want to see the document and follow along, we'll put it in the show notes. So, this is episode 482. So, if you go to kitces.com/482, and scroll down slightly on the page, you'll see the show notes area, and we'll have this document linked as well. But now, Justin, tell me about the document. Tell me about the fee schedule.

Justin: Absolutely. So, from zero to $5 million in assets, that is a fixed $25,000 annual fee. And that actually includes your tax return in that. And from $5 million to $6.5 million, it is $30,000. From $6.5 million to $8 million, $35,000. And then it goes to $40,000 and beyond. And our fee structure delineates about $5 million in assets up to $30 million. And then above the taxable estate level for a married filing joint family, we are negotiable. Now, the reason for that, we ended up getting a great deal of traction in some of the higher asset levels. And we have quickly found that there is an enormous difference in service and resources when it comes to a...

Michael: It serve its expectations as well, I find.

Justin: Oh, great point. Absolutely. But it is just night and day different if we are working with a vice president at Chevron or ExxonMobil, who they might have a $30 million net worth, but it's actually very clear. Their balance sheet is surprisingly simple. It's an enormous amount of equity compensation, as well as qualified retirement plans and non-qualified retirement plans. So, the balance sheet is a little bit simple. Contrast that with a oil and gas business owner who owns a private entity, and that entity may have been around for two or three generations. And so, there are dozens of different trust entities involved as well. And so, we have ran into both. And as you can imagine, the work involved with a simple balance sheet versus someone that might have 30 or 40 different trust entities that were created across three different generations, that's just wildly different scope of work. And so, that's why we make it a little bit of a murky answer when you get into the taxable estate level. But we try to have a pretty clear track from just a few million up to about $30 million.

Michael: So, I'm just curious, by the time I get to $30 million, I don't know if I'm $29,999,999 thing before I take in your negotiable, where would my fee be on your fee schedule by that point? Where would it have drifted up to just on the normal fixed fee increments?

Justin: Yes, so $26 million to $30 million is $70,000 a year.

Michael: Okay. Okay. All right. I have so many questions here. Because I'm just kind of processing through this. So, on the one hand, as I think about this, I mean, $25,000 on the first $5 million, assuming I get to $5 million, I'm basically 50 bps [basis points], if I'm doing the math right. So, at that point, just for a lot of advisors that work in $5 million and up markets, not unusual to me to see fee schedules somewhere around 50 basis points. Some of us, the blended fee schedule, sometimes it's a little bit higher. Because it's 1% of the first, to the next 0.9%, to the next 0.8%, to the next, and gets down to 0.5%. But I find for a lot of firms, we have to do that because we have a lot of smaller clients. If my minimum starts at $25,000 out of the gate, and I don't need to have large clients make up for the profitability of smaller clients, the fee schedule just gets a little bit flatter.

So, it strikes me then that your fee schedule isn't that different by the time I get to 70 grand on up to $26 million to $30 million. Now, I'm down in the 25 basis point range, maybe a touch bit lower, which still feels pretty competitive. Again, you may be a tiny bit lower than I see some other firms in that market. But they have a wider range of clients, and smaller ones they've got to make a profitability on. I'm struck, the fees don't seem to me to add up to be that significantly different than where a lot of AUM firms would end up, particularly ones that have a hard $5 million minimum anyways. So, why the fixed fee schedule? Tell us more about what this is, where this came about? Why this version and not an AUM fee schedule that could add up to roughly the same thing?

Justin: Absolutely. The first reason for us is the niche that we're in, one of the most unique things about it. I mentioned net unrealized appreciation. But if we zoom out from there, the unique thing about oil and gas is it's very normal to have a 7% to 17% 401(k) match, and a pension benefit with a lump sum payout on top of that. And so, the average 401(k) match might be around 3%, 4%, 5%. You end up in a situation where you have companies that are putting 15% to 20%, or sometimes 25% into qualified plans for their employees. So, the result is, if you just work for 40 years at one of these companies, it's very normal for you to have $6 million.

And so, really the origin of the fee structure for us was the typical 1% fee just makes a whole lot less sense when everyone has $6 million. And yes, the AUM fee is going to give you a little bit of a price break. They're probably going to charge 0.8% or so on average, maybe 0.7%. But our fee structure is significantly better just on the sheer cost. But the other thing that it does for us is it just removes an incredible amount of conflicts of interest. And so it allows us to look at a client and weigh in on, "Hey, should you go upgrade your house? You want to buy a second home?" A lot of our clients are still in Texas where, as you can imagine, it gets pretty brutal here in the summer. And so, we have a lot of clients that love the idea of having a summer home in California, Colorado, New Mexico.

Michael: Not Phoenix, go figure.

Justin: Amazing. Not as much Phoenix or Florida. And so, that's a really difficult conversation when a client might have $8 million, and they're looking at a $2 million home. And there's an incentive in there for the AUM advisor to push that price down on the home, or tell them to not do it. We love our fee structure because we're really freed up to just give great advice.

Michael: At that point, because of the width of the tiers, worst case scenario, even a $1 million or $2 million down payment on a house might move you one fee tier, which isn't even 10% of your fee. And it might easily not move you a fee tier, because you went from $6.2 million liquid to $5.2 million liquid, and it's the same $27,500 fee. So, I don't care. Do what you want to do with your house. How can I help?

Justin: That's exactly right. And there's certainly that dynamic of do I take my pension as a lump sum or an annuity? And is there a conflict of interest for advisors weighing in on that? But I would say this is one of the more shocking parts, and this is a very big deal. I cannot tell you, and I'm sure you resonate with this, and you've seen this, but I cannot tell you how many clients and really prospective clients we see with significant assets, and let's call that $7 million, $8 million, and certainly you see it when assets go above $10 million, where their entire framework is the percentage fee model. And they begin to realize that, "Oh, my goodness, this 0.7% fee on my $12 million, it's right in line with a NetJets annual subscription.

And so, the result of them going down that path and thinking through this is they end up piecemealing it. And so, they end up hiring a firm, and they want some sort of professional asset management oversight on a portion. And let's say it's like $3 million or $4 million on a $10 million individual. And then they kind of DIY the other $6 million or $7 million on their own because they realize that, "Hey, why in the world am I paying this advisor to put me in a canned set of mutual funds when I could just kind of mimic, or do some of this on my own?"

And that entire song and dance is just completely ridiculous. Why would we not have one transparent fee that we both agree on, that doesn't penalize you for having $10 million? And then let's go get to work. Let's be a fiduciary on your entire balance sheet. And let's start asking and answering great planning questions on everything in your balance sheet rather than trying to do this song and dance where I'll hand my advisor this $4 million, but I'm going to keep a big chunk of it on the side.

Michael: I guess I'm just trying to process as you put this together. To me, I hear two or three different aspects of this fee structure kicking in as you bring yourself in the competitive environments. What happens when you have just a really high solid minimum fee that ensures you can serve clients deeply? And there's a certain simplicity that comes to the business of when we...I don't want to say just. When we just make sure we're getting $25,000 of revenue per client, we can just staff really high touch, and everything goes great and we're fine. Right, so you're serving $2 million of revenue, you've got six team members.

When I do the math on that, you're $300,000, $350,000 of revenue per employee, which is a totally normal, healthy number at $2 million of revenue. And you've still got capacity to grow, it sounds like, before you would even hit capacity. So, the model works so well with a strong minimum fee that that in and of itself makes it a little bit easier to price a little lower and more competitive. Because you don't have to carry the overhead burden of the smaller segment of clients.

There's a second part of this to me that sounds like you have an intentionality to be fee competitive. "Hey, there are advisors that charge you 0.7% on $10 million. And if you do the math, we're gonna come in closer to 40 bps. And we're just flat out more cost effective because we're focused." There's a third piece of this to me then that is, "And we don't literally do it with an AUM model. We've got this just fixed fee structure that's not AUM, which I think unto itself is a differentiation of marketplace."

So, I guess I'm just trying to visualize or would love to hear your thoughts. What's the relative contribution or impact of each of those three levers? I've got healthy minimums, I'm pricing competitively, and I'm just literally not AUM. How much of each of those is contributing or impacting how you attract clients, how you execute and grow the business?

Justin: I would say that the clients and prospects that we've met with, I really believe it's a pretty equal dispersion across those three. And so, I think all three resonate in a pretty equal way. I do think clients love our fee structure because they're giving us a significant sum of money, and the fee is just so much more transparent and reasonable than the typical experience in the rest of the marketplace. But I do think that there is just...the story that I shared of how many clients end up in this ridiculous situation where they have a great deal of money, but they're still kind of DIY-ing part of their balance sheet. That resonates with people, and they don't want to do that. They like the idea of a transparent fee where we're so much more aligned, and some of the conflicts of interests are significantly less. So, my experience has been they definitely resonate with all in a surprisingly equal manner across those three metrics that you mentioned.

Michael: And just to be clear, as you set a fixed fee on assets, because you've got folks where it's 401(k) dollars. There's pensions that lump sum. There's non-qual plans. I'm assuming there's a bunch of equity comp as well, RSUs [Restricted Stock Units], options and the rest. So, just to be clear, when you say fixed fee on assets, what's assets in your world? I'm assuming this is broader than traditional actively managed discretionary assets, because they've got other pools of money.

Justin: Great question. Largely the equation typically is pretty simple in the sense of it is assets minus primary residence and secondary residence. That is largely how it's defined. It becomes a little bit of a moving target, and it is a little bit more in the weeds, a little bit more murky whenever we're talking to someone who is not retiring anytime soon. And so, as you can imagine, there might be someone with a significant net worth, but they are going to work for six more years. And then the question becomes, "Well, do we count their 401(k)? Do we count their pension?"

And then many times we don't, and we kind of just get a little bit more in the details and transparent with them on, "Hey, this is where the fee will go long term. But let's count or let's not count every specific part of their balance sheet." And those are the situations too, where we will make fee concessions. And so, we think it's critical to have our fee structure exactly as it's laid out now. Because what it does is it paints the vision for where we're going long term, and really casts the vision for, "Hey, when you hire us, this is not a two-year decision. This is a 20-year decision." But if someone is in a situation where they're making a high income, but 80% of their balance sheet is all locked up in workplace plans, we are probably going to apply the fee structure and the definition of what is an asset and what's not counted a little bit differently.

Michael: And so, how does this show up as you do just annual billing with clients ongoing? I mean, for better or worse, annual AUM billing is pretty straightforward. Pull in balances from portfolio management software, apply fee schedule, hit bill. You're valuing a bunch of outside assets of varying degrees of liquidity. So, how does this work from just a billing management perspective, a fee calculation perspective, annual over time perspective, when you're trying to manage these fees over multi-year relationships?

Justin: There are a couple critical components of that. So, on the one hand, let's just talk about the implementation of the fee and how we execute that. Whenever we do have a client where we're not managing much at, we custody client assets at Fidelity or Schwab. So, let's say that we have a client where they don't have much invested with us currently, that is then likely going to be an AdvicePay retainer on a quarterly basis. Vast majority of our clients, we are the discretionary asset manager at Fidelity or Schwab. And so, we are billing those, and the execution of billing is very similar to AUM in the sense that we're billing quarterly from the account.

Michael: And so, is that why you do AdvicePay, flat fee on a quarterly basis as well? It just means you do all your billing quarterly.

Justin: Exactly.

Michael: The only question is if we have a managed account, we bill a managed account. And if we don't have a managed account or don't have enough of one that the fee wouldn't be a weird astronomically high percentage, then you'll direct bill them through advice pay, and they can pay from bank accounts and other sources.

Justin: That's right. That's exactly right. I think the other facet of our billing operation is that it becomes incredibly important to continue to hit on the fee. And you think about our experience compared to a percentage or AUM firm. The thing about AUM that's pretty incredible, if you own an AUM firm, is those fees go up automatically, right?

Michael: That's my question here. Do you recalculate assets quarterly, annually, less frequently? How do you pull in the numbers to calculate it? Assets that are not traditionally publicly traded…so, how does that work for you?

Justin: So, we are looking at the fee, and whether we need to do a fee increase, fee decrease, or keep the fee the same, whatever the end result is, we're looking at that and touching on it twice a year with each client. And so, it is a situation, and I mentioned, specifically want to call this out, even if a fee increase...so, even if there's no fee change, it really is important, if you run a fixed-fee firm, you really need to talk about it each time because you need to get credit for how good of a fee structure it is.

As you can imagine, Michael, we will have countless examples where someone's portfolio has moved from $6.7 million to $7.8 million in a six-month window, and we literally are not increasing their fee. And let's also call out, when a fee increase happens, if it's a percentage of asset model, AUM firm, that fee increase is literally just automatically executed, and they do not even have to sign a new advisory agreement. It's just the percentage of the amount.

Michael: Because your fee schedule is not strictly flat fee negotiated each year, it is a tiered fee with fees based on asset levels. And so, when they trip to a new asset level, the fee does automatically adjust without repapering.

Justin: So, we actually do have to sign a new advisory agreement.

Michael: Oh, you do have to sign a new advisory agreement?

Justin: And so, we run it that way. And there's an element where that's a level of friction, right? Let's call a spade a spade. And so, as a firm owner, there is a little bit of friction there. You have to do a new advisory agreement. And so, that's why if anyone is running a fixed-fee firm, or they're thinking about starting a fixed-fee firm, I really can't emphasize this enough. You have to lean into it, and you have to talk about it in every review meeting, especially in the times that you're not changing their fee. Because frankly, you must get credit for how good of a deal it is. Because how many times are we seeing client portfolios go way up in value, and we're not increasing their fee.

And contrast that with the AUM firm. And we really have to have that conversation that in the typical model, you would have paid an extra $9,000 every year just on this asset increase. We love our model. We love our fee structure, because it's not built that way. And so, there is a little bit of friction that there has to be a new advisory agreement every time. But that can also be a pro in how transparent it is, and the client gets that message.

Michael: So, is that something you want or hope to find a workaround for, or a reality of the situation? Or are you in the...it's still more of an asset than a liability because it forces a good conversation since we're competitively priced anyways?

Justin: It's funny you ask that. I love that question. I was talking to someone who's an executive at a particular golf club, and they were making the point that an incredible idea in hospitality is think about your worst weakness. Think about the worst thing you have going, and try to find a way to take the worst thing you have and turn it into your best thing. And that doesn't always apply across every industry. But for us, I would say we've seen that in a massive way. So, the fact that we literally cannot execute a fee increase, and keep in mind, our fee structure is legitimately far better than the typical AUM model. And so, we can't execute this without a new signed advisory agreement. On the surface, that's a massive weakness. That is a friction in future revenue.

And for us, I really believe that we've turned it into a strength. Because what it's made us do is it's made us spend three minutes in every review meeting with their portfolio, with their balance sheet, and their fee that's transparently shown. And we're able to talk about how incredible a fixed fee setup is. And we're able to, every client, every meeting, just touch on real briefly, it's not extensive or overboard, but we're able to touch on how incredible this fixed fee model is, relative to what the traditional billing structure for most firms tends to be. And so, I really believe we've turned what was a massive problem, massive weakness, and we've turned it into kind of a strength for us.

Including (Outsourced) Tax Preparation In His Firm's Service Offering [1:07:30]

Michael: Now, I want to come back to one other comment that you made earlier, which is another part of your fee structure and what's included is tax preparation.

Justin: Yes.

Michael: So, how does that work? Are you doing that in house? You, or Nathan, or Jared have a EA and side returns on the side? Have you partnered with it externally? How are you doing that part?

Justin: So, we have partnered with a CPA firm in Houston that we just really love. And it's just been a tremendous experience. And so, the client pays us our fixed fee, and we pay the CPA from there. And we like to tell clients, "You're not obligated to use this CPA if you have your own, or you happen to love doing your own tax return for some reason. You don't have to use ours. But it's always available if you want it."

Michael: Natural client question, "If I don't use yours, do I get a part of my fee back?"

Justin: That has come up a few times. And the answer is no. And that is part of settling with each client. And there are some situations where we might have a very unique situation where we're serving a business owner, and they have a tremendous amount of trust entities, where we may decide on the front end that we're not going to do this tax return. And we will be closely tied in with your CPA that's been doing this for the last 10 years, for all planning opportunities.

Michael: So, functionally, a non-trivial portion of your fee comes right out off the top to go to the CPA every year for clients getting tax returns.

Justin: That's right.

Michael: I assume, just for the dollar amount you've got, and non-trivial tax complexities that just tend to show up by the time you've got multi-million dollar clients. These are not $1,000 W-2 returns. These are pricier tax returns, even when you cut a deal in bulk for all your clients.

Justin: That's right. And so, it certainly amplifies just how important revenue per client is. Because you're exactly right, it's not a trivial number. It is a material consideration.

Michael: I've got to ask, so how did you find the CPA? And how did you decide external versus internal?

Justin: Great question. So, we talked with just dozens of CPAs over the years. And we just really love the one that we have, because of how responsive and attentive to detail this firm is. And your question on doing this internally versus farming it out, it's something that we constantly mull on and consider. And I would say that there's definitely a universe where maybe we do at some point completely bring this in-house. Maybe we find a way to purchase a CPA firm. So, there's an element where we always have to think through this. Because is the current solution going to always be the solution? Will it be the best solution in four years or 14 years? That's a great question. And so, it's been a wonderful setup. And we really enjoy it. But yeah, there's definitely an element where it's an ongoing discussion of should we, at some point, bring this in-house? And what does that look like?

Michael: What triggered the decision to make it external in the first place?

Justin: A huge amount of the initial external decision was just the simplicity and ease that we can do this. So, we're able to offer tax prep, we're able to have a very transparent or aligned structure, where a client's portfolio, their long-term plan, and their tax return have a very intimate relationship, and there's a lot of communication and visibility there. And the easiest way to accomplish that, especially when we started doing this about four years ago, was a partnership like the one we have. Just significantly lower barrier to entry, doing it this way, rather than bringing it in-house.

And I think that part of that goes to our growth rate. And so, if we back up to when we started offering tax prep as part of our services, Michael, I want to say that we are compounding at something like 80% or 90% per year in the four years since. And so, you can kind of think about that math. We were in a different universe revenue-wise when we started offering tax returns than we are now. And so, that's a little bit of what's gone into that decision.

Michael: So, I guess I'm just curious. I feel like there's a lot of discussion these days around the appeal of trying to be a so-called one-stop shop, because we do with the advisory, and the financial planning, and the tax, we can throw some estate in there, under one umbrella, in one bucket.

I'm just wondering as you do this, as you position this with clients, do you position this like you're a one-stop shop, and it doesn't really matter that you don't sign the return internally?

Justin: We're very transparent that this is a third party who we have really enjoyed working alongside, working with. So, we're very transparent on that point. But a lot of the origin of this was with our niche, and with our original service offering and our offering today, I mean, tax planning is the absolute core of what we do. And so, everything about our niche, everything about our offering, it all centers around tax planning. And so, really from day one, there was this hope that we could get to where we currently are, where tax prep is included in the fee.

And the second it was remotely possible, it just made so much sense. Because at the end of the day, people come to us because they typically have a level of assets and a particular balance sheet structure, thanks to the weird benefits of oil and gas companies, where there's just an enormous amount of tax planning opportunity. And so, because that's such a central theme to what we're doing and why people hire us, we really just wanted to include it.

Michael: Okay. And so, as you frame it to clients, "We do it all here."

Justin: Yep.

What Surprised Justin The Most Building His Advisory Firm [1:13:31]

Michael: So, as you've gone down this path, what surprised you the most about building and sizing and scaling up this advisory business, especially as you've gone through such rapid growth?

Justin: I think a couple surprises. One would probably have to do with having partners in the firm, which has just been such a wonderful experience. But then, I think one of the biggest surprises on my end is absolutely how difficult it is, but how well it's gone. And so, there's kind of this strange dynamic where, obviously our growth rate is just...it's frankly far beyond what we could have ever imagined. Like a lot of RIA owners, on day one, I kind of had this directional vision, this loose vision that, in ten years, I would love to have $100 million. I'd love to be SEC registered. And I'd love to be on the Kitces podcast.

Well, we hit that SEC mark about two and a half, three years in, and we're now six and a half years in, and we're about a half of a billion. And so, there's this element where it's objectively gone better than we could have ever imagined. But the funny thing about it is the path to success feels like you just get told no all of the time. And I think a lot of entrepreneurs and different RIA founders can resonate with that. But we look today, and it's this kind of climbing visual of you look down the mountain, and you cannot believe how far you've climbed. You can't believe how much progress has been made. But the day-to-day experience, you don't feel like you're conquering the mountain.

Michael: You just feel like you're getting your backside handed to you over and over again.

Justin: That's right. You feel like the mountain is conquering you. And there's definitely an element early on. So, the origin of Brownlee Wealth Management is I wanted to do something like this. And about seven, eight years ago, I was diagnosed with cancer. And this was totally unexpected. This was not on my wife and I's radar at all. She actually gave birth to our third child 14 days before I was unexpectedly diagnosed. And had a really difficult battle with cancer, surgery, chemo, radiation, just an incredibly difficult time.

And then we kind of emerged out of that. And there was this element where, "Hey, one of the worst things that could ever happen to us, it already happened. And let's take the risk. Let's make the job." So, there is an element where my wife at the time was a stay-at-home mom. So, my income was the only income. And so, Michael, to start the firm, we sold basically every investment account, liquidated almost all retirement accounts. We sold our house. I sold my car. So, we lived as a family with one car for a year. We put everything into this business.

And so, there's an element where what we've been able to see is just incredible. And it's more than we could ever imagine. And we're extremely thankful for it. There's also an element where it sure doesn't feel that way. And it feels like you look at the success, but it feels like you're just being told no constantly. And it's just setback after setback that you have to work through. And I do think that it's shocking that both of those things are true. I think one surprise is just how unbelievably essential it is. If you're going to go down this path, you must decide that you will be relentlessly positive.

I really can't emphasize that enough. You must make a firm decision that you will be relentlessly positive. And I think as we made some of those hard decisions to spend all of our savings, to sell our house, to sell my car, we did some weird things. Some things that most people in society are probably looking at us thinking, "What in the world are they doing?" And it's a pretty big shock how well it's gone, and how hard it feels despite how well it's gone.

One other big surprise is just how incredibly rich it's been to have incredible team members and partners. And so, I think, gosh, this was less than a year in. I brought on, I want to say it was my seventh client. And so, I had seven clients, which is a laughably small number. And I remember thinking, "I'm just flooded with all of the work involved with owning an RIA, and having seven clients, and I'm not actually getting to do what I love doing, which is financial planning." And so, it was at that moment where I began to think, "I would really love to partner with someone, and I would love to find a COO." And that was the origin of Jared Machen and I's partnership back in 2020.

And we're in a different universe because of that partnership than we would be otherwise. And then Nathan Steele and Josh Matthews have since joined, and that's just been a wonderful experience. And then employees across the board, though. Reagan and Cari fill out our full-time team, and then we have part-time help with Mindy. It's been an incredibly fun and rich experience to not just serve clients, but be able to build out career tracks, and have individuals and families that are tied in with the business. And so, that's just been an incredible surprise at how fun it is to have a team and have partners.

The Low Point On Justin's Journey [1:18:52]

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

Justin: I think the low point, in some ways, it is that first year where we are spending all of our savings, and we sold our house, like I mentioned. We put all of that equity that we made from that house, we put all of it into the business. And the thing about the first 12 months is you grow way less in those first 12 months than you do from month 60 to 72.

Michael: Yeah, yeah, the curse of compounding, it's really awesome in the later years, it's really awful in the early years where 20%, 30%, 50% growth of a small number is unfortunately still a small number at that stage.

Justin: That's such a good point. We talk about compounding as this incredible thing. Well, compounding is just brutal when you're on the front end of it. And so, I think that is, in many ways, the low point. But the funny thing is, I was actually shocked, Michael, at how much I still enjoyed that first 12 months. So, I had a lot of kind of built up...I was worried when I started the firm, because I knew listening to different XY advisors and stuff, I knew that that first 12 months was going to be hard. But I really still just thoroughly enjoyed it. And so, in many ways, that is the low point, because we're spending everything we have, and there's not a lot of revenue coming in the door. But it was also a rich time. And so, yeah, I think there's a little bit of positive and negatives with that.

Michael: So, I'm just really curious about that. How long was the runway? How many months or years could you do this before the dollar's just going to be running out, and your spouse is going to say you have to go back and find a real job now?

Justin: So, we had a few levers that we could pull. So, I did sign up for as many zero-interest credit cards as I possibly could before I made the jump seven years ago or so. And that was kind of a worst-case scenario, let's do that. And then we had a 401(k) and some savings. And so, first defense was savings, then 401(k). And then we always knew, "Okay, if we really need to, we could sell the house." And that was kind of a mode of last defense and our car. But the funny thing is, we ended up having so much traction that it really made us say, "Hey, let's actually reinvest more into marketing. Let's bring on Jared as a partner. And let's just proactively sell our house now, because that's going to give us another year of living with a really, really low take-home income from the business."

And so, we ended up pulling every lever, not because it went poorly, but because things were actually going well. And there was kind of immediate proof of concept. And so, it made us double down and say, "Hey, let's actually take less from the business now that it's starting to make some money. Let's reinvest as much as we possibly can. And let's pull every lever. Let's go all in."

Michael: So, what indicators or activity were you seeing that gave you that confidence that, "It's going so well, I'm going to sell my house to reinvest for growth and extend the timeline."

Justin: There were a couple of things. So, one very specific example, and this is kind of an anecdote, but one specific example. This is maybe three months after we got approved by the Texas State Securities Board to be in business. I remember I had a discovery meeting, so just a prospect meeting, typically lasts 90 minutes. And this was my first prospect meeting from someone in oil and gas retiring with some pretty significant assets. And, Michael, what's funny is I remember this meeting, and I was so nervous beforehand, just thinking through, "Hey, this is the whole reason we started the business. This exact client is who we have to win."

And I sat down in the office, got on the whiteboard. It was like a euphoric 90 minutes. And again, he ended up becoming, I believe, our second client. So, I had one client who was just kind of a close friend who became a client early on. But this was the first person where, "Hey, this is an oil and gas person who found us, asked for a meeting." And it was that discovery meeting where I knew we were going to hit it big. And so, he immediately became a client and still is just a wonderful client today, and has referred us others.

And so, that's kind of one specific anecdote. And then the other more macro signs were, we hit $100,000 of forward-looking revenue in about ten months. Now, the tough part about that, as you know in our business, when someone signs on to become a client, sometimes you don't actually move the assets over and bill them for another six months.

Michael: Right. When you're in fast-growth mode, there's a difference between run rate revenue and current or trailing revenue.

Justin: Exactly. Which is kind of this funny, ongoing thing. I feel like every year we've been in business, our forward-looking revenue is almost double what last calendar year's revenue was. And so, seeing that happen within about ten months was a key marker. And then I want to say in year two, I think we maybe tripled from 100,000 to about 300,000. So, things just kept happening where we continued to just find incredible traction and momentum. And we just continued to have pretty quick feedback that our service offering, our fee structure within our niche was exactly what our niche was crying out for.

Justin's Advice For His Younger Self And For Newer Advisors [1:24:31]

Michael: So, what else do you know now that you wish you could go back and tell you from seven years ago when you were getting started with the wisdom of today?

Justin: I think on the professional side, and I would tell myself this, I would tell any CFP who's thinking of starting their own firm, you must pick a defined niche. And the niche must have a few things true of it. It must be one that if you are just somewhat reasonably successful at all, you will do very, very well. So, the niche needs to have a great deal of opportunity. But then just as important, the niche needs to have specific financial planning opportunities that are relevant to people in the niche. And so, I think our niche is incredibly...just works very well, because our niche has specific financial planning intricacies. They have financial questions that need to be answered.

If our niche was people who like to play golf, I mean, I love to play golf, I play a lot of golf, but if that was my niche, guess what? They don't really have financial opportunities and problems specific to them that need to be solved. And then the last thing is a niche must be findable. So, it's incredibly helpful that this group of people that we serve, there's a tremendous amount of opportunity. They have unique financial opportunities and challenges. And we know where to find them online and in person. So, we're able to understand, "Okay, we have the answers to their problems. This is where we post the answers so that we're findable."

Michael: Any other advice you would give younger and newer advisors coming into the profession today, trying to build their own careers in the current world?

Justin: I think one thing that I'm extraordinarily thankful for, my time at Fidelity prior to starting my own firm. The unique thing there is it was a company requirement as a financial consultant that you have 15 to 18 meetings with clients every single week. And Fidelity is such a incredibly successful enterprise that that's actually easy to do. They have that many clients. So, the result of that is, in a few years' time, I feel like I got 30 years of experience, because I got to sit down with people with seven and eight figures, and just listen to their needs, solve their problems, understand their balance sheet, their benefit structure, their tax situation. And so, finding opportunities where you get a lot of at bats is really critical. And I think that's a huge item for young people. How do I obtain experience that will turn into valuable experience?

And then I also think, this is a little bit more vague and ethereal, but you really need to sit down and ask the question, "What do I desire? What do I want? What do I want my life to look like? What do I want my career to look like?" I had the enormous fortune, I can say this today, it sure didn't feel fortunate at the time, but I was diagnosed with cancer at basically the worst possible time imaginable. And so, going through that experience with my wife made us realize that, "Hey, life is incredibly short. And there's going to come a time where I'm back in that situation, and I'm not going to make it." And so, with that in mind, it's paramount to ask the question, "What am I trying to build? What do I want?" And pursue it relentlessly.

What Success Means To Justin [1:27:58]

Michael: So, in that vein, this is a podcast about success, and just always one of the themes comes up, that word success means very different things to different people. And so, you are on this wonderful track of success with the business as you're coming up on a half a billion AUM, seven years in. So, the business seems to be in a wonderful place. How do you define success for yourself personally, at this point?

Justin: I love that question. And Michael, I think on the personal front, I've always wanted to define success in a specific way. And there's this parable, and frankly, it's a pretty obscure parable. So, if you read the Bible or go to church, there's a really good chance that you don't even remember or know this. But in Luke 16, Jesus tells a parable where a shrewd manager uses wealth, he uses money to buy relationships, to invest in relationships with people that will last forever. So, the point of the parable is that, use financial means to just win relationships, because relationships with people are what matter.

And so, success for me is I want to do that. I want to do that with my children, with my wife. I want to do that with my friends, with my team, and with everyone I can. I want to be someone where I'm using wealth to win relationships that last forever. And then a little bit more on the professional front, I want us to be the greatest firm in the world for the clients that have trusted us with their financial assets and with their plan. And I want to build an incredible place for our team members to build a meaningful career. And so, yeah, if I can do those things on the personal and professional front, I think that's pretty successful.

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

Justin: Thank you, Michael. It's an honor to chat with you.

Michael: Thank you.