Welcome back to the 119th episode of Financial Advisor Success Podcast!
My guest on today’s podcast is Kenneth Robinson. Ken is the founder of Practical Financial Planning, an independent RIA in the Cleveland, Ohio area with 2 advisors who work with 55 clients on an ongoing annual retainer fee that varies from $5,000 to $25,000 a year.
What’s unique about Ken, though, is his decision to focus into a niche of working with Ohio public sector employees, having been a public sector professional himself before career-changing into financial planning 20 years ago, and the way he’s been able to make his practice so efficient by developing a specialized knowledge of Ohio public sector employee issues, from the state of fundedness of the Ohio Public Employees Retirement System and its pension plan, to coordinating Ohio public sector retirement planning for those who are also eligible for federal FERS benefits from a spouse, as well as coordinating Ohio public sector employee pensions with the Social Security Windfall Elimination Provision and Government Pension Offset rules.
In this episode, we talk in depth about how Ken formed his niche in working with Ohio public sector employees as a career changer from the public sector himself, why he chose to focus on a niche not only because he felt he’d be more credible with them, but also because it increased his own confidence that he could add enough value to justify as fees in the early years, the way he got started in his niche by going back to some of his former colleagues to form what he called a Founders Club, where he asked for their feedback on his new advisory business venture, and then invited them to become clients for a first year discount.
The way he developed a specialized website that acknowledges right away his niche with Ohio public sector employees so that at least anyone who did arrive on his website would immediately know about his specialized expertise, and the way he adopted his financial planning process over time, from simply doing a full comprehensive financial plan for every client upfront, to instead always focusing the planning process on whatever the one most pressing issue was for the client first and only then circling back to cover the rest of the modules of financial planning.
We also talk about the annual retainer fee structure that Ken uses, adopted from the Alliance of Comprehensive Planners and based on a combination of the client’s investible net worth, income, and complexity, and why and how Ken decided to modify and even raise his retainer fees over time, including for his existing clients who started with him early when the fees were lower, and the way that Ken explains his retainer fees to clients to justify his value proposition by focusing on how financial planning is an ongoing process and not just the upfront plan alone.
And be certain to listen to the end, where Ken talks about some of the marketing challenges and mistakes he’s made over the years. What he’s learned along the way, and how working with a coach has helped him to stay grounded through the inevitable ups and downs of running an advisory firm.
What You’ll Learn In This Podcast Episode
- An overview of Kenneth’s firm and what they do. [04:59]
- Why he chose to focus on Ohio public sector employees. [17:10]
- What made the difference with his confidence in his offering. [20:32]
- One of the healthiest—and hardest—things an advisor can do. [23:56]
- Why and how he decided to raise his retainer fees over time. [27:01]
- Ways to deal with negative client relationships. [29:07]
- How Kenneth decided on his niche. [38:18]
- Where his clients come from. [51:04]
- How Kenneth educates prospects on the fiduciary, fee-only distinction. [1:02:40]
Kenneth’s financial planning process and what he does for his clients. [1:07:10]
- His fee structure. [1:14:44]
- How Kenneth convey’s his value to his clients. [1:26:01]
- More on his fee structure [1:30:03]
- One of the smartest pieces of advice he ever got. [1:34:29]
- What surprised him the most about building an advisory business. [1:39:27]
- His low point. [1:42:59]
- How he defines success. [1:46:28]
Resources Featured In This Episode:
- Kenneth Robinson
- Practical Financial Planning
- Alliance of Comprehensive Planners
- Joy Oyler Coaching
- Kenneth’s Holistic Financial Planning Whitepaper
Michael: Welcome, Kenneth Robinson, to the “Financial Advisor Success” podcast.
Kenneth: Thanks for having me, Michael.
Michael: I’m excited about today’s episode. We’ve been on this streak for the past few episodes of the podcast talking about people that have created interesting niches, maybe a little bit less traditional than some of our industry standards, like specializing in doctors, because we have a whole lot of advisors who have just solely gone after doctors. I know a few that have done airline pilots because, as I’m told, like, being locked in the cockpit with someone for five hours is actually a really good opportunity to do business development with your fellow pilot.
But you have this interesting niche in public sector employees, and it’s not what I feel like I hear a lot. I think in part because, well, I don’t know, I think some people view public sector employees as kind of being limited dollars and means. Like, you know, we tend to move upmarkets the more affluent. How affluent can you be in the public sector? Like, you built and focus this whole business of yours around working with public sector employees in Ohio. And so, yeah, I’m just fascinated to talk about, like, what does that kind of niche look like? Like, how did you land in it and what do you do for them? So I guess just to start, like, maybe you can tell us a little bit about the advisory business as it exists and what you do.
An Overview Of Kenneth’s Firm And What They Do [04:59]
Kenneth: Well, there are a number of advisors that I’ve come across who do some degree of public sector or other. What we do for the public employee isn’t all that different from what anyone is trying to do for their financial planning clients. I mean, if you’re a fiduciary financial planner, you’re always asking, “What’s in my client’s best interest?” But we know more about some of the things that they have available to them, some of the restrictions that they’re under. And like any niche, it just gets more and more efficient when you’ve done, you know, dozens of these to know, “Oh, okay, I already understand these things about them.” So, you know, we can cut right to the chase about their pension system, for example, because we’ve seen it, you know, dozens of times before.
Michael: So, how do you frame this group that you target? Because I feel like public sector employees itself is kind of a wide label. Is that how you frame it, or how would you define this niche group that you’re pursuing?
Kenneth: So we describe it as professionals in the public sector. And this started mostly with Ohio public employees. Ohio happens to have five different major public pension systems. And the biggest one is Ohio’s Public Employees Retirement System, which, you know, unlike some other public pension systems around the country, it’s pretty well-funded. And there are some pretty good options for the employee who’s getting ready to retire.
Michael: And by good option, this is sort of your classic, like, you can take an individual pension, you can take a survivorship pension, you’ve got a lump sum option, like, all those sorts of classic pension decisions but in the context of Ohio’s Public Employee Retirement System in particular?
Kenneth: Right, and in the context of a pension system with, you know, billions upon billions of dollars that really can invest very efficiently in ways that individuals usually can’t for themselves. And that when they guarantee, “Okay, we’re going to have this percentage of your final average salary when you retire,” there’s good reason to believe that it’s likely to be there. It’s not that Ohio’s public pension systems are perfect, and certainly, lately the issue has been on the healthcare that people have come to expect, but the pension itself is pretty well-funded. It has been better funded in the past, but very specific steps have been taken to restore the stability of the public pension system. And generally, they’ve taken the approach that, “Hey, if we’re going to change something, we need to change at least for people who are already retired or who are about to retire, and change it most for people who have the most time to prepare for something to be different.”
Michael: Well, and it strikes me, like, I think you start illustrating some of the points around, you know, the virtue of having more of a niche focus to me right in this very discussion, that, you know, pensions these days, particularly public sector because you’re usually not covered by PBGC, you’re not covered by Pension Benefit Guaranty Corporation, like, for better or worse, it’s solely up to your state or municipality or whoever it is back in the pension, and some of them out there are quite badly funded. And so just being able to have the conversation with clients like, “Are you aware this is a risk?” Or alternatively, like, “Are you aware this is actually not a risk here because here’s the status of our pension plan here in Ohio, here’s how it works, here’s what the lawmakers have already said, here’s the things they’re already looking at in case it does go wrong.” Like, you know this stuff because you’ve researched this before for presumably many, many clients.
And so any other advisor they go to and say, “Well, you know, I’m just trying to figure out if I should even take my Ohio pension because I saw an article in the paper about, you know, raising some solvency concerns,” because, you know, there’s always articles about it at some point, you know, the average advisor gives I think the very good answer like, “You know, let me research that for you and I will come back to you with some advice.” And that’s a fine thing and a good thing to do. But you’ve got to go research that, and then the next client asks a different question, you’ve got to research that, and then the next client asks another question, you’ve got to research that, and there’s all these time efficiency challenges. You know, it feels like good busy work. Client asks a question, you research, you get an answer. But you get to answer all these questions, and you don’t have to go research it over and over again. You do it once and the answer is good for everybody. It’s sort of like the essence of how firms actually get more efficient on all that analytical back-office busy work that we do.
Kenneth: Right. And for the public employee, there are a number of those things that…just like any other niche market, there are a number of those things which sort of fill out their profile of, “What are the things you don’t need to research because you’ve researched them before?” One I had this afternoon was Social Security Windfall Elimination, which is the way that Social Security reduces their retirement benefit for many people who have public pensions. And the spouse of a public pensioner was asking me, “Yeah, this is going to hit me too, isn’t it?” Well, no, that’s Social Security Government Pension Offset, which is a different way that Social Security reduces benefits for public pensioners.
And it’s just having been down that road before means that, you know, we know the answers to the Windfall Elimination and the Government Pension Offset Social Security questions that come up over and over and over again. Because so many people, you know, they don’t have 40 years with one employer, they’ve got, you know, several employers through their career, and sometimes some of them are public sector while others are private sector. So knowing those sorts of things, you know, it’s not that it’s hard to go research, but as you say, when you know it, you can just cut right to the chase.
Michael: Right. And, you know, from the client’s end, it’s like, “Okay, I talked to one or two advisors, but, like, jeez, this guy knows his stuff. Like, I’m asking questions about, you know, the health of the Ohio pension system and, you know, whether that article I read about WEP applies to me, and, like, he just knows all this stuff off the top of his head.” Like, at some point, just, it builds confidence. It demonstrates differentiation. It commands clients to be willing to work with you for a reasonable fee. Oh, and by the way, you don’t even have to keep researching it because you did all the groundwork once long ago for the first of a zillion clients who’ve asked this question, and now you just get to answer from your expertise. You don’t have to answer from the time it takes you to do the research over and over again for every single client.
Kenneth: Yeah, absolutely. And the lesson here, I think, is not that everyone should rush out and develop a niche in public employees or Ohio public employees. I think there’s plenty of work there if that’s what people really want to do. But the lesson is absolutely that, you know, when you have the expertise in a particular area because you focused on it, that draws those clients. So, you know, my suggestion to people is, decide who you want to work with and become an expert in them. And if that’s people who, I don’t know, have small businesses or something, the Ohio public employees who don’t have small businesses are going to self-select away and they’re going to find us. And the people with small businesses who look at us are going to say, “Oh, they look like they’re into Ohio public employees,” and they don’t even pick up the phone to call us, which is fine. Then each of our practices are focusing on something that we really enjoy working in.
Michael: Right. So can you explain to us just a little bit more this framing of like, what does professionals in the public sector mean? Like, is that contrasted with unprofessionals? Like, how do you explain that to clients or prospects you’re working with? Or I guess just like, what person are you hoping to reach who will read like, “Oh, public sector professional, that’s me.” Like, who is that?
Kenneth: We’re hoping to reach the person who is high up enough in the organization that we can add a lot of value for them because they’re making a good living, or they have a good deal that they’ve been able to save over the years in their workplace retirement savings plan, which is usually a section 457 deferred comp plan. Sometimes it’s a 403(b). But we’re not trying to go for say, the mayors or the city managers, the people who are inherently deeply involved in the politics. It’s not that we would turn them away, but it’s my assessment that they’ve always got a lot on their plate and maybe don’t want to be as collaboratively involved in their financial planning as we happen to like our clients to be.
Michael: So that’s kind of an interesting framing, that, you know, in essence, you’re actually not looking for the pure, “I’ll just delegate everything to Ken and go away so I can do my other thing and Ken can do the money stuff.” Like, you actually want clients that are more collaboratively engaged?
Kenneth: Right. We view the financial planning relationship as a partnership between us and the client. There is more that the client can get out of the planning relationship when they’re willing to be more involved in it.
I remember there was a sign on the wall in my dentist’s office that I got to see as a kid while I was, you know, paying the price for not brushing well enough. And it said, “There is nothing the doctor can do which will overcome what the patient will not do.”
Michael: I love that. There is nothing the doctor can do to overcome what the patient will not do.
Kenneth: Right. And we think that’s true, you know, in financial planning as well. Our ideal clients, they want to learn something more about their money, and they want to understand something of why we’re recommending what we’re recommending. So for us, the client who says, “I don’t want to know, just, you know, make it all work and fix everything and just, you know, tell me when it’s over,” that’s not the ideal client for us. It may be for another practice, and that’s fine, it’s just not the model that we chose.
Michael: Interesting. So it’s folks that are in Ohio public employment, they’re maybe not so much on the direct politics side, as you said, like the mayors and the city managers, it’s other people who’ve moved up to, I guess professional services levels within the public employee system. Do you think of that in terms of like a job title, an income level? Like I know if it was federal employment, we’d be, you know, aiming for a certain GS level, but I don’t know if Ohio does that.
Kenneth: Yeah. We do tend to think of it in terms of a certain income level. In the either high five or low six figures, I mean, in the public sector you’re not going to get into the mid-six figures. It’s just not going to happen. But anybody who has crossed around $100,000 in gross annual income. And there are plenty of those in the public sector. It doesn’t require that. You know, we have clients earning a solid five figures who are able to add a lot of value too, because, you know, it’s a combination of, “What are you trading your time for now? You know, what are you worth in a paycheck today? And what’s the wealth you’ve assembled so far? And is there anything we can do to add value to either of those pieces, either to the stream of income or to the accumulated wealth that you have?”
Why He Chose To Focus On Ohio Public Sector Employees [17:10]
And, of course, this started with public employees in Ohio, which I picked because that’s where I came from. So I had some affinity there, and I felt I had some credibility to be able to say, “Hey, I have to understand your pension system because it’s my pension system too.” So I’ve got skin in the game. And then over the years we got more and more familiar with people in other public pension systems, not just Ohio’s Public Employees Retirement System, which is by far the largest of the state systems, but also the State Teachers Retirement System, which is the next largest, and then the School Employees Retirement System, which is kind of small by comparison. And interesting thing about some of these Ohio public employees, some of them are married to federal employees under FERS. And without really trying, we started to develop expertise under FERS as well.
Michael: Right. And if they’ve been in it long enough, they go all the way back to the old CSRS system. And you’ve got to navigate even more coordinating provisions.
Kenneth: Yeah, I suppose. We have actually, as it happens, I think we’ve had one client over the years who had CSRS service. We know that potential is out there. But yeah, it’s like, you know, we threw a rock into a pond and the ripples just kept on growing out and out and out.
But what it grew out of was me asking myself, “Okay, I’m starting a business from nothing. I have zero clients and no experience in this industry, who can I be credible with?” And when I thought about the answer to that question, it was really clear it was Ohio public employees. And what was more, they needed the help because the people who were reaching out to them were trying to do things like pension maximization, you know, where they’d get them to take a pension without any survivor benefit and use that as an excuse to buy a life insurance policy. And I have never seen a situation where I’ve been glad to see somebody do that.
Michael: I love the way that you framed this, though, that just, “I’m starting an advisory firm, I have no experience, who can I be credible with?” And that kind of quickly takes you back to the world I come from, the people I know. At least when you’re a career changer. Obviously, if you’re starting out of the gate straight from college, you may not have the same context. But for a career changer coming in, particularly if you’re, as so many career changers do, like, you already have an inclination towards money and finances. I mean, I’ve had a lot of career changes who come in like, “I was always the one giving the financial advice at the water cooler at my old job anyways, so I decided to make a career out of it.”
So, like, I already have some credibility and I know their world and I know the unique and special pain points and issues and challenges that they face, and I probably already have some expertise in it because I dealt with it for myself and I answered their water cooler questions. So here’s a place I can be credible with sort of out of the gate, or at least I can get to credibility a lot faster than trying to meet strangers from scratch and saying, “I’m a former Ohio public employee who’s become a financial advisor. Would you like to let me manage your life savings?” Which doesn’t go over very well.
What Made The Difference With His Confidence In His Offering [20:32]
Kenneth: Right. And there’s another really crucial part of this, Michael, which a lot of people don’t think about. I was thinking about it at the time in terms of marketing. Who can I market to where, are they going to laugh me out of the room because, you know, here I’ve just switched careers from public service, I have zero clients, and then my first clients are people who I was friends with already? But what I hadn’t thought about very consciously at the time and on reflection that was really important is, who do I believe I can be credible with? You know, when I imagine myself saying, “Hi, I’m ready to be your financial planner,” I’ve got to believe that. And, you know, all these years down the road, that’s a much wider universe of people than it was when I was starting. But I believed I was ready to serve Ohio public employees and with good reason.
It’s funny that you talk about giving the advice at the water cooler. I was already writing a monthly column for our public sector employee newsletter called Basics of Personal Finance.
Michael: So you already had the itch, you just scratched it a little bit more. Okay.
Kenneth: Yeah. I wasn’t leaving public service saying, “I wonder what I’m going to do now.” I was staying in public service long enough to have a better pension, which meant 10 years, and then running towards financial planning. I’d already taken the CFP coursework by that time, by the time I left public service.
Michael: And I love that you frame this as well, that, like, it’s sort of this two-way direction. “I don’t have a lot of experience. I want to get started. So A, who can I be credible with? Like, who can I likely bring enough expertise to the table that they’ll believe I have some expertise?” And B, this sort of second question like, “Who can I serve that I’m confident I know enough about to actually serve them effectively and add value in the first place? Who do I believe I’m confident enough to actually, well, offer my financial advice services and charge them money and be able to say that to them with a straight face so that hopefully they’ll say yes?”
Kenneth: Yeah. And in my case at least, and I think in probably a lot of others, it was the second one that was more important. I didn’t realize it at the time, but my ability to confidently and sincerely say, “Yes, I can help you,” and I am confident that I am worth my fee and more, that’s what made the difference between people getting those nonverbal cues about, you know, “Oh, he gets it and he’s the right guy for me,” and, “You know, maybe he doesn’t seem so sure of himself.” So, you know, the esoteric details of stock options, that’s, “No, I would have to research that from scratch.” But over the years you also get comfortable saying, “You know, I don’t know about that, but I will…you know, I am confident I can research that for you,” if you happen to believe that. And in other cases, you know, it’s fine to say, “You know what? We don’t do that. I think you want another advisor.”
Michael: Yeah. Like, “Yeah, that’s a great question for some other advisor to answer because I don’t have the time to do all the hours of research on that when I could work with three clients in my current niche in the time it would take me to do one of your plans because you’re asking me all sorts of questions about things I don’t know about.”
One Of The Healthiest—And Hardest—Things An Advisor Can Do [23:56]
Kenneth: Yeah. Yeah. It brings to mind one misstep relatively early in my experience, where, you know, as an investment advisor, I was dedicated to the idea of lower fees. This is at a time when 1.5% expense ratios for large-cap funds were, you know, perfectly reasonable, it seemed. But I was thinking, “No, active management, it doesn’t work in the long run.” And that was my belief.
And there was one client who, you know, really wanted to hire me, really wanted to work with me but believed in active management. And he said, “You know, as we work together, you know, I’ll probably come closer to your point of view and you’ll probably come closer to my point of view and we’ll meet in the middle.” And I thought, “Well that sounds reasonable.” But I’d given it a level of professional thought that he hadn’t. Or maybe I’m just more stubborn, but my views didn’t change at all. And it turned out to be a mismatch. And eventually, we said, “You know, this is not the right advisory relationship.” And letting go of those relationships that are not a good fit is one of the healthiest things that you could do.
Michael: Although I find it’s one of the hardest things to do, especially when we’re early on there’s just this…there’s so much pressure. Like, I need more dollars. I need more revenue. Like, I need more income coming in.
You know, I think we make a lot of compromises to ourselves. And, like, I don’t want to judge them, sometimes just, you really need the client and the dollars and you’re willing to put up with a less than ideal relationship in order to get there. But at least hopefully at some point, you come back to the table and say like, “Okay, I’ve survived long enough. I’m a few years in, like, there’s enough money to pay the bills, we’re going to figure out how we’re going to the next stage.” And taking that moment to say not only like, “Where do I want to build next and where am I going to focus my business,” but is there anybody in my client list that I can now finally go back to and say, “You know what? I don’t think this is going to be a good fit for the long run?”
Kenneth: Right. Right. And when that happens, that is such a good day. You know, the first time you look at someone who’s…you know, where you say, “Well, you know, this would be a big fee and I would really dislike working with this individual,” for whatever reason. You know, they have a different investment philosophy. Something about them just sort of strikes you wrong in your gut and you think, “This is not someone I’d enjoy having coffee with. It’s not that they’re a bad person, but I just don’t think I’ll like their company,” or whatever it may be. When you get that sense that this person is not going to be a good fit for my practice and you say, “You know, I think you’ll be better served by another advisor.” You know, I remember people saying, “Oh, well, you know, I really appreciate your candor. I’m surprised to hear you say that, but thanks for being so honest.”
Michael: Because, you know, you can still say it nicely. I mean, you don’t have to, like, push and kick them to the curb or anything. Just, “I don’t think this is working out.” If it’s a tense relationship for you, the odds are overwhelmingly likely the client is feeling the tension as well.
Why And How He Decided To Raise His Retainer Fees Over Time [27:01]
Kenneth: Yeah, absolutely. That’s absolutely true. You know, and sometimes the solution is to say, “This is not the right advisory relationship.” And other times it’s to ask, “What do I need to change about this relationship to be happy with it?”
And I think of two clients that I used to see that every time they came through the door, I kind of went, “Okay, all right, they’re my clients, I’ve got to serve them.” And I asked myself why I was resenting them coming through the door, and in both cases, I realized, “I’m working really hard and I’m not getting paid enough.” And when I came to that conclusion, you know, of course, the voice inside my head said, “Well Ken, who sets your fees? Is it the client who sets your fees?” Well, no. And I sat down and really pondered, “How much would I have to get paid to not feel taken advantage of when these clients walk in the door?” And the answer to that was, you know, the same thing that I would be paid by another client in these exact same circumstances who started with me a year ago instead of, I don’t know, four years ago, or whatever it was at the time.
And I raised both of their fees substantially. One of them I raised about 60% and the client kind of hemmed and hawed for about 15 minutes and then said, “Okay.” And she and her husband were literally clients for life after that. They were both with us until they passed on. The other clients, I doubled their fee. And I sat down with them and explained, “Here’s why this is happening, here’s why I’m worth it.” And the only question they had was, “Where do we sign?” Because they still saw the value, and they are still clients to this day. And they’ve been with us since about 2003 if I’m not mistaken. Also public sector clients, as it happens.
Ways To Deal With Negative Client Relationships [29:07]
Michael: So you raise two really interesting things here. One about kind of this dynamic of, you know, getting rid of the painful clients. And the other just…or, you know, saying, “Well, darn it, if I’m going to work with this person, put up with it, I’m going to get paid properly for it,” and then raising their fees. And, you know, let them say either, “Yes, I’ll pay you this much to be commensurate with the relationship,” or they’ll say no and then you didn’t even have to fire the really aggravating client. They’ll see themselves out the door for not paying what it takes for you to be able to handle that relationship.
Kenneth: Right. And to be clear, in both of those client relationships I just described, neither of the clients was aggravating. The thing that was aggravating was my not having judged myself to be worth enough at some earlier time. These people were all very good company. They were all very appreciative of the advice that I gave, which is why I asked myself, “Why am I annoyed? They seem like they should be not at all annoying clients.” And it was my fault that I was annoyed, and had nothing to do with, you know, what they were asking me to do or anything like that.
Michael: Oh, so this was like that frustration that builds up inside you where you’re like, “I’m doing all this work for these clients. They’re nice people. I’ve worked with them for a long time. You know, I’m really not sure it’s worth all the work that I’m doing for the fee that I set for them. But, you know, I set that fee years ago and that was the fee, so I’m honoring it.” As opposed to just saying like, “No, I set that fee years ago because I didn’t value my time enough. I understand now what my time is worth. Like, I’m going to right-size my fee to the value that I provide.” Like, you don’t have to be beholden to a client for life for the fee you quoted them the first time you met them.
Kenneth: No. And I’ve found that the client expects the fee to change over time. You know, I had that much more experience by that time, so the value I was adding was greater. To be clear, for the client that…you know, where it’s the client that is in some way the problem for me, I think of one particular client who viewed us in kind of a servile capacity, not as the partnership we talked about. We did not offer them the opportunity to renew. We explained that we didn’t think the relationship was the right relationship for them and that they should seek financial advice elsewhere. Because if we just raised their fee enormously, there was always the risk they would say, “Okay” and pay it, and then we’re stuck with somebody whose company we had discovered we didn’t enjoy.
Michael: That’s the danger of just saying like, “Okay, they’re really aggravating,” like, “You’ve got to pay me this much to deal with the, you know, C-R-A-P I’m dealing with from you.” But if you just do that, be wary, they might say yes.
Kenneth: Yeah. And then you end up dealing with all that nasty stuff that, you know, whether it’s they’re insisting that you…you know, they don’t value any investment advice you give if you’re not picking individual stocks or beating the market, which I happen not to believe in. So yeah, when you know that it’s not going to be a good client relationship.
One of the smartest pieces of advice I ever got was to not give people the opportunity to renew and just explain, you know, “This relationship has come to a close.”
Michael: I like that framing. It reminds me, early on in my career, I worked for a firm that actually had a policy. Like, it was an annual process once a year, I think we literally did it during the holiday season, where we would pull out a list of all the clients of the firm, which was many hundreds. It was sort of three lead advisors. I can’t remember what the number was. There were probably 400 or 500 clients that they’d work with over the years. So we would pull out a list of all the clients, we would score them on a couple of dimensions of like, you know, were they active referrers and, you know, just, how much revenue did they generate for the firm? And was there a lot of other business opportunities?
And then there was this scoring factor that by far had the most weight that we called the PITA factor, which is short for pain in the backside. And it was done by the staff, not the advisors, because we were the ones that would primarily deal with, you know, client calls when they needed support and they needed service, right? The advisor got the meetings. And, you know, unfortunately, as most advisors have seen if you’ve been doing this long enough, there is a subset of clients that are very pleasant to the advisor, not so pleasant to the staff. And so the staff would get to score the PITA factor, which by far had the most weighting in the whole system. And every year, we would essentially vote three clients off the island.
Kenneth: That’s brilliant.
Michael: And, you know, if it was an extremely valuable client, sometimes the rest of what they brought to the firm could still outweigh us, at least sort of hypothetically mathematically. In practice, at least for all the time that was there, the three clients that got voted off the island were always the three clients that the staff voted, you know, the highest PITA scores for or the worst PITA scores for. And, you know, you want to talk about just empowering for the staff when, as you said, like, it’s a very healthy thing for the advisor to let go of, you know, the client that just is not a good relationship for you anymore or it’s turning into a toxic relationship, the empowerment of the staff to actually say like, “You can basically vote the three worst, horrible, most painful to work with clients off the island.”
And, you know, again, like, we were voting three out of hundreds. So, I mean, I think the firm had good controls. Like they had effectively a veto system of the scoring, so we couldn’t vote the biggest client off, or at least it would have taken advisor intervention, and, you know, we weren’t risking 10%, 20% of the firm’s revenue. Like, this was going to be a fraction of a percent. But, you know, the empowerment and the positivity for the staff, like, you know, if you had a client that was just driving you nuts all year long, you looked forward to the PITA scoring at the end of the year because you knew like, if this client was that bad, it was going to continue to be that bad, you were not going to have to deal with them next year.
Kenneth: Right. And think of, just as you were saying before, all the resources that can be devoted to however many other clients who are…even if you don’t have new clients waiting in the wings, think of the additional attention that you can devote to your existing clients who have earned your loyalty… and there are just so many good reasons to do that.
Michael: And just the better attitude for staff of like, “At least when I answered the next client’s call or email, I’m not still going to be coming off of the frustration of the really, really aggravating one that I just had to deal with.” And I mean, you know, not that every client interaction is always easy and perfect, but for most firms, like, you know who your biggest PITA clients are, and there comes a point, at least, when you’ve got enough size that you can withstand losing a client or a few. And it’s amazing what a boost it is for your mental health, your staff mental health, morale of the entire firm to vote a handful of those worst PITA clients off the island.
Kenneth: Yeah. Yeah. There are…I mean, there’s such a thing as a toxic relationship, and it happens in our client…it can happen in our client relationships too.
One of the things that we say from time to time around here and at our client appreciation events is, you know, we love the fact that our practice has long been at a point where we’re genuinely delighted to see every client come through the door. And I think that’s true. And I think the selection that’s happened in the past I don’t know how many years now, but good several years now is happening before the client relationship is established. So we’ve learned enough about who tends to become a PITA client that we don’t end up in those relationships typically. But now that…honestly, that has me wondering, Michael, am I…is my PITA detector set at a high enough sensitivity? Are we putting up with things, you know, now that we no longer have to?
Michael: But it is a good point that maybe as your firm evolves and you reach a certain stage of just size and stability of the firm, you know, the bigger the firm gets, the lower you can safely set your PITA threshold and, you know, maybe carve out a few more clients and not damage your business, or at least you make more back in morale and mental health than you might lose in a little bit of revenue?
Kenneth: Right. You know, I imagine myself saying, “Oh, I kind of liked working with those people, but I guess I didn’t enjoy it as much as I thought. Oh, maybe they should find another advisor.” But to be fair, no one leaps to mind. So I guess that means we’re doing okay.
How He Decided On His Niche [38:18]
Michael: Yeah. So talk to us about how you actually got going in the niche. Like, I get it, you’re coming out saying, “Who can I be credible with and who am I confident that I can serve effectively?” Right? Like, that’s sort of the crucial combination. But then you’re still Ken, the dude who’s a former public sector employee who’s launching an advisory firm from scratch and has no clients. So, like, we’ve decided who we’re going to go after. We know something about them. They will hopefully presumably think we’re credible when we show up. How do you actually find them? Like, what did you do?
Kenneth: It was scary. I’d never run my own business before, and here, for some reason, I thought what I wanted to do was run my own business in a field I’d never practiced in professionally before. And the reason was I didn’t think I could find a job as a fiduciary financial planner. I figured I’d have to create one. So I created the business, and here we are.
And what I did coming out of the public sector with the completed CFP exams but no experience, so I can’t call myself a Certified Financial Planner yet, I joined Alliance of Comprehensive Planners. Or to be a little more accurate, the predecessor organization at the time that eventually became ACP.
Michael: Right, it was Alliance of Cambridge Advisors back then, I think.
Kenneth: Right. At the time it was actually, this was in the year 2000, it was Cambridge Advisors, LLC. We were still a wholly owned subsidiary of the founder before we became a membership organization. And I joined because I had all this book learning but wasn’t sure how I could possibly bring myself to charge $1,000 for a full financial plan.
Michael: One thousand dollars. Yeah. And, I mean, that’s…it’s a big number…well, it’s big number for a lot of people now, it’s even bigger number almost 20 years ago when you were transitioning in. Like, that’s a real check.
Kenneth: Right. And that ended up being at the bottom of my fee range after I learned something about how to present myself to my niche markets and how to start with that. And part of what I learned was, first of all, understanding something of my value and how rare it was to be a fiduciary fee-only financial planner. You know, I’m in Cleveland, Ohio, and the geography around here is very much divided East Side, West Side. We sometimes joke about needing to get our passport in our shorts to go to the East Side. And virtually, all the fee-only planners were on the East Side. There was one other one on the west side who was a member of NAPFA, and they were not practicing or taking new clients. I didn’t have a community around me to go to either. But part of what ACP taught me was, you know, how to go to people I was already acquainted with and get their feedback on the financial planning model that I was going to be using as a way to, among other things, let people know, “This is what I’m doing now.”
Michael: So talk to us a little bit more about that. Like, what exactly did you do or were they teaching you to do?
Kenneth: Well, I’ve heard it called a founders club. And I would talk to friends of mine or co-workers or former co-workers and say, “So here’s this new thing that I’m doing. I’m really excited about it. I’d like to run the process by you to see what you think about whether this would be of interest, you know, to our colleagues.”
Michael: It’s like, “To people like you. Not necessarily you, just, like, people like you.”
Kenneth: But people like you. And, you know, I genuinely wanted the feedback, and I genuinely wanted new clients. And I would take the feedback and make modifications, you know, accordingly. There were things that I was doing for marketing that, you know, could be done more clearly or that could be more efficient or that just didn’t work. At the time, the audio business card was still a thing, back in the days of cassette tape audio business cards.
Kenneth: So, you know, like I said, this is the late ’90s, the early 2000s. And one of the best pieces of advice that I got was, “Don’t bother with an audio business card. They were trendy for four and a half seconds and their time has come and gone. And honestly, just send people hardcopy material in the mail. That’s going to be more persuasive to them than a tape they have to listen to while they’re…you know, they want to listen to something else while they’re driving to work.”
Michael: Well, I was going to say like, you’d be listening to while you’re driving. That’s where you would pop in an audio cassette by then.
Kenneth: That’s right. Yeah.
Michael: It’s like, “Listen to me tell you about my business while you’re driving to work.”
Kenneth: Yeah. And, you know, that worked for some brief moment in time but no longer by the time I was doing it. Or maybe just not to the people that I was wanting to reach.
But getting that feedback was really important. And then when someone did say that they were interested, I would say, “Well, look, can I run the…you know, run my presentation by you so you can see sort of what the fee would be like and what you’d get in return for that fee?” And then when I do the presentation, I’d say, “This is what the fee would normally be, but I’ve really been benefiting from your feedback, which I’d like to continue to benefit from, so, you know, for this first year, I’d like to value your feedback at X dollars,” which was about half the fee, “So, you know, you can…you know, to be in my founders group, you can pay a lower fee. But then the other way that you will pay me is to give me feedback on what’s working for you in this financial planning process and what isn’t.” What I didn’t say, which I’ve heard, you know, people say, “I get paid two ways and one of them is with your referrals.”
Kenneth: That felt poisonous to me. It felt like it was very presumptuous to say, “You don’t even know what it’s like working with me yet and I already want the names of everybody you trust and who trusts you.” No, I did not feel comfortable doing that.
Michael: I was trained in that end as well but I always felt like, I know if I was a client, I’d be like, “Is there a second fee I can pay where I can just pay you a whole fee and we don’t have to be socially awkward around my friends and family?”
Kenneth: Right. Right. I mean, we probably remembered landline phone service wars where you had calling circles and you had to out all of your friends and family because you could call them less expensively if they joined up. And nobody liked that, so why would we like it with financial planning? I never did that, but I did encourage people to, “Yeah, if you can provide us feedback.”
Michael: So that’s an interesting system. So I feel like it went through some shift, or maybe not, maybe I’m misunderstanding it, where, like, the first meeting is just, “Hey, I’m starting this business, I just want to know if it would be relevant for people like you, and I’d like your feedback.” So, you know, you tell them about the business and what you’re going to try, and they give you some feedback and you go back. And then you come to them I guess for a second meeting and say like, “You know, here’s where I am now, what do you think? Can I run my presentation by you and you can give me more feedback about what that looks like?” And then at some point, it’s, like, shifting from, you know, “I want to know if this would be relevant to people like you,” into, “I’m actually asking if you are interested in this as well.” Like, when does that change happen, or how do you set that up?
Kenneth: Well, the sort of, “Let’s do a roleplay discussion” is just the first discussion, “Hey, can we have a meeting?” But at that first meeting, one of the first things, you know, that I would ask, just like I’d ask someone who says, “I want to be a client” is, “So tell me, what are the financial issues that you have questions about in your life?” So that first meeting was a lot like a discovery meeting where I’d learn about, what are the things that are of interest to them? And that’s the first, you know, three quarters or more of the meeting.
And then toward the end of the meeting, I could say, “Okay, so here’s what we can do to answer these kinds of questions. You know, we can provide this kind of service for retirement sustainability, for evaluating retirement sustainability. You know, we can spend some time evaluating whether you’re paying too much in income taxes. I’d like to take a look at your savings and investments to see if your investments could be improved. You know, does that sound like it’s of interest?” When they would say yes, I’d say, “You know what? Let me put some notes together, and why don’t we get together again.”
Then at that second meeting, I’d say, “Okay, so, I want your feedback on how the whole fee presentation thing goes. And I also have these comments on the questions you brought up last time.” But I would…if they wanted to look on that as a roleplay, that was fine with me. Because getting that feedback by itself, even if they have no interest in becoming clients, they’re taking the time to help you succeed in your business, it’s worth listening to. You know, when people weren’t interested in signing up, that was not wasted time. That was important education. You know, you’ve got a focus group of one or maybe two in front of you, and that’s tremendously valuable.
Michael: So how many people did you take this process out to as you were trying to do the transition and get started?
Kenneth: I was actually only able to do this with about six. And my colleagues were recommending about 12. And I don’t know, it was probably me projecting I’d really like to get a client vibe. Either that or the people I was reaching out to were not that inclined to spend that kind of time with me. Or maybe they were worried that it was a disguised sales pitch. But I think you have to go into this believing that if you get nothing out of it other than honest feedback from someone who already knows you, that that’s very valuable and worthy of your appreciation. There’s no benefit in going into any kind of client relationship in any way that’s not 100% honest, I think.
Michael: So did you actually, like, did it work for getting any clients? Either way, I know you got some feedback, but, like, was it actually a breakthrough for you to get your first client or two?
Kenneth: I got a few clients that way. I did not get many clients that way, and not as many as I felt like I could have. But what I got was a lot of low-cost practice in making my pitch. And, you know, we may not be advertising per se, we may not like to think of ourselves as salespeople, but if we don’t let people know what we do, they can’t determine that it is a value to them. So I’m not embarrassed or ashamed by the word “pitch” because I think that is what we’re doing at some point with a client, even if it’s just explaining, “Here are the services we’ll provide for you.” I’m okay calling that a pitch. And I got to do some trial and error on that with some people who would still be my friends when I was done. With people who would understand, you know, that that has value to me as someone trying to get a business off the ground.
Sometimes the universe just says, “Hey, you’re in the right place.” And I was…you know, the week that I was at my ACP training at the time, all of that was done in residence in one long marathon week drinking out of a fire hose. It’s much more efficiently done now with a lot done ahead of time and much less of having to be out of the office. But while I was, you know, out of town for that, I got a call from a friend of mine who said, “Hey, can I hear…you know, you said this is what you’re going to be doing and I really need your help.” Over time it just turned out to be letting people know, “This is what I’m doing now. This is who I am now.” And saying that every chance I got to as many people as I could. And people have questions about their money.
Where His Clients Come From [51:04]
Michael: So once you got through sort of initial friends, colleagues or ex-colleagues, I guess, as you’re going through this process and, you know, you let the immediate folks know that you can reach out to, what came next for trying to get deeper into marketing to Ohio public sector employees or I guess public sector professionals as a niche?
Kenneth: It sounds very simple and straight forward, but having a good website that explains some of what you do so the calls that you’re receiving are ones that you want to get. I can’t tell you how much our web presence has evolved over the years. And websites in the year 2000 were not at all what websites are now.
Michael: Yes. It’s come a long way.
Kenneth: Yeah. Even that one-page website with the terrible, terrible picture that I hope is not on Wayback Machine, it talked about that being a niche for us.
Michael: So you were pretty outright on the website. Like, it said, you know, “We work with Ohio public sector employees?”
Kenneth: Yes. Yeah. And I don’t remember what else it said. I think I had a second niche at the time. And I don’t remember what it was or how I phrased it. It’s so long ago. The other thing that I did was I located in a neighborhood that was known for having a lot of city employees. You know, people who were under this Ohio Public Employees Retirement System but working for the city of Cleveland. Happened to be very close to where I lived, very well known about that neighborhood.
Michael: Oh, interesting. So just physically, like, if you’ve got a niche in a specialized area where you know there’s a common set of clients, just literally physically put your firm where they are. You know where they are, just go there.
Kenneth: Right. And in the private sector, the analogy might be, locate yourself not far from that company where your ideal clients will be coming from. In my case, it had that unusual characteristic of, “There’s a neighborhood where a lot of these people live.” And geography seemed to make kind of a lot of difference at the time.
Michael: Well, it’s always helpful. Like, “Hey, you know, come and see me. I’m, like, eight minutes up the street.” That’s a heck a lot better than, “Come and see me, I’m on the other side of the city, but we can schedule it when traffic won’t be bad. So it will only be 40 minutes to come see me.”
Kenneth: Right. Right. Well, and if they want what you have, they’ll come from farther than that. I have clients who…I’m in the Greater Cleveland area, I have clients who live south of Akron who drive up here to see us. They found us in part because of the public sector niche. I can’t stress strongly enough how much the NAPFA listing helped. As soon as I was able to join NAPFA as a professional member, it made an immediate and to this day very substantial difference in how clients find me. And if you want the elevator answer to, you know, “Where do your clients come from?” I say ACP taught me to serve them, NAPFA brought them to me.
But the other thing that was really significant is, one of Ohio’s public pension systems has seminars to prepare people for retirement. And they do this traveling roadshow around the state, you know, where they’re touring around to different locations and presenting these, like day-long seminars. And in the course of a day, they’d have one speaker for an hour or an hour and 15 minutes on financial planning. And just buy some good luck, they were looking for someone new in Northeast Ohio, and I said, “I’m your man. This is it. That’s me.” But if I hadn’t asked for it, I never would have gotten it. So the thing that you think is a long shot is worth pursuing.
So I was able to get in front of audiences of, you know, 50 to 120 public employees who were thinking about retirement to talk about financial planning. I had to use their slides, the same slides that were used across the state, but I didn’t have to exactly follow their script. And after I’d done several of them, I got more comfortable saying, “You know, I have mixed feelings about what this slide says, but, you know, it is a common view that, you know, this is how inflation affects retirees. Our experience is a little different in these ways.”
Michael: Right. And now you’re just amplifying your credibility like, “Yeah, you know, here’s the generic stuff the state tells us. But as a real expert who does this with clients, let me tell you.” Just sounds even better.
Kenneth: Yeah. And I got really good feedback from the pension system representatives who said, “Yeah, in this corner of the state, we don’t think they’re really educating because they’re saying, ‘Oh, this is all way too confusing. You really need us. You can’t do this on your own.'” That does not go over. But to say, “You know, people do learn how to do this themselves. It does take some effort. And if you want to learn how to do this, you know, you probably can. If you don’t, you can probably find somebody not far from you who can help you.” And people would come up to me after the presentation and say, “Do you have a business card?”
Michael: And the answer is, “Yes, I do.”
Kenneth: Yeah, the answer is, “Yes I do.” And the pension system did not mind when clients approached us if we said, “Yeah, here’s how you reach me.” And I got quite a few clients that way over the years. Long after I stopped giving those presentations, I would get initial calls from people saying, “Yeah, I heard you speak at one of these seminars once and I’ve kept your card for, I don’t know, it must be a year now.” “No. No, it’s been six or seven years since I’ve done those, but I’m glad you kept my card.”
Michael: Yeah. And to me, again, that’s one of the interesting powers of getting more focused and getting more specialized. Like, you know, as you said, you had to ask for it and go for it and it was a long shot to get, you know, the seminar on the financial planning segment for the Ohio public pension systems. But A, like, I would imagine that the fact that you are a specialist in Ohio public sector employees may have slightly helped them decide to say yes to why you as opposed to someone else who might have applied for that opportunity. And if you weren’t already in that space, I would imagine you never would have known that those seminars happen and that that opportunity was there and had a chance to, you know, throw your name in the hat for it in the first place.
Like, just, to me, it’s one of those things that crops up when you start getting more focused and specialized, you find these specific marketing opportunities into your niche that no one else would likely even know about if they weren’t in your niche. Like, they would never find the opportunity. And even if they did, if you’re an outsider coming in, like, it’s just another advisor that wants to pitch themselves. When it’s Ken, the guy who is a former Ohio public sector employee who now runs an advisory firm specializing in Ohio public sector employees that says, “Hey, can I do the seminar on financial planning for Ohio public sector employees?” like, you know, they’ve got to fill it with someone. Whoever has to make that decision, like, you are the person that is least likely to screw this up and get them fired. Like, you’re the easiest yes for them of anybody they’ve got to pick because you fit and you have the right background.
Kenneth: Yeah. And to be sure, you know, I also pitched this set of presentation skills to some of the other Ohio public pension systems who did not say yes, but one thing that helped is I was able to say, “I have done this before and that was some good experience that was based on sort of my public employment journey.” I was with one employer for eight years then went to another employer for my last two years in public service. Once I was no longer employed by the first employer. I said, “Hey, it’s no longer a conflict of interest, can I give a set of seminar talks to staff members? You’ve had the mutual fund salesman come in and do financial planning, wouldn’t you like to see how it looks when someone comes in specifically to educate rather than to sell?”
And between that and the articles I had been writing about basics of personal finance in the employee newsletter, by the time I got to the Ohio pension system that said, “Yes, you can come, you know, talk, you know, for our participants,” I was able to say, “I’ve done this before. You know, I’ve written the short articles. I’ve written the presentations. I’ve stood up in front of groups. It does not scare me. So you’re not taking as big a chance on me as you may think.”
Michael: So one other thing I do want to kind of ask about going back to your earlier comments of where clients came from, you know, as you said, like, “ACP taught me to serve them and NAPFA brought them to me.” I feel like most…even advisors who look at joining groups like NAPFA, because they do have, you know, a very successful media presence and a “Find an Advisor” portal that brings clients in, I feel like most people wouldn’t look there first when they’re planning to specialize into a niche. And maybe that’s my own bias, but, like, I would think of lead opportunities like that for, you know, generalist scenarios if I don’t necessarily have a niche. Were you literally finding like even government sector employees were still ending out finding you through NAPFA and, like, NAPFA was leading people to your niche, or were those other clients that maybe didn’t fit the niche, but, “Hey, I’m trying to get going and I need some revenue, so if they bring me clients, let’s take them?”
Kenneth: Well, honestly, some of each, Michael. The thing about public sector employees is that the only difference is that it’s a government agency that signs their paycheck. From their point of view, I mean, they don’t…yes, there are very important differences in the financial planning, but when they are trying to figure out how to manage their money, they’re going to go through the same steps that most other people do, which may lead them, you know, to which books at the library, or these days which websites. Will they pick up a consumer’s magazine and try to see what they have to say? And when people realize they want unbiased advice, that tends to lead them to fee-only. And if they get led to fee-only, they tend to find their way to NAPFA. And then when you ask them, “How did you find us?” they don’t know the word “NAPFA.” They don’t know the words National Association of Professional Financial Advisors… of Personal Financial Advisors. Apparently, I don’t either.
Michael: They’re just like, “I found you online?”
Kenneth: It’s usually, “I found you online.” And if you press them a little bit and say, “What website?” They may say, “The National Personal,” and that’s how you know it’s NAPFA.
Michael: Yeah. All right, I got it.
Kenneth: Or they’ll say, “I found you on NAFTA.”
Michael: No, fantastic. Well, there’s some crossover…
How Kenneth Educates Prospects On The Fiduciary, Fee-Only Distinction [1:02:40]
Kenneth: Yeah, which is great, I’m an international treaty. But when they are looking for fee-only articles, whether they’re in print or online, will very often point them to NAPFA. And we might not have used this terminology at the time when I started, but it’s absolutely true and was at the time, you know, when they want a fiduciary planner, that’s one of the places that they go. When they want a fee-only planner, it’s the only place they go.
And of course, you know, when people call and you ask them, you know, “What are you looking for in financial planning?” they’ll say, you know, with great confidence, “Well, I know I want someone who’s fee-based.” And somewhere in that conversation, we try to gently educate them that they don’t want to ask, “Are you fee-based?” they want to ask, “How are you compensated?” You know, and if the answer is that commissions make up anything greater than zero, we don’t think you’re getting what you think you’re getting when you ask for a fee-based. So we believe you want that answer to be, 0% comes from commissions, and that’s actually something different called fee-only.
Something we’ve never had any success with is attempting to convince a consumer of the value of fee-only before they know it for themselves. So we don’t even try. If they think they can get their financial plan free somewhere else, we might try to help them see how that’s not the case, but until they know they want fee-only, it is not worth our time to try to convert them, because they’ll never see the fee as anything other than enormous.
Michael: It’s an interesting point, even for those that are in the fee-only system. I don’t know, I feel like even the discussion around fiduciary extends the same way. For better or worse, the typical consumer just assumes, presumes that if you’re a financial advisor and that’s what you say on your business card, like, you’re giving me advice. And, like, the literal definition of advice is something that’s for me, so it would be in my interest. Like, it’s very hard to convince someone that the people…you know, that someone writing “financial advisor” on their business card might not actually be in the advice business. Sometimes they just have to have a bad experience with someone who said they were a financial advisor but really actually weren’t focused on advice, and then all of a sudden they care more because they’ve learned the lesson.
Kenneth: Yeah. We ask on our profile form that we have clients fill out before they come to their initial meeting, “Have you ever been unhappy with the services of a financial professional?” And it can be very helpful to know, “Nope, never worked with a financial professional,” or, “No, everything has been fine.” But if we see, yes, it’s so often that we see, when we ask for the explanation, that we see something along the lines of, “We felt like they were doing what was best for them and not what was best for me.” Or even worse, “Not what was best for mom.”
Michael: Yeah. Ooh, yes, that one hurts.
Kenneth: Yeah. Yeah.
Michael: But, you know, from the flip side, and, you know, I know there are advisors out there that are charging commissions and have figured out how to do that in a balanced manner and serve their clients well. And, you know, look, for those folks, like, you’re not going to have this conversation, right? Like, by definition, by the time they get to your office saying, “I had a bad experience with a former advisor who was charging commissions and, you know, did things that I was not happy with,” okay, I’m sorry you found a bad one, I’m going to show you an alternative where you don’t have those conflicts anymore. If you found a good one, you’re probably still with them and not in my office. More power to you.
Kenneth: Right. Yeah. There’s plenty of self-selection that’s going on that way.
Kenneth: Yeah. Because if they’re getting the kind of service they deserve, they’re not looking around. And we have occasionally had people come to us saying, “Yeah, you know, we got great service from this professional. Yeah, they were paid on commission. We feel they did a great job for us, but they retired,” or something like that. But just by the nature of the kind of practice we have and by the nature of that question on the questionnaire, people are going to be more likely to talk about the things that didn’t go well rather than the ones that did. So it’s not like the answers to that question represent the universe.
Michael: Well, if it was going really well, they wouldn’t be on your website filling out your questionnaire.
Kenneth: Right. Right.
Kenneth’s Financial Planning Process And What He Does For His Clients [1:07:10]
Michael: So talk to us about just the planning process itself and what you do for public sector employees. You know, I know you’ve sort of made the point that, like, the financial planning process itself isn’t necessarily all that different. The difference is just the expertise we have and, like, the contextually relevant issues for them. But even in the world of, you know, “standard” financial planning we do for our clients, not everyone actually does the same standard financial planning process. So, like, what does that financial planning process and service model look like for your clients?
Kenneth: It’s very heavily influenced by the model that I was taught by ACP. I feel I need to say that so that I’m not treating as original something that, you know, was taught to me. But we’ve made our modifications to it. So we’ll find out in the course of an initial phone call and then a face-to-face meeting where typically at that first meeting we’re presenting a fee and explaining what they’ll get in return for it.
In the course of that discussion, we’re doing a lot of listening, so we know what the client’s urgent needs are. The first thing we ask when we have our initial phone call is, you know, “What is it that has you looking for a financial planner at this particular time?” And the phrase in ACP is, “What’s the spear in their back?” They’ve got something that’s really bothering them and they need you to pull the spear out.
Michael: That’s a particularly colorful way to illustrate the point. I’m a fan of the same approach. You know, one of the first things I always ask any prospect that approaches is just like, “Just why are you here? I mean, like, you didn’t have to come today or this week or this month or this year, like, what is going on in your life that now is the time you want to seek out a financial advisor or are willing to pay for it and would actually, you know, get up and go to an office like mine to have this conversation?” Which in essence is like, “What spear is in your back that I can pull out?”
Kenneth: Yeah. No, we don’t use that term with the client, mind you.
Michael: Yes, I realize that.
Kenneth: Yeah. That’s just the shorthand among colleagues.
Michael: Although, you know, you can probably get away with that with a prospect or two. But, yeah. It’s a good visual though.
Kenneth: Yeah, it’d be a good way to sort for sense of humor. But yeah, everybody has something that has made this thing that they’ve known for a long time they should do, it’s finally risen to the have to do. And the medical analogy is probably one of the best ones. The pain is now strong enough that this needs treatment or at least evaluation.
And then we’ll schedule the first substantive meeting, the first meeting after signing an agreement and saying, “Okay, here’s the…this is the fee. Here’s the agreement.” We explain the agreement. Once the signatures are on the document, we’re saying, “Okay, how soon can we meet? And let’s make our first meeting about this subject because it’s really bugging you.” And it could be anything. If someone had…came to us at this time of year and had no preference at all, a purely theoretical client, or the clients who do come to us this time of year, it’s often, you know, taxes. “I’m sure I’m paying too much in taxes.” And part of what we do for most of our clients, most of our retainer clients, is tax preparation. It’s a part of the model that I was taught. It does tend to make the client relationship very sticky.
I did not think I was going to do tax preparation. I thought I was going to carve that out of the ACP model. And many of my colleagues have over the years. You know, they followed that model without the tax prep. But the reason I ended up doing is I realized I could save my clients so much money. And I learned so much about them in the early years by getting, you know, up to my elbows in their tax return.
Michael: So are you…like, are you literally preparing tax returns? Like, is that part of your hands-on stuff in your time during tax season, that you’re just, “Sleeves rolled up, let’s get through the returns?”
Kenneth: It is. I’m not doing the data entry. We have that farmed out to a very experienced virtual paraplanner who does tax work for at least five of us that I know of.
Michael: Outsourced that initial piece of the tax preparation work and then what, you just, like, review the final return at the end?
Kenneth: Right, typing the numbers from the 1099s and the W-2s into the software is not where we’re adding a lot of value.
Kenneth: You know, reviewing how things are working together, figuring out how to properly allocate the income among two or three states, making sure that the rental is treated appropriately, or just proofreading the numbers and having a second set of eyes on them and saying, “Yep, you know, these are correct,” or, “Oop, you know, here’s a typo, let’s get this corrected.” And, “Yep, your return is finalized, let’s go.”
Here in Ohio, one of the places we add a lot of value is in Ohio municipal income tax returns. And I won’t go into the details of why they’re such a tremendous headache for preparers and tax software programmers alike. But a lot of Ohio employees out of Ohio taxpayers don’t understand their local return. And just taking that burden off them, they find tremendously valuable. And every client anywhere has…they’ve got something that they’re so grateful to have you handling it and to know that you’re handling it right.
Michael: So for advisors that, like, are interested in this, I mean, I’m fascinated by this, like, we farm out the data entry, but then, you know, we finalize internally. I mean, I know a lot of firms that are interested in doing tax prep but either they’re concerned they don’t have the level of expertise just to prepare all the returns manually. Like, they can review. It’s helpful information. You learn a lot about the client, but, like, they don’t want to do the tax work. Or even they have the expertise to know how to do it, they just don’t want to, like, disappear for three months every year working on tax returns for clients and not being able to do anything else because they’re buried in tax season. So, like, can I ask, like, who do you farm this out to, or how did you find someone to farm this out to? And, you know, are they doing it for anybody else? Because there may be other advisors who want the same help.
Kenneth: Yeah, the person I’m using, her name is Mary Anne Kuznicki. She goes by Nicki Kuznicki. And she’s been doing this for 20 years. She started out in the office of the founder of ACP and then set up her own business as a virtual paraplanner. And then the reason that we are still involved in it, you know, it doesn’t have to be that way. And as I say, a number of our colleagues have said, “Now, somebody else is going to do your taxes, but we’ll do your tax planning.” We only do taxes for about two-thirds or three-quarters of our retainer clients. We don’t insist that we do their taxes. We do insist that our retainer clients have their taxes professionally prepared because they deserve a preparer who is not a once-a-year expert in a 10,000-page tax code in 1 return. They deserve someone who knows a lot about taxes.
Kenneth’s Fee Structure [1:14:44]
Michael: So do you…like, do you charge a planning fee and then separately a tax prep fee? Do you bundle it in? Does that mean if they don’t do the tax stuff you, like, reduce it back out because you’re not doing tax return? Like, how does that work from just a mechanical perspective with clients?
Kenneth: Yeah, we charge clients an annual retainer fee that they typically pay in four quarters. And the fee is a bit lower if we’re not doing their tax preparation. Not stunningly lower. But we set that at the outset. We do have some complexity allowance for a more complex tax return, but we set the fee upfront because we want the client to know, “This is your fee. It’s not going to change. If something comes up in your life and you need advice, we are encouraging you to come see us so that you’re not worried about, ‘How many hours of work is this going to add?’ Where you’re always doing that cost-benefit analysis.”
Michael: Right, that’s kind of the challenge of the hourly model, is as much as I love sort of the simplicity of it, right? People don’t like feeling like they’re on the clock. If it’s hourly and I call you, I want to minimize the time of the call. If it’s retainer and I call you, I want to maximize the time of the call, which is, you know, you’ve still got to manage from the advisor end, but from the client’s end, they do the math pretty quickly and figure out it’s in their incentive to call you with all their financial questions because you’ve got to, like, maximize the dollars of that retainer fee you set up in the first place. But, you know, it encourages clients to engage when you want them to engage so that you’re not hitting bigger problems later.
Kenneth: Yeah. And it gives us another opportunity to add value and increases the likelihood that they will not only be renewing with us the next year but also that they will be referring us…you know, referring other people to us.
So the reason that we want to have our hands on the tax return is no one knows the client’s financial life in as much depth as we do, because we’re with them throughout the year. Because of course, it’s much more than tax preparation. Usually, investments are high on people’s list, so we’ll start reviewing investments early on. And one of the things we find most often is something like, “Man, we could just swap out all these high expense ratio mutual funds in your retirement accounts for the things that we think in the long run are going to perform similarly for a lot less cost. And since it’s in retirement accounts, there’s no tax effect.” So investments are often high on the list early on.
Michael: So what does the process look like for you overall? Like you’d said, I mean, obviously there’s a first meeting, present the fee, explain what our value is. As you said, find the spear in the back that you’re going to try to remove. Hope you get some buy-in that you’re valuable and that they’re going to be willing to sign an agreement. Like, once they say, “Yes, I’m coming on board,” is there a standard structure of what you take them through or is it more reactive to, “What do they want to cover? Is it investments or taxes or something else?”
Kenneth: It’s more reactive to what’s their pain point? Let’s relieve their pain point. And if when they’re done with that they say, “Oh, that’s great, thank you. What should we talk about next, Ken?” Then, you know, we can put them through sort of in our idealized order, which if we haven’t done tax preparation or it’s later in the year, we might do tax planning so we can understand…you know, make sure that we understand their tax situation, and follow that up with a cash flow evaluation. And by then we know enough that we’re ready to do an insurance review, where most often the most frequent gap that we see in the insurance review is, “You don’t have enough auto and homeowners liability coverage. You need an umbrella policy that’s going to cost you around $200 a year to add $1 million in liability coverage so you don’t have to worry about it if someone T-bones your car and says it was your fault.”
After the insurance review, we know enough about their life insurance to be able to jump right into estate planning, where we will help them figure out, “What do you want your will to do? You know, how do you have your beneficiary designations set up in your retirement accounts? And oh no, no, those aren’t going to be changed by the will you’re about to do. What do you want to have happen with your money?” And then we’ll write up something they can take to their lawyers saying, “Here are the results they want out of their will or when it’s called for out of their trust. Here’s how they want their healthcare proxies set up. Do they want a durable power of attorney for financial affairs? And if so, what’s the result?”
Michael: So I’m fascinated, though, that just this framing of…I mean, it sounds like, correct me if I’m wrong, there’s not necessarily a fix like, every client that comes on board goes through, you know, a four-meeting process where we do discovery and then we analyze and then we present and then we implement. Like, you have to go through that because that’s our planning process and every client goes through that.
Your approach sounds much more modular and dynamic. Like, meeting number one is, I will remove…well, meeting number one is they say they’re going to be a client, but after they say they’re going to be a client, like, meeting number one is, “Allow me to remove that spear from your back.” And then meeting number two, three, four going forward are, “Well, what do you want to work on next? Well, what do you want to work on next?” And just eventually, you’ll take them through all the areas, because you know what all the areas are, obviously, so you’ll rotate them eventually. But that it’s more, I don’t know if reactive is the right word. I mean, obviously, you still have a list of things you’re trying to take them through.
Kenneth: Right. Yeah. And we certainly want to make sure that we don’t let the client drive the process so much that we fail to get to things that we know are important. But we used to go through a very linear process that was a portfolio analysis and then record-keeping and cash flow, and then insurance, and then estate planning, and then life planning, and then back to investments. College planning and retirement planning would have shown up either just before or just after investments. And it was only at that second investment meeting, you know, we’d start off with portfolio analysis, but unless anything was on fire, we would say, “You know, let’s make sure everything else is okay so we don’t have to undo anything.”
And what we kept hearing from our clients, you know, mileage may vary, but what we kept hearing was, when we got back to the investments, “This is what we’ve been waiting for.” And the light bulb eventually went off and we said, “Let’s find out from the client if it takes too long to get to, what they’ll be waiting for. And let’s not make them wait. Let’s deliver that value early in the process,” unless we have a good reason for saying, “This is going to make a lot more work or we won’t be able to do as good a job, or, you know, unless we cover these other things first.” For example, we still can’t do retirement planning before we’ve done cash flow. We must do cash flow first in order to be able to do a credible job of retirement planning.
Michael: I guess two questions come to mind. One, just, how do you respond to, I don’t know, I guess the advisors that kind of would…I feel like there’s a set of advisors out there that would…at this point would say, in, like, a somewhat incredulous manner like, “What do you mean you don’t do a comprehensive plan for every client?” You know, sort of parentheses like, “Are you a malpractice suit waiting to happen for not looking at everything upfront?” I mean, how do you think about that or respond to that, particularly since it sounds like you were there and actually moved away from it?
Kenneth: Yeah. The answer is we still cover everything that was on the checklist. We just don’t necessarily cover it by slavishly following things in the order that we would dictate for our convenience. And we do a comprehensive plan, but we don’t hand them a binder with a 90-page computer printout in it, most of which are disclaimers and tables that they’re not going to look at anyway. What we hand to them are written recommendations tailored to their unique situation, answering the questions that are uppermost in their mind first and then covering the other things that they may not know they should be asking about, but giving them 1 to 4 pages at a time so that we’re not saying, “This plan includes 56 recommendations, all of which you should implement as soon as possible.” Nobody is going to do that.
Michael: Literally four pages at a time? Like, little mini-modules that you present as you go through each presentation meeting with clients?
Kenneth: Yeah, when they become a client. For the clients who still like hardcopy documents rather than electronic versions, we’ll give them a binder that includes each topic that we typically expect to cover. And then we’ve got a module for each one of those that might be 4 to 10 pages of, “Here’s the stuff you need to know ahead of time that sort of everybody needs to know about college planning,” or, “Everybody needs to know about how we do investments,” or, “That everybody needs to know about tax planning.”
And then at the tax planning meeting, they’re getting literally one to two pages that are unique to them that are saying, “Here’s what we figured out and here’s what you, you know, Paul and Mary, should do. Here’s what you Roberta should be doing to prepare for next income tax season. Here’s what you Steven need to do before the end of the calendar year, because after the end of the calendar year, with few exceptions, you’re just looking at taxes in the rearview mirror and seeing what happened. And by doing the tax planning ahead of time, you can make changes that will impact your tax liability.” And sometimes we’re doing multi-year tax planning that I’m glad to see is becoming more and more common in comprehensive financial planning.
So they get a comprehensive plan, but all-in-one does not necessarily mean all at once. And we’re giving it to them in bite-sized pieces that they can digest without the resistance of, “Man, look at this binder. When am I going to get to that? I’ll look at it after dinner.” And it goes on a shelf and they never look at it again.
Michael: I love how you frame that, just all-in-one doesn’t necessarily mean all at once.
Kenneth: Yeah, yeah. I co-authored a white paper on the holistic financial plan not long ago, and that’s something that my co-author and I said in there. We were trying to figure out how to convey this idea that, “Yeah, it’s going to be comprehensive, but comprehensive doesn’t have to mean overwhelming.”
How Kenneth Convey’s His Value To His Clients [1:26:01]
Michael: So then let me ask, like, the follow-up that goes with this. So then, how do you convey that value to the client? Because I feel like for most of us, just, “I’m going to give you a comprehensive financial plan that looks at all the different aspects of your financial life and provides you recommendations,” like, you know, is sort of the standard way that we try to set up, “Here’s the value of the financial plan.” It’s hard enough. And that, at least, is predicated on, “I’m going to give you The Plan,” capital T, capital P. Now, like, you’re not even going down that road and you’re charging standalone planning fees, so, like, just, what’s the conversation how you even explain the value of, you know, this not all at once financial plan, “But trust me, we’ll get through all the comprehensive stuff eventually?” Obviously, you don’t explain it that way, but, like, how do you talk about the value of financial planning when that’s your process?
Kenneth: Yeah. We tell them at the meeting where we present the fee that, you know, “Depending on how busy you are, depending on how often you want to see us, you know, it will take us a year or two to get through all the pieces of a comprehensive financial plan” in the depth that we believe as professionals that they deserve. You know, if it’s true that financial planning is a process and not a one-time event, well, we’re treating it like a process, not like a single project. And honestly, we expect to stay involved in our clients’ financial lives so that we’re adjusting whatever needs our attention as their lives demand it.
In the meeting where we present the fee, we’ll say to them, “Okay, we’ve had a chance to review your situation, here’s your fee.” You’re probably wondering when you see that number, what do you get in return for that fee? And we found the best way to explain that is to go through our agreement. And then we go through the agreement with them in detail and explain, “Here’s what we’re going to do, here’s how it’s going to happen, here’s what’s included. And, oh, and by the way, here’s all the fine print.” Again, this is what my colleagues told me I should do when I was first starting out, and I have found that it works really well. By the time we get to the end of the agreement, which takes 20 minutes on a good day, and sometimes longer, especially if they have questions.
Michael: That’s quite a sizeable advisory, or I guess planning agreement.
Kenneth: It’s a four-page agreement. It’s in, I want to say, 11 point type or something like that. But it’s fully four pages with…including, unfortunately, some legalese, but it has to be there. But who else in their entire lives has gone through their professional agreement with them in so much detail? Who else has taken the time to make sure they understand?
So, you know, one of the things, for example, is years ago I practiced law, and I do still put the “JD” letters after my name on my….you know, in my marketing because it differentiates me. But because of the way things work for people who used to practice law but don’t in Ohio anymore, I feel like it’s the best practice to put in our agreement, “This does not include the practice of law.” And it gives me an opportunity to explain that, “No, you’re not getting legal services. You know, neither of the planners in the office is a lawyer. It’s not that Ken’s forgotten what he learned in law school.”
Michael: Right, just, it’s not a legal agreement. It’s not an engagement for the practice of law.
Kenneth: Right. And if you wanted somebody to provide the practice of law, you want somebody who’s thinking about law every day, not financial planning. You know, our clients deserve that. So it’s an opportunity to emphasize that sort of thing, too.
More On His Fee Structure [1:30:03]
Michael: So then talk to us about how you charge for all of this and what the planning fees look like. Because I know you’re not on a purely traditional AUM model.
Kenneth: Yeah. No, assets do go into our calculation but not AUM. We look at investible net worth as one of the data inputs that go into our fee calculator. The calculator looks at investible net worth, annual income, and the complexity of their situation. The first place we look for complexity is their tax return. You know, is there a rental? Is there a small business? Is there just one W-2? Is there much in the way of interest and dividends? If there is, that suggests some investment complexity. And, you know, all of that feeds into a first-year fee.
And you could find this on my ADV, you know, our ADV, so I’m happy to share. Our first-year fees range from $5,000 to $25,000. We do nail that down to the dollar and put it in writing for the client before we begin. And just about the only thing that changes that, and this is in the agreement, just about the only thing that would change that is if their investible net worth increases by more than 25% during the retainer year, for reasons that are unique to them, like an inheritance, not because of market performance, we will refigure the fee and see whether or not it changes. And the renewal year as you go from year one to year two, currently our fee drops slightly. I constantly wrestle with whether or not our fee should drop at all. And I see the virtue in the logic of my colleagues who’ve said, “Ken, as time goes on, you guys are more and more valuable. Why is your fee dropping from year one to year two?” But it’s not dropping by much, only about 20%.
Michael: And I guess the flip side is, there’s just so much work that tends to happen in the first year with the client because you just…you’re getting to know them, there tend to be more meetings. There’s a lot more stuff, there’s a lot more busy work. It tends to be less in subsequent years because you know their background and information. There’s only so many one-off questions that come. Like, sort of, I can play devil’s advocate on both sides for that.
Kenneth: Yeah. Yeah. And that my internal pushback about that is, we’re not valuing ourselves on a time and materials basis, we’re valuing ourselves on a value-added basis. So I wrestle with both sides of that myself. But thinking about it that way is something I learned from coaching relationships that I’ve had over the years that I’ve found really valuable. But there’s some other less objective things that go into the fee calculation. And that’s the degree of responsibility we feel we’re taking on and the value that we’re adding. And for those, we can make sort of ad hoc adjustments that vary client by client. Almost everyone gets some kind of adjustment, but the size of it is unique to each client situation.
Michael: But the baseline is kind of interesting. So I guess the ACP itself gives you this fee calculator that just gives you these levers of like, enter the net worth here and it’s a certain percentage. Enter the annual income here, it’s a certain percentage. You know, check off some of these complexity factors that adds dollars or percentages. And then you can have your sort of wiggle room adjustment at the end. Like, factors not considered by our calculator, I’m going to, you know, kind of jam them in there to make sure the fee ultimately lines up with the client situation. And then you get this number that, at least for your clientele, is $5,000 to $25,000.
Kenneth: Right. And I hasten to add that ACP does not tell us how much to charge. They give us a calculator that allows us to…you know, that’s very highly customizable. And I would venture to say that virtually, all of us have customized it highly. And I know when I first started I took many of those default values and sharply cut them because I felt like I needed to compete on price. We don’t do that anymore. We’ve adjusted those things many times over the years, always upward.
One Of The Smartest Pieces Of Advice He Ever Got [1:34:29]
One of the best pieces of coaching advice I ever got was from my coach of many years, Joy Oyler, who told me, “When you cut your fee, the client cuts their assessment of your value.” So one of the best pieces of advice that I think I’ve ever given to newer advisors is to tell them, “Practice looking your clients in the eye and saying, ‘My fee is…'” And when they’re practicing, they should imagine a fee that’s larger than they could ever dream of charging, which for me, when I would have started out, would have been $9,000. And, you know, I just practiced saying over and over again, “My fee is $9,000.” So that when you get into the meeting, you don’t say, “My fee is $7,400,” because suddenly you don’t think you’re worth $9,000.
Michael: And, you know, they can tell. Clients can tell. Like, when you balk, clients can tell.
Kenneth: Yeah. I had a client ask me once when he could tell that I was recalculating in the meeting. He said, “Are you telling me that I can decide what my fee would be?” Because it was clear that I was trying to judge his comfort level with the fee. And I, you know, have heard people say…when people have said, “Well, you pay us what you think it’s worth.” You know, I’ve heard people say, “You know, that’s not really fair. Only you can judge what it’s worth. And asking us to come up with that number is just not…we don’t know how to come up with that number, so you need to tell us what the fee is and we’ll tell you whether or not we’re ready to pay it.” And the clients who see your value will be ready to pay it.
We help to demonstrate our value by talking about things like Vanguard’s Advisor’s Alpha. And, you know, we go through a spreadsheet that explains…you know, that helps to calculate that for their situation and what we think that looks like. And we usually find that we can be conservative in those evaluations and still come out more than demonstrating our value.
Michael: So let me ask, like, I am curious, you’ve highlighted this fee and had talked earlier about the level of clients you’re working with, sort of, you know, high five figures into the six figures. But, you know, fees that start at $5k and go up from there for folks that I guess, like, may be as low as five-figure or low six-figure incomes, like, you’re talking about numbers that can be 3%, 4%, 5% of their income. I’m presuming, like, most of them are also going to have some net worth at the table as well. So obviously, they’re not paying it purely from their income. But, like, I don’t know, I guess just, talk to us about fee affordability, perceived fee affordability. Like, is this a potential blocking point around setting fees or, you know, are we all too nervous when we’re talking to working folks making, call it air quotes, like, “just,” “just” $100,000 a year and putting out their fees, like, $5,000, that would be 5% of their income?
Kenneth: Yeah. Those two things aren’t mutually exclusive. Yes, you know, there’s some barrier to entry, and yes, we’re too nervous talking about it as a profession, I think. The clients that we’re attracting now tend to have some substantial amount of assets, which does change the fee discussion pretty substantially. But for someone who’s making a good living and doesn’t yet have much to show for it, who, you know, is like a textbook client for what I would think of as sort of an idealized XYPN-style practice, they see a lot of value in the kind of guidance that someone who’s truly independent can bring them. I think something like the monthly retainer model makes it even easier to demonstrate the value. Because, you know, it’s true, this thing that you sell for $99 is much easier to sell when it’s in 3 easy payments of $33 each. It’s just a reality of buyer’s psychology.
You know, you’re absolutely right when you say that people are used to paying for things monthly. So that helps to reduce a lot of the resistance. Ultimately, I think it comes down to being able to show why you are worth your…you know, for us on the low side these days as a practical matter is usually $7,000 and up. You know, if someone comes to us and they’re making $40,000 and they are, you know, seeing our minimum fee of $5,000, I would wonder if we’re saying to them, “We’re not sure we’re worth it.” Which we don’t hesitate to say to a potential client if we think our fee is higher than would benefit them.
What Surprised Him The Most About Building An Advisory Business [1:39:27]
Michael: So as you look back, like, having gone through this trajectory, what surprised you the most about building the advisory business?
Kenneth: What surprised me the most? Probably that when we have raised fees, we’ve met much less resistance than we thought we would. Much less resistance than we thought we would. What clients want to know, in my opinion, is that, among other things, of course, they want to know they’re not being taken advantage of. So when we’ve raised fees, we’ve explained why, and then they have the opportunity to evaluate it. And if they don’t want to pay the higher fee, they have just made room for someone else in the practice who doesn’t have a question about your value.
One of the other big surprises I would say is how much my clients and I enjoy each other’s company. And I think that’s true, you know, for the other advisor in the office as well. Britta Koepf is my associate, and I think she and her clients enjoy each other’s company a great deal. There’s a lot of laughter in our office, and we really like it that way, and we think our clients do, too.
One of our clients used to always schedule appointments at 4:00, which was the latest appointment that I would take. And I would say something like, “You know, I appreciate that this is 4:00 on a Friday. I’m going to try to get you out of here, you know, as quickly as I can.” And they would say, “You know, we don’t mind if it runs a little long because we’re going to dinner from here. This is date night for us.” Date night for these clients started with a visit to their financial planner.
Kenneth: I know. That was like, “Wow, how cool is that?” And, you know, I have sort of gotten to see their kids grow up, you know, and things like that. You know, it’s true what a lot of our colleagues say about, we get to be good friends with a lot of our clients. And sometimes the work is really hard, but I’m working really hard for people I really care about.
And I think the other thing that’s been a bit of a surprise, I have some strong views on some sometimes divisive issues. And I have clients who I know take an opposite view on those sometimes divisive issues, and it just doesn’t matter, because what’s more important to me than how they feel about this social issue or this political issue is the privilege of being a fiduciary advisor. That I am going to work every bit as hard for someone who’s going to donate to something that I’ve just donated to the opposite side of because I just believe in the fiduciary standard. And I feel so fortunate that I get to practice that way.
There was a brief time when I was first getting into this that I thought, “Oh my gosh, Ohio has just changed the rules on how people get registered, do I have to run off and sell stock for three years now so I can…?” You know, and the answer was, “No, I don’t have to do that.” And it’s not that there’s anything wrong with that profession, it just wasn’t the profession I wanted to be in.
Kenneth’s Low Point [1:42:59]
Michael: So what was the low point for you?
Kenneth: The low point for me was when I moved into my first commercial space out of my home office, and I had an open house to welcome people to my new office in January. Maybe not the best idea in Cleveland, Ohio, but I had not…I mean, the office was opening then. I sent out a whole bunch of invitations, mostly to people I didn’t know. And I didn’t realize that people I didn’t know were not going to be attracted to a glass of wine and some, you know, catered snacks at 7 on a Tuesday. I think it was a Tuesday. And we sent out over 1,000 invitations, mostly based on geography, mostly to businesses, and we had I think 25 people, only 1 of whom I did not know, who came to the open house. Everybody else was a friend.
And I remember sitting on the edge of the bed that night with my head in my hands saying to my wife, “I know this is what I’m supposed to be doing, but this thing that I just tried had,” I thought, “completely failed.” Within the next couple of weeks, two of my friends who had come had both signed up as standard retainer clients, and are both still clients to this day, and have referred other people to me. I didn’t realize how successful that event was. And when we moved into new space a few months ago and we just had an open house here in January, I had much more realistic expectations, except apparently, I didn’t learn you don’t hold an open house in January.
Michael: I was going to say, you just don’t do it in January in Cleveland.
Kenneth: Still did it in January, but this time I was very happy with the 20 people who came.
Michael: Well, and the great thing about our business, like, you really only need a few to become clients and the math works pretty well. You know, when your fee start at $5,000 to $7,000 and move up from there, like, you don’t need hundreds of people at your events. You know, having 20 and getting 2 is actually a pretty amazing ROI.
Kenneth: Right. And this time around, understanding that the people who will be interested are people with some acquaintance with us. We went back through our client list for the past 19 years and invited as many people as we could figure out email addresses for. And did a large percentage of those people actually attend? No, but some who couldn’t, you know, one said, “We’re going to be out of the country, but so glad you reached out to us, we’re going to be calling you when we get back. Congratulations on a new office.”
You know, there are always going to be low points, but, you know, remind yourself, this is what you wanted to do. And the universe has a way of asking how serious you are about your plans. More wisdom from my coach, Joy Oyler. And if you’re serious, you say, “Okay, that was a setback, now what? What’s the next thing I have to do? Was it really a setback? Eh, I didn’t get as far forward as I thought I was going to get, but I got…you know, okay, now the new office is open.” And it’s not until a couple of weeks later that it drifted into my consciousness, “Oh yeah, I did get clients out of that.”
How He Defines Success [1:46:28]
Michael: So, as we wrap up, you know, this is a podcast about success, and one of the themes that always comes up is just that word “success” means different things to different people. And so, you’ve built this successful firm that’s grown over the years, but I’m just curious, at this point, like, how do you define success for yourself?
Kenneth: I’m frequently asking myself that question these days, and the answer that I keep coming back to, at least at this particular phase of my practice, is I’m defining success by creating the tools, the environment, the circumstances for my clients to be just as well served by the advisors who are going to come after me, or maybe even better served because they bring other skills to the table, so that they’ll be well served without my having to be the one giving the advice. So I have a great deal of faith in my associate, Britta, who’s been working for me for about four years. I know if something happened to me, my clients would be taken care of with as much care as I would devote to them. The plan is to have that responsibility rest on more than just her shoulders and my shoulders. You know, we do see the practice growing. So success is going to be the practice continuing to grow in a way that we can still provide that same level of care to our clients so that we can truthfully say that we’re caring about their financial matters, their successes the same way we would care about our own or our families.
Michael: Well, and just, I love that framing of, I think what to me is legacy, as you put it, like, of, “Creating the circumstances for clients to be served just as well or even better by the advisors who come after me.” I love that message.
Kenneth: Yeah, there are things that I know how to do really well and other things I haven’t even thought of that are great for our clients. I love being taught stuff by my colleagues, by people on my team. I love learning ways in which we can add even more value for them. And one of those ways is making myself just a bit more disposable, you know, so that if something does happen to me, nothing is going to happen to my clients.
I’ve often said, the reason we’re so careful about security is I’d be annoyed if someone, you know, broke into, you know, my computer and stole data of mine, I would be mortified if they got any data about our clients. So when you like the company or the people who come to see you and who are writing your checks, whether you intended to or not, you turn out to care about them a lot, too. And I like it that way.
Michael: Oh, amen. Thank you so much, Ken, for joining us.
Kenneth: Thanks for having me. It’s been a pleasure.low