Welcome back to the 132nd episode of Financial Advisor Success Podcast!
My guest on today’s podcast is Linda Leitz. Linda is the president of Peace of Mind Financial Planning, an independent RIA based in Colorado Springs providing comprehensive financial planning services on a retainer fee basis to nearly 100 clients with a team of 4.
What’s unique about Linda, though, is the depth of her experience in pricing her financial planning services and working with clients for an ongoing retainer fee, and what she’s figured out over the span of 20 years about how to successfully position retainer fees for clients who may not be used to seeing the exact dollar amount they’ll be paying for financial planning advice.
In this episode, we talk in depth about how Linda has structured her financial planning fees tied to a client’s income, net worth, and complexity, the way she presents this information to clients using a fee calculator to validate the price, the way she positions her retainer fee increases during biannual renewals, showing clients how their fees compare to what another advisor’s AUM fee might be, how the biggest problem when quoting financial planning fees is not that clients try to haggle the price down, but that as advisors, we often haggle our own fees down due to our own self-doubt, and what it took for Linda to finally stop the temptation to give clients a discount the moment they flinched or gasped at the cost of her services.
We also talk about Linda’s decision after nearly 20 years to shift from being a siloed solo advisor under a cost-sharing partnership to building her own multi-advisor team. Why she decided to make the shift not to position herself for retirement, but simply to ensure continuity of service for her clients in the event that something happened to her, what surprised her most by shifting to a team structure after being a solo for so long, and how having a team around her changed her own mentality about how to price her services with clients.
And be certain to listen to the end, where Linda shares why she decided to go back to school for a PhD in financial planning as an experienced practitioner to help build better connections between practitioners and academics. The differences she found about being a practitioner versus doing academic research, and the somewhat humbling experience she had doing a dissertation that showed how some of her own traditional financial planning advice might not actually be fully validated in research.
So, whether you’re interested in learning how to gain confidence around the fees you charge, ways to communicate fee increases to clients, and ways in which flat-fee advisors can differentiate themselves from advisors with other fee models, then we hope you enjoy this episode of the Financial Advisor Success podcast.
What You’ll Learn In This Podcast Episode
- Why Linda Started Her Own Firm and What Her Business Looks Like Today [05:08]
- The Services Linda Provides And How She Charges Her Clients [16:57]
- The Process Of Adjusting Clients’ Fees Over Time [30:30]
- How Having A Team Changed Her Mentality On Pricing Her Services [33:43]
- Why She’s Not Afraid To Transition Some Clients And How She Handles Fee Increases [53:50]
- How Linda Structures Her Initial Meetings With Prospects And Calculates Her Fees [1:17:46]
- What Drove Linda To Launch A Solo Practice [1:28:09]
- What Surprised Linda The Most When Switching To A Team After Being Solo For So Long [1:35:37]
- Why She Decided To Get Her PhD [1:38:36]
- What Surprised Her The Most About Building A Business [1:47:55]
- What Success Means To Her [1:52:15]
Resources Featured In This Episode:
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Michael: Welcome, Linda Leitz, to the “Financial Advisor Success” podcast.
Linda: Thank you. Glad to be here.
Michael: I’m looking forward to today’s discussion and what to me is a very interesting both advisory firm that you built, of what you do and how you work with clients, and the fact that, in the midst of spending this time building a practice and these various specializations that you have around tax and divorce, you decided to take a brief pause, or I guess not even a pause, and go and get a PhD in financial planning along the way. And I’ve heard a little bit of this discussion more and more from some advisors of like, “What would it be like to go back as a practitioner and get a PhD in financial planning?” Particularly now that there are a growing number of academic programs for PhD, some of which are built to at least reasonably work with practitioners. And so, yeah, I’m both excited just to talk about the firm and the journey you’ve had over the past 20-plus years as an advisor, and also what possesses someone to then on top of that say like, “Hey, let’s go get a PhD for fun after 20 years.”
Linda: Yeah, I would not assume that it’s good mental health that says, “In your mid-50s, how about if you go back and get a terminal degree.” Because part of what I’ve wondered is whether the terminal part of terminal degree is they intend to kill you while you’re there.
Michael: Yeah. There’s something kind of very dismal and daunting about doctoral degrees being terminal degrees. Usually just the terminus of your academic arc, but there is something very, as you said, terminal about this concept.
Linda: Yes. Almost sinister.
Michael: Almost sinister. So I want to come back to kind of talking about just what makes you decide to come back at this career stage to do a PhD, but I think as a starting point, just talk to us a little bit about your advisory firm itself first. Let’s just understand what the business looks like and then why we decided to get a PhD on top of that.
Why Linda Started Her Own Firm and What Her Business Looks Like Today [05:08]
Linda: Okay. The advisory firm as it sits today is only a couple of years old. My former business partner and I worked together for almost 20 years. And we had a true siloed practice where her clients were her clients and my clients were my clients. And we still, of course, have a lot of respect for each other. She’s a wonderful planner, I know she respects me, but we literally did not work at all with each other’s clients. And it wasn’t even unusual for us to, after the other one had an appointment, say, “Who was that again that just left?” We couldn’t even pick each other’s clients out of a lineup in some cases if we had to.
Michael: So this was, I guess, in the vein of what I know was fairly common. Well, it’s still common to some extent today but I think very common in advisory firms back in the ’80s and ’90s when people were getting started, where overhead was very burdensome. Just like office space, you usually needed a lot more admin staff than you do today because we didn’t have as much technology tools. And so it was pretty common for advisors to come together in “partnerships.” I’m putting “partnerships” in air quotes as though anybody can see my fingers air quoting here.
But we would create these “partnerships” where we weren’t really trying to build this joint partnership business with shared clients and kind of at least how some people think of partnerships, they were partnerships in the sense of being shared business expense entities. Like, “Hey, if we come together, now I only have to pay 50% of the rent and office space and admin staff and you can pay the other 50%. And this is more efficient because I don’t really need a full-timer and you don’t need a full-timer, but we can share a full-time staff member or a full-time office space and all those other pieces.” And it just became a good way to do cost sharing as a partnership.
Linda: Right. And even on top of the cost-sharing, we certainly at the time had common philosophies and common approaches to how we dealt with clients’ financial solutions. But as we both aged and got to the point where we did want to have something to have our clients have a succession plan, basically, it just didn’t make a lot of sense. It’s hard to sell half a firm to a successor, and it’s difficult to…what’s the role of that person? How much do I have to like her successor and vice versa? And so a couple of years ago…
Michael: Sorry. Just to clarify, because you were literally one entity, I take it. One RIA with two names on it, one actual business legal entity. As you said, you can’t just sell half this thing because it was literally one firm even though functionally you were two siloed practices sharing expenses.
Linda: Literally. Yes. And so we were one Sub S corporation. We had one RIA. We had one ADV. We did have a common approach, but it was definitely…it was a silo. That’s why they call them that. It was definitely two towers there. So when a couple of years ago she and I agreed that it would make more sense for us to each have our own separate legal entity so that we could have the entity survive us and have clients transition in a good way, we… Our current firm, Peace of Mind Financial Planning, Inc., really takes a team approach. So yes, people come and they see my resume and they see how long I’ve been advising, but we also have brought in someone who was from the Kansas State University Personal Financial Planning undergraduate program. Garrett is working with us, and he’s wonderful. He totally gets it. And he gets that planning is planning, it’s not just number crunching.
One of the things that made him the perfect match was that he interned with us in 2017 right as we were setting up the new firm. And he and I would debrief before each…or we would brief before each appointment with a client about, “Here’s their situation, here’s what we’re doing today,” then we would debrief, and 9 times out of 10, his initial reaction when I’d say, “Give me your thoughts” would be, “Well, here’s what was going on in the appointment from an interpersonal standpoint.” The numbers are the numbers. Robo-advisors can do a lot of the things that we do. Not that they always know when exactly to apply certain metrics to certain situations, but he would know if one spouse was more uncomfortable than the other, or if they didn’t really want to take the advice that we’d given them, or if he just…
And one of the things that happened during that summer was one of our clients, who was in horrible health condition, felt like he needed to work another couple of years so that he and his wife would be financially secure. And we ran retirement projections and said, “We’re just initially going to assume you don’t do that. That you stop right now.” And it showed that he could with really high…with a really high confidence ratio. And she reached over and took his hand and said, “I would much rather have you here than have more money.” He got to see that. And so it was him seeing that, “This is how people interact. This is what’s important to them about their money.” So that’s part of the team is that it’s not just me giving advice, it’s both of us.
Michael: Good for him for picking that up. Because I have to admit, reflecting back, I think that probably took me four or five years into my career to really pick up on, at least from my journey. I guess it’s different in part because it sounds like Garrett came through a financial planning program. I was a liberal arts grad. I didn’t find financial planning and start my CFP studies until I was already a year or two in. But I sort of find like, early on there’s this stage of sitting across from clients talking the financial planning where I feel like it sort of is about the numbers. Literally, I want to make sure we are giving technically accurate advice. We’re not doing the math wrong. We’re not going to tell them to do something that’s just fundamentally bad and the wrong thing.
And I think, at least for me, for a few years, I was just in my head about the numbers and the math and the stuff and just making sure the advice was technically accurate. And it wasn’t until doing that and repeating that for dozens of clients until, at least for me, I got to the point where all of a sudden that became a little more second nature. I knew what the numbers were. I knew what the projections were. I knew what the planning software was going to say because I’ve presented a zillion of those plans.
And then all of a sudden I got to the point, at least for me, where I was suddenly feeling more, I guess self-aware and meeting-aware, as it seems Garrett was, like, “Okay, I can now actually have the presence of mind to reflect not just that I’m talking them through this retirement projection but actually looking and seeing like, ‘How are they taking this in? And how is he taking it in? And how is she taking it in? And are they holding hands or are they…is one of them leaning back with their arms crossed like there’s a problem here?'” And just becoming self-aware of that stuff I find, at least for me, it took a while to get to the point where I could even do that. So I guess he was picking up on this in your debrief meetings as an intern. I can understand why you were excited about what you were hearing. Like, “This guy gets it and has some very good presence of mind.”
Linda: Yes. And we did not want to let him get away. So he’s definitely here as the future of the firm from a planning perspective. We also have a couple of people who are really good at operations. And one of them does some of the tax input and some of that analysis and research. The other one runs the operational side, everything from transferring accounts to making sure the clients know what they’re supposed to pay and that type thing. And so the intent with the firm is that everybody knows the whole team. Especially having been part of a silo for so long, there was this sense that if the person who “gives advice” is out, then if they’re out, I can’t do anything. And it’s why so many of us feel like we can’t get away from our firm ever.
But if there’s…if clients really know that, “Don’t even call me when you want to get money from your account, call Terri because Terri is the one who’s actually going to do it. And one of us needs to hear you audibly approve that, and Terri knows your voice, and so just call her directly.” “Oh, great.” And then if Terri needs to say, “Gosh, we’ve got to liquidate something, what do we do?” then yeah, she can come to Garrett or me. But the bottom line is we all work together, even though we each have our own separate wheelhouse.
And I guess the other thing that’s important to point out when it comes to the, “What is the firm about?” is the name of the firm was very intentionally chosen. It’s about sleeping at night. It’s about people being comfortable with what their money can do. And as a lot of people in the profession are doing these days, if someone comes as a prospective client and says, “I want to have the best investment returns on my block when we have the neighborhood barbecue,” the first thing we say is, “We’re probably not the right people for you.” That doesn’t mean that we don’t want them to get great returns, it just means that if what you’re doing is chasing returns, we’re probably not the right people. We’re about mitigating risk. We’re about having you meet your goals. And quite frankly, you might not have to get “the best returns” to meet your goals. And in fact, if you do that, you might have to waylay your goals periodically while the market is jumping around.
Michael: And so the core team is the four of you, you and Garrett supporting on the planning end and then kind of someone for operations and someone that’s supporting on the admin and paperwork side? That’s the core team?
Linda: Right. I would say the other two, Terri, who is a part owner in the business, is in charge of operations. And Cale, who is the fourth team member, is I would say more than admin. He’s got an undergraduate degree in finance and graduated with fabulous grades, and ironically, came to us because he was looking for a part-time job and was our scanner dude for a year or so.
Linda: And as he got closer to graduation, he said, “I’d like to…” At some point, we realized, “This guy back here scanning stuff is really smart. What are some other things we could have him do?”
Michael: Yeah. “Maybe we can challenge him a little bit more.” Yes.
Linda: Yeah. Yeah. And I’m happy to say he is no longer making $8 an hour, because that’s what he was making as the scanner dude. So it was clearly a long time ago. Yeah, he’s good. He is the first person to input tax returns. He gets most of our technology set up for us. We’ve got four people that are really professional level. We don’t have a front desk person. And then we right now have a woman whose kids are grown, and she’s our scanner gal. She comes in and does projects and make sure that everything gets in the virtual files as it should. And so that’s the team. We basically have four and a half people. I guess that’s how you say it. But yeah, it’s a team. And quite frankly, if somebody doesn’t want to…a better way to put it. Rather than saying if they don’t want to, if someone is rude to the team, they’re not an ongoing client.
The Services Linda Provides And How She Charges Her Clients [16:57]
Michael: And so how do we think about the practice from size or base of clients that you serve? I don’t know if you measure by number of clients or assets under management or revenue of the practice. But what does it look like from that end?
Linda: We work on a flat retainer method. We’re members of the Alliance of Comprehensive Planners and of XY Planning Network. Both of those organizations are pretty big on retainer method. Also, of course, NAPFA, National Association of Personal Financial Advisors. So, flat retainers for everything, including investment management. We are non-discretionary investment managers, so everything that we do for a client in their accounts, we get their permission before we go in and make trades or liquidate money or anything like that. And in terms of where we are, we probably have about maybe 100 clients, maybe just a little bit shy of that. I know we did about 125, 130 tax returns, but that includes kids’ returns and related trust and businesses and things like that.
And so what we do for that flat retainer every year is true integrated financial planning. It’s, of course, investment management and advice. It’s also preparing their tax returns and doing tax planning. We prepare returns for probably 75% or 80% of our clients. We make sure they’ve got a good estate plan in place. Have some people to refer them to if they need updates or if they don’t have an estate plan. Of course, run retirement projections, make sure that they are neither overinsured, meaning they’re paying more than they should, or underinsured, meaning that if they hit a bad speed bump, it all goes hurtling toward the sun, financially, and just if they have other things. Anything from, “Can I buy a car? And if so, how should I pay for it?” to, “What’s the right size house for me?” to, “Should I get a reverse mortgage or pay my mortgage off?” Just whatever it is.
We proactively have the sort of…what you might think of as the traditional financial planning appointments, but then we reactively, when they call and say, “I’m wondering if I should give some money to my kids.” “Sure. Let’s talk about that. Talk about what brought the issue up. Talk about what’s the right structure for it. Is now the time? To what extent do you want to have some control over this? Because you probably ought to think about that before you actually write a check.” Just the whole thing. It’s a really personally close relationship with all the clients, which is part of what gets me up out of bed every morning.
Michael: And so when you talk about, this flat retainer methodology includes everything, investment management, tax returns and the rest, how does the fee structure work? Is there just a flat amount, “Here’s our fee every year,” everybody pays the same number? Does it scale to their income or their net worth or the complexity? What’s a typical retainer fee, and how do you set that?
Linda: It’s a good question. And the answer is almost nobody has the same fee. We have our own pricing model, which we’re getting ready to revamp some to better incorporate complexity. Because at this point, the complexity is usually, one of us kind of cocking our head and closing one eye and saying, “You know that’s a lot of money to charge somebody who has everything in index funds and we’re probably not going to have to make a lot of changes.” So we look at their investable assets, including retirement accounts. And we don’t weigh those differently than we do something that could be transferred to TD Ameritrade. Which is who custodies with us. We look at, do they have outside properties like rental properties. We include their home. You have a few people that don’t want a home, they want to rent. That’s fine. But having a home, you need to advise on that. Some people get to the point where they’re going to need a reverse mortgage, perhaps. We also do look at their income, and we look at the complexity of their general financial situation. And that’s the part that we’re going to revamp in our fee calculator.
What we find is that if somebody with investible assets that aren’t held in a 401(k) came into a…of $1 million came into our office and said, “I want to work with you,” unless they make $1 million a year, they’re probably going to end up paying around $10,000 a year, but it includes different services that’s not, and I hesitate to say this because I don’t want to be denigrating to the people who do AUM because they do a wonderful job, but it’s not just managing their investments, it’s managing their investments, doing their taxes, doing tax planning, making sure that they’re on track with their estate plan, the retirement plan, everything that we talked about earlier. So sometimes the fees come out the same.
On the other hand, you look at, say a military family, where the biggest single asset they have is one they don’t control, in a lot of cases, which is the military members’ pension. We’re going to look at that and we’re going to say, “You have this much in ‘investible assets’ much of which should be left in the thrift savings plan. You’re going to pay us a bit more than you might pay somebody who was only managing that $100,000 or $250,000 that you have outside of TSP, but we’re going to start with TSP. What should you be doing with TSP? Are you aware of what your insurance benefits are through the military? Let’s talk a little bit about if you’re going to be deployed, what does that mean for that tax year? Would that be a good year to do a Roth conversion?” Just all those type things.
So their fee, depending on what they’ve got, may be more than if they walked in someplace that would charge them AUM, but they’re also going to get a different pallet of services and maybe a different level of attention to some of the things that don’t show up in an investment account at a brokerage firm.
Michael: And so as you’re setting these fees, is there a formula that you’re ultimately coming back to that ends out at, “Hey, actually, if you have 1 million bucks it still turns out to be about $10,000 but it may be different if you’ve got other circumstances like the military family?” Is it formulaic for you? Is it just a, “Here’s a standard number?” How do you get to these numbers?
Linda: It is formulaic. We use, and I don’t have it in front of me, but I want to say that we probably charge in terms of basis points probably somewhere around half what most people who are doing AUM charge on the investible piece, but then we also charge a percentage of their income. And we have what right now is more subjective but will become more objective on, “How complex is that tax return?” If somebody comes in and they make bodacious amounts of money, they make a quarter million, a half a million a year or more but they’re W-2 employees, they don’t have stock options, the company has a 401(k), there you go. That is not as complex to manage as someone who comes in that makes $100,000 a year, has stock options, has 10 K-1s that go into their tax return, just the whole shebang there. There’s just an entirely different outlook in terms of what…how complex is it to advise that second person.
So hypothetically, and I’m not crunching numbers as I do this, hypothetically, that second person who makes less and might even have the same or less in investable assets and overall net worth might pay the same thing as the person who, let’s just say straight out of law school who’s…or out of law school three or four years who’s making a quarter million and hasn’t built up a huge net worth and has a lot of student debt, because we’re needing to get that person, the high earner, we’re getting them on a good trajectory, but it’s not overly complicated. The other one, intentionally or not, has kind of complicated their situation. And we’re going to give them the level of attention they need too, but it may be a little bit more than they might need if all we were looking at was their income and their net worth.
Michael: And so functionally, you end out with a charge that’s like a percentage of assets [in the] neighborhood of 0.5% if everybody else charges 1%, some percentage of income, and then some complexity factor, complexity addition that stacks on top?
Linda: Right. And one of the things we may change, just in light of the current tax law, is we’ve always put in something for their home equity, because under current tax law, somebody has to…the value that they would get of pulling $100,000 in equity out of their home now is certainly less than it was before 2017. And so in the past, we would say, “Well, let’s at least put $100,000″ if they’ve got that in home equity.” We may need to say, “Well, we might do that for rental properties,” but we’re probably not going to do it for a home because the likelihood that we’re going to say, “Let’s pull a whole bunch of non-tax-qualified debt out of your house” is pretty low.
Michael: Oh, interesting. So in the past, you might have said, “Hey, we’re generally not going to include the equity in your home because an idle asset, but maybe we’re going to include $100,000 of it because that’s a typical and tax-deductible line of credit. So we might actually use that more proactively.” Now that that’s no longer tax-deductible interest and those are less popular loans, you’re not necessarily even including a $100,000 slice of home equity in the equation anymore?
Linda: That may be one of the pieces that we change. Because right now it’s included, but we’ve been pretty lowballing it because, with the exception of reverse mortgages, which we do get some clients that…because, and I know you were asking about the practice in general, we work with mostly…we have some high-net-worth individuals, definitely, but we work with mostly what I laughingly call normal people, meaning they are not multimillionaires. They have good but perhaps not astronomical incomes, household incomes. And so yeah, those people in the past we did include their home equity because at some point we might be working with them on a reverse mortgage if that’s what they needed, depending on how long they had waited to come to a financial advisor.
Michael: So I guess I have a couple of questions here. One just, is there a typical number that this usually adds up to people as you go through this? Does the typical client usually end out at $1,000 or $2,000 or $3,000 to $5,000 or $10,000 to $20,000 or higher than that? What’s a typical client end out with in practice as you go through these calculations?
Linda: Our ADV says that our fees run from $3,500 to $35,000.
Michael: Okay. That’s a healthy range.
Linda: It’s very healthy range. And most people say, “And that tells me nothing” if they’re calling in as prospective clients. “I have no idea what I might pay.” I would say that the majority of our clients are in the, I’d say $7,500 to say $12,000 or $15,000 range. We definitely have a, especially from a grandfathered standpoint, because with flat retainers, you kind of every year say, “What am I going to charge this person?” And a lot of our clients that had been around a while, it’s pretty low maintenance to keep them going, and so we do have some that are closer to that $3,500 to, we’ll say $6,000 range. But most of them are above that but not in the $20,000 or over range.
And what we find is that when people come in and they’re sort of self-selected because…not to become clients because $3,500 is really just a lot of money for them, even though we feel like…and we would tell them straight up if we felt like, “You know this $3,500 I think is not going to be money well spent for you. We’d like to refer you to some hourly people that we trust who can help you hit some of the most important pain points.” But we also will go below that, and the ADV says that, for what we call young professionals. So young professionals. And we’re revamping pricing on that.
But basically, the short answer is young professionals can end up paying less than $3,500, but we also have pretty specific approach to them of, “We’re going to do your taxes. We’re going to do tax planning. We’re going to look at your budget. We’re going to make sure you get an estate plan in place. Do all these things in the first couple of years.” And then at that point, either we’ll renew for a couple more years or you need to be a real client. You need to be a full client where you’re paying a bit more, but that’s because you’ve managed to amass more and your situation is getting more complex.
The Process Of Adjusting Clients’ Fees Over Time [30:30]
Michael: And so how does that renewal process work for you, since you’ve been doing this annual retainer model for a while now and have had a lot of long-term clients? How do renewals work in the practice in terms of I guess setting fees, just making sure clients are so on board with the fee, making sure clients are just sticking around and re-upping with you? What does that look like?
Linda: Terri, who’s the operations manager and my business partner, will run the fee calculator, because at this point, and again, when we revamp it, it’ll have this, she can go through and she can get all the information we need from their last investment review or their net worth review, their tax return, all of that type thing. She can go in and put that in and she’ll say, “Here’s the history of what they have paid. Here is what they would pay if they walked in as a new client.” And unless someone is in spend-down mode to the point that we probably ought to lower their fee, that they’re far enough into retirement that they’re sort of even beyond the conservation stage of retirement where, “Yeah, it’s okay if my last check that I write bounces because I won’t be here to see it,” unless they’re in that mode, everybody gets some type of at least an inflation adjustment. It may be as low as 5% or 10% over the fee from the previous year, but unless somebody…I can’t think of a good example, most people are going to get that.
If they have inherited a lot of money or there has been something that has complicated their situation, they become self-employed, they got a really fabulous job where now they have to decide about stock options and have to negotiate contracts and things like that for employment, unless they’ve had that, they’re probably only going to get that 5% to 10% bump in their fee, in most cases. But if something big has happened, we take that into account, and it could go up quite a bit more.
Michael: And so does that mean you have to just sit down once a year and go line by line through every single client to figure out like, “Okay, are we raising them by 5% to 10%? Are we raising them more? Are we dropping them down because they’re spending down?” And you have to just line-item every client every year to make that assessment?
Linda: We do it every two years. Our clients sign two-year agreements. And so at the end of two years, they can say…we say, “Yep, we still want to work with these people.” And generally, at that point, they’re wanting to work with us too. And that’s part of it, is that we… I know a lot of people have gone through and said, “Every once in a while we just have to go through and we have to do some really big increases in fees.” And we have…in the previous firm, we did that with this particular client base more than once. At this point, we feel like, either because of grandfathering or because we are quoting fees properly when people come in, that we’re being fairly compensated by our clients as a whole and on an individual basis.
How Having A Team Changed Her Mentality On Pricing Her Services [33:43]
The reason I laughed is we have a term in-house called the blue-eyed discount. When I historically was the only one meeting with clients and I was the only one making a decision on what we quoted them and whether or not we did business with them, when I liked somebody, there was always some reason to give them a discount. I like them because they work in non-profit. I like them because they’re public school teachers. I like them because they’re in the military. And ultimately, the joke became, “You like them because they have pretty eyes.” And so there was always some reason to not have people pay what we had come up with as a very fair way of being compensated.
And so we don’t do that anymore. And that’s part of why we want to have the whole, “Let’s have a good complexity factor built in.” Because, yes, if somebody comes in with $2 million in index funds, that’s going to be very different than coming in with $2 million in individual stocks. What are we going to do with that? Well, we’re going to tell them, “We don’t do individual stocks, but over time, literally, like, 3 to 10 years, we will phase you out of that.” That’s a lot more complicated than the person that just walked in with a bunch of index funds.
Michael: And so how did you get over not handing out blue-eyed discounts. I find that’s a challenge for a lot of people on retainer models because you just…sometimes it kind of feels like you’re plucking a number out of thin air, so you could pluck a slightly lower number out of thin air because you really like them and no one is going to know the difference.
Linda: Right, right. And one of the answers is having a team and being accountable to the team. In the past, Terri was the operations manager in the previous firm, and so Terri would kind of roll her eyes or maybe slug me on the arm and say, “What are you do doing?” Well, now, we all get paid based on what we’re doing for clients and what they’re paying us. And so if everybody suffers at the firm because I just really liked that person and what the fee calculator would have said would have charged them fairly, so part of it, either kudos or fear factor from Terri was Terri saying, “You can’t do that. If there’s a reason that we should be charging them less, incorporate that into your fee calculation. If there’s not, then quote them the fee.”
And I think there’s something to that. So few people negotiate like that. And I’ve heard that they’re doing this, some with attorneys, but people don’t go to their accountant and say, “I know you’re charging 500 bucks but will you do mine for $350?” I realize there are people in the world who go out and get some good deals on things and they bargain with people, but there’s a little bit of an affront to our professionalism when we as professionals say, “Oh, I can’t charge them that. I’m not worth that.” Let’s face it, as a profession, we’re worth a lot more than most of us are charging, especially in some of the subjective fee ranges like retainers and hourly. When I talk to my hourly colleagues about what they’re charging, I want to hit each one of them with a bat because they’re not charging enough.
Michael: And so what do you think of as a fair fee? What should they be charging?
Linda: If somebody is charging hourly, I think a brand-new person straight out just got the letters after their name and it may even say “candidate” or whatever, I think they need to be charging at least $150 an hour in your average market You get to some of the metropolitan markets on both coasts and in Chicago and some of the other big cities then it should be closer to $175 or $200. And I think by the time we’re doing this, especially by the time you’re a full-fledged CFP and you’ve been doing this for 5 or 10 years, if you’re not charging $250 or $300, you are denigrating yourself and the profession by not charging that. And I think that’s a very minimum.
Michael: That’s a hard number for most people to put out. Like just saying like, “Hey, yeah, I know minimum wage is $12, $15 an hour, depending on my state, but yeah, I’m $250 to start.”
Linda: Yeah. And there are certainly…first of all, I think as a profession, there are other places that we can send people to get started and be ready for planning. One of the…actually, we have two of them now that are Accredited Financial Counselors. So they don’t do an investment advice. For most of them, and some of them may have a niche within this, but they help people get out of debt. They help people get started on the right foot financially.
And there are times when we have our little get-acquainted call where someone will say what they want, and if all they’re talking about is either getting out of debt or budgeting and I’ve asked enough questions, we’ve asked enough questions to know that their net worth is, let’s say under $100,000, we say, “Here are a couple of numbers. Call these people. We would love to work with you, but here’s what our fee schedule would be. Call these people and they will get you started and they’ll get you on the right foot.” Now, it may be that they have to pay that person $150 or $200 an hour, but to do that to get started and do it for a short period of time or on some kind of… One of the people we work with has some programs. You get this many appointments in a six-month period for a flat fee. To do that makes a whole lot more sense.
And in terms of us as a profession, because we all do it choking down the, “Here’s what I charge,” the very first time I was going from fee or commission to fee-only, the very first appointment I sat in with a client who was not already a client or prospective client… So I went to all my old clients when I switched and said, “Here’s what I’m doing.” And I kind of had them divided into, “This makes sense for you. I don’t know if this makes sense for you. This definitely doesn’t make sense for you,” just because of what they got from me and what their asset base was and everything.
So the very first prospective client who was a referral from an existing client, they walked in, I had done the calculation, and I went through my whole routine, and at the beginning I had said, and I was really proud of myself that my voice didn’t crack and my eyeball didn’t completely fly out of my head, but I said, “Your fee is $9,000 a year.” And then I walked through everything. And for, I’ve got to tell you, 20 years ago and change, that was a lot of money for me to be quoting to people.
Michael: Today it’s still a lot of money to be quoting to most people.
Linda: Exactly. I still will take a client any day of the week where their fee says I should be charging them $9 grand or $10 grand. So literally when I said it, it was a husband and wife, the wife grasped her chest and gasped.
Michael: Well, that’s not a promising sign in the meeting.
Linda: No. But I stuck to my guns. I got through. I told all the services. And literally, they’re both kind of sitting with their mouth open. And at the end of my little presentation, I said, “What do you think?” And she sort of snapped out of it and said, “What?” And I said, “How does this sound to you? Is this something you’re interested in?” She said, “Oh, of course. We don’t have a choice. We need everything you said.” And they’re our clients today. That was in 2000. So it’s one of these if we suck it up and we say, “Oh, yeah, this is normal, this is what we do,” if we can talk ourselves into, it’s that whole impostor syndrome, our own sense of self-doubt. The people who do what we do and do it well, we’re so important in people’s lives.
Michael: Yeah. And I think you make a good point there that I think for a lot of advisors, when you…either that number comes out you can’t say it without your voice cracking or the number comes out and the client gasps. I’ve seen people do this once or twice where they can’t help themselves, where like, they see $9,000 or whatever the number is and the client gasps and the next sentence out of their mouths is like, “But we may be able to take that down for you depending on certain factors.” Right? They immediately start capitulating on the fee based on the gasp reaction, the shock reaction and not getting to the end of the process, as you said, and just laying out why you’re actually worth this fee only to find out like, no, client actually would have totally paid the original number you said. Once you put on the table like, “Oh, but we might be able to discount it,” well, now everybody knows the game. Like, well, of course, now they’re going to haggle you down. It’s not because the client tried to haggle you, it’s actually because you haggled yourself and the client said, “Sure, I’ll take a lower number if you’re going to put it on the table.”
Linda: Sure. Yeah. And it used to be too. The other thing that I did besides the blue-eyed discount is I would, if there was a, “Yeah, I don’t want to pay that much,” I would say, “Well, we could do,” and I would outline a project. Like, “Well, we could just do asset allocation and recommendations and retirement projections and not look at the rest of it.” And we have completely stopped doing projects, not just because I was finagling out of fees, but because we decided that we were not serving clients well. Either we were…we, that’s me, either there were bad boundaries or there would be something that because a client had limited the engagement, that we might have been not doing the right thing.
One gentleman who was a recent widower came in, and his wife had managed the money. She had done a very good job. He had a lot of index and other good funds. And I knew him beforehand, and I had known her. And so I said, “Well, your…” This was when we were doing projects. “For a full year of financial planning, it would be $8,000. Just to do investments and retirement projections it would be $5,000.” And he kind of grinned at me. I said, “You’re not going to pay $8,000, are you?” He said, “No, I’m not going to do that.” He said, “All I need is this other thing.” First thing he asked in the first appointment, “What should I do with these cash value life insurance policies?” Well…
Michael: What are you going to do now? Are you going to go back and you’re like, “Sorry, you didn’t want advice on that, I’m not answering that question?”
Linda: So, you already know me too well, Michael. What I did was I answered the question instead of…
Michael: Of course, we’re helpers, we’re helpers.
Linda: We’re helpers. We are nurturers at heart. And if I had stuck to my guns and said, “Gee, those are insurance policies. I realize that they have some cash value and therefore they’re part of your net worth, but you were pretty specific on not wanting help on anything but investments and retirement projections,” he would have been fine and yet that’s not fair to him, and it’s also not fair to us. And so we’ve said, “No more projects.”
Now, one of the things that’s kind of interesting in the new CFP standards is that there’s an out. If you say, “What you’re asking me for is really huge. It really needs planning. It needs integrated planning,” or, “You’ve asked for several different areas that basically are going to be integrated to the point that I need to do…just I need to do a financial planning” and the client says, “Oh, no, I don’t want to do that,” your choices are, walk away or say, “You can’t be a client,” or, “I can’t take you as a client,” or you say, “Here’s what you’re missing by not doing financial planning and here’s why I think you need it.”
Because in the past, I think we’ve always kind of done what you and I were saying of the gasp and the clutching of the chest comes and we go, “It’s okay, don’t get the defibrillators. I won’t do all of that, I’ll just do something else,” when in fact, as planners, ethically, when we look at someone’s situation and say, “You need planning, you don’t just need investment advice,” or, “This insurance policy is huge. We need to look at whether or not it’s huge enough, though, or if it’s too huge,” instead of saying, “Well, you need planning,” now CFPs need to say, “You really need planning here.” And if the client then says, “What does that involve?” and we tell them and they say, “I don’t want to do that.” Then you say, “Okay, I don’t have to do that, but here’s what you’re missing if you don’t.” Or you say, “I’m sorry, I can’t ethically do this for you without looking at all the pieces, because I might do the wrong thing. I might recommend the wrong thing for you.”
Michael: There’s an interesting aspect of this to me that, as you said, you kind of got to the point of, “We’re just not going to do the projects anymore.” That one of the things I’ve observed just for advisors, particularly ones that charge standalone fees, although I guess this is getting broader to AUM advisors as well, is almost all of us have had these points where, I was going to say where we got haggled down, but I think the truth is we usually haggle ourselves down. And in fact, because the challenge more often is we haggle ourselves. We hear the gasp and don’t even give the client a chance to just get over it and say yes, we hear the gasp and we’re immediately filling the gap and saying like, “But I can bring that number down for you.” That one of the solutions that a lot of advisors end out with is like, you know how you avoid haggling yourself down, you take away your own choices.
If we don’t do project fees, I can’t respond to the gap with like, “Oh, but we could do a $3,000 limited scope project.” Like, “No I’m not allowed to do projects.” So then I have to say the $9,000 and then just sit in my seat because I took my other choices away. And it works. Because I think for a lot of us, we have that tendency to haggle ourselves down. Particularly early on we sort of say it I think from a perspective, “Well, won’t clients like all these different choices?” And to be fair, some clients actually do like choices. But I think a lot of the time, we put the choices on the table so we can give ourselves outs. And then if we’re not that confident in our value proposition, we pretty much always take the out for ourselves, and then we just keep haggling ourselves down before the clients even get a chance to say yes to the original fee.
Linda: Absolutely. And again, people who are just starting might say, “Oh, I don’t feel like I’m there yet,” but the fact that we’re the expert in the room, you don’t have to do this very long and really be paying attention to it before you get really good at it. And we are worthy of our hire. We are worthy of what we have put out there that we’re doing. And there are other people that see it as a sales job. And that’s not to say that people cannot be ethical and charge commissions. I know way too many of them who make their living from commissions and they do in fact do what’s right for their clients. But the bottom line is if you don’t elevate the profession, the profession doesn’t become a profession. And so for us to say, “Nope, that’s what we do. That’s how it works and that’s how we do it.” So we need to do some self-talk among ourselves and to our individual selves, to ourselves to say, “This is what we do, and man, were worth it.”
Michael: Yeah, I feel like we’re on the cusp here of like a Stuart Smalley affirmation moment. You just need to look in the mirror and say, “I’m good enough, I’m smart enough, and doggone it, people like me, and I’m worth my fee.”
Linda: “Yes, doggone it. People like me.”
Michael: I have actually gotten to the point, though, in talking to particularly a lot of new advisors who are launching sort of these kinds of fee-for-service practices where you can’t just say 1%, you’ve got to say a number, and it’s a dollar amount, and someone might gasp in response, to tell them like, “Look, if you have to, practice this with your family, practice this with your friends. You need to practice actually saying out loud in your grown-up voice to another human being, ‘I charge $5,000 or $3000 or $9,000′” or whatever the number is, “You have to say the number, the full number looking another human being in the face, and just keep doing it until you can say it without having your voice crack.” Because otherwise, you’re going to do it in front of a client, your voice is going to crack.
And what you said is very true. Almost no one just goes into a professional provider and gets quoted a fee and then starts haggling it like, “Hey, I’m going to try to talk the doctor off their fee. I’m going to try to talk the lawyer off the fee.” Maybe we try to limit the scope of the project, but almost no one haggles fees outright. But if you open the door, if you make it clear that your fee is not really a firm number because your voice cracked and kind of wavered and all it takes is a brief gasp before you start negotiating some alternative, people also aren’t dumb. The moment that they realize there’s an opportunity to pay less, they will walk through that door if you open that door for them.
Linda: Oh, sure. Absolutely. And quite frankly, they should. If you can get it for cheaper, why should you pay more? And I have had some people, my most long-term clients, and we’re talking about 25 or 26 years, maybe a little longer, but one year when we sent out just kind of our standard form letter of, “Here’s your renewal fee. If you were new clients, this is what your fee would be. If you were paying assets under management, this is what your fee would be.” The next time they came in, they said, “We want to talk to you about that letter.” And I thought, “We need to change the wording.” And I said, “Okay, what’s the issue?” and they said, “We feel really bad that you could be making more if we were new clients, so why don’t you raise our fee?” And I said…
Michael: Glad we mentioned that in the letter.
Linda: Yeah, glad we mentioned that in the letter. So I said, “That is kind.” I said, “You are good clients. You are not a pain in the drain to deal with. There’s familiarity there. We understand your situation. And you’re always very accommodating if we’re busy, we’re out of the office, whatever. If you call and it’s tough to get you in as quickly as you’d like, you let us know is it urgent or is it just, ‘Gee, we kind of missed seeing you guys and we’d like to get in sooner rather than later.'” So I think there are people out there who say, “I don’t want to be the one that…” And I think this is important, “I don’t want to be the one that my advisor looks at and resents.” Because if we as advisors are looking at those people and saying, “You know we haggled over the fee, and every time you have a kind of complex question or issue, I just can’t help but thinking about that. And it annoys me.”
Why She’s Not Afraid To Transition Some Clients And How She Handles Fee Increases [53:50]
And I think the other thing, I touched on it very briefly earlier, is don’t be afraid to first of all, walk away from a prospective client that you can tell in the first meeting is going to be your worst nightmare, and don’t hesitate to fire a client, no matter how much they pay.
Michael: Easier said than done, unfortunately.
Linda: It depends on how ticked off you get. Definitely. And I confess, my fuse is kind of short on firing clients. At some point, if there’s a conversation where…and it’s usually… I laughingly say about my family, slap me, beat me, tell me I’m cheap, but if you hurt my kids, I’m going to kill you, that’s kind of how I feel about the rest of the team. And what I find and it annoys the pewaddly out of me is that people will be respectful, kind, hug me, “Oh, Linda, you’re wonderful, you do so much for us,” and they’re rude to the rest of the team. And when I find it out, my first salvo is, the next time they’re in an appointment or we’re on a call I’ll say, “When you called the other day, Cale felt like you were upset. What seems to be the problem?” “Oh, I wasn’t upset.” “Well, he felt like you were really short with him. Was there a problem?”
And usually, your average person with just a nano bit of emotional EQ will that you won’t have that problem again. If they continue to have the problem, we have to have more direct conversation. “Every time you come in, everybody cringes. Why are you so short with everybody?” “Well, I was impatient.” “Well, you know what? They didn’t create the IRS. They’re not the reason you got this notice. It’s not their fault I’m traveling this week, so please don’t take it out on them.” And then eventually, we have fired people because predominantly, they were just mean and rude.
Michael: I’ve got to ask, do you ever just raise their fee? Like, “Oh, I can’t wait until renewal season comes around for this one.”
Linda: We’ve tried that and a couple of times they paid it. And quite frankly, at some point, life’s too short. It’s just not worth it. Now, the last client that we fired because they were mean was a $10,000 annual fee. Will we miss that? You Bet. Will we miss them? Nope.
Michael: So as you go through this renewal process, it sounds like you…ultimately, you go line by line through clients, “Who gets the normal 5% to 10% increase? Who gets a bigger increase because their financial situation changed? Who gets a decrease maybe because their financial situation changed?” And then you’re sending out letters to everyone that explains them what their new fee is?
Linda: Usually. And we do have a form letter that says pretty much what I described earlier, which is, “Here’s your renewal agreement, here’s your fee. If you were to walk in our firm today, here’s what your fee would be. If you were to work with an investment advisor that might or might not provide additional services, here’s what your fee would probably be.” And so we very seldom, every once in a while we get either an email or a phone call, and generally people just…they either sign it or they go away. And we have…I would say, our retention, at least unless we know up front, either we’ve done what we can do for these people and they probably don’t need us or…we do have some people who sign up for a year or two with the intention of, they go back to being do-it-yourselfers. Usually, unless it’s that, I would say our retention at the time we send out client agreements is, oh, gosh, 95% or 100% most years. So we don’t…even though people are getting a notice saying that…is saying what it says, we’re not getting people to opt out.
Now, I have had in recent phone calls, we have had some people ask up front, “How long is this fee in place? And do your fees generally go up or do they go down or do they stay the same?” And we go through exactly the same conversation you and I just did. “Generally, there’s going to be some type of modest increase, unless there’s been a big change upward, in which case your fee would go up in terms of complexity or additional assets that we need to be concerned about. And it might go down as you get into spending mode.”
It’s all about disclosure and making sure people don’t have surprises, whether you’re doing tax planning or whether you’re their financial planner. “What are the chances that we might end up paying you more someday or that you would charge us more?” “They’re actually pretty good because over time, your situation changes, you get more assets that we have to deal with. Your tax situation may become more complex. If there’s a speed bump in your life, something happens to one of you medically or God forbid somebody passes away, that increases the complexity. So we always try to make sure that we are prepared to deal with those things.”
Michael: I’m intrigued by this point you made there about the renewal agreement, that you send them, “Here’s what the fee is, here’s what the fee would be if you came in new to the office, and here’s what your AUM fee would be as well,” even though you don’t charge it. I guess that that’s…that’s just striking to me. Is that just like, “Here’s the point of comparison?” Like, “Hey, if you were sort of thinking about leaving us and you call someone else up the street, they’re probably going to charge you 1%, give or take a little, so just FYI, here’s what that number would be?” And is that because it usually ends out being higher than what you actually charge or you put that on there even if it’s…your fee is higher than what that AUM fee would be but then you’ll explain, “Here’s all the other things that we do?” I’m fascinated by putting that kind of comparison mechanism out there for clients.
Linda: For renewal clients, usually the annual retainer that we’re charging is smaller than an AUM fee. And so it’s a nice comparison point. Even if the AUM fee is smaller, part of the verbiage is, “This is what you would be charged if someone were charging…here’s approximately what you would be charged if someone were charging you assets under management. And they may or may not be doing financial planning.”
And it’s interesting because, even within NAPFA, I’ve been privy to some conversations where people said, “Can we just pay an annual financial planning fee and not have you manage our assets?” to people who are in an AUM model. And I just kind of have to bite my tongue because it’s like, you know when you make part of your compensation specifically like, “Here’s what we charge for financial planning and here’s what we charge to manage your assets,” at some point, especially if either assets are going down or you’re not having to make a lot of changes, somebody scratches their head and says, “I get why I’m paying this financial planning fee, because it works so well, but I’m not sure why I’m paying you,” whatever it is, “75 basis points, 150 basis points to just make sure everything is okay.”
There are several old Dilbert cartoons about that and the one where Dogbert says…when the client asks, “Well, what are my returns?” and Dilbert says, “I don’t see you doing any of the work.” It’s like, “But it’s my money.” And so there’s that whole issue of people, if what they’re getting is the whole package and you charge for the whole package, then there’s a little less…people might come in and say, “Well, what if I only met with you once a year?” or, “What if I only had you manage my investments?” Again, nice opt-out to say, “That’s certainly one of your choices but not here. That’s a valid choice. A lot of people do that.”
But yeah, there’s just something to be said for when they, not to make it sound like we’re trying to get them addicted to us or anything, but when they get that, “You’re kind of in or you’re out. And you get everything that we provide, and it’s not bifurcated into different types of fees, it’s one fee for all of it, then we’re going to adjust the fee when we feel like you don’t need a lot of it.” A lot of our clients who are retired, especially the ones that have no children, how often do you need to update that estate plan?
Michael: And so when you go through this process and you send them out, because I’m cognizant you said that, “You will get clients where you may not be managing money or they may not have it with you because it’s in a 401(k) plan, a TSP, etc., how do you actually build these fees? Does the renewal agreement include an invoice and you just say, “Send me back a check?” Do you collect fees annually? Are you doing them quarterly? Are you doing them monthly? Just how do you actually handle the billing when you’ve got 100-plus clients that all have these own individual fees?
Linda: Well, again, kudos to Terri, our operations manager and my business partner, in the last year or so, she has formed an addendum to the contract that says, “Here’s how I want to pay. I can pay through a debit card,” which we don’t charge extra for. “I can pay through a credit card and we pass on our fees to you.” We don’t upcharge them more than what we pay, but you can pay with… “If you want to pay with miles, you can, I’ll help you do the math on that. You do not come out ahead. If you’re paying us 3.9% and you’re getting 1% in points, which of these do you not understand?” And then the other two are, I’ll say, “Send me an invoice and I’ll send you a check.” And the other one is, “I would like it taken out of the following TD Ameritrade account.”
So the example you gave of what if somebody really just doesn’t have much money anyplace except their 401(k) or their TSP, they’re either going to be writing us checks or putting it on some kind of card. And we’re fine with that. With the exception of divorce clients. And we sign divorce clients up the same way. You’re going through a divorce, you’re a financial planning client and the first thing we’re going to do is get you through your divorce. And if after a year or so you don’t want to be a client anymore, by all means, quit. But there are a lot of things other than what’s going to happen in court. There are a lot of things you need to be looking at. And we’re going to look at all of those with you. So with the exception of some collection issues with divorce clients, we just don’t have collection issues. And if we do, it’s usually because a client has decided but not had the guts to tell us that they don’t want to be a client anymore.
Michael: Like, how to know your client might not be renewing because you’ve sent three invoices and they haven’t paid.
Linda: Yes. Exactly. Because they’re 90 days behind and their second quarterly invoice just hit that’s not paid, in all likelihood, at that point if Terri or Cale come in and say, “These people are way behind,” if I pop them an email they say, “Well, I’m just thinking, I don’t want to renew,” and I’ll say, “Totally understand. Not a problem. We’ll have everything closed out by the end of the month. You’re now a retail client at TD Ameritrade if we’ve got your accounts. We wish you well.”
Michael: So you said you’re doing renewal agreements every other year. How frequently are you actually billing the retainer fees?
Michael: Quarterly. Okay. Because I was going to say like, every two years or even annually for a lot of firms, it’s sort of one thing when we’re on our own, but particularly once you’ve got staff, to get 100% of your fees in an annual billing and then just amortize your payroll for the next 11 months, you can do that, but it’s a pretty crazy, volatile cash flow just for the business.
Linda: Oh, yeah. Oh, yeah. And to me, that would be just white knuckling. And everybody has their own renewal month. So if you start being a client in the middle or later in January, you’re going to be a March semiannual, or sorry, biannual review. So if you come in, and that’s the other thing is if somebody…we always try to give them at least 30 days before their first invoice is due. And so if somebody comes in today, in June, their first invoice will probably be due August 1st. And I realize there’s always that danger of, “What if they come in and they have an appointment or two in late June, in early July and then they don’t pay?” Then I can sleep at night. And I hope they can.
Michael: So this leads me to I guess two follow-up questions. One just do you ever get worried that billing on a quarterly basis just…that, like, it’s reminding clients too often or too actively about how they’re paying? Not that I want to…I’m certainly not an advocate of hiding fees from people, but there’s a point of like when you’re on a quarterly basis, right? I just think about this as things I pay on a quarterly basis, I get an invoice, I’m like, “I feel like I just paid one of these a few weeks ago.” And usually you did because you pay a couple of weeks after you get the invoice and then they send you the next invoice a few weeks ahead of the next thing, and it often is only four to six weeks from when you paid the last one until you get the advanced invoice for the next one. And that never ends when you’re on a quarterly cycle. So do you worry about that? Is it a problem? Is that just something we kind of make up in our heads but clients don’t actually care?
Linda: They do care. As we are phasing out of our last stragglers of project clients, we used to have, and we don’t…we’ve shredded the contracts now, the blank ones, what we call the tune-up, and it was a tax return and one two-hour appointment per year. And we would bill those people quarterly, just like we did everybody else. And we were never charging more than…I think the biggest one we had, which was kind of complex and I think she might have had 2 appointments was like $2,500 a year. But we would have some people who would go, “Hey, I haven’t even seen you this quarter, why am I paying you?” “Because you’re not paying me as much as you’re getting out of this. And if you want to pay it all at once, you can. We’d be happy to let you do that, or even semiannually.” “Oh, no. Okay. No, no.” And we kind of would walk through some numbers with them. But again, we’re phasing out of those.
What I find is that with new clients, because in the first year or two we’re meeting with them somewhere between every six weeks or every couple of months as we’re getting…proactively getting through all the things that we know everybody needs in a financial plan or a financial planning process and also their whatever burning issues they had that don’t fit neatly into some category, we’re getting through all those. Then our renewal clients, we usually meet with them every year for like three or four different times. Plus, the majority of them we’re during their tax returns. So we don’t get too much of that. And I think part of it, even though I don’t like the reason, I think part of the reason we don’t get too much pushback is that they meet with us about as often as they get billed. And I don’t like that answer because I think the, “Oh, I met with you so here’s a bill” is the wrong message to send to clients, but I do think that’s part of the reason that they don’t question it.
Michael: Right. Just if we’ve had a recent touch around a quarterly basis, at least clients are usually reminded of something. And if we’ve been doing this for a little while, at some point it tends to get a little easier, like, “All right, well, I didn’t do much with Linda this quarter,” but like, “Oh, we did a whole bunch of stuff last quarter, so I’m not going to freak out three years into our relationship because this quarterly we didn’t do much when I get that quarterly invoice.” That’s an interesting way to frame it. But early on the client process is so intensive, you tend to be meeting as frequently as the fees are getting billed anyways.
Linda: Right. Right. And even on renewals, we might have three appointments during a year with a client and they get four invoices. But usually it’s…as you put it, it’s a touch. We have gotten off track with this, but one of the things we try to do is either send out a link to a video or quarterly kind of a, “Hey, make sure that you’re…we’re getting close to the end of the year, start doing some of your gathering together of what you’ve given charities. Do you need to talk to us before the year is over to do some tax planning?” that type thing. And that even though everybody knows that those are broadcast emails, they still feel like they’ve been touched. And that helps.
Michael: And I’m struck as well this sort of, you start the quarterly cycle for them basically whenever they start. So I guess the good news is cash flow actually smooths out. It’s not like 100% of your revenue comes in 4 days a year the way that we do on an AUM quarterly billing model where firms tend to do it all at once. Your billing is staggered, but the flip side is, you’re always in billing. There’s no like, “Okay, busy month of billing and nothing for two months.” You’re always in billing. So is that a challenge or a pain point or just, for the systems you’ve got, man, not a big deal. Terri’s got it under control and doesn’t seem to be complaining?
Linda: Terri does have it under control, but part of how she has it under control is it’s all automated. Once a client becomes a client, she gets them set up on regular billings. She sets up their first invoice in QuickBooks then every quarter thereafter. She has her own internal tickler system on when we’re going to sit down and review. “It’s a month or six weeks before their client contract renews, let’s sit down and talk about what we’re going to do next.” So she’s got all that.
Michael: So invoicing runs through QuickBooks, and then ticklers or that’s out of a CRM system or a spreadsheet or something?
Linda: Yeah. And we have in our CRM system when someone’s renewal is. I know she also has some manual systems, which make me…that’s what keeps me awake at night is that if she ever gets hit by a beer truck, we’re all in a world of hurt. They’re very organized. And having been through, I shouldn’t make jokes because having been through the death of a business partner, I know that if they are organized, you can, in fact, go in and pretty much find everything right where you would expect it to be. I know that some of her systems are manual. And when I’ll say, “Terri, it makes me stay awake at night because you don’t have this either in Redtail or you don’t have it written out,” she’ll say, “It’s right here.” And I look at it and go, “Yep, that’s pretty self-explanatory.” So she does have a system.
Michael: And you said, and Redtail CRM is the CRM that you use for all of this?
Linda: Yeah. And we are really happy with them. We went from Act!, not the advisor version, to Redtail. And I confess there are some things I still miss every once in a while in Act!, but I think it’s because I was the primary person who knew how to do special reports and things like that in there.
Michael: Because I was going to say like, Act!, I used Act! as well a number of years ago. I don’t think of it as the most highly featured software, at least from when I left it. What were you actually doing in Act! that’s difficult in Redtail?
Linda: There were things that you could do. And I know Redtail would say, “We do that,” and I’d say, “Oh, but I knew how to do it better in Act!.” In Act!, you could go in and customize certain fields and then run reports by those. So I could go in, and I even had things like…well, you can do gender and everything, but because I’ve done some marketing that was more geared toward widows or divorcees, I would go in and say, “Let’s have a women seminar.” I don’t do much of that anymore. But things like that. I could go in and see who’s a teacher. We had certain things, and we could just say, “Let’s run this. Who are all of our non-Colorado clients so that we can make sure that we’re not running astray of the de minimus rules?” And that type of thing.
But there were things that…you can do that in Redtail and yet when you get down to it in Redtail, then the reports that you choose, have to choose from are a little bit more limited. But I would have to agree that, and I hope that Act! doesn’t hear this, but I would have to agree that Act! is kind of the abacus of CRMs at this point. If you know how to work it, it’s all there. But it’s not really the most efficient.
Michael: Well, on the flip side, I guess if someone from Redtail is listening, either you get a phone call about how to make these reports more easily or hopefully you get a phone call about how to build out a new custom report module that they’ll roll out so that more people can do with the way you do it.
Linda: Exactly. Exactly. And that’s one of the things when you talk about, “How can you manage your business well?” Being in touch with and sometimes almost up in the grill of your support vendors. We do that with TD Ameritrade and they are very responsive. We might not always get the answer that we want from TD Ameritrade, but they are always responsive and they always give us an intelligent response of how, “Yeah, it would be great if we could do this for you, but we certainly can’t do that all the time, and here’s how we do it.”
We are doing the same thing with RightCapital, which is our financial planning software when we say, “Where are you on getting Morningstar incorporated?” or whatever. One thing I love about RightCapital is they will tell us what’s being explored. They will not make deadline promises. Because I’ve got to tell you, nothing ticks you off more than, “Oh, it’s going to be here by March,” and then in May you’re drumming your fingers going, “Where is it?” And they feel bad because they thought it was going to be March. And same thing, we use ProConnect for tax prep, and if we say to them, “I’ve got to tell you, not being able to do A, B, or C is a problem,” we get a response and we know they hear us.
Michael: So I want to come back to this discussion about kind of the fees, the upfront fee, the, I feel like now, the infamous $9,000 fee. So we said a few times like, most clients don’t haggle. We’re much more likely to haggle ourselves than to get haggled by the client. But I’ve got to imagine, at least from time to time, you must still get some questions. If only a like, “Hey, Linda, just curious, where did $9,000 come from?” Because we’ve been chatting for a while and you just said $9,000. I feel like you just pulled that out of thin air and that you at least have to maybe defend the fee. And you’ve mentioned a calculator as well. So I guess I’m just sort of wondering mechanically how this works. Do you do an intro meeting and then go back to your office and calculate a fee and then tell them in a subsequent meeting? Is there like a calculator tool you have and you pull out in a meeting to say, “Here’s your fee,” and, “See, the calculator says it’s this?” How do you get to that fee number in the middle of a prospect conversation?
How Linda Structures Her Initial Meetings With Prospects And Calculates Her Fees [1:17:46]
Linda: That’s a good question. Kudos to Redtail on workflows. And I know other CRMs have workflows, but we have a process and there are two different workflows. We have a 20-minute get-acquainted phone call. And we do have people periodically who will say, “I really want to come to the office and see somebody eyeball-to-eyeball.” That’s fine. It’s still going to be 20 minutes. And if you’re okay with your commute time being longer than the meeting, that’s your call. But we meet with them for 20 minutes. And that’s where…not a lot of them because I think our website is pretty good at letting people self-select. We don’t say we’re good at getting people out of debt. We don’t say that we’re…our primary focus is helping people budget. So most of those 20-minute phone calls are at least in the realm of, “Hey, this is somebody we’d probably like to work with.”
But we just ask the basics of, what prompted them to call a financial planning firm? What are the issues? Ask a few questions about…very few actually about, “How much do you have? Where?” Like we might ask a more general question like, “Well, what do you currently have?” or, “What have you done historically? or, “What accounts? So you have a 401(k) and an IRA, do you have anything else?” And if they didn’t tell us numbers, we don’t know numbers. Usually, by the end of the 20 minutes, they’ve told us numbers.
But then we say, “Our next step is a free 90-minute appointment. We ask you to bring some information to the office or to put it in a share file. And you can redact it if you want. We don’t need to keep the information, but it gives us a chance to look in more detail at what you have to see the complexity. And also, we’re going to dig a little bit deeper into the weeds on what some of these issues are that you’ve asked about, whether it’s consolidation or we want to be able to make sure we can fund retirement or whatever it is.”
Michael: And what kind of information are you asking them to bring? Is this sort of the classic like, “You bring your investment statements, bring your tax returns,” that sort of data gathering stuff?
Linda: It’s that exactly. It’s, “Bring your investment statement.”
Michael: And all of that stuff?
Linda: Yeah. One of the things that recently has just sort of happened organically and we haven’t talked about it as a team, which we need to, is it used to be that when somebody would come to a meeting like that, we would scan all those things and then give them back to them. We’ve gotten to where, without really discussing it, we look at all those documents, make some notes. And they’re notes like, “Here’s how much is in the 401(k) and here’s…” It’s all mutual funds or whatever. Or, “Here’s what’s in their IRA.” And then we just give it back to them. We don’t make any copies. And we’re doing that for a couple reasons, but we do need to discuss it as a team and make sure that we’re all in agreement on it. One is people, if they decide we’re not a match, have this nagging feeling of, “They’ve got all my stuff.” And then the other thing is when either they or we decide they’re not a client, we’ve got all their stuff. We’ve got it all in the prospect file. Do we really need all that there?
But back to your point about the, how do we deal with the fee? We do have a very simplistic Excel printout that says, “Here are the points that we would be doing. We would be doing your tax return and this and this and this, and we’re going to look at your investments.” And everything has basically a one in a column somewhere. And, “Here’s the fee.” Now, it doesn’t show the components of the fee. We hide that column. And like you said, we’re not trying to hide something from them, but we don’t want to get into this, “Oh, well, what if I don’t want an insurance appointment? Well, I’ve already got an estate plan. You don’t really need that.” “No, we’re going into, “We’re going to handle all these things. Here’s your annual fee on a two-year basis. Here’s your annual fee if you only want to work together for one year initially.” Because there’s more heavy lifting in a shorter period of time, for a year.
Michael: And so you can, like, drop numbers or points or like, “Hey, we’re not going to have to deal with this. We’re not going to have to deal with that.” You put some ones and zeroes in and then it’ll calculate a fee number but you actually print. Do you print that page out and show them? Do you actually show them on a screen with the Excel so that you can change it if they want to change the parameters or this kind of comes as a hard “printout” thing?
Linda: It comes as a hard “printout” and they leave the office with a folder of things that are biographies for everybody in the office. An overview that comes straight off the website of, “This is who we are and what we do.” Also, it has a rundown of, “These are the areas we generally handle, plus here or other areas that some clients want handled.” And they leave with a client agreement filled out with their two-year annual fee.
Michael: So if they decide to do it, you’ve gotten this down to, “You literally just have to sign this thing we’re putting in your hands and send it back.”
Linda: Right, right. And I would say while it’s not the majority, we do have, I would say clients either…and then part of the workflow is follow up in a couple of weeks, follow up in a couple more weeks, follow up in a month. There are, like, three or four follow-ups. And then the last one is to say, “You may recall from the printout we gave you of your fee that it is good for six months and it’s been five months. And so we just wanted to let you know that we’d be happy to talk to you at any point. But the fee we quoted you is only good through X date.”
And so I would say definitely far less than half, somewhere between a quarter and a third of the people sign right there, especially single people when they’re… I laughingly say people who are married are checkers. They always have to check with each other. And people who are married generally know what the other wants to do but they’re hesitant to say it…we’ve actually had people walk out into the foyer of the building and come back in and say, “We just wanted to make sure, but yeah, we want to do this.” And then I would say somewhere between…you add another quarter to half of the people on the first or second follow-up or sometimes before, they’ll sign up, and the rest are…they’re not going to do it. And it’s either the fee or it’s analysis, paralysis on their part, or it’s that this whole thing just scares them to death and they’re not going to do it.
Michael: And so I guess I’m just trying to think through like, where does this calculation happen for you? So in real time, in this 90-minute meeting, you’re gathering information to try to figure out what the number is and then someone’s going to go to the back office and print something out and bring it into the meeting by the end of that 90-minute appointment?
Linda: Well, and here’s…this matters too, I think, in terms of our firm feel. My office has a loveseat, two armchairs, a standing desk, which can go down and not stand, and a conference table. And the only place where I calculate the fee is at my standing desk, which is not suitable for someone to sit next to me or across from me.
Michael: So there’s kind of like, you’re sitting with them at the conference table, they’re on the loveseat, you’re in an armchair. You’ve talked about some stuff and you’re like, “Okay, let me get your fee number for you.” And you stand up and walk to the other side of the room and punch it into your computer standing desk and hit “print” and then come back to them with a piece of paper.
Linda: Right. And the fee calculates something stupid like, “Your fee is $15,782.” And I can tell you, we don’t do $15,782. Yeah, I’m sorry, yes, the $82 is not negotiable. So what I’ll do is I mark through that and write $15,000. I always round down. I don’t care if it’s $15,999. I want them to see that…not that, “Hey, I can do anything I want to this fee,” but that, “This is the range you’re in and it’s reasonable for us to mark off the digits here, so we’re going to.”
Michael: So they just immediately are like, “No, no, no. I’m not paying you $15,000, I just saved $792 on the spot. I saw her cross it off.”
Linda: That’s right. That’s right. Yeah.
Michael: “Look at how much I’ve saved.”
Linda: Yeah. So we have everything from people who are already working with a brokerage firm and they’re paying commissions or a lot of the standard brokerage firms have gone to AUM for most of their clients. So they’re either already used to that…
Now, what’s interesting, though, with flat retainers, and I have actually had this happen, somebody would come in with an investment portfolio of $1 million and they’ve also got a nice house that maybe has a little bit of a mortgage on it and they make good money. And I put them in there a fee calculator and they say…and I say, “Where are you working now? Okay. Who are you working with?” And a lot of times they’ll volunteer, “We’re working with ABC Brokerage Company and we’re paying 1% of investments.” Okay. And I’ll come back and I’ll say, “So your fee for A through Z, everything we do is $10,000” and they say, “That’s ridiculous. I would never pay that.”
Michael: And it’s like, “Let me show you how you’re already paying $12,000 or $15,000 or $20,000.”
Linda: “You are doing. Yeah, you are paying that. You have $1 million and you’re paying 1%, that’s $10 grand. Let’s do the math.” And it’s not to embarrass them, but it’s just to say…and if that…when that has happened, I’d say, “What just happened here is very common. We hear one thing but we don’t always go through and do all of the iterations of it. Okay, I’m paying 1%, what is that of last month’s statement. Okay? If I’m paying that quarterly then I just paid them $2,500. Especially if what they’re doing is answering phone calls and meeting with you once a year, is that what you want for $10 grand?”
What Drove Linda To Launch A Solo Practice [1:28:09]
Michael: So I want to come back for a moment to this discussion that you put forth at the very beginning about being in kind of this siloed partnership for the better part of 15 or 20 years and then deciding to split off and go out on your own but not to go out on your own as a solo solo, to go out on your own and actually build a team that it sounds like you hadn’t built previously to the same depth. And so I guess I’m just curious, what happens that after 20 years of having it work you decide to blow up your structure and start building something different?
Linda: It worked really well. Jane Young is my former business partner. She is a wonderful person. She is a fabulous financial planner. I would trust her with my money. And it worked really well, but for years, the joke was, I’d say, “Jane, we’re in our 50s, we need to look at succession planning.” And she’d say, “Linda, we’re only in our 50s, why do we need to look at succession planning?” And all of a sudden I wasn’t in my 50s anymore because I’m 62 now. And so as I was seeing that big 60 come up, I have no intention of retiring and not doing this anymore. This is a profession where as long as the brain works, and our joke around here is, and I’m not drooling on the client reports, then I can do this forever. And I intend to, but I don’t know how long forever is.
And the anecdotal evidence on what happens when someone is just not there anymore and clients are wondering what happens, as I said, I’ve been through the death of a partner. In 1999, my business partner died in a private plane accident before she was 40. And within a year, Jane and I were already working together at that point, Jane had joined Carolyn, my deceased partner, and me six months earlier, within a year, every single one of her clients was gone. Well, we helped them get through the transition, but our intent was to keep them as clients. Not because we wanted to dictate what they did with their lives, but we felt like we could do the same thing that Carolyn had done for them, but they didn’t know us. And so having people where I’m sure the wailing and gnashing of teeth would be huge if I were gone suddenly tomorrow, but the fact that everybody knows…all of our clients know everybody here is going to make not just a big difference for the firm, but a huge difference for the clients.
And so as Jane and I were looking at that and just the whole complexities of, “How do we get you a successor and me a successor and how do we make sure that you like them…you like my person, I like your person and that they like each other,” it just looked like, “You know as much as we like each other and as much as we’ve done a really good job working together and having really common operations of how we do things and everything, it’s probably easier if we just have two teams that are two legal teams from a business perspective.” Talk about friendly, she’s across the hall. We’re in the same building still. So this was not fire and brimstone, “Oh my gosh, I hate you. This is the divorce of the century,” this was, “We probably need to do something different.”
And what’s interesting is, in the old firm, when someone would just come in because they had heard of the firm, we did eenie meeny miny mo. You got the last one, I get this one. You get the next one, I get the one after that. What we found is that because we’re similar, people were interviewing both of us and we both had higher ratios of prospects becoming clients. Because in the past, how many times did somebody talk to me that was going to like Jane better? And how many times did they talk to Jane when they would have been a perfect match for me? But that was…they didn’t have a choice because we were a siloed practice where you were working with one or the other of us. And now you get to see what both of us are doing on the internet and so forth and you come in and you interview her and her team and you interview us and our team. And she and I, that’s one of the things we violently agree on, is that both of us are having more clients that are becoming our clients because they’re actually getting to choose.
Michael: So how do you think of sort of the driver to this? Do you think of it as, “I wanted a succession plan? I wanted a continuity plan? I wanted something that I can sell it to or get value out if I do die suddenly?” Was that not on the table? How do you frame as the primary driver of what took you down this road, in a realm where, as you said, like, “But I actually have no particular plan or intention of leaving.” This isn’t a, “I’m just getting out.”
Linda: It was, I was totally driven by what was right for the clients. And much like my current business partner, Terri, has protected me from undercharging clients in general, she was the one who said, “Linda, you need to have something in there about what happens when you’re gone. Don’t you want your kids to get something from this business” And I guess sort of like Dogbert, I thought, “Well, they’re not doing any other work.” Which, of course, I’m kidding. I love my kids. They’re wonderful young adults. None of them wants to be in this business, mostly because I think my son, in particular, may end up going into financial planning. But he and I both know that him working for me would not be good for either one of us. We have a wonderful mother-son relationship, and that’s where it should stay.
For me, the getting something out of the value of the business and possibly having something in my estate if I were to meet an untimely end is distant secondary and tertiary to what happens to the clients. Because if the clients can truly get to the point where, and a lot of them already are starting to, even though Garrett has been here full-time only about a year, they’re already getting to a point of, “Well, Terri and…” Well, we had somebody the other day. We were meeting with some clients in Denver and the younger of the two turns 80 this year, and the husband, who’s the older of the two, looked at me and he said, “You’re not going anywhere, are you?” And I said, “Nope. My retirement plan is a head plant on my desk.” And the wife looked at Garrett and said…
Michael: “My retirement plan is a head plant on my desk.” Okay, that’s a good way of putting it.
Linda: Yes. Let’s not quote me on that one too widely. The wife looked at Garrett and said, “And we know you’re not going anywhere.” And afterwards when they left, I kind of did a fist pump with him of, “Hey, that’s right. They’re getting it that this is not…” Yeah, people have been working with me for a long time, and so 9 times out of 10 most of them are going to say, “Linda is my financial planner.” But we’re getting them to the point where they’re saying, “Peace of Mind Financial Planning does my financial planning,” not where it’s just me, so that when I’m gone. And because I’m not planning on doing anything, the weaning of the clients can be very gradual.
What Surprised Linda The Most When Switching To A Team After Being Solo For So Long [1:35:37]
Michael: So what’s been the hardest part of trying to transition having been more soloish for 20 odd years and now you’re not? Now there’s this bigger team environment. Habits die hard.
Linda: Habits do die hard. My former husband and I used to say that we raised our children to be independent thinkers, we just didn’t realize they would think independently of us. And that’s kind of what I’m dealing with here every once in a while. I have to say I love not having everything both dependent upon me and decided by me. And every once in a while it’s like, “But can I just decide this one thing all by myself?” So it’s those one little niggly things that make me think, “Argh, I really just want to do it this way and I’m the one who’s in the appointment, can I get a heavier vote than everybody else?” And that is the nice thing too about not being the only planner. There are times when the two operations folks may say, “Wow, our lives sure would be easier if…” And I say, “That is so not going to fly in an appointment.” And they may give us some pushback and at some point, Garrett will say, “Yeah, it wouldn’t work that way. You guys, you’re not sitting there eyeball-to-eyeball with the clients adding this in, does whatever.”
And also, they’re very compassionate. There have been things that for compliance reasons or whatever they wanted us to change and I said, “You know what? If Garrett’s not…if we’re not in appointment together and one of us isn’t taking notes while the other one kind of drives the appointment, if I’m in there by myself, every appointment that day, it takes me 15 minutes to just put the notes in Redtail.” And that’s not a really long time, but if I’ve had five appointments that day, you can do the math. I’m here another hour, hour and a half to make sure that we’re properly documented. So to say, “Make sure we get A, B, C, and D in here” sounds like not a big deal. I hear it and it doesn’t sound like a big deal to me, but then I think, “Yeah, but what if Garrett is not in there?” And when we get to the point where we’re having more appointments, where I’m doing some separately and he’s doing some separately and we’ve talked about, “Do we get a paraplanner or just an admin assist-type person who sits in and takes notes,” good Lord, we’re financial planners, the cost of that just makes my teeth curl.
And so the hardest part is definitely, with a true team approach, I do not have a veto. And every once in a while I think, “Can I just have a veto today or in this meeting?” And I don’t. And that’s okay. Because if I should have had a veto and it doesn’t work, this team is the first one to step up and say, “Well, that was a bad idea, let’s fix that.” And if it does work then I get used to it. And that’s okay.
Why She Decided To Get Her PhD [1:38:36]
Michael: So on the top of all this, you decided, “Hey, let’s get a PhD.” So talk to us a little bit about how that comes about. What were you off to do? What were you trying to do? What was the driver at this stage to go back and get a PhD in financial planning as well?
Linda: Well, you look at what happens in professions, and what happens in a profession is there’s a governing body. So we’ve got the CFP Board. There are the professionals out in the field slogging away, digging ditches, doing what we need to do with clients, and then there are the folks in academia who are hopefully preparing people for both of those. So we’ve got people in academia saying, “Here’s what you need to know technically, here’s some of how you get prepared for being a financial planner.” And the three always seem a little bit at odds. And I think our current CFP Board, the staff and the volunteers have done a really good job of saying, “Anytime we do something big, like changing the standards, we get people involved from the field, we get people involved as consumers. The staff does a lot of the heavy lifting on that. And ultimately, though, after running it past the public and having public forums and having public releases, we do say, ‘We’re the law of the land and here’s how it goes.'”
The tension is always a little worse, I think, between the academics and the practitioners because the academics say, “You don’t know what you’re doing. Here’s what research shows.” And the practitioners say, “I’m doing research every dadgum day all day long, I’m just doing it in my office with my clients.”
And so having some people who respect both and with a foot in both camps was important to me. And I will say with humility that I thought, “Now, when I get there, they’ll be really glad I’m in this program because they’ll say, ‘Oh, good, a practitioner who can tell us how it works.'” And guess what? That did not happen. What happened instead was, and how’s this for being prepared to devote five years of your life to something, the first day in class, Sonya Lutter, the woman who ended up being my dissertation chair, said, “Ultimately, a PhD is a research degree.” And I kind of raised my eyebrows to myself and wrote that down and thought, “Who knew? This is a research degree. It is not about, ‘How do we do better financial planning? it is about researching how behavioral finance works, how financial planning works.'”
And so it definitely made me a better financial planner. I did not get the degree, just like I will say, I did the same thing with the CFP test in 1997, when I took it, I thought, “I don’t really need this, but it’ll be a nice credential.” Oh, the things I learned studying for the CFP and taking that test, and the things I have to learn every year being a CFP. So it definitely made me a better financial planner. I did not get the degree in hopes of getting more clients, but just today, one of the prospective clients that Garrett and I talked to when we said, “What made you call a financial planner?” And they told us, and I said, “What made you call us in particular?” They said, “Your resume.” And the wife said, “I really like that you have a PhD.” So what I would say to people who think, “Well, I should get one because that way I’ll get more clients,” I would say, “Would you cut off your left arm and your right arm and swap them just because it would be interesting to have your elbows in the front?” Because it is a bodacious amount of work.
One of my college professors with whom I am still a close friend, I called him before I did this and I said, “Steve, am I crazy for doing this?” And he looked into the programs and everything and he said, “Nope, the programs are good. The one that you’re considering is excellent. It would fit the fact that you wouldn’t have to leave your job and your life.” And he said, “If you do this, and I don’t think you’re an egotistical person, but if you do this, it will be the most humbling experience you ever have.” And I thought, “Nah, I’m humble.” He was wrong. He was right, I mean. I was wrong. It was horrifically humbling. Not just because most of my professors were young enough to be my children, but because the things that I take for granted as a professional based on my own experience, some of them really have not been supported academically, and you can’t just say, “Well, I have 10 clients this works really well for, so it should be an academic principle.”
Michael: Are there particular things like that or examples of like, “Geez, I’ve always done the same, now realizing there’s no actual academic foundation for this, maybe it just sort of worked for me?”
Linda: Actually, my dissertation was excellent proof of that. My dissertation was productive debt. What I did, I do feel like with additional research, I would find…I would be able to support this, but I felt like people who have a mortgage have a better ability to build their net worth because they don’t have so much money tied up in a non-productive asset, in a loafing asset, and that student loans also allow people to get higher net worths. And I even developed my own little metric of what I call relative net worth. And it compares your net worth not in absolute dollars to other people, but to other people who have your same earning capacity and age.
And my dissertation basically is one of the few that gets approved that said, “None of your hypotheses are supported.” And I realized that what I did wrong in my dissertation or what I would do in more robust research is, okay, it’s not just having a mortgage, it’s, “Why do you have a mortgage? And if you refinanced, what did you do that for?” In other words, if I refinanced to lower my payment, what did I do with the cash flow? Did I drink more designer coffees or did I put that money in savings? If I had a student loan, and this is the tougher one, this would be a fabulous longitudinal study, it’s not so much did I have a student loan and did it allow me to earn more and therefore to make a higher net worth, what happened with my parents or their parents? Or what will happen with my children?
In other words, if I go to college, if I’m a first-generation college person and I graduate with just nosebleed college debt, what does that mean for my children? It probably means they won’t have to do that. It means either they’ll have less student loans or they will grow up knowing, “Hey, the deal is you get educated some way, doesn’t have to be college, it can be trade school, it can be apprenticing, but you get a craft that people will pay you money for that you love, and that keeps you from drowning in debt, and it gives you choices in your life.”
One of my dissertation committee members was from the Department of Education at K-State. She was fabulous. She was also a woman of color. And she said, “I would really make sure that we get racial demographics in here.” So it was just…that is something I learned. All along I’ve said, “If you do this…” And the other thing I left out was financial advice, ironically. How many people that had refinanced a mortgage did it because of financial advice versus somebody who works for a mortgage company calling saying, “Hey, rates are down, refinance now, you can pull $100,000 in equity out?”
Michael: And to me just it becomes the interesting reminder that even as many clients as we serve and what we do as advisors, like, A, we only hit a small segment of the overall population and B, we don’t necessarily hit a representative set of the population. It takes a certain either forward-looking mentality and planning orientation to care enough to both get an advisor and be willing to pay them or alternatively, someone that’s managed to be self-destructive enough to say like, “Oh, my God, I’ve got to get an advisor to help me with this.” And those are kind of polar extremes. And we don’t actually necessarily see the bulk of the people that are in the middle who may or may not do the strategies the way that we think of them in our head.
Linda: Yeah. Well, and we talk about middle-income clients, middle-income America, middle income is the upper or 5% to 10%. A lot of it is the upper 1%. People who make six figures or more in their household are not on every corner. And so, yeah. And that’s it.
I think the other thing that’s fascinating about this is, all of the PhD programs in financial planning, in personal financial planning, are not in business schools, they are in the subset of the college that deals with human ecology or human behavior, human sciences. And so I think that is something that, not to go too heavy-handed on the, “Hey, let’s all be life planners front,” but when we’re looking at, “Where do we make a difference?” it’s in helping people make the right decisions.
What Surprised Her The Most About Building A Business [1:47:55]
Michael: So as you look back overall having gone through this journey over a few decades now, of building the advisory business, what surprised you the most about building your own business?
Linda: I think one of the things that surprised me about it specifically with financial planning is that it is a people helping business, not a quantitative business. The person who recruited me not as a financial planner, but as an investment rep said, “You get the numbers and you’re good with people,” and I thought, “Oh, he just means I can sell stuff if I have to.” Which it turns out I could not. I was a terrible salesperson. And I was working in an all-commission environment at the time. So I pretty much starved to death and then they fired me. But I would say what surprised me most about building the business is it is this fascinating balancing act between always doing what’s right for people but also always doing what’s fair and right for yourself as a businessperson and the other people who work with you in the business.
Because it’s really easy to say…to do the blue-eyed discount, “I’m going to do what’s right for my clients,” but my own definition of an ideal client is someone who is intelligent, respects the intelligence in the office, and has a good sense of humor. And they don’t have to take all our advice, but they just have to be intelligent and be reasonable and respectful to us. That’s my definition of an ideal client. Whereas when you start out you think, “It’s somebody…it’s a retiree with $4 million.” Not necessarily. If they’re a jerk, they’re not the ideal client for me.
Michael: So what was the low point along the way?
Linda: I would have to say getting fired from the brokerage firm that I left my banking career to join. I truly was… my secretary was making more than me. And the reason that happened is people would come in and they’d say, “I finally have,” pick a number, $100, $500, $1000, sometimes per month that I can invest, and I’d say, “Okay. Great. Can I ask you a few questions first?” “Sure.” “Do you have a house?” “No, we kind of like to save for a down payment.” “Why don’t you do that? Do that for six months or a year and then let’s talk.”
Michael: That’s really not good for your sales process.
Linda: That pretty much blows your sales numbers out of the water the wrong direction. And a lot of people would come in with, “Yeah, I finally can do $100 a month into a mutual fund” and they had $10 grand or more in credit cards. And I’d say, “We’re not going to do that right now.”
That was my low point. And I did the ethical thing and I called all of my clients and said, “I’m not sure what I’m going to do next, but I just wanted to let you know that this is not a match. I’m really not making enough in commissions and the firm has asked me to leave.” And one of my clients said, “Tell us where you land.” And he said, “We have a mortgage person we’ve dealt with that she’s got her own office. Maybe you could even share an office with her,” which I did not. But he said, “We’re not doing business with your brokerage firm, we’re doing business with you, so you tell us where you’re going to be. You have helped us so much.” And I thought, “Okay by gosh.”
Because I wasn’t even sure I was going to… I talked to a couple of other brokerage firms and then I thought, “Yeah.” And I went with an independent broker-dealer for a while and less than 10 years later said, “You know I’m either charging fees or commissions.” And again, the whole boundary thing, somebody would come in saying, “I want to pay $100 a month” and I’d say, “How about if we do some financial planning?” “No, that’s going to cost more money.” “Okay.” So when it got to the point of, “Hey, one way or another, you’re writing a check for advice,” at least we started weeding out people who just either couldn’t afford it or didn’t appreciate it. And we still see the two, and they are very different. Some people really…it’s a stretch for them. They would love to work with us. And they either eat beans and weenies for a year or two and work with us or they say, “We just can’t.” And then there are the ones that say, “That’s just ridiculous. Why would somebody pay that?” Because we’re worth it.
What Success Means To Her [1:52:15]
Michael: So as we wrap up, this is a podcast around advisors that have been successful, and one of the things we always find is just literally that word “success” means different things to different people. And so you built this successful business charging good planning fees for your value to clients that you work with and building a team around you, what most would objectively call a successful advisory business. But I’m just wondering, how do you define success for yourself at this point?
Linda: Success for me is definitely loving what I do and feeling like I make a difference for people. Having the bills paid and feeling like I’m making a difference for myself is also important, but having our clients have a difference that we make in their life that’s positive. And also having a team that is good at what they do, that I’m proud to work with and that this is making a difference in their life too.
Michael: Well, I love the journey and I’m excited to see where it takes you with continuing to have the team and grow the team in the coming years. Well, thank you, Linda, for joining us on the “Financial Advisor Success” podcast.
Linda: Same here.