Welcome back to the 194th episode of Financial Advisor Success Podcast!
My guest on today's podcast is Lisa Cooper. Lisa is the founder of Figure 8 Investment Strategies, an independent RIA based in Boise, Idaho that oversees nearly 90 million of assets under management for 85 affluent clients.
What's unique about Lisa, though, is that her firm operates as a B Corporation and it's focused on what Lisa calls, 'sustainability-focused equity management', a form of sustainable and responsible investing by building a thematic portfolio of 50 to 60 individual stocks that has helped Lisa to effectively differentiate herself and grow to 90 million of assets under management in just 4 years since launching.
In this episode, we talk in-depth about how Lisa crafted her unique investment approach for clients, the way the firm crafts sustainable investing themes to identify segments of the market to invest in, the screening tools they use to determine what stocks to avoid in their investment approach, how shareholder engagement through proxy voting is a key part of Lisa's investment process, and why and how Lisa's firm uses direct impact investing not to expand its equity reach, but to garner its fixed-income bond exposure instead. We also talk about Lisa's decision to become a certified B Corporation with her RIA, the five key areas of governance, customers and products, environment, team, and community that firms must improve to meet the B Corp requirements, the new processes and procedures that Lisa implemented in her firm to meet the standards, and why she thought it was worth the B Corporation cost and trouble to demonstrate how her business is acting to be a force for good and positive change.
And be certain to listen to the end where Lisa shares the unique types of clients that her firm has been able to attract with this differentiated focus, the challenges that she faced in trying to grow her team and expand her reach as her business grew rapidly, and how the mindset of doing more for more people all the time can be a great way to launch an advisory firm, but ultimately may end up limiting to its growth.
So whether you’re interested in learning about the process of B Corp certification, how Lisa created her business as a force for good, or how to integrate ESG and impact across portfolios, then we hope you enjoy this episode of the Financial Advisor Success podcast.
What You’ll Learn In This Podcast Episode
- What Does It Mean To Create A Business That’s Meant To Be A Force For Good And A Force For Change? [05:57]
- What Is A Certified B Corporation? [08:37]
- Why Lisa Decided To Pursue B Corp Certification For Her Firm [19:45]
- How Figure 8 Investments Looks Today And Their ESG Approach To The Investment Process [26:49]
- How Lisa Assesses ESG Performance And Her Active Equity Strategy [34:19]
- How Lisa’s Firm Supports Active, Engaged Public Company Ownership And Investing Directly For Impact Outside Of Public Markets [46:47]
- The Platform And Tools That Lisa’s Firm Uses [54:42]
- How Lisa Attracted Clients Who Valued ESG Investing To Grow Her Firm [59:28]
- The Fee Model That Lisa’s Firm Uses To Serve A Wide Variety Of Client Types [01:12:29]
- What Surprised Lisa The Most About Building Her Business, Her Low Point, And What She Would Have Done Differently [01:15:14]
- The Advice That Lisa Would Give Advisors About ESG And Impact Investing And How She Defines Success [01:25:08]
- Lisa Cooper
- Figure 8 Investment Strategies
- The Forum for Sustainable and Responsible Investment
- Certified B Corporation
- Interfaith Center for Corporate Responsibility (ICCR)
- Glass Lewis
- Black Diamond
- Redtail CRM
- Thomson Reuters Eikon
- US SIF
- Racial Justice Investing
- As You Sow
- Chartered SRI Counselor (CSRIC) Designation
- Limitless Advisor
- Essentialism by Greg McKeown
Michael: Welcome, Lisa Cooper to the "Financial Advisor Success" podcast.
Lisa: Oh, Michael, I am delighted to be here. Thanks so much for having me.
Michael: I'm really looking forward to today's discussion, and talking a little bit about the world of ESG investing, where I know you have built an entire career of a couple of different stages of working with the ESG investing realm. And to me, what's becoming even a step beyond that, which is not only for pursuing ESG investing as a solution for clients but aligning the entire business around it. I know you are a certified B Corp as well. I think there are only like a handful of advisory firms in the country that have gone the certified B Corp route. Although I'm seeing a few more of them out there these days. And just this overall structure of what does it look like when you align an investment process and the planning process and how the firm itself is run and the clientele that you serve – kind of all in one – is perfectly aligned, or at least ideally perfectly aligned path, and then go after the business that way.
And I know you've had a lot of growth over the past couple of years, going out on your own and building that direction. And so, just really excited to talk about this kind of path of what does it look like when you pursue ESG investing in a niche clientele that value that and become a B Corp as well and try to build your whole business in this direction.
Lisa: Yeah, it's been an adventure. I've been in this world of ESG... I should just say ESG stands for Environmental, Social, and Governance. So, I've been in that world or the social investment world for my whole career, which has been nearly 30 years, dating myself. And as I've done that work, I started out on the sort of very pure asset management side, as I've done that work over the years, I've become increasingly focused on, not just values alignment for clients, but on finding all the different ways that people and institutions can use wealth to change things, to have an impact. And so, that's all based on this idea that this very strong conviction that I have that business can be a force for good, a force for change.
So, when I started my firm four years ago, Figure 8 investment strategies, I really wanted to have a platform for exercising that in every way that I could think of really to integrate that idea of changing things for the better in the way that we work with clients and the way that we manage portfolios and in the actual investments we're making and in how we run the firm.
Michael: I like that framing that you had of business can be a force for good and a force for change. It's a different view relative to – at least some of the conversation out there in the world today – of some of the challenges of business and some of the challenges of capitalism, and not to open that entire political door, which isn't really the point, but just like, I like the framing of thinking about what does it mean to create a business that's meant to be a force for good and force for change?
What Does It Mean To Create A Business That’s Meant To Be A Force For Good And a Force For Change? [05:57]
Lisa: Yeah. That's really, I think, what the B Corp movement is about if you want to call it that. And I think I may even be stealing or plagiarizing a little to use that phrase, "business as a force for good," because that's what B Corps talk about. And there are about 3,500 B Corps now across, I think, 70 countries, something like that. All of those businesses, some small, some quite large, are working to balance profit and purpose. So that idea is gaining traction and the ways in which that can be executed while we're demonstrating and learning a lot. I think the whole premise really is around possibility. And I've been doing this in portfolio management for so long – looking at how you integrate environmental, social, and governance factors into investment decision making. This is a similar thing, just thinking about how you can create those kinds of impacts with everything that you're doing in your business. So it feels very consistent.
Michael: I hadn't really thought about it that way of what an ESG philosophy or investment approach is to portfolio management. Kind of, we're going to do this investment management thing, but with a certain lens and filters that leads you to make certain decisions over others, that the certified B Corporation process is kind of a similar integration process of how to apply a slightly different lens to the business in your business decisions in the same way.
Lisa: Yeah. Another way of looking at it is we're turning the lens on ourselves and starting to measure those things that we measure at publicly traded corporations in our own businesses. And that idea – you really feel it when you start doing it – especially with a small business. When you start measuring things and delivering those metrics to a third-party, you're suddenly accountable in a new and different way. And so when it comes to things like looking at your workforce diversity or your carbon footprint, actually measuring and reporting those things makes a difference. I've been saying that to companies for a long, long time; now we're doing it ourselves.
Michael: So, I think B Corporations are still a phenomenon that are not very well known in the advisor community. So, can you talk to us a little bit more about just what is a B Corporation? What is this thing or a trend or a movement? I think you said like 3,500 B Corporations around the world. Like, what is B Corporation? What does it mean to be a B Corporation?
What Is A Certified B Corporation? [08:37]
Lisa: So the terminology is really a Certified B Corporation. And that word 'certified' is important because you go through a process that involves an assessment and some key commitments that you make along the way to become certified. And that process, I have to say, even as someone who started a business with purpose at the center of it, that process is super rigorous. So, for us at Figure 8, we became a B Corp in January of this year. It took us pretty much a solid six months prior to that to do the work, to go through the certification process. The process involves an assessment that covers five key areas. One is governance, that's sort of ownership, and codes of conduct, and those types of things. Second is customers and the products and services that you're providing. The third is environment and the impact you're having on all the different environmental metrics. Fourth is how you interact with workers and treat workers. And the fifth is how you interact with your community.
And so, each of those areas involves a pretty deep-dive into specific policies, procedures, and measurements where you get scored on each area. And overall, you have to reach a certain threshold score to get the certification. There's always somebody who is going to be better at any one of those areas. And so, the idea is to keep raising the bar. So the whole process is very aspirational, which is great, and it's definitely helped us raise our bar.
Michael: So, can you talk to us a little bit more about just like what you have to do, or like what you get scored on when you're getting scored across these five domains: governance, customers, environment, workers, and community?
Lisa: Sure, sure. So the B Corp assessment includes looking at a full range of compensation and benefits. That's true for all of your workers. They look at how many of your workers are permanent staff versus – and on payroll with benefits – versus contract workers. They look at the diversity of your workforce. They look at the policies and procedures that you have in place to guide issues, everything from maternity and paternity leave to grievance policies. And each one of those areas involves assessment by the B Corp experts and in the scoring process. And in that process, sometimes they'll come back and say, "Oh, you told us that you offer dental insurance to your employees. Can you show us exactly what that is? Who pays what? What that looks like?" So again, it's fairly rigorous, detailed, and there's verification.
Michael: So the idea of this, then, is someone out there has a scoring rubric in the worker's area. So I don't know what the exact thresholds are, but if at least 80% of your team member is permanent you get 2 points, and if you have a strong diversity of your team, you get 3 points, and if you offer maternity and paternity leave you get 1 point. And we're going to add up all your points in the category, and as long as you get to, whatever, 15 points in the category, you have checked the box. You don't necessarily have to be perfect in everything, but you need enough points across all the different areas with a reasonably high bar and you are passing the assessments in this area.
Lisa: That's exactly right. And that also comes with guidance that here's a company in your industry that has real strength in this area. This might be what you want to aspire to for the next assessment that you'll have in two years.
Michael: Okay. And so you go through an assessment, you're asking questions across all these five different dimensions. I think you said it took you like six months to go through this. I mean, they're asking you six months worth of questions, or like, you go through it and then you get your score and it's like, "Oh shoot, my score isn't actually quite high enough," so I got to change a couple of policies or things and improve my score and then go back to them and say like, "Here, I fixed this. Can I get my two more points so I can get over the bar"?
Lisa: Not quite that. And, of course, we were doing other things during those six months, not just going through the B Corp certification.
Michael: Well, obviously, that's not the only thing you were doing.
Lisa: Yeah. Yeah. So really there's an initial assessment that you can do that tells you your areas of strength and where you might want to improve before you go through the official assessment. So we did that. It was important to us to put some of the policies in writing. So, for example, we encourage our staff to ride our bikes to work or to use forms of sustainable transportation. We hadn't codified that in any way. So we did that before we started the assessment process. We put that policy in place in writing so that we have a set of incentives around using something other than driving a car yourself to work.
And then, actually gathering all the data and submitting it initially took us several weeks. That's a pretty intensive process. Well, there are a lot of companies wanting to be B Corps. So they had a little bit of a backlog on their analysts to go through all of this. And it's pretty voluminous, what we submitted. So the analysts go through it then they come back to us with very specific questions and asking for verification in lots of areas. So we went back and forth with that a couple of times. And the score doesn't come out until the end, or at least for us, it didn't, and ours was fairly high. So that's good. And then at that point, there are a couple of other parts of the procedure and we became a certified B Corp.
Michael: And so, what else is in the process? I mean, just what you're already describing there's a lot of work and steps here. So then, like what else comes through the process? I've gathered my information, I've submitted my information. I did back and forth, well, the auditing types asked me all the auditing questions that you would expect of an assessment process to make sure and validate you're doing the things that you said you were doing in your application. I'm assuming if someone's score comes up short, they get at least some opportunity to remediate and improve themselves to get over the line. What else then comes in the process?
Lisa: So then there is commitment language that you include in your corporate documents. Once that's filed, there's a fee involved with being a B Corp member, like probably most certifications or organizations. And then we had a big party! This is in pre-COVID days, of course. And I will say that one of the really wonderful things about being a B Corp is that you're instantly part of this community of other like-minded businesses or businesses that are focused on, again, being that force for good and that have met those standards.
And in Boise, Idaho, where I live and work, we have about 15 B Corps which is pretty good for a small city of our size. And it's been wonderful to be part of that community, very mutually supportive. And we learn a lot from each other. That's probably our highlight of becoming a B Corp.
Michael: I think you had said you have to change your corporate documents. Like, what are you doing with your corporate documents?
Lisa: So, it's language that describes that you are taking into consideration your impacts on all stakeholders, that you are declaring your intention to be a business that balances profit with purpose, and that you are committed to meeting very high standards of social and environmental performance, transparency, and accountability.
Michael: Interesting. I'm struck, in particular, by the fact that like you basically have to input in your documents, your intention to balance profit with purpose, which, in like a literal sort of corporate shareholder governance context, like you are changing the nature of what shareholder accountability means when you have formally set the corporate documents to say, “we are here to balance profit with purpose,” as opposed to our, I guess, our traditional, “we will maximize the profit in classic shareholder fashion.”
Lisa: It's a really, really interesting shift. And it's not far from the language that's come out of the business round table in the last year around the purpose – or that businesses should take into consideration the interests of all stakeholders, not just shareholders. And so, I don't know how familiar you are with that, but there's definitely a movement in that direction between ESG on the investment side, the language that's coming out of major publicly traded corporations via the business round table around all stakeholders being important constituents. And then what's happening with the B Corp movement. A lot of it at this point, I think is language and intention, but it's certainly moving in that direction. It's fascinating.
Michael: Interesting. And you said at the end of the day, there's also just a cost to this. So how does the cost work? Is this an application cost? Is this like an application and ongoing costs? And what kind of numbers are we talking about?
Lisa: Oh, it's an annual fee based on revenues. For us, I believe is $1,000 or $1,500 a year.
Michael: Okay. So not too onerous, like you get a certification, pay a fee, the kind of thing that our industry does a lot of. So we're not talking about a multi-thousand or tens of thousands of dollars kind of thing.
Lisa: It might be for a much larger company. And the B Corp folks are transparent about that. And that's all available on the website.
Michael: So it's like a tiered scale based on the size of your business?
Michael: Kind of like an AUM fee but for B Corp certification?
Lisa: There you go.
Michael: So, help me understand, at the end of the day, like why you put yourself and your business through this process? You know what I mean? To me, it's one thing to say, just, "Hey, I believe in being a business that can be a force for good. I want to do that. I'm going to try to run my business that way. I will engage in appropriate business practices." It's another to say, "Oh, and I'm going to do months of work and incur all these additional costs and take up staff time and my time. Oh, and then there's an ongoing cost as well." What is the draw or the appeal for specifically going through this whole certified B Corporation process as opposed to just simply saying, I am going to try to run my business in a positive way?
Why Lisa Decided To Pursue B Corp Certification For Her Firm [19:45]
Lisa: Honestly, for us, we wanted to do it right. I very much appreciate having that level of accountability, having a third-party help guide how we execute the purpose that we've stated we have. And it was also important to me and to our business, to be, again, part of that community, which is a community working to raise the bar to change things and to learn from each other.
Michael: Right. And so I guess that also means it's worth recognizing in the context of our financial advisor world, where we're used to C Corporations and S Corporations. When we're talking about B Corporations, we're not actually talking about like another corporate entity classification. The emphasis part is not B Corporation. The emphasis part is certified. Like this is a certification process. Think of it like a designation for your business.
Lisa: So there is both. Something called a Certified B Corp, which is what we are, and are very comfortable talking about that. There is also something called a benefit corporation, which is another structure in addition to C Corp S Corp, LLC, there's a benefit corporation. And certain states have passed legislation to enable benefit corporations. And the B Corp folks somehow parted ways with the benefit corp folks where they're sort of the same, but then they have a different view of how things play out. So.
Michael: So, every industry and segment can still have its internal debates? That to me is the reminder of it all.
Lisa: Yeah. Right. So that idea of codifying, yeah, I can put this intention in my corporate documents, but at Figure 8 we're not seeking to be a benefit corporation and change our corporate structure at this point. We might, eventually, if it's really clear that that's important. And here's maybe the bottom line is being a Certified B Corporation is something that can fit alongside whatever corporate structure you've chosen. So it can fit with a C Corporation and S Corp or with an LLC.
Michael: And I guess that's worth noting as well. Like you can do this as an LLC or a partnership. Again, don't take corporation too literally. Like, it's a certification for your business at the end of the day.
Michael: Okay. That helps a lot because, obviously, in the advisor world, we are used to designations and certifications and holding those out as a way to signal something to the people that we work with, right? Whether that's CFP marks or something else about our expertise, or I guess a Certified B Corporation around our businesses and how we're running the business.
So I guess the focus for this, again, now I'm thinking back to the key areas that you touched on, governance, customers, environment, workers, community, and so, essentially, all of these are different stakeholders. Well, I guess governance is government. The other four are stakeholders. The point of this, at the end of the day, is sort of aligning the business and literally how you're running the business, the policies and procedures that you have in place for the business to do things like stay focused on your customers, consider the environmental impact of your workplace, provide certain reasonable benefits for your workers, stay, possibly engaged with your community. It's just setting a framework for here's what a positive business acting as a force for good looks like. So, here's a model, hopefully, you can aspire towards it. And we'll kind of give you a scoring system. We'll let you know when you're doing well enough to be a part of it.
Lisa: Right. You said that beautifully. And I think the other piece I'd just add again is that you're part of this community of other businesses that are committed to the same things. And so you're learning together and learning from each other about how to improve in all of those areas.
Michael: And I guess that fits particularly well into the nature and focus of your business itself then, which has this strong focus on ESG investing. And I would kind of presume from that, clients who tend to care about these issues and therefore might be particularly appreciative of a firm that both invests with an ESG approach for their portfolios and runs itself with a B Corporation approach as a business.
Lisa: Yeah, I think so. Although I will say that we can talk more about the fact that at Figure 8 we've done very little marketing since we started four years ago. And I don't think we've attracted any clients because we're a B Corp, but I think it certainly can't hurt to have that certification, but marketing is not one of the primary drivers behind us going through the process.
Michael: So then, just help me understand, again, why did you want to put yourself through the process? Just you did articulate like a lot of work and a lot of stuff going through it. Just maybe overgeneralizing a little, like a lot of folks go for things like designations or certifications because, at the end of the day, it helps the marketing and communication externally. Not everyone does it for that reason. So, help me understand this a little more. Like, if it's not necessarily influencing your marketing to go out to the community and say, "We're certified B Corporation, do you want to work with us?" Well, what was the driver and impetus for you?
Lisa: Well, the major driver is wanting to do things better. You have a more positive impact in all of those areas. To learn from others, benchmarking from the third-party assessment process how we're doing, what we can do better. We indeed did learn a lot of things going through this about things that we can do to strengthen our impact on our workers and our community. We're looking at changing our vendor policies and practices, for example, to do more local sourcing. As I mentioned transportation policies, I can talk a lot about the benefits that we have in place for workers. All of those things are really important to me. You know, I'm at this point the sole owner of Figure 8. I started Figure 8 at this point in my career, again, to use business as a force for change as a force for good, not necessarily to market heavily, and gather assets, and increase my personal wealth. And I know that might sound a little different from what a lot of people are motivated by in this business. But at this stage of my career, after three decades of doing this work, that's very authentically what Figure 8 is about.
Michael: So, now talk to us a little bit more about Figure 8 Investments itself. Just like the business. What do you do? Who do you do it for? Tell us about the advisory firm itself.
How Figure 8 Investments Looks Today And Their ESG Approach To The Investment Process [26:49]
Lisa: Sure. Let's see. So we started in mid-2016 in a 200-square foot cubicle with nothing. Starting from zero. Today we manage about $90 million for about 85 clients across 19 states. Again, we're based in Boise, Idaho. And for most of our clients, we are providing them with a comprehensive approach involving financial planning and advising, as well as overseeing their investment strategy. And we, in fact, implement some active investment strategies and active equity discipline in the public equity space for our clients. And we have a team of five. Four of us full time and one part-time virtual assistant. And again, we have offices we haven't been able to visit recently, but in downtown Boise.
Michael: Yes. So are we all struggling with the remote work. We didn't anticipate being remote, I guess, except for your virtual assistant who was already remote and had no impact since that's what they were already doing.
Lisa: Exactly. Exactly. She's helped us learn how to be virtual.
Michael: So, talk to us a little bit more about what this investment process looks like. You know, you've mentioned kind of following an ESG approach and investing. You also just said you actually have an active management approach around that. So, can you talk to us a little bit more about what this portfolio management process is, how you structure portfolios, what you do for clients in this realm?
Lisa: Sure. You know, investing is still the reason that most clients come to us. Let me back up and say that the part of the reason that I started Figure 8 was that I had come from this pretty pure asset management background and I really wanted to be able to work with clients on larger, more holistic questions around how they can use their wealth to both provide for themselves and their families and then do good in the world. Right? And ultimately those are sort of long-term planning questions. And so, that said, my background is very much in the investment management world. So, people initially came to us for the investment piece and I think they still are very much attracted to that. So, when people start working with us, we address investments first and we do sort of an iterative approach to planning. So, through questionnaires and conversations in the initial stages, we devise an investment policy statement for our clients that covers sort of what I think of as the very first iteration of that planning engagement, which is looking at long-term goals, time horizon, growth needs, income needs, risk tolerance, tax strategies, and social and environmental guidelines and goals are really a critical part of that.
So we put that together and that helps determine asset allocation policy. So the very first thing we're doing with clients is going through that investment policy statement production together. Once that's in place, we do our first take it at repositioning investments. And then we go from there into a longer-term planning process. And for most of our clients that happens over at least that first round – or rather I should say second round – over a three to six-month period.
And what the portfolios look like is, in some sense, very conventionally structured portfolios across asset classes, but then we're looking at how we can improve the ESG profile and the social impact of our investments in every asset class. And so, that involves using a set of tools that help us implement that and integrate that across the investment strategy.
Michael: So I think it's interesting how you framed that the anchor point is still a traditional asset allocation process. So, we'll have some blend between stocks and bonds. Maybe even we get a little bit more granular into large-cap, small-cap, domestic, international, some of our classic asset allocation diversifiers. But then when you drill down to implement within those asset class buckets, you're trying to implement a fund stock selection, some kind of strategy that improves the ESG or the social profile of the things you're investing in that asset class bucket and you go through all the ones in the portfolio.
Lisa: Right, right. That's basically it. I mean, there are four tools that we can use to integrate ESG and impact across the portfolio. At least that's how we look at that sort of toolbox. And one is avoidance screening. So those are things that clients tell us or that we've decided for various reasons – usually related to risk – that we don't want to have exposure to. And those tend to involve avoiding tobacco, major weapons manufacturers. And today, fossil fuels, often other things or along with that. They're client-specific. So avoidance is one.
The second is using an assessment of environmental, social, and governance performance. Similar to those metrics we were just talking about at B Corp, but looking at those things for the publicly traded entities and incorporating the material impacts on earnings that come from how a company is managing those ESG challenges really to make us smarter investors. So that's the second tool.
The third tool is being active owners, particularly of public equities. So that involves doing shareholder resolution campaigns, doing proxy voting for our clients, and also letter writing and petitions, and those types of things.
Michael: So when you talk about being active owners of public companies, we're not necessarily talking about active management and like a passive versus active context. This is active owners, more in the context of activism, like actually voting your proxies, actually participating shareholder resolutions, trying to engage as public shareholders to actually use the powers that shareholders have to get management to do things differently.
Lisa: Absolutely. Yeah. And I think there's a better word than 'active' is 'engaged'. So yeah, so being an engaged investor and using those tools. And so that's really the third set of tools.
And then the fourth is investing directly for impact. That means investing for a financial return alongside measurable social or environmental returns. And so that often – not always, but often – can take you outside the publicly traded markets to do that type of impact investing. And so we blend all of those tools and use some of them to a greater extent than others, depending on where we are in the portfolio. But overall, our portfolios – at least we very much aspire to be – free of tobacco, weapons, and fossil fuels.
Michael: And so, how do you implement these pieces as we kind of go through them? Like, are you actually figuring out which things in particular to avoid and how to implement that? How do you actually using to assess ESG performance so you can pick what companies to invest in or not?
How Lisa Assesses ESG Performance And Her Active Equity Strategy [34:19]
Lisa: Yeah. Yeah. And that's the thing I've been doing for 30 years. So I grew up in this business doing, now, truly active investment management, primarily around public equities, all doing integrating ESG or SRI. And so, there are many different assessments you can use to look at the performance of companies on all of those metrics, and companies have gotten much better at – or a lot of companies, not all – have gotten a lot better at being transparent about some of those measurements. A lot of companies now want to share with shareholders or potential shareholders what they're doing on ESG issues because there's an increasing understanding and acceptance that they are at, least over the long term, material to financial performance or that they can be.
And so, we at Figure 8 have an active equity discipline, and it is a benchmark to the MSEI Equity and involves U.S. stocks and EDRs. And that forms the base of most of our clients' portfolios. And so we have a team of research analysts that are putting that portfolio or doing the equity analysis around the components of that portfolio. And we've been tracking that for four years. We just went through the GIPS compliance process. GIPS is the Global Investment Performance Standards that the CFA institute oversees. And so we've just been through that process and have a track record we can share with people. We have not yet though. So, we've had this challenge that I think a lot of small firms have which is growing quickly and managing that growth.
Michael: So, help me understand a little bit more what active management looks like in this? Traditionally, when we talk about active management, we tend to talk about things like, well, I'm going to try to buy what I think is going up and sell what I think is going down. And we're trying to make evaluations of the contours of the market activity in training or economic cycles or sector rotation or something to that effect. And I feel like what you're describing is different because you're not necessarily buying and selling on, “Hey, I think the stock has had too much of a run maybe we're going to trim it. Oh, this other one has gotten beat up. I think it's a deal.” It sounds like this for you is more like, “Hey, this stock seems to be going lower on our ESG scoring system...”
Lisa: No, not at all. Not at all. No. Well, we have growth at a reasonable price discipline. We are using very conventional, very disciplined investment rules in our active equity strategy. The ESG piece informs that and informs our outlook. Particularly on the risk management side, it helps us look at things that other analysts may not be watching that may cause earnings deterioration over time or where a company just is taking their eye off the ball. I think there's a pretty good understanding, especially in the academic literature that the ESG really can help inform the risk management side maybe even more than the opportunity side of the earnings equation. All of the things that you described about starting with an overall market outlook and putting together our strategic sector allocation and the types of exposures that we want in the portfolio and then sort of filling in what specific components of the portfolio, that's absolutely what we're doing in our active equity discipline. And again, ESG is just informing every part of that.
Michael: Okay. So how do you actually do these kinds of ESG assessments? I get avoidance screening. We're going to come up with a list of companies that do the things we don't like, and if we're going to buy 200 stocks, now it's going to be 194 because we're going to take these 6 and we're going to avoid them. I get how to do that. That's fairly straightforward, particularly when you're buying individual stocks because you just can literally start subtracting line items. I'm still not clear on just how ESG, particularly at the individual stock level, comes into this process for you. Are you looking up stocks in some kind of ESG rating or scoring system? Did you develop your own scoring evaluation system? How does it actually filter into the investment process for you?
Lisa: So, there are a lot of different ways that the big we – all the managers that are doing ESG – can look at this. So, I will just say that what we're doing at Figure 8 isn't necessarily what any of the other folks are doing. A lot of ESG-labeled product now is looking or taking a best-in-class approach. So, looking at the carbon footprint of all the companies in a specific sub-industry and saying, "who's got the better trend line? Who seems to be managing this better?" And then maybe weighting the portfolio more heavily to that stack. That's especially true in sort of an enhanced index approach. That's not what we're doing at Figure 8. We are taking a much more thematic interpretation of ESG in how we determine what fits in our portfolio. And we're looking for the 50, 60 stocks that we think will outperform because of multiple factors, but including the ESG factors help to drive either their opportunity or that they are managing risks better than another company or other companies in their industries that we've decided we want exposure to.
So when I talk about thematic opportunities, renewable energy is a very easy one to point to now. And, of course, those stocks have, overall as a group, done quite well. And I think it's safe to say that we're in the process of an energy transition. So that would be a key theme and driver. As we look at things like water scarcity and resource scarcity – generally doing agriculture in a smarter way – being able to feed the planet becomes a very big challenge. So, being able to introduce new types of efficiencies into how we look at and manage or the companies that are in the agriculture space, anything along that supply chain, there are opportunities to do that better.
In things that are sort of broader, academic research shows us that having more women involved at different levels of the company – especially for companies that have three or more women on their boards of directors – those companies, overall as a group, outperform companies that do not have three or more women on their boards of directors. So, we can look at things like embracing gender diversity and all the metrics that go along with that as things that help identify where there might be opportunities to see stocks that are likely to outperform their peers. So we put all of that together for us. Again, our job as active managers is finding the subset of stocks that express – or that we think will have drivers to outperform over time. That's very, very different than going into the world of publicly traded companies and scoring them. And I will just say that there are many sources for that research MSEI, Sustainalytics, which has now just formed a partnership with Morningstar, and ISS are three primary sources of research for the scoring of ESG issues across the board. And for us, those have helped inform our process but they're of limited utility when we want to do that deep dive.
Michael: So I guess then, structurally, as opposed to saying, here's the universe of stocks that score each one on ESG factors and we'll pick the highest-scoring stocks and large capital high scoring stocks and small-cap, highest scoring stocks, and whatever our asset allocation categories are, you're starting at a more thematic level. We want to invest in renewable energy. We want to invest in smarter agriculture. We want to invest in some broad ESG-oriented themes that begin to define our universe of stocks. And then we take those and do our individual stock evaluation to say which ones do we want to buy or not own – growth at a reasonable price approach – with the universe of stocks that's been narrowed down by the ESG themes that you're coming to the table with in the first place.
Lisa: Exactly. Exactly. Yes.
Michael: Okay. And how many stocks typically end out in your portfolio when you do this process?
Lisa: Fifty to sixty.
Michael: Okay. Just curious, because I know this comes up as a theme or a concern sometimes in talking about ESG portfolios, particularly kind of design this way down the stock level. Like, do you worry about overconcentration at certain industries or limitations and exposures that you get when you start with this thematic-styled approach in generic investment performance speak? Like, if you invest thematically top-down in ESG in 50 to 60 stocks you're going to have a lot of tracking deviations. I was going to say tracking error, but it's not error because it's a deliberate investment approach. Like, you're going to deviate very materially from standard industry benchmarks. And so, you can view that as a risk or literally the point.
Lisa: Yeah, we could if we weren't managing around that, but we are managing around that. So, we look very carefully at sector exposures, at sub-sector exposures. This is the stuff that I've been doing for a long time. I've worked in environments where we've used some pretty sophisticated analytical tools and optimization tools to make sure that we're managing those exposures. We're not doing that at Figure 8, but because I've done it for a long time, I have a sense of what's involved and what kinds of guardrails we want to have on the portfolio. And that forms the core of the equity piece that we're doing. At Figure 8 we're doing a lot of the other things around that for clients. And again, the more exciting part to me is beyond that equity discipline.
And I will also say that I didn't start Figure 8 to create another sort of ESG manager necessarily, but I did want to share what the experience, the skills, knowledge that I've had the privilege to learn in my time with others and the clients who showed up when we opened our doors had been used to or were seeking that and that kind of approach to their stock management. And over these years, we have found that we're managing equity portfolios for clients who have very similar values and as expressed by the ESG issues. And so, it's pretty easy for us to put together a composite. I think we've got what really is probably a separate business that it's both an integrated and potentially a separate business that we can do with the equity management piece. But that's just a piece of what we're doing. And to me, it's sort of the least compelling in terms of the mark we want to make on the world. I will say that we've had very good risk-adjusted returns in the four years that we've been doing this. So we've got something nice and solid to work with, but there's lots more to what we're doing than that.
Michael: So, the third category that you talked about is active, engaged owners of public companies. So participating in shareholder resolution campaigns and doing proxy voting. So can you talk to us a little bit more about just how you handle and do that in practice?
How Lisa’s Firm Supports Active, Engaged Public Company Ownership And Investing Directly For Impact Outside Of Public Markets [46:47]
Lisa: Sure. We do it in coalition with others. And so we are members of a coalition called the Interfaith Center for Corporate Responsibility – which to go see how many trillions of dollars in assets that they represent. But it's an organization whose members include a lot of asset owners, a lot of them faith-based. And as well as asset managers that serve that market. And for many years now, ICCR has served as a sort of home for shareholder resolution work in dialogue with companies on issues around environmental sustainability, and economic justice, and human rights. So, how we do that is we have had the opportunity to work with other lead investors on shareholder campaigns and dialogues. So we've sort of added on to those. We've been in the position of leading, at least so far, just one shareholder engagement and that's in process and going relatively well. And then we actually, at this point, are still voting all the client proxies ourselves. One of our team members does that. And we're looking at outsourcing that. There are a number of services that do that along social principles and proxy voting policies.
Yeah. So I would say that just back on the question of shareholder engagement, that's really something that separates a lot of the ESG product providers. And it's something that if you're serving clients in this arena, it's probably pretty important to look at how engaged is the manager of the ETF or mutual fund in which you're investing. Clients are increasingly savvy about that but they are very concerned when the same company, and this is true for most of the major asset management firms, the same company that is touting its ESG index or fund is also voting against resolutions on climate change or diversity. And that can be problematic. And I will also say that over the decades that shareholder engagement has been quite active, there has been a lot of change within corporations, usually on the margins, but meaningful change that's resulted from those campaigns. So it is an important tool and it's one that anyone wanting to do this work should be pretty familiar with.
Michael: And then the fourth category of kind of tools that you talked about is investing directly for impact outside of public markets. So, can you talk to us a little bit more about, what does that mean? What are you doing in that regard with clients?
Lisa: Yeah, and most of that fits either outside the public markets or increasingly in more easily accessible, fixed income instruments. It can be on the equity side as well, but unless you're in the ultra-high-net-worth world, it's hard to touch a lot of what's happening with private equity. So most of it sits on the debt side. And most of that is investing so that you're helping capital to flow to underserved markets where it might not otherwise flow. Right? So, in the U.S., there is a set of organizations called Community Development Financial Institutions. It's a treasury designation. And in fact, these CDFIs, as they're known, get some of their funding from the treasury. And they typically run revolving loan funds for things like affordable housing for small business development, for nonprofit, other public facilities. Many of the CDFIs, an increasing number, are raising capital from investors to fund those revolving loan funds. And that experience for investors fits pretty nicely into a fixed income portfolio. There have been very, very few, in fact, I don't know of any losses or defaults in that world. Some of the CDFIs, I believe six of them have recently introduced instruments that have been rated by S&P and are available now on the bond desks at Schwab, Fidelity, Vanguard, etc.
And so that's a core part of what we're doing in the impact world is investing in CDFIs, whether that's through a publicly available instrument, or if it's through more sort of paper and pencil business, stepping outside our primary custodian, which is Schwab and investing in those more directly. And then we do a little bit of investing in the alternative space, particularly around renewable energy. There are a couple of funds that we are involved with. And so that's primarily the impact piece on our side.
Michael: It's an interesting way to frame it, but I feel like the traditional discussion around impact investing is still very equity-centric. It's investing in maybe a different set of companies or a smaller set of companies or companies that are seeking to have a social impact, but it's still sort of investing in their equity-based as a focus. I think it's interesting how you framed it that a big piece of your impact investing is thinking about it on the fixed income side, that at the end of the day, you can invest equity into certain impact investment opportunities, or you can effectively lend money by bonds, which is funding money at the end of the day. You can lend money or facilitate lending into communities or areas that have a need and try to drive impact that way.
Lisa: Yeah. Yeah. And it's really interesting. I mean, you can take that word impact and think that anything you invest is going to have an impact in some way. So you can look at impact investing very broadly. We could take the thematic investing that we're doing in publicly traded equities and say that's impact. And at some point, a lot of these terms and different terminology that we use around social investment, ESG, impact investing, sustainable investing, they have nuances in their definitions, but they start to run into each other. So that gets a little bit confusing. But for us, the place that we get most excited about creating that impact is on the fixed income side. And especially that's where it dovetails very interestingly with some of the planning challenges that we have for clients around, well, how much growth do you need? How much growth is enough?
If the goal for a portion of the portfolio is really more around the preservation of principle, then maybe we can introduce impact into that piece in a different way. And we have quite a few clients who especially since the pandemic have come to us and said, "That's exactly what I want to do. I want to take this piece of my portfolio and dedicate it, not so much for growth. I have enough growth. I want to dedicate this to that type of impact investing." And it's interesting because that type of impact investing involves recycling capital and ongoing impact. And it's quite different from philanthropy, which, of course, at its root has a negative 100% return. And from a financial standpoint, can have, certainly, important social impact but a number of investors are thinking about that that as a spectrum and they want to be able to do things in between being sort of having a growth-oriented portfolio and having money that they're giving away. There's this whole world of possibility in the middle.
Michael: So what is like the platform and the tools that you use to do this and implement this? Are you still in, I guess they're calling traditional RIA custodian world? Are you on different platforms? What's the technology that powers this? How do you implement it at the end of the day?
The Platform And Tools That Lisa’s Firm Uses [54:42]
Lisa: Yeah, no, that's great. We custody most of what we do at Schwab. So very conventional. And we're using pretty conventional tools. Our technology suite includes things other people are using. So we use Black Diamond for our portfolio reporting and we also use their rebalancing tool. And that platform enables us to track all of the non-publicly traded investments in a pretty nice way. They have an alternative asset piece that works pretty well for us to be able to do that portfolio reporting. We use Redtail as our CRM, and that also helps us track all of the different issues that our clients are concerned about. We use MoneyGuidePro for our financial planning work. We are now using Asana to manage project-based work that we're doing. And we're about to do our first real client meeting surge. So things like Asana are good tools for us.
And so, as I said, pretty conventional set of tools. We also use for research of all different types, whether that's market level or equity analysis, Thomson Reuters Eikon platform.
Michael: I'm struck in particular by the use of Asana, which for those that aren't familiar with is a task management system, but a bit more robust than just a to-do list with things to check off. It's a full-scale task management and project management system. I guess I'm curious like why Asana opposed to some of the task and workflow capabilities within Redtail if you're already using Redtail? What led you to Asana or what are you doing at Asana that you can't do in Redtail or anywhere else?
Lisa: So we started using Asana pretty recently for a couple of reasons. One is that it's been really accessible for everybody on our team, especially as we've moved to doing work remotely in the pandemic. Everyone on our team can get into Asana and work very well. You know, it makes it very, very easy to assign things to other people as a communication tool. So it's conceivable that we could eventually move some of those workflows to Redtail, but not everybody on our team is that familiar with Redtail. And Asana has been just a really easy access point for us. Asana is more of an internal management tool for us. I know that we haven't tapped all the capabilities of Redtail in terms of managing workflows for clients and especially anything that might be externally-focused. So that's coming.
So we've grown so quickly over these last four years that we've really had this sort of challenge of building efficiencies and workflows to be able to manage that in a smooth, seamless way. That's our focus for this year. We're very, very happy to have the clients we have. We love our clients. And again, it's a nice problem to have a lot of demand for what we're doing. We've grown almost exclusively through word of mouth from our existing clients, which is great.
So that's a long-winded answer to your question about Asana versus Redtail. Asana has been easier. That's the answer so far.
Michael: So talk to us a little bit more about this growth path. You said you didn't do a lot of marketing. You've grown heavily by word of mouth. You've gone from 0 to 90 million of assets under management in 4 years, which is a really big growth number relative to most advisory firms, especially you getting started from 0. And obviously, it's harder to do word of mouth when there aren't any clients yet to refer you. So you've kind of got to get going. And in a city like Boise. I'm not trying to knock Boise, but just a lot of advisors that build businesses, if we look at the end of the day, advisors are very concentrated in large metropolitan areas because there's just literally a certain density of wealth. So mathematically there are more clients opportunities. So you have this fast growth in a town like Boise. Help us understand what this growth path looks like. Like, when you went out and hung your shingle four years ago, over your 200-square foot cubicle getting started, where did the first clients come from? How do you get going? I know you have industry experience and background. You weren't totally new to the business. But just how do you get going at this from scratch and figuring out how to find the clients who value this ESG investing approach that you've got and all the rest of the planning work that you wrap around it?
How Lisa Attracted Clients Who Valued ESG Investing To Grow Her Firm [59:28]
Lisa: Yeah. Yeah. It sort of surprised me when we first hung that shingle and put up a website. So we certainly did do that. And I let a few of my old clients know that I was venturing out to do this. And a number of them said, "Sign me up," which I'm hugely grateful for that faith and confidence that they had in me that early stage. Just as you've said on this podcast so many times, the growth was relatively modest through the first couple of years, but it was very much clients were having a good experience and had told others. But every time a new client would show up, someone would send me an email or we'd answer the phone and we'd say, "Oh no, another new client, what do we do?"
So that happened more rapidly than I thought it would. Then when we hit three years, then things really dovetailed. And we had lots and lots of people coming to us over this last year. And I think more than anything, it's an indication of there being just tremendous demand from people who want to invest well, invest wisely, soundly, so that word of mouth is important, but also to do that in a way that fits with their values and where they know they're helping to be part of solutions around a changing climate or around economic and racial justice. And so, when they find us, when they stumble across us or when a friend refers them to us, I think there's this sort of, “Oh my gosh, yes, this is what I've been looking for. This is what I want to do.”
So that's largely how we've grown, and going forward, we do want to be able to tell more people our story. They think it's an important one. I haven't talked much about our team, but we have a team of people with diverse backgrounds. I think that's a big part of our strength. And we are very accessible and personable and all of those things that our clients, we really get to know them. I think that a personal approach is helpful. Obviously, there are scale issues with that. The experience that we're delivering for clients has been very positive. So, so far so good.
Michael: Yeah, well, I'm struck great. I mean, I think a lot of advisors would love to get started, have word of mouth just to get going, have others refer them, and gain the kind of traction you have. I mean, I think it's striking what you put out there because of the investment approach and the business approach to what you're doing is in a very literal sense, very differentiated than any other, or at least in most other financial advisors. And so, I thought you framed it well, or that just, if there are enough people out there sharing your story, every now and then they're going to talk to someone who really, really values that. Who will say like, "Oh my gosh, I've never found an advisor that does what Lisa does. This is exactly what I've been looking for. I got to get in touch with her or you got to introduce me. I got to reach out." Whatever it is. What you get when you take such a differentiated approach, when you focus in so much with a niche is when someone happens to come across you, who is a fit, business just sort of happens.
And when you're a broad-based advisor, in theory, you can work with anybody, but in practice, no one gets that moment of like, "Oh, you are exactly what I've been looking for. Just like every other advisor I've talked to who says they do the exact same thing that you do." It happened for you, Lisa. It does, I think, for the generic you advisor that clients have so much trouble telling us apart now. That's why they search for us by zip code. Because when you can't tell which advisor is what, and who's better, you just pick the one that's geographically convenient and call it a day.
Lisa: I also think we are very authentically what we are. We only do sustainable and impact investing. Everything we do has that lens. We're a B Corp because we want to do better things in the world ourselves, right? So when we start working with a client, there is this very wonderful dovetailing of shared values that's hard to replicate. I get asked by a lot of other advisors, "How do I introduce ESG to my practice?" Or "I have a client who really wants to invest the way you're describing." There are some wonderful funds and there are other tools to help people along that path. I've mentioned a couple of them. There's a trade association, that's the forum for sustainable and impact investing, which is great. USF is their acronym. All of that is out there. But I will say that it's much, much harder to do this if it's not all your doing. It doesn't resonate with clients the same way. You just don't have that shared experience.
When we start working with a client, the journey that we're going on is around, okay, let's figure out how all the things we need to do to make your wealth grow and work for you the way that you need for you and your family. And then, once we've done that, and we've explored what enough is, how that's defined, how do we move beyond that? Starting from that point is a really wonderful thing. That's the thing that excites me so much about where we are now at Figure 8 in the business that we're doing. As I said, I've done the active equity management using all the tools of avoidance, and the ESG integration, and shareholder advocacy, and all those things. That's great, but that's just one component of this larger journey about how do we start to think about where we fit into this larger picture. And I think a lot of those issues have become much, much more present now with the pandemic laying bare so many of the economic injustices that underlie our economy. I know I'm starting to get a little bit political here, but our clients share those values. And these ultimately are the deep questions that they're asking and we're asking them too. That's what we want to do with them.
Michael: And I think, again, that's what makes it work as to, like, how does word of mouth get you to 90 million of assets under management in 4 years? When there's a certain subset of clients out there, at least for whom this really is a driving interest and passion, right? I mean, I can imagine the conversation when one of these prospective clients learns about your services, and heck, if they've got some dollars, they may have an existing advisor. So they go to their existing advisor and like, "Well, I just heard about this ESG investing thing and I'm kind of interested in it." And the advisor says, "Well, we can do that for you here too. I mean, we can do that. There are some ESG funds, we can allocate some of your dollars into those." And you can offer that as one of the things that you offer, but as your tracker, as Lisa has sort of demonstrated on this, at the end of the day, those clients still made a switch. Any of them who had an advisor, had someone that could have offered them some ESG products, solutions, something to get implemented. But at the end of the day, the client just didn't pick someone who could sell them that product. They picked someone who actually aligns with their beliefs that their investing style happens to also represent and align with.
Lisa: Yeah. And again, I think it's not just the investing style, it's this more holistic set of planning issues around really exploring, “What do I need? What's my role in the larger society? What's my wealth's role? What can I do with that? Where do I fit?” So, yeah, absolutely.
And I also want to say that at the same time that I'm so proud of what we're doing at Figure 8 and the way we're working with clients. I also think that what's happening with the increasing popularity of ESG across this advisory space is fantastic. It's moving the needle. It's all good. It may not be how I personally define the lines between what fixes ESG and what doesn't, but it is all progress and I'm really glad to see it.
Michael: And so, then help us understand a little bit more, just how do you define the clientele that you're going after? I mean, we've talked about the investment and planning process of what you do for them and that it aligns for them. And that's part of what appeals to them, but how do you think about the clientele themselves when you're trying to figure out who's a good fit for us, ultimately, how are we gonna find them and engage them? How do you think about the clientele in this model?
Lisa: Yeah. Well, I can tell you that we have this really super awesome psychographic niche of people with shared values. But they look really different if you look at traditional demographics, which can be a real challenge with serving them with this very diverse set and traditional demographic metrics. So, our current clients fall into a few key buckets.
One, people with inherited wealth. And these folks have been drivers of social investments since the beginning. I think that people who have had a long time to really think about what their wealth means, that's intergenerational. And for us, those clients tend to be relatively young. They're often female, though not all. So that's one piece. And many of them are also working and earning income, but they also know that they have this inherited wealth to fall back on. So that's one.
Two, we have a pretty significant set of people who hover around retirement. They're approaching retirement age, or they have just recently retired. And so they have all the same sort of planning and lifestyle challenges that any other folks that are retiring would have.
And then we have a pretty significant set of what we're calling ‘emerging investors’. And those are folks who are earlier – and perhaps very early on – in the building wealth and in investing. And a lot of our emerging investors come from diverse backgrounds. Part of our mission is to have a more diverse team that serves people from more diverse backgrounds, particularly underserved backgrounds. So whether that's people from immigrant or minority communities or lower-income communities where there is a very low level of financial access and literacy. In our next phase of Figure 8, we want to put a set of services around that. And I know that you've had a number of people on the podcast who share that mission. And I'm so excited to know that there's a significant number of CFPs and RIAs out there wanting to serve those folks. We're among them. And we have some of those on our client roster now. People who would fit in that emerging investor category. We'd like to do a lot more going forward, which will probably involve a sort of community-based learning approach and practice
Michael: One, I'm struck just by the nature of what happens when you take on this kind of niche, as you noted this sort of psychographic, this niche around certain preferences that people have in the marketplace, as opposed to doctors or architects or retirees or something that's age-based or simply something as wealth-based like you must have a million dollars to ride this ride. That you've got prospective retirees and older clients who come to the table with one set of planning needs. You've got young people who might be even wealthier because they came to the table with inherited wealth. And you've got young people who may have little to no wealth because they're emerging investors, but they also care about this from a different frame. Because I guess that does make me wonder, how does your fee model work and how are you charging clients when you're getting people all across the age spectrum, all across the wealth spectrum, potentially very different planning needs depending on what context they're coming from?
The Fee Model That Lisa’s Firm Uses To Serve A Wide Variety Of Client Types [01:12:29]
Lisa: Yeah, yeah. No, those are great questions. And so we still have a very traditional AUM model that works pretty well for the retiree segment and the inherited wealth segment. And I say pretty well because our firm is running and profitable and that's worked so far. We know we need to change it. It's part of why I decided to enroll in the Limitless Advisor program, which has been fantastic. We actually were about to change our fee schedule – I'm glad we didn't when the pandemic hit. And most likely where we'll be going with that is that for those more conventional clients, we will keep the AUM schedule as an ongoing fee, but also introduce likely a fee-based planning piece, at least for the first year, for the more intensive planning work that we're doing together, that we all know, well, it's just very involved and has no value on its own.
And as I think about that, and as I proceed with the Limitless Advisor program and get to know lots more people in the planner community, I think they're real possibilities for partnering with people on that. Because as we have clients who have specific planning challenges, whether that's medical, professionals, or people with adult special needs kids or somebody who has a very specific type of business, I keep thinking of Adam Shamila, who I know has been on the podcast, who in the Limitless Program is one of the coaches and is sort of the poster child for focusing with your niche. He works with optometrists almost exclusively, which is wonderful. If we ever have an optometrist who shows up at Figure 8 with shared values and all of those things, there's no way I'm not going to call Adam and say, "What do I do? I don't know those things that are specific to someone who's running an optometrist practice."
So, I think that as we think about the planning challenges going forward, it probably means a different fee structure. And it may also mean that we're doing some outsourcing and partnering around the very specific issue-based planning. And I will also say that I hope that that's mutual, eventually, because I think we have something to add to folks who fit in a demographic niche, but who also have those real questions about how do I give back? Or how do I think about the wealth that is beyond enough for me and what I can do with it?
Michael: So, what surprised you the most about trying to build your own advisory business?
What Surprised Lisa The Most About Building Her Business, Her Low Point, And What She Would Have Done Differently [01:15:14]
Lisa: I think, well, some of the biggest challenges have come around people, especially as we've built our staff both from conventional talent pipelines and unconventional ones. No matter the pipeline, people are complicated. And I think that's also led to... I know that you're probably going to ask about the low point for us, which came probably about a year and a half in and related to just personal challenges. And I think, I hadn't thought through enough what happens when you hire people and give them opportunities to train, to learn your specific brand of business, and then life happens, and maybe they're not able to continue. And that happened to us in pretty rapid succession about a year and a half in. And we had two people who, because of relationship issues left. One of them, a relationship that broke up and one, a relationship that ended up being not in Boise, left us for those reasons. And then a key person who had been running our client services got terminally ill.
And I have to say that that impacted us in every way. It was sad and awful and really super challenging from a business perspective because she desperately wanted to work, we desperately wanted her to be able to work, and yet she couldn't. And all the challenges around that were a huge surprise to me, not just not anything I had anticipated.
And so, I learned a lot through it. We got past it. A couple of our other employees who were still part of our team went way outside their comfort zones to help us get through it. We eventually made another great hire. And again, when we hit three years, things really started to gel. But yeah, I think that the personal challenges of our staff have really been the things that surprised me the most. How that's impacted our business.
Michael: So you said you learned a lot going through it. Are there takeaways or things that you would have done differently or just sometimes life is random and business is random and things just happen? Like, what...?
Lisa: Yeah. I think one of the things I learned is for a small business owner, even from the earliest stages, disability insurance, and life insurance have a role to play, not something I had really been putting in my calculus from the very beginning, especially with young employees. Now we have those things in place.
Michael: Meaning offering and making it available to them?
Lisa: Yeah, absolutely. Yes. Yes. Because that challenge of having an employee who can't work, who wants to work, where you've been their primary support source of income, it's just a hard thing to carry emotionally, morally, and financially. So that's a pretty concrete takeaway is those things that we help people with from a personal planning standpoint, even from the earliest stages of a business, have a role to play. It's hard to get disability insurance, by the way, if you're a small business and you haven't been in business for very long.
Michael: Yeah, unfortunately. Ironically, one of the areas where a lot of like our industry membership associations often still play a role. Because there's a least a moderate amount of group disability. You can still get through organizations like FPA and NAPFA. It's maybe not the most robust coverage relative to what you can get individually underwritten, but depending on the stage of the business and age and health, you may not be able to get individually underwritten disability insurance, and getting something in place may be better than having nothing in place.
Lisa: Absolutely. And that's absolutely my key takeaway. So, but also, from that, as I said, it was surprising to me, also pleasantly surprising to me was, again, how we got through it, that we got through it, our team showing commitment, and being able to sort of persevere through something that, at the time, when I wasn't sure I could see how we could keep going or serving clients at least, or it was hard for me to see past that. Here we are on the other side of it and it's good.
Michael: So what got you through that?
Lisa: Well, in part, as I said, the resilience of our other team members. In part, sheer grit, in part the fact that, to our clients, you're still providing them with the experience they expected. And I really desperately wanted to be able to keep doing that. So I was very motivated to get through that. And as I said, we were very fortunate to be able to make a couple of key hires and one, in particular, that helped us get to the next level.
Michael: So, as you look back now a couple of years and 90 million in AUM in, is there anything you wish you could go back and do differently as you were launching it and getting it started? Like, there's stuff now that you wish you could have known than when you were launching this?
Lisa: Yeah. I wish that back then that I had had the confidence that I have now. Now I know that I'm very confident that what I personally have to share with the world, with my growing professional team, with our clients is something that has a lot of value. I think I still had a lot of doubts when we started. And, of course, you don't know what's going to work. I wish I could go back and tell myself that. I wish that I had said no to a lot more things from the beginning, in particular, getting involved with some sort of tangential things, especially charitable things that appeal, but that take time and maybe weren't the best-focused use of my time at that time.
I think when I started, I had this sort of mantra that I would say to myself that I would have repeated a lot more often. It resonates a lot now, which is "do what you can with what you have from where you are," which I – Teddy Roosevelt said originally. But I wish I had chanted that to myself every day because I think that's really what this is about and what keeps me going now.
Michael: So I'm curious as well, like maybe it's part of the Roosevelt quote, but what would you have said to yourself to not go do all those slightly tangential charitable things that I'm sure it felt really good and appealing at the time, but in retrospect, maybe weren't the best use of time? It's always easy after the fact to say, I wish I hadn't done that, but in the moment, then we still keep saying yes to them because it's something we want to help or someone in need or they've made a really good ask and they sold a compelling story. Is there something you're actually would have said to yourself to try to dissuade yourself from this?
Lisa: Absolutely, absolutely. And it goes back to a lot of the work that we've been doing in the Limitless Advisor program, which is around, I don't know, the book "Essentialism" has really resonated with me. That's one of the pieces of the curriculum. You know, this idea that if you want to do big things in the world, you have to do those big things, which means that you can't do all these other things. And that for someone like me who has strong perfectionist tendencies and strong, just I'm ambitious and I don't want to let people down and I don't want to say no, that to be able to do those big things, you need to stay focused on them. And in fact, perfectionism and ambition can get in the way of doing those big things.
So, I understand that intellectually now in a way that I didn't understand at all back just a couple of years ago. I think my mindset was do more all the time. Don't let folks down. Even if I had that kind of "Oh boy, you can't take on one more thing, Lisa." Even if I had that feeling, my brain would be saying, "Come on, you got to do more. You got to do more. You got to do more." Now, I have that intellectual understanding that, yeah, focusing on your highest and best use is a really important thing. And I'm working on the emotional sort of mindset side of not giving in to those perfectionist things and really checking myself and saying, "No, you don't have to do everything and you don't have to do it all now." So that's it.
Michael: So what advice would you give to advisors that are interested in going further down this road of ESG investing and impact investing? And somewhat you talked about, most advisors do not have your depth of experience. We didn't get to talk about the fact that you've done this for literally several decades in a wide range of large institutions. You have an extremely rich expertise and skillset around ESG investing, and being able to do it down to an individual stock management level that just is not necessarily where a lot of advisors are. Either they don't have that level of expertise or they just don't have the systems and structure in place to be able to manage portfolios at that level. So, for those who may not have the same kind of expertise and capabilities that you do, but they want to start going in this direction, where would you tell advisors to start focusing?
The Advice That Lisa Would Give Advisors About ESG And Impact Investing And How She Defines Success [01:25:08]
Lisa: Yeah, I think there are a couple of really key tools. There are some wonderful things out there. Resources that can help. So one is, I always call it sort of our trade association, but US SIF. It used to stand for the US Social Investment Forum. Now it doesn't stand for that at all, but it's the Forum for Sustainable and Responsible Investing, I think. But they have wonderful educational materials, conferences, things geared towards advisors. They've actually partnered with the College for Financial Planning to do a specialized certification in sustainable and impact investing.
Michael: There was a chartered SRI advisor designation now – the Chartered SRI Counselor.
Lisa: Yeah. And I don't know a lot about it. I don't know if you do, Michael, but I'm so glad to see that. And so that's a function of US SIF. US SIF also has a membership directory, so it can be helpful for anybody who is seeking to do more of this business. And they also have sort of a portal into all sorts of products. And whether that's separately managed accounts or mutual funds or ETFs that use all the tools that sustainable and impact investors want to use. So, that's resource number one.
Resource number two is there's a nonprofit called As You Sow. And they have in the last couple of years, come out with a really terrific set of screening tools that can be used on any mutual fund or ETF that holds U.S. equities. And there's a fossil-free fund screener, a weapons-free fund screener, a tobacco screener, a gender screener. And they can both tell you what exposures any given fund has and can help you find products that might fit for your clients. But they're also a really great way to see the full range of issues that investors and clients who want to do this type of investing, the things that they're interested in, and the things that they're watching.
And the other thing to know is that those As You Sow screeners have become very popular with the end-user market kind of. So it would not be unusual at all for a client to come in and say, "Oh, I just took the funds that you invested me in and put them through those screeners. And here's what I found." So anyone wanting to do this business should definitely take a look at those. I think those are really wonderful places to start. And I will also say that I'm very happy to talk with other advisors that are looking to learn about ways to get into this business because it's important to me to promote the concept, the tools, and be able to help serve clients who want to use their wealth for good.
Michael: I appreciate that. And again, for those who are listening, this is episode 194. So if you go to kitces.com/194, we'll have links out to US SIF and As You Sow, and how to reach Lisa directly through her website or LinkedIn, so you can connect as well if you want to.
So Lisa, as we come to the end, and this is a podcast around success. And one of the themes that always comes up is just the word success means different things to different people and even different things to us as we go through the stages of our career. So, you're both building this incredibly successful advisory firm that's grown very rapidly in a few years, even as you noted earlier, an advisory firm for wealth-building wasn't actually the focus, although it may happen to work out well that way, how do you define success for yourself at this point?
Lisa: I think I want to be a catalyst to show that some parts of this business can be done a little bit differently. That we can open doors to both professionals of more diverse backgrounds and to serve clients of more diverse backgrounds. And want to, through that, make it possible for a whole lot more people to be able to invest both wisely and with impact. With Figure 8, I think I feel successful if I'm able to build something that's beyond myself. That sustains me, that provides those opportunities for the next generations of finance professionals and impact-focus clients. I also want to be able to get on the beautiful trails here in Boise regularly. So that's part of my personal life-balance success.
Michael: Yeah, I guess the one good thing about the pandemic, at least for something that otherwise shut us down, we are at least still able to go outside and walk and hike and enjoy a little bit of nature.
Lisa: I moved to Boise 20 years ago because I fell in love with the landscape here. And in 20 years, there has not been a day when I don't wake up and say, "Oh my gosh, I get to go be in these surroundings." It's wonderful. And through the pandemic, it's meant more than ever. So yeah, absolutely.
Michael: love it. I love it. Well, thank you so much, Lisa, for joining us on the "Financial Advisor Success" podcast.
Lisa: Thank you, Michael.
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