Welcome back to the 231st episode of the Financial Advisor Success Podcast!
My guest on today’s podcast is Michael Goodman. Michael is the Founder and President of Wealthstream Advisors, a fee-only RIA headquartered in Manhattan that manages over $1b in assets for 350 client families.
What’s unique about Michael, though, is that he used his early experience as a CPA to transition into a career as a financial planner, starting first as a solo practitioner before making a deliberate decision to build out a large ensemble firm that can persist and sustain even after he retires.
In this episode, we talk in depth about the convergence of the tax planning and financial planning professions, how early CPAs pioneered the wealth management model by running what were essentially family offices offering affluent clients comprehensive tax and financial planning that expanded into RIAs helping with investment management as well, how the breadth of business knowledge that CPAs obtain as part of their stringent education offers a unique perspective on the planning process (and as Michael put it, “a bigger lens to work from”), and how working with a consultant was the catalyst to help Michael change his mindset from maintaining a CPA lifestyle practice to building an enduring RIA enterprise (and how building and being part of a larger team ended out being the aspect of business ownership that Michael enjoys the most!).
We also talk about Michael's own journey through the financial services industry, why doing audits of small- to mid-sized business as a young CPA gave him the equivalent of an MBA education in business management (while getting paid to do the work that was giving him such an invaluable education), how Michael moved to what at that time was a Big Six accounting firm but ultimately found the work unsatisfying because he lost the human element he enjoyed so much, and how Michael’s involvement with the AICPA’s Personal Financial Planning membership was the pathway to finding mentors that he could model after as a planner and business owner.
And be certain to listen to the end, where Michael shares the specific hires he made as his practice began to expand (including a lead advisor as well as a COO to free up his time to work on the business rather than in the business), the specific types of traits and experience Michael was looking for as he filled those roles, the mechanics of the valuation process Michael went through in order to bring in shareholders in order to build for the next generation, and how changing Michael’s mind around hiring younger planners just out of college has turned out to be a hugely satisfying professional experience.
And so whether you're interested in learning more about Michael's journey from starting out as an accountant and ending out as a financial planner, the deliberate steps he took to transition from a lifestyle practice to a multi-generational firm, or how he structured the sale of equity in his firm, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Michael Goodman.
What You’ll Learn In This Podcast Episode
- Michael’s Perspective On The Intermingling Of The CPA And Financial Planning Communities [05:38]
- Michael’s Journey From Starting As An Accountant To Ending Out As A Financial Planner [14:40]
- Michael’s Initial Vision For The Financial Planning Firm He Launched [26:44]
- The Lessons Michael Learned From Folding His Planning Practice In With An Accounting Firm [36:05]
- How Michael’s Involvement With The AICPA Helped As He Launched Wealthstream [41:22]
- How Michael Decided To Transition Away From A Lifestyle Practice And Start To Intentionally Grow Wealthstream [46:21]
- How Michael Mapped Out The Plan To Grow Out Wealthstream [56:44]
- How Michael Got Comfortable Transitioning Client Relationships To A (New) Senior Advisor And The Other Hires That He Made [1:01:28]
- How Michael Structured (And Thought About) The Sale Of Equity In Wealthstream [1:06:53]
- How The COO Role Fit Into Michael’s Plans For His Firm [1:12:44]
- What Wealthstream Looks Like Today And What Surprised Him The Most About Building An Advisory Business [1:15:47]
- The Low Point On Michael’s Journey [1:20:01]
- What Michael Knows Now That He Wishes He “Knew Then” And The Advice He’d Give To Newer Advisors [1:22:02]
- What Advice Michael Would Give To CPAs Looking To Transition Into Financial Planning And What Success Means To Him [1:24:44]
Resources Featured In This Episode:
- Michael Goodman
- Wealthstream Advisors
- AICPA & CIMA Personal Financial Planning Summit
- Eliza De Pardo Consulting
- DeVoe & Company
- Virginia Tech Financial Planning Program
- Texas Tech Financial Planning Program
- #FASuccess Ep 005: Mark Tibergien On The Rise Of The Professionally Managed Financial Advisory Firm
Michael K: Welcome, Michael Goodman, to the "Financial Advisor Success Podcast."
Michael G: Thank you, Michael. It's a pleasure to be here knowing you so well from close and from afar for so long. It's wonderful to be here and spend this time with you, so thanks for having me.
Michael K: Oh, absolutely. I really appreciate you joining the podcast and coming out to talk with us today. You and I have gotten to do a lot of work together through the AICPA and its Personal Financial Planning section. From my end, just as someone that's been involved with a lot of the industry organizations over the years, I feel like the AICPA's Personal Financial Planning world lives in its own world and domain that's a little bit separate from the rest of the financial advisor world of FPA and NAPFA and FSI and NAIFA and all of those organizations. It comes as an extension from the CPA roots. Literally, it's a section of the AICPA and the world of accountants.
But one of the themes that I'm seeing so much more in our advisor world is more and more advisory firms are incorporating some level of tax planning advice in what they do. Maybe not the full-on tax compliance, tax preparation work, although some are doing that, but a lot more advisory firms that are doing some tax planning work as part of their value-adds, and at the same time I know the CPA world has had a lot of its own challenges, the rise of technology, the rise of large discount tax prep competitors. It put some pressures in the CPA world that's driving a lot of them to say, "If you don't like all that tax preparation work and the brutal seasonality of tax preparation, have you ever considered financial planning and wealth management?"
I'm watching these two worlds that have not really overlapped that much over the years, suddenly converging and overlapping with each other more and more. And I know you have very much lived that divide, came up through the traditional accounting firm at, I was going to say Big Four, but I guess it was more than four back then, but through the big accounting firm world, came over into the financial planning world, have been in financial planning world for the better part of 20 years now. I thought it would be really interesting just to have this conversation about this convergence of the financial advice business, the tax planning and advice business. I know advisory firms are looking more and more at this, of the growth in tax planning, but how does someone that comes from this CPA tax world look at the journey into the financial planning business?
Michael’s Perspective On The Intermingling Of The CPA And Financial Planning Communities [05:38]
Michael G: It's definitely been a unique ride and I think that the CPA community itself has a different lens to this for a couple of different reasons perhaps. First and foremost, I think some early CPAs were maybe running what they didn't even know at the time were like small family offices in a way, where clients would go to their CPA as their business advisor and their personal advisor. And CPAs would get involved in doing planning and didn't even know it was called financial planning back then. Early on, there were a lot of CPAs that did this work, advised even on investments in some way without even knowing they were doing financial planning, and some of the very early RIAs were CPAs and they had their own community. They didn't know or interact with some of the other lines or ways of broker-dealers or other investment advisor organizations.
Michael K: Right, because this wasn't from the roots of being investment managers, this was the roots of being the personal accountant for a family or a business owner that then morphed into giving accounting advice and tax advice, and then business advice, and then, “I've got all this other wealth and what should I do with it?” And, “No, we can help you with that as well.” And suddenly, accounting-based work for some affluent people with a lot complexity turned into, they were actually giving a lot of advice and ended out spinning up RIAs to do it.
Michael G: Yeah, that's right. We actually like to say that CPAs have been doing financial planning for probably over a century. We just didn't know it was called financial planning.
Michael K: I feel like you've already thrown down the gauntlet. “All you CFP folks celebrating your 50-year anniversary. Accountants have been doing this for 100 years.”
Michael G: Yeah, I wouldn't necessarily say that, of course. We do joke that CPAs are uniquely qualified, but at the end of the day, the financial planning profession itself has really become a much bigger group of people and we're all commingling pretty well these days. You can look at most firm's websites, you'll see maybe some firms are a little more CPA-centric, but you'll see CPAs and CFPs in most of these places, even though it's not 100% like that, for the most part you'll see a lot of that. Even if you look at some of the bigger accounting firms that have large wealth management practices and there are a lot of CPAs on the website. You'll see some non-CPAs that are hired to work in the wealth management side of the business, so I think we are seeing a slow convergence of the two in a way.
Michael K: I know a lot of very successful advisory firms that got going in the '80s and '90s that came very directly as spinoffs from the big accounting firms that were doing predominantly high-end financial planning for executives, because that was really where the market was. Today, we have a lot of standalone firms that do investment management and consulting for executives as their niche, but back then it was very heavily in the big firms like Pricewaterhouse. And a lot of advisors actually cut their teeth as CPAs doing what I think we would still very much recognize as financial planning today, for executives as a particular focal point as an offering for the accounting firm and then said, "Actually, I just want to go do this on my own as an independent. I'd rather do it on my own than in the big accounting firm environments," and they spun off and launched their firms and built from there.
Michael G: That's right. There's some really big firms that have accumulated a substantive practice, merged and created even bigger companies in that way. I think some of the leading large firms in the country have some, if not all of their roots in that angle. But what's, I think, important to point out is that tax planning in general has just become such a big part of financial planning, and CPAs, of course, have that natural part of their education and many of them have worked on that side of the business so I think we're always going to see that. But it is something that you don't have to be a CPA to necessarily learn, it's just the training and the putting into the fire kind of an education and workload that is typical among CPAs does uniquely qualify them to work in that tax planning world.
Michael K: And certainly in a realm where a lot of us in the financial planning world talk about trying to lift standards, lift standards of care, to be client-centric, lift educational standards and competency standards relative to our industry's roots, where you needed basically a sales license (because that's what a Series exam is) in order to sell a product and it was (all told) a fairly low bar. If you want to be a CPA, you're talking undergraduate school, graduate degree, very rigorous CPA exam, years of work experience. The path has always been a lot more stringent on the CPA side. I think the financial planning side is still catching up.
To me, one of the things that's always struck me, and frankly one of the reasons why I've always liked being involved with AICPA's financial planning section is that anybody in that room started with a graduate degree before they even ever set foot into an advice firm. Not to try to be educational elitist around this or anything, but it's a high bar so you tend to get a pretty darn sharp bunch for anybody that comes to financial planning through the accounting world. Just that undergraduate degree plus graduate degree plus CPA exam is quite a vetting experience for the depth and knowledge of the people that tend to come into the business. They may still have to learn the financial planning side of the business, but have a lot of capabilities as they come to the table. To me, that's part of what's making the crossover from accounting world to financial planning going so well for a lot of them is, they're bringing a lot to the table. Just have to expand the knowledge skillset a little into, okay, financial planning's not quite the same as just doing tax returns and tax advice.
Michael G: Absolutely. I would agree. And part of all that education that you're referring to includes learning a lot of other things. While you might not flex some of those muscles later on in your career you have learned a lot of things, whether it's financial statements or how businesses work and auditing and those kind of concepts, even if, like I say, you never even worked in auditing. It gives a bit of a training that allows you to look at things perhaps a little differently than somebody without that training or without that education. When I go in and work with a client who is a business owner, there's sometimes language I'm using that I don't even realize that I got from my earlier days in accounting to ask some questions and understand how that affects them outside of just the tax work that we're talking about. Even for clients that might not be business owners but might be senior executives in a big company, the idea of asking them questions about their business unit and how they're working and how their careers might develop, I think that helps. It does give you a bigger lens to work from.
Michael K: Just the way that the accounting side gets to show up in the financial planning world as well strikes me for the...you bring the depth but you also get to bring a certain world view. One of the things I've long observed in the world of CPAs is there's two different mindsets I find for CPAs. Some accountants are really, really good at the accounting, and I mean that really literally. Like accounting for things, that just backward looking view, we are going to account for every single thing that happened. They can be great accountants, fantastic auditors, do great work on tax compliance. Then, there's another segment that at the end of the day, they like the forward looking more than the backward looking. They may be accountants but they don't actually like accounting for things. They like the forward view, which is much more of the, as I view it, the planning side of the business. And I find that just the ones that truly like to account for things tend to stay on the accounting side of the business and are very happy with it. The ones that actually have that forward looking orientation and motivation and like to plan, struggle on the accounting side because auditing is only closed facts, not open opportunities, and seem to migrate more to the financial planning side of the business.
Michael G: That's a great point. There's definitely some dichotomies within the CPA world and that is surely one of them. I've noticed that there's definitely a lot of accountants that are really good communicators and can really communicate to a client what's going on and what it means to them, and some aren't. You get back to that old joke, what's the difference between an actuary and an accountant? And it's that the CPA actually looks at your shoes instead of their own shoes. But some of them are pretty extroverted, as you've seen in the AICPA.
Michael’s Journey From Starting As An Accountant To Ending Out As A Financial Planner [14:40]
Michael K: Talk to us a little bit about your journey from starting out in the accounting world, what did you do in the accounting world, and then how did you end out in the financial planning side of the business?
Michael G: For me, it was a pretty weird, long, circuitous story and I didn't even actually start in accounting. My degrees from school were actually in finance and in communication. When I graduated college, my first job actually was working at Bear Sterns, an investment bank at the time, in their "operations training program." The real irony is that one of my primary responsibilities in my first job was operating a DOS-based Advent system of portfolio accounting which...
Michael K: Oh, like good old Advent.
Michael G: Exactly. Exactly. That was part of my job in the beginning. But long story short, I worked in finance for a couple of years and even tried my hand at an entrepreneurial stint before I decided to go back to school or get another job. And when I was looking at the help wanted ads, which they actually had newspaper ads back then, I was looking at the jobs that I was interested in. They all said, "CPA or MBA preferred." And I like school, always wanted to go back and learn more, but the idea of getting this license as a CPA was something that sounded much more secure to me, where I would get this license and I knew I would have a job that I could make a living at. And with the MBA, which is a great degree potentially, it didn't really qualify me for anything.
Michael K: Interesting. CPA is a license. License is a license. It's got to open doors. By definition, being a license, if you can't do it without the license and I've got the license, I have to be able to do things I couldn't have done.
Michael G: Yeah. Maybe it was my dad who was a bus driver in my back ear saying, "Get a good union job." I didn't want to work in that kind of setup, but a CPA license is almost like you're in a union, right? So that could have stuck out in my head a little bit. But I actually went back to school at night to take the equivalent classes because I had the business degree already, so I just needed the accounting stuff, if you will, so that I could sit for the CPA exam. I went and got a job at a mid-size accounting firm and started working there. The mid-size firm was really great. I like to tout my Big Four experience at KPMG because that sounds great to people, but the mid-size firm, we would go out and do an audit and a review of a small business, and we would see how the business worked. You would get to understand if they had inventory and how they had cost of goods sold and how the whole concept worked. But in a small or mid-size firm, what's really cool is after you do the audit you come back and then you have tax season and you would actually do the owner's tax returns from that business. You really saw the whole flow through and for me, what I realized in hindsight was that was the best education I could ever gotten compared to an MBA. And I actually got paid as opposed to paying somebody for an MBA, I got paid to get that education. It was really special to be able to have that sort of view going into businesses and being curious like that and learning.
Michael K: Very cool. For anybody who's listening who's thinking about MBA versus CPA, you've definitely, I think, sold a few CPA licenses over the MBA here. Get your CPA, go do your few years of audit experience. You'll get the equivalent of an MBA education when you audit a bunch of small- to mid-size businesses.
Michael G: Yeah, that's right. To this day, the CPA license is a well-respected credential. I believe that it's a valuable license. I believe that and clients have told me over the years, that's one of the reasons they've chosen me over a different advisor because of that credential.
Michael K: You wanted the more secure business career opportunity, CPA as a license. You went for it. You did night school to finish the classes, got through your CPA exam, went to work for a mid-size accounting firm, started getting experience in the world of working with small to mid-size businesses while you're doing audit work for them. Then, what comes next?
Michael G: It's ironic that you talk about wanting that security, or I talk about it as well, because what comes next is anything but. I worked in that mid-size firm for a couple of years. I wanted to see what the big boys were all about, the big accounting firm, if you will, and I went to KPMG and did that for a little while. I enjoyed it...
Michael K: What was the role or the path at KPMG? What were you going there for or to do?
Michael G: The job was on the audit side and it was the total polar opposite of the experience that I was having at that mid-size firm, where you really narrow into one thing and you work on that one thing for a really long time. The typical client engagement was months at a time, in some cases, there were people that worked on one client pretty much all year round. It just didn't allow for that curiosity for me. It was way too much head down and doing the math, and not enough getting to communicate with people and learning.
One of the things that probably pushed me out the most was, especially at a big firm like that, was that you have to work with people that at the end of the day, it's not theirs. Not that they're not nice. Not that they don't want to do great work. But one of the cool things about our profession is we sit across the table from the owner every day, even though it's mostly on Zoom these days. And we work with somebody and we make an impact on their personal lives. That was harder to do in a big firm and it just made me feel less satisfied even though it was lucrative.
Michael K: Is that because the firm itself was so large, or is that more a function of the clientele that you were getting, meaning you're working with executives or senior managers at companies that themselves are so large, so you're so far removed from the end "owner" or you're in a publicly traded company where there's tens of thousands of owners or shareholders. And it was just the difference between working with really big companies with diffuse ownership versus small businesses where the owner's the owner.
Michael G: That's right, that's right. In the mid-size firm, we dealt with the owners and that was pretty cool. And I contemplated going back to that, but the idea of working more in something that I really found interest in was good, and while I was going through this path and having this anecdotal experience, this is my experience, we all know that everybody goes through certain career paths especially very early in life and make some quick judgment calls and maybe if I would have gone back to a mid-size firm or something else, I would have found it just as rewarding. But all along, I was reading, not only at the AICPA as my membership gave me a lot of information, but also seeing other people and seeing this concept of the financial planning business being created and getting into it. Most of the people that I knew very early on in those areas coming out of school were basically either "stockbrokers" back then, we're talking in the late '80s, or insurance salesmen. Not that there's anything wrong with that, but that was, I knew that was not what I wanted to do. Then, I learned more about financial planning, that this concept existed where you could do a comprehensive plan and really understand what was going on in a client's total life and get into that, that became much more exciting to me.
Michael K: I'm just curious. How did you find out about this? Was there a particular thing or a path or a program or an organization? Where did the awareness come from?
Michael G: It came from a couple different places. It definitely came from the AICPA. They were starting to offer more and more information around financial planning. I remember reading a CPE catalog one night and seeing that you could get a certificate in financial planning and take a series of classes. That started to really get me curious because I was always wanting to learn and explore more. I remember talking to people and learning about the concept of, I think back then it was called IDS, Financial IDS.
Michael K: Yeah, IDS, just as it was transitioning to American Express, yeah.
Michael G: Learning about that, and they did a plan. I learned more and more about how this worked, knew somebody in the business and basically, crazy as I say, quit my job at KPMG. My wife was pregnant with our first child at the time and we had just bought our home and I basically quit my job and started this financial planning business pretty much from scratch. I had a couple of clients, I don't remember the amount. Let's just call it 20, maybe 25 tax returns that I was doing on the side, like every other CPA that's in their 20s and 30s doing tax returns on the side. But for the most part, I really had no income at the time and just started the business.
Michael K: Has anybody ever told you that's not actually recommended to go start your firm from scratch with no clients, while your spouse is pregnant in a new home with a new mortgage?
Michael G: Yeah.
Michael K: Just for the record, that's probably not optimal financial planning advice.
Michael G: I would not recommend it to most. I'm a really, really, really lucky guy in that my wife was super supportive of what I was trying to do. My wife ironically also is a CPA and we had met at that mid-size firm that I was talking about, and we were doing some of those tax returns together at night after work. She was extremely supportive and we said we would give it a try, and I think we both didn't realize how long it would take to get traction and to get started and those early years were pretty brutal. They're very difficult times.
Michael K: What was it that just made you take this leap? You're at a good big accounting firm. You got in at KPGM. A lot of people never manage to get in and get a gig at a big accounting firm. You're there. It's at least good money, even if it's not the most fulfilling work. What was the vision of what you wanted to do and what led you to just say, "I'm just taking the leap and doing it?"
Michael G: It's a hard thing to put into words and it's hard for me to know exactly how I was feeling in those days back then. I can tell you while I was making more money than I ever thought I'd be able to make at that stage in my life, I really wasn't very happy doing what I was doing. It was not enjoyable. I wasn't getting that experience of working with people, which is so important to me, which is I'm definitely a people person. I had seen some different examples and models of how people were doing what they were doing and knowing people that were successful, even if it was not in my exact business. I read a lot. Even if I was just reading "Businessweek" and learning about business, I just felt, you know what? Even though this sounds counterintuitive, I don't really view myself as an entrepreneur, this is what I wanted to do. And I said, I'm just going to go try and do it. I probably thought it was going to be a lot easier than it was.
I knew a lot of CPAs, I had some success building my tax prep business and I thought it would just be, okay, it'll come slow but it will accumulate. Also, it wasn't like I just woke up one day and quit. My wife and I talked about it for quite a while. We were pretty conservative and careful about our own finances. She was still working, although of course, she was pregnant. We didn't know how, whether or not she'd be able to continue working afterwards, but we saved up a fair amount of money and we said we would give it a try. That's what we did.
Michael’s Initial Vision For The Financial Planning Firm He Launched [26:44]
Michael K: What was the initial vision? What was the original business model that you set out to do when you launched?
Michael G: The initial vision was I got licensed. I didn't know what an RIA was really that much at the time and I got licensed to do my Series 7 and life insurance license at the time, and the original plan was I'm going to do this financial plan for you. You'll pay me up front a fee to do your plan, and then I will do all this work, do all this planning to get all the steps of financial planning, just like we've all been trained to do, walk you through where you need to go and how to get there, and usually somewhere involved at the end was some sort of either existing investments or savings plan, and that I would now make these recommendations and they would invest with me. And if they needed insurance, 99% of the time back then, of course, it was just term insurance, but I would help them with term insurance and/or disability if they were looking to do that. That's how I got started. That changed pretty quickly but that's how I got started.
And for the first couple of years, I struggled. It was hard. I got some clients. I got some business. As soon as I started to make some money, I realized I needed to spend more money to either buy more technology or back then, it was different kind of technology, whether it was something to help me do my business or to do some marketing or whatever, so the profits weren't exactly robust.
Then, I'm trying to think now, about five years into it, almost by happenstance, I wound up on a phone call with a recruiter that cold called me to try to get me to go work at a traditional accounting job. They didn't know what I did. I'm literally hanging up the phone saying, "No, no, no, that's not what I do. That's now what I want to do." And they're like, "No, no, wait, I know. I know." So I started continuing the conversation and they were explaining that they were representing an accounting firm that wanted to start a wealth management practice. I was like, "Okay, I'll listen." The idea of using my background as a CPA to now go into an accounting firm potentially and start up an entity that would be a wealth management division was interesting to me and opened up a whole new thought process for me.
Also, at the same time, I was kind of slowly moving my business very far away from a commission business into a fee-based business already. I was still with the independent broker-dealer but I was not doing much of the up front work any more. I was really moving into more of an AUM-based model at that point in time and really looking at the broker-dealer more as a service solution than it was a product solution.
I started talking to accounting firms and from really big firms, where they just wanted me to come in and they would pay me a mind boggling salary, all the way down to a one or two-person firm, where we'll just build this together kind of a thing. Ultimately, I settled on a small-ish, mid-size firm where we would create a new entity and I would be partners with the accounting firm. I would bring my existing business in and the theory was that they were going to refer a lot of business to me and we would grow this new business together, which I was a partner in.
Michael K: Interesting. You made the decision, I'm basically going to fold my separate business into an existing mid-size accounting firm that wants to launch this. I get equity in the accounting division. You get to become partner or make partner at the mid-size accounting firm and then you get to go and build the business under the accounting firm umbrella where they, in theory, at least have all the tax client leads to do the cross referrals.
Michael G: That's right. That's right. And one of the coolest things about that was I was able to negotiate what is known in the partnership world as a guaranteed payment to partner. I remember it was a pretty long, you know how these negotiations go, you hope it's going to work out. I was pretty young and naive at the time, and I remember we signed that partnership agreement and I remember looking at my wife and saying, "Okay, I know I'm going to make at least this for a while, it's going to be okay," and we were pretty happy about that. I earnestly went to work. I liked a lot. I liked the people that I partnered with, the managing partner at the time and I at the time got along really well. He was a bit of a mentor to me at the time and still is, and he's a great guy and I was really excited and I worked really hard.
As we can talk about for a little bit as you know, there's a lot of gold in them there hills at these accounting firms, but getting that gold out is a whole ‘nother project and it is difficult to get buy-in from all the partners to let them let go of some of those relationships and to let you come in. Even though we all got along really well and I had an office on the partner row wall and they treated me really well and get me that respect, it was still just something that was a little foreign to a lot of them and uncomfortable. Then, you get a little deeper and then you find that there's not perfect harmony in a partnership all the time, and some people come and some people go, and that's part of the reason why it's also difficult to get to some of that business.
Michael K: I want to come back to that a lot more in a moment and just understand how that blending went. But talk to me a little bit more first about just, so how long had you been on your own in broker-dealer world before you actually made this transition? How long were you running out there on your own before you got the point where you were going to do this fold-in transaction?
Michael G: It's approximately five years, four or five years.
Michael K: Where did the business stand after five years? Just give us some context for how well was this going or how brutal was it getting started on your own at the time. Where did the business actually stand by this point?
Michael G: At that point, I probably had somewhere around $30, $35 million in AUM and it was going okay. I felt like when you're three and a half to year four, a lot of the seeds that I had laid and a lot of the work that I had done, I started to really be able to get some referrals and some traction and it really started to, if you look at the graph, if you will, the line started to move up a little bit and the trajectory was looking good. But still at the same time, I felt like I would be able to multiply that trajectory substantially and give myself a little more security. Now my second child was born at this point and I wanted to make sure that I would move along that line. That's when I joined into that accounting firm.
Michael K: Where did it stand? It sounds like you were getting a lot more momentum in the last year or two of the first five-year journey. What did the first three years look like then?
Michael G: A lot of meetings that didn't go too far. I was a very enthusiastic, energetic guy and I was trying to talk to pretty much anybody and everybody. I didn't really understand a lot about practice management yet at that point. I always joked that the first portion of my practice was a combination of survival and education. I delineated different stages in my career and I view that one by far as survival and education and learning because I had to make a lot of mistakes in order to learn. Just being willing to try to get whatever I could from a business standpoint and not being very selective, if you will. It was a lot of time spent spinning wheels and learning what worked and what didn't work.
Michael K: Was there some point where you said, "I think this is going to work?" Was there some crossover when you go from the, what have I done for myself after the first, I don't know, 6 months or 12 months or 2 years to the, okay, I think we're going to make it. It's not where I want it to be but I think we're going to make it.
Michael G: I thought I was going to be okay probably, but I didn't feel secure until I signed that contract with the accounting firm. I did believe that I was going to make it, but the security didn't come until that point. Then, even bigger security, which we'll get into a minute, I guess, when I left that accounting firm and hit certain benchmarks and really felt like I was going to be okay. While on the one hand, you think, "Oh my gosh, this guy must have been flipping out. He's got this house, this wife, these two kids, he's starting this business," I don't know. I wasn't ever really too worried. I think that first of all, I'm an optimist by nature. I loved what I was doing, even when I was having these really bad experiences or not being able to get a client here or there, although I did get clients. I don't want to make it sound like it was terrible. But I was never really too down on myself and I think my personality, my mentality, my optimism and truly the support I had from my wife was instrumental in me being able to stay the course.
The Lessons Michael Learned From Folding His Planning Practice In With An Accounting Firm [36:05]
Michael K: You make this decision to fold into the accounting firm, checks a little bit more of that security box since you got the guaranteed payment to partner, which suddenly brings a lot more stability to the situation. What happens then as you just start trying to build with the accounting business? It sounds like the model and the vision was “I'm going to get all these business opportunities because the partners are going to refer me the clients that they're already working with.” Did it work? Did it not work? What happened?
Michael G: It worked a little. It worked a little. There were one or two partners, maybe three tops that really saw what I was trying to do and felt good about it and felt good about bringing me in to meet with some of their clients, and I was able to get some good business. I would say that some of the clients that they referred to me, most of the clients that they referred to me were bigger than I would have been able to get on my own at that point for sure. Some of them were wonderful clients and I think I did a great job and it was really wonderful. It was more like a trickle than a flow.
What was also interesting at the same time is, the convergence of my experience, the convergence of my network, the convergence of my tenure in the profession, just even learning how to communicate better what I was doing, because you have to realize I didn't have an apprenticeship of much. I basically jumped in the pool in the deep end, so it took a little while to get my sea legs, if you will. I started going to conferences, AICPA, and not just on a national level, but even locally. The New York State Society of CPAs were where I met initially some of the people that helped me out and some of the people that I'm still friends with today. The convergence of all these things that were happening, and I guess also the trust and confidence in other people that I had some legs in the business, my own contacts really started to germinate and really started to come into fruition at that time. The business started to really hit that trajectory that I was hoping for when I joined that accounting firm, but what was interesting is the overwhelming majority were from my own sources.
Michael K: You finally started getting the momentum when you got to the accounting firm, not from the accounting firm.
Michael G: That's right. That's right.
Michael K: How far in were you at this point? Is it just add another year or two, you had been going five years on your own, now you're another year or two in so you're six or seven years in and you start really seeing some of the momentum pick up?
Michael G: Yes, that's right. I would say, and I want to overemphasize even though I already said this, it was a convergence of a lot of different things and it did really start to pick up pretty aggressively about that time, about a year or two into the accounting firm. What I'd said was, "Hey, we're all numbers people, guys at the accounting firm. Let's look at the numbers." And the math was such that while they gave me some significant clients, the volume, and I was getting decent sized clients as well on my own, the volume was just really more on my side, so I went back. I'm trying to remember exactly. I think it was two years in or so. I went back and said, "Hey, we need to renegotiate the way that we put this together, because when we got together I really anticipated the bulk of the new business coming from you guys, but it's not, so we should do that."
Really long story short, we negotiated in earnest. And I say in earnest because they're good people. I still feel great about them. I actually have one of the partners of the accounting firm who is still a client of mine today. But we basically agreed to disagree and I wound up leaving the accounting firm about three-ish, I'm trying to think exactly, about three-ish, three and a half years after I joined, and that's when I really started what I call today, the business. I created Wealthstream Advisors. It was in 2004 that I started Wealthstream Advisors and really in earnest, viewed myself as that point, a business owner and really that second phase of growth.
Michael K: I'm curious, looking back, was this just a, you were really actually on the track and it was about to gain the momentum on its own anyways, and you just merged into the accounting firm a little bit too early to give it time? In retrospect, you wish you just stayed on your own anyways since apparently the momentum showed up?
Michael G: Not at all actually. I really don't think about that for one second. Even today, all these years later, every mistake and/or good turn that I've made throughout my career has gotten me where I am. And there's no question in my mind that, and I'm not one of those people who believe it was meant to be or anything like that, it's not what I'm saying. What I'm saying is that I have really no regrets of all the different things that I've done or tried or worked with. I've gotten better every step of the way because of those experiences, and I think a part of the things that I learned, part of the things I learned from that accounting firm, from the clients I met there, the people I met there, the way being in the accounting firm and even resharpening some of those skills and talking to those accountants, there's no doubt that all these twists and turns are what got me where I am and I have no regrets at all.
How Michael’s Involvement With The AICPA Helped As He Launched Wealthstream [41:22]
Michael K: 2004, you break off from the accounting firm, start the business or restart the business on your own. You had it for five years, it was folded in for three years, now you're back out again on your own with the business. What was the structure at that point? Did you go back into the broker-dealer world? Did you cross over into the RIA world? Did you bring it back together some other way? How did it actually move forward at this point?
Michael G: I was still with the independent broker-dealer while I was with the accounting firm, but I was really becoming more and more enlightened to the RIA space. Also, this is around the time that I started to get really active at the AICPA and really start getting some incredible mentors and some incredible generous people that were willing to show me how they do their business and the ideas of running their practices, not only from a practice management standpoint but even from a service delivery. And I was already in this transition mode when I was at the accounting firm of moving away from the broker-dealer.
Michael K: Okay. Then, you start getting involved in AICPA world and it sounds like that's when you start getting introduced to the RIA side of the business?
Michael G: Yeah. Very early on, even before I had started working with the accounting firm, I was already reading a lot and going to conferences and learning about the different ways that people did business. And most of the conferences that I went to were through the AICPA. I got really lucky, I tried to get involved pretty early on. Some people took me in and introduced me to a lot of people and I started to...two things happened for me at the same time. One was I got onto the committee to plan the AICPA Personal Financial Planning Conference, so I was on that committee, and then also got into a study group of people, the study group was called the All Star Financial Study Group, and this group of people were just incredibly generous and warm to me, and really took me under their wing. They all had been in business for many years and they let me into this study group when they knew I didn't have a lot to offer. We would talk and learn, they'd let me into their offices, they would show me how they did things. Most of those people were RIAs and I saw that as the model that I wanted to replicate.
Michael K: Interesting. It was the volunteerism and involvement in the professional association group that was the pathway to finding mentors, models, people to learn other ideas of how to do the business.
Michael G: That's right. You know the old adage, "the more you put in, the more you get out" and it couldn't have been anymore true for me in the, gosh, I don't remember how many years now I've been active in the AICPA and I've served on so many different roles and committees, and some of it official, some of it non-official. I've gotten so much more out than I've put in by far. But the best thing is just going and working with people side-by-side and building these relationships and friendships. Some of these people are my best friends, and the idea of sharing, not in just the way we share with other professionals that we know and some study groups I'm in today and who I like, those are friends too. But these are people that genuinely want you to do well. They genuinely want you to succeed. It's a very unique experience to find people like that and I found a lot of them in my work at the AICPA.
Michael K: Very cool. What comes next in this journey, you're back out in broker-dealer world. You're getting some momentum with clients and business development coming in, you're eight years into the business. I guess one or two things. How big is the business at this point and where did you go next?
Michael G: When I left the accounting firm and started Wealthstream Advisors, I'm trying to remember the exact AUM that I had when I left there, and honestly I can't remember the exact amount, but it was somewhere in, let's call it the $60m to $75m range, and business was going well. I started the firm, I moved out of the accounting firm, got my own office space, signed the lease, brought two people with me and business started to go pretty well. I started to grow and remember I explained that first stage was that education survival, and to me the second stage was now building what I called then, a nice lifestyle practice.
The business grew. I remember I hit $100 million at some point shortly thereafter and trying to figure out, “Okay, what happens next?” I was still doing the same thing but it was really primarily me and some great people that were with me, but they were really just helping me do my business. It was that way. I had my first, okay, I really need to talk to somebody to figure out where I go from here.
How Michael Decided To Transition Away From A Lifestyle Practice And Start To Intentionally Grow Wealthstream [46:21]
That was one of the other great things about working in the AICPA and study groups and meeting a lot of people is, I was very comfortable working with other professionals to talk about my business. At the time, Moss Adams was the premiere consulting firm in the business, you know, Mark Tibergien, Rebecca Pomering, and they knew. I remember as I hit $100 million, I said, "Okay, I got to reach out to them and see, okay, what got me here is not going to get me where I want to go and I'll do this engagement and have them come in and help me." I remember that when we scheduled the meeting, I expected to work with somebody on the team, if you will, and I found out that Mark Tibergien was going to be the person who came, because he was already going to be in New York to run some other planning engagements. He came and spent the day with me in my office. That was a fortunate day for me, not only because I got to spend time...I had already met Mark once or twice at some different events and things, but to spend the day with him was...even though I paid for it, I feel like it was a gift. He is just a...
Michael K: He's a brilliant consultant, right?
Michael G: Yes.
Michael K: He charged you for the day and you felt like it was a gift. Bless Mark Tibergien.
Michael G: Doesn't get better than that. But that was a great day. He asked me some great questions and we decided what we wanted to do, and I said, "I want to really build a strong practice." I still was using the term, lifestyle practice if you will. It was still really about me serving these clients and it was great. It was beginning of a great friendship with Mark that to this day that I'm super proud of, but it was a demarcation point in me growing and it really motivated me to grow the practice.
I went down hard and started learning and growing and then 2008 and 2009 happened. That was a bit of shock to the system because I had had so many years in a row of really good growth. I think that was the first year, maybe one of only two years in my business where it didn't grow in some capacity. That was tough. It was scary. I had worked through 2000, 2001 and 2002, which in hindsight was a much longer and stressful period, but I had less at stake at that time. 2008 and 2009 was much more painful. That was a tough period but what's interesting is I found to this day that in times of stress in the markets or the economy, is typically when I'm able to get more clients and more new business because people are willing to look up, pick their heads up and look, either the do-it-yourselfers are looking for help or they're not happy with where they're at. But when things are moving positively, even though it might not be moving as positively as it should be, people are less willing to get help.
Michael K: The business goes careening into '08, '09, and I do find it's this striking thing about the growth of the AUM model in general, that as the business grows, the nature of the beast, you get literally more assets at stake that move with the market, it's more revenue that moves with the markets. Your business gets bigger and you start hiring team members and office space and technology and you have more fixed costs. Suddenly, when the bear market comes, the amount of revenue that evaporates in a market decline, if you hit one early in your career, it's just not as traumatic because at the end of the day it's like, "Well, I guess I'm taking home a little bit less because all the dollars basically go to you." And when you grow for another 5 or 10 years and then you go through the same thing and the business is much bigger, it can be way, way more stressful because that's for most advisors, I find that's the first time you ever actually have to have the thought of, "Will I be able to make payroll?"
Michael G: It was kind of scary. There's no question about it. Fortunately, I'm far removed from it, but I do try to remember a lot of it in the way we operate the business today, and obviously we'll talk more about that in a bit and the pandemic definitely reawakened some of those fears initially. But I got through that, right? It was a tough period. It was stressful as could be, of course, stressful for everybody and I think even more stressful in New York City because New York City's such a financial services town and it was a financial services meltdown.
Michael K: Yeah, you were at the epicenter.
Michael G: Exactly. But as I said, I wound up growing the business out of that, not right away by any stretch, but as the market started to come back, I was getting a lot of referrals. The business started growing and now I found myself in a different decision point. I basically had to make a decision of, “Okay, am I just going to just stay here with this nice lifestyle practice where I actually am really feeling relatively very secure (like we were talking about earlier) or am I going to grow and what is that going to look like?”
Michael K: What was the size of the practice at that point?
Michael G: Probably somewhere around $150m to $200m and change. I'm trying to remember exactly but I'd say around $200m, let's go with that, right around there.
Michael K: And how big was the team at that point?
Michael G: Four or five of us.
Michael K: Okay. Really good practice, really good money, but at this capacity threshold, do you even remember how many clients it would have been then? I know that's a long time ago, but if only by average client size. Was this 200 clients that had a million dollars each kind of business, or 60 multi-multi-millionaires?
Michael G: No, no, no. It was probably around 125 clients, 135, somewhere in that range. I remember I always had early on, a very, very broad range of clients because as I was explaining in the early years, I wasn't very discerning on who I would work with. And I also got some really big clients because of my knowledge around the CPA [world], and I would meet with people and they would talk to me, and they would see that I understood business and I was able to bring on some big clients early on as well. I had a very diverse client base, still almost as we do today, a pretty big spread between the biggest and smallest clients.
But what this period forced me to do, and I look back and it was one of the few times I think I was, at that stage of the game at least, was probably the beginning of me being much more intentional about what I'm going to do from here, because it seemed like a lot of the decisions that I made in the business and how I would do things was I definitely wouldn't use the word, haphazard, but were more like, you're just pounding the pavement and then you come to a fork in the road, and as one of my good friends says, "You just take it." That's what I was doing probably early on, which is why I said it was a lot of education. Here, I really spent several months, I remember reflecting and reading and talking to people about what am I going to do here. I'm making by most standards, a pretty good living. I have a nice practice. I like my clients. They like me. But I'm still fairly young, I like to think, and what am I going to do from this point forward. I remember making this decision that I said, "I'm going to grow. I'm going to build a firm. I'm going to move away from this lifestyle practice. I'm going to take some risk. I'm going to really try to build out a firm and grow." And I did that.
I spent some time building again. I wound up, this time, around, trying to remember the year this is now, I remember right around the time I hit $250 million again, I look back and I called Mark at that point… of course, Mark was at Pershing now... and I said, "Who should I work with?" And we talked about a bunch of different people I could work with, but I ultimately hired two of the ex-Moss Adams people, Eliza De Parto and Dan Inveen at FA Insight, and they came to the office and we built out a business plan to build out a firm. That's what we did. I started hiring more people to move myself out of the primary [advisor role] so that I could grow and get more clients and started trying to hire more people at not only at an advisor level, but also at a lower level to support them taking on some of the existing clients and allowing me to grow the business more rapidly.
Michael K: I want to understand more of this transition. What was it that led you to make a decision that said, "This lifestyle practice is going great and making good money and I don't want to do this anymore. I don't want to stick with this anymore?" What led to the change?
Michael G: There was probably a lot of different things, but I think there were two things that probably pushed me over the edge. One is I always loved the idea of business and just frankly being in business. The idea that I could be more in business, if you will, I could create more of a business to enjoy and be a part of and help grow and design. Although I don't know if I used that thinking back then. As I reflect on it, these are the things that are coming to me. It just excited me to be able to grow and to do that, obviously to know if I would be able to be successful.
Then, I think the other thought was I didn't want to ever look back and say I didn't try. I didn't try to do that. Because I didn't have any idea how things would turn out, both in the economy or in my ability to grow. I was good at talking to clients but I didn't know if I would be good as a manager or growing and I didn't know what was around the corner. I didn't want to ever look back and say I couldn't. I would say though, in hindsight, the best thing about growing the business by far has been the team and growing the team. Now, how many people we have and how great it is to come to work every day and work with the people. I still love my clients, but by far, I'm more proud of and more excited about the team, and if I would have known that that would have been one of the rewards, I wouldn't have spent as much time thinking about it.
How Michael Mapped Out The Plan To Grow Out Wealthstream [56:44]
Michael K: And so, when you then said you brought Dan and Eliza in to help with this, what was the plan? You said you brought them in to help you create a plan. What was the plan?
Michael G: I didn't know who to hire first, what roles to hire for, who on the existing team would need to change, what they would need to go and do. It was more around the people than it was around anything else, although they did spend a lot of time with me talking about understanding my business, understanding the metrics of the business, understanding the difference between the smaller clients and the bigger clients and how that was going to work. We talked about ways that I might grow or focus. But by far the biggest thing that I wanted out of that and what they gave me was I didn't have any experience managing people or about what roles I should have or what those job descriptions should look like. That was the biggest piece of the advice around, okay, you have these people that are great and these people are great at what they do, but they can evolve into this and/or these are the missing pieces. You need to hire somebody to help you with this. The biggest hire, of course, was an advisor to start taking relationships off my plate because I was probably maxing out. I was “the guy” on all of these clients and it was just very difficult to manage all of that. I was starting to work an insane amount of hours again.
Michael K: What were the biggest shifts or changes you realized you were going to have to make from the business management and the hiring end? When you said you didn't know what roles you needed to hire, what job descriptions you would need. So Dan and Eliza came in to help with that guidance. When you came away, what were the biggest things you realized you were going to have to start doing differently or start hiring that you hadn't hired before?
Michael G: It was hiring an advisor because I really never hired anybody to just take the clients and work with them. I was primarily the person and I had some people that were great at helping me do that. Not only the hire, but the psychology of, “Okay, you're going to take this client now.” Of course, it's going to be a transition, we're going to do it together, it'll to take some time.” But basically, “You're going to take this client now and you're going to be the person on this relationship.” That was a difficult mind shift for me. I'd like to think I'm not controlling and I'm not obsessive around details, but at some point you have to let that go.
Michael K: You put real revenue at stake at that point.
Michael G: That's right. That's right. I was able to do that faster and early on the operation side, I was really lucky. Very early on at that accounting firm, I met Bill Schirmacher, who came from the accounting firm, basically quit his job at the accounting firm and came to work with me on the wealth management side. Not only was he a CPA and we got along really well and had a lot of like-minded thinking about how to do things, but he really liked the operation side pretty early on. We grew from that point forward together and I felt super confident in the way that we did things together. That was an easier transition for me, but the relationship, that was a little hard for me to do initially. Then, the other big piece that was difficult, of course, was you had to make some big investments. All along the way, they were more incremental, but now you're hiring people quickly and their salaries are, it's a big number relative to the other types of investments you've made in the practice in the past.
Michael K: What were the hires that you had to start making that were ramping up salary ran payroll so quickly?
Michael G: A good senior advisor, I got really lucky, I got introduced to Matt Gordon, who had a lot of experience, is a great soul, really good people person, got along well. He was somebody that I felt I could connect with well and I knew that my clients would like. He came aboard after having a lot of experience in the business as an advisor, but at the same time, I was really starting to learn to build out the younger folks, if you will.
Back in 2009, I think it was, could have been 2010 now, forgive me for not being on that, but I had hired the first real CFP to work with me, and that was Mike Kimmel. Mike really started to grow and he had great work experience beforehand but he was still pretty young when he came aboard, which allowed me to get a little bit of that experience helping manage and mentor him. He blossomed into a great advisor, and then we started together hiring younger people to help build this ability to be analysts, if you will, the people to do some more of the detail work so the advisors could work with the clients.
How Michael Got Comfortable Transitioning Client Relationships To A (New) Senior Advisor And The Other Hires That He Made [1:01:28]
Michael K: What got you comfortable with hiring a senior client advisor and putting him in this role and having them start managing clients? Was it just like, “I guess I'm just going to have to do this because I have to do this?”, or was there some shift in mindset or focus that got you comfortable to get you there?
Michael G: The only way you're going to be able to grow is to get yourself out of some of these relationships, because I'm too busy over here doing this all day, I'm never going to be able to spend my time doing these other things, which were primarily either going to be business development or managing the practice. The old adage of, "if you're only working in the practice, you're not working on the practice,” and it's going to not go well. But it was part of our plan when I hired Eliza and Mark, and it was also obvious to me that I was starting to work way too much and way too hard. I couldn't do it. It was really obvious to me that that was going to have to be the next move.
Michael K: What other hiring did you have to shift into? Was this primarily just the getting comfortable with the senior client advisor role? You had talked about other roles that Dan and Eliza maybe had to educate you on and guide you on as part of getting ready for this next growth stage.
Michael G: Initially, it was more about clients and serving the clients. We started growing pretty well at that point. Business was going well. Markets were going well. I was now in the business for quite a while and really had a good network of referral sources and clients that wanted to refer business to us. We weren't really doing any substantive marketing at that point, other than just being out there. I'm one of those people that have been networking since he's 8 years old, he just didn't know it was called networking. I had a lot of contacts, a lot of CPAs that would refer business to me that I knew, as well as just people in business. The business was really growing at that point and that's when we really started to become a firm and we just basically kept hiring along the way to meet that need. We were just growing. It was pretty much like a four- or five-year growth spurt that we had, where we brought those people on.
Michael K: The growth spurt is the people got you to the growth spurt or just the growth spurt happened as the people came, so thank goodness? How did that line up?
Michael G: It's a chicken or the egg thing, you know? I don't know if I would have been able to spend so much time on business development and working my network if I didn't have those people. It's a little bit of both. Knowing that there's nothing like a big expense to hustle you out there to get some new business or to build. I don't want to also make it sound like I'm some sort of sales machine because I don't think I am. I'm just a people person who's out there a lot and we've been really, really fortunate in the sense that we work incredibly hard for our clients and they've been very generous with their referrals over the years. There's definitely, I don't know if it's 80/20 or 70/30, but they're definitely a minority but a big minority of clients that gave us those referrals as well as the other networking sources that I had.
Even the accounting firm, when I left, I took the clients that they had referred to me with me with good will. That was what we decided. The accounting firm would still refer business to me even after I left, because we left on really good terms. I wish I could give you and the listeners some sort of big secret sauce, but at the end of the day, it was doing the important things. Taking care of your clients, being genuine, working hard, showing up on time, saying thank you and doing what you said you were going to do, and these were good times and the business just grew.
I think that this is where I had this other transitional mentality of, “Okay, I'm going to need to think through now where the firm starts to go.” Also, I had read a lot about succession planning. I was still and am still fairly young and was thinking, I need to be careful in how I do this. I always wanted partners. Working in an accounting firm, looking at law firms, I always viewed that as a model that I would like, that I could have partners down the hall, if you will, that we could talk to. At that point, I really started to think through that we really need to start transitioning some of the equity and start really having partners. They're called shareholders because we're a corporation, but at the end of the day, they would be shareholders in the corporation and it was something that was important to me.
I would say around about six years ago or so, I started to realize that we were going to be a multi-generational business, at least we had the potential to be, I should say. Two big things were the transition at that point. One was me selling some of the equity to four of the employees at the time that are now shareholders. And the other big thing was hiring a COO. A COO that really understood what needed to happen, that was an experienced, tenured kind of person that could really run the operations of the firm, and that allowed us to really go to the next level.
How Michael Structured (And Thought About) The Sale Of Equity In Wealthstream [1:06:53]
Michael K: How did the structure of selling equity to next-generation advisors work? What's the structure? What's the arrangement? Do they buy in, do they get the equity, are you externally valuing it, are you internally valuing it? How did that work?
Michael G: We went out and hired a third-party to value the business. It was really important to me to do an external valuation and basically had that person, I presented their valuation to these folks. Some of which were my generation, they weren't necessarily the second generation yet. Some were, some weren't. Then, they bought in at the valuation that the external party created.
Michael K: Who did you use for the valuation?
Michael G: For that first valuation, we used David DeVoe, DeVoe & Company.
Michael K: You do an external valuation and it just, “Here's the valuation, the external guy says so. It is what it is. Here's the valuation, if you guys want to buy in, you get share percentages of this.”
Michael G: Yeah. But we lifted up the curtain and gave them a lot more than that. They didn't just see the valuation. They got to see how the valuation was created, what the cash flows of the business were, the P&L for the prior years and what the projected ones were in line.
Michael K: You did give them access to all of the business financials as they're evaluating it.
Michael G: That's right. I gave them the valuation report, which included all that information. I think if I remember correctly, I'm trying to remember or not, I think David even did a one-hour presentation as to how this all comes about to them. But the gist is they were able to see the numbers from the prior years and what we were projecting going forward and what the assumptions were.
Michael K: Were you structuring discounts for being employees already or for being minority shareholders? Were there adjustments to it or just straight percentages off the reported value?
Michael G: Basically straight percentages off the reported value. I did not give any discounts for minority ownership or anything like that and there was probably two reasons for that. Primarily, I felt like it's a good investment. I didn't feel like I needed to give a discount. I didn't think that was necessarily appropriate. I felt like it's not like you're a shareholder and you're off and you're home somewhere and you just own a piece of this. These people were in the business, they knew what was going on, they were part of the growth, so that was a lot of my thinking. The second thing is in a way, I feel like the way these valuations are created is just it's primarily a multiple of EBITDA based on your discounted cash flows. We all know that it's a discount in a way because it's done in an Excel model as opposed to what I can literally sell the business for if I was to sell it and walk away would be probably higher. Not that I had any interest in doing that in any way.
Michael K: You weren't listing it out there for every PE firm strategic acquirer to take a swing at it, who may have paid a premium for any number of cost synergies or otherwise that isn't embedded in an internal valuation in the first place.
Michael G: Yeah, that's right. That's right. I'm sure some of that marketplace is clearly reflected in the valuation. That's how the valuer is coming up with the multiples to some degree, but those Excel spreadsheets, and I thought we used some pretty reasonable assumptions. I told them that the goal of why we were doing this, we weren't doing this to market the business for sale, we were doing this to do a more traditional cash flow model so we would come up with a valuation that would make sense. It was what I would say, a fair evaluation as opposed to we're going to sell this business to the highest bidder. Even when we did our second tranche of selling equity in 2020, the market was so frothy. The same thing, we did an Excel-based model of this is what the projected cash flows are.
Michael K: Interesting. From the financing end, I know one of the classic challenges and worries for doing internal succession plans for employees is just do they even have the cash or the cash flow to be able to do the deal. How did you handle it from the financing perspective? Is this seller financed or bank financed or some other arrangement?
Michael G: It worked out pretty well. First of all, this wasn't like, "Hey, I'm going to do this and you got 30 days to decide." In classic Michael Goodman fashion, I talk about what I'm going to do for a fair amount of time before I actually do it and that's probably some self-psychology going on there. But they knew it was coming so I'm assuming some people were accumulating, I probably was talking about it for two years before it actually happened, maybe even longer. People were accumulating or saving and it turned out that some people were able to write those checks and some people were not, and I seller-financed for the people that were not just as I did again, this second time to bring in some new shareholders in 2020.
Michael K: You seller-financed the folks that needed some financing arrangement.
Michael G: That's right. That's right.
Michael K: Which just means they get whatever's five or seven years or longer to pay you back for the purchase.
Michael G: Yeah. We worked out some terms that made sense for the few people that needed it. I was pretty flexible. Also, keep in mind that I'm not selling enormous chunks. I sold 10% the first time and another 10% and spread over a bunch of people. I'm making it tolerable for them, but it's not a big deal to do that for them, so I'm happy to accommodate that and make them feel good about it.
How The COO Role Fit Into Michael’s Plans For His Firm [1:12:44]
Michael K: Help us understand the COO role. What was that? What was that role?
Michael G: There was probably three motivations for the COO role. First of all, just operating this business now was really starting to become a drag on my time. I enjoyed a lot of these elements though, as we talked about earlier, but whether it was dealing with the technology or the technology companies or the contracts or the office space or these various elements around running the business, some of the HR elements, it really started to become a real drag on my time. Even just some simple stuff all the way down of participating in a benchmark study and gathering the accounting information to do that, I was really finding myself day to day way caught up on some of those things.
Also, the compliance side of the business. We were growing and compliance was becoming a bigger and bigger challenge. We had more and more people. As you know, there's more and more to do now these days for compliance, so the idea of getting a CCO was attractive to me. Then also, I had really always wanted to do some M&A and the first opportunity to come into my hands just fell into my lap and I really enjoyed the experience and I wanted to do more M&A. I think that was not going to be our primary growth, but I was pretty well networked in the profession from the various things that I've done over the years, knew a lot of people and I wanted to be able to do some of that. And the idea of bringing in a COO to help me take on some of these management responsibilities that were frankly probably could be done better by somebody who that was their focus, the compliance and then the support around that, was a really important thing to me at that point.
Michael K: How do you find this COO?
Michael G: That was hard. It was hard also because as I sit here today and describe it, it's easier than as I was figuring it all out. I spoke to a lot of people that were in firms that were COOs or that had firms where there were COOs and what are the reasons and such, and it was really hard to come into contact with people. Ultimately, I think I might have even reached out to a recruiter at one point to help me with that. But I got introduced to a couple of really nice and interesting people and ultimately met Aaron Tawil, who had lots of experience of working in the hedge fund industry as a COO, CFO, and CCO. So he kind of knew a lot of that and at first I was like, “I really want somebody with some RIA experience,” but he had enough knowledge around the compliance stuff through the ADV process and all of those things, and I kind of liked that he wasn't from the RIA world in a way. He came with a lot of fresh ideas. He was very energetic and curious and wanted to really get deep into our business. He's even gone as far as to get his CFP now. He really wanted to be in a wealth management practice. This was something he was actually looking for and I liked the idea that he was going to come with a different lens and he fit in really well and was able to do all these things and probably many of them better than I could have done if I kept doing them.
What Wealthstream Looks Like Today And What Surprised Him The Most About Building An Advisory Business [1:15:47]
Michael K: What does the business look like today? What is Wealthstream as it stands today?
Michael G: Wealthstream as it stands today is a billion dollar plus firm. We work with about 350 families. We're actually onboarding two people in the next couple of weeks. We'll be about 22 people by the end of May. There's about 10 of those people are advisors working directly with clients. We'll have four analysts that are supporting those advisors and growing, about six people in ops/management and we're having a great time. We really, I think, as I said earlier, the coolest thing that's happened over all these years is when I get on now the Zoom calls that we do fairly regularly and I look at the team, and it's just I'm looking around all the different faces and I'm so excited that every one of them are on the team and that we have a great organization and we do great work.
Michael K: What surprised you the most about building your own advisory business?
Michael G: There's so many things that I could probably talk about around the surprising...I think it's got to come back to the biggest thing and the biggest surprise to me once again is the people that I work with. I really never, of course, I hired people that I liked and wanted to work with, don't get me wrong, and building that early hire and having that great experience, how we've grown together and how we've become friends over the years has been special. But in those early years, I never thought about how there would be a whole team of Bills, you know, a whole team of people that I really like and I'm happy I work with. There's a little bit of me that's frankly super surprised that from this time that I quit my job 25 years ago to start the business, that now we have all these people that at the risk of sounding immodest or arrogant, I don't mean to, but that wouldn't be all together if I didn't do that. And that's probably the biggest surprise, the idea of that.
Also, early on I was very resistant to hiring people at a school or younger people because I, myself changed jobs so many times trying to figure out what I wanted to do and I was hesitant to make that investment. What a 180° that I've done on that. Mostly with the help of Mike Kimmel and the organization and being that mentor, but we have hired a whole bunch of people out of college, and what a great experience that has been to be able to invest in them and work with them and learn from them and be able to see some of them grow into the role that they've grown into within our organization. That, to me, has probably got to be one of the most rewarding experiences that I've ever had.
Michael K: What brought you around to get comfortable hiring young folks straight out of college just given you're certainly not the first I've heard that has concern around hiring folks fresh out of college because just there's so much job changing. Not even as a negative to saying young people are job-hoppers, but we just sometimes don't know what we want to do yet and we end up making some job changes or career changes throughout our 20s, sometimes even beyond that, trying to find that “thing”. What got you comfortable to hire younger talents and not be hung up on that as a concern?
Michael G: I completely agree. I don't think it's a generational thing at all. I did it myself. I think the experience that we had was working initially with a school like Virginia Tech that has an amazing program, and Texas Tech was always the firm that I had heard of that had a great program but they were so far away. But once we got to learn and know more about Texas Tech and learn about Professors Klock and Lytton that worked there and what an amazing job they do educating their students, we actually went down there, spent the day, we sat in on a class and really got to see and started having an intern program and hiring from there. That opened up the floodgates for us to feel comfortable with that. And now, while we always look to recruit people from financial planning programs, we've hired people out of just general business or finance or other degrees because of the confidence we've built in recruiting those folks.
The Low Point On Michael’s Journey [1:20:01]
Michael K: What was the low point for you on this journey?
Michael G: The low point for me was no point. There are a lot of low points, I guess you could say. I don't look back though and say there were any days where this was the worst day of my career. There were some low points, probably when you lose your first big client that you thought you were going to work with forever, or some of the low points were probably around some of these abrasively difficult market downturns. Like 2001 and 2002, you had three years in a row of downturns. These were hard periods. I would say that another low point for me was probably 9/11. Working in an office that was literally four blocks, maybe three blocks from the World Trade Center on 9/11 and not knowing if I was going to go home that day. I think that experience was way bigger than any low point I had career wise. It just happened to be in my career and that was probably the biggest low point that I could think of in my career.
Michael K: Because you were actually downtown that day as all of it was going down?
Michael G: Yes, yes, I was. My office that I was in at the time was literally a couple blocks away. Ironically, I was coming from a breakfast meeting with a buddy of mine who worked at the Federal Reserve right down there, and I was walking across the street to my office and I heard this noise when the first plane hit one of the towers. I did not know if I was going to go home that day. I didn't know what was actually happening when those buildings came down and the ramifications of that to the space in the building that I was in nearby and all that, and when the windows go black and you can't see out the window because of all the debris and soot, you don't know what's actually happening. I don't mean to take us down into this discussion, but we talk about downturns in my career, that is the ultimate downturn or low point that could occur for anybody, I think.
What Michael Knows Now That He Wishes He “Knew Then” And The Advice He’d Give To Newer Advisors [1:22:02]
Michael K: Given this journey that you made from building in a lifestyle practice and then making a pretty conscious decision to shift it into a more of an enterprise that you built, what do you know about it now that you wish you could go back and tell you from 20 years ago when you were starting this journey?
Michael G: There's a part of me, like I say, that I probably wouldn't want to know too much different because I probably wouldn't be able to get here the way that I did and keep going. But I think that I would have probably wanted to have more people around me faster. There was this period of time where I really just viewed it as I'll be the advisor and I'll have some people that'll help me. Probably the only thing that I would have done differently is probably had more people around me faster. I don't have any frustration or regret about the time it took me to get to where I am. It would have been nicer if I didn't have to struggle as much in the early years financially, but once again, at the risk of sounding trite and typical, those things make me who I am and I'm happy that they worked out that way.
Michael K: What advice would you give to younger, newer advisors coming into the business now?
Michael G: I would say that they should go in all at it. There's so many more resources and places to get good advice and counseling and help these days than it was when I got into the business, so I don't feel it's as necessary. But I think the most important thing that you can do now is to really be committed to the process. The one thing now that you mention this and I think back, probably the one thing I should have done earlier on, not necessarily because I'd be more successful or make more money because that's not the reason I'm saying this, but it would have been easier if I took a focus. It doesn't necessarily need to be such a narrow niche, but at least have a focus, have a type of a client, a size of a client, be more committed to a structure, have a little bit more of the end in mind when you're trying to build something as opposed to just going out and pounding the pavement. But think a little more about where you want to be in five years, what you want it to look like and try to build it with that in mind. I didn't do enough of that early on until I started really hiring people to help advise me on how to do that. Now, I feel like that's something we work at every day. We've built a management team in the firm, we do annual planning, we do a quarterly meeting, we have a great group of people that we sit down and review regularly what are our goals and what do we need to do to get there. That's part of what's driving our success today. I probably would suggest that somebody have some sort of model for that earlier on.
What Advice Michael Would Give To CPAs Looking To Transition Into Financial Planning And What Success Means To Him [1:24:44]
Michael K: What about for CPAs that are thinking about transition from the accounting business into the financial planning business?
Michael G: The number one thing that I see CPAs do that I would advise against is, they move too slowly. They're too cautious. They're too nervous. And part of that makes a logical sense. Most of them are making a good living, have a reliable business and there's a good structure to that and they're also a little further along in their careers and their age and their family responsibilities. I'm sensitive to that. But they all wait too long to jump in and all the ones that do are really happy. The end of the day, nobody's really jumping up and down, like I say, that you did their tax return, but people will give you the biggest, warmest handshake or hug after you've helped them get to their financial planning goals.
Michael K: As we wrap up, this is a podcast about success and one of the things that always comes up is just that the word, success means very different things to different people. You, Bill, and I think anybody would objectively call a very successful business is a billion dollar RIA and particularly have you made that transition from lifestyle practice to enterprise. But I'm wondering now as you look forward, how do you define success for yourself at this point?
Michael G: Michael, being a big fan of the podcast, I obviously knew you were going to ask me that question and I struggled trying to prepare for one of the few things I thought I could prepare for in advance of this conversation. The people that know me best will understand, but the word, success makes me uncomfortable. I really don't like that word. I think that as I look back on what I've done, I feel like I was successful a long time ago. I was lucky enough to be able to do the things that I did even when things weren't going good and I was eating a lot of peanut butter and jelly and working a lot of hours. I liked what I was doing, and obviously liking what you're doing means success already. Also, success to me means a destination, somewhere you've gotten, and I don't ever want to be accused of letting any grass grow around my feet at any point of my life. It also means to me that, success for me means being able to define new goals and to come up with new ideas and to be able to work towards new things, and I've been really fortunate that I am able to do that. I have a great team of people that allow me to be creative and come up with some ideas here or there. Sometimes they're like, "No, no, no, that's not a good..." But most of the time, they're very supportive and the idea of being able to work towards new goals is by far the most successful thing I'll ever be able to do.
Michael K: Very cool. Very cool. What comes next for you? If you can't let the grass grow and you've always got to be working towards new goals.
Michael G: Building this multi-generational firm. We have, G2 is doing great. I'm super excited about that. They're shareholders now. We have seven other shareholders in the firm and I'm super excited about their potential as leaders of the firm in the future. They impress me all the time, not only about what a great job they do taking care of their clients and what great advisors they are, but how they are great teammates and how they mentor now G3, and I'm super excited about G3. They're going to do things that not only me, but G2 couldn't do or didn't know to do. And that's my focus for the most part in the practice at this point, is making sure that the firm has those roots to be a multi-generational firm and to get out of the way.
Michael K: Very cool. Very cool. I love it. I love just the journey and the way that it's transitioned and even the visions expanded over time. Thank you, Michael, for joining us on the "Financial Advisor Success Podcast."
Michael G: Thank you, Michael. It's been a real pleasure to be here. And like I say, knowing you the way I have, it's wonderful to have this conversation with you and to also thank all the other people that I've come across that have mentored me over the years, including you, Michael, and I know I'm better off for all of that and everybody else will be for the work that you do.
Michael K: Awesome. Thank you, Michael. I appreciate it.