Creating Effective Discovery Meetings To Convert 100% Of (High-Value) Prospects Into Clients: #FASuccess Ep 510 With Michael Yoder

Podcast Player:

Resources Featured In This Episode:

• Michael Yoder: LinkedIn
• Discovery Meeting Question Guide – Download (docx)
• Master List of Goals – Download (pptx)
• Yoder Wealth Management
• Jonathan Powell
• "Never Split the Difference: Negotiating As If Your Life Depended" On It by Chris Voss
• Bill Bachrach
• Kitces Training Course on Discovery Meetings
• Sahil Bloom | The 5 Types of Wealth

Full Transcript:

Michael K.: Welcome, Michael Yoder, to the "Financial Advisor Success" podcast.

Michael Y.: Hi, Michael. Thanks for having me.

Michael K.: I'm really glad to have you on today and to get to talk about or, dare I say, nerd out a little bit on discovery meetings, which to me is just this fascinating challenge that we navigate as advisors, where we basically are trying to get to know a stranger and, in the span of an hour or two, show them that we understand their entire life's goals and challenges enough to persuade them to do business with us and commit their life savings to our stewardship. It's a very high-stakes kind of thing in a meeting or two that lasts an hour or two each. And so what that means to me is just a lot of success as an advisor in bringing on clients hinges very directly on how effectively we conduct discovery meetings with prospects.

Michael Y.: Sure.

Michael K.: But I find most of us do not have a particular structure to it beyond something to the effect of try to ask a lot of questions to understand their situation and, at some point, turn it around and show how you can help them solve the problems. But I know, Michael, you have spent a lot of time developing a very structured process in how you conduct discovery meetings with clients to the point that you basically have a 100% close rate for about a decade now of anybody that goes through the discovery process. And so I'm excited to hear more about what you actually do in discovery meetings to get such strong results and, I guess from your end, how that process has refined and iterated over time over the years.

Michael Y.: Yeah, sure. Happy to talk about that. And I think some of it stems from just our perfectionist nature and our focus on systems, where everything has to be repeatable. Everything in our job has high stakes. Nothing short of a client's life savings is at stake with this job, and so everything has to be thought through. And so we've taken the same approach to our discovery meeting that we start a client relationship with. And as you mentioned, two stats that we're proud of with our own practice. The last time somebody came in for a discovery meeting and not become a client was December of 2015. And of course, we still remember those clients in every detail. We've analyzed and dissected it every which way. So that's still fresh in our mind.

The other thing, and this is a little bit more unusual as we've moved upmarket, is we have a 100% wallet share, essentially, with all of our clients. And by that, I don't mean we have all their money in a managed account. What I do mean by that is none of our clients have hostile outside advisors. And if you've seen the research, as I'm sure you have, the last I saw is, as you move in that $10 mil-plus space, on average, those investors have three financial advisors. One way they diversify is us. And almost every client that comes into us, they're interviewing us and a couple of other advisors. And so it's just their norm to come in, and they're going to share your work with other people. We don't have that. And I attribute so much of that to the discovery process that we have and the entire meeting process, which I imagine we'll talk about today.

Transitioning From A (Stressful) Business To A Lifestyle Practice [05:47]

Michael K.: Okay. So I think, to get us started, give us a little bit of context of the advisory firm itself as it exists today, just so we understand what the business looks like.

Michael Y.: Sure, yeah. I'd love to talk about that. And I want to say upfront, the key to our happiness and success, everything has stemmed from rejecting the industry advice to think like a business owner.

Michael K.: Okay. That's a bold statement. So we're going to have to come back to that.

Michael Y.: Sure. Yeah, put a pin in that. No. All of our happiness and success has instead come from our decision to focus on building a practice. And so I'll tell our story.

Michael K.: Which I guess you're using as an intentional word there to distinguish practice from business.

Michael Y.: Yes, exactly right.

Michael K.: Okay.

Michael Y.: Well, that's a key nuance there. So I'll tell my story, and then we can come back to that.

Michael K.: Okay, sure.

Michael Y.: Our story really begins in 2009, and I say our. Our practice is me and my wife, Anat. We're both CFPs. And then we currently have one part-time assistant. So I started out in the industry in 2001. I quickly went into management. Anat started as a CFP in 2004. So this practice really is her legacy practice. And one of the reasons we came into this business, in addition to helping people, is we thought, "This really would be the ideal job for that time in life for when we start a family." Because you have flexibility, you can say yes or no to as many clients as you want or need to.

And so I'll fast forward to 2009 because that was the year we joined forces, and we had our first daughter. She was born. And so when I look back on that period of time, we refer to it as the night nanny period. Let me paint you a picture of what that looked like back then. So we served, between the 2 of us, 177 households, and we had 2 full-time employees. We had an assistant and then another person who was kind of a paraplanner. And if I were to describe our practice, and you as a dad probably know this book, have you ever read "The Mixed-Up Chameleon?"

Michael K.: Yeah, a long time ago.

Michael Y.: Right? So it's a great bedtime book where this animal, it's a little bit of this and a little bit of that, turns into this horrific, ugly creation. That was our practice. We had some retirees. We had some business owners. We had some people with stock options. We had people just starting out. We had some 401(k) business. Every product in the sun, we had investments, insurance. We had some annuities. We had long-term care. We had 529 plans. And life was difficult.

What I remember most about that period was that our daycare had a nine-hour rule, where they would only take your kids up to nine hours a day. And every day was a struggle to meet that. One of us would drop our kid off while the other went to the office and just sprinted. So we have our nine hours, and at the end of the day, around 5:00 or so, one of us would fly. We'd burn rubber and get to the daycare right before our nine hours were up. As we get home, we have a couple of glorious hours of kid time. We have our dinner. And then as soon as we rocked our kid to sleep, bam, the laptops open back up again.

And what I remember thinking at the time was, see, everyone who knew us, outside looking in, they all thought we were the most successful people they knew. We owned a business. Here we were. We were making, I don't know, probably $250,000, $300,000 a year. And just on paper, wow, they are doing so well. But to us, we just felt like if this is winning, we're playing the wrong game. This is miserable.

Michael K.: So, how had you gotten here even? Where did 177 clients come from in the preceding years of this window? How had it gotten to this point?

Michael Y.: Yes. And so, like a good spouse, let me give credit where it's due. And so Anat, in 2004, while I was in management, she went out and built the practice essentially by something called lunch-and-learns. And so she'd collect business cards at a restaurant and then put on a ten-minute presentation, one of these "bring ten of your friends" kind of thing, and built the practice from there and to the point where it's self-sustaining based just on referrals. And so, from there, it evolved a little bit. There's some COIs [Centers Of Influence] and a little bit of everything. But really, that's how it grew.

Michael K.: The pure classic grind.

Michael Y.: The grind, right?

Michael K.: One lunch-and-learn at a restaurant with business cards, yep?

Michael Y.: And she's...

Michael K.: The great thing is you get the contact information for everyone, not just the winners.

Michael Y.: Yeah, exactly, right?

Michael K.: They're all business cards you can call on.

Michael Y.: Yep. I don't think anybody does that anymore. And on the other hand, I told her she was lucky because when I started three years earlier than that, we were calling people.

Michael K.: I guess you were right on the crossover of when the ‘Do Not Call’ list kicked in.

Michael Y.: Yep, I was right there as that went down and was part of the whole, "Holy cow, we're going to have to change things." And so I think that we got to 177 clients probably the same way that everybody else does. And it's funny, when I joined the career, it was touted as the best job in the world. I think it can be, but too many advisors build themselves a prison instead of a paradise. And we discovered much to our horror that that was exactly what we did. You say yes to everybody because you're trying to build a business, and you never know where the next client's going to come from. It's never a steady stream. It's fits and spurts, droughts and floods.

And so, before we knew it, not only were we full, we were over capacity. Balls were starting to drop, and services were going unfulfilled. And we are built to overserve, and that was just not acceptable. Nothing upsets me more than feeling like I let somebody down.

Michael K.: Except the pain of trying to not let 177 people down at the same time...

Michael Y.: Well, that's true.

Michael K.: ...without enough resources to do it. I guess that was the...it's a prison now.

Michael Y.: Yeah, that's exactly right. So we realized something really needed to change. And so, fortunately, we were lucky enough to meet a mentor who said, "Hey, dummy, there's a better way to do this." And we basically sat down and did a complete redesign of our life and then of our practice around it. And we said, "What does this look like if we truly build a paradise instead of a prison?" And we realized that we would have to serve a much lower number of clients. Much lower.

Michael K.: Why? Just tech is getting better. Systems are getting better. Why?

Michael Y.: Yeah, that's a good question. Because we found that there are only so many hours in the day. And on top of that, because it's in our DNA to overserve, if one person said, "I can only serve 100 clients," our number would be lower than that. Just when we start going through what we actually do for people, it's a lot. We simply know no other way. And so we said, "All right, if we're redesigning our practice," and we listed everything that we want to do for people and what it would take to serve a practice like that and what affluence level we wanted to solve for and all those things, the number we came out to was 70.

Michael K.: Seventy clients is what would work.

Michael Y.: Seventy clients is our maximum.

Michael K.: And so, I guess, just take me a little more. How did you get to that? Are you sketching out, "It takes us this many hours to do our financial planning process and our various meetings, and if I divide that into the working hours of the year," was it that kind of thing?

Michael Y.: It was absolutely that thing, as well as we built around our life and said, "Okay, well, these are the amount of hours that it'll take for us to feel like we're good parents." And we knew that we didn't want to stop at one, and we knew that eventually they'll get older and stay awake for more hours and have soccer and music and all these other things, and said, "Let's build for that now, not create another problem and have to solve that one five, ten years down the road. No, let's do this right from day one."

Michael K.: And so the idea was it's going to be 70 clients.

Michael Y.: Seventy clients, that's exactly right.

Michael K.: So, who was the mentor that laid this on you or tried to persuade you to do something different?

Michael Y.: Yeah. In case he's listening, his name was Jonathan Powell. He worked for a company called CEG and just laid out the playbook and said, "There's a far better way."

Michael K.: Okay. And so I'm assuming, alongside this, there's some interchange. If we're going to work with 70 clients in the future instead of 177, we need more dollars per client because we don't necessarily want to go backwards.

Michael Y.: That's exactly right. So essentially, we designed our perfect life. And we knew that was a point of arrival, and it would take some time to get there. And so we thought big, and we said, "All right, well, we're going to have a certain client avatar that everybody needs to fit. If they're not a perfect fit, then they won't become a client because it's not in their best interest." And so we set our minimums. We figured out what exactly we would do for people. We decided to specialize, really decided to build us right so that we wouldn't just run into another capacity problem a year or two from now.

The Challenges That Came With Downsizing The Client Base [14:53]

Michael K.: So tell us more about what the avatar was. What did you decide you wanted to focus into?

Michael Y.: Yeah. And it's funny because choosing a specialty or a niche, I think a lot of advisors have received that advice, it really is like choosing a major. Most people change a few times. And that was true for us. And so the avatar that we decided on then was we specialize in retirement income. So a million was our absolute minimum, and so we said, "We can serve 70 retirement income clients. Instead of being a generalist now, we're a specialist." And then we went out, and we just told the world. We changed our website and said, "All right, Yoder Wealth Management, building meaningful retirements," I think was our tagline at the time. And I started writing for Kiplinger. And just every COI that we would talk to, every client that we talked to, we said, "Here's what we used to do, but here's what we do now."

Michael K.: So I'm curious in that vein, as you make that shift. So, I guess, mathematically, 70 clients, $1 million minimum, so there's a vision of, "We want to be running $70 million, at least," which, what would this be, 16, 17 years ago, that's a big number then.

Michael Y.: Yeah, absolutely.

Michael K.: It's still a good number now, but that was a really good number for a two-advisor practice then. So, as you're setting that, what happens to the 177 existing clients who pay all the bills?

Michael Y.: Yep, that was the hard part. And one of the things I want to make sure that we don't skip over is the difficult periods, the things that were tough. And that was, what do we do if we want to get down to 70 and we have 177? And the conclusion that we had...and I'll give you a little bit of background. I'm sure you have been to advisor conferences. I sure know I have. And you see somebody up on stage and talking about, I mentioned, thinking like a business owner, and they talk about offloading your clients. And I always found that so off-putting, the way it was just so dismissive about the people who entrusted their life savings to you. You shook hands with them, and you said, "Yes, I will get you to your goals." And all of a sudden, you don't have room for them.

And so what we realized is that if we were going to do this, we had to do it from a place of love, a place of integrity, and we had to make sure that we were keeping our promises and leaving them in a better place. And fortunately, we were honest enough with ourselves to be able to say to clients that actually mean it that, "Where you are right now," with us underserving 177 people, "is in no one's best interest." So essentially, what we did is we said...this is like a family physician saying, "I'm now a cardiologist. I'm a specialist." And so we specialize in retirement income. And 30 of our existing clients essentially fit that, and 147 did not.

And so what we did before we ever had the conversation, and this was probably the hardest part, was identifying somebody that we trusted enough to meet our standards and do as good of a job, if not better, than we would, someone for whom these would be dream clients.

Michael K.: And how did you find that person?

Michael Y.: Brute force is the short answer. We put an ad on Succession Link, and I think we got 89 responses and filtered out a good 20 of them and just started talking to the ones that looked like they might be a good fit and getting to know them and really going deep and vetting their process until we could look our clients in the eye and have that difficult conversation.

Michael K.: So if you're going out on a platform like Succession Link, which at the time was one of the early marketplaces for doing M&A and peer-to-peer transactions with other advisors, so am I to understand you were approaching this as, I guess, the industry label, a partial book sale? The idea was to sell a segment of the client base, or not necessarily?

Michael Y.: Yeah. And the way we positioned it was we have this block of clients here that we can no longer serve. So I bristle a little bit at the word sale. Our clients said, "Well, are you selling us?" "No, you're a person. You have free will." But yes, that is absolutely...

Michael K.: Was there remuneration for the transaction transfer?

Michael Y.: Yeah. Absolutely, yeah. Yes.

Michael K.: Was that a part of the equation for you in how to make this work?

Michael Y.: Oh, yeah, absolutely. So that's the way we positioned it. So we were told that you wouldn't be able to find many buyers right now. There's just far more sellers than buyers because of the graying of the industry. We found the exact opposite. There was no shortage of people looking...

Michael K.: Even then. Even then. There's so much more now, but 17 years ago, you are prior to the rise of private equity coming into our industry.

Michael Y.: Yes, that's exactly right.

Michael K.: This is still individual firms buying other firms, but it was still happening.

Michael Y.: Yeah, exactly. We did not sell these for 12x.

Michael K.: Yes. And so, did you go all the way from 177 to 30?

Michael Y.: We broke it into four chunks.

Michael K.: Okay.

Michael Y.: Because that was the only way to do it instead of going cold turkey, which we actually thought about doing, but that was just a little bit too far. And transitioning clients was a lot of work. We were involved in the meetings. We were involved in the handoff. We wanted the clients to feel like it was a seamless continuation. And so we could really only do 40 at a time or so. So we got four separate chunks spread out over, I guess, five years.

Michael K.: Okay. All to the same advisor?

Michael Y.: No, multiple advisors. We wanted to make sure everyone went to someone who specialized in exactly their situation, or at least close enough.

Michael K.: Oh, interesting. Okay. So even as you listed, you talked to multiple people to say, "Hey, you might be a fit for this portion of our client base. You might be a fit for this portion of our client base."

Michael Y.: Yeah, absolutely. Yeah. We had some people that were younger and digitally savvy and thought, "Oh, fantastic. For our younger clients, you're going to be a great fit." And then someone who talked slower and had a lot of wisdom, but just wasn't as digitally savvy, some of our older clients went there. It was all about making sure there's a right fit.

Michael K.: So, as you're going down this path, I guess I'm just trying to understand the math of the business. You've got two staff on. So, did revenue take a small step back? Did revenue take a big step back? Did you have to change staffing? Did you use the proceeds of the sale to tide you over? How do you financially make this transition when you just had a baby, and you're supporting your family on this while you decide to adjust, whatever that math is, to 80% of your client base or so?

Michael Y.: Yep. So the way it worked, and I know this sounds like a cop-out, but it's the absolute truth, every time we sold off a slice of the practice, we replaced the revenue with two ideal clients within six months. And if you imagine the time difference between serving 40 clients versus replacing them with 2, it's pretty compelling.

Michael K.: Because this is the kind of situation where you've built, I guess, particularly in the early years, just a large gaggle of very small clients because you've got the...they were willing to open a 529 plan. They opened the first Roth IRA. They did a $42,000 401(k) rollover, which was decent back then.

Michael Y.: Of course.

Michael K.: So I guess a lot of these are chunks of clients that might be $500, $1,000, $1,500 clients. So you sell 40 clients with $40,000 of revenue, and then you go get back 2 or 3 that have $1 million, $2 million, $3 million. And you've replaced 40 clients with 2.

Michael Y.: Yeah. I'd say the average revenue was probably about $2,000 per client that we're giving up. And so, yeah, two large clients, there you go.

Michael K.: Okay. So, interesting. And so I guess that's part of what gave the courage or conviction or support to do this and keep going. At worst, you do the first tranche, and it's not going well, and you just wait longer.

Michael Y.: Right, right, right.

Michael K.: You do the first tranche, and it goes okay. And 6 to 12 months later, you've gotten 2, 3, 4 new clients that are large enough to fully replace the revenue. So you say, "Great, let's do the next tranche."

Michael Y.: Yeah.

Michael K.: A couple months of work to transition them, a couple months to get another large client or two. Okay, we're breaking even again. Let's get ready for the next chunk. And over the span of four or five years, you work all the way through.

Michael Y.: Yeah. Looking back, it really was like a magic growth elixir, because every time we did this, there was three things that it created. Number one is it created time, going from 40 clients and replacing them with two. We'll do that. Number two, it monetized. Usually, it got 2x or whatever it was back then. So you had some money to tide you over. And most importantly, it created urgency. And so we used that time created to go recreate these ideal clients that we're building our practice around, these retirement income clients.

Michael K.: Did you ultimately have to or need to or want to make staffing changes as well?

Michael Y.: We did. We did.

Michael K.: Just at some point, you get down to 30 or 40 clients and are probably saying, "I'm not sure we need a full-time admin and a full-time paraplanner anymore."

Michael Y.: Yep. So we very early on no longer needed the paraplanner. And then our admin, we had a conversation at some point where we said, "Oh, this is working. This is going well. We're going to keep doing this, and we don't need 40 hours a week anymore." And we were happy to help her find a new home, and we replaced her with somebody that wanted 25 hours a week, wanted flexibility, which is what we were able to offer. So yes, we did make staffing changes.

Michael K.: Okay. Okay. And so, in practice, I guess that means margins actually start improving for you fairly quickly because the revenue transitions and makes itself back in a matter of six months, but your staffing costs start to go down. And so you're running similar revenue with fewer clients and fewer staff within a year or two.

Michael Y.: Yep, that's exactly right. And so we continued down that path. And if I can just jump where the punchline is, so here we are today. We have 64 households. Our billable wrap is $400 million. We have one part-time assistant. And if we look at our life that we were able to build this practice around, we serve on three boards between the two of us. We overserve our clients. We take off all the time off that we need. Anat does adult gymnastics. I run obstacle races. We're in great health. And our kids are now 17 and 14. I told the story back when our oldest was one year old. When I look back over the last 16 years, I have zero regrets about the amount that we were able to be there for our kids and our family.

Michael K.: And can I ask? Where does revenue sit for this base?

Michael Y.: Yeah. So probably just short of $3 million, maybe right around there.

Michael K.: Okay. And you can run it with you and your wife as the lead advisors and one part-time assistant because, at the end of the day, it's 64 clients.

Michael Y.: Yes.

Making The Decision To Switch Ideal Client Avatars [26:29]

Michael K.: So then, just connect the dots for me. When and how did the avatar change? You started with, "We're working with million-dollar retirees," and now the sweet spot is, "We're working with equity comp folks with high-dollar concentrated positions."

Michael Y.: Yeah. And I think, with most niches, my guess is this is how most advisors do it. You get a client or two, and you're like, "Holy cow, I really like serving these clients. I feel like I'm pretty good at it." And we kind of looked our way into some referrals that were $8 million, I think, was the first equity compensation one that we got. And I'm a former actuary. My wife has a master's degree in structural engineering. When we started working with equity compensation, we're like, "Where has this been all our lives?" Sure, it was technical, but it was fun. We got to geek out with StockOpter Pro and spreadsheets and strike prices. I don't know. To us, that was a good time.

Michael K.: Interesting. So, from your end, you got one and realized these are actually really fun when you like to be numbers nerds into complex option strategies. So, how do you make the decision and announcement to shift? Is there now another partial book transaction because now you've got 52 retirees and decided you want to go after equity comp clients? How did this play out?

Michael Y.: Yeah, we did not do that. So we kept everyone that we acquired following the transition that I mentioned. So once we made that decision, we kind of generalized our website a bit because, yes, we want to focus on equity compensation. At the same time, we also didn't want our retirement income clients to feel like, "Oh, you don't serve us anymore?" So what we did to kind of thread that needle, here's how I specialize. I'm sure you're familiar with qualified small business stock, 1202 stock.

Michael K.: Yep. Yep.

Michael Y.: And so, about, I don't know, 2016 or so, it was the third time, maybe 2017, I think, it's the third time that I saw somebody come in who had QSBS, and their tax advisor just missed it. I'm talking seven-figure tax mistakes. And to be clear, I'm not blaming the CPA. The CPA probably got a shoebox full of crap on April 11th, and they reported 1099. They can't do discovery on every item. There's no tax to get done. But nobody knew to tell the CPA, "Oh, actually this is QSBS." So we go back. We amend the return. And you save a client $1.8 million in taxes, you've probably got a pretty loyal client for life.

Michael K.: Yeah, yeah, that'll do it.

Michael Y.: Right? And so, after doing this three times, I thought, "Wow, the world really needs to know more about this." So we started a website called qsbsinfo.com, and it really was meant to be the one-stop shop for all things QSBS. And by that, I meant, not only do we have articles and examples and calculators and checklists and all those things, but if this was truly to be the authoritative site in all this, I didn't want clients to think of it that way. That's junior varsity thinking. What I wanted was for CPAs and attorneys to view it as the authoritative source. And so I asked, what would CPAs and attorneys want to know if they're looking up QSBS?

So I put the full text of Section 1202 on there. I put all the private letter rulings on there. I put all the applicable IRS court cases on there. I made a little interpretation of everything on there. And so the way I built our practice from there, by then, we raised our minimum to $10 mil. QSBS is not a low-net-worth strategy. It's a much higher end. And so, once a week, I would get inquiries from attorneys, CPAs from all over the country, although an awful lot were local because I'm in Silicon Valley. And they would reach out and say, "Hey, I have this QSBS case. Mind if I ask you a couple of questions?" I'd say, "Sure." I'd hop on the phone with them to help solve their problem. Wouldn't always turn into a referral, but boy, a lot of times I did because the attorneys and CPAs would say, "Well, great, I can help the client with the trust or the tax management side of it, but they need a wealth manager." "Well, great, here I am. We can work together."

Michael K.: Yeah. Interesting.

Michael Y.: And so that's how we specialized and had a website for it without our website trying to fit two niches that were kind of polar opposites in some ways.

Michael K.: So the website became a little bit more generalized too. "We work with both." But the separate qsbsinfo.com became the content COI funnel for those clients in particular.

Michael Y.: That's exactly right. And we leaned on it heavily for our marketing.

Getting More Referrals By Being Able To Solve A Specific Problem For COIs And Their Clients [31:07]

Michael K.: So now I want to come back to where we started. So, how do we get to this world where we're getting in front of multimillion-dollar retiree and then equity comp prospects with this enormous close rate, talking to very complex clients about high-dollar stuff?

Michael Y.: Yeah. Well, and I think that the way that we got introduced to people, the only marketing I believe in is COIs, as opposed to a one-time transaction. You do a dinner seminar or something, that's one time. But COIs are a recurring source of marketing. One relationship that you build today might send your referrals seven years down the road. And so the way we talk to COIs is simple. So here's my little pitch. So you're an attorney or a CPA, and you say, "Hello, Michael. What do you do?" And I say, "I'm a financial advisor. I specialize in 1202 stock." That's my pitch. And what do you think they say?

Michael K.: What's 1202 stock?

Michael Y.: Well, no, this is an attorney or a CPA. They know what a 1202 stock is.

Michael K.: Okay, okay.

Michael Y.: They say, "Oh, interesting." And immediately, the conversation gets technical. And that's where the magic happens.

Michael K.: So they start asking 1202-related questions. Have you ever dealt with a client like this? Have you ever seen that?

Michael Y.: Yeah. Nine times out of ten, here's how the conversation goes. "Oh, interesting. I was just talking to someone two months ago, and they've got $30 mil in QSBS, and they only have $10 mil of exemption. And now we're looking at these stacking strategies, but we got stuck on this item here." I'm like, "Oh, well." And we're having a conversation about an actual client, and I can help them solve a problem. And they just met me. So I compare that to the way most advisors approach COIs. And from what I've seen, the way it looks is they say, "Oh, let me tell about my practice. Let me tell my process. Here's how great my investments are." And they're beating their chest or pushing, pushing, pushing, selling, selling, selling. And this COI, you sound just like everybody else. I've probably talked to three advisors this week already. You sound just like them. And I show up, and I say, "I'm a finance advisor. I specialize in 1202 stock." And they say, "Huh, I have this client..." And boom, it's a very different conversation.

Michael K.: So I guess part of the distinction is the QSBS realm is so narrow and specific for what it is. If you're a CPA or an attorney that works with it, you definitely know and recall your QSBS clients because they're big-dollar clients. And the planning situation is so distinct that I thought it was striking. Your example, "Oh, yeah, I had a client dealing with this a month or two ago, and they had $30 million of gains and only $10 million exemption…" It's not, "Oh, yeah, I just had one of these last Tuesday." Because they're actually not that complex. You're super, super deep in the space, but it's so impactful and notable that they immediately remember the client from two months ago and want to talk to you about them.

Michael Y.: That's exactly right. And I know this is specific to your points, so let me generalize this. There's any number of niches that you can choose. This story just happens to come from an advisor who's right outside of Silicon Valley. So QSBS, swing a cat. But think about the market that you're in if you're listening to this right now, and maybe it could be widows or divorcees. Those are common ones. And retirement income is certainly very broad, but maybe you have a particular profession or employer in the area. Going deep on one particular problem can allow you, when you have a conversation with COIs, to turn the conversation technical very quickly.

And to me, that's the key. Because they don't want to hear about your process. COIs don't want to hear about your process and your investment approach. They want to know if you're technical. They want to know, if they send somebody to you, are you going to make them look bad?

Michael K.: I was going to say, this just quickly comes down to, if you're technical and good and can help the client solve a problem, then they're going to look good in front of their client when they bring you in. So now they want to bring you in because you're going to make them, "Hey, I found this expert out in Silicon Valley who knows how to do a stacking strategy for QSBS that's going to work. And you can save several million dollars from the taxes. Should I set up a meeting for all of us?" Of course, the client is going to say yes. And the attorney is thrilled to show off that they just saved their client a seven-figure tax bill by bringing you in.

Michael Y.: Exactly. So shut up, stop talking about yourself, and just listen to the COI you're talking to and ask yourself, how can you solve their problems?

Michael K.: I guess, solve their problems. But I guess yours is even a little bit distinct. So I do see folks that go after COI's where it's literally you conduct an intro meeting with the COI, and you try to understand their practice and who they serve. And what are they dealing with in the practice? And how can we help them solve their problems? And not to be negative about that, but that to me is very directly, literally, "How can I help the CPA solve their problems in their practice to build a relationship, to drive referrals?" And your situation feels a little bit different because it's more, "I'm going to be an expert in a particular complex problem that they faced with their clients that they might not know all the answers to off the top of their head." And because they have the problem of any professional services provider, which is, "I want to look good in front of my clients and add value to my clients," if you're good at solving a problem that their clients have, then they want to bring you in when that problem crops up.

Michael Y.: Yep, that's exactly right.

Going Deep Through A Values-Driven Discovery Process To Convert More Clients [36:47]

Michael K.: So now help us understand how this works at the point that you're getting in front of a prospect. As you said earlier, basically, every prospect that you get to have this conversation with for the past ten years has become a client. So, what's the process at the point a prospect shows up, and you're trying to actually turn an affluent retiree and/or QSBS prospect into a client?

Michael Y.: Yeah. And I'm sure, just like most people, the first time we were introduced to a wealthy prospect, someone who is way over anyone else we would serve at that point, we failed. We failed multiple times, and we learned the hard way. So hopefully, if people are listening to this right now, I can help speed things up. So, if you want to move up market, the single most effective tactic is discovery. And the higher upmarket you go, the more effective it is. And so, actually, let me do this. So there's two superpowers that I've discovered in this career. I don't know if we'll get the second one, but the first one, I read the book, "Never Split the Difference." Have you ever read that book?

Michael K.: Okay. Yeah, yeah, Chris Voss. Yeah.

Michael Y.: Yeah, that's the one. So, if you haven't read the book, here's the premise. So this guy was a former hostage negotiator, the FBI head, I think he was. And his job, anytime there's a dangerous hostage situation, there's guns, and lives are at stake here, he was brought in. And do you know how he got the hostages released? He asked them questions. This whole book is his playbook for how he would get the bad guys to release the hostages. And I was thinking, "Man, he's going to have all these scripts or these witty one-liners." No, it was the exact opposite. He put on, he called it, a smooth jazz voice. And he realized if someone's taking hostages right now, and they probably know the odds aren't very good, that means something has gone very wrong. And his job is to figure out what it was and get them to say it out loud.

So he would ask them questions. He'd keep them talking. And sure enough, after five hours of this, they'll go, "Okay, well." They'll give up all their leverage. They'll give up the hostages and walk into the arms of the police. And when I read this book, my jaw was on the floor. I was like, "Holy cow, this is a superpower. How can I harness this in my life?" And we looked at all the failed attempts we had to move upmarket, and no one's saying yes. We realized, "That was the problem." Just once we connected the dots that discovery was the solution, going deep, then that's when we had a lot better results. So we got some training on it.

Michael K.: As contrasted with what? What were you doing or not doing before?

Michael Y.: Yeah. So I think our process before was probably similar to what most people do in the industry. Everybody starts with some sort of interview when they first meet a client. And usually, if you look at the CFP process, for example, meeting number one is to establish the scope of the relationship. So you ask questions about, what are your goals, what are your concerns? Some people go even deeper, and we call it fact-finding. They go, "All right, what age do you want to retire? And what should we assume for risk tolerance and return?" Just gathering all the inputs that you'll need in order to create a financial deliverable. So most people have some sort of version of that. And I'll give people more credit than that. I think most people also have some qualitative questions in there where they'll throw things like, "Well, paint me a picture of what your retirement looks like?" or, "What keeps you up at night?" They'll throw some questions like that in there.

But what discovery looks like is completely different. Discovery is not focused on fact-finding and fleshing out all the goals. Instead, it's on values. "So tell me about what it is..." So it's about questions like, "What does money mean to you? What do you want your legacy to be? What really does keep you up at night? When it comes to your kids, what concerns you most? Tell me about your financial upbringing." Just these really, really deep questions. And so what we find is that when we go through that, people feel heard. They begin to make a much deeper connection between their finances and what can accomplish them for them in life. And on top of that, their goals expand. People come to us with sometimes very modest goals compared to what they could potentially accomplish given their means. And by the end of discovery, all of a sudden, their goals have expanded. It's an incredible process.

Michael K.: And so the shift for you was less of the fact-finding that we get trained in earlier and more of the values-oriented questions.

Michael Y.: That's exactly right. Yeah. Think about it like this. If you're going to have Jeff Bezos come in for an initial meeting, that's probably going to be a very aspirational interview that you're going to have. Versus if you have someone who comes in and they're a single parent and they're living paycheck to paycheck, discovery is probably going to look very different from client to client.

Michael K.: For sure.

Michael Y.: And so the latter, you still probably want to do something with discovery, but it'll probably be much more behavioral.

Michael K.: I guess it sort of reminds me of some version of Maslow's hierarchy of needs. There's a subset of clients where, "I can't talk about your highfalutin legacy values, and I just need to make sure that my kids can actually go to college in two years. Because my daughter really wants to go to school, and I'm not sure we can afford it. This is the level of my concern. I need to get very tangible very quickly." And then there's a subset of clients that are higher dollar like, "Okay, if my net worth isn't seven figures, that's the tax savings on my net worth, thanks to the QSBS strategy. I'm not worried about, are the kids going to go to college? Am I going to be able to retire? I'm worried about a different level and dynamic of problems and concerns." And those tend to be much more oriented around values.

Michael Y.: That's right. Yep. And so I go back to, again, the superpower where, if somebody can get the hostages away from the bad guys, surely, by asking some really good questions, you can convince someone to do financial planning with you.

Michael K.: That seems like a reasonable thesis. So, where did you go to start getting training and learning questions, learning values questions?

Michael Y.: Yeah. And so there's a couple of different places where we get it. Bill Bachrach, I'm going to give all the credit in the world. He's kind of, at least in my mind, the brainchild behind a lot of this. CEG had some training on this that we took. Did a Horsesmouth course on it. That was also really good.

Michael K.: Interesting. So, I guess, how did you start down this road? If sort of the realization is I need more discovery questions or conversations, then you're going to Bachrach and Horsesmouth and Bowen at CEG and all the different folks. Who turned you on this path in the first place?

Michael Y.: Yeah, that would be our mentor, Jonathan Powell.

Michael K.: Okay. Okay.

Michael Y.: And by the way, the single most...if you're not convinced that discovery is a superior approach to whatever you're doing right now, the most effective way is to be on the receiving end of one. And that's finally what it took for us to say, "Oh, that really is different." And Jonathan just said, "All right, sit down. I'm going to take 90 minutes, block it out." And you two are going to go through discovery. We did, and our jaw was on the floor. Because by the end of it, Anat and I are looking at each other and going, saying things like, "Wow, I've never said this out loud before," or, "No one has ever heard this from me before." It's incredible what it can do.

Michael K.: Interesting. And so now there's this realization, "Okay, we need a different set of questions in discovery meetings in order to drive this."

Michael Y.: Yep, exactly right.

Michael K.: And so, can you give, I guess, just a couple of examples? What kinds of questions started cropping up? Are there go-tos that you like to anchor around now in these conversations?

Michael Y.: Yeah. So I think some of them...and we have a whole discovery questionnaire that's part of the Kitces meetings course series. And so anyone who hears this and wants to follow up, it's all in there. Having said all that, I'll pick a few that I think really work well for us. So one is always around legacy. So a simple question, how do you want to be remembered? Another good one is, when it comes to your children, what concerns you most? As people become more and more successful, the number one problem, by far, I can't even think what the close second is, the number one concern I should say is their kids. It's always their kids. And that's true if the kid is six years old or...

Michael K.: I'm doing well. I don't want to ruin my kids.

Michael Y.: Yeah, yeah, exactly right. And it's funny because the kid could be a six-year-old. They could be 46. The client's number one concern is still their kids. And so that's always something that we want to talk about. And questions like, which is more important to you, passing on your assets or passing on your values? And then the follow-up question, all right, they almost always say values, and I say, "Great. What have you done so far towards that end?" And usually, you just get blank stares. And just a fantastic conversation comes from that about all the things that they want to make sure they pass on and questions like, "How do we do that? And how does it tie back to our finances?" Now we're having a very good conversation, very productive.

Michael K.: Yeah. So, for folks who are interested and want to see more questions on the discovery questionnaire, this is kitces.com/510 for episode 510. So go to kitces.com/510, and down to the show notes section, just we'll have a link out for the discovery questionnaire if you want to peek at more questions.

Michael Y.: Perfect.

Using Precise, "Elevated" Language To Convey Credibility To Prospects And COIs   [46:17]

Michael K.: So, Michael, then what's the...? You said two superpowers that emerged. So it sounds like discovery meetings that tilt towards values over facts becomes one of them. So, what's the other superpower?

Michael Y.: The other superpower is using elevated language. And this is a very nuanced skill, so I'll do my best. So what I like to ask when I talk to a room full of advisors is, I say, "Has there ever been a speaker where, within the first 30 seconds, you're going, 'Wow, this guy is a genius?'" And they almost all say yes. In fact, you're one of the names that I use, you and Jeff Levine and people like that. I might say something like, "Has anyone ever heard Michael Kitces talk, and within 30 seconds, without even knowing why, you're going, 'Gosh, this guy is a genius. How does he do it?'" Thirty seconds in. And the answer is the words he's using.

So, would you ever hear someone like that say things like a mega backdoor Roth conversion, mealy-mouthed phrases that we use like that? No. Someone like you would probably talk about making full after-tax contributions. They would do in-plan conversions into a designated Roth account. Very precise language and yet effortless, totally fluent. Everyone knows what you mean. It's not jargon. It's not over their heads. It's just precise. And so this can be...so the way you can transfer this to day-to-day work with clients, and especially with prospects when they're still judging you, because the way people judge you early on when they don't know you is by the questions you ask and the words that you use.

So if someone would say, for example, "How much can I put in my 401(k) this year?" You can say, "Oh, the elective deferral limit is $30,500," or whatever it is that year. Notice the phrase elective deferral limit. They're not confused. They know what you're talking about. They just ask how much they can put in their 401(k). They know what that means, the 401(k) limit, but they would never use that phrase themselves. Or when you talk about retirement planning, you use terms effortlessly. You don't say the owner. You say, "We have the participant. We have the sponsor. We have the fiduciaries." You have all the different players. You talk about things like separation from service. It's a different language. And so, if you can make that part of...if you become conscious about using the right words, it elevates you very, very quickly in the eyes of people who don't know you.

Michael K.: So I hear you. I get it. I'm trying to process through, I guess, where is the line between this and what, to me, quickly feels like it becomes industry jargon? And now that's worse because nobody understands what I'm saying because I'm using too much jargon. How do I find this line?

Michael Y.: Yes. And you're exactly right. There's a very clear distinction. One is understandable, and one is not. And the second you become indecipherable, yes, that is absolutely jargon, and it is frustrating, whereas elevated language is entirely understandable.

Michael K.: And the point here is, "I'm trying to convey credibility that I know my stuff because I can use the precise words?"

Michael Y.: Yes. So, as you're moving up...

Michael K.: Is that the essence of this?

Michael Y.: Yeah, that's the essence of it. Because as you're trying to move upmarket, your audience becomes much more sophisticated. Most of the time, my first interaction with a high-net-worth prospect is not the prospect themselves. It's their COIs. And how are they judging me? So, if I botched the language…so for example, think of a trust. How many advisors go out there and say, "Well, my client owns a trust." Okay, let me pause right there. If there's an attorney you're talking to, they've already dismissed you in their mind, because trusts don't have owners. They have grantors, they have beneficiaries, and they have a fiduciary.

Michael K.: The trust doesn't have an owner, and we need a little more precision than a trust.

Michael Y.: Right?

Michael K.: Neither of these tells me anything yet.

Michael Y.: The whole point of a trust is it's its own standalone and its own taxpayer identification number. And so your language, if you're botching it, you may or may not even know that it's costing you a client. And so it's very, very critical to use the right words, especially as you're moving up in client sophistication. And so that is also a superpower, and I've seen it because I've been on both sides. I've been presenting in front of a room…

I remember I was talking about stock options once, and within the first ten seconds, we're talking about nonqualified stock options. Someone said it's taxable as ordinary income. I said, "Actually, it's taxable as compensation." They said, "What's the difference?" I said, "Well, the ordinary income is...your compensation is ordinary income with FICA." And we're off and running. And bam, the whole audience is like, "Wow, this guy is an expert." Well, no, it's just I use the right language. Ordinary income and compensation are not the same things.

Michael K.: Same thing. Right. This reminds me of a conversation I had with another marketing coach person years ago that had kind of a similar view or framing around this. His angle was a little bit different, but I think gets to the same point. It was something to the effect of, look, the higher the dollar the prospect, the more people they have coming at them with a wide range of strategies and tactics and offerings, some of which are legit and some of which are total BS. And so any client who's been in that situation, in that financial situation, for some period of time begins to develop BS detectors just to try to figure out who's even credible and actually knows what they're talking about and who's just spinning something that they don't know what they're talking about.

And his point was a version of the same thing here, which is if you're not using the clear and right words and language of whatever the thing is, they may not know about your tactic, but they may know enough to sniff out that you don't actually really know that much about the thing if you're not using the right words and language. And so it becomes a gut check moment for a subset of prospects that just constantly have a BS sniffer on because they're just too targeted by the financial services industry, unfortunately.

Michael Y.: Yeah. And I would also venture that, most of the time, they don't know why they've dismissed you. They can't quite pick up on it because it's so subconscious. But yeah, the same reason. If there's an engineer in your house and he points to a wall and says, "It's load-bearing," you know what he means. But when he uses that term like, "Oh, this guy is a structural engineer," he's very competent, right? Who says elective deferral? A competent practitioner.

Conducting An Intro Call To Determine Whether A Prospect Is A Good Fit [52:43]

Michael K.: So now, help us understand how this shows up in the discovery meeting itself. Can you walk us through what is the process of the discovery meeting when you get past the COI and get to the actual prospect?

Michael Y.: Yes. And I'm glad you asked because it brings up an important distinction. And when it comes to discovery, my language is the last thing I'm worried about. Actually, our first step in the process, our first touch point, is not discovery. We actually have an intro call. And if anyone listening right now only takes one thing out of today and says, "I'm going to implement one change," maybe it's this for a lot of people. What most people do on their first meeting is that initial interview, whether it's fact-finding, discovery, or something else. Here's what we found with discovery. Discovery is awesome, but not so awesome when people aren't expecting it. And so we've had a number of discovery meetings just go absolutely sideways.

I remember, after going through our first discovery, Anat and I was just so excited to try it, and we got a referral to a $7 million prospect. Oh, here we go. Here's a chance to actually try this out on a high-net-worth prospect. And by question six, talking about, "Tell me about your financial upbringing," he's like, "What are we talking about?"

Michael K.: Okay. Yes. I think this is the fear a lot of people have, right? I came in because I'm selling my company, and apparently, you're a QSBS expert. And I'm trying to figure out how to make sure I do the sale and not get the $3.4 million tax bill. And you're like, "Tell me about your financial upbringing." You're like, "I came in for my [equity] comp. How did we get here?" I mean, jokingly, but I feel like this is even the fear, I would say, for a lot of advisors I talk to who want to go more down these values-oriented conversations, is, how do I get on to the track of these questions and not have it be weird?

Michael Y.: Yes, exactly. And it's funny because I'll never forget this guy who said, "The reason I came here is because my $7 million at Fidelity is getting 4% in munis, and I'm hoping to do a little better than that. And you're asking about my greatest fears?" So the reason why we started having this intro call was to prevent a discovery meeting from going sideways. And so think about all the ways that a discovery meeting could go wrong. So maybe the client is not expecting this kind of question. They thought you were going to talk about what the markets say or page seven of their brokerage statement.

Also, another way that it can go wrong is you could be talking to someone who's not a good fit client for you. And when I talk about building yourself a paradise instead of a prison, that implies that maybe there should be some people who are and are not a good fit for your practice. And that is okay. But I tell you what, if someone is not a good fit, it is a lot harder to turn them away after they've gone through a whole discovery meeting with you and they've poured their heart out.

Michael K.: Right.

Michael Y.: And we figured out we need to nip that in the bud. We need to figure out in advance who's coming up for discovery meeting. And the third reason to have an intro call is, as I mentioned earlier, done correctly, discovery should look very different from one end of the client spectrum to another. A Jeff Bezos initial meeting is going to sound very different in terms of, like I said earlier, the single-income parent. And so we need to know what kind of questions to ask at that discovery.

So what we do at our intro call, we do a little bit of just telling what caused you to reach out, telling what you're trying to accomplish, telling them about some of your concerns. So we flush a lot of the fact-finding there. And then, once we figure out that we have the right fit, that's where we'll ask a few additional questions. That's where the precise language comes in. We call them power questions. They basically establish your credibility and create doubt all at once. And I'll give you a great example.

If you're talking to someone who's self-employed, you might say something like, "Oh, let me ask. When was the last time you reviewed the full range of retirement plans available to you?" "Oh, gosh, I don't know. That sounds valuable." It's a power question. And so, after you go through all that, once you decide you're going to make the offer that the next logical step is to do discovery, you've screened them from a personality perspective as well as whatever metrics that you use, what we say after that is, "Okay, so let me tell you what to expect for this first meeting, because we do it a little bit differently than most people." And we call it deep discovery.

So what we really want to do is go deep on your values, what money means to you, everything behind the money itself. And the reason why we do that is because, once you have more than enough to meet your needs, your wealth becomes an expression of your values. And the only way I can truly help you up front is to get to know you really well. And the other reason is because our job is not just to address your concerns. It's to anticipate them. And again, the only way I can do that is with a complete picture. And they say, "Great."

Michael K.: Okay. So the intro gives you an opportunity to set up. You're going to ask a different kind of questions in discovery.

Michael Y.: Yes, that's exactly right.

Michael K.: So it's not a surprise to them as they go in.

Michael Y.: Yep. And we tell them that means we're not talking about the markets or page seven of your brokerage statement. We'll get to that. But this first meeting is all about you.

Michael K.: So, how long is the intro call in your world?

Michael Y.: We tell people to expect 30 minutes. It often goes a little bit over than that, but not longer than 45. If it's longer than that, you're going too long.

Michael K.: And so, I guess, can you take me through more of just what do you cover? What do you do in the intro call? What are you actually asking them getting into versus not?

Michael Y.: Sure. So I'll get very tactical here. So the way it usually works is there's one or two small talk questions, never more than that, because this is the first time we're reaching out. After asking a couple of small talk questions, we just say, "So tell me, what can I do for you?" And we just listen. And for the next ten minutes, they'll describe whatever pain point in their life caused them to reach out to a financial advisor. So maybe they're trying to retire. They're trying to sell a business or trying to send their kid through college, the usual stuff that you hear out there. And so you just ask them questions.

We call it the clear process or the five things that you're doing. You're clarifying the goal. You're learning how they feel about it. You're examining their emotions. You're really getting to understand what it is that they're looking to accomplish. And so you get a sense…does this person really need a financial advisor? And if so, is it us or someone else? And based upon all that, that will determine where you take the call. Do they need an advisor? The answer might be no. And a lot of our intro calls, we just basically give some free advice on the fly. "Maybe you don't need a full-on financial professional. You just need to rebalance your 401(k) and do this one thing. So call me if you have questions." And they say, "Thank you." Or maybe they do need an advisor, but it's not us. But if they do need an advisor and it's us, well, then the rest of the time we will spend setting expectations as to what the process looks like, what discovery looks like, what the relationship might look like, just so they have a full idea of what to expect going in.

Michael K.: And are there questions you ask or data you collect in advance of the intro call?

Michael Y.: Not of the intro call. We do ask them to send information prior to discovery just so we are better informed as to what questions to ask. But no, the intro call is a blind date.

Michael K.: Okay. And how much do you ask them to send when you get to discovery?

Michael Y.: We're just basically asking for all the statements so we can put together some idea of their net worth. Maybe a mortgage statement. Always a tax return, always want to see that. But just some basic information so we know what kind of questions to ask. Because in discovery, most of the questions will be about values, family, legacy, things like that. But we will ask some financial questions. "I noticed that two-thirds of this IRA is in one stock. What's going on there?" Just questions like that.

How Michael Conducts His "Deep Discovery" Meetings [1:06:45]

Michael K.: Okay. So now take me through discovery meeting itself a little bit further. What actually happens in this meeting? How do you open it? How does it flow?

Michael Y.: Yeah. So we start off every in-person meeting with a new prospective client by reviewing the planning process. It always starts out the same. "Here's where we are right now. Here's the next meeting. Here's the decision point. Is it a yes or no? Are we going to be entering into a formal relationship? Here's the actual advice that's delivered." Just so they have some idea of where they are in the process.

Michael K.: And I guess, just in context for your process, they have not become a client yet. We are still in prospect.

Michael Y.: That's correct.

Michael K.: Okay. Because I know there are advisors where, no, no, discovery is what you do to go deep on the financial plan after they have agreed to become a client to move money. So in your context, we are still in prospect.

Michael Y.: That's right. That's right.

Michael K.: Okay. Okay. So you're just helping them to get oriented. "Look, we did an intro call. We do a discovery meeting. After this meeting, you're going to decide if you want to become a client or not. If you do, here's what's going to come next." It's that sort of setup?

Michael Y.: That's it.

Michael K.: Okay. Okay.

Michael Y.: And then we start going through the questions themselves. And there's seven areas where the questions are. There's values, there's family, there's financial questions, there's outside profession. We go through all those. Always, always, always, we start with values. That's where you're going to have the deepest, most meaningful conversations. What we're really looking for, the term we use is emotional resonance, where you can see, just all of a sudden, clients are going to a place where, like I mentioned before, they're saying things they've never said out loud before, or spouses are learning things about each other they didn't even know. They might say, "I've been married to Joe for 55 years. I didn't even know that about him." You can see people start to lean in. They start to mirror your body language. Sometimes people get weepy. It's a very authentic conversation.

Michael K.: And so this is where you'll have the questions you were raising earlier. How do you want to be remembered? When it comes to your children, what concerns you the most?

Michael Y.: Yep. We spend a lot of time asking about, "Tell me about your financial upbringing. What sort of values were you raised with? How have those changed over time? What sort of values do you want to pass along to your children? Tell me some of your earliest memories about money." Things like that.

Michael K.: Is this fully scripted? Do you have, "We ask these eight questions every time in the sequence," kind of thing? Or is this more dynamic for you?

Michael Y.: Yeah, we have a list of, I think, 59 questions on our list. And we will choose the 25 or so for that meeting based upon the intro call that we had. If someone's not a business owner, I can cross out all the business owner ones.

Michael K.: Sure. Okay.

Michael Y.: But we are very intentional about telling the client, "These are our list of questions I want to make sure we get to. Are you okay if I have this in front of me?" And make a show of it. I want them to know that we're prepared for this. Some people apologize for having a list of questions now. No, exact opposite. I want them to know we've come and prepared for this.

Michael K.: Okay. That's a helpful reframe because I do think there are some of us...I don't know. Is it embarrassing if you need to bring your list of questions like you don't know them to say, "No, we're very thorough and precise. We have a list of questions. We're going to go through them and make sure we cover everything for you?"

Michael Y.: Exactly. And people are like, "Okay, great."

Michael K.: So, what are the domains? So values, you've talked about family.

Michael Y.: Yes, family. Yeah. And then relationship with the community. And that's where you get into things like philanthropy. Then you have these financial questions.

Michael K.: So take me through how this meeting just flows and progresses from here. We're asking questions. We got 25 or so. They're meaty. So, how are you taking people through so they're keeping momentum with you, they're not getting exhausted as they go? How are you conducting the meeting through all these questions?

Michael Y.: Yeah. And so what you want to do is 75 minutes or so is probably all most people can take because, like I said, they're pouring their heart out, and that takes a lot of energy.

Michael K.: Yeah.

Michael Y.: And so I've seen some people, they do 50 or more questions. No, no, no. Just choose some ones that you can go really deep on and do it right. So, 25, we found to be a really good number. At the end, we thank them. "Gosh, you were so authentic. You shared so much. Gosh, thank you. I'm really touched by some of the things that you said." And they feel like, "Wow, I feel really heard." And I say, "Okay, well, let me walk through next steps from here." And then we spend the rest of the time…

Actually, there's one more thing that we do before we even go to that. We call it the master list of goals. And here's the basic concept. So there was a study done at some point where a master list of goals is something where you present somebody with a list of goals. So, for example, leave a legacy to my kids or start a nonprofit, for example. And so whoever it was that did the study, and I can find out if we need who it was, they basically found that after going through discovery, when presented with a master list of goals, 75% of the time, people change their top three goals, at least one of the top three, after being presented or prompted with a list to choose from.

Michael K.: Because they just didn't think of some of the possibilities until you put the list in front of them? Is that the gist?

Michael Y.: Yep. So the number one that comes up for us is start a nonprofit. It just didn't come up in discovery and all that. And we throw a list out, and they go, "Oh, actually, I've been thinking about doing that." And I think that would have been nice if they came up earlier, but okay. And so there it is, one of their top three goals is, at some point, they want to start a nonprofit. Cool. And so that's why we always make sure, after going through discovery, we have this little master list of, "Here's 12 or 15 things that commonly come up. Are any true for you?"

Michael K.: Is this a list you'd also be comfortable to share?

Michael Y.: Of course. Absolutely.

Michael K.: Folks would be curious to see. So, again, if you're listening, this is episode 510. So if you go to kitces.com/510, scroll down to the show notes section, we'll have a link out to the master list of goals as well. So, how big is this list, Michael?

Michael Y.: Yeah. So I think usually between 12 to 15 is what we put on there. We have 20 or so to choose from. But like I said, just like with everyone else, you do customize. If someone's not a business owner, you take out the "Transition my business to my children" question. Nothing ever generic goes in front of our clients.

Michael K.: Okay. But I guess it sounds like they stay fairly high level. I'm just thinking, I think the list of goals in MoneyGuide that clients can choose from is more than 12 to 15. So we get down to, "I want a boat. I want a second home." So it's not at that level. It sounds like it's one step higher in principle. Leave a legacy to kids. Start a nonprofit.

Michael Y.: Yes, exactly right. And, to me, it spoke to the power of this because I feel like one of the jobs of a financial advisor, a good financial planner, is to be a leader. And if you go through discovery, clients come to you thinking, "All right, I want someone to take me from point A to point B." And after they go through this process, you might emerge with this point C that's higher than the point B they came up with coming into the meeting because you've identified goals they didn't even know they had.

Michael K.: And so, how do you introduce this part of the conversation to the client? How do you set this up?

Michael Y.: Yeah. I just say, "So I appreciate you sharing." One small short exercise I like to go through after having gone through this. It's a bit of a catch-all. This is a bit of, "Did we miss anything?" "And so what we have here is I chose...there's 12 items in this list. They're just common goals that not everybody even thinks of that might be a goal for some people in your situation. And I'll walk through them. Just take a look at that list and see if there's any that might apply to you that we didn't talk about already." They go through, and they might choose one or two and go, "Actually, yeah, this one's really important to me." And then we take a quick second to define what that means and then move on from there.

Michael K.: And so, does this come in the middle of the values, families, relationship with community questions? Is this 1 of the 25 questions, "Can we look at the master list of goals?" or is this a separate stage of the meeting?

Michael Y.: I make it right after we finish the 25th discovery question. So this is the next stage of the meeting.

Michael K.: Okay. And so that may further firm up or shift some of the goals that are on the table.

Michael Y.: Yeah, exactly right.

Michael K.: And so then you go...are you going from there to, "And now we're wrapping up. Thank you. Let me walk you through next steps from here," or is there something else that comes in the meeting?

Michael Y.: So then the next thing we do is we usually say, "All right, I've asked you a ton of questions. I'm sure you have questions for me. We're going to walk through our process and all that, and if you prefer, we could do that first. I'm happy to. Otherwise, what questions do you have for me?"

Michael K.: Okay.

Addressing Planning Fees With HNW Clients [1:09:23]

Michael Y.: And then, from there, just usually there'd be four or five questions. Fees is always number one every time. They'll be prepared for that.

Michael K.: Because I guess, particularly a high-net-worth clientele that you're working with, just they may be fine with the fee, but they know it's going to be a big number, and they just want to know what it is.

Michael Y.: Exactly.

Michael K.: Because I think you said you're $10 million minimum now. So, is it an asset minimum? Is it a fee minimum? Just structurally, how do you do it?

Michael Y.: Yeah, that's billable wrap. So they could have a net worth or assets much higher than that, but that's the billable wrap on our platform.

Michael K.: Okay. And what is fee schedule for you when you start at 10 million?

Michael Y.: Yeah. So we have, like most advisors, a blended fee schedule. So it might be 0.9% in the first 5 mil, 0.8% on the next 5 mil, and so on from there.

Michael K.: Okay, 0.9% on the first 5 million, 0.8% on the next 5 million.

Michael Y.: For example. Yeah.

Michael K.: Is that really where numbers come in for you?

Michael Y.: Pretty close to that.

Michael K.: Okay.

Michael Y.: There's 0.7% on the second 5 mil.

Michael K.: Okay. And that's notwithstanding. There's a break point at five even though your minimum now is ten. I guess that's because you have existing clients below.

Michael Y.: Yeah, exactly right.

Michael K.: So you have to keep the existing schedule. Do you get questions like...? Million-dollar clients have kind of heard the proverbial benchmark rate is 1%. People in practice are higher or lower. But often, if you're higher, folks ask less consistency about where numbers are with 10 million plus, but I do see a lot of advisors that are at 0.5%, 0.6% kinds of numbers by the time they get there. So I guess I'm surely curious to you. If they're asking fees, then you say 0.9% on the first segment, 0.75% on the next. Do you do you get fee questions or fee comparison questions? "Michael, I'm talking to someone else that's 0.6%. It seems like y'all are a bit higher."

Michael Y.: Yeah, absolutely. I'm sure everyone gets that question. And so what we say up front is, "Great. Make the decision you feel like is in your best interest. If you feel like someone can do what we do and do it for lower cost, then I would advise you to go with that person." That's it.

Michael K.: And so your great underlying confidence at the end of the day, if they really compare the depth of what you are going to do for them versus others, they're going to see a value prop difference, and you're going to win.

Michael Y.: Yeah. So here's something that I learned along the way that I wish I'd learned sooner, and that's amateurs close, masters disclose.

Michael K.: Okay. What does that mean?

Michael Y.: Yeah. So we spend far more time telling people what we can't do than what we can. We don't push. We don't sell. We don't close. And so I think the fee questions are a great opportunity to say, "Yeah, Michael, actually, my fee is higher, but I do X, Y, Z, blah, blah, blah." And it's like, "No, that's what I charge because you see what our specialty is, and we already talked about what we can and cannot do. And if you think you can get this somewhere else, I would advise you to go to that place you think you can get the same thing for cheaper. That clearly would be in your best financial interest, would it not?"

Michael K.: It just reminds me of the positioning of a lot of sort of, I'll call it, premium brands, just the companies that provide an above-average service and charge an above-average fee commensurate to that service. You don't see a lot of haggling at Four Seasons, Rolex, Ferrari, I guess, choose your premium brand of choice. If you go in a Four Seasons and complain about the price, they'll be like, "Sir, you do realize you're in a Four Seasons."

Michael Y.: Right?

Michael K.: They're not apologetic about the fee. They're like, "Apparently, you don't realize what we do because that's what we do, and it costs money."

Michael Y.: Exactly. And we are at the discovery meeting at this point. The jury is still out. They haven't seen what you can do yet. They haven't seen what the other advisors that they're interviewing have come up with. They're just gathering info. So I don't usually get too much pushback at this point. If they do say, "Wow, the other person is much lower," I say, "Well, as we go through and you see what they're offering and we give you a taste of the scope of what we can do, maybe that'll give you some more context for why the fees are different."

Holding An "Initial Findings" Meeting [1:13:37]

Michael K.: Okay. That's fair. So, what actually happens at the end of this meeting? How does this meeting close?

Michael Y.: Yeah. And so we thank them. We say, "Okay, the next step in all this is called the initial findings meeting. We're going to take all the information you gave to us, and we're going to come back, and we're going to actually have some results for you to react to." So, similar to the way...think about it like this. Let's say you're hiring an architect to design your dream home. So we had our first meeting where I said, "What kind of home do you want?" The second meeting, I'm coming back with a sketch that's in pencil. You react to it. You say, "Well, actually, I want the kitchen to face this way and move this around." Okay, fine. And then, at the third meeting, that's when we deliver something in ink.

Same process here. The second meeting, we call it our initial findings meeting or a possibilities meeting. "What I'm going to do is give you a taste of the scope of our advice so that you can know and make an informed decision as to whether or not we're the right advisor for you. We're going to tell you what we see. So this would be our observations. And we're going to tell you some potential opportunities we see at this point." We get a reaction. And if you like it, great, we can talk more about it. If you don't like it, we'll go a different route. Again, give them something to react to.

Michael K.: And so, am I going to ask for the business at the end of that initial findings meeting, or is there one more coming thereafter?

Michael Y.: Yeah. So what we tell people is the third meeting is the mutual commitment meeting. We don't call it that. We call it the implementation meeting or the solutions meeting. So that we have discovery, then we have initial findings, and then we have solutions. And at the end of the third meeting, that is the decision point.

Michael K.: Okay. And so the idea here is second meeting is initial findings. "Here are some observations we have and some opportunities we see. What do you think of these? Let's talk about them a little bit. We're trying to calibrate if we're on track."

Michael Y.: That's right.

Michael K.: And then I'm asking them to come back for a third meeting, or I guess fourth if you count intro, third after intro. "You're going to come back for a third meeting where we're going to really present concrete recommendations. And if you want us to help you implement them, you hire us." Is that the context here?

Michael Y.: That's pretty much it, yeah. And with higher net worth clients, even at that third meeting, it probably still does not sound like, "Put 600 shares of Apple into a charitable remainder trust paying 6.5%." It's probably much more like, "All right, a charitable remainder trust looks like it makes sense." And that's not something they're going to go steal and implement on their own.

Michael K.: I was going to ask, just how detailed and precise do you get about possibilities, recommendations, solutions, recommendations? How deep and specific do you get? How worried are you that they're going to take stuff and run with it on their own? How does that factor in for you?

Michael Y.: Yeah. And so the way we work is we have what's called our expert team or a professional network where we don't give finalized specific recommendations down to 500 shares of XYZ until we've met with our team of experts, which includes a CPA, includes an attorney, might include an insurance specialist. And so those finalized recommendations have gone through our expert team. That can't happen until someone has signed on the proverbial dotted line. I can't bring an outside expert until we have an actual client. And so that's going to get very granular. That's where we might be, "Yeah, you need a NIMCRUT with this payout here funded with this number of shares."

Michael K.: And so, functionally, that's also how you can explain to the client, "There's a certain level of depth and granularity we're going to have here, but there's a level that I'm not going to be able to give you yet, because ultimately, I need to bring in other professionals. I'm sure you can understand. You have to be a client before I can bring them in as well."

Michael Y.: That's exactly right. And when they're high net worth, it's not turning a speedboat around. It's a whole armada. They've got a lot of moving parts.

Michael K.: Right.

Michael Y.: And so we have to make sure we coordinate with the right people. It might be their professionals as well.

Michael K.: And so, what, at the end of the day, drives such conversion outcomes for you? You've lived iterations in this meeting. I guess I'm just wondering, too, what changed over time, and what ultimately drove the outcomes that close rate basically went to 100% for you?

Michael Y.: I really do think it's because we run effective meetings. Every detail has been thought through. Everything that we do is a result of some mistake that we had made in the past where we said, "Gosh, let's make sure that never happens again." So that's why we spend so much time setting expectations, framing what's going to happen every single time. And so I think discovery, that's by far the most effective thing. If someone is looking to move upmarket and wants to increase their conversion, switch from whatever sort of interview process you do right now to some sort of discovery. That'll make a massive difference. I think that gives you 80% of the way there.

But at the end of the day, you still need to land that plane. And I think that's where the quality of the second and third meeting come in. For that initial findings meeting that I mentioned, we strongly believe in collaborative planning. In fact, let me throw another quick tidbit for anyone who wants to see next-level results. The best technology purchase we ever made wasn't any piece of software or a program. It was actually a smart board.

Michael K.: Like a giant touchscreen, that kind of thing?

Michael Y.: Yes, we bought a 75-inch giant touchscreen and put it in our conference room. It's like a 75-inch iPad. And so when we deliver our initial findings at the second meeting, the whole thing is interactive. You can whiteboard on the thing. You can draw right on there. You can zoom in and out of things all with your fingers. It's all very interactive and playful. Man, the people...

Michael K.: But I think you also said you are planning software users as well.

Michael Y.: Yes.

Michael K.: You're keyboard-mousing the software, but then you can also flip it to a whiteboard and draw if you want to.

Michael Y.: Yeah. And so we'll have their financial projections up there. And so we're able to draw on top of it and say, "All right, and if you sell your business for this dollar amount instead," and we draw right on there. We can circle things on the assumptions. Again, all very, very interactive.

Michael K.: Oh, very interesting. Okay. So I guess, in this theme, because you're QSBS heavy with Silicon Valley folks in Silicon Valley, your practice is still a lot of in-person. You're not necessarily heavily virtual here.

Michael Y.: Yeah. And if we do it virtually, obviously, then instead of using the smart board, well, then you're using the draw features of Zoom or whatever it is that...

Michael K.: Yeah, but it's not as cool as...

Michael Y.: It's not as cool. You're right. It does lose something.

Michael K.: Six-foot screen, six-foot screen.

Michael Y.: Right?

What Surprised Michael The Most Building An Advisory Business [1:19:58]

Michael K.: So, as you've gone down this journey of building the firm and then transforming the firm, what surprised you the most about building this practice, as you intentionally use the word practice?

Michael Y.: Yeah. So I think what surprised us the most is we knew when we went down the road of building a practice that we'd be happier. We knew that we'd have a much better work-life balance. I think the biggest surprise is that we assumed it would come with compromises on things like the financial front. And the exact opposite has been true. I mentioned how not thinking like a business owner and instead thinking like building a practice has just made all the difference in the world. The big irony is all the people that we know that went and built empires, as far as I can tell, not only are they more miserable for the most part, but probably very few of them make what some of these top solo advisors are making.

Michael K.: You're closing in on $3 million of revenue, with a part-time assistant and admittedly very cool-sounding 6-foot smart board. It only costs so much to get a really, really big screen in your office. Just the leverage and overhead savings of a small number of high-dollar clients just gets really astounding in our business.

Michael Y.: That's right. But the other thing that's the most surprising is just how rewarding this job is, how close we get to people. We're there for all their high points and low points, and we are floored by how many times we are the second call people make. "My kid is having a baby," somebody died, good things, bad things in life. So many times, it's like, "Shouldn't you be calling your mom right now? Really, we're the second call you made?" But that's just how close people get to us.

Michael K.: So I do have to ask, in the vein of, I guess, the friends that built businesses, as you state intentionally, a practice, do you worry about things like, "Okay, the practice has a good income, but are they building more enterprise value? Do I need to do things to support my enterprise value in Yoder Wealth?"

Michael Y.: Not even a little bit. And one reason I say that is because I've had conversations with some of these big aggregators or whoever it is. And we can go tuck in right now, and the multiple that we can get is very comfortable with somebody who spent their whole life optimizing their practice for sale from day one. So, no, I don't worry about that at all.

Michael K.: At the end of the day, firms tend to buy on multiples of EBITDA, and you're an incredibly high-margin practice. It's still very valuable in a weirdly liquid market.

Michael Y.: Exactly. So, no. That's the one thing that people say, "Ha, got you. But you didn't think about that." It's like, "No, actually, I think we're probably pretty comparable on that too."

Michael K.: Because the multiples are strong, and the practice is high margin. And I guess you didn't have to dilute with the multiple partners that you often take on to become a multi-billion-dollar firm anyways.

Michael Y.: That's exactly right. And along the way, we've been able to be there for our kids and have fewer moving parts and fewer headaches. So, yeah, I wouldn't trade that for anything.

The Low Point On Michael’s Journey [1:23:06]

Michael K.: So, what was the low point on this journey for you?

Michael Y.: I would say the low point for me is the loss of identity I had when I first joined forces with my wife, and that was also the night nanny years. So it was a low point on many fronts. But for me, I had my dream job. I was a director of advice for a very large company, a job I essentially created. And every day, I remember just leaping out of bed. I was training other trainers and building financial advice curriculum for thousands of advisors. And my scope was literally affecting hundreds of thousands of clients indirectly. And so that was at age 31. I was living the dream. But I was also on the road a lot, and that wasn't conducive to having a family.

So I knew, going in, that wasn't sustainable. And so I gave up the dream job to go into practice. But that turned out to be an incredible teaching moment. Because what I experienced is what so many of our retirees go through when they have a loss of identity. Suddenly, I was someone who used to be somebody, and now, instead of having a reach of 100,000 potential clients, it was 70. That was really deflating. That was really difficult. And so I struggled with, how do I identify myself? How do I maintain the same sense of...? I went from...it felt like teaching college to teaching kindergarten in some ways, where now I'm having a conversation about, "Why is my bond fund down six times a day?" It's an entirely different level.

Michael K.: Because you were teaching advisors where you get to train the advanced parts, and now you're down to just the good old client conversations where you got to explain the basics again, "Well, here's why your bonds are down, because interest rates went up."

Michael Y.: Yep. And so the epiphany that we had in all that is, "Well, okay, fine." So that's one trade-off. But now we have this ability to build this complete life. And that's why I mentioned we're serving on three different boards. Now we've taken care of...our health is amazing. We're out active in the philanthropic community. We're able to build this amazing life around us. And it's only possible because I made sacrifices in one area that we're more than made up for with what we got for the rest of our lives. I just had to make the effort to go replace it and go fill that gap. I wasn't going to fill it just through work alone.

Michael’s Advice For His Younger Self And For Newer Advisors [1:25:25]

Michael K.: So any other pearls of wisdom, the things you've learned from experience you wish you could go back and tell you 15 years ago as you're making this transition in? What do you know now you wish you knew then or could go back and teach you then?

Michael Y.: Yeah. I really wish...I don't know. I'd probably tell myself to stop pushing so hard. Fifteen years ago, when I talked about that sense of urgency that we had, boy, we just did a lot of what I call selling, where it's a prospect, a COI, a particular outcome, or wherever it was. We just spend so much time trying to convince people, which was just exhausting. And the phrase I used with you about 20 minutes ago, which is amateurs close, masters disclose. Once I started realizing, "Hey, just stop telling people what you can do and tell them what you can't and let them make an informed decision. And if they choose you, then it'll be on the right terms, and you'll have a happy client because you haven't made promises that you can't deliver on." When we were selling, it probably meant we were making promises that would be very hard to deliver on, and that's exhausting.

Michael K.: So any other advice you would give younger, newer advisors coming into the profession today?

Michael Y.: Yeah, I would say a few things. So the first one is it's awfully philosophical. But as I mentioned, this can be the best job in the world. But too many people create themselves a prison instead of a paradise. And so what I would say to anyone, as you're thinking about, if you're new in this career, you're mapping out, what is it going to look like? Just remember that no success in business can compensate for failure at home. Don't create a prison that's going to impact your family life. There's no reason you have to accept those kind of compromises. Just make sure you build for the life that you want.

And then what I'd say is specialize. Again, like choosing a major, you're probably going to switch a few times. But boy, we're easier to refer when people knew exactly how to plug us in. Because without that, we sound the same as everybody else.

What Success Means To Michael [1:27:30]

Michael K.: Yeah. So, as we come to the end here, this is a podcast about success. And just one of the themes that comes up is that word success means different things to different people. It can change for us through stages of the business, seasons of life. And so you've built this just objectively very successful business as you come up on $3 million of revenue with all the leverage for you and your wife. So the business seems in a wonderful place. How do you define success for yourself at this point?

Michael Y.: Yeah. There's a wonderful 20-minute talk you can find on YouTube called "The 5 Types of Wealth" by someone named Sahil Bloom. And his quote that always sticks with us is, "Never let the desire for more distract you from the beauty of enough." And he talks about the five types of wealth, which is, obviously, things about financial, but no, there's time, there's social, there's mental, there's physical, and yes, financial. And I used to think that life is some sort of scorecard where you rank all those from 1 to 20, add them up, and your number is 82, and that's how happy you are. No, it doesn't work like that. You're only as happy as your weakest area.

And I think about it like this. Let's say you're the happiest person in the world, and you're walking around with a nail stuck through the bottom of your shoe. How happy are you? And so, when he presented those five areas of wealth, we realize that we can only be as happy as the weakest one of those. So that meant you have to go max out all five of them, or at least get as close as you can. And so we've spent our life doing that. And I would say what success means to us is what we're living right now. We are living literally the life that we would live if we were retired. Because what would we do if we're retired? Well, we'd work some, and we'd be philanthropic. We'd take care of our health. We'd have time for our family. We'd take off the time that we need. That's what we're doing right now, and we've gotten to this place in our 40s.

So, again, I attribute that to building a practice instead of building a business, because, like 80% of the people, at least from my experience, who got in this career, I got in this career because I wanted to help people reach their goals. I don't want to be an accidental CEO. And again, there are some people, that's what they want. It just wasn't us. So, by staying true to that and not apologizing for it, I felt like I needed to whisper the first time I said, "I want to build a practice." Now I'm much more emboldened to say it out loud. That has made all the difference in the world.

Michael K.: I love it. I love it. Well, thank you, Michael, for joining us on the "Financial Advisor Success" podcast.

Michael Y.: That was a lot of fun. I appreciate you having me.

Michael K.: Thank you.