Welcome back to the 170th episode of Financial Advisor Success Podcast!
My guest on today's podcast is Patrick Tucker. Patrick is the founder of True Measure Wealth Management, an independent RIA based in Omaha, Nebraska, that oversees nearly $150 million of assets under management for 89 client families. What's unique about Patrick, though, is his background in business operations and financial management, from having started his career at UPS, and how he's translated those business management skills to run his own advisory firm. Not necessarily to grow and scale the largest business he can, but to very intentionally craft an advisory firm to achieve his own personal goals instead.
In this episode, we talk about how Patrick built his very intentionally designed advisory firm. The two niches he forms with executives from transportation companies and small local business entrepreneurs like himself, how he splits his advisory fee structure between AUM fees for clients with portfolios he can manage and three tiers of flat planning fees from $8,000 to $16,000 a year for the clients in this niche who may have significant wealth but not in a liquid form to manage. The key business metrics that Patrick focuses on to ensure he's spending his time and the business resources properly, and the three P's – personality, participation, and profitability – that Patrick uses to evaluate each prospective client to decide if he wants to work with them in the first place.
We also talk about Patrick's journey through the advisory business, why he decided to transition from the independent broker-dealer environment to the RIA channel, how he was ultimately able to nearly triple his business in the first two years after he dropped his affiliation with FINRA to go fee-only, why Patrick chooses to use contractors and outsourcers and to keep his internal team very lean, and how Patrick does regular process reviews internally with his staff member to evaluate whether they're really doing the right thing for clients and whether those things are really being done in the most efficient manner possible.
And be certain to listen to the end, where Patrick shares how he overcame the growth imperative pressure that the industry tends to put on all of us as advisors that we have to grow, grow, grow; even if we don't really want or need to grow anymore for our own personal goals. The way Patrick's own path changed by getting involved with Strategic Coach, and why he ultimately decided to launch his own coaching business for advisors to teach them how to craft their own intentionally designed businesses to serve their own goals as Patrick did with his own firm.
What You’ll Learn In This Podcast Episode
- How Patrick Views The Industry’s ‘Growth Imperative’ [00:05:39]
- The ‘Three P’s’ He Uses In His Business [00:19:50]
- How Patrick Transferred His Skills From UPS To Running His Own Advisory Firm [00:41:18]
- How He Dealt With Imperative Growth Pressure And Built His Very Intentionally Designed Advisory Firm [00:58:46]
- How Patrick Tripled His Business In The First Two Years And What The Firm Looks Like Today [01:22:57]
- Why He Splits His Advisory Fee Structure And Uses Contractors To Keep His Internal Team Lean [01:31:37]
- Key Business Metrics That Patrick Focuses On [01:44:54]
- What Surprised Patrick The Most About Building His Business, And His Low Point Through His Career [01:48:25]
- What Comes Next, And What Success Means To Patrick [01:52:32]
Resources Featured In This Episode:
Patrick Tucker on Instagram
True Measure Advisors
The Evolved Advisor by Patrick Tucker
Using Mind Mapping To Get Paid For Financial Planning Shadow Work
Brandon Dirkschneider at Insurance Design Management
Michael: Welcome, Patrick Tucker, to the "Financial Advisor Success Podcast."
Patrick: Michael, I'm so, so grateful to be here. It's really, really exciting to talk today.
Michael: I'm excited for the discussion as well. We've had a couple of podcast guests recently that have talked about these journeys of building their business, growing it beyond them, adding the employees, adding the team, adding the infrastructure, figuring out how to do that and build that well, which is a challenge unto itself.
I feel like it has become this really active discussion in the industry, overall, that I’ve taken and just started calling the “Growth Imperative”. It's sort of put out there as this absolute, “You must grow, you should always be trying to grow larger”. There's sort of the saying, "If you're not growing, you're dying." And yet I look out there at the landscape and as much as we all talk about, "You have to grow. You have to be bigger. You have to have economies of scale if you want to compete in the marketplace,"
What I see in practice, though, is every time... I'm a data nerd, I pull up the benchmarking size and look, I see solo advisory firms have never been more profitable than before. Advisors have never been able to run more efficiently than they can today between all the different outsourcing solutions that are out there and the technology that's out there. And then, when I look at all of this discussion about the growth imperative, I find it tends to come from certain places pretty specifically.
It's the platforms usually that we work with because if you look at it from the perspective of a broker-dealer or an RIA custodian, they only get to grow if either, A, they add more advisors or, B, the advisors they have to get bigger. And the total number of advisors has not increased in 20 years. It's basically been a net decline since the tech boom, the 1999 tech boom. And so when the headcount isn't growing, and the space isn't growing, the only way you get bigger is the advisors all have to grow.
We get what I find as this sort of top-down from the platform's growth imperative that you have to grow; you must grow, you'll die if you don't grow. And if you can't grow, then we got a big firm that'll buy you out. But when I get down to individual advisors, I just don't see that problem in practice. And I know you run this fascinating, hyper-efficient, $150M-plus solo practice, with just one other person and all of this technology and outsourcing.
So I'm fascinated today to talk about how do you look at this as a business owner when you say, "No, I don't need to grow a zillion employees and all that stuff to build a wonderful, successful practice. I'm going about it another way."
How Patrick Views The Industry’s ‘Growth Imperative’ [00:05:39]
Patrick: Yes, really, I've always gone about it a different way. And I think it's interesting that you pointed out the stagnation in the marketplace of advisors. Because so often when I hear from any of these platforms, whether it be a wholesaler for a particular product platform or it's a custodial platform, all of them, they're always presuming that "We're just going to have growth for growth's sake." And they don't really come at it from, "Hey, what are you doing to really run the business end of your business?" And for me, I've always approached it, firstly, as a business. So, I came into financial advisory work from more of a corporate finance background. I came from the big brown shipping company that many people know as UPS, right? I was there, and I was really trained on that number-nerd stuff that you talked about a moment ago, where you really measure the efficiencies and the bottom line of things.
And so, for me, oftentimes when I'm talking to other advisors, or I'm looking at the businesses of other advisors, what they forget about is that if you're just going to randomly grow without really looking at the metrics of your profitability and what's going on inside your business, you may have this little tiny cancer in your business. Where you're spending too little on marketing or too much on particular areas of your business that if you just scale for the sake of scaling, that little cancer can become this very large cancer and kill you. And we've all seen that. We've seen it with big companies like Lehman Brothers, back in the '08 corrections. And you mentioned the technology boom in 1999. There were plenty of overnight successes that went away the next night. And that's because they had the cancer of, "Well, we don't actually have any revenue yet. We're just an idea."
Michael: Well, and I think there's a powerful point there around, not just the phenomenon of growth for growth's sake, which I think we're going to come back to soon but, again, like the dynamics that happen when you've got other problems in the business, and you approach it as growth is the answer, growth is the solution. Like, "If I was just a little bit bigger, I could afford to do this. I could afford to do that. We have a little more economies of scale; we could be a little more profitable."
It's just I've lived the pace of scaling now multiple different businesses as an entrepreneur. I've seen so many advisory firms go through this. And just the truth, that moment never comes. You never grow your way through challenges in the business. What happens as you said, and I love sort of the cancer analogy that you give it. If you can't figure out how to get the business operationally efficient when it's just you and one or two people, it doesn't get more efficient when you double the size and have more operation staff.
You just end out with even more operational overhead and deadweight because they're doing things that are really inefficient, which means you need twice as much staff as you otherwise would have needed because they're doing things so inefficiently and you take a not profitable practice, and you just make it a bigger, not profitable, practice. But you're going to spend more time up at night because you have a much larger payroll obligation as a business owner, you have to deal with. So you lose all the flexibility that you would have had the next time the downturn comes because you actually have to worry about things like making payroll. And the profits don't actually get better because inefficiencies just compound into larger inefficiencies when you get bigger. And so when you start taking that away, and you say, "Well, why are you growing? Why are you growing?" Suddenly, it gets a lot more ambiguous I find for a lot of advisory firms.
Patrick: Right. Yes, there's no real purpose behind what they're doing, and I think complexity is what creeps in. You're going to just grow, well, then you need this support person, or you need somebody to do this. And you're really not stopping to think about, "What are you about? What are you trying to do? What is your business for?"
And so I've spent a lot of time really trying to decide what my life should look like, what my business should support, not the other way around. And I think a lot of us, and I have done this, I'm sure you have Michael in those startup phases and at other times in business where the table's turned, where you're really the servant to the business and not the other way. And in a beautiful business, like our industry provides, you can really design the business to support what it is that you're about and what you want to do.
And there's lots of talk about things like growth, and then you need processes. That's the practice management buzzword we all hear a lot about, is, "Are you a process-driven organization?" And you need systems and getting things done, and all of these kinds of things. But if you don't have that fundamental reason behind what it is you're about, what you're trying to do, who you're trying to serve, why you're trying to serve those people. You can have all the processes in the world, but they are still going to be complex, inefficient, and they'll bury you if you don't have a higher design around what it is you're trying to accomplish.
Michael: Yes, I love just the framing of starting to ask, "How are you building your business to serve you so that you don't get stuck serving your business or becoming a slave to your business?"
Because it happens for so many of us, and I think particularly in the advisor realm, and just the business model moves to assets under management. You could only complexify your business so much in the commission-based world. Because every January 1st, you wake up and you don't have any income until you go get a client.
Patrick: You start it anew.
Michael: So when you start at zero for you, you don't tend to hire a lot of staff, you don't tend to add a lot of complexity, you're mostly in continuous hunter mode.
But when you build recurring revenue business models – and that can be most commonly AUM but subscription fees, ongoing retainer, so anything that builds ongoing recurring revenue – and you serve your clients and all reasonably well, you end out with 90-plus percent retention rates, sometimes 97%, 98% retention rates. And if you just do that for enough years, at some point, you accumulate a lot of clients, and you start hitting those complexity points, and you start hitting those capacity limitations.
If you're stuck on growth is the only path forward and more conniving, just growth here for more clients, and then more people, and more staff, and more, more, more is the only path forward, the complexity starts to creep in as the business compounds.
To me, that's where you start hitting this crossover where "My business doesn't serve me. I serve my business, and I’ve become enslaved to my business." And I've long said, some of the unhappiest advisory firm owners I know, in terms of really being unhappy in their businesses are almost all at about $200 million to $300 million under management, because that's the point where your staff grows beyond your ability to manage them all individually. Usually, by then, you're anywhere from about 7 to 10 employees, and you can't manage them all, and you certainly can't manage them all on top of your clients, and growth hits a wall, and you're spending an immense amount of time because you got your 152 clients and your 9 staff members to manage, and the growth is your responsibility, the payroll is your responsibility, and all the other stuff is burdened on you.
And it's because you just kind of kept growing without a particular purpose or vision to it. And at some point, you crossed that line from I was building a business to serve my life and my goals into now I'm stuck serving my business, and I'm enslaved to it.
Patrick: Right. I think where this comes from a lot, in my opinion… I think you see this probably when you're out speaking at conferences, certainly when I'm out, either attending or speaking at conferences, I see this all the time. There's this vanity that is very prevalent, not only just in the advisory world, but in the entrepreneurial world, in general, which is, the vanity numbers of, "I'm a seven-figure business," or, "I'm a six-figure business," these kinds of things. And this whole idea about kind of extrapolating that your revenue numbers actually fall to the bottom line, right? So this idea of revenue is really just a vanity metric, and your net profit is sanity, right? So revenue is vanity, profits are sanity, and cash is king.
And so trying to get people to understand this that, yes, you might have a $200 million firm with 7, 8, 10, 12, 14 people and yet you're only taking home this number because you've injected all this complexity. What if your business looked like this? You had the clients you loved. You had more profits because you had less to do, less complexity.
I'm always astonished when I'm talking to people, either, again, at these conferences or whatnot, that they're in on Saturdays for 10 hours a day and they're there until late at night, every single night. And I'm thinking, "Good grief, how difficult is it to really simplify your business down?"
The other vanity metric that used to be really popular, Michael, and you probably remember this; you would see it in the marketing pieces, the websites, and whatnot. It was the sort of snapshot of the whole firm, the team picture. And the larger my team was, the more successful I was. So look at all these people who work for me.
Michael: Yes. "We have 142 years of collective experience, look at all the value that we're creating."
Patrick: Yes. And I'm thinking, look at all the overhead and the hassles, and all the meetings, and the employee reviews, and the benefits issues, just all of that. So, I think that people should really realize that this is a wonderful business, you can have a wonderfully large business with all those people. But it's not everybody that can manage, and run, and should run a business that looks like that. And I think you're right. There's a lot of pressure on people to presume that they should just grow for growth's sake, that they're not as successful as the firm with, whatever, 50 employees or whatnot, but they're successful enough for their own lifestyle and their own way to serve their communities.
Michael: I love that line that you gave, "Revenue is vanity, profits are sanity, and cash is king."
And yes, the number of firms I've seen that have hundreds of millions of dollars of assets under management and millions of dollars of revenue, and then when we get down to it, yes, they're like, "Okay, but you make less than the employee advisor that works at the firm next door to you that took none of that entrepreneurial risk and all that other stuff, but actually participate more in the income of their job than you do with all of the things that you build. That, yes, more revenue at consistent profit margins does grow your income; more revenue doesn't grow your income."
Patrick: No. No. And I think one of the things that oftentimes I tell people is, I'm a business owner that happens to be a financial advisor, not the other way around, not an advisor that is also a business owner. And it really comes down to how I've always approached running the business end of the business as the fun part of it. I enjoy that.
Many, many advisors are just... There are various sides of the industry. There's the person that is more sales-focused, and they have good sales skills, and they came from maybe a larger firm where that's how they were trained and how they grew up in the business. And then there's oftentimes the more technical person, the analytic type. But oftentimes, you don't find the type that is a business operator. And that is a dangerous place for some of these firms because they don't really run the business end of their business. They just get more sales types. They keep growing. They got some good planners that are the analytic types, but they don't oftentimes then bring in that third personality to really make sure that they're being smart about the operation of the business. And that's where that cancer that I mentioned earlier can creep in for them.
Michael: Yes, I like that framing that, "Yes, I'm not an advisor who's also a business owner, I own a business, therefore, and I just happen to be a financial advisor. That's just the particular kind of business I decided to entrepreneur into." But then I'm very struck by that, that candidly, I find when I talk to a lot of people who sort of identify themselves as business owner types, it's because they've got this vision of building and scaling this business with dozens of employees and billions of dollars, and going that direction.
So I'm particularly fascinated that you approach this as a business owner, I think sometimes some people would characterize what you build. Like, I run a solo firm with one employee, a lot of assets highly, highly efficient, built to support the life that I want to live as a "lifestyle" practice. And sometimes ‘lifestyle practice’ is, I think, used pejoratively to imply like you're not a serious business, you're, "just a lifestyle practice," which is a connotation I never liked. But to me, you really run the other end of it, like, "I'm a business owner that happens to be a financial advisor. I approach this and running it as an effective business. And I'm not running a thing to have dozens of employees and billions of dollars," you built something different.
The ‘Three P’s’ He Uses In His Business [00:19:50]
Patrick: Right. Yes. It's very intentional. From the get-go, I've always taken the approach with clients that I was hiring them, not the other way around. So when I'm interviewing with a potential prospective client, they oftentimes walk in the door with, "Well, what can you offer me" and those kinds of attitudes. But in my mind and in my approach in the way that I run those meetings, it's always about, "Are you sort of the proper fit for my business?"
There's a long-standing person that's sometimes polarizing in the industry and a bit older now. But Nick Murray used to use the analogy of the ark, that you allow so many people onto your ark, like Noah's Ark. And I think that's a really valuable piece of his guidance was really look at those folks that you're hiring, do they fit? And I actually use a three-part test when I'm deciding to hire someone, and I'm really trying to not allow what I would call PITAs into my practice, right, pain in the...right?
And so I have what I call my three P's to avoid PITAs. And so it's a three-part test. The first part is their personality. Do I like them and do they like me? Are we going to have a nice relationship? Are we going to enjoy our time together? Because this is going to be truly a long-term gig. I'm going to be around these folks for potentially decades. So do they like me? Do I like them? That's the first P, the personality.
The second P is what I call participation. And so, many people put up with the situation if you're going to be an advisor to someone. And really, that's what you're doing. You're not just talking about the markets, and you're not an investment management person only. You're truly a consultant; you're truly an advisor. They have to participate in that process. And you've probably had this experience, Michael, being in the business as well and being in the trenches, where you ask for this information from people, and they bring you some kind of a summarized spreadsheet or something.
Michael: Or even if "This is the third time I've requested this one copy of a prior statement that I need in order to figure out what's going on with that account over there. And it's been three requests in four weeks, and you said you wanted to do planning, and we've got no place, and I'm frankly kind of getting a little frustrated here."
Patrick: Yes, yes. It's the analogy of you going to the doctor and just telling the doctor, "I hurt." And the doctor is like, "Okay. What do you mean you hurt? Where do you hurt? What's hurting? Tell me what's going on? How did it start?" And you just go, "No, I hurt." And he keeps asking further questions to try to understand, "Is it in your legs? What do you mean? Your chest is hurting?" "No, I hurt." He's not going to figure out what's wrong with you.
So this whole participation thing is a very common problem. There's sort of the psychosis around this that many people are whatever, they're embarrassed by their financial decision-making in the past. They're trying to correct a problem in a relationship. They want to have a little more money before they show you everything, oh, they're going to make a quick change, whatever their reasons are doesn't matter. You're here for my help. I need this information. So if they don't participate, they're not going to get in the analogy of Nick Murray on my Ark, so that's the second P.
Then the third P is profitability. So they have to be profitable for me to work with. And I have to be valuable in return to them. I have to be able to bring a significant amount of value for what I'm going to charge them, whether that's kind of a recurring fee model or an assets under management model, which are my two ways of charging clients. And for me, I'm really looking at, they might be great people, I really love them, I can get along with them. They might be participating, but if I can't really fit them in in the right manner, meaning from a profitability sort of per client standpoint, then I really have to help them find a different way to get the things that they need.
I've been very selective about that and made those mistakes a couple of times where I violated my own rule and let somebody in that was not the nicest person or didn't participate the way I should have or wasn't as profitable, and they became a PITA. They became a pain in the ass, and I really had to end up letting those people move on in some way in the future. And that's a very expensive way to conduct yourself in business. And so, learning that early, if someone's listening to this, it's early in the business or they're going to start their business, you have to really take that attitude of, "These people, I'm letting them in, it's not the other way around."
Michael: I love the framing and just the sort of the three P's of personality, right? Do I like them? Do they like me? Because I just think about this very granularly that, I'm going to sit across from them several times a year for a decade or two. So, if I don't like these people, I'm going to not be looking forward to the meeting. It becomes negative. At some point, I'm going to be worrying about it or dreading it or subconsciously trying to avoid it or defer it. It's not a good relationship. It's not going to be good client value participation.
We've all had those clients where it's frustrating, like, I'm trying to help you, you're paying me to help you, and you won't give me the information I need in order to do it. So those become frustrating clients. You don't have to set yourself up for frustration, and just the profitability piece. I think so many of us end up with these "accommodation" clients. I felt like I had to take the client because such and such and so and so reason, even though they're not very profitable for me, and what do we end out doing? Well, I guess I'll take them. I just won't meet with them as often. I'll kind of scale back my service for them.
And we do that to rationalize and to justify it, but all it really says at the end of the day is like, "I'm going to take this client, take their money, and then try not to do very much work." It's not a very positive relationship with the client when that's the environment that you have set up for yourself. And I feel like so often we just get into it.
Alan Moore calls this “should-ing” on yourself. We “should” on ourselves. I “should” take the client. I have to do this. I should be growing because the industry says I need to. I should be doing this; I should be doing that because "Everyone says." And then we get stuck in these traps of, as you put it, like clients that are PITAs or more generally, these scenarios, how do you get to a point where your business controls you? Well, the starting point is, you take whatever clients come in, regardless of whether they're actually going to be good fits or PITAs, and then you become enslaved to the PITAs that dominate your schedule and your mindset.
Patrick: Hundred percent. Yes. I think accommodation is a really slippery slope into complexity. When you're sliding with your children, it's like that little top of the sled, and it's, "Oh, I think I'll just go down this one time." And pretty soon, you've got 17 sleds that you're going down. And it's just really hard to run a business well. It's really hard to serve those other clients that really fit beautifully into your business model well.
You're really doing them a disservice by taking them in. I love that, by shoulding on yourself, you're really shoulding on all your clients that are already in the system. And I think it's not always a lack of business acumen that does this. I think many, many advisors are very good people and they're very much a giver type personality. And I think that leads to sort of this bleeding heart mentality where you end up at your own peril, trying to help people that you shouldn't.
So, putting good systems in place... And I've made this mistake, that's the only reason I've built systems to try to prevent it a couple of times. Twice in my career, actually, I had to fire my largest client, because they were a giant PITA. And so I used to fire a PITA every year on my birthday as a birthday gift.
Michael: I like that. I love that, actually. So I was at a firm long ago that did a similar thing. We were a little bit of a bigger team. There were 10 people in the firm. And the staff, every year, got to pick their top three PITAs to fire. And so, we would look forward every year, it's the end of the year, not for the holiday party or the end of year bonuses, it was because you were finally going to get to the point where you would never have to, again, take a call from that one client that you always dread. The email comes in, or the phone call comes, or the voicemail comes in, you know, Mr. Smith on hold for you and, like, "Oh, God, I have to pick up the phone and take this."
Patrick: Right. Yes, that regret when you see it.
Michael: Yes, that was the gift to the team. And I love that, on your own, that's your gift to yourself on your birthday. "I'm going to fire my biggest PITA every year."
Patrick: It was great. It was liberating. I haven't had to do it in a while because I've been better at selection for several years. But the last one I fired; I worked with him years ago when I was at UPS, so I had known him a long time. And he was a sizable, sizable client.
You know how in some corporations, they measure your loyalty based on how early you get there and how late you stay. So there's this implied, like, "How dedicated are you, really, Michael? You get here at 8:00 every day, and you're gone right at 5:00 when I'm here at 6:30."
Michael: Yes. Bob stays until 7:00 at night.
Patrick: Yes. Yes. So he came from that environment. So every Friday, this guy would call our offices at 4:59 on a Friday.
Michael: Oh my gosh, just to make sure, like, "If I'm paying you your fees, you better be staffing the desk until the end of Office Hours?"
Patrick: Right. So he'd leave me this silly, "Hey, just want..." He would have some reason to leave a voicemail. And I was just like, "Okay, enough of this..." So it's really, really a great tradition. And I loved your office on, it should have been PITA punting party or something, where you could use alliteration like that, but man.
Michael: I like that. All right, so that'll be our thing. For anyone who's a team, if you got one takeaway from this, you have to have an end of year PITA punting party, or if you're on your own, this is going to be one of your birthday presents to yourself when you hit your birthday this year; we are giving you permission to fire your biggest PITA. Even if it's your biggest client, you can grow through it.
Patrick: Now, when I speak on this subject, Michael, sometimes people are like, "Oh, I really struggle with this idea, though." And I think one of the things that advisors struggle with, in general, and it ties into this whole growth thing that we've been having this conversation around is, they live in a little bit of a scarcity mindset where they're not going to be able to replace this person. And what they don't associate with is all the energy, the resources of their team, of their own personal resources, and just the drag it is on their whole system.
When you free yourself from that, it gives you all the energy, all the openness you need to go find somebody else that's going to fill that spot. And I learned one time this lesson very well. I was on the phone with one of these kinds of PITA clients when a very large opportunity, I missed because I missed a call from that person, I let it go to voicemail, that kind of thing. And I regretted that, I'm like, "Gosh, if I'd been on this damn call with this person, I would have been able to attend to this other situation, more likely to get it," that kind of thing. So, you really, really need to account for the energy drain it is for you and your team.
Michael: I love the framework to that as well that the challenges of the scarcity mindset, if your mindset is that you have to keep every single client, you have to work with every single prospect you meet, because you may never get another chance for one, you live with what you get. You're going to inflict that upon yourself, and then get stuck with your PITA clients, and get stuck with the energy that they take away and all the challenges that go with it.
If your mindset is, "There's always more clients out there. This one doesn't work for me; I'll just find the next one. And I'm not going to have even more energy to find the next one. Because I don't have to do the energy-draining process of the one who's already a bad personality, a bad participation fit, or a bad profitability fit." If your mindset is, "I'll find another one that's better," then you usually do. And if your mindset is that you got to take this one and just deal with it, then you do, but one leaves you a lot less happy along the way.
Patrick: Yes, yes, yes. And it shows up everywhere in the industry. You'll see it at conferences where there's that, typically, I don't know if it's always a newer person, but it's somebody that's maybe not been through as many experiences in the business. But you'll see this with the advisors that don't want to share ideas or are worried about... even in their own sort of backyards.
I'll meet with an advisor anywhere. I was with another advisor at a breakfast here recently in my hometown, who is a younger guy. He was worried about talking to me about different things for various reasons. And I said, "Look, that office building right there, I could make a living just on the people in that one building. You have nothing to be fearful about. I'm not going to go try to figure out who your clients are or any of these kinds of things," because there's an abundance of people who need guidance. Anybody that is worried about those kinds of things, I really think it's their own mental limitations that are getting in their way of, you know, the business that they desire.
Michael: Well, I love how you had put it earlier that it's about creating systems to manage and handle these situations. Figuring out, in the moment, "Am I going to take this client or not?" It's sort of hard, right, "Well, I lost one recently, so I'm kind of focusing on getting revenue back," or, "Something happened today that's kind of pushing me, I feel like I want to get one more."
But when you create a framework, like, "Look, here are our three criteria. Here are our three P's. If they're not comfortably checking all three of these boxes, I’ve got to be honest to my system and say no." It gives you a system. It gives you a framework. It makes it easier.
What I find for so many firms, the challenge is never really that you take an accommodation client. I mean, just like to be fair, one is not going to blow up your business. The problem is that when you take in a combination client, you actually do take two things. You take the combination client, and you establish a mindset and a system about how to take clients that don't fit your business. And once you ingrain that system, the system's there and the system stays. So the next time you get an accommodation client, well, I already know how to handle accommodation clients.
We put them into this thing and we do this downscaled stuff, but it's still sort of okay. Then we'll take them so we don't have to make them feel bad and reject them. And we get stuck, "Well, then I have to do it. I have a system to do it. So, of course, I'm going to do it."
And suddenly, you've got 10, and 20, and 30 accommodation clients, and that's a business problem. It's not actually the clients that, if you take the accommodation client, you start creating accommodation systems. And the accommodation systems are what ultimately get you.
So if you're trying to avoid it, how do you make a different system? How do you make a different process? "Well, I never want to reject someone." Okay. Well, then do the homework once. Find three to five other advisors in your area for whom your C and D clients can be their A clients, because no matter where you are on the food chain, your C clients are someone else's A clients.
Find someone else, where that's a fit and do the client a service, and let them work with someone who would treat them like an A, rather than your C. And if you create a system, if that's your system about how you deal with clients that aren't a fit, now you have a structure, now you have a system, right? "I'm going to find you someone that's an even better fit than I am," who can be upset about that conversation?
Patrick: Right. It's like the early warning light on your dashboard on your vehicle; it's telling you, "Hey, I'm not going to stall out and stop working right now, but there is something you should check out." And so these systems allow you to go and have a way to be valuable to these people.
So even if they don't fit, they are a pain in the ass for your system, as you just stated beautifully, they may need some help and they may actually be better served going elsewhere, and that person that can serve them has benefited, so everybody wins in that. And so, if you keep in that kind of a mindset, you will always be a person of value, whether those people were referred to you or not, whether they just found you somehow through your marketing or whatever, it doesn't matter.
But this idea of continuing to grow a business that is driven for you as an owner of your business, whether you're in a larger firm or not, is such a critical thing in managing KPIs, managing metrics that matter to you is something that people don't even know how to keep score in their business. They don't really know the distinctions.
Even in our industry, they don't know the difference between a profit and loss statement and a statement of cash flow. They don't know how to look at those things and realize that, "Oh, by the way, there are things that aren't on your profit and loss statement that are in your statement of cash flows that are probably affecting why you look at your P&L and say, 'I should have this much money in my account. And I look at my account, and I only have this much money because I don't understand these things because I'm too busy elsewhere.'"
Michael: So can you give us an example of just what are things that we tend to miss looking at our P&Ls and not thinking about it from a statement of cash flows end as well?
Patrick: Yes. I mean, there's a number of things that people... So let's look at business owners in general and financial advisors in particular, how often do people really look at their income statements or their profit and loss statements? They don't look at them very often.
They might look at them when the CPA is asking for them for tax planning. They might look at them when the bankers are asking for that to renew any lines of credit or things of this nature. And they might look at them maybe quarterly if their revenue flows that way. And they just look at that P&L, and they say, "Hey, bottom line, it says I made $200,000." What they don't know is they distributed a bunch of money for, let's say, they do have a line of credit or some kind of outstanding debt. When you make a payment on debt, the principal payment doesn't show up on your profit and loss statement, only the interest portion.
So depending on the kinds of debt that you have, if you distribute profits, you're not going to see those things in there. So, there's a number of types of things that impact these areas. So when you're actually running your business’ scoreboard, you should be looking at... Pretty frequently, when I'm coaching advisors, I have them look at... On a monthly basis, I have them look at their profit and loss, their balance sheet, and a statement of cash flow at a minimum. Now, not many advisors have too many accounts receivables or account payables, those kinds of things, but trying to understand what impacts their statement of cash flow from that standpoint, not a lot of advisors have inventory, for example. So those kinds of things aren't impacting them.
So it's predominantly a cash business. But even understanding the difference between cash accounting and accrual accounting is an interesting thing. And it's because a lot of guys that are in our industry actually were never...that wasn't the training that they had whether college or otherwise, they were maybe a finance major, and they had less accounting or more of the investment principles, or they were just a General Business major or something along those lines.
How Patrick Transferred His Skills From UPS To Running His Own Advisory Firm [00:41:18]
Michael: So, talk to us a little bit more about your journey. You mentioned you were UPS early on, which I know is sort of a company legendary for its focus on measuring everything and making it all more efficient, they're the logistics company now, not just the package delivery company that we knew of old.
I think it's UPS that was...it became legendary for doing the math and actually figuring out that the frequency of accidents that occur on left turns are high enough that it is actually better to make three right turns and go around the block, even though it takes longer and it slows the average package delivery because it slows it by less than the time that's lost from an accident that only occurs 0.1% of the time. Someone actually did that math and figured out as a company policy; it's better to always make three rights than a left.
Patrick: Right. That's correct. Yes, I did, I grew up... My very first job actually while I was in college, I had a degree already in accounting. I was continuing on, and I ended up with a finance and accounting degree. And so I was looking for an internship while I was in college and couldn't find anything at the particular time I was looking. And so, I ran over to UPS to sign up to load trucks and do that kind of work for the summer. They're always hiring college kids, and it's good pay.
The person noticed that I had an accounting degree already and asked me if I wanted to intern. I'm like, "Heck, yes. That's what I was looking for." So I started with them in my college days, and I worked for UPS for about 11 years in their finance group, did everything from corporate accounting work to audit to stock administration, 401(k) administration.
I did a lot of different things. And one of my very last jobs there, like many companies, have gone through now; they were starting to consolidate accounting offices. They used to have accounting offices pretty much in every state. They would have regions of the country called districts, and they were predominantly within a state's border. And so...
Michael: Well, because the company's been around long enough. I believe UPS well predates those fun things, like computers and fax machines. So at some point, if you want to keep track of the finances and business at the local office, you would have local accounting for all the local locations.
Patrick: Yes, they're well over a 100-year-old company. And so, yes. The last job I was doing was basically consolidating these various locations into regional locations and terminating people, which was not my favorite thing. I really was a people guy. I always appreciated helping the executives and the employees with 401(k) decisions and how to calculate contribution amounts and their stock plans, and things.
So I was looking at doing the investment management side of the business as a side thing back in the day, and I had enrolled in some safety coursework from the American College. And so I was looking for people to help come in and talk to these employees that I was laying off, these executives that I was basically retiring. And so I had to bring in attorneys, and financial advisors, and things to talk to them.
And I was looking for an advisor during one of these shutdowns, and I called one of the CFPs in the community because I wanted a CFP to come in, and I also wanted to ask them about the curriculum I was taking, so sort of selfishly inquiring about that. And long story short, he happened to be an American Express financial advisor, so back when they used to be called that back in the day, and IDS Life and all of it. I ended up hiring him, and he ended up recruiting me to leave UPS and come into this industry via American Express financial advisors.
So I started there, I came in in a little different role because I was accustomed to a pretty nice corporate salary and stocks, and had three young children, and three of my boys were born. I have six sons in total, but I was halfway down that.
Michael: Six boys? Okay.
Patrick: Six boys, no daughter. So I was three in at that point when I left UPS and started with American Express in a management role. I was training new advisors, believe it or not, even though I had not ever been one.
It allowed me to have a little different compensation structure that I had negotiated with them, and did that for about a year-and-a-half, and then eventually got a call one day from a local, large regional bank. It's founded here in Omaha, where I'm currently located. The person that was calling was a former American Express financial advisor, who was now running these regional banks, wealth management and investment management division. And so he was calling looking for somebody for one of their branches, to see if I knew anybody.
And I ended up bringing over a small group, and we started their financial planning division for this bank. It was a really great experience. I learned a lot about the inner workings of private banking. This was a very well-known institution in our community, had a lot of good ties.
I met a lot of really great people. And, you know, my UPS background allowed me to have a really strong focus on transportation executives. Those guys all knew me; soon after I left, UPS went public. So that helped those clients that I was working with and others that I knew that became clients needed help because they had this tripling of their net worth and now a public stock instead of a private stock.
And so in 2001, I moved into my own firm, I really started...
Michael: You moved out of the bank and into your own firm?
Patrick: Yes, out into my own firm. And I really started what is now known as a hybrid. It really wasn't called that in 2001. But I found a local broker-dealer that would allow me to keep some of my insurance and some of the business that I needed as a registered rep, and then I started my own RIA and did that until about 2006 when I finally dropped all those licenses and went fee-only as an SEC-registered investment advisor in the early 2000s. And have done that ever since.
I had an agency for a while. It was really inexpensive to have an insurance agency, $75 a year in Nebraska to do that back in the day. And so yes, I offered the fixed...yes, it was incredibly cheap, offered all the fixed insurance solutions through that agency for a number of years. And then eventually, like I said, moved into the fee-only world. So I've been doing really the fiduciary side of things, most of my time as an independent, which started in 2001.
Michael: So talk to us about the transition from when you're going from Bank environment, a corporate structure salary, team resources, all that kind of stuff, and then made this decision of sort of doing the Wild West thing for particularly what would have been in 2001 of, "I'm going out as a hybrid when almost no one was a hybrid." RIAs were hardly known then. What was that transition like? And what were you envisioning in that at that time for what you were trying to go create?
Patrick: Yes. Well, it was an interesting transition, I did the analysis of the client relationships that I had formed with my UPS executive clients, the new clients that I had acquired at the bank, I did the numbers. I just said, "This is very doable." If I run an operation that looks like this, the profit margin should be very favorable, and even calculations of which clients I thought were less probable following me over, etc., etc.
I found an office that was already set up and I literally was able to resign, if you will, at the bank and drive across town. I had my office already ready to go and drove across town, which in Omaha is 20 minutes, unlocked my office door, and I was up and running. And in that situation, I did a lot of preparatory work with having...
Michael: So say like, how do you just get going that fast in a world where these...? Even now, just getting an RIA approval takes a while, sometimes weeks, sometimes months, depending on what state you're in. I imagine they were probably not a lot speedier and more efficient than with less technology driving these processes.
Patrick: Yes, a lot of that you can do ahead of time. And we can talk later about some of the other coaching and whatnot that I do, but you can prep a lot of that stuff ahead of time. Back in that time, the SEC registration numbers were lower. It used to have to be at $25 million or higher and now it's closer to $100 million.
So, having that all done ahead of time, having my employment agreements with the firm that I was at, the bank that I was at reviewed, so I knew exactly what I could and couldn't do. Legally, I didn't want to violate any... I didn't want to get in a big fight with a big institution because I would lose that one. I happened to find an attorney... Well, I looked for attorneys and being a prominent business in our community, they were smart in that they had used every law firm in town so that there were conflicts, nobody could work with them.
Michael: Right. If you do some business with every law firm in a small town and lawyers generally won't take engagements that may present conflicts of interest, you can basically hire up all the lawyers in town that have any experience.
Patrick: Yes, so that had happened. I found one particular firm that had a state senator as the principal of the firm who was not conflicted. I decided to use them, figuring in my simple mind that, "If I needed a little clout, he has some political clout, he could help me make it happen." I had all those agreements looked at.
At the time, my agreement, Michael, was a non-solicitation agreement. And so because I was in the business of having a relationship with these clients, my concern was, how do I do this when I can't solicit them? So I asked my attorneys, "How do I tell people what I'm doing without soliciting them?"
And he said, "You do what you just said. You tell Mr. and Mrs. Client, your plan is to leave, exactly what you're doing, and that you're prohibited with your agreements with the bank from soliciting them. And by telling them that you can't solicit them, you're effectively soliciting them."
Michael: It's like you're doing it literally with the words of saying, "I am not soliciting you..."
Patrick: I am not soliciting you.
Michael: Good. These rules are written by lawyers. Oh, my goodness. Wow.
Patrick: Yes, so it worked beautifully, yes. It was perfect. They all knew exactly what I was doing, where I would be, that my cell phone number was the same, and that on my voicemail and my cell phone, I had my new office line, etc., etc.
So, my clients, they all came over very, very quickly. And I was literally up and running immediately. I had some of my bigger learning in life about the flaws of being a commissioned producer. A registered rep is a sales producer.
Michael: I was going to ask, so you said you went out hybrid so you could keep insurance and brokerage licenses and also start the RIA. So I'm presuming that means that the bank, this was not purely classic bank trust business. You had a brokerage affiliation at the bank as well?
Patrick: Yes, so the bank, you might remember the... I don't know if they're still around. I believe they are BISYS. It's a small...
Michael: Oh yes, yes, actually, my first broker-dealer role, we wrote all of our insurance business through BISYS, yes, life, disability, and long-term care. Absolutely.
Patrick: Right. They had a full brokerage line, oftentimes in small banks. And so, they used BISYS for their insurance work and their mutual fund work. And while I was at the bank, I was looking for an AUM model, and this was in the late '90s.
So C shares were the common way to do sort of an asset under management process. And I was looking for and wanted a fee-based account. They didn't have one. They finally allowed me to bring one in while I was there. And so I had established quite a few fee accounts.
When I moved to my new institution, that custodian allowed me to just transfer those accounts that were in my clients' names at the other firm with a signature to my firm. And so I didn't have to repaper, I just had to have a signature from the client that said, "Yes, we'd like to work with Patrick now, the same account but now with Patrick's new firm, not with the bank." And so that was how I moved a lot of assets very quickly. I show advisors when I'm coaching them now, there are still some ways to do that out there.
Michael: Oh, interesting. So from the clients' end, the systems were a little bit differently structured then, but, in essence, they're already on an advisor platform with an RIA custodian. So it's basically just, "Here are the updated advisor agreements, here are the updated LPOAs for the new firm, and not the firm they used to be with," and boom, now they're up and running with you on the new platform.
Patrick: Yes, all the data is there, no tax consequences. So yes, so that worked very, very well for me to do that. I did lose a very large client in that transition, which I talk about in some of my videos and things, and that I had while at the bank. I got sucked into sort of the drug addiction of commissions, right? You mentioned it earlier. Every January 1st, you start over.
I got away from my principles of what I'd really gotten into the business to do and I sold a very large annuity to a client. And he happened to be one of the private bankers and his wife was the client that bought the large annuity from me. It turns out as I was making that transition, they were less than enamored with me leaving the bank, and they were asking different questions about the annuity. Literally the very first week in my new office, I had a meeting with him and he came in with his accounting... I don't think the person was a CPA, but the person that guided him on tax work, tax repair, now I could just tell that the attitude of just the tenseness in the room...
Michael: Yes, when someone's really upset, and they're coming in for the meeting, like, "Oh, okay, this is not going to be a good meeting."
Patrick: No. So they ended up pulling their accounts with me. And they were a very large client; they had about $10 million with me. A couple of their friends that I'd met through them didn't follow me over. It was a very good lesson for me. I don't want anybody to think that everything was smooth in my transition.
Part of what I teach and coach now is from those things, and the confusion that happened that I learned in retrospect was, I couldn't fully act as really a fiduciary, as truly a person that is providing guidance for a fee. I was sometimes that, and sometimes I was a commission-based guy. And that confused people. And this client was very confused by that.
Nobody that doesn't do this every day is going to remember all the ins and outs of how you were compensated in a particular product sale or whatnot. And so it taught me a really good lesson early, that you have to pick what it is that you're doing.
So all these advisors out there that are in the midst of this, they're fee-based, they are not fee-only. And the confusion in the language of our industry can really be confusing to your clientele. And it can muddle down and water down your message, and your value proposition. And it really certainly did that for me and was one of the reasons I moved very quickly to go fee-only was because I wanted to be able to say to people that our interests are truly aligned and that some of the time, they're aligned.
How He Dealt With Imperative Growth Pressure And Built His Very Intentionally Designed Advisory Firm [00:58:46]
Michael: So, you said you had kind of been caught up or entangled in the commission. Can you just talk about more of what that meant as far as the income dynamics of just, boy, those big upfront hits of being able to lump-sum dollars at once, instead of getting paid out over advisory fees over the span of multiple years? Was it just that you needed the dollars or got used to the big dollars coming in? Was that the dynamic?
Patrick: I think it was mostly my ego, honestly. I think that I got away from why I was doing what I was doing, why was I designing this business the way that I wanted to? And I got sucked into the whole idea of... This was a $2 million annuity, so it was a sizable annuity. And so the pay...
Michael: And so back then, that's $100,000 to $140,000 payout, 5% to 7%?
Patrick: Exactly. So it's a very large payout. So my ego of all those things that you lose sight of what you're doing. And so, it ties back into our just growth for growth's sake. So, I'm getting sucked into, "I'm already making X. And here's another way to hit my production numbers and really blow them up." And I completely got sidetracked from my own objective of really building a recurring revenue business, which is why I wanted to get into the fee-only space in the first place.
I was doing that in the mid to late '90s when it wasn't brand new then, but still people today are talking about, and it kills me a little bit, how to transition to fee-only. I'm like, "Really, people don't know how to do this. It's been around a long time, more than 20 years."
I just lost sight of my own value proposition and my own objectives. It's very, very easy to do if you don't have good systems, if you don't have a good methodology to remind you of what you're about and I lost that. And part of the reason I lost it is that in a culture like that, it is a sales culture. It is a production culture. And for any of your audience that works there now, they have to recognize that the whole idea that they talk about your gross commission, they're not talking about your bottom line to your own compensation.
They're talking about all the rewards, all the conferences, and all the trips, and the things are all based on what your gross production was, not what you kept. And that is very easy to lose sight of, I think sometimes.
Michael: Well, and just the nature of how the system is set up here. Again, we were talking about it a little bit at the beginning, when platforms have businesses that only grow because their advisors grow and do more stuff because it's hard to add net advisors when the whole net headcount is flat and shrinking. What do you do? You create sales contests. You create competition amongst people. You put the top producers up on pedestals, not just giving them rewards, but maybe prizes, or trips, or special conferences, but just you put them up on a pedestal, right, peer recognition always feels very, very good.
So, you want to get up there on the pedestal and be recognized if you get big opportunities. And it's the system that gets created because it encourages growth and sales activity. That's how the system is built. That's what their business models are built upon. And so they create incentive and reward systems accordingly.
Patrick: Yes, exactly. It really is, and I think sometimes it's like in many places in the world, there's a training of the mind that happens when we just use words in particular ways. We don't even realize why we're saying what we're saying. And the sales culture that is pretty predominant in the larger firms in the industry still as a whole, fools you into getting caught up into that. And I certainly did then. It was a great lesson.
I'm sad that it happened because obviously, that was a lot of AUM, a lot of potential future revenue. But on the other side, I'm very grateful for that lesson because it's allowed me to grow my business to where it is today. And I'm very pleased with that. And I can teach that lesson to others and hopefully stop someone else from making the mistake of really doing something... it wasn't illegal or anything like that. It didn't really harm the client necessarily, but it wasn't fully thought through by me, and there was probably a different solution that I would have come to and guided them around had I stayed true to what I was doing.
Michael: So, as you looked at making this shift because I noticed you are very business-minded in how you look at this. So what were you envisioning to build? Was this a math driven thing? Like, "I think the economics are going to work differently, and here's how it's going to work." Was this a flexibility thing, "I want to serve clients differently, and I can't, the platform format?" Was this just an independence thing, "I want to do it my way and not the way the firm tells me to do it?" What was the driver and the vision for you making the shift?
Patrick: I think it was probably a little bit of many of those categories, frankly. I've always been sort of an entrepreneurial-minded person. I was the kid in elementary school buying the box of snickers and then selling them for twice as much or three times as much at school, or these kinds of things.
Michael: It's economical to be a distributor. I made my high school for a while because I would do the shopping, run and buy the 12 packs of soda, and then take them back to the dorm, and sell them for 50 cents apiece, and make my markup. Yes.
Patrick: Absolutely, it works. And so, for me, it was always that. I had sort of objectives in my brain around; I wanted to have a particular financial lifestyle and the means that came with that. So that was part of what drove me. And I could do the math. So when you said, "Is it a math question?" Yes, I could see the math, if I wanted to have this kind of annual lifestyle, this kind of income that would then support the lifestyle that I wanted.
I mentioned earlier that I have six sons, and we had a lifestyle that demanded more mouths to be fed and cared for, and educated, and those types of things. But we also structured our family life in such a way that was really around our value systems, my wife’s and my value systems, and try to instill in our children an independent form of thinking, learning to think for themselves.
We actually homeschooled our children until high school, which allowed us to be more involved in the kids' lives, whether that was just being around during the day or doing activities together from travel to martial arts together to different things that we were able to do and be more sort of involved in their lives when they were at that age.
If you want that kind of lifestyle, it's going to require a certain economic number and a certain structural makeup so that you can't... I couldn't be at work 14 hours a day and spend time with my children. So I was very intentional about, well, if I want to have revenues of this and I only want to work this many hours, and I'm going to see clients this many hours of the year, and you had to back into those processes to solve on that.
My systems were driven by that. Some of the norms in the industry were looked at critically. The one employee that I have has been with me since, really at the bank, actually. I hired him when I was at the bank. He's been with me that whole time. And we do process reviews all the time. We do what we call, "What not to do meetings."
We look at our systems and the things that we're doing internally and for our clients, and we say, "Why are we doing this? Do we need to continue to do this? Is there any value here?" And we try to simplify the process or eliminate it altogether if it's not of value. And again, that comes from experience. I tend to jump on some technology bandwagons pretty early. And sometimes that's great. Sometimes it's not so good.
I remember clearly when there was a new tool that's still out there, and they're very good. I don't want to disparage any software tool, but I was early on this bandwagon with this particular tool, and to get the custodians I was working with to integrate and feed the data to this software. By the time I was all done, it was a $50,000 deal. And I was six months into it, and I realized my clients could care less about what the tool was doing. And so it was an expensive lesson, right?
Michael: Oh, no. Well, I got to ask, what was it? What should we collectively listening, not spend a whole lot of time trying to integrate because our clients may not value it at the end of the day?
Patrick: Well, so you've heard of Black Diamond, probably?
Patrick: Yes, so, I was one of the first users of Black Diamond. They can do an incredible amount. There's a lot of data aggregation that happens, but my clients didn't care a lick about it. They didn't need any of that information, didn't serve me as an advisor any differently than the custodial data that I already had. And so, it was a tool that I didn't need in my toolbox, and now they serve as...
Michael: That was like, "Here's a great portfolio reporting tool; PS – I'm going to tell you not to look at your investments because I'm handling them for you."
Michael: "Oh, wait, if they actually listen to me, then they're not going to log in."
Patrick: Yes, yes. So it sounded great. And I went through a tremendous amount of effort and dollar amounts for something that I didn't need to do. So, trying to really be critical about those processes. I think it came from one of my early experiences at UPS when I was an auditor, I did internal audits with them, and you would go around, and you would be going through a finance office, and checking their procedures, and processes, and things, and part of that involved interviews with the staff. And you might ask a staff person to walk through what they're doing, and they do so. And then you might ask, "Why is it that you do that?" "Well, it's the way we've always done it."
That's my least favorite thing ever when I hear that from any place, "That's the way we've always done it." And that's the worst reason to do anything. It doesn't mean it's valuable, or good, or effective, or efficient, or productive, or profitable to do any of those things. So, really try to look at all of those things every day and improve our value proposition to our clients but also to ourselves.
Michael: So, what did the business look like when you made the transition? You made the leap; you're setting up as a hybrid, investment accounts could quick switch with you, you had some brokerage business, a chunk of the business went back because of the big client that wasn't happy about the annuity. What did it look like by the time you actually got your feet under?
Patrick: Yes. I had about $30 million under management. And I should have had about $45 million, almost $50 million under management but left that big chunk behind. And a predominant amount of that was in the fee-business. I don't have the exact numbers before me now. But I would say that it was about 90% into the fee-business because I was intentionally building something that could come with me when I left. So, really, while I was there, I had the intent to not stay there. So I was thinking about it as I placed the clients' accounts and things like that, when I was at the bank and when I was at American Express.
Michael: So just these are people that might come with me that are so illiquid, with no movable proprietary solutions; they’re probably not the best choice. Let's just leave them in something that's a little bit more flexible, instead of, "I transitioned, they do want to come with me, they will actually be able to do so and not be tied up elsewhere."
Patrick: Yes. Yes, you have to have a plan to leave as you enter. That was my exact plan to do that. So when we started, it was predominantly in the fee-business. And the plan was to then have a spot for those other dollars as they could be transitioned or we're out of if there's any surrender charges or whatnot that we could move them as time allowed.
Michael: And so, you said you were predominantly probably a 90% fee business. So the rest were trails on annuities and things like that...?
Patrick: I had some C share business. I had a little bit of annuity, not a ton, mostly C shares, a few B shares, mutual funds, things like that, few annuities, some variable insurance.
Michael: So, for those who aren't familiar, they've been gone for a while now, but B shares were something where... While for A shares, commissions are paid upfront; clients are debited for them upfront. They put in $100 grand, but only $95,000 or something gets invested because the other 5% goes to the agent or the broker. Your alternative is C shares, where you are getting paid 1% a year.
So back in the '90s, there was a third version called B shares. And B shares would pay the broker upfront kind of like A shares, 4% or 5%, but the client wouldn't see the outflow immediately. You put in $100 grand but only $95,000 credits to your account, the client would put in $100,000, and all $100,000 would credit to their account.
But B shares had expense ratios like C shares. So, there would still be an extra 1% in your drag, and the client would have a surrender charge schedule associated with the B share. So if it paid you 5% upfront, the client would have a 5-year 5% surrender charge schedule that would step down by 1% a year. So the company would eventually recover the 1% over the span of 5 years. If the client left early, the balance would have to be repaid as a surrender charge. But otherwise, the advisor could get paid upfront without having it come out of the client all upfront immediately because that was and still is not terribly popular.
Patrick: Exactly. That's exactly right. So, yes, so just allowing the right timing for those to get out of those types of share classes was the reason for having the hybrid.
Michael: Okay. So even as you transitioned with the hybrid, it sounds like the goal or plan was, over time, the C shares will able to be replaced, the B shares will get out of surrender schedule, the annuities will get out of surrender schedule, and that you all... Even when you went hybrid, you had a mind that this was a waypoint, not a destination for you.
Patrick: Absolutely, yes. It was a transitional tool so that I could work with the clients in the right way at the right timing. And really, they knew where I was going with this. But it allowed me that opportunity to do it at the right time for them and not force it to happen because their account is to be either split between another institution and me or to force it where they're in surrender, and that wouldn't be prudent.
Michael: So, when ultimately then was the transition, where you said, "I'm just not doing this stuff at all anymore? I'm going to get rid of the broker-dealer relationship."
Patrick: Yes, so, I did that a few years later, when there was essentially just very little assets and very little revenue involved in that part of the world. And it just became really an operational burden when we started looking at it from a sort of the dual sets of records, right? So you had to have client files for the brokerage side, registered rep side, and then you had to have the files for the SEC for the RIA side.
I had an SEC random audit, and they kept wanting to go over into the brokerage side of things. I'm like, "Well, that's not part of it." So, it just added a lot of extra baloney. And it was confusing for the clients, honestly. They would be getting a statement from BISYS or wherever the brokerage accounts were held at. And then they were getting the custodial account statements that I was providing them. And it just became this, why can't we just get this all cleaned up? And so we just sort of the old scuttle your ships, right, you draw the line in the sand, and this is it. And I was able to...I found an insurance agent that could take over the variable products, the insurance products, and then I had another advisor.
Michael: Someone who would be friendly, "I'll take care of them, and I won't try to take all of the rest of the client relationship from you all. I'll respect the relationship."
Patrick: Yes. Yes. And then I had another advisor like you suggested earlier, there's plenty of people in your community that would be happy to work with a certain clientele. And I had an advisor that I had trained. It was at his own firm, and it's a smaller firm. And so, I literally handed him a few of the remaining little clients that were in there. And he actually knew a couple of the people in there. So that worked out great.
Michael: So how did you look at it at that point for clients that did still want or need annuity solutions in insurance solutions? I get it on the sort of the B and C share mutual fund side that at some point you can transition them to advisory shares and run them in an advisory account. But as someone that had been involved in annuity and insurance solutions for clients, how did you look at that piece of the puzzle? Because there weren't many RIA products today in those categories, there really was almost nothing back then in those categories.
Patrick: Yes, there was literally nothing of quality then, for sure, and very, very little to choose from. And that's still a big challenge for people today to think about, "Again, how do I handle this?" And mostly, I think if they were honest with themselves, they would say, "How do I handle this? Because I know the paydays on these things are large, and I don't want to really give that up."
And for me, it was a couple of things. I was decent at insurance work and the planning that goes with that, but I didn't ever feel like that was my gift. That was one part of it. I knew the revenue side of that. I neglected in my story earlier to share with you one of the things that I got sucked into that whole production mentality when I was at the bank. Well, that actually started when I was at Ameriprise. I was their top producer as a new guy nationally. They used to rank people.
I think one of the reasons I was successful in that regard was I started figuring out, I deconstructed their compensation plan right away and figured out if I matched up products really well, if I sold this long-term care policy, along with this life policy, and this mutual fund series, I would get this bonus pay and things like this. And it really woke me up quickly when I realized I was getting away from, again, what I wanted to do.
Michael: To me, it's another interesting one of those sort of should-ing on yourself scenario. The platform sets up the rules of the game, and if you're not careful, you get sucked into playing the rules of the game. And suddenly, you're playing their game for their reward system and not your game, not whatever you actually want to build for yourself.
Obviously, it's great if what you want to build for yourself also happens to drive growth for your platform. They provide services. They are entitled to make money. But just recognizing, whose game are you playing? Yours or someone else's when you're trying to figure out what success means and what you're working towards.
Patrick: Right. This time around, I was much more cautious about that temptation and realized, "This is not my gift. This is not where I'm best serving my clients." And so I found a gentleman in my community that he actually now his business model is to service RIAs that don't handle the insurance side of things. And he's really good at what he does. He's a CFP. He's very sharp, and he's focused only on the insurance side of things. He doesn't handle the investment side. He doesn't handle the financial planning piece of it. He partners with me in that regard and then handles the insurance. And so, that's how I've solved it for me is that I bring clients that need that work because it's still a valuable part of the planning and a needed solution for many people. So I take it to him.
Michael: So can I ask, who is that, and does he work with other RIAs that have the same problem of trying to find people who are knowledgeable in insurance who struggle with this? It is the irony to me of how insurance companies have evolved over the past 20 years. It used to be insurance agents were insurance agents, and now, insurance companies have subsidiary broker-dealers, and you can do insurance and investments, and 529s, and everything across the spectrum.
That's cool for broadening the base of what you do, but it makes it harder to work with other advisors because now you kind of compete with them when you're insurance only and that's what you do well, and you work with someone else who's not insurance, that's what they do well, you actually get a lot more strategic partnership opportunities.
Patrick: Yes. Yes, absolutely. So the company's called Insurance Design Management. And the gentleman that I'm referring to, he's got a big long name, but it's Brandon Dirkschneider. Anybody in your audience that would want to work with Brandon, I'm happy to make that introduction for you guys in your audience, but his team is great. There's another woman on his staff, it's a CFP, and he's got a nice team, so they do really good work.
Michael: So, for folks who are listening, this is episode 170; if you go to kitces.com/170, we'll have links out for Insurance Design Management if you're struggling with this cap yourself and trying to find someone to work with and in making the transition.
So, Patrick, what did it look like for the business then as you made the transition? Was this sort of like, "Okay. I'm going to have to take one step back and walk away from some of this revenue because I think ultimately I can outgrow it," or did you just sort of wind it down enough that it wasn't going to be too painful from a revenue end? What happened to the business as you made the transition away from the brokerage insurance businesses?
How Patrick Tripled His Business In The First Two Years And What The Firm Looks Like Today [01:22:57]
Patrick: Yes, it's a great question, Michael. So, for me, I had a window of time-based again on where I was trying to go with my family and whatnot. And I grew the business pretty significantly from there. We pretty much, not quite four, but more than tripled the business really, pretty quickly. I think it was the clarity of message, confidence in my work, and some good marketing, and those kinds of things.
Michael: So you started actively marketing fee-only and going that direction?
Patrick: Yes, I did that in my community. And I live in a not a super-small community, but compared to much of your audience, Omaha, Nebraska is not a giant community. There's a lot of wealth here. There's a lot of really great people. And the message, the fee-only message really resonated in a couple of places.
It resonated with the prospective client and the clients that I have and had. And it also resonated really well with other professionals. So, when I was talking to CPAs or guys like I mentioned, Brandon, etc., those kinds of folks could relate to attorneys. And so, they were less hesitant to refer people to me because they knew that I would come alongside in their planning processes, work for the clients' best interest, play in my own sandbox, as well as in theirs, nicely. And so, it was just a really good combination. And being in the middle part of the country in a little bit more conservative part of the world, having a fee-only advisory firm was fairly new. It was a new thing for me to be saying that...
Michael: We're mid-2000s, this is 15 years ago, not a lot of people in that space yet, fee-based literally wasn't even a thing because that drove off a regulatory change in 2007. And there just wasn't much of a fee-only community yet.
Patrick: Right. So, people not ever hearing that before... So sometimes being in a smaller community and having a new idea, it can take a little while to get some traction, but it can also be a refreshing kind of new thing. So that helped me. So we grew quite nicely.
Michael: Was this literally like fee-only just resonated so well in Omaha in the mid-2000s? You just told everybody you were, and suddenly the business triples in a few years?
Patrick: It wasn't magical. It was a lot of hard work, obviously. I have done lots of traditional marketing. I did the seminar circuit like many people. I happen to have a client base that is very focused on the upper-level executives that have concentrated stock portfolios.
I work a lot in the transportation world with my background at UPS. And there happens to be a large railroad that's from Omaha, Nebraska. Union Pacific Railroad is headquartered here. TD Ameritrade is headquartered here. Conagra was headquartered here. So I had a lot of really good executive clients that introduced me to others.
Then I also have a kind of an entrepreneurial client base. So it'd be the other part of my clientele, both from my speaking and coaching work that I do. But just naturally here in our community, there were some smaller businesses that became bigger or were sold or things like that.
So it was a combination of me sharing that with the right people. So, for example, the Union Pacific Railroad is really... Now, it's three companies; it used to be four companies internally. And when it was four, the three heads of those four parts of UP were clients of mine. And so, they have a lot of people underneath them, and that helps. So, it was, again, focusing on the right kind of person. It seems like a slow kindle. But once you get really clear about who you're helping and do good work for them, guess what? They hang around with other people that look like them.
Michael: So just that compounding effect of building into a niche and getting known in that niche of people in the transportation industry, people at Union Pacific Railroad, and then letting that reputation grow by staying focused there?
Patrick: Yes, that's helped a tremendous amount. I've always spent a fair amount on marketing as, again, trying to approach it from a business standpoint. In the last six or seven years, I've done a lot more with the new types of marketing, social media marketing, and the like. So it was a combination of all those things.
A lot of people are always looking for, "How do I find new clients?" And there is no one answer to it. They're everywhere. You just have to try a lot of places. You have to take what I would call an experimenter's mindset, and then that data nerd thing that you mentioned earlier and pay attention to, don't get too caught up in your convictions, right? You think this might work, and you design it, and you build it, and you're really convicted that it'll work. And if you're not paying attention to the data, you might be very, very wrong.
Michael: So, what does the business look like today in terms of client households, or assets under management, or revenue, however you measure it at this point? Can you paint us a snapshot of where it stands today?
Patrick: Yes. Yes. We're right at about $150 million. It depends on the day, right?
Michael: Yes, markets go up and markets go down. Yes.
Patrick: Right. Just under 90 clients. So we have 89 clients, and I consider a client household as a client. So, I would say 89 households as clients. And I’m very blessed to have some very long-term clients and yet some new amazing people that we're working with. But again, mostly those clients are in those two categories. They're either entrepreneurial types or executives that have a pretty, pretty concentrated position in the companies that they work for.
Michael: So what does this look like from a business model perspective, particularly if you're still working with executives that may have a lot of stock tied up in...illiquid stock at their company? Or are you an assets-under-management model on the $150 million and just cover everything as part of a holistic relationship? Are you in the world of other fee models as well? How does that work from an actual revenue generation perspective?
Patrick: Yes, I'm in both worlds. So, I definitely still have predominance in the AUM model. But I do have the recurring revenue type models in the planning side. And so I do not count...I know many firms like to count assets under advisement, but I don't think the SEC really cares for that term too much. So I don't count assets that I'm not charging an AUM fee for. So that...
Michael: So, the $150 million is really actually AUM?
Patrick: That's AUM. And then...
Michael: Managed, not just advisement?
Patrick: Right. So I have hundreds of millions more that are sitting out there in stock options, plans, and matches that are in retirement accounts and things like this, that I'm not counting in that number.
But I do charge planning fees, annual or split up throughout the year. I've played with different frequencies and models of planning fees from monthly recurring revenue type models. The SEC doesn't like certain terms used with that, right?
Michael: They're a little wary of the word retainer, right? They're paying you upfront for a retainer, what happens if they terminate you? How does the retainer refundability work, or are unearned fees always a priority for regulators as it should be?
Patrick: As it should be, right? All right. Exactly. So, I've played with all those models; there are pros and cons to all of them. And yes, so I live in a little bit of all those, and I'm an experimenter, so I'm open to trying new methodologies. Certainly, there's the firms or advisors that are billing based on household income and things of that nature as well.
Why He Splits His Advisory Fee Structure And Uses Contractors To Keep His Internal Team Lean [01:31:37]
Michael: And so how do you ultimately set planning fees? I know you're not reporting out on assets under advisement, but you're still ultimately setting a fee tying to the total assets you're advising on out there or a complexity model. Just how do you figure out what fee you're going to charge when you've got clients with large dollar amounts that are not part of the AUM?
Patrick: Yes. So, again, I've tried to simplify my billing models over the years because, again, it's one of these areas where randomness and too many different fee structures create complexity that then has to be managed somewhere in your processes.
So I've pretty much settled on fixed fees at different levels. And it's really a combination of net worth, income, and complexity because they're usually associated. So, I have just three tiers of fixed fees, and then I have just one AUM fee that I charge.
Michael: And what are the tiers? Where do your fee structures fall for your typical clientele?
Patrick: Yes. So I have a minimum that I'll accept on a flat planning fee of $8,000, and that's an annualized basis.
And then the other two tiers are higher than that, right? So I have a $12,000, and then I have a $16,000.
Michael: And these just get lined up, if your net worth is more than X or your income is more than Y, or I judge your complexity to be Z, I may put you in tier A or tier B, or your minimum is tier C.
Patrick: Yes. And we have a little marketing piece that goes with that to explain gold, platinum, and silver kind of thinking. It's not labeled that. Please don't think that, but that's sort of the idea that the client would see. But that's exactly right.
Michael: And then meanwhile, the structure around this is, it's you and one other person.
Patrick: And we outsource from a people-working-on-things standpoint. We have outsourced marketers. We have outsourced compliance companies. I have people doing my books and my financial accounting, that kind of thing.
I have other people, but I have found, and I've had more than one employer before. I've had teams of five or six over the years, that it just adds a level of baloney that you don't need. And it's the little things. It's the person knocking on your door, "Hey, do you have a quick second?" It's the, "My water heater blew up. I'm going to be late." "Hey, can we have a meeting to talk about the Christmas party?" It's all these different little things that are fine for many, but for me, contracted work is way more efficient, way more nimble, and frankly, I like to...
One of my mentors always talked about this; it's a Midwest term, but having a belt and suspenders. And for those that don't know what I'm talking about, you wear a belt to hold your pants up, and suspenders go over your shoulders to hold your pants up. And so if you're wearing a belt and suspenders, that's in case your belt breaks or your suspenders break, your pants still stay up. So, when you're walking...
Michael: And so for you, having contractors creates some of those redundancies or the belt and suspenders overlap?
Patrick: Yes, so what I do is I like to hire in pairs oftentimes. So, for example, I have two videographers because they bring different skills. They have different vantage points, business experience style, all of that. So, in my creative teams, I have multiple people, my accounting people, there are a couple of people that work on my books and my accounting work. So I have different sets of eyes.
What that does for you, without the overhead of hiring multiple people, is it allows you to see how the quality of the people that you have around you, and the things that you wouldn't have noticed. So, there are oftentimes things that you think are going great until you hire a new person or a new...and you're like, "Dang, I never knew you could do that," or, "That's an incredibly different way to look at that, and it's awesome."
You get that when you hire in redundancy, and it's very expensive to do that with the actual onboarded people that are on your payroll.
Michael: And so, you're literally hiring redundant people, every project gets double-bid, or is this just more of I hired an accounting firm that has multiple contractors to work on my books, so they have overlap, not I literally have two CPAs from different firms that both run my books twice just to check each other?
Patrick: No. Right. It would be more redundancies like that. For example, the two videographer example is a little cleaner example, that would be true on the accounting side. I do have another person that does look at my books, though, from my own business planning, right? So, I have a different professional tax... He's actually a tax attorney and a CPA that is a guide to me, an advisor to me, in addition to the people that do my books and my records.
But in the videographer world, they're completely different contractors, and I rotate amongst them. And oftentimes, I'll bring both of them, and an additional one, to, say, one of my events to video the event. And you get very just altogether different equipment, different angles, different creative work that happens.
It's a very efficient way to do it. And I do that with writers that are writing copy for me, any of that website design. I'll have a couple of people look at it. And in the long run, it may seem a little bit like it could be too expensive, or inefficient, or those kinds of things, but in the long run, you get a much better outcome. You see errors. You see weakness. You see a lack of creativity a lot faster.
Michael: Well, when you're running a core business of $150 million of AUM with one staff member, you drive some free cash flow to be able to do this and invest in quality. Some of those business decisions trade-off. So I am struck though that you had said, you did the transition to fee-only, the marketing push around, it tripled your business which would have put you well over $100 million by '06 or '07.
You're at $150 million today. The market's up almost that much just from pre-crisis highs with gross. It seems like you got to a number 10-plus almost 15 years ago and have not necessarily moved it a lot since then. So can you reflect on that or your thinking around it? I mean, the old saying is, "If you're not growing, you're dying," right? It's like that's out there, then we feel a lot of that pressure. You are not necessarily running the business that way, or at least from what I can see. So how do you think about that challenge, like the whole saying, "If you're not growing, you're dying?"
Patrick: Yes. Well, I think there is some truth to if you're not growing, you're dying, but there's also a holistic picture. You have to look at where you're growing and what's happening. And so, that was my intent. I mentioned my family a few times during our conversation. I'm right at the end of my youngest of those six boys, finishing up high school. He's a junior in high school. And I've got about a year-and-a-half until he'll be out of our home and will be...
For a long time, I used to say we were half-nesters, instead of empty nesters, just because of the size of our family. But that period of time, I wanted to be extremely available, especially for sons. It's really an important time of life, their teenage years, their early college years, and just to be available to them as they transition into adulthood.
So, one of my objectives was to get my business to a particular level and then allow myself the structure, and the cash flow to do the things that my wife and I, and our children wanted to do. And so that's been a great... Part of the last several years has been watching our sons get through the various things. And I have sons in all kinds of different positions in life now and some starting to be engaged, and watching their professional careers launch, and that. And that was part of it.
The other part is that I've done some other business in the coaching and consulting side of our industry for a number of years now. And that was accidental a little bit, right at the beginning of this period of time, I was... I'm sure you're familiar with Strategic Coach, Dan Sullivan's program out of Canada. And many advisors back in the early 2000s and still today, were in Strategic Coach programs.
I was in Coach in the early 2000s. And they frame you up based on the size of your business and your experiences, and things like that. And I had been in the program for a couple of years when another set of advisors in my community had joined Strategic Coach. If I could say it this way, they were behind me, meaning they were newer in the coaching program. They were asking their coach if there was anybody else in our community that was involved. They introduced us and went to breakfast, those kinds of things, and we got to know each other. Over time, we were sharing ideas and learning, and eventually, this kind of led into this, "Hey, Patrick, do you think we could just have you coach us? Would you be our coach and mentor?" And I was like, "Sure. I've never done that really formally before."
We figured that out, and I started doing that with them. One thing led to another, and I started this coaching program. I've been doing that now for about six years. And I'm on some national entrepreneurial platforms, not just financial advisor platforms, but some famous well-known kind of social media influencers have me in their training programs. And I've spent quite a bit of time speaking and teaching in that world. So I have really three businesses now.
Michael: And is there a particular kind of advisor that you coach or focus on? What's the usual profile for someone that wants to make this sort of lean, mean, efficient business built around themselves as you have or other focal areas?
Patrick: It's an interesting question. I have an online course and things that I kind of socialize my teaching on for those who just want an introductory version. I mean, I wrote that, and the book, and the course materials, and the videos that went with it for that individual that was like me. They were at a large bank, or they were at a large wirehouse brokerage firm, and they wanted to go off and start their own thing, and that's who I created that for. Well, and many people that have purchased that and have worked with me there are those kinds of people.
I also have two other audiences, and the other audience that was a little surprising to me was the good-sized firms that were with an independent broker-dealer. I'm working with a firm in the Minneapolis area that's a billion AUM firm that's with an independent brokerage firm; they've hired me to help them start their own RIA and to leave that broker-dealer. And that's transitional work.
The other sort of surprise from that was that person that found me through social media and whatnot, came to the entrepreneurial conferences that I speak at, that maybe they have a degree in business or finance. And they had not thought about the financial advisory business, and they want to get into it for the first time.
It's very cool. It's actually a lot of fun on all three fronts. The first one that looked like me is the typical, very qualified person, but doesn't really know how to structure the business. And then the big firms, they have the structure of the business, but they're so kind of tied up with, they've worked with this particular independent broker-dealer that they don't know how else to structure it. And then the new person knows nothing. So it's kind of fun.
Key Business Metrics That Patrick Focuses On [01:44:54]
Michael: So I have to ask as someone that is a data-driven guy, having brought all that with you in the rigor of UPS training, you measure and quantify, evaluate everything, what metrics do you track that are important to you as an advisory firm business owner?
Patrick: Yes, so one of the things that I really try to teach people is to turn those financial statements that I talked about earlier and particularly the profit and loss, and unitize it. So many of us run it on a monthly, quarterly, annually with dollars only, and maybe they might compare it to the previous year, same period or things like this, but they seldom unitize or periodize their P&L. So they don't know what their ratios are per se $1 of revenue or per a client, right, so per unit.
So, I try to measure my expenses by a unit of revenue, and I want my revenue numbers to be at a level per client family that I serve. So I'm trying to set those and measure those, and monitor those. And they're going to be different for everybody.
Michael: Can you give us an example of just how they break down for you because most of us are so not used to thinking about things like expenses per unit of revenue and ratios, clients in different firms have a lot of different targets, but what sorts of targets do you measure and set? How do you actually look at these?
Patrick: Yes. So, for example, I don't want the revenue for any client to be below those minimal fees that I structured to you before. So that's all in. So if I've got somebody that's under those kinds of numbers, then I've got to really look at, "What the heck am I doing at those kinds of numbers?"
Most of my clients are going to be well over those numbers. But that's sort of a... If you think of it as a floor, that's how I think of that.
Michael: So just make sure every client has a certain minimum revenue per client, which, as long as you've got the right servicing structure in place, means every client should be profitable? You don't need big clients to completely cross-subsidize small clients.
Patrick: Right. Exactly. So if you had a minimum revenue number of $10,000 or $8,000, or $5,000, whatever it might be, so even $5,000, and you're going to work with 100 families, that's a half a million-dollar revenue, top-line revenue. And so, then if you're using your expense measurements and they're unitized against the dollar revenue, you can see, people forget all these subscriptions are not that much or these things that can creep up on you, those little cancers.
The obvious things that are super expensive are rents, and payrolls, and benefits, insurance in particular. So, trying to keep a handle on those, I had a couple of offices in Omaha for a number of years, and I started watching my revenue as a dollar...I mean, my rent as a dollar of revenue would go up, and I thought, "What am I doing? This is just for my own ego to have multiple offices. My clients aren't going to care if they have to drive an extra 10 minutes. So let's find the coolest best-serving-our-clients-and-me office." And we shut the other one down.
What Surprised Patrick The Most About Building His Business, And His Low Point Through His Career [01:48:25]
Michael: So what surprised you the most around trying to build an advisory business?
Patrick: I think that I look at other industries a lot when I'm looking at growing my business. And I think that early on, the frustration for me was the lack of efficiencies I could gain through technology. Our industry is very slow to get to that game. And still, in some ways are. I've used a lot of other industries' tools along the way to try to get better at whether it's CRMs, or I was back in the day customizing sales force and things like that.
Michael: Are there still any technology tools you use for the business that are not traditional tools that are outside of the industry?
Patrick: I would say probably they're now more common, but I would still... Active Campaign and social-media-sided things that you're probably familiar with are less common on the advisory side. If I speak about those, I'll oftentimes have half the room come up to me afterward and go, "What is that tool again? What does that do?" HubSpot, any of those kinds of things.
The tools are way, way better, as you know now than even five years ago. Yes, that was probably the biggest frustration early on was I had to patch a lot of things together, had to have some more manual pieces that I didn't care for. Price slowed me up. I remember going to kind of electronic files. And I had years of paper sitting in these locked and fireproof file cabinets, and trying to figure out how I was going to quickly get to an electronic state with these.
And so we just, again, drew a line in the sand and every new client, and every new piece of paper for an existing client that came in, got scanned, and we worked our way backward as we could with the old stuff. So just patience and persistence was probably the hardest game I had to learn.
Michael: So, what was the low point for you?
Patrick: The low point, probably, actually, the low point for me would have been right away when I started, and I lost all those clients.
Michael: Thought you were going to go out with $50 million ended out with $30 million, that's 40% of what I thought I was going to use to pay my bills that's not coming through.
Patrick: Right. And then to pile on, if you remember what was happening in that period of time, that was the dot-com bubble period.
Michael: Yes, so markets are crashing, 9/11 happens, the recession is on.
Patrick: Yes, I ended up in the hospital for a week with some internal bleeding stuff in my digestive system that I thought was an ulcer from all this stuff happening, and really, it wasn't. It was health-related that I was able to work on and have been much healthier because of it. But at the time, I was like, "What the heck am I doing?"
Michael: Yes, there's nothing like breaking away and ending up in the hospital and be like, "Oh my gosh, what did I just do to myself?"
Patrick: Exactly. Exactly.
Michael: So how do you move forward from that? I think there are a lot of people who would say, "Okay. Well, that was a mistake. We're going to go back and find another job, and not do that again."
Patrick: Yes. That's a great question is, why does that happen? And I think probably it helped that I had the responsibility of a family and children, and that was really my motive, and still is my motive in life is to be a good father, a good husband, a provider, all those kinds of things, the traditional role of fatherhood and whatnot.
I'm also a kind of person that is interested in learning. And I've always been a very curious person. And so when I get over the initial shock of a setback, then I'm usually sitting there going, "All right, what's just happened? Why did that happen? What can I learn from it? How can I improve," and sort of the, “What doesn't kill you makes you stronger” mentality.
What Comes Next, And What Success Means To Patrick [01:52:32]
Michael: Cool. So what comes next for you?
Patrick: Yes, great question. I have really enjoyed this period of time teaching, speaking, and coaching. I've got some things that I'm working on that are hopefully going to be able to be used for a broader audience in that regard. And so, I've got some courses. I've shot about 100 lessons for some other courses that I'm working on that are more finance-related for different segments of the world, entrepreneurs, married couples, things of that nature.
I'm hopeful that that will be valuable to somebody, right, that they'll find that interesting. I also plan to do a bit more speaking in the coming years as my youngest son as I mentioned coming to the end of his high school career, I'll have a little bit more ability to not miss out on his events if I'm traveling. And I hope to do that. I've been speaking probably half a dozen times a year now, nothing like your schedule, but...
Michael: No, I don't recommend my schedule to anyone.
Patrick: Yes. But I'm thinking it's fun. I speak at both industry and non-industry events. And I really like the non-industry events as well because I speak to typically their entrepreneurial audiences that really are hungry for understanding finances better in relation to their business. So this is quite enjoyable.
Michael: So, as we wrap up, this is a podcast about success. And one of the themes that always comes up is that the word success means different things to different people, or as we've said, otherwise, you start should-ing on yourself. So you've built this, I think anyone would call very objectively, successful business. So $150 million dollars and 89 clients as an individual advisor with one staff member, so certainly, it works economically. How do you define success for yourself, at this point?
Patrick: Yes, I think at this point, for me, it's how I use my time. Am I using my time well, and do I have the ability to focus my time and my efforts on where they should be? And it's not just about the freedoms that come from business.
A lot of people that are entrepreneurial-minded or whatnot, want freedom is what they say. And I think that's not the complete answer. I think the better answer is to use that freedom well to serve others well and to use the gifts that I've been given well. That's how I define it.
Michael: I love that. I love that. It's not sparking the freedom; it's what you actually do with the freedom and time once you get there. Well, wonderful. Thank you, Patrick, so much for joining us and sharing the journey on the "Financial Advisor Success Podcast."
Patrick: I've really enjoyed this. It's been a great pleasure and honor to be with you, and I've really enjoyed your work, so keep up the good work.
Michael: Oh, thank you. I appreciate that.