Welcome back to the 184th episode of Financial Advisor Success Podcast!
My guest on today’s podcast is Reese Harper. Reese is the founder and CEO of Dentist Advisors, an independent RIA based in Salt Lake City, Utah, that oversees nearly $250 million of assets under management for more than 350 clients. What’s unique about Reese, though, is that his advisory firm doesn’t just have a deep niche in serving dentists, as the name of the firm implies, but that Reese has developed his own unique monthly financial planning process for serving clients and raised capital from outside investors to develop his own technology tools to implement it.
In this podcast, we talk in-depth about the Elements financial planning process that Reese has created; how he boils down the client’s financial planning situation into 12 key metrics to track, including their savings rate, their insurance coverage rate, and their personal burn rate; the systematized series of 12 monthly deliverables that Dentist Advisors produces for all of its clients each month, 1 for each of the 12 financial planning elements; the combination of Salesforce and Conga that Reese’s firm has implemented to increasingly automate the production of their client deliverables; and why Reese thinks the future of financial planning is all about working with clients through an ongoing series of micro-interactions around their financial planning needs.
We also talk about the business of Dentist Advisors itself, how Reese has been able to power the growth of the business with a successful podcast focused into his niche, the combination of AUM fees starting at 1.5% plus monthly subscription fees running from $200 to $700 a month that he charges for his comprehensive service, the ways the firm justifies its fees beyond the portfolio and even traditional financial planning with a focus on helping dentists lift their personal income and the value of their dental practices, and why Reese sees his firm’s approach of charging a premium price for a premium service as sustainable in this modern era of robo-advisors and fee compression.
And be certain to listen to the end, where Reese shares why he ultimately decided to raise capital by selling a portion of his advisory firm to outside investors, even though they were already growing successfully, the valuation and terms they were able to get by showing a strong business plan with a high growth rate, the challenges in growing an advisory firm quickly where clients are long-term profitable but short-term expensive to find and onboard, and why Reese isn’t concerned about the fact that with the second recent round of investor capital to accelerate their growth further, he has diluted his own founder ownership below controlling 50% majority.
What You’ll Learn In This Podcast Episode
- About Dentist Advisors And What The Business Looks Like Today [00:05:38]
- How Reese Uses Technology Tools and His Own “Elements Planning” Process To Service His “Entreprofessional” Clientele [00:17:09]
- The Systematized Series Of Twelve Monthly Deliverables That Dentists Advisors Provides For All Of Its Clients [00:24:57]
- The Combination Of Salesforce And Conga That His Firm Uses [00:33:09]
- How His Firm Justifies Its Fees [00:43:42]
- How Reese Has Used A Podcast To Grow His Business [01:09:02]
- The Challenges Of Growing A Firm Quickly [01:23:37]
- Why Reese Sold A Portion Of His Firm To Outside Investors [01:33:32]
- What Surprised Reese The Most About Building His Advisory Business [01:45:39]
- How Reese Defines Success For Himself [01:55:28]
Resources Featured In This Episode:
- Reese Harper
- Dentist Advisors
- Elements Financial Planning
- Dentist Advisors Career Opportunities
- Dentist Advisors’ Advisor Podcast
- The Dentist Money Show
- eMoney Advisor
- Orchestrate Process Composer
- Morningstar Office
- Adobe InDesign
- Dan Allison Referral Marketing
- Major Dilemma: Buy a House or Grow a Practice?
- Venture Deals by Brad Feld & Jason Mendelson
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Michael: Welcome, Reese Harper, to the “Financial Advisor Success” podcast.
Reese: Michael, it’s so good to catch up again. Man, I really appreciate you having me on.
Michael: I’m super excited to have you on the podcast. You have a story that I, frankly, have kind of followed from afar for a while, and I’ve been really excited to the point where you were willing to agree to come on to the podcast and actually share the really cool stuff that you are building, as kind of a financial planning firm unlike virtually any other that I’ve seen.
We talk a lot about like really building with a focused clientele, but you have owned a niche like few that I’ve seen and have really tried to build your own unique value proposition around financial planning, but you have owned it like no one that I’ve seen.
And even drilling down to, if you’re this excited about your vision, how do you do it and grow it faster? I know you actually went out and got external investors and took on equity, not as the high-profile deals we see in the industry, like a firm with $50 billion that sells off a portion of its firm for $100 million sort of thing, not those capital transactions, like as essentially a financial planning startup saying, “I’ve got this vision and mission of what we can do for a particular clientele with a unique value proposition. Anybody want to put some money in to stake this?”
And you’re now rapidly growing this focused planning firm with outside capital and executing, getting it done. And that, to me, is I feel a quintessential story for say, a Silicon Valley tech startup and is so not what it looks like for anyone else in the advisor industry. So I’m just really excited to talk about what this journey has been for you of what you’re building at your firm.
Reese: Oh, thanks, man. Yeah, as I’m hearing you say that, I’m reminded of how much has happened in the last few years and how far we’ve come. That wasn’t anything I ever thought I would hear someone say when I first started my business. So it’s pretty cool to kind of look back and just feel super grateful.
I hope that we can share some ideas with people that…not everything I share is going to be applicable, obviously, to everyone. And I sure hope that if anybody felt like I say something that they have a lot of questions about, that they could reach out and clarify it. Because, man, I just really want to help more people get better advice and influence the industry in a positive way. And however we can make that happen, we’re trying to do that.
About Dentist Advisors And What The Business Looks Like Today [00:05:38]
Michael: So I guess to kick this off, let’s just kind of dive right in. Talk to us a little bit about the advisory firm that you’ve created and what that business looks like today.
Reese: I think as of now…for those of you who don’t know, the company is called Dentist Advisors, and our website at dentistadvisors.com. You can kind of see what we do. But we work with dentists and specialists throughout the U.S. We have orthodontists and pediatric specialists, endodontists, oral surgery, ortho specialties. We have all those specialty niches, but the general dentist population is the largest segment of the national dental market.
There are a few hundred thousand dentists in the U.S. that are broken down into practice owners, associates that work for practices, and then sort of entrepreneurial dentists that are in dental service organizations that are called DSOs. We kind of have a service mix that we’ve created that targets each demographic of the dental market, both from young students, D1 to D4s, to first-year graduates to scratch starts to first-year acquisitions, all the way through very large organizations where we try to provide support to their associates and to the owners.
We just really try to stay focused, and that’s… financial planning has been our core. We kind of feel and have seen since we started the investment industry, I feel like the management or the trading, maybe of securities, is increasingly…the cost is coming down a lot, right? As the internet continues to provide more products for people to be able to trade securities, the trading of securities just becomes cheaper. And I don’t want to say it’s a complete commodity, because I think it’s not really, accounts are very large, right? But when it’s small, it starts to become something that technology can do better than humans can do sometimes.
But there are a lot of things that humans can do way better than computers can do. And humans can help people decide between choices in a really impactful, empathetic way that is much better than how computers make choices. And humans can help people take action in a really powerful way that they wouldn’t be able to do without the accountability and support of another person. At least a lot of the market needs that decision and action support.
So we try to focus on how we can lower the cost of some of the parts of the financial planning process, the organized part of the process, the analyzed part of the process. How can we let technology automation bring the cost of that part down? And then how can we continue to get compensated well for the decision and action part that we do really great as humans?
Instead of looking at this as robo-advisor versus financial planners, it’s more…there’s a place for computers, and there’s a place for humans, and you just want to make sure you’re on the right side of that equation. And I think we’ve tried to build a firm that lets humans do what they’re really good at and lets computers kind of be great at what they’re good at.
Michael: So talk to us a little bit more in practice about what this means. I think we all say like, we do financial planning and we do more than just what a computer or a robo-advisor is going to do. I know in practice, what you have structured around financial planning looks very different than what the average advisor does with financial planning. So when you talk about this like, “Here’s the value we add as humans doing financial planning over and above the computers doing that product stuff,” talk to us a little bit more about what that financial planning process looks like in practice.
Reese: Well, we kind of split up our team into…we call the Eagle’s Nest, which is all of our associate financial advisors, our younger CFPs. The Eagle’s Nest is usually like right out of school or a year in, a few years out. Maybe the most senior person there is going to have a few years of…maybe three to four years of financial planning experience at another RIA. They come in and they’re in charge of all the onboarding. When we sign a client contract, we don’t have like planning versus investing. We have one thing you get with us. And we think financial planning and investment management are integrated. And so depending on the complexity level of the person, they have a minimum fee they pay. And that fee can range anywhere from $195 a month to…most of our clients are at $495 a month. We have a very small segment at $795 a month that are the most complex. They pay this monthly fee. This monthly fee is the minimum amount of revenue required for us to be able to do our process at the level of complexity of the customer. And the Eagle’s Nest onboards the customer, gets a limited power of attorney signed by the client to be able to run point between their CPA and attorney, bookkeeper, their insurance agents, their office manager, their spouse.
Michael: Interesting. You actually have clients sign the LPOA not for trading on a custodial platform for portfolio management, but an LPOA just authorizing them upfront, or I guess, authorizing the firm upfront to talk to their CPA, to talk to their bookkeeper, because if they’re a dental practice, then someone is keeping the books of the dental firm, their office manager, even their spouse. So hopefully, they can work that spouse permission out directly. But for the rest, like…
Reese: Yeah, it totally saves us the back-and-forth time that will happen. If we reach out to those service providers without that LPOA then we have to have a bunch of back and forth.
Michael: What does it say? I’m just…
Reese: It’s allowing us to get any information that we need from that person. And it allows us to share all of our information with that person. It just basically allows us to formally exchange information, and more importantly, it creates some, like…it brings the barrier down between us and the existing network of people that the dentist works with. We don’t want…
Michael: Right. They may be looking at you defensively or uncertainly, like, “I’m not sure how much I’m supposed to share with this outside financial advisor firm or not.” It’s like, “Oh, no, here’s an LPOA that I’ve already signed that authorizes all this. So you all talk to each other now, just to make it clear.”
Reese: Yep. So we send it out to each person, the client then just immediately responds quickly to that email to each of those providers and says, “Hey, just wanted to let you know that this is me and I want this to happen” kind of a thing.
Michael: So you actually do this by email to cue up this LPOA connection?
Reese: The client signs as part of their advisory agreement. They sign the LPOA as part of their advisory agreement. And then that LPOA is extracted from the DocuSign package. And then, separate independent emails are sent to each of the people that the client has documented as their primary contacts over these areas. Like, we have the TPA’s email to the actual processor of the payroll.
Michael: Oh, interesting.
Reese: There are about 15 contacts that we want, just so that we don’t have to have a hurdle of getting the information that we need. And then emails go out to each of those people, and the client just quickly replies to each person. And then from there, we don’t need the client that much, if that makes sense. The friction of the client being involved as the middle person for us to go through is kind of…it’s a lot easier at that point to just get our job done.
Michael: Right. Okay.
Reese: Anyway, that section is just the beginning of getting it completed. We currently use eMoney Advisor as the client portal, the dashboard that the client’s personal net worth statement is entered into, and all the data connections are built. There are some challenges with it. It was built in 2001. And it’s amazing to me what they’ve been able to accomplish. I’m just grateful that some people were working on technology that early and…
Michael: What are still the challenge points for you then? I think most are generally familiar with like, it’s not a portal client data feeds in.
Reese: I think that it’s… Most software wasn’t designed for mobile. Most software that’s built is designed for the web, and it was built for… When you build software, you kind of have to know who your customer is. And customers of financial planning software are most definitely the financial planners, and that causes a lot of problems when you’re trying to help users or clients who don’t think like financial planners. And so whether it’s RightCapital or eMoney or MoneyGuidePro, the consumer doesn’t usually like using the software that the advisor has. It doesn’t feel as good as Betterment or Wealthfront, or it doesn’t feel as good as Robinhood. And that’s just because most of this is not being designed for the client.
I think that’s probably the challenge, is…that’s why we’ve had to build a process outside of eMoney that has allowed us to scale and grow, that was more designed around the needs of the user, the client, the dentist. We can’t control the user experience that eMoney is providing to the client. And we can’t collect data through that experience. We can’t design the prompts or the communication points that we want to have happen. And so that kind of becomes a limiting factor.
Michael: Because in essence, you would want your client portal to be the ‘everything’ for clients. Like, “Interact here, enter data here, manage communication through here.”
Reese: Sign your client agreement and your advisory contract here. It’s just a little bit simpler.
Michael: Whereas in practice, eMoney is the financial planning software portal. So, it does the planning software. You can vault the stuff there, after you do it somewhere else, but you can’t actually run the client engagement fully through the eMoney portal.
Reese: Yeah. And in all fairness, eMoney was built at a time where the methodology then was like, “Input data, create a plan, let’s print a binder and let’s like sell a plan for $5,000.” Or even before that, like, “Let’s find products that we aren’t selling to our client right now. And let’s sell them some new products.”
So much money is poured into a platform like that, and it’s very valuable. Software just has a shelf life, and that software is over 20 years old. There are going to be some limitations based on the engineering that goes into something like that. You can’t tear down software. It’s more like a house than it is like a paper airplane. So we take eMoney very seriously.
It’s the most robust…but in terms of accuracy of building a personal financial statement with the complexity that we want to have in it; we think it does a very good job of that. And they’re good at data connections, and they’re good at assimilating a personal financial statement, but we need that data in order to run our processes and understand what to do.
Michael: I feel like this has become kind of the classic challenge we all struggle with about…when we say our software doesn’t integrate, it’s this way that data gets handed off here and there. Like I put stuff in my CRM, but then ‘investmenty’ stuff happens on my broker-dealer custodial platform. And then, my planning stuff happens in the planning software. And then my performance reporting happens in that software. But then I’m still entering like client contact and interactions back into my CRM again. And we do all this work to try to make all the things “talk” to each other, which is usually at the end of the day about handing off information or making workflows happen across systems.
How Reese Uses Technology Tools and His Own “Elements Planning” Process To Service His “Entreprofessional” Clientele [00:17:09]
Reese: Yeah. Yeah, and the real thing that we do that’s unique, probably…we haven’t gotten into our like proprietary kind of side of what we do. But from eMoney, where we manage the client interactions, we use Salesforce as our CRM. We have a custom build that we’ve engineered with the help of…ProcessComposer or Orchestrate has been the kind of baseline process management system that we’ve built into Salesforce. It’s the most flexible and versatile that we feel comfortable with at this point. So ProcessComposer combined with Salesforce, combined with eMoney, combined with… Where financial planning begins for me, though, is not any of this. Financial planning is starting now once you have an accurate, updated daily personal financial statement. I want to see business values, I want to see real estate values, all debts. I want to see amortization schedules that are updating.
We work with small business owners. A lot of people listening to this podcast probably focus on some small business target demographic. I have a trademark on a word called “entreprofessionals.” That word to me describes the dentist, the doctor, the chiropractor, the small business service professional, right? A lot of verticals that are this type of person.
And in that world, their personal financial statement is not really separate from their business finances. So they look at business and personal kind of the same. So as we construct our personal financial statements, we actually have the business checking account and the personal checking account labeled on the financial statement as business checking: this amount, personal checking: this amount, business value, this amount, business real estate, this amount. And we just create this consolidated personal financial statement.
And then from there… It’s been a long evolution, Michael, of developing our process. But on our website, if you go to dentistadvisors.com, you can click “services,” and then you’ll click “Elements Planning,” and you’ll kind of see the process that we run across all of our customers. So rather than doing only an annual review or a quarterly review, what we try to do is we let those review meetings be periodic reviews, like most firms do, but we actually have a very proactive process that’s happening all throughout the year.
And that process is, during each calendar month, we’re tackling a particular subject. Like in January, we’re tackling liquidity. In February, we’re tackling their savings. In March, we’re looking at the profitability of their business, or just trying to measure their income from the prior year and really understand how healthy their career trajectory really is before we just assume that everything is fine. In April, we’re looking at the valuation of that small business, that dental practice, right? In May, we’re looking at the asset allocation and asset tilts, a traditional investment review. In June, we’re collecting…we’re updating the employee census again and trying to understand whether the qualified plan that they have in place needs to be adjusted for the next calendar year, because, as many of you know, you can’t start making qualified plan changes too late in the year. You kind of get toast and then…
Michael: It doesn’t work in November. You have to meet notification requirements. Yep.
Reese: Yes. And then in July, we’re looking at real estate values, how much real estate people have, what cap rates might be on rentals, whether their equity is actually giving them a reasonable IRR or whether they need to make adjustments. A lot of people carry a lot of rental property and a lot of real estate as dentists and they’re not monetizing it very well. They’re getting like 2% IRR on their rentals thinking they’re making 9%. And then we deal with debt in August, personal spending in September, retirement projections in October, insurance review in November, and then taxes in December.
And then we continue to kind of rotate through that annual planning calendar with a series of reports that we’ve built that are constantly being updated every time we get through a month. Like the reports are specific to each client. They have a benchmark score that lets us see how they’re doing in that area. So for example, liquidity, the way we measure that is we take all of their liquid assets, bank accounts, and after-tax assets, and then we divide it by their annual personal spending. And that gives us a measure of how liquid someone is that we can kind of like compare to other people so that our advisors aren’t just like congratulating or kind of criticizing a client without having some kind of basis for which they can compare their…
Michael: And so you’re…are you literally, in essence, comparing clients to each other? Not by name, I’m assuming, but…
Reese: Yeah. So like, we’ll take…let’s say we take every client’s liquidity in January, and we take the liquid balance and we divide it by every client’s annual personal spending, and everyone gets a score. You could be a 4.5, an 8, you could be a 1. Your score then is something that we can compare in a lot of different ways. Comparing by age on liquidity isn’t a horrible way to do it, but it’s probably not the most accurate way. You want to try to compare that on something we call lifetime earnings, where we would be able to just say, “How much money has this person earned since they started working?” The only way we can get that data is by looking at their income from the day they started working until now and getting a total lifetime earnings number. Maybe they’ve earned $2 million in total lifetime earnings since they started. What is their liquidity? What have they turned that into, right? How much have they essentially consumed?
It doesn’t mean it’s going to make you be like super-critical, but part of what my view as an advisor is, I want to be able to understand the financial behavior of my clients so that I can make sure and coach them towards improving an area that they might be weakened. Maybe someone who has a very low liquid term, which is the word that we call the element of liquidity, liquid term score. They might be really low. And that might be because they just struggle to like…they’re always buying the new thing. They have a low savings rate.
So I don’t know if that’s…it’s kind of hard to hear and figure it out, but like this… If you go to our website and you just click “Elements,” you’ll be able to watch videos, see our reports. I have a lot of advisors just reaching out to us going, “Is it okay to copy your reports? I just do what you’re doing.” And the trick with that is like… I don’t mind inspiring people to follow a process, but our process is probably not going to be the process that works for you and your niche. If I were to extract our process across all occupations, it may not translate as well as it does in dentistry. And so I would just encourage people to be maybe inspired, but I think it’s important that you let your customer feedback and your client feedback dictate your process, because it won’t work. Your process needs to be organic.
We have a design patent, several trademarks on the Elements process itself. You can kind of see those on our website. But it’s something that, for me, the reason we created it was first and foremost, we just wanted to do planning in a more accurate way. And we wanted to bring the cost of good planning down. We want to make it not be so expensive to get good planning. And the only way that we could accomplish that was trying to automate things a little bit more. And we feel like we have a long way to go still in terms of accomplishing that vision, but we’ve got a great start on it.
The Systematized Series Of Twelve Monthly Deliverables That Dentists Advisors Provides For All Of Its Clients [00:24:57]
Michael: So help me understand a little more. I’m kind of connecting the dots now of how you’ve got this planning structure varying from like $200 a month to $500 a month to $700 a month because you’ve got this Elements process of sort of, “Here are the 12 core areas of financial planning that we help our clients with,” which you boiled down to sort of a single number or thing that you produce in a report that then you can help the client say, “Okay, are you moving this number? How are we doing in this area?” And you try to move them forward on whatever that element is. Twelve elements, 12 months of the year, so there’s always something to talk about every month of the year and see what they’re improving on, and then you wash, rinse, and repeat for the next year.
So help me understand how this actually comes together in practice. Are you literally meeting with clients on a monthly basis to talk about the element of the month? Is this a report that you have to create every month? And who creates the report, or have you figured out how to make this happen automatically with technology? Like, I’m kind of getting the gist now. I’m hearing that is a lot of reports and phone calls and work just to sort of sustain $200 a month. So, what does this look like from an execution and delivery end to cover all these different areas?
Reese: So our end game, our goal is, when you do something this big or this complex, the long term is that it’s not all done through reports. And we can talk a little bit about that later. But physical reports are expensive to create, and they are time-consuming. That’s why banks charge for like statements. And so, yes, we probably have a long way to go in terms of bringing the cost of planning down, but I would rather be fighting that battle than the one where I’m justifying why I’m… I think that the market is going to put pressure on people that aren’t delivering a good process. And so we figure we tackle that.
And just regardless of the cost, let’s figure out what the cost is, right? And let’s go the minimally viable product, minimally viable planning product that we think has to happen. So like, do I think a financial planner can spend a whole year and never talk about a client’s savings rate at all? I think you’ve got to at least talk about their savings rate at least once per year in order to be minimally viable as an accountability partner around savings. And so we created… The Elements are only the minimally viable stuff that you have to talk about in order for it to be responsible from our point of view. We’re not trying to create more work than is necessary. I just wanted to emphasize that.
But how do we create that? Inside of the CRM right now, most of the data points are coming through a series of forms that we’re emailing a client every month. They’re lightweight forms, but the clients aren’t always the designated contact point, right? Sometimes it’s the payroll provider, sometimes it’s a CPA. Sometimes it’s the client. But at least once a month, someone’s getting a form that they’re either populating or uploading something into. Usually they’re just typing into a Google spreadsheet that is a shared spreadsheet between us and a provider. Sometimes it’s like an upload, sometimes it’s an email response, but we have to do some kind of verification.
And ProcessComposer is kicking off… For every client, every month there are 7 or 10 different little steps in the process for the month, right? So the first step might be verifying a piece of data. So send out an old employee census to their payroll person and have them edit any new employees, delete old ones, and update income. We get that back, and then the associate advisor takes that data, and the next step is kicked to the TPA to get an updated proposal. Then we populate our Element report of the month, the QT report that has all the data.
Again, some of this is manual entry, right into a giant macro spreadsheet. So right now it’s just a giant data entry mess into a giant spreadsheet. And we’ve built it to where it’s quite stable. This is like behind the scenes of what big companies are doing and you probably don’t know about.
Michael: Yeah. I still remember with one large firm that shall not be named. We were asking them to do a technology integration for something and they wouldn’t do it. And we said like, “Well, if you won’t do it, then we’re just going to have to fax this material to you,” which is basically like our snarky version of a threat. And they said, “Well, actually, all we do right now is take the form that you send us, print it, and walk it down the hallway to hand it off. So actually, if you sent it by fax, it would be faster for us because the fax machine is in that person’s office. Whereas when you send it to us electronically, we actually have to print it on a printer, and someone has to walk it down the hallway.” It’s like, this is a very large, well-established firm, major financial services provider, but that was their internal process for this particular form because they still hadn’t digitized it fully. And so…
Michael: …that was how it happened behind the scenes, like, all this fancy front-end technology, but all it actually did was cue up someone to hit a print button and walk it down a hallway, and faxing was actually more efficient for them.
Reese: Yeah. And I would say there’s no way to get automated payroll data unless we required every client to be on the same payroll provider. I’m not going to do that. That’s like an edge case that I’m not willing to spend money on. So the answer is, the person doing payroll edits this Google document, we have it, we get a notification when it’s updated, and then we take that information, we populate any changes that are required into this giant…let’s say a giant spreadsheet for the month of June, and a client is a row, there might be 8 or 10 data points, it gets added to that sheet.
And then from that giant Excel spreadsheet for that month… We have one very talented person, Jacob Rich, who’s worked with me for a long time, and a group of 10 or 12 associate advisors that are constantly also being…getting up to his level of experience. They take that Excel macro, and it goes through Adobe InDesign into a giant mail merge, Adobe InDesign is a design program. You can build reports. You can build anything you want. So the spreadsheet maps to fields in the reports that we are creating, and then we just get hundreds of reports generated for that month.
Michael: Interesting. So that’s why it’s a giant spreadsheet with one row per client. Because I think most of us would imagine…I just would have assumed by default like, okay, well, you’re plugging all this into…like, each client’s got a spreadsheet, so you can track their data over time. But now I follow like, no, no, each report is a spreadsheet because you’re going to enter, whatever it is, 100 lines of client data. So you can take one spreadsheet of, “Here’s everybody’s savings rate calculation for the month,” and then port out names, savings rate, whatever the other details are, all port into Adobe InDesign and then comes out as a giant mail merge with like, okay, here are your 100 client-specific individual reports that all went through Adobe InDesign and came from one centralized spreadsheet so you could gather this and try to systematize it.
Reese: Now we are at a point that… I’m giving people the like…you know how you talk a lot, Michael, about the pain that people go through early in their career?
Michael: Yeah. So, you have the vision of what you want to do, and then it’s like, “Okay, how are we going to MacGyver this to actually happen?” Like, this is the MacGyver-ing stage.
Reese: And when you go to build something like software, which we’ve engaged in, right, our software team, they move much slower than Salesforce and Adobe InDesign and Excel spreadsheets. Like, you can build a minimally viable product that functions really well without having to go start coding it, right? It’s not a good idea to start building software when you just have an idea. You have to have a functioning system before you go build software or you’ll end up building the wrong thing.
The Combination Of Salesforce And Conga That His Firm Uses [00:33:09]
Michael: Right. Because I guess once you’ve got this thing, now it’s ‘just’ going to a software designer saying like, “Here’s a completely consistently executable 17-step process. It happens to go through a bunch of Excel workbooks and three different programs, please automate, pull in this data and make it automatically appear where it’s supposed to be at the end, so we don’t have to have the intervening steps.”
But you’ve created all of them in every piece of it. So now someone just has to turn slightly messy, built-in-the-real-world process into, “Automate this thing that we’ve already vetted, and we know it works.”
Reese: Works. And clients are happy, and customers love it. And they’re coming to us in droves. We know that this isn’t just us coming up with a fancy widget, they want it, right? Can we go better than this? Yes. But you’ve got to prove that your system is stable before you start turning it into something that’s even more automated.
We are now past the Excel spreadsheet phase and Adobe InDesign phase. We’ve moved to…I don’t know if you’ve heard of Conga. But Conga is like a PowerPoint report generator that works with Salesforce. So now our forms are populating our Salesforce database. And then the Salesforce database is using Conga to generate the reports in batches that are more efficient than a big Adobe mail merge InDesign. But that was version 2, right? And version 3 is better than version 2. And version 4 is better than version 3. And you just kind of have to keep going.
But when we started, this was 15 years ago, it was me and Ryan Isaac, my co-founder, and we’ve got 1 spreadsheet with all the data that we ever want. And we’re calling clients on a monthly basis, then having phone call meetings, right? And we’re populating things. We’re not even doing it monthly, we’re doing it annually, right?
And we’re having these five-hour meetings, and people are just passing out at the table, like, “Stop talking to me about finances?” And we’re like, “We’re almost done. We just have to get through your last disability insurance quote from this carrier,” or, “Your tax returns analysis is…we’ve got to do your profitability analysis,” or…and we just got to the point where there’s so much to review, right? And again, minimally viable stuff.
Like, I’m not saying like, “What can we make up that is valuable?” I’m like, if I’m owning holistic, comprehensive financial planning, I can’t not talk to you about the fact that your interest rate is higher than the market for your home loan. I can’t just let that one go because that decision is more valuable than tilting to small-cap value.
Michael: But I’m just struck that you took what essentially are 12 financial planning conversations and just forced them, I don’t mean that in a bad way, just forced them into literally a series of 12 sequential monthly conversations, right? So I can imagine this just from the firm end, like, we’re always collecting the same set of data from every single client for the current month, reporting it all to the same place. Everybody knows exactly what we’re focused on this month. There’s only one core conversation that’s happening.
Reese: Yeah. Our social media and our marketing and our positioning and our content reinforce that conversation.
Michael: And then I get it now. So the Eagle’s Nest of younger, newer CFPs – because you’ve systematized all this stuff, yes – there’s some level of human being conversations and interactions and bits of manual data entry, but you, the founding advisor, are not doing this by hands now. We have hired talent that costs a little bit less than senior financial planners to be able to do some of the tasks that it takes, where you need someone with some financial planning training, but not necessarily as much. So you can save a little bit on labor costs as you bring them up and develop them.
And just that’s what happens when you focus on actually systematizing this as a process, is, how can I batch it? How can I do it consistently for my clients at the same time? How can I bring down my costs by automating this piece, macro that piece, get cost-effective talents to do this part that could actually be delegated down? And you start iterating that direction.
Reese: Yeah. And then your talent, Ryan, my co-founder, can train Matt, who’s a senior financial advisor, and then Matt can train Will, and Will can train Cody, and Cody can train Kristen and Jordan and Taylor and Powell and Jake and Abby and Lauren. And they can all… Some people have been there three months longer than the person before them, but it’s just like an easier way to train.
And if I’m honest about it, without my team running this process, it doesn’t work. I don’t do any of this. Jacob’s going to be listening to this. Ryan and Matt are going to be listening to it going like, “He’s kind of not describing exactly what’s happening on the backend. He doesn’t really know.” So sorry, guys, if I’m butchering it, but that is the beauty of working as a team and having everyone be willing to just take a little bit smaller piece of a bigger pie. No one’s greedy. I’m not trying to have this be all about me, and none of the advisors want it to be all about them. We’re just trying to help more clients and bring the cost down.
And we’re all committed to our corporate vision, which is a world where people embrace the habits of holistic financial health and live their lives to the fullest. We really want that to happen; whether it’s at our firm or if it’s at anyone else’s firm, we’re just hoping that instead of paying lip service to planning, we actually start executing it so that people… not just to see that their net worth increases, but they’re also like just more present.
The biggest benefit of this process is clients feeling like they’re on top of things. So you asked like, how is it actually happening on the deliverable side, is that once these reports are generated, each client has an associate advisor, like Kristen, and Kristen emails the report to Ryan and says, “Ryan, Dr. Jim Givitus’s report is done. And this is his benchmark scorecard for the month of July. Please let me know if you have any questions.”
So it didn’t go to the client, it went to the advisor, right? But we’re signaling to the client that the advisor is about to engage in some work on your behalf. You might hear from him, you might not. If he thinks things are okay, he’s not going to reach out. If he needs to tell you something, he’s going to reach out.
But this report contains a lot of value. The client understands that the advisor is reviewing it and will be in touch if there’s a challenge or a problem or an adjustment that needs to be made. And sometimes, the associate advisor will make the recommendation or adjustment on their own. Like if they notice something, which we’re constantly training our associates to try to identify the gaps. Instead of just sending the report, right, try to identify the gap or the challenge.
And a lot of times they’re doing that, and that’s creating just more planning happening more frequently. Right now, is it more hours? For sure. It’s more hours than the average advisor spends. We’re between 12 and 13 hours a year per client. We spend a lot of hours. That being said, we also charge an asset management fee that’s premium, and we get paid on that. And our financial planning fees, while they might not be covering all of our time, our asset management fee does. We think that’s the way that this type of premium service scales best.
I’ve tried to… You and me will talk about fixed fee and AUM at some point, but I just wanted to kind of clarify the… The email is triggered every month. And then obviously, advisors are texting, calling, and following up with clients as a product of all of that.
And when clients call in, advisors have this great recent set of like…imagine a client calls in and you’ve got the last four to five months of these reports with really good data to reference that they’ve seen, that you’ve seen, you’ve been doing work. It’s just a much more like…in software, we call it micro-interactions, where you do a little thing, and there’s a little payoff, a text. And that’s what we kind of think this financial planning process does, is it’s moving towards micro-interactions instead of these big, heavy, macro kind of things, like a plan. You’ve got to renew your $5,000 plan with me this year. It’s like, “Oh, I don’t know if I really want that.” It’s kind of like heavy. What about just like one…sign up for this thing that you just sign up for once, and then you don’t have to keep signing up for it all the time, right? Anyway.
Michael: Well, I love the framing that you’re giving that around micro-interactions Like, we don’t need a giant plan. At the end of the day, I would venture to say that the 12 Elements that you’re going to actually systematically evaluate and generate reports for throughout the year actually cover more financial planning touchpoints than most advisors probably actually cover systematized every year, at least for every client the way that you guys do.
But you’re not doing an annual plan update, which takes giant chunks of time. And then you have to stagger them through the year because you couldn’t possibly do them all at once at one point in the year. And then you’re continuously in producing plan updates, and just that’s our usual, I think, reactive mode for most of us.
You live in a world of micro-interactions that may add up to the same thing, but you can batch the micro-interactions, right? Like, you’ve got to get all the data into the giant spreadsheet to pipe it through InDesign to do the mail merge to get the thing. But you built most of those pieces to at least be semi-automated, right?
Those steps handoff once you queue it up. And you can produce 100-plus reports on savings rates all in 1 batch once you’ve queued it up. And then 100-plus reports on debt and 100-plus reports on insurance and profitability of the firm and all the other pieces that you’re covering in that process. But you’re batching them, and everybody’s focused on one thing so you can actually do those micro-interactions, as you put it, in a much more systematized manner and clients understand, “What am I paying for on an ongoing basis? Why am I paying you every month? What are you ‘doing’ for me?” Like, I get a deliverable from Dentist Advisors literally every month. That’s quite a bit compared to what almost any other firm out there is doing in practice. Like just, that’s a lot of stuff.
How His Firm Justifies Its Fees [00:43:42]
Reese: We are so passionate about elevating the standard of financial planning. I came from Northwestern Mutual in my first three years, and my experience there was just like, I met a lot of high-integrity people, but I saw more product sales than I was comfortable with. And I didn’t really fit that system.
But then I realized that most of the 400,000-plus people that are calling themselves some kind of advisor in the country, they’re doing the same thing. To some degree, even the robo-advisors are doing the same thing. The conflicts of interest are just getting cheaper. And they’re no different. And I just want planning to actually happen. I want the public to know that we don’t talk about savings generically. Like if you make between $140,000 and $175,000 and you have less than a 12% savings rate, you’re probably not pushing yourself that hard. When you’re at $225,000 to $240,000 a year, your savings rate should look a lot more like 17%.
Michael: And that’s part of the feedback you give and how you benchmark clients? Is like, “Let’s literally look at your savings rate relative to your income.” Because it ties in very directly, right? I’ve got to cover food, clothing, shelter no matter what, but it’s easier to cover that making $250,000 than $50,000. So savings rates tend to go up because there’s other free cash flow. And I guess that’s part of your process of like, “We’re going to give you a savings rate score, and we’re benchmarking you to other people in your situation.” I’m assuming it’s not always income-based because profitability factors probably tie to something else.
Reese: Revenues, right? Yeah.
Michael: But you’re benchmarking them in that manner to say, “How are you doing relative to someone in similar financial circumstances?”
Reese: Exactly. The benchmarks are either age, would be the benchmark, and you might have every three years or every five years. And we’re constantly evaluating our benchmarks to determine if it’s even effective or useful, or if it’s insightful, or if it’s just like confusing. But it’s usually an income band. Like when you’re looking at savings rates, it’s all income bands. You don’t want to compare someone that’s making $300,000 a year AGI to somebody who’s making $110,000 and say, “You’re saving less of a percentage as that person.” It’s like, well, it’s not really fair.
There is, like you said, this fixed cost of $9 grand a month on average across like anyone making 6 figures or more that kind of, like, it feels like…if you’re at $100,000 of income and you have a 10% savings rate, you’re doing pretty good. You’re pretty good at that. I would say you’re above the median. If you’re at $70,000 a year and you have a 10% savings rate, you’re doing really well, especially if you’re married and have any kids. Sometimes clients get a little competitive around it. And so we’re conscious of how we do it so we don’t create guilt, shame, fear. We don’t want that to happen.
Michael: Although I imagine at the same time, like, it’s a powerful thing. Tell someone like, “I know you feel like you’re saving pretty well, but you could still save a little bit more.” And it’s another thing to just literally say like, “Well, your savings rate right now is 13%. And across all of the dentists we work with, the average at your income level is 17%.”
Michael: Like, “Well, crap, I don’t want to be below the benchmark.”
Reese: Yeah, exactly.
Michael: That’s totally different.
Reese: But we get emails like that all the time. They’re like, “Tell me a little bit more about the benchmark itself. What were the peak and trough?” Or, “What was the high point in your benchmark for me on this one?” It’s instructive. I think the advisor benefits most from it, though.
Michael: Give people a way to keep score and understand how they’re doing. Like, get it to a number so they know they’re on track – ideally, a number where they can compare themselves to everyone else. Because right or wrong, we are social animals, we like to know where we stand relative to the herd. It’s part of how we’re wired.
Reese: Yeah. So we’re excited about that and hoping that we can figure this out and continue to bring the cost down so that this type of thing can be utilized in a way that’s not just like internal to us. I just feel…like, it’s so expensive to build software. I’m way over-investing in infrastructure that if we just dominated the dental industry, we’ll be great. But there are so many financial advisors I would just love to be able to use that system and talk to them about it and build a community.
It’s just exciting to talk to advisors, but we can’t really deviate from right now what we’re doing, it’s just like, we have to fix the problem first. And we haven’t solved it yet.
Michael: So help me understand now the way that the client interactions and meetings work. I get that you’re producing the reports, sending the reports out, and that clients get the reports. But you did say, this still actually adds up to 12-plus hours per client per year that you’re interacting. Is there a phone call after each report? Is there a meeting after each report? Is it like, we send the monthly reports, but then we do quarterly meetings or semiannual meetings or like one big annual meeting to recap how we’re doing? Where does meeting time and face time fit in with this very systematized monthly reports structure that you’ve created?
Reese: So right now, what we’re trying to do is have advisors’ calendars be more open, so that they can respond to the…we call it reactive requests. So even though we’ve got this proactive thing happening, advisors are often emailing, leaving audio notes. We have Voxer. We have audio recordings where we leave these asynchronous messages, right? Like, “Hey, when you get a chance, I just recorded this for you.” We use Soapbox with Wistia, where we record our face next to a report and giving clients a message about their report and telling them what we think.
Michael: Did you say you’re using Voxer? Like, you’re using Voxer with clients?
Reese: So we’ve got iMessage and we have Voxer. And we have Facebook Messenger. And technically, like right now, the hard part is we have to get exports out of there. And we have to archive things and keep track of it all.
Michael: Just for compliance purposes.
Reese: Yeah, it’s a mess. Most advisors will use their computer. We have a MacBook and a microphone. They’ll just hit “record” on QuickTime and record a message, and then drop it into the email that the report is in and kind of describe something. Some will use Soapbox, which is a screen recording thing, like Loom. Soapbox made by Wistia.
Michael: Where you screen share something and you can have your video next to it or alongside it as well. And just, here’s me talking about the thing that I’m going to be doing or that I’m providing.
Reese: Or an audio note. And some of our advisors will use Voxer, iMessage, or something to communicate with the client, right? But it’s up to the advisor on how he wants to communicate to the client, to get the client his interpretation of what should happen. We call that proactive planning, okay? So that’s your… You’ve got 10 minutes a month, 15 minutes a month. You’ve got to give people your perspective on what they need to adjust or change, or just tell them they’re doing great and encourage them for the good job that they’re doing. And that happens on an advisor by advisor basis.
So that doesn’t add up to be the 12 to 13 hours a year I’m talking about, right? The total time comes from client responses. They’ll respond and say, “Great, man, can we schedule a meeting? I’d love to chat with you.” Okay, great. Put it on the calendar. Or a phone call just coming in live, like, we’re ready for a meeting the minute they call. So you call, you have a question, we’ve got all your data, we’re ready to go right then. So it’s like advice on demand, right? And that’s kind of what we’ve tried to pride ourselves in, is if you call with a question, we’re ready, because we’ve been doing all this planning all the time. Any question you have, we’re ready to answer it.
Michael: Interesting. And it’s kind of a strange… strange is the wrong word, like an interesting dynamic. So rather than saying, “We’re going to be really proactive with planning” per se, “We’re proactive in giving you these ongoing deliverables.”
Reese: And the advice that we think you need to get from those deliverables, right?
Michael: Directly from the deliverables. And then when clients either have something come up in their lives, or they see something they want to do in response to the deliverable, they will reply to you, and you can say, “Well, I’m ready to do advice on-demand,” which is a much better label than reactive. Like, “We’re ready to do advice on demand.”
But you’re not in a purely reactive planning mode; you’re actually in a phenomenally proactive planning mode because you’re continuously pushing out monthly deliverables and monthly follow-up communication tied to it. So you’re always in front of clients with something proactive. But then the channel is still open of like, but when your life changes and you need to talk to us or work with us…
Reese: We’re always ready.
Michael: …we’re here. We’re ready to go.
Reese: That being said, I will say this week and last week, we’ve been having discussions about if someone doesn’t reactively reach out to us in four months, when are we going to…? Which doesn’t happen very often. People are responding almost monthly in a small way, like micro-interactions, right?
But we have to, at least at some point, say… There’s just something about a meeting that’s important. We love phone calls. We love meetings, right? We love two-way conversations that are live, not just asynchronous chatting, right? So when are we going to schedule a meeting on a cadence? What is the limit before we’re like, “We’ve got to have a meeting?” We can’t let someone go…you’ve got to have them at least twice a year. That’s kind of where we’re leaning.
Even if we’ve had a bunch of asynchronous and even if they seem fine, there’s just something you discover when you do a two-way that I think is impossible to like leave out of the equation. So that’s where we’re at now, is most advisors have two-ways all the time. You’ve got to have a chance to stop and go, “I want to just really get to know this person better.”
Those meetings, though, we do not do financial planning in. They are relationship meetings. These are like, “Talk to me. I want to listen to you. I just want to hear how you’re doing.” That’s the goal of the two-way meeting. I feel like we cram so much planning, so much minutiae into these two-way conversations, our meetings, our quarterly and annual meetings, that we end up not being able to just sit and listen. Because if you just sit and listen for an hour, your relationship gets to a new place with that client.
But if you’re talking at them the whole time, it’s not effective. So we really feel like we’ve got the best of both worlds. We’ve got this great, proactive microtransaction, micro-interaction process that’s happening that preps us for very, very great two-way conversations that happen either at the client’s request or, if too much time passes, we’ll get one on the calendar because any good advisor can tell. It’s like, it’s just been a little longer than I want, you know it’s time.
Michael: Something might not be right. It’s just been too long since we’ve checked in. Yep.
Reese: Yep. And I think it’s awesome because advisors had flexibility, but their calendars aren’t jammed, but they’re doing great planning. This is like…honestly, it just feels like 14 years and we’re finally figuring it out. It’s really hard, as you know. You’ve done it for just as long as I have. It’s like getting to the point where we feel this good about our process. It’s just been…it’s 60 hours a week for 10 years. I’m really grateful for how much love has gone into it from our team. It’s been a lot of work.
Michael: So talk to us now about the pricing model. You had mentioned earlier on sort of this $200 a month to $500 a month, a small subset pay $700 a month. But then you also mentioned in the middle of this discussion about elements that you charge a “premium” AUM fee as well. So, what does pricing look like overall? How does this work from the business end?
Reese: Well, yeah, it’s a long journey. I’ve always wanted to be a fixed-fee advisor. I always wanted to just not have…I wanted to manage investments for free, to take away all of the conflict I could possibly take away and just price based on complexity.
We did a big, deep research project into complexity in our own clientele, took all of our clients. We had advisors score their clients based on complexity, and then Justin Copier, my COO, he found all the R-squareds that we felt were pointing us towards complexity. And most of those were…probably the most prominent is income, right? Income, more than net worth, more than investments, income drove complexity. And net worth was a stronger correlation than AUM, right? Investment, liquid investment balances wasn’t…it was in the top five, but it wasn’t number one or number two in terms of how many hours does it take to work with a client? Like, what’s required here?
And so with that research, you kind of are just, like everyone does, looking at the AUM model and you’re just kind of like, “It doesn’t make any sense.” And then reality kicks in. Then the market speaks and the clients talk. You give them the option. You’re like, “This is the truth about how the two options you have. I can lose my shirt on you right now while you don’t have any money, and one day, when you’re worth a lot of money, I’ll get overpaid. But I’m going to help you get there. And that’s one option. The other option is pay me a lot, more than you can afford right now, and then I won’t ever have to charge you again. Or I’ll just be able to raise my fee by 3% a year.”
That’s the conversation you have to have with people that are young and with no money, younger people, or earlier career people that don’t have any liquidity. That’s their choice, really. And if you give them that choice, they’re going to pick, “I’ll give you a little piece of my investments. And just help me, please, because no one else will.” That’s what they will say. You’ll see that happening with Ric Edelman. You’ll see that happening with our firm. You see that happening with a lot of firms. It’s like you give them the choice, they’re going to pick the option that is the least friction for them.
Now, in a fixed fee model, I can go and cherry-pick rich people all day long that are paying $80 grand a year to MassMutual, and I’ll sell them a $45,000 a year planning package, right? And they’ll cut their fee in half, and they love me and they’re happy. And I think that’s where…like, fixed fee, you can win all the time in that market. It’s like, undercut the guy that’s overpaying and I’ll be cheaper, and he’s overcharging and… I guess the reason like that…it kind of start losing its appeal to me is I felt like my heart was in helping people create the wealth, getting there.
Like, I love the journey. I like helping people that can’t get help. I like helping people that are high-income professionals but no one’s… You’ve got a Guardian Life Insurance guy coming into dental school selling you $5 grand a year of freaking whole life insurance and a lifetime benefit DI. And the kid can only afford $3 grand a month in DI coverage because it’s a $4,000 a year annual premium. It’s like, that just feels like highway robbery to me. And like, how do we get down-market to save these people? You can’t get down-market with a fixed fee. It’s really hard.
We kind of feel like the happy medium is like what we’re doing right now, which is a minimum fee that’s based on complexity, right? If you’re a new graduate, you might pay just 200 bucks a month, or maybe it’s…we’re trying to get to where we can even bring that cost down a little bit until $99 or something.
Michael: So your balancing point of this, I don’t want to charge you…if I charge you full fee upfront, it’s hard to be competitive because someone may just take you on a lower AUM fee hoping for future upside. I don’t want to do the full AUM fee because that just doesn’t give me enough revenue to cover the work that we’re doing now because we’ve got an intensive planning process. And so your balancing point was, let’s just literally do a blend. I’m going to charge you a monthly fee and an AUM fee. Recognizing that the AUM fee will not be a huge component early on, but at least we’re kind of setting that groundwork?
Reese: Yep. And over time, the AUM fee makes the fixed fee disappear because I know that at some point down the road, I don’t need to keep charging people that. And I don’t know that that’s the right model or not. But for our niche and what we’re working on, I think it’s been the right fit. And then at some point down the road, you can cap it too. You don’t have to charge them indefinitely. You can cap it or you can just keep bringing your AUM fee down a lot. You can come down to 25 bps or…but I feel like there’s…that’s kind of where we’re at.
And it’s an automated process that… We use Morningstar Office for our billing and portfolio management. I don’t want to say portfolio management, but for our billing, it’s basically a billing system for us. And I guess it’s our invoicing as well. Morningstar Office balances, integrates into Salesforce, and then we manage. Our monthly billing is happening through PayPal. And PayPal integration just reads the Salesforce fields and understands where the billable AUM balances and then sets the monthly fee based on people’s AUM balance. If it goes down, their AUM goes down, we charge more. If their AUM goes up, then their planning fee comes down. So that’s kind of how it’s working right now. And when people’s credit cards expire, we have to get a new one.
Michael: And then the AUM fee itself still comes from the portfolio? This integration from Morningstar Office to Salesforce to billing is just so that you can figure out when people’s planning fee is supposed to be coming down because your AUM fee has gone up?
Reese: That’s correct.
Reese: Yep. It’s hard to keep track. Otherwise, it’s a pretty big cost to manually track that across hundreds of clients, thousands of clients.
Michael: And so, what does the AUM fee schedule look like then? How does that work in combination with monthly fees?
Reese: Every $1 million right now, it’s 1.5% on the first million, 1% on the second million, and 50 bps $3 million and up.
Reese: I could see us changing to 25 bps on the fourth million and up pretty soon, I could see us doing that. We think, like asset management itself, the cost is probably like, realistically, 15 basis points. That’s really the cost of the asset management. And so we just need to get enough margin to cover the asset management and not just detract people from feeling like we’re trying to…somehow we think that fourth million is going to add complexity. I like simpler breakpoints and fewer drops. But we kind of like sending the signal too. Like, we’re a premium provider, I think it’s worth it. And that’s how we’re choosing to get compensated.
Michael: Well, and I’m struck overall that, and again, I don’t mean this as a negative, as you put it, you’re a premium provider, like, you’re at 1.5% on an AUM fee for the first million, which I think for some advisors is already higher than what they charge, and you have a monthly fee that starts at $200 a month on top of that, moving up to $500 a month or $700 a month for clients that have more complexity.
So you can have clients that are at $1 million at 1.5% plus a monthly fee. Although I guess your monthly fee starts coming down then. So they’re probably not their full monthly fee at $1 million.
Reese: Yeah, the monthly fee starts coming down at $500,000. It’s coming down 100 bucks a month every $250 grand right now. So if you had $1 million, you’re only paying…even your complex clients are $295, right? Once they’re at $1.5 million, it’s gone, right? Once they’re at $1.5 million, then the monthly fee is gone.
Michael: But still at that level, you’re at well over a…they were still 1.5% on the first million and…
Reese: We’re well over 1%. Yeah.
Michael: Yeah, you’re still at about 1.3% on a blended rate then, which again, just makes the point like, well, when you have an entirely structured process, like, we’ve got our 12 elements, we generate, oh, the reports on them. You’re going to get monthly outreach from us with clear deliverables of what you’re getting and all the planning support that goes with it. Oh, and we’re specialized only for dentists. And no one else understands dentists as well as we understand dentists.
So like, if I’m a dentist and you get me that well and you’re that deeply into what I’m working on and I can see my progress because you’ve literally now given me 12 data points to prove that, like, you added value because here’s how my numbers improved over the span of the relationship with you. They have to decide whether your planning process is worth 1.5% plus a monthly fee. But no one’s fee-shopping you. No one else does what you do?
Reese: Well, I’m sure that we’re not getting some customers that are like, “Are you kidding me? I can go to Betterment and do it direct for 25 bps.” Right?
I’m like, “Well, if you want to use Betterment, we’ll use Betterment for 15 bps and just add our AUM fee on top of that. Like, what is it about Betterment you like?”
Michael: I can implement that for you if you want.
Reese: Like, I don’t care…that’s not a cost that we value, right? And so, if people have a question about it, it’s like, okay… Like, in one year, I could give someone a piece of career advice. Okay, let’s just say it’s like how to finance the 3D X-ray machine they’re about to buy.
Michael: Right. Because that’s actually something you probably deal with on a regular basis for clients. But again, that’s what happens when you’re focused on a niche.
Reese: Or like, “I’m about to hire this office manager. How should I structure a compensation agreement?” Or, “I’m about to hire this associate. How should I structure his contract?” Or, “Which one of these lenders has the best refinance terms on my $700,000 building loan? Can you just get me this completed? Can you fill out my loan applications for me for my student loan refinance?”
One transaction, one piece of advice when you’re a specialist, it just dwarfs the cost of your fee. If you really are specialized, like, our 25-year-old CFP planner knows more about dentists than a generic advisor will in his whole career, right? And so you just start developing… I think that’s the future of where advisors can kind of survive against the…
I’m recording a podcast right now with my co-host, Ryan, we have a podcast called “The Dentist Money Show” that’s like…it’s definitely not as popular as your podcast, Michael, but a lot of dentists listen to it. So we have a good…a very large monthly listener percentage. I would say probably like 10% of the dental market, maybe like 15% of the dental market listens to our podcast. And that’s where we get all of our growth from.
Ryan and I are trying to record a podcast to train our own internal team on the way we think because our team is getting bigger than we can… We used to be able to do one-on-ones, right? Now it’s like, geez, we have to take advantage of our time and record it. So at dentistadvisors.com/advisorpodcast, anyone who wants to listen to what…all of this stuff, like, that wants to, you can just go there and you’re going to go listen to what me and Ryan think about fees and billing and fee pressure and all this stuff.
The reason I’m suggesting this is, to your question about the value of an advisor and how can you charge this much? Is it worth it? Like, if you let yourself kind of get into career advice and like income-based planning, right, and a little bit of consulting work. You don’t have to be a business consultant. We’re not a dental practice management consultant. We have a really strong network of consultants we refer out to, but even just the fact that we can add that extra value, something like, “You seriously know like how to save 2% a year in interest off of this tenant improvement allowance?” Or, “You know how to monitor the cost of my associate’s payroll so that I’m not overpaying unnecessarily, paying my hygienist improperly?” It’s just like…you could say the cost of that is like this big fixed fee, and they wouldn’t pay it, right? They won’t pay it. But if you say, “The cost of this is…it’s going to be 1% on that second million still,” they’re going to pay it, and they were going to be better off because of it.
And so my argument here is like, if we know that people won’t hire financial planners because it’s expensive and they don’t have a lot of money, how are we going to ever get people to where they have money? How are we ever going to help people without money get there if we’re like, “Well, come talk to me when you finally have money, then I’ll talk to you?” It’s like, we’re never going to help people.
How Reese Has Used A Podcast To Grow His Business [01:09:02]
Michael: So talk to us about growth. How are you finding dentists and building into this niche? So you mentioned like you’ve got a “Dentist Money Show” podcast, and growth comes from the podcast. Talk to me about what that looks like. What’s the show? How did you build it? How do you turn random podcast listeners into people that are willing to pay a premium fee for premium financial planning?
Reese: It’s probably not unlike a lot of advisors that are being successful that way. But we started our show, I think we’re at episode 232. So 232 episodes in. We release one a week, every Wednesday. So that podcast, “The Dentist Money Show,” what we do is we’ve tried to… We know dentists. We know they want to listen, so we’ll have one week it’ll be how dentistry is going to change in the aftermath of COVID-19, right? We’ll bring in BJ Sorensen from Ultradent and have an interview with him about the fee pressure dentists are going to get. So like one business management kind of episode. And then me and Ryan, my co-host, will do episode the following week on how to keep your cool when the market has an 11% down day, right, and what that feels like, and kind of a more traditional like finance topic or insurance. We’ll talk about disability coverage through the American Dental Association versus through the Guardian or whatever.
Michael: So kind of this altering like, one business management episode, we’ll call it purely for them, and then one traditional like, “Here’s the value we happen to provide?” Like, one financial planning for you episode but actually highlights your value proposition more directly.
Reese: Well, what I’d say is we don’t…my CMO would say we actually don’t promote our value proposition well enough. That would be like more middle-of-funnel content that we need to create. Most of our personal episodes are like top-of-funnel education. Like, we’re not selling ourselves at all. We’re like, teaching, teaching, teaching, teaching. And that’s why I think our listenership is good. We’re not promotional. We’ll do “why our PPO is worth the hassle” on the business side, and why a 10% savings rate just isn’t going to cut it for a dentist. And then we’ll go to how to connect your profits to like a higher purpose through a social mission in your practice, to the pros and cons of a partnership in your dental practice.
But they’re all education, and there are no sales. We advertise through the podcast twice an episode. It’ll just say, “Book a free consultation with Dentist Advisors.” Audio just has a way of converting financial planning customers, unlike blogs, unlike video. It’s like there’s something about it. You just look at Ric Edelman, look at you, look at Dave Ramsey, it’s just something about audio that’s better than content writing. I don’t know what it is, but it works better. And I feel like people want to get to know you.
Michael: Yeah, we’ve found the same thing, that just podcast content of various types that we do across the businesses I’m involved with, the podcast content is phenomenally powerful and impactful.
Reese: What we’re trying to do is we use that podcast as a way to supplement our local advisor presence. We’re starting to expand a nationwide network of advisors. And what we’re doing is, let’s say we’ve got Ryan Isaac down in Phoenix/Scottsdale, right? And we’ve got Cody Murray in Oklahoma City. And we just keep using digital marketing as a way to draw in a national audience and then use our local advisors as a way to kind of own their territory and kind of like go after and try to grow their local market, because there are some things that digital marketing content can’t reach.
I thought I was going to be able to market to 10% of the dental population, meaning like convert 10% of the dental population with a podcast, just like, get them all in through that channel. But it doesn’t really work that way. I can convert like 3% of the market that way, but you have to have some sales. Like events make a big difference for us. Webinars make a big difference.
Michael: I was going to say, how do you turn…how are you actually turning a podcast listener into someone who does business with you?
Reese: Well, shout out to Jeff Morgan, my friend and CMO and partner. He ran a digital marketing agency for over 20 years and then sold that and bought some stock in my business. He’s an expert at customer journeys and lead nurturing. And we use the podcast in addition to social media, in addition to articles, in addition to webinars, in addition to local events. And we know everything about our leads. We have lead scores that…every lead has a score, every activity that a lead completes gets points that add up to their score going higher.
And our sales team, Kyle and Jimmy are all day long waiting for Marketo to tell them what action to take with what lead based on an activity that might be happening. Like someone’s on a landing page right now looking at whether they want to sign up for a consultation. They haven’t signed, but they’re there. Jimmy’s going to get an email, and it’s going to be like, Dr. Jones has an 80 point lead. He’s had 17 touches, and he’s watched this many videos and this many podcasts, like, you’ve got to reach out. It takes good old-fashioned sales to keep moving.
We haven’t prioritized sales until eight months ago. Like, I didn’t do any sales until about eight months ago. We just did marketing, which, to me, marketing is like one-to-many communications, and then sales are like one-to-one. And so we didn’t do any kind of like outbound sales or referrals even, or introductions. We met with Dan Allison again this week. He’s trying to finally help us formally implement an introduction-based system into our culture that we’ve been kind of lazy to implement because the marketing’s been going so good.
And then we’ve added some sales. But people go through a journey. And we have very specific types of content that we want people to receive. And I don’t want to say it’s perfect. It started out with just like a basic drip campaign of 10 emails and a podcast and no connection. We didn’t know who was listening to the podcast versus who was reading an article versus…and it’s just gotten better over trial and error and a slugfest of like effort. And so inside of our Salesforce org, where we do all the planning, our leads also live there too. And we also do all the marketing. So we’re on one unified platform for sales and marketing and service. And that really helps us scale without as much confusion.
Michael: So Salesforce is everything from prospecting and marketing to sales, to existing clients, but you’re using Marketo I guess as an overlay integrated with Salesforce to do the lead scoring and the marketing tracking?
Reese: The marketing automation. Yeah. Marketo is like…it’s an enterprise-level solution that’s pretty sophisticated. Everything from social media, to video, to podcast, to your website tracking, to retargeting, its job is to really build a picture of a lead that’s robust. But it’s kind of like Salesforce, and it takes a ton of configuration. It just took one conference for me to go like, “Ah, I’m never going to be this person.”
Michael: So you went and found Jeff.
Reese: Yeah, I went and found Jeff. I’m like, “Dude, how much is it going to take?” We had to settle on the right valuation. And he had to be convinced that I was crazy enough to actually go build this, as big as we’ve taken it and bigger, but it worked out.
Michael: So, then help us understand where it stands now. What’s the size of the business? I guess I don’t know if you look at that by AUM or revenue since a portion of your revenue is not AUM-based anyways, or number of clients. What does Dentist Advisors look like today?
Reese: I look at it by number of new customers. Because I’m happy to look at it however people want to be looked at it. From an AUM standard, we’re not that big of a firm. We’re a $200 million to $250 million firm over the next quarter, depending on how things move. In terms of AUM, we’re just not…we’re not as big as some. But in terms of revenues, we’re probably like maybe two and a half times or three times more revenue than what our AUM might suggest about us, right? And so…
Michael: So some of that is because you’ve got clients that are on $200 a month plans but no material AUM yet, and you’ve got just clients that are paying a healthy planning fee plus an AUM fee. So revenue-wise, your revenue per client numbers are a lot higher than other firms.
Reese: Yes. Yeah. And I would say most of our clients are not at the $200 a month or more, at the $500 a month level because we didn’t have the $200 a month service model until 6 months ago. So we weren’t targeting associate dentists that worked for the practice owner until just recently; most of our customers are the practice owner, and they had a slightly higher fee schedule. So yeah, I’d say a little more than half are coming from planning fees.
It’ll probably stay that way, but it’s hard to tell. Depends on what type of growth we experience. If we keep experiencing more practice owner growth, then we’ll probably see more of our revenues go towards AUM. If we keep seeing younger demographics being the place that we have more success, then more of our revenues would go to planning fees but eventually get replaced by AUM fees that we generate.
There’s about…I think there’s 30 total…I have to go count now, 30 total people. And unlike a lot of firms, those people are not all financial advisors. So Matt, Cody, Will, Abby, and Ryan are…probably, I’d say like two-thirds of our team are advisors, but we also have a total of five full-time developers. We have our CTO, David Weiss, who’s a mobile iOS engineer, then we have Todd Reynolds, our UX designer, then we have three other full-time developers. So five full-time developers are a big portion of our overhead.
Michael: Is that like building how you use Salesforce and plugging it into Marketo and such? Is that building the reports that you generate? Is that a whole separate client technology you’re building in addition to eMoney?
Reese: For about a year and a half now, we’ve built just another technology solution that is in beta that we hope will help just supplement the work that we’re doing right now with all the other platforms. It’ll be something that just helps us handle more clients and grow a little bit better.
Michael: And is that primarily about like the client portal and client interaction or…?
Reese: Yeah. Yeah.
Reese: That’s where we feel like the opportunity to innovate lies. And so then we have…I have the chief marketing officer in Jeff. He’s overall marketing. But in our marketing team, we have Barbie. My wife does all of my copyediting. She’s the only person that can make sense of my really crappy first drafts. And she works a lot…she works not quite full-time, but she works a lot of hours depending on the week, depending on how wild our kid-life is because we have four kids that are still in a pretty busy time of life as well.
So she helps me a ton and is probably like the main way that I get my copy dialed in. Like, she’s like, “You don’t mean this, you mean this.” So she does that. Then I have a full-time copywriter, Tad Henderson, doing a lot of our podcast transcriptions but also our articles. We publish in a lot of trade publications and dental magazines and stuff like that. And then we have Tyson Lyons, who’s doing all of our social and paid social promotion work.
Then Jason Ball. I was looking at our website right now; there are like seven people that aren’t even on our website. We need to get our website populated. So hopefully, by the time we release this, some of these names will have pictures up on our website. But in the last six months we’ve added a few of these people. But Jason is our creative director. He was just hired a few months ago. His job is to start to dial in a lot of our marketing messaging to some…a set of stories that really make sense to our audience.
We’re probably done from a marketing position. The firm is big enough from a marketing perspective to where…we’re just Dentist Advisors, and that is all we’re trying to do. But we’ve got to get more financial advisors around the country to join up with us and be our dental-specific person in their city. But our marketing department probably won’t grow any more than it has.
Michael: Because you’ve got a national reach podcast. So for all the clients that want a local advisor, you need advisors in local cities.
Reese: Yeah. Well, we’ll always run the operations out of our Salt Lake office, but we need someone doing sales. Like, someone’s got to go do events. Someone’s got to be at the dental school. Someone has to go and be the face of the company. Because you can only do so much with marketing. We have two salespeople. We have Kyle Spencer, who’s an MBA that I’ve known for a while and he’s just done an excellent job in helping me with sales strategy and business development and partnerships and events.
And then we’ve got Jimmy Murphy, who’s doing sales outreach. We call him a personal financial education manager. He’s a CFP, and he’s just…he ran his own fee-only shop. No AUM base for him for a long time, and did it admirably well. He was at LearnVest and Vanguard, and he’s been through a lot of cool journeys. But his job is just to teach people. His full-time job is just to teach leads things until they want to work with us.
Michael: And how many clients is it that this team serves overall?
Reese: To be honest, I’d have to go ask Justin. I know it’s got to be between 350 and 400. I heard him say 300 and something the other day. That’s kind of where we’re at. So in terms of like client count, we are way overstaffed for the number of clients that we’ve got. It’s like, geez, you’ve got 30 people serving 400 clients? Like, what are you guys doing? That seems kind of insane.
The Challenges Of Growing A Firm Quickly [01:23:37]
Michael: So talk to us a little bit about the economics of that. Because I know you’ve had some activity of actually raising capital to help funds. Like, a chief marketing officer and chief technology officer and multiple developers, which is not something most advisory firms have.
Reese: Yeah. And a lot of these people are younger, right? Rabih Dimachki is from…he’s a CFA. I think he’s a Level II now, but he doesn’t have his CFA yet, right? But he’s a brilliant young investment operations and manager.
We were able to get people at the early part of their career where they’re still growing. Kaye Robison, too. I want to just mention her because she’s like…Kaye is like my…I do have a lot of personal assistant needs, but also an office manager that handles all of our admin. She’s done great.
The economics, the way this works really is we’re not losing a lot of money right now. I would say it’s in the low six figures per quarter. So if you want to say like, how can a firm lose $100 grand in a quarter and still grow? And it’s because we’re adding that much recurring revenue per quarter, or sometimes maybe a lot more than that.
On a monthly basis, we could add 20 clients or 30 clients. And they’re that much per month, you might add $200,000 in recurring revenue over a pretty short period of time.
Michael: And is that your life right now? Like, adding 20 or 30 clients in a month is what happens from the podcast, the marketing funnels that you built?
Reese: Yeah, that wouldn’t be surprising to us, to have that happen. But during COVID, things slowed down quite a bit, as you might imagine. It was brutal. The entire dental industry was just like shut down. And they’re also making withdrawals. And it was a super-scary time.
Our team banded together, and we’re all like, if we need to take pay cuts, if we need to…all the executive team, we just slashed our salaries and didn’t let go of anybody. And we just tried to get our overhead in check. And luckily, we were able to go and pay everybody back. And it didn’t really require us to take as big of a risk as we were thinking we might have had to take. But it was scary there for a little bit, where you have all these clients that you’re…
My pitch to investors was never, “There might be a point in time where all customers in this great niche we’ve targeted are shut down and can’t work and don’t pay and want to withdraw all their money.” It was a scary moment, but it’s worked out.
Michael: But talk to us about what it looks like just getting capital so that you can run a firm that operates at a current loss because it’s growing quickly and making back its economics.
Reese: Yeah. So like when I started, when it was just me and…let’s see, it was me and Justin, Ryan, Kaye, Jacob, there are 5 or 6 people there and no developers, no marketing team, no nothing, we’re doing $1 million in recurring revenue. I’m making a good living, Ryan’s making a good living, everyone’s making a good living. The economics of that firm are great.
I got to a point where it was pretty early on in our growth, and I decided that either I was going to keep going like this, and I’d be capped at a pretty short period of time and I would need to just keep raising fees. And I started doing that and kind of saw how that was like eliminating a lot of people from getting help. And I was like, well… I used to be the guy that was making $30 grand, just died to get 5 minutes of consulting help from somebody. I was the undergrad in music that was teaching piano lessons hoping that I could make $60 grand one day. I was hoping that I would be able to make a decent living.
And I kind of started feeling like, do I really want to be building something that all that it does is every time I want to make more money, I just say, “Sorry, I’m expensive now,” and I cut off half of my…the bottom 20% of my clients, raise my fees and just have a more cushy lifestyle and take half the year off, or do I want to keep building something?
I guess coming from where I was… I’m not trying to be critical of people who do that. But I guess I am. Some level I’m like, we all have some responsibility to at least help try to improve the industry and try to move things in a positive direction. I know that you’ve done that. I’ve seen your career, Michael, you spent a lot of time do…a labor of love. This isn’t like…there’s a lot of ways to make money and…
Michael: Yes, I’ve not tried to financially optimize growth, or we wouldn’t give away everything for free.
Reese: Anyway. I feel like what I did at that time was just kind of see like, I’ve got this great process. We’ve got this niche market that’s moving in the right direction. We’ve made a commitment to this vertical. Maybe I’ll just like start hiring people, right? I’ll just cut my income from where I was, which was, I’m running a high operating margin, like advisors do when they’re that size, $1 million in recurring with really not a lot of overhead, a small team. And it’s basically you and clients.
I’m like, “What if I just like started cutting my income down? And what if I just made like $200,000 and I cut my income by…cut it in half or even more and I hired a couple people?” I’m like, “What would that do?” And so I was like, “I’ll try it. I don’t know. I’m just paying a bunch of taxes anyway. So why don’t I just like, instead of paying taxes…” This is me, like, no… At this time, I was just starting a master’s degree in finance. I had my CFP, and I had…I thought I was a capable financial advisor, but I didn’t know anything at this point in my career about raising capital. It was just like an intuition of like…
Michael: If I only get to keep half of it anyways. Like, let’s put some money back into it and see what happens.
Reese: Let’s see what happens. I don’t need all of this. And so I told my wife, I’m like, “Look, if we can just like not buy the big house for a while.” She’s like, “What’s a while?” I’m like, “Like five years. I don’t know. That would be too long?” I’m like, I think if I just…if we could keep living in this like dive of a house, which is… We were living in a house in a suburb of Salt Lake called Holladay, and it’s a pretty old city. And it’s like, there’s some old houses there. And ours was pretty old. And it was beat-up and gnarly.
I wrote an article about this on our website, if you ever want to read it. It’s one that might make you smile. And it just talks about, you can either have a nice house or you could have a great practice. So you can just kind of…just see there’s one perspective on it. But it says, “Major Dilemma: Buy a House or Grow a Practice?” Okay.
Michael: We’ll put a link out to it.
Reese: All right. I told her, I just said, “Look, if we wait a little bit, and if I just take my income down, I think we could get to the point where the business might be able to grow independent of me.” At this time, I was just slammed, right? Meeting with clients all the time. And it was really busy.
So I started to search for what I thought was a manager, the white horse manager that would come in and just swoop it and that would be the only person I’d ever need to hire. I had a shrink, a coach, Peter Shellard, a guy from New York that’s a friend of mine. He was telling me, he’s like, “Dude, you’re always talking about this white horse MBA you’re going to hire.” And it was a conversation for six months. And he’s like, “I don’t think that guy exists.” I’m like, “I think he does, and I’m going to find him.” And he’s like, “Well, just don’t get too upset when it’s not the white horse guy.” He’s like, “He’s going to be an MBA, but he might not come here and save you from all of this stuff. It’s going to be just a little bit of help.”
And in my mind, I had built this idea up that there’s got to be like…that’s why you go to business school to get an MBA. Like, you get out, you know how to do all of this business stuff, right? You’re going to be able to like save me.
And I found who turned out to be my white horse MBA. His name’s Justin Copier. He was like my fifth hire. And I cut my income by quite a bit to be able to afford to hire him. And he had been working at Nestle as a brand manager, product manager, operations kind of focused person that had a strong background in business. But he was just like the nicest person. And he had a strong writing background. He’s a comedian. He just felt like the kind of like cultural fit that I wanted. So we went for it.
And as soon as that happened, everything started to change. I didn’t view myself anymore as the financial planner. I viewed myself as like, I’ve got to make this thing live and breathe and help provide jobs for people. And I wanted this firm to work. I don’t want to get paid more. I just want to see this thing work.
I think that’s kind of what it takes in order to…for most small businesses. Like, there’s so many small businesses that have such great service and great ideas, but it’s scary sometimes as a founder to think about taking your income backwards. You don’t want to go from $200,000 to $100,000 or from $300,000 to $200,000 or from $400,000 to $200,000. Or, heaven forbid, you go from a high six-figure income, or even a seven-figure income to cut it in half. It’s like, that would be crazy. And I see this happening with dentists and orthodontists and all of our niche, they don’t want to take a step backwards to take two forward. And I was like, “Whoa, this is working. Like, if I do a podcast and I do this, then we get this to happen. And if I follow all these things that I think are going to work and if I test them, it keeps growing.” I got to this point where it was like, “I’m growing faster than what I can afford to pay. Like, I don’t have money yet.”
Michael: It’s the challenge of growing on recurring revenue, whether it’s monthly fees or AUM compared to the old commission model. We talk about this a lot on the podcast. It used to be like, I get a $100,000 client and I sell them an A-share, I get like $4,000 or $5,000 in my bank account in a week or 2. Now it’s, I get $100,000 client and it’s like 3 months from now, I’ll get a $250 check.
Reese: Yeah, man. Yeah.
Why Reese Sold A Portion Of His Firm To Outside Investors [01:33:32]
Michael: So you can grow broke with a completely successful long-term business that runs out of money before the long term gets there.
Reese: Yeah. And I was like…I started just like, I guess making…in my mind, it just started becoming the first time where I was like, “Why is this so painful? The asset is getting bigger. I’m just having to work more and more. And I’m asking people to work more and more because we have to wait for seven months to be able to afford the next hire, how am I going to even afford a marketing person? I need 17 new clients to get a new associate planner. It’s like, that seems so arbitrary. Why do I have to do it this way? Isn’t there a better way? I would just like rather sell someone a piece of my company so I don’t own it all.”
At the time, it sounds crazy, okay? You’ll appreciate this. I’m a guy from Idaho, grew up in Rupert, Idaho on a farm. My dad’s the president of the Idaho Potato Commission. I’m like an honest, hardworking farm kid, right? And I didn’t go to school to be a financial planner, I went to school to be a musician. And Northwestern Mutual convinced me to do an internship when I was struggling to make money playing the piano, and I fell in love with financial planning. And then I got my CFP, and then I did a master’s degree in finance. And then I spent a lot of my adult income doing Executive Education at Wharton and flying to San Francisco and to Pennsylvania, and just like learning business in a way that I’m fascinated by entrepreneurship and software and technology. But I wasn’t that person.
Like when I was experiencing the growth of my company at the beginning, I was barely taking my first venture capital class in my master’s degree. And I went to my class, my venture capital class, and I was like, “Okay, so this is what people do when they’re in my situation.” And I was like…I didn’t even know. I was just like, “Are you serious? Like, there’s a whole freaking industry around this?” I was just blown away. I’m like…
Michael: Because that doesn’t exist in our advisor world.
Reese: Yeah. I thought there would be like an SBA loan or something. It was crazy. Within like a month, I was fundraising, right? I’m just like, “I’m putting a pitch deck together because I know I can pull this off. I’ve just got to go find some people to do it.”
So I built my business plan. I started getting my pitch deck together. And I’m like, “Okay, let me go talk to some VCs.” I get some connections. I went and met with my first one. They’re like, “Totally, we’re going to fund you. We’ll give you $1 million on a $3 million valuation, and we’ll own a third of your company.” I was like, “Okay, okay, cool.” I get the money. Let’s do this.
I spent a couple of days thinking about it and I’m thinking, “I don’t know about that. That seems like a lot. I’m growing pretty fast right now.” It was my first pitch that I had had; the first pitch I got introduced to, and they’re like, “Done, here you go, term sheet.” But I didn’t sign it. I spent a couple of weeks going back to class and reading a bunch of books. There’s a book that I love called “Venture Deals.” I just started seeing the economics a little better.
And I started having a reality check on what I really believed my business was worth. I had to believe it, right? It wasn’t worth just $3 million to me. At the time, that was the industry standard, right? I’m doing $1 million recurring, $3 million was like on the high end of what this VC was offering me; they’re like, “We’ll give you $3 million on a $1 million recurring business. That is the top end of your industry.” That didn’t make sense to me. I’m not building that, though, I’m building this other thing that feels a little different.
Michael: The average firm in my industry is growing at like mid to high single digits. I’m trying to grow more than 8% a year.
Reese: Yeah. Like last year, I grew up 47%, doesn’t that mean anything? And I went to a few different classes. I attended one called Growth and Scale at Wharton years after I had raised my first round and finally understood really in-depth what I was feeling. This is after I raised my first round, but the economics of how your growth rate and how your cash flow and how the cost of a customer really play into your valuation.
It was interesting because I was able to retroactively look back at what I finally understood my company to be worth in the future. I looked back, and what I raised capital at the valuation I raised that was actually pretty fair. I think the pre-money valuation was closer to $7 million and change. That felt, at the time, fair to me. I was willing to part with my stock at that rate, right? At that first round, which was several years ago from today.
Michael: And was that raising $1 million? Is that what you went out for as cash?
Reese: I raised more than that. I think it was closer to $3 million. I’d have to go get my term sheets out to look at where exactly at, but it was close to that. It was close to a $7 million, so a post-money of $10 million, approximately. I took some liquidity out. And that was probably part of what a traditional VC wouldn’t want to have happen. I was like, “I’m starving here and I’m taking hardly anything home, I need a little bit of scrilla.”
Michael: Meaning, of the $3 million that went in, not all $3 million went into that…into the business itself. A portion of that went into your pocket, essentially just a sale of a portion of your shares for you, and then a sale of a portion of shares for the business.
Reese: Exactly. My wife and I were just like, okay, she’s like, “You’ve been building this for a long time now. The five years is starting to kind of creep up.” Or it actually had been like three and a half. And I was just like, “Yeah, I don’t know if I want to own it all, maybe I’ll get enough to at least remodel our old house.”
So anyway, I remodeled our house. It’s beautiful, and we’re really happy, and life’s good, and I’ve still got a comfortable salary. And the business has enough money to start toying around a little bit with testing something. Not like a ton. At the time, I felt like I was absolutely loaded. For your first capital injection into a business, you see 7 figures in an account when you’re like living on $10 grand, you’re just like, “Dude, let’s go have a party. We need to do this the right way. We’re going to find the right people.” Really quickly, though, when you like… I never had been through those emotions. I’ve seen now founders waste all of their money on frivolous efforts. Because that happens a lot when…
Michael: Well, not having much money is a very good filter. If you actually get a bunch of cash in because you raised capital, you have to be really careful not to just go hog-wild in how you spend it.
Reese: Yeah. And a lot of people do that. They’ll have big festivals and branding exercises, nothing substantive that drives the business. But what I tried to do with that capital is say like, “What main gaps am I missing to grow my business?” And I felt like the gaps were largely digital marketing-related, and they were technology-related.
And so I went and found David Weiss, who’s become one of my best friends at this point, and Jeff Morgan equally so. Justin, Jeff, and David helped me, Ryan, Kaye, and Jacob finally start moving the needle in a positive direction. And David was the first kind of technology hire that I made. And between me, Justin, Jeff, and David, now you have kind of a C-suite that I learned was a thing in my finance masters. You have your CEO (me), you had a chief marketing officer, chief technology officer, and you have a chief operations officer.
At this point, we’re quite top-heavy, right? We’ve got these expensive big hires, which you kind of need. And different people will approach this differently, but my strategy was to get the really best top talent, and then let’s just all overwork a little bit. Instead of hiring like four or five people that were maybe not as experienced, let’s hire a nice C-suite, let’s get a few…
The investors that we ended up approaching were also non-traditional. I didn’t end up raising from a traditional venture capital firm. I raised from six people that were really wealthy individuals. I ended up actually with eight at the end. So eight wealthy people that all injected the same amount of money. I just had the exact same ownership go to each person. And that was our first round. The C-suite plus a few other hires were basically what got us through our first several years of growth. And we grew into a valuation that supported where we raised money, and we exceeded that valuation.
The original investors’ capital was deployed, we grew, and we were able to demonstrate to our first investors that, through our work and strategy, the business was now giving them a nice return. And now we needed to do this again, and…
Michael: So then you went back to the well.
Reese: Yeah. So back to the well. And some of them contributed and exercised their right to participate in the upcoming round, but we did have to go get some more people in order to fund our next round of growth. And it was a bigger round the second time around than the first time. Not dramatically more, but a few million more than the first time. And so that is where…that happened earlier this year in January.
Now we’ve got a runway plus a pretty good stable growth rate that we are comfortable with. And we raised that evaluation that we felt was reasonable again. I own less than half of the firm at this point, but still the largest individual shareholder, but my C-suite all has equity. My team has equity. My advisors have equity. And obviously, our investors and some board advisors have equity that are really critical parts of what we’re trying to do.
Michael: So I do have to ask, you mentioned there like you own less than half the equity at this point. So for a lot of people, that is a magic line. Like, the investors can all get together and fire you now, Reese. How do you think about crossing that threshold to having less than 50% of the thing that you created?
Reese: My desire to like do the right thing for clients and build the right thing far exceeds my personal desire for wealth. It’s just kind of a deep life mission of mine to like leave the financial planning industry in a more positive place. Practically speaking, it just wouldn’t be possible to do and maintain control of the business. I wouldn’t be able to retain the talent that I want, and I definitely wouldn’t have the resources I have now or the chance to build technology that I think is going to just change the landscape of the industry. I just want to be a part of the solution. And so for me, it was hard. It was really hard.
The hardest thing, though, was the first round. The hardest thing was giving up equity, to begin with, because I had spent the first 8, 9, 10 years of my career owning the whole business and bootstrapping everything. The idea of having…losing control was the scariest…just the scariest thing I could imagine. I didn’t want to lose control. But now I don’t feel like I’ve lost control. I just feel like I’ve gotten a lot more friends.
And I have a lot better support network. And I’ve got a small piece of a much bigger pie. And I trust the people that own the pie with me. If I’m the best person to run the company, they’ll keep me in place. If I’m not, then I want the best person to be in place to run the company. It’s a different place to get to, but it’s kind of the journey that I went on. I don’t know that everyone can do that. And that’s okay. I just feel like some people have to do it, or nothing changes. You know what I mean?
What Surprised Reese The Most About Building His Advisory Business [01:45:39]
Michael: So, what surprised you the most of building your own advisory business?
Reese: Probably like how much my team ended up meaning to me when I got done. I just care a lot about all these people that are willing to sacrifice their careers to build this with me. It’s pretty humbling to look at that. And investors that are willing to take a risk. It’s a humbling moment. And for me, that’s the thing I value most, is like, we have a really strong vision and mission, and everyone from dev, to marketing, to sales, they’re committed to trying to improve things the way we want to. And that wasn’t something I really thought would be the most rewarding thing for me. But man, it trumps everything. I would do it in a heartbeat just to get the team constructed that we have right now. It’s an amazing feeling to see like how…people that are wanting to do something really impactful. It’s just cool to watch and just be a smaller part of. I just don’t feel like I could do it without them. And that’s been a cool experience.
Michael: So, what was the low point for you?
Reese: Low point was probably like ’08, ’09. I started my firm in ’07, and I borrowed $50 grand from the SBA. Then I got another line of credit. I started the business with a partner day one.
Michael: So debt and only 50% of the profits.
Reese: Yep. And I ended up racking up probably $100,000-plus in credit card bills because of ’08 and ’09 and overcommitting to fixed cost before we even had any revenue. That was a low point. And my original partner still maintain…we still are good friends. It wouldn’t have been possible for us to both move forward at that point. We both were just going to like start our own firms, or we were going to have to go under. And I ended up kind of keeping the brand and keeping all the debt and kind of going forward with it. And he’s been really successful in his career, and just kind of gone a different direction but stayed in the industry. Anyway. But that was pretty low point for me and probably for him too.
Michael: Yeah, I would think like, $100,000 of credit card debt on the business would not be a good point for most.
Reese: It was just like, you just felt stupid. You just felt dumb. Like, “What am I doing? I can’t give people advice. Who am I? I’m a fraud. I’m not really a real advisor.” And the truth is just like all circumstantial. It’s like, well, a dentist doesn’t feel that way when he goes and borrows $700,000 to get through dental school. But as a financial advisor, there is no education. There is no career track for getting you ready. There’s no financing. There’s no lending market for starting up firms. We’re an industry that started in 1970, and the dental industry started in freaking Mesopotamia. So, we are young, our industry is young, and we just shouldn’t feel bad about how hard it is to get a firm off the ground. But at the time, I felt really bad.
Michael: Was there something that turned it around for you?
Reese: Just growth. I grew every year I’ve ever been open. And when the financials of the business were me and the debt, as opposed to me and a partner in debt, it was a little bit easier to keep growing. And so it was great. Anyway. I feel like that was meaningful. And it was just meaningful to make a difference. Clients were just stoked about the service. They were happy about the results. And that was a big deal.
Michael: So, what comes next for you?
Reese: I think I want to build a nationwide network of financial advisors that work with dentists, that specialize in the dental market, that want to own that vertical. I want to give them opportunity and upside and give them support and resources. We’ve got a lot of great interviews. I had like 11 different financial planners I interviewed this week. And that’s exciting to see.
We’re continuing to try to educate our advisors more. Like I was saying earlier, the dentistadvisors.com/advisorpodcast, we’re launching an advisor podcast for people that we employ right now to sort of like get them up to speed on the industry faster and make sure that they’re up and running. I’m happy to let other people listen to that because it’s going to involve our journey as well. I’m going to try to make that be public.
And just because I think what we’ve learned, it would be a shame not to just like share some of it. I’m sure it’ll come back. And I hope I don’t get made fun of too much by being too public with everything. But I really have kind of always been a pretty transparent person, and I kind of want to just make sure that we…whatever lessons people can learn from what I’ve gone through, I’d love for them to have a chance to learn that.
We’ve got our first few episodes recorded already. I haven’t figured out the name of it yet. I think we’re going to call it like the Dental something or Elements something…I don’t know, just to train our internal team. If you ever come up with a name, Michael, I’d really appreciate you just telling me what to name it.
Michael: I’ll brainstorm on that. I’ll brainstorm on that.
Reese: So that’s next, I think is, I want to get maybe 30 more advisors in key markets. Get somebody in Raleigh and Charleston, and get somebody in Tampa, and get somebody in Boston, and have them execute what we’ve done in the other markets and just keep trying to help more people.
Then hopefully, just be a positive influence for other firms to like learn from and grow. I think our team right now, we’re a pretty big size. We’ve got a ways to grow. We don’t really need more infrastructure employees. We’ve kind of built a small broker-dealer team. So yeah, we’re ready to support our own internal advisors, at least, and excited about that.
Michael: Well, if folks are interested, we’ll have a link out to the advisor podcast to be named and just the firm, the career page itself, for folks who’re listening to this and thinking like, “I want to be involved in something like this.”
To me, this is the cool thing about the way that the industry is growing and evolving. There’s a portion of folks who listen to this who are called on the independent side, who want to be their own boss and run their own business and build their own thing and more power to them.
And then there are a lot of folks that are not. They would rather be in a firm that just has some of this stuff figured out. They just want to be a financial planner and do financial planning stuff for their clients and not have to worry about the rest. And that to me is the cool thing about firms like yours that are getting built, is that you’re creating those opportunities on both ends. And to each their own about whatever scratches the itch for them in their career and personal growth.
Reese: Yeah. I think for us, the first few advisors that we brought on, they had their own independent firms. There are some advisors that we are about to work with that have been in their own firm for 10 or more years. Some that we’ve brought on did less than that.
We really feel like some independent advisors bring the right experience that is needed. But sometimes it’s just like really hard to like build the infrastructure. I don’t know if I could have done it without capital. Not in the quality that we’re doing it and not without picking a market. And so…
Michael: Well, and it’s pretty striking just for any advisors who are listening, like truly, just go to Reese’s website and click around on just the services and the pricing and what they call their education library of content. And just, for the people who maybe get inspired by this, like, this is what you do when you raise capital. The bad news is, you don’t own all your business, and the good news is, you can build a lot of cool stuff relatively quickly that we just can’t do when we cash flow our business to say, “Well, I earned enough in profits and I’ve still got to pay my household bills, but we’ve got a little bit of money, we can reinvest in the business for growth.”
We talk about reinvestment in the business, I think, as advisors and business owners, like, “Hey, I hired another staff person.” But what you’re executing and to me really what shows on the website and the platform of what you built is, this just exists at a whole other level when you talk about raising $1 million-plus and deploying it to hire a bunch of very senior, experienced people.
Reese: Yeah. Well, thanks, Michael. It just means a lot coming from you. You’ve got an amazing mind for that stuff and built a awesome site as well with…
Michael: Yeah, but ours isn’t nearly as pretty as yours. If your CMO is ever not happy, please have him call me because we need a facelift for ours to look like yours.
Reese: He’ll appreciate that.
Michael: I’m having marketing envy.
Reese: Yeah. Well, thanks. I feel like that’s our next stage of like what we’re trying to do. And we’ll just be here to try to like find…we’re trying to find the right cultural fit and people with some experience. There’s probably 500 advisors around the U.S. that work with dentists at some level. We feel like they can still have a lot of upside and a lot of opportunity. We’re not trying to just put people on fixed salaries that never change. It’s like a more like upside-driven model to preserve some of that independent spirit, but then also just not hassle with some of this stuff. We should all be sharing infrastructure more than we do. Like, we’re just duplicating processes way too much.
How Reese Defines Success For Himself [01:55:28]
Michael: So, as we wrap up, this is a podcast about success, and one of the themes is always that the word “success” means different things to different people. So you’re building this successful business on an incredible trajectory for growth and what the firm is delivering. But I’m wondering how you define success for yourself at this point.
Reese: Success for me at this point is really just the volume of people that I’m impacting, the touches, the relationships. It’s just the number of people that can make the world better because they’ve come in contact with me. I want to be an influence for people that is positive, that makes them feel good about their lives, that makes them feel they’re accomplishing something meaningful. To me, that’s what impact is all about. That’s what success is.
Like I was looking this morning at TikTok valuation. There’s a story. One of the Disney executives was moved over to help grow TikTok. And it’s a social media app for those of you who don’t know. And then, I was looking at Delta’s valuation. I’m just like, man, like, sometimes in the world, impact isn’t always rewarded with the most money. The most impact isn’t always rewarded with the most money. When I look at your blog, and I look at all the content you’ve created and how much literacy you’ve brought to the financial planning community, it’s tough to put a price on that.
Even if you don’t get paid, you’ve moved the needle in a significant way globally for financial advisors. And I’ll take a 50% pay cut if that’s what it takes. But luckily in my case, I think it’s been a little bit of both. I’ve had more financial success than I ever thought I would have, both through a profitable business that has kicked off cash and provided me with a good life, comfortable living, and liquidity events along the way.
But I really feel like I’m really trying to have an impact right now. And I think that’s the thing that… I hope everyone can at least find some corner of their life where that is giving them meaning because that’s what gives me the most meaning right now.
Michael: Well, I love it. I love it. I’m really excited to see where you guys build, where you guys go from here. I may have to call you back on the podcast in another three years and find out where it’s grown and where the path is taking you then.
Reese: Oh, thanks, Michael. It’s been a pleasure, and I’m just grateful for all that you’re doing. If we have any advisors that we’re resonating with out there, I’d love them to just, again, check out that podcast I’ll be putting on my site at dentistadvisors.com/advisorpodcast. Yeah.
Michael: Absolutely. We’ll put a link out to it in the show notes as well.
Reese: Thanks, Michael. I appreciate your time. And thanks again for having me on and sharing all your time that you do. I hope you have a great weekend. It’s been awesome.
Michael: Likewise. Thank you.