Welcome to the inaugural episode of the Financial Advisor Success Podcast!
My mission with #FASuccess is to help you be more successful as a financial advisor – whatever “success” means to you. In this new weekly podcast, we’ll feature interviews with successful financial planners who share their stories about what it took for them to succeed, along with consultants who work with advisors and help them get to the next level.
In particular, it’s my goal to highlight the “Iceberg Illusion” of success – that what little we see outwardly of other people’s success is, like the tip of an iceberg, just a small part of what it really took to be successful. On the podcast, it’s my goal to dig deeper, and help reveal the real struggles that every financial advisor will face from time to time in a business or career… and what it takes to persist and push through.
In this first episode, I talk with Rick Kahler, a financial planner in Rapid City, South Dakota, who by any classic industry measure has been very successful. He’s built a practice up to 100 clients and $200M in assets under management, supported by 7 staff, and taking home more than $350,000 of income from the firm. Yet the reality is that it hasn’t always been this way for him. For most of his early career, Rick worked as a mortgage and real estate broker, where financial planning was just a “side job” that built slowly over time… and as a result, when he decided to focus fully on the firm, he took a major step back in his income that took years to recover.
Rick’s story is truly humbling as he openly shares the events and decisions that brought him to where he is today. You’ll hear about his decisions that worked well in growing his practice, and quite frankly the sheer persistence in Rick’s professional career that allowed him to consistently and repeatedly overcome roadblocks and challenges. Between at one point losing 5 out of 6 employees in under 60 days, to facing insolvency and near bankruptcy 6 times, and failing on multiple other businesses before focusing on his advisory practice, Rick’s ability to persist when times are uncomfortable is truly inspirational.
I hope you enjoy this first episode of the Financial Advisor Success Podcast! And please share your comments once you listen, and let me know what you think and how we can improve from here!
What You’ll Learn In This Podcast Episode
- The difference between being a solo financial planner and building a financial planning business with staff (and which is better for you personally) [11:10]
- How Rick’s “Technician” personality type can be credited for much of his success, but also his challenges in managing staff [18:58]
- How and why Rick became an early pioneer of the fee-only and life planning communities [21:13]
- Rick’s “money script” that prevented him from taking the leap into Financial Planning, and how he finally confronted it [36:41]
- How Rick transitioned into his financial planning practice over time, while winding down his prior career [40:30]
- How Kahler Financial Group charges for their services with a unique fee structure on the entire household assets, blending together different rates for liquid and illiquid assets [51:11]
- How Rick lost 5-out-of-6 team members in 30 days, but ultimately only needed to hire 2 people to replace them after a consultant helped him better leverage Junxure CRM [1:00:23]
- The growth opportunity that comes from experiencing pain and Rick’s acronym for these experiences: AFGO (Another Friggin’ Growth Opportunity) [1:09:04]
Featured In This Episode:
- Rick Kahler – Kahler Financial Group
- “The e-Myth Revisited” by Michael Gerber
- Shannon Clark – Financial Advisor Consultant
- George Kinder – The Kinder Institute Of Life Planning
- Nancy Bleeke – Sales Pro Insider
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Full Transcript: Rick Kahler of Kahler Financial Group on Financial Advisor Success Podcast
Michael: Welcome everyone. Welcome to the first episode of the Financial Advisor Success podcast. The purpose of this podcast is to talk about successful financial advisors, and what it takes to be successful. Not just about how they’re successful today, but the challenges they experience and have to overcome behind the scenes to reach where they are today. Because one of my favorite analogies of success is that it’s like an iceberg. There’s an exterior portion of success that we can all see, but most of what’s really there, like an iceberg, is submerged between the surface. The sacrifices, the failures, along with the patient persistence, and dedication, and hard work that it really takes.
And so in this context, I was thrilled to have as our first podcast guest, Rick Kahler. Rick is what virtually anyone would call a very successful financial advisory firm. He’s based in Rapid City, South Dakota. His firm advised on more than $200 million of assets for 100 clients, generates about $1.2 million of revenue with 7 employees. And Rick takes home upwards of $300,000 per year in total income from his practice. But it hasn’t always been this way. During the podcast, Rick shares some of the challenges he’s gone through as a financial advisor and business owner, including a lot of other businesses that he started from commercial real estate to hardwood floor and more, from this he’s actually faced a whopping six near bankruptcies. And even just within his advisory practice alone, a couple of years ago he went through a period of losing 5 out of 6 employees in a 60 day span.
And so even though he’s had an incredibly successful practice, he’s gone through a lot of speed bumps along the way, and actually even shares on the podcast that he’s still worried that 2016 may be his slowest growth year ever, and is wondering whether now is even the time to sell. So I think you’ll find this to be a fascinating discussion, and the challenging reality that is being an entrepreneur and a financial advisor business owner, and how even great success can come with a lot of speed bumps along the way, including what to me is one of the most ironic challenges, that the never satisfied with the status quo attitude that creates a lot of very successful businesses also makes it very difficult for that financial advisor business owner to ever be satisfied with the success that comes with it. If you want to check out more information on some of the resources we talk about on this podcast, be certain as well to go to www.kitces.com/1. That’s www.kitces.com/1 for episode one to see our show notes with links to all the resources and other details that we talk about on the podcast. And so with that introduction, I hope you enjoy this first episode of the Financial Advisor Success podcast with Rick Kahler.
Welcome Rick Kahler to the first Financial Advisor Success podcast.
Rick: Thank you, Michael. It’s an honor and I appreciate being here with you.
Michael: So I’m excited to have you on the podcast just to talk about the path you’ve gone through as a financial advisor. So for those of you who maybe aren’t familiar with Rick, Rick’s been in practice for 33 years as a financial advisor?
Rick: Yeah, that’s somewhere in that realm. It kind of depends when you want to start counting it. I think I was doing financial planning like medicine was practiced back in George Washington’s days, 1979, so somewhere between 33 and 37 years.
History of Kahler Financial Group [3:55]
Michael: 37 years. So you’ve been doing this a long time, gone through a lot of the ups and downs that comes with being a financial advisor and a business owner, and where I think we’re going to talk about that a lot today because you have some interesting stories to share that I think, that I hope will resonate with other advisors out there, that we all go through these kinds of ups and downs. It’s just the reality of building a career and building a business.
But I want to start, can you paint a little bit of a picture for us of what your business looks like today. So what do you do? Who do you serve? What is your staffing look like? Where are you, just help to paint us a little bit of a picture of Kahler Financial Group?
Rick: Sure. We have around $200 million AUM. I think our gross this year will be around 1.2. We have around 100 clients, so basically our clientele’s considered high net worth. Even today, we have interviewee in so we’re between seven and eight employees or staffing.
Michael: And let me pause there really fast. What do they do for you? Like if I drew sort of a mini org chart, like where does your role in the business, and what do these people do around you in supporting you?
Rick: Yeah, we have officially two CFPs, which includes myself and my Director of Financial Planning, Sarah. We have one very close to being CFP, who’s probably got a month left on his experience. So we’ve got, let’s say three CFPs, and maybe two in training, or three in training. We’re playing a lot with our model and recruiting here to Rapid City is very difficult. So we pretty much have to grow our planners.
Michael: So for those of us who are not as geographically oriented, how would I describe where Rapid City is?
Rick: Well I like to say it’s 2,000 west of New York, 1,500 east of San Francisco, about 1,200 north of Dallas, and directly south of North Dakota. But Rapid City is probably, if you know where…
Michael: That is very in the middle. Very in the middle.
Rick: We’re 400 north of Denver.
Rick: And so we’re about as far from an ocean as you can be in the United States.
Michael: And how big is Rapid City as like a population, as a city?
Rick: The metro area is 116,000. And 50% of our clients, though, live outside of the state of South Dakota.
Michael: Okay, which is something we’re going to talk a little bit more about soon. And is there a bigger city nearby?
Rick: Denver’s it, 400 miles away.
Michael: Four hundred miles away. So like I’m putting that in my East Coast context. Like I live in DC. I can drive to Manhattan in half that distance, and cross like five states along the way, so…
Rick: Yeah, you can drive all day here and just about not get out of the state.
Michael: Okay, so and I think that’s a good context for, you know, some of the dynamics I know you’ve gone through. And we’re going to talk about in the business, you know, the challenges of just growing and developing staff in general, but especially when you don’t have a lot of local hiring options. You’re not in a big, massive major metropolitan area. It’s, I’m going to guess, even a little hard to convince people to move to Rapid City if they don’t happen to already be from the Dakotas.
Rick: Yeah, absolutely, and I hate to admit that because Rapid City’s such a phenomenal place to live, and we can spend the whole podcast, of course, talking about the benefits of South Dakota and Rapid City. Nevertheless, the projection is we’re Fargo, or Sioux Falls, and all this snow falls here, and it’s up to our nose. And I have a good friend in Boston, and he said, “You know, I’ve already shoveled twice this year.” And I’m like, “Oh, I haven’t.”
But it is very difficult. I learned this when I was a business broker. I never advertised a business in Minneapolis or Denver because there’s two sales with Rapid City. And the first one is living in Rapid City. And the second one is whatever you’re selling. So it is very difficult to sell Rapid City, and when I do a circular, I have as much on the city as I do on the position. But I have learned that geography trumps opportunity. My headhunter says, “You know, if you didn’t live in Rapid City, I’d have a line out your door of people wanting to work for your biz. When I say Rick Kahler, oh yeah, that’d be great. In Rapid City? Oh, next.
Michael: That’s an interesting challenge that geography trumps opportunity, at least in the hiring context as you said. And we’ll talk about more, perhaps not so much in terms of attracting, retaining clients. It’s a lot of your…since you haven’t actually constrained your advisory business too to local clients. But let’s finish painting the picture of the practice a little bit more just to get this understanding. So $200 million of AUM, about 100 clients, so we can all sort of do the math. The average is about $2 million a client. So you’ve developed up to a pretty high net worth kind of clientele. Seven or eight employees, including some CFPs and soon to be CFPs. So like is most of your team financial planners that are supporting clients? Do you have a lot of ops and investment staff as well? What does that look like?
Rick: Yeah, I’m going to be a little heavier on the ops side, definitely on the ops and support side than I am the professionals. I am still in almost every meeting here, which is really inefficient, which I think speaks to the fact that as I was preparing for this podcast, and I’m listing all of my failures, I’m like, “Good God, how have I had any success whatsoever?” And I got thinking, you know, Michael might ask me what the success has been attributed to and I had to think pretty hard on that. And I think a lot of it is the E-Myth principle is I was a technician. I was very much a technician, and still to some degree am. And I think like a lot from my era of kind of being amongst the founders of the financial planning, the generation that founded financial planning, I’ve had to grow up, you know, and learn a little bit how to manage. And I think being an entrepreneur is in my blood. So for me, I think it’s really the management piece that’s been the most challenging, but definitely, I’m still a technician and too much of a technician.
Differences Between Being Solo Planner And Building A Financial Planning Business With Support Staff [11:10]
Michael: I actually love that analogy. For those who aren’t familiar, E-Myth by Michael Gerber, which is a fantastic book, I really highly recommend actually, especially for financial advisors who enjoy doing financial planning or thinking about becoming a financial planning business owner. And the analogy that E-Myth tells is, you know, we have this impression about who entrepreneurs form, and I believe the analogy they use is someone who makes pies.
So like, I think her name was Sally. So Sally makes pies. She’s wonderful at making pies. She makes fantastically delicious pies. All of her friends say, “You’re so great at making pies. You should make a pie shop.” And so Sally goes out and makes a pie shop and then discovers that once you make a pie shop, you are not actually pie making anymore. You are managing customers, and equipment, and ovens, and office leases, and hiring a managing staff. And all of a sudden, you’re doing a whole bunch of things that actually have nothing to do with the thing that you were originally good, which is just making pies and enjoying making pies.
And that, for many people, that actually becomes a real wall or a real challenge for them where they start out doing a thing they love, and once it turns into a business and they get further and further from the thing they originally loved doing because they’ve got to do all this other stuff of making the business a business, that it actually becomes much less enjoyable for them because they get forced so far from what they were doing originally. And to me, that’s why we still have so many advisory firms that are led by a solo advisor, and either no staff or a relatively modest number of staff. Because I think for some of us, we kind of reach those limits. Or like if I grow any bigger, I’m not going to get to do the things that I like doing, that I originally started my business to do. And sometimes we put the brakes on it because of that dynamic.
So is that actually an issue for you, Rick? Like do you want to grow to the point where you hire up more planners or develop the ones you got to a more senior level, and they start handling all the clients, and you’re in the business of managing financial planners, and a financial planning firm as opposed to being the lead planner with your clients?
Rick: Yeah, that’s the trajectory that I am certainly on. And I think he summed it up really well about being very intentional in our growth. I’ve had one of my earliest planners became a CFP, left me, and she maintained as a solo. And part of why she left was she did not want to manage people. And she’s been a solo for 25 years since she left. I made the decision to grow, part of that I think, was just being a compulsive entrepreneur, that growth was just inherently the way to go. So I don’t think I grew as intentionally perhaps as maybe I could have. I was more on auto-pilot, that of course, who wouldn’t want to grow? And it’s a great question for anybody to ask themselves.
Michael: Who doesn’t want more revenue coming in, right? And at least hopefully, and hopefully more profits coming to the bottom line.
Rick: Well that’s the illusion, that there’ll be more revenue. There won’t necessarily be. And for example, I travel a lot, and part of…I don’t believe that my growth really supports seven or eight people here. I know planning companies that do it with less than that. And if we were just investment oriented, we’d do it with much less than that. But part of that is also my lifestyle choice on my part, and I know other planners that are the same where you look at their bottom line profit and you’re like, “Oh, why you doing this?” And then they’re only working, you know, in the office maybe six months out of the year.
So that’s another thing to look at because you don’t have that as a solo planner. You don’t have that opportunity to take off as much, but with technology today, of course it makes it a lot easier to run a planning practice.
Michael: So can I ask how much does your practice make? I mean, I’m assuming as most advisory firms, there’s kind of, there’s maybe some slice you pay yourself as an owner, as an advisor in the firm. There’s some that is simply passed through profits. So I mean, if we merge those together, like how much is this business making for you to support this lifestyle of yours?
Rick: Yeah, we try to set my salary, I think my salary is set at about $180 or $190. We try to set all of our salaries based on the data, and we shoot for median and tweak it to…For example, in Rapid City, Michael, you can make $50,000 and in DC you are going to need to make $90,000 to have the same lifestyle. So I think with bonuses and everything, we figure my compensation’s about $250. The profitability is probably only 15%. So maybe another $150. So my total is probably $350ish, in that range.
Michael: So I mean, that’s a big number, right? The median household income across the US, I think, is something like $52,000. And frankly, as you just noted, $52,000, never mind $352,000, goes a heck of a lot further in Rapid City than it does, you know, where I am on the East Coast in the Washington, DC area. So by any sort of natural measure, this is a pretty darn profitable practice that you built for yourself, and quite a great income.
So I’m curious then, as it grew and it went forward…I mean, we were just talking about this E-Myth dynamic of, you know, at some point, maybe you start getting into this level where it’s kind of neat that the revenue is going up, or maybe it’s not. But like you’re working a lot harder and it’s not getting any easier or better, you’re just getting further away from the stuff that you enjoyed doing. Have you hit that wall before? I mean, when you look back over since 1983, has it just kind of been this more or less straight line of slowly and steadily accumulating clients until you got to the great number and employee count that you have today? Or have you hit points where you had to pause and say, “Maybe I actually don’t want to just continue on this trajectory because I’m getting too far from actually just seeing clients and doing the financial planning I like doing?
Rick: Yeah, that’s a good point. For me, the growth has really been very slow and steady. I just got back from the Galapagos where you have turtles crossing the road, and you got to stop and wait for them. And I think that’s very much the growth of my practice. Probably a lot of people don’t know, even though I’ve been in this profession for, let’s just call it 35 years to be somewhat even. It took me 22 years before this was my only business focus, almost my only business focus. It took me 22 years to get the income to up one-third of what I was making in the commercial real estate, appraisal, mortgage, property, casualty business. I had five businesses at one time.
So part of my story is I have a men’s group that listen to me complain every week that what I loved was the financial planning, what I hated was everything else I was doing. And what was making me the money that was sustaining my lifestyle was everything else I was doing.
The Benefits And Challenges Of Rick’s “Technician” Personality [18:58]
Michael: Interesting, so ironically actually for you, the evolution towards financial planning was actually like an E-Myth phenomenon of getting away from the other businesses that you were doing that you didn’t actually enjoy doing those businesses because you wanted to be the financial planning technician?
Rick: Exactly. I did career counseling, probably in my 30s or 40s. And she looked at that and said, “Well, first of all, why do you live in Rapid City, South Dakota? According to this, you ought to live in Manhattan or central London.” And I said, “Well, that’s where I vacation.” And then she said, “Well, let’s see. Number two on your list is a financial advisor, and number one is a marketing executive.” And I said, “What does a marketing executive do?” She said, “Collect data and write reports.” I said, “Oh, that’s like appraising,” which I also did at the time too, but real estate was way down, way down on the list
Michael: Because what were you doing in real estate? I mean, it was appraising and that kind of work, or mortgages, or like actual just sales?
Rick: I did sales, I did commercial. I did residential for a little while, but I migrated to the sales. I was a CCIM, which is kind of the CFP of commercial realtors, like I was the second one in the state I think. So I was really competent. My success in real estate had nothing to do with my ability to build rapport with people, and glad hand, and be emotionally intelligent. I just was really, really competent, and I knew my numbers.
So that was my real estate career. I also started a discount mortgage company, and we did phenomenally well buying and selling seller carry back mortgages. I started a PC company, and then we had a property management company, an appraisal company. I’m also a general certified appraiser, and hold that license.
Michael: And so you were doing these in the 80s, 90s, while also…All the way back to the 70s.
Rick: All the way back, Michael.
Becoming An Early Pioneer In The Fee-Only and Financial Life Planning Communities [21:13]
Michael: While also having an advisory firm. Like when the financial advisory firm part start?
Rick: Yeah, that started really around 79 when I’m working as a commercial broker with people, and I’m saying, “Boy, there’s nobody advocating for people. They got all this gold they want to sell them, and real estate they want to sell them, and cash value life insurance.” And there’s nobody standing alongside of the client,” which today I recognize as fiduciary, and helping them. In fact, my brother and I led a movement in South Dakota for realtors to become fiduciaries. And we actually got kicked…well, we didn’t quite get kicked out. They were wanting to kick us out of our MLS because we had this wild idea of actually being a fiduciary to a buyer. So the idea of fiduciary…
Michael: But that’ll scrub the deal. You can’t do that, Rick.
Rick: No, this is not how we operate here. And so we were on the cutting edge of being fiduciary. So fiduciary was always in my blood. So when I looked at…well, somebody needs to maybe charge a fee to folks and just help them make financial decisions. And I kind of started that in 79, and didn’t know what to call this profession that I kind of thought maybe I was inventing. And I found in probably 80, 81 that oh, there’s actually a college called the College of Financial Planning. Oh, that’s what this is. And so I found out I didn’t invent financial planning, or the Internet. I enrolled and became the first CFP graduate, first CFP in South Dakota in 1983.
Michael: Wow, and so what were you…because you already were doing commercial real estate and residential real estate, and mortgage, and the other things. Like what did you planning firm do back then, and what were you getting paid for as a financial advisor back then? Like was it still tied to implementing real estate and helping clients invest in real estate? Or were you doing other products? Or were you just like, “Hey, I’ll do a financial plan for you and you can pay me $1,000” or whatever the going number was, and you just did that on the side while you were still doing commercial real estate?
Rick: Right. Early on, my good friend and mentor was George Chell, was 100% sales. And so I did get all the licenses and the Series 7 and the Series 24. And he was a big buy term and invest the rest guy. The cash value people in Rapid City tried to run us both out of town too back in the day. But I very quickly decided, you know, the selling the products is not the way to go. And so I inherently really started fee only before NAPFA was even found actually.
And so I was in a partnership with George, who was 100% commission, and I was 100% fee. And he’s always say, “Rick, you know, you could be earning four times as much if you were selling stuff.” And I said, “Yeah, and it’s not my day job, you know? I don’t have to. I can afford to be ideological with this.” So…
Michael: You were an early fee-only planner because you could afford to not make any money…
Rick: I was fee only when fee only wasn’t cool. Back in the day of Peter Weston, and Bob Underwood, and I grew up in the FPA ironically.
Michael: Which back then was the predecessor…so there were two predecessors, right? We have the IAFP and the ICFP. So the IAFP was kind of known as a little bit more of the product-centric side. The ICFP was more of the pure financial planning side that grew out of the CFPs directly. So you were on the ICFP side?
Rick: ICFP side, yeah. I started, I went to the third retreat ever, I think was in Logan, Utah. And that’s where I grew up, listening to Eileen Sharkey, who was feel only at the time. And Dick Wagner, and Kemp Fain, and you know, Bill Carter, and some of those early folks.
Michael: And so as you’re doing this business…so you’re primarily a commercial real estate broker, appraiser, doing mortgages as well, and financial planning is just kind of this itch on the side you scratch, and occasionally get paid something for?
Rick: Yeah, I just started doing plans, you know, and I’ve had every way of charging probably that there is, except maybe on income. And you hit a really important thing I wanted to cover, is I was really clear on that this could not be a smoke and mirrors to sell real estate.
Michael: Even though you really were in the…heavily in the business of selling real estate, which was quite financially rewarding.
Rick: Right, and I was very clear I didn’t want it out in our community that, well, Rick Kahler’s just doing financial plans. And what happens is you end up owning all this real estate. So I wouldn’t let my clients, my financial planning clients, buy real estate from me.
Michael: You actually wouldn’t let them, so if they followed through, you couldn’t do it. You had to go to, I guess, someone else in town…
Rick: Right, right, and so I sent them to my good friend who sold them real estate limited partnerships. And in the end of the day, I would have been…my poor clients would have been way ahead had I taken the conflict of interest and sold them real estate in Rapid City, because it’s done real good. And of course, everybody lost all their money in the limited partnerships.
Michael: Right, I was going to say like that did not turn out well for people in real estate limited partnerships in the 1980s. So for those who aren’t familiar for some of the history of it, so the real estate…I don’t even know how to compare it. I mean, real estate limited partnerships in the early to mid-80s were as not as ETFs are today, but massively commission-laden, driven primarily for tax incentives that existed at the time to the point where people didn’t even actually buy economically sound investments. The math only or barely made sense because of the tax benefits that were associated with it.
And then in 1986, President Reagan did the Tax Reform Act of 86 and drastically simplified, and in the process, kind of crushed a lot of real estate tax preferences. And when the tax preferences went away, and you were just left with the underlying economic value of the real estate limited partnership, and there wasn’t much value, people had massive swaths of catastrophic losses. Like is that a fair, like brief summary of kind of how that played out, Rick?
Rick: The closest thing we have today would be the private REITs. And you can actually get your money out of a private REIT, so they’re far better…
Michael: Whereas some of the real estate limited partnerships, there just wasn’t even any money to get out. So ironically in the day, you tried to manage your conflicts of interest by sending it out the door, and then it actually went to someone that sold products that turned out to be worse. So did that change anything for how you, I guess, either did your business or looked like a due diligence process about how you refer out to other professionals?
Rick: It definitely opened my eyes to sometimes we can get pretty holier than thou on the fee only side, and not necessarily be serving the client. And an aside would be, for example, somebody who’s a fee offset, you know? I think there’s a huge case that could be made that that may be more fiduciary oriented than being a fee only. But that’s not the point of what we’re talking about today.
But I did hold very hard to not selling financial planning clients real estate. And it worked out. Plus, you know, so few people really ought to be owning real estate directly, very few people.
Michael: Because you need to be of a certain financial size or net worth just to be able to own it and diversify reasonably, and deal with all the property management crap that comes with it basically?
Rick: Well yeah. I would tell people who wanted to even buy houses for investment, why don’t you go get four or six weeks’ worth of education and find out what this business is about because real estate is a business. And ironically as I was reflecting on what we’re talking about today, 85% of my net worth has nothing to do with the value that I’ve built in my financial planning company. In fact, if I had never gone into financial planning, I suspect my net worth would be the same as it is today. Most of my success as far as net worth has come from what I learned in real estate, and just investing. But it has nothing to do with the income or what I have built in my practice.
Michael: Interesting. So you said about 12 years ago, a transition started to come where you were doing the real estate business and the financial planning on the side, but it was still not getting up to much dollars relative to the real estate business. So like when did that transition come, and what drove it?
Rick: Yeah, that was back around 2000 was kind of this turning point for me. That’s when I met George Kinder. I was in the second group that he trained to do his two day seminar, and it’s at that that I met Elizabeth Jetton, and Gail Coleman, and Ed Jacobson, and Marcy Yeager, and…
Michael: And so for those who aren’t familiar, George Kinder often recognized as being, I guess, either the founder or one of the founders of the life planning movement, and efforts to tie financial planning and financial goals much more directly to what people really find truly fulfilling in life. So did you go to that, Rick, because you were interested in doing that for your clients, and just wanted to go a new direction in the advisory business? What took you?
Rick: Yeah, I guess one of the things I’ve been is typically somewhat visionary. I’m not real sure how that all has happened, but I felt that what we were doing in the investment side was going to become a commodity. And this was even before Daniel Kahneman’s research that said 90% of all financial decisions are made emotionally. And I just assumed I better find out a little bit about adding value, increasing the value proposition because like a lot of planners in the 80s and 90s, I had really drifted toward being investment focused with a little yellow pad financial planning. So it really was more of a marketing and how do I stay relevant issue.
I also had a divorce, when was that, 1992, I think, 91, 92, and had done a lot of group therapy. And so when I saw what George was doing, and I applied that a little bit to, wow, you know, people do this therapy and never talk about money at all. It kind of started hitting me how those two worlds came together. And it was that time that I thought, “You know, I’m telling people, my clients, you need to do what you love,” which was a huge theme of us back in 2000, 2001, 2002. And here I was earning most of my standard of living doing what I really didn’t love. So it caused a lot of angst within me.
And finally I took the plunge to say, “I’m going to get out. I’m going to stop doing the commercial real estate, and scale back on the appraisals, and jump into financial planning.” And I took about a two-third pay cut when I did that for a couple years.
Michael: So there are a lot of interesting things there I want to ask you about more, but first, just in terms of the transition itself, so you decided you want to do this shift, and then you sought out Kinder Institute to execute it? Or did going through George’s program actually drive some of this change? I know a number of advisors that have gone through the Evoke training process that George teaches, and it’s transformed them as much as it’s been about transforming their clients. That came later, but it started, just it hit them personally and led them to changing or reforming their business. So was it that kind of dynamic for you?
Rick: You keep going back and reminding people who these people were and how it was way back then. You know, I’ve got a mirror over here and I’m looking at the grey reminding myself. And back in that day, Michael, there was no Evoke.
Rick: George wasn’t training Evoke. He was training people to train his two day seminar. And so it was a train the trainer experience. So no, I didn’t go to him for any help or…I was already clear that I wanted to do financial planning. And I had been clear for 20 years I really wanted to do financial planning.
Michael: You just only did it kind of on the side while real estate the bills.
Rick: It was the money. It was like, um, you know, maybe. I remember, and I can’t tell you what year this is, my gross from financial planning was 40, you know, and my gross from everything else I was doing was 150 or 200. And I just couldn’t quite make the numbers work.
Michael: Sounds like a great time to drop the 150 and go for the 40.
Rick: So I think finally when I got it up to around 80 or so, or I forget what my gross was. I know I did a lot of coaching with Tracy Beckes for about eight years. And I think when I started with her, our gross was 110. And I’m guessing that was 12 or 13 years ago, 14 years ago. But I did make the jump and moved out, and got my own office because I was doing all my financial planning out of my real estate office. And finally got the courage to take the financial hit to just go 100% financial planning.
Michael: How much money were you getting out of the financial planning business when you decided to actually make this transition? Like how much of a hit was it?
Rick: What sticks in my mind is about two-thirds. And probably if I was making $150,000 a year back then, which would probably be close to $250 or $300 today, I think I stepped down to about $50,000 or $60,000.
Financial Therapy And Confronting Rick Kahler’s “Money Script” [36:41]
Michael: What drives that kind of change to walk away from that much money, right? I mean, if we’ll put it in today’s…maybe to inflation just to today’s dollars, you’re making $250,000 to $300,000, and you decide, “Hey, I got a great idea. I’m just going to go do planning and make about $80,000,” which granted, isn’t like a bad number in the grand scheme of things. But if you’re used to $250,000 and a certain lifestyle that goes with it, that’s pretty traumatic for virtually any human being, I think. So what drives, like was it that you were just so unhappy in the real estate business that you needed to change? Was it that you were just so excited to do financial planning? Or like income be damned, I think this thing’s going to be bigger in 10 years anyway, so let’s just go? What gets you to the moment of actually taking that kind of leap?
Rick: Twenty years of angst, you know? I tell my friends, “You guys have got to be tired of hearing me over and over say the same thing.” And finally, there was just, it was kind of like taking the dive off the diving board, and I enough saved back, and I fortunately never lived on everything I made. So I think what it meant was I didn’t save anything for a number of years, and I wasn’t funding 401(k)s and IRAs or whatever I had going back then. And because I had a money script that if you earned less in any one year, you were failing, or a failure. And that really kept me hooked into I can’t just take the dive and go into financial planning because I can’t earn less in any one year. So it probably took me 20 years of therapy just to be able to get through that script.
Michael: I know you have a lot of background for this, but I’m not sure all of our listeners do. So what’s a money script? You just used that label.
Rick: Yeah, money script is a thought or a belief that we have about money that is circumstantially true in some cases, and false in others. It’s a partial truth.
Michael: So it’s classic, like I’m not…my business isn’t successful unless it grows every year, or I’m not financially successful unless my income grows every year? That’s an example.
Rick: Right, and our money scripts can service well, but when the circumstances change, they’re not always true. I mean, does it mean that you’re a failure because you have less income in any one year? I think most rational people would say no. I personally plan for construction, people in construction, for celebrities, and their income is all over the place, you know? It’s way high one year and low the next. But for me, nope. I f I make less, I’m doing something wrong.
So it took a while to get through that script and give myself permission. Yeah, I’m going to make less. And I think within two or three years, my income was back up to where it was. And I stopped the real estate. I still had a few other businesses giving me some residual, and it took me two or three years to stop the appraisals. So there was a little easing into it, but basically…I think the biggest thing, Michael, is I practice what I preached. I saved a lot and I maybe lived on 50% of my income. So that helped me out a lot. It was more giving up my savings and scaling back, maybe not so many trips and things like that, but it wasn’t like I went from eating meat to all beans and rice.
How Rick Transitioned Into His Financial Planning Practice Over Time [40:30]
Michael: Right, that to me is actually one of those pieces that often doesn’t get told about the transitions that people make when they do these sorts of switches, and what goes on behind the scenes. I went through a similar one when I was internal to advisory firms for nearly the first 10 years of my career, and then at one point decided to take the proverbial leap and say, no, no, no. I’m going to materially dial back my time in the advisory firm and I’m going to really focus on this world of speaking and educating advisors, and writing a newsletter, and a lot of services that I transition to, and many of which I still do today.
And you know, when I made that transition, it was a similar kind of phenomenon. I was probably stepping away from about two-thirds of my income is actually a pretty good estimate of what that financial switch was like for me as well. But the distinction was I lived really frugally. I had not actually lifted my lifestyle much from what I was making seven or eight years prior after just a couple years into my career. So by the time I was making that transition, I mean, for me I was still renting and not owning. I was renting an apartment I was splitting with some buddies. So I mean, I think my rent was less than $5,000 a year was my share. I had an old junker of a car was fully paid up, so I had no car payments.
So like my fixed overhead was so low that it was mentally traumatic to walk away from that much income and to take a plunge into a two-thirds hole, but you know, the personal financial planning, keeping my household expenses in order and not getting stuck into some lifestyle creep phenomenon meant I had the clearance to do that, and not put myself in the financial dire straits, or have to launch my business on credit cards from scratch, because there was no personal spending buffer from covering my expenses if I didn’t have 100% of my old income.
Rick: Absolutely. I think that’s really well said. I remember when we went into the mortgage business, I went into business in a partnership with an Irish carrot farmer, who moved from Ireland to do this with me. And I said, “Okay, we got to get a receptionist, and we got to get an office.” And he just looked at me and he says, “See that file cabinet over there?” “Yep.” “See the bottom drawer?” “Yep.” “That’s our office.”
So he taught me about overhead and yeah, I’ve never borrowed. I don’t have any debt on the business, which helps a lot with making decisions and relieves a lot of pressure. So it’s critical.
Michael: So once you made the switch to the advisory firm, you said you took about a two-thirds step back in come, but you made most of that back in the first, within two or three years out of the gate. So how did it rebound that quickly? Was it just one of those things, like hey, now that I’ve finally got…actually have full time to focus on the planning firm, I can go out there and get clients, and you just got clients fast enough to get back to your old number, or was it that simple?
Rick: Yeah, I think that was part of it, and that was back…I remember for years we grew at 22% a year, you know, 25%, 20% to 25% every year. And there were some good years in the markets, you know? The markets may have been going up 10%, which provided growth there, various periods of time. So I don’t ever remember just getting a huge influx to where we were just had to double our size. But for most of my practice, in the last 10 or 15 years, we have not had to market. And I’ve had an office manager who didn’t want to grow, and we just walked the edge of being completely overwhelmed and not being able to service our clients for many, many years.
But it wasn’t always that way. I remember going to the FPA retreat, or the ICFP retreat that time, and hearing these guys talk about they don’t market, and there’s lines out their doors. And I’m like, “How do you do that?” Because I’m out taking every breathing person that has any money at all to plan for. I’m like, you know, Tracy Beckus…
Michael: If you can fog a mirror, you’re a prospect, right?
Rick: Well yeah, and here’s your ideal client, Tracy would talk about. And I’m like, “Tracy, my ideal client is somebody that will write me a check.” So I lived in that space for a long time. And only in the last few years have really started honing down our ideal client. And yeah, there’s been a lot of times I just wish the phone wouldn’t ring because we just can’t take another client. And this year, things are starting to turn around. We’re kind of wishing that the phone would ring. I mean, we’re actually coming off the worst year of growth in my entire 35 years in the business.
Michael: It’s funny. We just recently did an article on the blog as well. We’ll include it in the podcast show notes on the site, that when we actually look at it from that perspective, the whole industry, the whole financial advisor world, seems to be witnessing a slowdown in referrals, like a pretty dramatic slowdown in referrals, And that across all firms, at least when you lump them all together, we’re actually seeing in the data now that the firms that spend on outbound business development are actually getting more business from doing external business development than we’re getting from all inbound referrals combined from both clients and center have influenced by almost a two to one margin.
So not all firms are doing those kinds of spends, but a small subset of firms are doing it and actually, you know, collectively enjoying more than twice the growth of everybody else combined. And it seems like there’s this slowdown underway in growing from referrals alone.
Rick: Yeah, it’s got our attention. I just put two of our associates through sales training. They’re coming in and telling me about with it or something, and stuff I learned 40 years ago. Feature, we called it FAB, feature advantage benefit. And there’s just a recoil in me because we are not sales people.
Michael: So where do you send financial planning team to sales training, because it seems like there’s kind of a lack of those programs?
Rick: Fortunately at their desk. We found a trainer, I forget her name. I escapes me right now. Her first name’s Nancy. They did it all virtually. She’s just started doing this virtually.
Michael: Nancy Bleeke, perhaps?
Michael: Sales Pro Insider. So we’ll include a note to that in the show notes as well. I know a couple other advisors who’ve gone through her sales training. They call it Sales Pro Insider.
Rick: And for us what we found out is really the inquiries haven’t slowed down much, but our closing ratio just went in the tank.
Michael: So people are shopping you more against other advisors? Is that kind of…
Rick: That’s our thinking. And also, you know, I am just pathetic compared to where I used to be in closing. I mean, in real estate, hey, if you don’t close, you don’t eat, right? So I knew how to close, and the assumptive close. I was never what I considered high pressure, but here I’m kind of like, “Well, here’s what we do. You go away and think about it because I’m never going to call you ever again. And if you want to become a client, you pick up the phone and give us a call.” I’m having to rethink my ways.
Michael: And that’s not always working now, yeah. Is that just a statement on how the industry has evolved? I mean, I’m visioning particularly 10 plus years ago, if you’re going out telling life planning kinds of stories, and everybody else was selling mutual funds back then, like I would imagine just what you did was so apparently different people out of the gate that the folks who were interested in that really would just follow up with you with a phone call and say, “Hey, I talked to one or two others, and I really like what you do. Let’s go.”
And now, I don’t know the life planning necessarily has that wide of an adoption, but so many more firms are…at least I’ll call it reasonably holistic in what they do now, particularly if you’re a client that’s searching for it, that it’s just harder to stand out and differentiate and close the same number of people?
Rick: You know, I’ve really have had so very few people come to me because we do life planning or because we do financial therapy. Most everybody that comes becomes a client does so because number one, they’re concerned about their investments. Or number two, they’re concerned about if the money’s going to run out. And typically once we brought them on, they would become amazed.
I’m remembering one client said, “I had no clue you did all of this.” And pretty much our life planning financial therapy is a take what you want and leave the rest. And we tell people all the time, “No” is a complete sentence. So yes, we’ve had some come on from that, but it’s differentiates us more within the industry than it does within the retail clients.
Michael: Interesting. So people have just kind of come to you steadily over time, 10 to 15 years of focusing on this got you from a handful of clients to 100 clients and $200 million of revenue. I mean, is it been a more or less steady growth path outside of, I guess, obviously 2008 would have been some hiccup in assets and revenue tied to assets? But is it just more or less been the more years you do it, the more clients you accumulate, and the bigger the business gets?
Rick: Yeah, it’s very steady. And actually 2008 was not our worst year. I think this year’s going to end up being our worst year. I think this will be worse than 2008. Now and we adopted retainer model some time ago, and went away from the AUA quarterly charges. So that really helped us in 2008.
Kahler Financial Group’s Unique Retainer Fee Structure On Liquid And Illiquid Assets [51:11]
Michael: So when you went through 2008, you were already on a structure where you were just charging retainer fees, not AUM fees?
Michael: So how do you set that retainer fee, like how do you calculate it?
Rick: We still calculate it as a percentage of net worth, and we charge on real estate…or I’m sorry, on assets. Because on real estate, if you got $2 million worth of real estate, we’re going to charge the same whether you got a $2 million loan or it’s free and clear. Because arguably, there’s going to be a lot more work involved if you’ve got a $200 million loan on 2…
Michael: But you’re charging based on not assets as I think most advisors think of it, which is the assets and the investment account. You’re speaking quite literally like make the client’s entire net worth balance sheets, take the assets column, we bill on that.
Rick: Yes, we bill on that. We have illiquid rate and a liquid rate.
Michael: And what are those rates? How do you set…
Rick: The illiquid rate’s 20 basis points, and that’s where my real estate background and business appraisal background serves me well because I can get really close to what those assets are worth. And we let the clients set it by the most part, but I’ll know if the client’s blowing smoke.
Michael: Right, if they’re like, “Oh yeah, that vacant land lot I’ve got out there. That’s only worth like $50,000.” And you say, “No, I know they built three shopping centers right next to it. That’s probably $500,000.”
Rick: Yeah, let’s call the county and see what the county says it’s worth. So that’s pretty easy. So we charge 20 basis points on that. It would include fixed annuities we lump in that category. Maybe some closely held stock, even of a publically traded company, if they work for it, whatever we consider illiquid is 20 basis points, and that’s the planning fee. And then the rest we’re very, very standard, 1% of the first million, 0.75% of the next, etc.
Michael: Okay, so do you build that AUM portion out of an AUM portfolio, or do the clients just get like an annual retainer fee that you calculated based on the assets or quarterly? How do you structure and then how do you actually bill?
Rick: We’ve chosen Halloween to be the date that we value all of our assets.
Michael: Is that meant to be a joke about Halloween? Is there like a punchline to that?
Rick: No, no. It just kind of happened that way. We had to have enough time for us to yearend calculations, so we can tell them what their fee’s going to be the next year, so we chose 10/31. So on 10/31, we value everything and set the retainer for the next year. And I know some of my peers will set that retainer for two years, even three years. We still do it annually. And then we just divide by four and either send them a bill, an invoice quarterly, or deduct it from their account, whichever works best for them.
Michael: But if they’re deducting from their account, I mean, they’re deducting the whole fee from the investment account that you happen to manage.
Michael: And from your end, I mean, whether they give it to you to manage, or they leave it at their old advisor, or they dump it all at Vanguards and just buy some ETFs directly, I mean, your fee is effectively exactly the same whether you’re literally managing it or just advising on it, wherever it happens to be held.
Rick: Correct. We will takes accounts of $5 million or more from just an investment only standpoint, but other than that, we don’t want here’s an account, will you manage it? We see ourselves as financial planners. And I tell people managing your liquid assets is one-seventh of what we do. And quite frankly, it’s the easiest thing that we do.
Michael: Does it take having the kind of real estate background you’ve got to be able to have a fee structure like that that assesses fees on illiquid real estate assets, or do you think that’s something that any advisor can do?
Rick: I think any advisor can do it. I mean, yes, I have an expertise in it and we’ve had talk around here about how do we replace that. And you use those assets, you put them in your MoneyGuidePro or whatever your financial planning software, you’re making decisions on it, you’re making decisions about maybe want to sell, that’s all part of the planning process, and we feel needs to be captured in that along with closely held business value. So I think any planner can be doing that. I don’t think you need to have an expertise in it because we’re not managing that real estate. We’re not managing that business. We’re planning for it.
Michael: Do you get clients that push back on that, that say, “Look, you know, my house is my house. I’ve owned it for 27 years. I’m going to die in it. I don’t need to pay you 20 basis points for advice on a house that I’m not looking to do anything with.” Like do you get that kind of pushback?
Rick: Good point. We don’t charge on personal assets.
Michael: Including personal residence?
Rick: Right, personal resident, we won’t charge on, or a vacation home we don’t charge on. Or personal property, or cars, or things like that, we don’t charge on. But we will charge on the rental real estate. We will charge on the businesses, and yes, we get pushback. I got one of our largest clients coming in next month, and he informed our planner that he thinks he’d like to go investment only because we pretty much have the planning done. The funny thing about this, I think his fee’s around $35,000. I think $6,000 of that fee is on his illiquid assets. So if we do the investments, we’re going to be charging him around $29,000. In a heartbeat, I’ll do that. Are you kidding me? He’s got 23 different entities. He’s one of the most complex clients we’ve got. Obviously, we haven’t done a very good job of selling what’s going on behind the scenes for him, because for him to give up $6,000, to give up the planning, he is crazy.
Michael: Was the distinction you make, that look, if you want to be investment only, we’ll manage the assets. We’ll manage just the assets you give us. You’ve got that investment AUM fee schedule. Or if you want the holistic experience, then we bill on all your assets. We’ve got the liquid rate and the illiquid rate, and you get comprehensive financial planning that goes with it? Like is that the distinction?
Rick: That’s the distinction for over $5 million. That’s right.
Michael: Okay, at over…and under, you just don’t even let them do that separation or it looks different?
Rick: Correct, yeah, we don’t let them do that because then it’s just, you know, I’ve managed assets before. It’s what have you done for me lately? Quite frankly, we’re a combination of passive/active with the active being mostly alternative. I think you came up with the term once of what I did. I used to think I was buying hold and I’m not because we rebalance. So but it’s not rocket scientists here. You know, we don’t have a real sexy investment story to sell where we’re in and out, and trading, and doing all that crazy stuff.
Michael: So you don’t want investment only clients that are just eventually going to say you haven’t done anything exciting lately, to which you say, “Well, we’re not trying to do anything exciting.”
Rick: Exactly. And I don’t want to compete with Betterment or Vanguard.
Michael: So talk to me from the staffing side. So when you made the switch 15 years ago or so to focus on the planning firm, did you have staff support? Was it just you and then as you grew clients and revenue, you started hiring? What did that look like?
Rick: When we moved into this building, I think there were three of us, or maybe four of us.
Michael: Okay, and what were they doing?
Rick: I had kind of my main payer planner, office manager, and then she had a couple of assistants. And she was with me for about eight years. I’ve been fairly successful hiring folks that would actually manage the employees. Early on, I felt that I was not much of a manager. And both my brother and I would hire a sales manager for our real estate company back in that day, recognizing that we’re technicians. So that worked pretty successful. I’ve had two people be with me eight years, so that’s about 16 years of them managing the office.
So we eventually grew, and we grew to a point…I would go to my study groups, and they would look at my labor costs, and they would just say, “You are way too high. Something is wrong.” And I just didn’t know what was wrong enough to know what was wrong. So you know, I was just barely eking out a salary, and I certainly didn’t have the profitability. I probably wasn’t even profitable by what we define as profit today once we take my salary out. And I lost, I went through a period of time where I had 6 people working for me, and I lost 5 out of 6 in 60 days.
Trimming Overhead Through Better Use Of Technology [1:00:23]
Michael: You lost 5 out of 6 employees in 60 day…like was this like literally an organized protest? Like they all got together and said, “Rick, we can’t stand you and we’re all quitting together?” Like how does happen?
Rick: Yeah, how does that happen? Yeah, the first one hurt herself. No, the first one was moving out of town to Phoenix. Then the second one was my, just got her CFP and came in and quit the day I was going to give her a raise. And the third one hurt herself and couldn’t come back to work. The fourth one then hurt herself a few weeks later and couldn’t come back to work, like fell over a six foot concrete wall type of a thing.
And then the last one I remember, that was when I was doing the work with Onsite and Ted Klontz in the early days of developing financial therapy. And I was at the Nashville Airport. I could take you. It was at gate four, I could take you to the seat I was standing at. I got a call from Darla who says, “Well you’ll never guess this.” I said, “Lecia quit.” She says, “Right.” So that was number five, and she went to take like double the salary at a bank.
Michael: My God, what happens to your business when five out of six quit? I mean, I don’t even know where to start. What do you do when you hit that? What do you do? What did you do when you hit that…like do you start scrambling? Do you crawl into a fetal position and just rock yourself to sleep? Like what…
Rick: Well, all of the above. You know, I’m kind of come up with contingency plans of trying to retain the biggest clients. And Darla literally worked weekends for 18 months. So I wouldn’t even have this practice without her commitment. And so we worked our butts off. We hired a consultant that came in and said, “Well, no wonder you guys had all these inefficiencies. Look how you’re using Juncture. You guys are using about 2% of it.”
And I remember writing her that check. It was a $2,500 consulting check, and she’s on the phone. I said, “By the way, I am signing your check right now and I want you to know I am smiling ear to ear.” And it just dead. There was no response. She says, “I don’t even know how to respond to that. No one’s ever said that before.” And so we only hired back, we only had four of us after that, and we were way more efficient.
Michael: So getting a consultant and to help you use the CRM better ultimately got you to the point where you lost five, but you only had to replace two of the five to get back to where you were
Rick: Right, right. We just replaced two of the five. That’s how inefficient. I remember I would say, “You know, I need to know the return on this particular account for the last year.” It would take me 24 hours to get that. And after the consultant was in, it took me five minutes to learn to run DB cams myself, right?
Michael: Wait, so when was this? When did all this go down for you?
Rick: This was, I’m just going to say it was around 10 years ago.
Michael: Who was the consultant that you hired that got you back on track. Do you remember?
Rick: Oh, she’s from Minnesota and I think she just became a planner herself. And Shannon Clarke seems to be the name that comes to mind.
Michael: We’ll look it up and add something in the show notes if we can track Shannon down, if she’s still consulting.
Rick: In fact, I use that with clients today. I tell them that story and I say, “So my goal for you is I’d like you to be smiling when you write us our retainer check.” And I had one client say, “Well Rick, is it okay if I’m just not frowning?” I said, “Okay, we’ll take that.”
Michael: What you just described is literally the reason they don’t hire. The business risk, the fear, the concern, that what happens if I build this business to the point where I’m relying on all these employees, and then people end out quitting and leaving, and my business blows up. So did you ever have the thought of not rehiring? Saying like, “Well, you know what? This is a good time to just keep like my 15 awesomest clients that actually pay me well enough that I can probably make almost as much money with just my small subset of top clients because I’ve been doing this for a while,” and just forget the rest and letting it go?
Rick: Yes, I did think about that. And I want to say that managing for me never gets easier. That was Darla’s resistance to growing. She’s like, “Every time you add a new person here, it’s not just adding one person. If you have four people, you are now adding five new relationships because that person’s going to have a relationship with everybody else, and it starts getting really complex.” I’m kind of even in a transition today. I recently had a staff meeting and five out of…at that time there were seven, five out of seven had to think about whether they were going to continue to be with the firm. And that was 45 days ago. For me, it doesn’t get easier.
Michael: Do you try to hire around that? Does that get you to a point where, you know, you’re making some good money, you’ve got a good base of clients, I mean, is there a point where you just say, “I’m just not going to grow anymore because I’m satisfied with what I’ve got, and any more growth requires more staff that I just don’t want to manage, or I’m not comfortable managing, or I don’t want to hire them, just expecting at some point, they’re going to leave and my business is going to get harder?”
Rick: Yeah, for me, it was a thought of, “Maybe, I should sell.” And I actually went out and got, I do an appraisal every year of my business, but explored what’s the market like out there for selling. Because for me, it’s like today if I had five out of seven leave, I just don’t think I’m interested in working that hard to keep it.
Michael: Is that just an age stage of life, where you are, just you’re not up for doing that battle again?
Rick: Yeah, I think so. And my thought was, “Well heck. If rather than that, I think maybe I should be the one that leaves, and just sell it.”
Michael: You can’t quit me. I’m selling you first.
Rick: Yeah, and…
Michael: It’s like the ultimate girlfriend/boyfriend rejection, but in the business context.
Rick: Yeah, it’s very much something that I have looked at very seriously with the thought that, “Well, I’ll retain the value that I have here and I don’t need to sell my practice to retire.” I’m very fortunate in that way. I could close the doors tomorrow and I’m okay. But it’s still, you know, has significant value, twice of what I report on my income, on my balance sheet.
Michael: How do you decide a transition like that when you’re thinking about it? Like is this a self-reflection thing? Is this sit down with your personal balance sheet and contemplate your, the kind of retirement you could support for yourself?
Rick: No, it’s not about the money really for me. It would be about the money if I’m going to say, “Hey, if most of the people here aren’t on with the vision I have…”
Michael: Sure, then you may as well maximize the value if you’re going to make the transition…
Rick: Yeah, let’s monetize the value and I’ll go out and have my encore career. And this is all around trying to create a DDO, deliberately developmental organization, which is kind of my passion right now of how do we create organizations that can help facilitate our core purpose, which is to transform the emotional financial well-being of people. And that’s probably not your normal core purpose of a financial planning firm. But that’s part of my vision is we’re in the well-being business, the wellness business, and it’s really hard to separate emotional well-being from financial well-being. At least, I’ve found that difficult.
And so it’s how do we attract a group of people that are passionate about personal growth, and passionate about helping people do that. Because the numbers are pretty important, but it’s more than the numbers, so we’re not talking about a traditional office here. And guess what? Not everybody out in the workplace is interested in personal growth or the commitment to be part of that type of an organization. So I haven’t figured this one out at all.
The Growth Opportunities That Come From Experiencing Pain [1:09:04]
Michael: When you look back over your career at this point, what do you kind of view as highs and lows of the career?
Rick: I think the lows definitely were losing the five out of six people. And I’m in a low today, you know, ironically as we speak. I’m in, probably the last 60 days have been the roughest time of my entire financial planning career.
Michael: Because of slower growth, staff challenges?
Rick: Staff challenges. Staff really challenging the values that I hold pretty close. A non-alignment, which has been kind of shocking and surprising to me, but a real non-alignment of values. When I look at overall, you know, I have faced bankruptcy six times. Let’s just say I have gone to near nothing, nothing, or insolvent six times in my career, which had nothing to do with financial planning.
Michael: I was going to say, were any of those times the planning?
Rick: Yeah, that’s like I got a college education in futures, because that’s what it cost me. We had the B-52s leave town. And if all my rentals were full, I was still $1,500 a month short. I was in the mortgage business when the Iowa farmland imploded, dropped by two-thirds, and I had all sorts of farm mortgages. I factored paper in Silver Springs, Maryland, close to you, and the company that we factored for went out of business and left us holding hundreds of thousands of dollars of worthless paper. I’ve had real estate that tanked. And then I went into the hardwood floor business, saw that business go depreciate by 80%, and got out in six months.
Michael: So the irony, I guess, is like as much as we talk about the risks and the challenges of the advisory business, and the AUM model, and all that, this is the stable one for you.
Rick: This is where I made my money. Well, and I told my brother to close our real estate firm in 2009. Or I said, “Well, you want to buy me out?” He wouldn’t buy me out. Today, it’s by and large the number one firm in the area. And by the way, I should fully disclose it’s not mine anymore. I gave it away to my wife.
Michael: After all that, it transitioned to your wife and just to further separate from your advisory firm?
Rick: That’s correct. So I mean, yeah. I have had a ton of lows. When I looked over this list, you know, I lost my first two CFPs. When they got their designations, they left me. I lost my first actual CFP due to a personality clash at the office. I mean, I look over this list and I’m like, “How have I possibly had any success?”
Michael: When you look back, like you know, for that many highs and lows, and the stress of it…I mean, I guess I got two questions. Like how do you cope? I mean, what are your coping mechanisms just for that kind of stress and up and down? And then, you know, my second question, like what do you think is it that’s driven the success despite some of these challenges and ups and downs?
Rick: I’m a great consumer of therapy, so…
Michael: You’re an advocate, right? So nothing wrong with coaching therapy outside input?
Rick: And in fact, it was my divorce that was the only reason I ever got into financial therapy, life planning, all came from a divorce. So that was life changing. So with the coping, I guess I have always been into personal development for myself, so I have spent a reasonable amount of time reflecting on how did I get here, you know? As Tracy Beckus used to ask, “Well Rick, how did you create this,” a question I do not even appreciate until this day.
And so I think my success has not been because of my ability to manage people. I think that’s my Achilles heel. And I know that may be surprising to a lot of people who perceive me to be like the therapist CFP. And when I’ve told audiences, when I’ve spoken that I’m a left brain, number crunching type of a planner, I had to spend $80,000 in 12 years to learn I had a right brain. It’s not something cute. It is the truth. I am just not instinctually a social person. That’s really my blind spot. So I think it’s my, on the level responsibility I have. I’ve always had an owner’s attitude, but you could argue I’ve always been an owner. I have a huge amount of technical expertise, and integrity, and competency. And I’ve been able to get that across to my clients. I think that’s largely why they’ve hired me and stuck with me.
And I guess a lot of tenacity, you know? I mean the average person, according to stats I’ve seen, the average millionaire has faced bankruptcy 3.1 times. I have faced it six times, and I think I ought to be a billionaire by now.
Michael: So you are averaging out some miraculous millionaire entrepreneur who’s had no bankruptcies. You and that guy or gal are how we get to the average of three. So that’s fantastic.
Rick: The average non millionaire has made 1.6 real serious mistakes.
Michael: Was there ever a particular decision or like crossroads you hit looking back where you feel like this is what made it work out going forward? Like was there a positive inflection point, transition point somewhere where you made the decision? You look back and say like, “This is what got me on the right trajectory or to the right level or success for myself?”
Rick: I can’t, I just really can’t come up with one big turning point. I mean, every time I’ve hit pain, it’s been a growth opportunity. In fact, I remember when my wife called me and said, “You know, I want a divorce,” the very first thought I had was, “I’m going to grow from this.” And last night, I was talking to my…
Michael: That’s a very positive way to…
Rick: Well, it is kind of weird, and I was talking to my wife last night about all the challenges I’m facing now, and heard the words out of her mouth, was “Well, another growing opportunity.” And we refer to it in terms that has a vulgarity in it called an AFGO, another freaking growth opportunity.
Michael: AFGO, I like that. AFGO, another freaking growth opportunity.
Rick: Yeah, and I have had a lot those. And I guess in some of them, I have learned some things and I’ve also had the opportunity to relearn things. So it’s just been a series of steps. But I think I never did give up when…I mean, obviously, when you have the financial blowups that I have, I think my integrity, that I’m not going bankrupt, that’s another money script that I borrowed from these people, and I am going to pay it back if it’s the last thing I ever do. I’m not going to renege on my word. I think that is one huge reason why I stayed the course and found creative ways to work out of all of that.
And it made me a better planner. There’s no question about that. I’ve told my clients, I say, “Well, I’ve made all the mistakes so I can help you not make the same ones.”
Michael: So is there anything looking back that you wished you’d done substantially different? Well those things I hear a lot for people that have been successful is like we hit those challenge points. We hit those failure points. It’s an AFGO. It’s another freaking growth opportunity. But we do learn from it, and often we end out doing some better things in the future because of what we learned. So there’s mistakes we make where we say, “All right, that probably wasn’t ideal, but I did learn from it. It helped shape me in the future. I didn’t like it at the time, but it was a positive looking back.”
And then every now and then you get a few things where you just look back and say, “No, I just really wish I’d done that differently. That wasn’t an AFGO, that was just a bad decision.” Like are there any things like that where you look back and say, “No, I think I just did this wrong?” Like just, “Hey anyone listening, don’t do what I did at this particular juncture or decision?”
Rick: Gee, I’ve just had to have a lot of those. The one that’s on my mind is the one of a couple years ago when I told our best star upcoming financial planner to go take another job. I didn’t like the way she asked me for a raise. And I’ve had feedback from four people I trust that, “Rick, you’ve really gotten away of yourself. That was really an overreaction.” So you know, that stings when I see myself be my own worst enemy. And I’ve kind of been taught, I mean, I could just list off the things that I’d like to do better, and I got this little voice in my ear saying, “You know, all those were necessary to bring you to where you are today.”
So I think my son was just elated. He was telling me this morning that they finally got their robot to throw a ball into a net. They’re in a robotics competition, and how elated they were, and they took a victory lap around the school. And I thought, “Wow, there’s a lot of failures that went into figuring out that one success.” And I think that is so true of success in business. There are a ton of failures that go into the tip of the iceberg, of the diagram that you have. There’s a huge amount of sweat, and blood, and tears, and perseverance that goes into being on that stage, and being perceived as somebody who has it all together, and who is successful.
Michael: How do you define success then? And I find it an interesting juxtaposition, $200 million practice, 100 clients, $1.2 million of revenue, taking home $250,000, $300,000, which is a pretty great number by most people’s standards. A lot of advisors I know are struggling at different point who would love to be where you are, and your feeling is this is a low point for the practice, and I don’t even know how many more years I want to be doing this. So this is kind of the point where like everybody has some very different definitions of success. So I’m curious, like how do you define success, and what is it about this, at least outwardly financially successful practice that is still not inspiring to move forward from here?
Rick: Yeah, it’s obviously success…there’s a money component to success. I can look at myself and I can look at my net worth, and I have to conclude that I’ve been successful. And I look at some of the trappings of my career, and I say, “Yes, I’ve had some successes.” And I remember the first time somebody said, “Rick, tell me about your success.” And I literally looked over my shoulder to see who he was talking about to because I just…I’m like, “How can you look at me and think that I am successful?”
And so part of that said, that inner critic that I carry around with me that has some definition of success that is something I will never reach, some standard of perfection that is set so high. But I do think success is an internal job. I really do. It’s somewhere having enough, reaching a place that this is enough, of having a peace and serenity. And I do remember the time, I can go right to where I was standing at the security pad out here in the hall of the office. And I had this realization that I was happy. And this was such an odd realization. “When did this happen?” I thought to myself. “When did I become happy?” It just kind of snuck up on me.
And so today, I’m not in that happy place, you know, and I can should and ought myself that I should look at everything. I ought to be happy today. And you know, I think it’s a continuum too. I think we hit certain times in our life where we really do, we can have serenity and joy. And there’s a new challenge, something new that just the human experience is going to give us. And I think it’s just rising up, you know, to meet that challenge, and for me, just to be…one of our core values here is always improving. Ascribing to that, and yet understanding for myself, which is my big challenge, is that I will never improve to be good enough. You know, there’s just the standard that I won’t hit, which is my perfectionism, which is one of my challenges to let go of.
Michael: I suppose on the flip side, I mean, so many business grow and are successful because they maintain that element of always trying to be improving. I mean, not necessarily…right, there’s sort of an implication even around a label like improving. We’re not trying to reach an endpoint goal of improved to accomplish blank. It’s more of just an improving continuous journey.
Rick: Yeah, that’s the water I swim in. I mean, even now, I’m interested in how do we add groups to a financial planning firm? How do we have a group of retired folks? How do we have a group of succession, business owners looking at succession? How do we have a group of clients who are enablers to their kids, and hurting themselves financially? I’ve never really been satisfied with the status quo.
Michael: The good news is that drives the business forward. The bad news is that makes it hard to ever decide when you’ve gotten there.
Rick: Yeah, you know, I will never get there I don’t think. That’s part of my entrepreneurial pioneering spirit is, okay, how can we make this a richer experience? How can we add value and keeping an eye on the bottom line, something that is wanted? And I’ve just, I look at my practice here as kind of being a laboratory.
Michael: Well I think that’s a fantastic note to wrap on, that recognizing that balance of I guess always improving, the entrepreneurial benefits of that, and maybe reflecting that becomes a little bit of the entrepreneurs’ or business owners’ curse, that continual drive for self-improvement does a lot to move a business forward, and sometimes makes it hard for us to be satisfied with where we get to, even when we get to a point that kind of outwardly the math would say this is very financially successful, yet it doesn’t feel like the itch has been scratched yet, and the…
Rick: Yeah, when I used to come back from the ICFP retreat, my staff, I learned, would just tremble because I would come back with 80 things that I wanted to do.
Michael: You come back, you’d come home with ideas.
Rick: Oh yeah, and I remember that list went to 20, and I remember that list went to 5. And then I remember I’m going, “You know, this retreat isn’t what it used to be. I am just not getting anything out of it.” And then I had this idea that, “Well Rick, maybe you have actually learned. Maybe you’re actually doing a lot of this stuff you ascribed to in the past.” So it’s a never ending cycle for me. And you’re right, part of it, my cautiousness keeps me from being so entrepreneurial that I do what most entrepreneurs do, which is four out of five startups fail.
But yeah, it can be the bane where my staff…I remember one of my associates once said, “Rick, can we just do one thing the same way for an entire year?”
Michael: That’s a familiar refrain, I know, from a lot of people who are entrepreneurs. Well thank you, Rick. Thank you for joining us, for sharing what I think is a really interesting story around the…I’d like to think of some of the real world dynamics of what we go through as advisors and business owners, and finding some of that journey of what’s successful as a business, what’s rewarding for clients, what’s rewarding for us, and you know, the challenges and the setbacks that come from it. Although I have to admit, I really don’t know very many people who lost 80% of their staff in 60 days. That’s a painful transition I think by anybody’s standards. But thank you for joining us and sharing the story.
Rick: Yeah, thanks for having me.