Welcome to the second episode of the Financial Advisor Success Podcast!
In this episode, I spoke to Ron Carson, a veritable legend in the world of financial planning. Not only has he been the top-ranked advisor at LPL for 25 years running(!), and is regularly recognized at the top of lists like Barron’s for the size of his advisory business Carson Wealth, but Ron is also the founder of the Peak Advisor Alliance, and Carson Institutional… in addition to founding his own charitable endeavor, the Dreamweaver Foundation.
It’s taken Ron considerable energy and determination to get where he is today, and this interview sheds light on all the hard work he’s done to build such an impressive career. While it may seem like successful people simply spring into existence, I hope these interviews show you that all financial advisors, even those who have been incredible successful, still struggle at times.
And Ron Carson is no exception. In this episode, Ron talks candidly about his humble beginnings and the moment of physical, emotional, and professional burnout - when he was about to give up after failing to break $30,000 of GDC after six years - and how the actions he took in his moment of desperation actually turned into his career-making opportunity. He also shares the mistakes he’s made along the way, including his slow adoption of technology, and struggles to delegate and invite other (über-talented) people into his business’s inner circle. We also discuss Ron’s thoughts on making your employees into stakeholders, how he juggles the advising, mentoring, and charitable businesses he’s founded over the years, and more!
I hope you enjoy this second episode of the Financial Advisor Success Podcast! Please share your comments here on the blog of what you think, and I hope you’ll leave us a review on iTunes as well (which is important as iTunes looks to reviews to decide which podcasts to make most visible for other financial advisors who are searching!).
What You’ll Learn In This Podcast Episode
- Ron’s rapport-building trick at client events for remembering the birthdays and anniversaries of clients. [2:20]
- How Carson Wealth is planning to broaden their range of clients and why Ron believes having a required minimum was a mistake for his firm. [10:30]
- The childhood of hard work that convinced Ron to become an early CFP and stick with it. [18:27]
- How using third-party money managers changed Ron’s business and relationship with his clients for the better.
- The moment Ron’s struggles almost made him quit the business - with less than $30,000 of GDC after 6 years - and how it turned into the biggest breakthrough of his career with over $1M of production just 2 years later. [37:00]
- Whether or not sudden success and money changed Ron and his own money habits. [48:34]
- Why management and delegation roadblocks keep so many financial advisors from moving to the next level in their careers. [53:34]
- How Ron learned to delegate the management side of his business so he could focus on his strengths of mentorship and training. [1:02:14]
- The single most important thing that financial advisors should be doing today to ensure that they’re successful tomorrow. [1:14:27]
Resources Featured In This Episode:
- Ron Carson - Carson Wealth | Peak Advisor Alliance | Carson Institutional Alliance | The Dreamweaver Foundation
- McGrath North
- Jim Putnam - LPL Financial
- Janine Wertheim - Securities America
- Andrew Putterman - 1812 Park
- Aaron Schaben - Carson Wealth
- Young Presidents Organization
- Influence: The Psychology of Persuasion by Robert Cialdini
- Think and Grow Rich by Napolean Hill
- Enough: True Measures of Money, Business, and Life by John C. Bogle
Full Transcript: Ron Carson of Carson Wealth on Financial Advisor Success Podcast
Michael: Welcome, everyone. Welcome to the second episode of the Financial Advisor Success Podcast. My guest on today's podcast is Ron Carson. For those of you who are students of the industry, you may know Ron Carson is LPL's top-ranked advisor for the past 25 consecutive years, and his Carson Wealth and Carson Institutional Alliance businesses now oversee a whopping $9 billion of AUA. In addition, he's the founder of Peak Advisor Alliance and the author of several books for financial advisors. But as you've now learned from the first episode of the podcast, Michael is here not just to talk about successful advisors and their successful businesses today, but what it took for them to get here, and Ron's story is fascinating.
He started in the business in the 80's straight out of college, cold-calling and cold-knocking on farmers' doors in the Midwest where he grew up, and Ron's an introvert, which means, not surprisingly, selling by cold-calling didn't go very well, and after six years he still couldn't even break $30,000 of gross production, after six years. On this podcast you'll hear Ron share the breakthrough moment that turned it all around for him, just literally catapulting his business forward from barely $30,000 of production after six years to $1 million of production just two years later when he became LPL's top producing rep, a title he has never relinquished since, as his business just continues to grow and grow. Be sure to listen to the end as well, where Ron shares his definition of what success and having true wealth really means, and what to him he's still building towards and why he's not done growing yet. So with that introduction, I hope you enjoy this episode of the Financial Advisor Success Podcast with Ron Carson.
Welcome, Ron Carson, to the Financial Advisor Success Podcast.
Ron: Hey, Michael. Glad to be here.
Ron’s Rapport-Building Trick For Remembering Birthdays And Other Important Dates At Client Events [2:20]
Michael: I'm excited to have you on because I've actually never told you this story, but I have a unique connection indirectly to you. So I started in the advisory business, about 16 or 17 years ago, and the second job I had I worked at a broker-dealer firm that did a lot of seminar marketing and event marketing and client events. They were really big into the events and they were huge fans of your work and a lot of your books. We had this system where when we were doing client events we would put these little dots on people's name badges, whether they were a client or prospect, and I was 22 years old and just trying to figure out who all these people are at a client event. I was like, "That's freaking brilliant. That's amazing. Where do you come up with something like that?" They go, "I read it in Ron Carson's book." That was my first awareness of Ron Carson and the awesomeness that is systematizing things that you do with your clients.
Ron: Yeah. It's funny you bring that up, Michael. I just today came from our holiday brunch. We had a bunch of our clients there, and to this day the system's still in use. I mean there's a little, bitty tick mark on the upper left-hand corner. There's a lot going on with the nametag that they would never notice, but if their birthday was in the last 30 days, it's there. If it's on the right, it was coming up in the next 30, and if it happens to be their birthday there's a little tick mark right on it, but I always know whose actual birthday it is, if there is a birthday. But I could always say as I was going through breakfast this morning, "Hey, how was your birthday? You just had one, I know," or, "I know you've got one coming up." It just takes a second to pick that up, and people, even clients of mine for 25 years and they'll say, "How do you remember that stuff?" I just chuckle to myself.
Michael: So just, how do you do it? You literally put a little mark, a little dot, from a couple feet away you wouldn't even notice it, but when you know to look for it, that's your indicator depending on where it is?
Michael: Did you once deal cards in Vegas and learn about marked cards, and like that was your inspiration? I mean where does that idea come from of, let's mark people's name tags? And not even just for sort of the who they are angle, but to me it's an interesting one when you do it not just are they a client or prospect kind of thing, but something like what you just said, let's mark a recent birthday or upcoming birthday, because people love to talk about that stuff and it feels awesome that you can remember or reflect that back to them and they're never going to realize that one of those random little dots on their nametag means that. Where does that come from?
Ron: Yeah, it looks like a slight imperfection, and it really came from me brain...I remember at one point I had an entire team of two other people. It was me and two people, Michelle and Susan, and it was a lot of stuff. I was like why don't we start, just like when people mark cards, let's mark the name tag to give us some ideas. So we perfected it and we changed colors, and we did some different things, and no one ever goes, "Hey, it looks like there's some sort of system here," because nobody notices that stuff, and if you've got to have a sheet and you're looking at a sheet of paper, "I see it's your birthday," it takes all the specialness away. We as humans want to feel special, we want to be recognized, and it was just one of those little things that really made a big difference in my career.
History Of Carson Wealth [6:36]
Michael: I just feel like next time I go to an event with you, I'm going to be watching my name badge for a hanging tag off of, like what does that mean, what is that saying about me. So you've had a pretty amazing career doing this for a while. I suspect most people who are listening are probably familiar with you or at least have heard the name and have seen headlines, but can you just paint a little bit of a picture for us, like tell us about the Carson financial advising business as it exists today.
Ron: So you don't want any history of how I got to this point?
Michael: Well, we're going to go there in a moment. One of the themes for the podcast here, is I feel like there's a lot of, we tend to see successful people with this lens of like, I wasn't aware of them until I was, and when I was, they're brilliant and it's this overnight success thing because I just became aware of them, and no one sees all the hard work that went in leading up to that. So that's really what I want to, ultimately I think we're going to talk about for most of the podcast here is kind of how you got there, but let's at least start with where you are today and make sure we're all on the same page about this brief overnight success you've had over the past 33 years.
Ron: You're right. It was an overnight success that took 30-some years to do. We have I think 145 stakeholders, and we don't use the term, by the way, staff or employees. I find it a little demeaning. We only talk about internal stakeholders, associates, and partners. No one works for anybody. We all work together, and it's just a cultural thing, but we're under 150, above 140. I'm not quite sure where we're at today because we're growing fairly rapidly. We have 44 partner offices around the country. We're just north of $9 billion in AUA. We also have a practice consulting group which we consult with about 1,100 offices. We have nine executive business coaches that work in that business, and it's all started and run...It's really a hub and spoke if you think about most of the services are provided out of Omaha, Nebraska to our satellite locations around the country.
Michael: So I have a couple of questions there. So you talked about 140-150 stakeholders that are working with the firm in various capacity, about $9 billion of AUA. So I noticed you did say AUA and not AUM. So is there a distinction there in terms of how you operate the business or the billing model of the business that you measure primarily off of AUA instead of AUM?
Ron: That's a good question, Michael, because I feel like a lot of people, what I've learned in this business is very rarely do people tell the truth about numbers, at least when they're talking to each other. Obviously when they're doing regulatory filing, it's different.
Michael: Because otherwise the SEC shuts you down for that, or at least fines you very unpleasantly.
Ron: Right, but we'll be talking to a partner, we have a joke internally, "Cut it in half twice and you'll get to the right number." So our number is a conservative number. We actually went through an SEC audit two years ago and the SEC complained that we understated our AUM by about half a billion dollars. Now, think of that, understated it, because we're so conservative about what we place in that AUM bucket that we have to have discretion, we have to custody the assets, and so there's a little bit of slight different interpretations about that, and so right now we have about $4.5 billion of statutory AUM, and then anything else we're getting a fee on but we don't have custody of or we don't have discretion on, we put that into the AUA category. Some people disagree and put it all in the AUM category.
Michael: So that could be non-managed assets, that could be outside 401(k), "Hey, I'm giving you advice on this as part of your comprehensive financial plan, but it's not my regulatory AUM because I don't have discretionary management over your outside 401(k) even though I'm giving you advice on it." That kind of stuff?
Ron: That's right, or I don't custody it. I don't have discretion and custody.
How Carson Wealth Is Planning To Broaden Their Range Of Clients And Why Ron Believes Having A Minimum Was A Mistake [10:30]
Michael: So $4.5 billion or so of statutory AUM, $9 billion of AUA. So how many clients is this dispersed across, roughly? I mean is your typical client like a mass affluent couple with a half million dollars? Is it like a business owner with a couple million? Are you in the ultra-high net worth space where it's like, "Oh no, I actually only have 27 clients. It's just that they have $4.5 billion across them"? What does that client base look like?
Ron: Okay, so I hate to not have an answer to a question, because I don't know exactly, but here's what I can tell you. We're actually, and I think we're a little unique in this regard Michael. Three years ago, we had a $1 million minimum, and by the way that's one of the big mistakes I made. Early on I had to have a minimum because I only had a certain amount of capacity, but I really missed the boat on not being a fast follower and realizing that we needed to embrace technology quicker to provide meaningful solutions to those that didn't have a lot of money yet.
And so last year, our minimum was $100,000. In 2017 virtually our minimum will be zero because we're going to have a way to engage with us that we're still figuring out the pricing on. So we literally will be able to engage with people that have no assets but just need planning, but also on the opposite end of the spectrum we've got very sophisticated solutions. So if you think about it, we've actually gone down market and up market at the same time. We have three bonafide billionaires that we're the primary advisor on, and so you can think about it that at the time, I would say we're in the middle-class millionaire. If you looked at most of our clients, they would have $2-3 million with us. Now we have clients that have $300 million with us and we have those that have $100,000 with us.
Michael: Okay, so that would essentially be, I guess to use the term du jour, so a digital advice offering? I mean is this going to be working with clients virtually? Or just you're going to try to use technology more and every advisor at a 44-partner office is going to take anyone that comes in all the way down to the bottom of the asset scale because you just think you can do that effectively in the long run with technology efficiencies?
Ron: Great question. That's an internal debate we're having as we speak. I actually had a meeting on it this morning. My vision, and I don't run this as a dictatorship. I used to, but I don't anymore. That's again one of my many failures that I've had in my life. My vision is that a client comes to us, a prospect, and if they so choose, that they can pick one of three offerings right off our digital marketing hub. They can engage at a high level, at a mid-level, or at a 100% digital, no advisor level if they so choose. So I think I need to give choice and I need to let people make that choice, open accounts, and everything online.
Everything happens whether it's a digital or a hybrid type solution that we're providing. My next what I think is innovative idea is that I want the client to be able to move from any one of those three offerings, and the interval of when they could move is probably going to be once a year when they sit down and they have that annual review with a client saying, "I'd really like to have a lot more advice," or, "I need help," or, "By the way, I don't think that the personal advice, I'm paying a premium for it...I think I'd be happier having everything done through email or digitally." But I don't want to penalize a client for making that decision. Of course, the pricing structure will be different, but I'd like for them to be able to port everything we do to any one of those three ways of engaging with us, without having to sell anything or transact anything or change anything or having any friction in that change.
I think I want to empower people to have ultimate choice and let the value of the value proposition and what we're charging for that stand on its own and give the power to the consumer to dictate what they're willing to pay and how much human...Because it's really human interaction that is going to cost a premium.
Michael: And I mean to me at some level all that really is, and I don't mean to be belittling at all, but it's basically a client segmentation strategy, right? I mean in the past we've segmented people like, here's what I do for my super-duper rich clients and here's what I do for my moderate clients, and then here's the little bit of stuff I do for my C-level clients. We've segmented by wealth, and to me I feel like what you're talking about is another version of segmentation.
Ron: Not really, Michael. Think of this.
Michael: I'm going to segment them by what they want. We're going to segment them by who likes digital and who likes in-person?
Ron: Well, here, for the first time in history over the last few years, the buyer has more information than the seller, truly does, because it used to be I had all the information or I'd call people with stock tips or whatever. I had all the power because I had all the information. Now they have more information because when they're making that decision, they know their situation better than I can know it, even if I spend hours with them, and they know what's available out there. So it's really, when I used to segment clients I had the ability to do that, but now I'm giving the consumer the power to segment us. Because see, they get to choose. They could have $50 million and say, "You know, it's not worth X for what I'm getting from Carson. I'm happy just to move this stuff to the lowest level of engagement because we did all this heavy lifting five years ago and I paid a premium for that, but I'm not seeing the value add anymore and I'd like to really transition to the opposite end of the spectrum." So we're really giving the power to the consumer to segment the advisor the way we used to segment the client.
Michael: So I've had this conversation with more than one advisor over the years, and I feel like it almost always ends out at the same place, either stated or unstated. Are you afraid that a bunch of your clients are just going to downshift themselves and you're going to watch a bunch of revenue vanish because you cannibalize your own business with a lower price digital offering? Is that a fear? You don't care?
Ron: Yeah, no, it's creative destruction, right? The creative destructive process because we're creating something new, and it can be painful to go through that, but here's what I believe is ultimately…my dad had a saying growing up. "If it's not broken, break it." I think the model's a little broken right now, and if I'm not doing this for the benefit of the consumer, the market's going to do it anyway. So I would rather have...In a way, I benefit from this because I live…
Michael: So you can do it to yourself or you can let the rest of the world do it to you. So you may as well do it to yourself.
Ron: Yes. You hit the nail on the head. And I live to fight another day because maybe there will be complexity in estate planning or tax planning or there will be a marketing event where all of a sudden those clients say, "You know, I'd really like to move back up because I want to have more interaction with your team, personal interaction," because there's uncertainty in their life that they want to reengage at a higher level. So yeah, do it to yourself because the market is going to do it to you.
How A Childhood Of Hardwork Convinced Ron To Become A CFP [18:27]
Michael: So take us back, now. So we've got this sense of where the business is today, but you've been doing this for a long time. So when did you get started? Were you in the business straight out of college? And what did that look like as you were coming into the industry?
Ron: So Michael, I grew up on a farm about an hour north of here, in Tekamah, Nebraska. Which by the way, Tekamah's one of the only towns in the nation that there is no other town named Tekamah. I just learned that today, by the way. We were farmers. In the late 70's, early 80's my dad looked at me and said, "I hope you're not planning on coming back to the farm, because we can barely afford to make a living for your mother and I and your sister." Basically, you better go find something else to do. And it was tough. I mean farming was tough in those days, and I was sitting in the library during study hall and Money Magazine had the top businesses and professions for the future, and right at the top of the list it said, "Becoming a certified financial planner." I'm like, "That's what I'm going to do." I'd love to tell people that I had all of this research and I spent all of this time. It was really that. It's like, I never get to wear a suit and tie, I never get to dress up, all the stuff that I thought I would love to do.
I dreamed about it because I had grease and oil and grungy and dirty growing up on the farm, which I loved, by the way, and I thought, gosh, I can wear a suit and tie. So I went down. I was recruited to go play football for Nebraska. I was injured my first year, and I was going to be red-shirted because of the injury, and I literally started cold-calling out of my college dorm room in 1983, and that's when my business was born.
Michael: That's interesting. So Money Magazine talking about CFP's in I guess '82 or '81 when you were still in high school…
Michael: …was the trigger. There weren't a lot of CFP's yet even at the time. That was fairly early on. We only did the first class in 1973. So to say the least, you were early to the financial planning world. I guess it's an interesting distinction because I feel like a lot of folks who came into the business in the 80's, I mean this was the heyday of Wall Street stock broker, "Greed is good." So you didn't come in on that side? Or did you ultimately end out there because the only place to get a job was a wire house at the end of the day?
Ron: I was so oblivious to all of that. We didn't have a lot growing up. I really didn't comprehend the stock market and all that. I grew up in a really small farm community and we worked all the time. So I didn't even really get this other world out there, and I didn't even know until I was an advisor for probably a good 10 years, really, that the wire houses looked down on independent advisors.
Michael: So you were independent from day one?
Ron: From day one. I was with a really small broker-dealer that sponsored me to get my license, called State Bond, out of New Ulm, Minnesota. I was like the first advisor ever to Securities America. Then later on I ended up with LPL. I virtually do no brokerage business today at all. It's 99.9% advisory and has been for a decade. But yeah, that's how it all started.
Michael: So what were you doing from day one when you're cold-calling? I'm trying to think '83. This is the heyday of selling limited partnerships. This is even kind of early to mutual funds, still a lot of stock selling. What were you doing for people? Or were you like, "I'm charging people $1,000 for comprehensive financial plan advocacy?"
Ron: Yeah, so I read about the CFP. I didn't actually get my CFP until I think it was '91. It was either '90 or '91.
Michael: You had to make sure you could survive this cold-calling stuff first.
Ron: Well, I read the piece and it was a lot easier just to get my securities license, but I sold mutual funds. I remember I went to Boston. MFS had me out there. I was virtually doing no business. I remember just being in awe, because I had never been...I mean my town, the main town that we would go for fun on a Saturday night was like 1,200 people. So I was in Boston, Massachusetts and I was just like, "Wow." I would go out and tell people this is a great way, a way to be diversified, and in those days too, Michael, I would sit down at the kitchen table with farmers. Because I could talk farming, they trusted me. I would sit there for hours and have coffee with them and I would eat rolls or whatever. Sometimes I'd still be there for lunch, believe it or not, and many times it would take a meeting or two or three that they would bring these statements out.
Pioneer was big here, Invesco was big in this part of the country, and they didn't even know how to figure out their statements. The fact that I could take the share...Because they never put the value on the statements in those days. So if I could take the share price times the number and tell them what it was worth, this sounds crazy, I was shocked, it's like that was a value add that I could tell them what their statements were worth. A lot of times they were getting no service from an advisor. So I could put my name, become the servicing advisor on it, and it was amazing what a little bit of service even in those days would do to grow the business.
Michael: And then you just started gathering 12B1 trails as you became servicing broker on all these accounts? And that was how the revenue got going for you?
Ron: Yeah, but they really weren't. That's even pre-12b-1 fees, believe it or not. I mean 12b-1 fees came along later.
How Using Third-Party Managers Changed Ron's Business and Relationship With His Clients For The Better [24:52]
Michael: So that was the whole problem? Someone sold it for, back then, 7% or 8% up-front mutual fund commission and they were gone, they were on to the next, no one ever called that farm again?
Ron: Yeah, a lot of them were 8.5% or 10%, because remember the old contractual plans. They could actually charge a 10% commission, and as long as they said they were going to put so much money in over so many periods of time, it just couldn't exceed I think 9% on average in those days. And so there wasn't another way of doing it. I was selling mutual funds, they would add money to it, I would get paid a commission. I remember when Todd Robinson who was really, him and Jim Putnam were truly the visionaries for LPL in its heyday. I was in Hawaii in a meeting and he said, "We're going to come out with a saying called SAM." It was Strategic Asset Management. "And you're going to get to not charge your clients commissions. You're going to give them advice and charge a fee instead, and you won't make as much in the short run, but if you do a good job for your client, they'll do better and you'll do better because you'll both have an economic interest in staying engaged in the relationship." I remember coming back and telling my wife, "The coolest thing ever was just unveiled today and nobody else in the room thought it was neat. They thought Todd was crazy. It's like, who on Earth is going to pay an ongoing fee?" I was very early in really embracing the advisory model, and not having that conflict of commissions.
Michael: So what was it for you that drove you that direction? Did you feel icky about commissions and wanted to get away from it? Or were you just looking and saying, "No, I can do the math over what this business could be in 10 or 20 years, recurring revenue may hurt now," because it's a big step when you go from an 8% up front to a 1% advisory fee. Did you just have this vision of it in the long run, here's what it's going to be? Or were you coming at it from some other angle to make that change?
Ron: Well, I would love to tell you that I had some aversion to commissions. I had zero. I mean I love commissions. But what I didn't like about it was if I was recommending to a client that they make a change, it made me wonder if they wondered, why was the change being recommended? Was it for my benefit or their benefit? By having no additional compensation for making a change, I felt it was a pure way to really have a healthier relationship with the client. And I was actually worried about it because it's like, that's going to be hard, but I believe that more people will do business with me with that better alignment of interests than the old commissionable model. And it was true. People did like it.
Michael: So did you make a hard left turn, like, "I'm all in on this SAM program, we're going to advisory fees, off we go"? Or was this still like a weaning down of, let's start building some assets in this advisory program but I got family and mouths to feed so I still have to do some commission business, and you transitioned more gradually?
Ron: Yeah, I gave the client the choice. I really laid it out there and said, "This is the way most of the industry does business. Here's a way that my company allows me to work with you," and I would say some were comfortable. They'd paid commissions in the past and that was better, and others were more comfortable with the advisory fee. One of the problems I ran into though is, sometimes I'd have an advisor come in behind me and he would tell the client, because he didn't get it...In those days it was all load waived. So you would have an A share that they weren't paying the load on and you were getting your advisory fee, and they would tell them, "Oh my gosh, you paid a commission and he's charging you an advisory fee." And the client really didn't know, right? He says, "Well, I don't think I did." So I did spend a lot of time having to reeducate clients or go back and show them that they didn't pay both.
Michael: Because this whole world that we've got today of institutional class shares for advisory accounts, that wasn't around back then. You had to make sure your broker-dealer did the appropriate load waiving when they put the share into the advisory account?
Ron: They did, and they always did because it was easy because it was inside the advisory model. On those trades, it would kick it back out, so I really had zero issues with that. So I wasn't having to double check to make sure the trade was placed right, but I did have to continually reeducate some of my clients about how they were paying me.
Michael: So this was an LPL. So you were already at LPL when you'd made this transition? You'd moved on from State Bond at that point?
Ron: Yes, from Securities America at that point.
Michael: Okay, so when was that transition? When had you already gotten to LPL?
Ron: I got to LPL in January of '89.
Michael: So you were kind of bouncing around a few BD's for the first six years or so, got to LPL in '89, and have been parked there since.
Ron: So this is an interesting story. New Ulm, the guy that owned the small broker-dealer died, and so they were really small. It's like, man, I don't even know if they're going to be able to stay in business. I actually also sold life insurance in those days, Michael. So I had an insurance contract with Amoco Life and Security National Life, and there was a guy by the name of Steve Wild and George Grogan who started Securities America, and then there was a lady by the name of Janine Jones who's still at Securities America. A wonderful lady, by the way. She's now Janine Wertheim. Her and I, I mean you'd have to ask her, but if I wasn't rep number one, I might have been rep number two. George and Steve didn't even think Securities America was going to amount to be anything. It was something they would start so their insurance agents could do some securities business. Well, when they learned I had this general agents contract with Security National, they didn't like it because they had the Amoco contract. They asked me to leave.
Michael: So you were like the first person on the Securities America platform and the first person to get kicked off the Securities America platform?
Ron: Yes. Do you know who Janine Wertheim is over there, Michael?
Michael: I think we crossed path at a conference.
Ron: One of these days you have to say, "Carson said this. Is that really true?" because they would laugh. They're like, "We really got rid of what would have been a really good advisor for the firm." But anyway, it turns out Securities America was a huge hit. They sold it to Ameriprise, and you know the rest of the story.
Michael: So by the time you got to LPL, was it hard to find a broker-dealer? Were you a good-sized producer by then or were you still struggling to get by five or six years into the business? How was it going over those first couple years? Obviously, we can see where it is now. I'm sure you're doing okay at $4-5 billion.
Ron: I was struggling really hard. I thought about quitting the business. I mean I lost my...I was on the road all the time, Michael. The first year in the business I put 56,000 miles on my car. Think of that. That's over 1,000 miles a week, and I lost my driver's license for speeding tickets. In Nebraska, you're allowed 12 points. By the time they caught up to me, I had 16 points on my license. I got pulled over by the same patrolman twice in one day, one of them for going104 miles an hour out in the western part of Nebraska because I was trying to get to my next appointment.
A lot of times people wouldn't even let me in because I was cold-calling out of a phonebook. I mean I would drive six hours for a mutual fund sale that would pay me $180. That's really where there was a moment in my life where I said, "I've got to think of a different way of approaching this business, because I would spend hours upon hours with people, I'd get a little bit of money to invest, but LPL had to make a special exception for me, and maybe that's why Securities America didn't care.
I was doing a little bit of life insurance business, a lot less securities business, and that's really where a lot of the processes and the systems and love affair marketing and passion prospecting, all these terms came purely out of my need to survive and make a living. I didn't have a farm to go back to, and I had a wife that I needed...I didn't have any kids at that point, but I mean it was lean and mean. Jeanie and I, our favorite thing to eat at night was either boxed rice with mushrooms in it or a bag of nachos that we put cheese and hamburger on. I mean we had that like five nights a week because we didn't have any money.
Michael: So the kind of sales ideas that you started doing, are you just an extroverted salesperson type dude that just kept knocking on doors and making cold calls until you got there and that was your drive? How do you work through that?
Ron: Early on it was just hard...That's one great thing growing up on a farm. Sometimes you work all the time and you don't raise a crop or you're always faced with some disappointment or you raise a crop and the prices aren't there, and I watched my parents struggle with that. We never seemed to ever get ahead. There was always constant pressure, but they continued to work their tails off all of the time. I just, hey, if I work hard, eventually things will work out. I really believe that. You mentioned, you said extrovert. I'm an introvert. So it's out of my comfort zone to…
Michael: You're an introvert?
Michael: I think that's an interesting thing. So $9 billion AUA of an introvert. So what's that like doing cold-calling, trying to survive as an introvert?
Ron: It makes it more difficult. Let me tell you. It makes it more difficult. To make extra money, I mean I used to dread...On weekends my mom made me a Santa Claus outfit and I would go play Santa Claus for kids at parties and get paid $50 or $100. You talk about being uncomfortable and having to be jolly and remember the kids' names and all that stuff. I'd just be physically and mentally exhausted because it was so...My favorite thing to do even to this day, and I've been looking forward to tonight, we're going to have a big snowstorm here in Omaha, is go home, sit in front of the fire, have a glass of wine, and read a book. That's like my nirvana. It's not today at the holiday brunch, it's work. Being with close friends and a close network of people is what I love. So it's almost ironic that I was able to have some degree of success in this business.
Michael: So you were an introvert doing cold-calling and cold-knocking and had a side gig as a Santa Claus to keep food on the table.
Ron: Yeah, that's true. Oh, can I add one thing to that? I'm also an auctioneer, Michael. So I would take people's junk and I would sell it in my little auctioning consignment house that I had.
The Moment When Ron Almost Quit The Business With Less Than $30,000 Of GDC After 6 Years [37:00]
Michael: So you're grinding hard through the 80's, and nacho food when you can manage it. So was there some point when everything started to turn and shift for you? I mean six years of grinding just to get to the point where LPL will be gracious enough to make an exception to take this crazy introverted kid who got kicked off of another broker-dealer platform but we'll make accommodation for you. I mean, did it turn at some point or was it just that you did enough grinding long enough that eventually the math started adding up okay and the living got decent?
Ron: Yeah, so that year...Jim Putnam still laughs about it and I'm still in contact with Jim. By the way, him and Todd really made LPL what it was in those days. We laughed later on when I had more success. He said, "I was on the committee," and there was a guy by the name of Garth Terlizzi who was a recruiter for them who said, "This guy's going to be a good advisor, one of our bigger advisors someday," and they said, "Yeah, but he only did $29,000 in total revenue." That was it.
Michael: Was that your number?
Ron: That was my number, just under $30,000.
Michael: $29,000 gross.
Ron: Yeah. That was gross. That was before I paid any of my fuel, my expenses or any of that stuff, yeah. I had one suit, two ties, and two shirts. Yeah. So there was a moment. I'll never forget it as long as I live, and I occasionally drive by the spot in Omaha. I was getting ready. It was the end of the week. I'd made absolutely no sales. It was a hot August day and I'm watching a guy jackhammer cement out of the median, and he's sitting there and he's in really good shape. By now I'm working all the time, I was always in pretty good shape playing football, I'd put on some weight, I wasn't feeling good about myself, my suit was feeling tight, I was dead-ass broke, and I looked at that guy and I'm going, that guy doesn't have a worry in the world. When he gets home tonight he gets to take a shower, he gets to kick back, drink a cold beer, and he got paid today. I envied him. I literally envied that moment because that's how miserable I was.
Needing to just hear a friendly voice, I went back to my office, which really wasn't much of an office, and I called a handful of clients just to check in. I actually remember the reaction when they said, "You called just to say hi?" What I really should have said is, "I am so dejected and so down I just needed to hear a friendly voice on the other end," but I realized how appreciative they were, because I had never contacted any of my clients unless there was something I wanted them to do or if there was something in it for me. I never proactively reached out, and I called everybody I could get a hold of that day, and everybody had a similar reaction. I said, "I didn't need anything. I just called to see what you were doing, check in. Is there anything I can do for you?"
And that's where love affair marketing, a term that I coined and started teaching, it's like, make deposits. Now people talk about it today, but no one had taught me or showed me or said to do any of this stuff, and so when I started doing it I started getting more business, I started getting referrals, and the more business and referrals I had, the more I did it, and the more business and referrals I had. It was a positive virtuous cycle that really put me on this path to, like, how can I learn more about the client and how can I do more things for them? How can I systematize it? How can I have events? How can I have appreciation events? How can I have passion processing events? And it just continued to grow, and the more of that I did, the more success I had based on the relationship and the trust I built with the client.
Michael: So can you define this for us a little bit more, this label you use, love affair marketing?
Ron: So love affair marketing is really about emotional reciprocity. When someone does something nice for you, you immediately want to think, "What can I do to reciprocate?" So love affair marketing was a random call. Love affair marketing was calling them on their birthday. Love affair marketing was calling them on their wedding anniversary, calling them on the anniversary when they became a client of mine, it was sending them something, doing something, knowing what their interests were, sending them an article or a book or going out of your way to help solve a solution. "Hey, I need a new insurance agent for my car," and making a recommendation, but just continuously looking for ways to do, even if it was minor, to reach out and make a deposit in that relationship bucket, and people wanted to reciprocate back, and they did manifold of what I was able to reciprocate out.
Michael: And I know now we actually have a growing base of research around this. I know Robert Cialdini does a lot of research on influence persuasion. He calls this the reciprocity rule, that we've now studied pretty well. When you do something nice for someone else, even if they didn't ask for it, we get something nice and we often feel compelled to do something nice for the person in return. It's just, I guess, how we're wired as social animals to survive on the Earth. But you can engage that by just proactively trying to do nice things for people, for prospects, for clients, not because you needed to or required the contact, simply because you're making deposits into that relationship bank, and at some point it bears some fruit.
Ron: By the way, I think Cialdini's work, and I know Cialdini and I've actually had him speak on several occasions at our Excel Meeting. If anybody listening to this has not read his books, I strongly recommend it. If I would have had his stuff back then, I wouldn't have had that six years of no success. We're humans. When you use this, though, when you use the law of reciprocity, only use it...Because it does influence people, so hopefully you're influencing them to do business with you and your model's really good. Because I just believe this stuff is so powerful that in the wrong hands you can influence people to commit financial suicide as well if you're not careful.
Michael: It's the double-edged sword, right? Someone had used a great line once I heard. When you use those techniques in your interest, it's manipulation. When you use it in their interest, it's positive persuasion. So use the force for good and not for evil.
Ron: Here's my definition of that. I say you're either manipulating or persuading. Manipulation is your causing someone to take an action that it's only in your benefit for them to take that action. Persuasion is causing someone to take an action where you know they're better off for having taken that action. Then persuasion is ethical because you're helping people make a good choice.
Michael: And we'll make sure we get a copy of that in the show notes as well for people who want to check it out. I've long said Cialdini's book on influence and persuasion has been one of the big influencers for me as well, no pun intended. So we'll have that in the show notes for anyone who's listening, www.kitces.com/2, because we're here on the second episode of the Financial Advisors Success Podcast, and you can get a copy of the book. We'll give a link for it.
So you have this breakthrough moment, Ron. You're trying to sell, and selling is maybe kicking your ass a little as it does to a lot of us, and you have this breakthrough that you call some clients and they're so freaking amazed to actually hear from you, because normally sadly that's not what we do as salespeople. You call the new prospects, not the existing clients. They're so happy to hear from you that they're engaging with you, so you call more of them, and you have this breakthrough of, if I can do this love affair marketing and do these positive things for my clients, I can do it to drive referrals and drive more activity and get business going. Was it basically like the business took a left turn at that point and the hockey stick of growth began and you were often run-in in the 90's with this marketing style?
Ron: It did. Business went from virtually nothing to, in two years I was doing $1 million of production, believe it or not.
Michael: So you went from $30,000 of production in six years to $1 million in production just a couple years later?
Ron: Two years later, and built out all of these processes in order to support it. I couldn't believe it, and I couldn't believe when I would tell people about it that they weren't doing it, or even when I would tell them about it and see them later, they still weren't doing it. It's like I just found the holy grail, and I want you to experience it, but a lot of people just weren't willing to spend the time. They were always looking for the next thing versus taking care of the things they had. Those were their existing clients.
Michael: So is this part of why the SAM program around doing advisory fees started resonating with you more as well? Were you already in this mode of, "Jeez, I'm doing so much for my existing clients on an ongoing basis because I'm putting deposits into the relationship bank. These people are sticking with me for a long time. I may as well run an advisory business and build an annuity for myself along the way?" Or was it not that connected?
Ron: Yeah, it really was, I removed the conflict of, "Why is he making those recommendations? Is it for his best interest or my best interest?" and I love that. It wasn't lost on me that if I didn't take care of the client this was a bad economic thing for me, but if I did take care of the client I was way better off, if I were going to keep the client for 20 years. I really felt the way I was running my business that I was going to keep the client, and the other thing that excited me, Michael, I was in this room in '94 with other big advisors, and they all thought it was a bad idea, and then I knew it was a great idea because they were stuck on continuing to defend what they know versus embracing the unknown and the change in our business. In those days things moved very slowly, unlike today. I mean the speed of which change is happening, which is a whole other topic, by the way.
I think most advisors, they're on the eve of the most massive disruption that our...And I don't think it's just financial services. I think it's all over the place, and most advisors aren't prepared. They're like that group in '94, they didn't think advisory was going to be anything and they were still going to be able to sell high commission products to people. Most advisors are rearranging the furniture in their house and their house is on fire and they don't even know it's on fire. I mean that's how disruptive, but that's also how much opportunity there is for advisors if they're willing to change the way they approach the business.
Whether Sudden Success And Money Changed Ron And His Own Money Habits [48:34]
Michael: So tell me about the transition then that happened over the next couple of years from there. So you go from six years of, "Great job, honey. I almost broke $30,000 of gross production this year," to two years later you come home and it's like, "Great news, honey. We 30x-ed that and we cleared $1 million." So what happens to you in that environment? I mean that's basically the equivalent of a sudden money kind of event for people where we're doing leftover nachos for years and years, and all of a sudden we're doing $1 million of GDC in the early 1990's. So what do you do with all that money? Did it change your lifestyle? Did it change what you were doing? Did you just keep living on $30,000 and plow it all back into the business?
Ron: By the way, my wife was working for Mutual of Omaha, and she was making $9,000 a year. So it wasn't just 30. We had her $9,000 to put into the pot, too. We're very conservative people, and we couldn't believe it. I mean I said, "I never ever thought we would have this kind of money to do something with," and one of the very first things I did was, my dad was struggling on the farm, and we went up and I was able to buy farm ground. So we were able to build a true farming operation with the money that I was making in those days. We were able to help out Jeanie's mom and dad.
They were really struggling. Matter of fact, her dad every year had to borrow money from the government. The government would loan money to farmers and every year his balance got bigger. So we were able to help them out. So we were really able to help our families out as a result of this money that we were enjoying. But it really didn't change the way we lived. I'm proud to say I have three great kids today that range in age from 28, 25, and 20. Their whole life even though we've had a lot of financial and economic wealth and options, we raise them the same way. They did chores, they didn't get to buy anything they wanted. If they left lights on in the house they got fined $10 that they had to write out of their own account for it, which by the way went into their investment account. They never knew that. They thought I was the meanest dad in the world for doing that. Because I've seen just how money ruins people, even the people, even when I was struggling and I would see that people had a lot of money and didn't really make it on their own, they were some of the worst people I'd ever met in my life, and I didn't want to become them.
Michael: So what happened from there? So you get this explosive growth and you're up $1 million of production two years later. So two years after that was it $2 million and two years after that it was $4 million? Did it just keep multiplying and you're working with wealthier people?
Ron: It did.
Michael: What happened from there?
Ron: I always say the harder I worked the luckier I got, but I had a handful of lucky breaks that happened. I mean one was, I had an executive from a company locally, Kiewit and Company, one of the largest private construction companies in the world, and they had a stock in those days called D Stock. It traded from very, very limited and it was really hard to get, and I had a client come in and he had like $60 million of this D Stock, or prospect actually at the time. He wanted to know if I knew anybody that was interested in buying some of it. I called my compliance department, which was LPL, and I said, "Can we facilitate this? Can we actually, if I help…
Michael: You are a broker-dealer, right?
Ron: Yeah. So we did. So all of a sudden that relationship, not only did he become a big client of mine, but that led me to other clients, and at the same time one of the people that bought some of the stock was an executive of Northern Natural Gas, which became Enron, by the way, but back when it was really good they then brought us in to do brown bag lunches. And we picked up a bunch of clients from there and then that led to California Energy and MFS Communications, and I added more advisors and I added more stakeholders. The business just flourished from there. I mean there are a lot of different things and growing pains that happened along the way, but it was a result of all of the effort, time, energy, and failure that went into the business that allowed me to see and recognize opportunities and really how to maximize those opportunities.
Why Management And Delegation Roadblocks Keep So Many Advisors From Moving To The Next Level [53:34]
Michael: So as the business grew and you had to start adding advisors, hiring stakeholders, what was that transition like for you? Is managing people and overseeing that kind of growing business, is that a comfortable thing for you? Were you happier to do that than to have to go out and get clients? Or was that still a challenge for you, just getting comfortable with managing people and dealing with business dynamics as opposed to advisor/client dynamics?
Ron: Yeah, I wasn't very good at it, Michael. I think I've recognized what my strengths are and I delegate everything else. My strengths were not hiring internal stakeholders, but I was a really good trainer. I could take an advisor, I could mentor them, I could really help them become very successful and teach them, and I love that. I love the mentoring and teaching and that part, but I was terrible at manage...Like when they'd come and say, "I want a higher payout, I want to get paid more, I want this, I want that," I always had this like, I can't believe you're wanting that, thinking everything we've done, and in retrospect they were more right than I was. I mean I probably never gave enough credit early on to the people that really helped me get to where I'm at today. It really took a maturity and a level of self-actualization of what's important, what's not important, to see that.
So I wasn't good at it, but I did know how to be good at it, similar to I didn't know how to be a good advisor, but I eventually learned, and I've really surrounded myself today with people that...I focus all my time and energy on leadership and growth. I'm the visionary for the firm. I literally have two people that report to me, and the people beneath me are people that they take care of, they're people that really relate to all of our stakeholders, they allow for a very great culture, and it's because I recognized the limitations that I had as a business owner and a CEO.
Michael: I think that's an interesting phenomenon. So 140+ stakeholders, but you sitting at the top as CEO/visionary, you have two direct reports. Who is that, like in the org chart? Who is that? What does that structure look like?
Ron: So Teri Shepherd, who is our CFO and our COO reports to me, and Aaron Schaben who runs our institutional offering, Carson Institutional Advisory for Carson Group. He reports up to me. I guess technically there are three. My Chief Pilot reports to me, but that's really nothing. That's by design. A good friend of mine, Marty Bicknell, who owns Mariner, he's got more reports than I do, but he's been a good mentor to me on not deluding yourself too much and doing a bunch of reviews, and him and I are part of a YPL financial forum group, and I would say we've learned a lot from each other. He's been directly responsible for me having less reports.
Michael: Yeah, I feel like it's one of those things that is a struggle for so many of us, I was going to say as advisors, but I don't actually think it's unique to our business in particular. But that whole idea, especially I think when we're the business owners, where you've got your hands in everything, you want to have your hands in everything. You can't have your hands in everything because at some point the business is too big and you can't. Never mind if you also just don't like managing that many people in the first place. And you hit that wall where you've got to make some kind of shift and say, "I've got to actually have some people to help me manage the people." I feel like that's the first wall. Once you get through that, then the layers just get deeper as the organization gets bigger. But the first one is like the first time you hire a person to manage a person so that you don't have to manage the person two people down, you just manage the manager.
Ron: And I think first of all, from my viewpoint of looking at our practice consulting group, advisors get to a certain level, and if they can't make that shift they never really break above that. They stay at that level because they have turnover and they're not effective at getting the most out of people or giving people clear direction on what it looks like long-term with their firm, and one of the things too that has really worked well for me is having the ability to share in the value, not just income-wise, but real value. Letting people be entrepreneurial. We have a very bottoms-up innovative philosophy with top-down encouragement, and that is a beautiful thing. When people in the trenches are getting to share in the economic value that they're creating beyond their salary and their cash compensation.
Michael: Is that like a bonusing structure you do? Or does that mean you're actually open with the equity of the advisory business? I feel like that's a very hot and controversial topic in our space these days. Should advisory employees have access to equity or do you just pay them well? Should they have to buy the equity? Do you compensate with equity? So what does that look like for how you try to incentivize folks? Is that equity-based or bonus-based or something else?
Ron: The answer is yes, yes, yes, and yes. So you've got cash comp and then we have what we call results-based pay. So we compensate people through bonuses based on, you know you can be an achiever, a top achiever, an elite. And it really has to do with your direct contribution to the firm, and there are very measurable ways of doing that, but beyond that, we have what we know as really shadow equity for about 54 of our people here, so they share in appreciation of the firm. It's a very specific formula of what they have to do to get it. It comes with a four-year cliff vesting schedule every year.
Then I've got my core group, my executive committee of five. They actually own equity in the company. I actually had a liquidity event so we could reinvest in the future, but at the same time we'd professionalized about a year ago and brought in a private equity group, and I also had the five buy...They actually bought in, but the company allowed them to borrow from a bank that's a client of ours, and then the company guaranteed those notes. So they've got real skin in the game, but they didn't have to put a lot of money down. They were able to buy more of that, and I think that's going to be one of the biggest challenges in the future, is getting the right stakeholders on your team and having an alignment of incentives so they can be entrepreneurial and they don't leave you to go compete with you, because the best people will if they don't see that kind of opportunity.
Michael: So is that like a giant S corporation structure to actually facilitate that and all the carving up of shares?
Ron: It is. So people listening to this will go, "How does he actually do that?" So there's a firm out of Omaha here, McGrath North. There's an attorney by the name of Jeff Pirruccello who is one of the brightest guys. I'll put him up against any attorney in the country. He's our corporate attorney. He designed this program where we make the grant each year and it functions like an option, but it is tied directly to the future value of the firm, and it's taxed as long-term capital gains tax. So it's a very tax-efficient program. The thing I like about it is these awards get made every year, and they always come with a four-year cliff. So if you don't retire from here you're going to walk away from four years.
Michael: Your last four years' worth of…
Ron: Yeah, and when I bring people in I tell them, "This is how it works. I expect you to think of this as a life sentence in a positive way. I want you to believe that you can be here for the rest of your career." We have some people that have been here for 25-26 years, and we've got really good stakeholder retention.
How Ron Learned To Delegate The Management Side Of His Business [1:02:14]
Michael: So as we look at this, you've got the first six painfully lean years, you have your breakthrough on love affair marketing and going deep into this referral marketing driven process, but you really enjoy training and mentoring. So at some point did you start shifting away of literally doing less client facing work and more training the advisors that you had to start hiring in this business as it was growing?
Ron: I would say I did less, but I never wanted to get away from it because I didn't want to lose touch with what our value proposition needed to be because I was too far removed from it. So I'm still in the trenches directly with clients and I'm still in the trenches…
Michael: So you still keep a personal client base, then?
Ron: I have a handful of clients, but I'm in client meetings all the time. It's one thing...Andy Putterman who just did our company retreat earlier this week, we were having a discussion because I'm in another group, YPO financial group with him, and he was talking about something and I said, "All that tells me, Andy, is that you've not been directly in a client meeting for a while," because someone can describe what happens in that meeting, but it's totally different when you're there and you see the body language and you see the reaction, good or bad, to something that you're saying or something that you're going through. That shift really dictates how the business is shifting, the attitudes of people and the way they want to be...we used to spend our time looking at performance reports, and now it's outcome-based planning and what are the outcomes and what do the millennials and young professionals expect versus the old traditional client? If you're not in meetings, you're going to miss...You can't read about it. You need to be there to really understand the shift that's taking place.
Michael: And I've noticed you mentioned a few times YPO. What is YPO?
Ron: I've been in YPO since 1994, and it's the most incredible business. It's called Young Presidents Organization. It's an international organization, and anybody listening to this, I would strongly advise you...I just sponsored Aaron Schaben, one of my reports. He's in YPO. It's really a board of directors of other business owners in your community that you can, at the highest level of confidentiality, you can take any business issue to, any personal issue to, and have help, and this becomes your fraternity for life. Also the YPO group, I can call someone in Brazil, in Germany, in Italy, and there are business connections and people to help me get things done anywhere in the world. For people not, they qualify and if they're not in YPO you're missing one of the best opportunities to really grow your business, but also to have some help in your personal life.
Michael: Do you pay like a membership fee? Is this an association style thing?
Ron: It is.
Michael: Like we have association fees we pay internally in the industry.
Ron: You pay international dues, you pay U.S. dues, you pay state dues, and you pay local chapter dues. It's not inexpensive to be in.
Michael: I was going to say that sounds like a lot of layers of dues. So how much am I in for if I want to actually be involved with YPO?
Ron: It's at least $15,000 a year, but then if you go to any of the universities that they have, it can grow from there, and I actually pay it for Aaron, and I would recommend anybody that's considering doing it to ask your company to sponsor you and to pay it because you will get many, many multiples of the value back out of it for your organization.
Michael: Very cool. So we'll make sure we put something about that in the show notes as well for YPO so people who want to go and look it up. So again, show notes for those of you who are new to the podcast, we're on episode two here, so go to www.kitces.com/2. It will take you to the podcast interview here with Ron and all of the links that we've mentioned about Robert Cialdini's book and now YPO.
So Ron, I know in addition to the Carson Wealth Business, you've got a coaching business as well that you mentioned a few times. So when did that come into the picture? Because you clearly weren't busy enough growing the advisory business. So when did coaching show up?
Ron: In 1993. What happened, Michael is that literally overnight at LPL I was having this level of success and people were like, "Can we come out and spend some time with you on Omaha?" And I was just flattered that someone would want to come to Omaha and spend the day with me. I didn't charge anybody for this. I just did it. I was like, "My gosh…
Michael: When your peers come and ask you and it's very flattering.
Ron: Yeah, this is taking a huge amount of time. So why don't I start a little business, charge them a little something for the time, and it was really nominal in those days. The more I did it the more it grew, and like I said, today we have 2,800 active alumni, people that still use different services here and there, and then 1,100 that actually pay us a monthly consulting fee to access our nine executive coaches and all of our tools and our electronic dashboard, digital fortress, and all of the things that could really make them more effective as an advisor.
Michael: So can you tell us a little bit then about Peak Advisor Alliance? What kind of advisor joins? What does it cost for them to be involved? Because I feel like there's a lot of folks out there that are looking for places for ideas or insight or help. So I'm fascinated by YPO and now what you're doing with Peak. So who's a typical Peak Advisor or advisor?
Ron: I just looked at the last Barron's list. So about 20% of the top 100 are actually clients of Peak. So what we find at the bigger advisors is they don't come in and just follow the recipe for, "Hey, do things this way." They'll pick and choose what they want for their business and they'll really leverage the coach. Then you've got the smaller...So we have 200 multimillion dollar advisors that are part of the program, people who are doing $8 million, $9 million, $10 million a year in production.
Michael: So they're looking for select ideas they can take home. If I go to a conference and I find one really good idea I can take home, especially at a business that size, that's very material to the business.
Ron: Yeah, or they use our events. There's a lot of stuff. They say, "I use this every year. It just fits perfectly because I don't have to have someone else do it." Then we've got the small advisor that, like me, they're not doing hardly any business, and the price point, I can't even tell you what it is, but it's so low it doesn't matter, Michael. I think we have an option for $100 a month or something like that. But it's not a great business to be in if you're doing it to make money. It's not a big moneymaker for us, but it's given me tremendous satisfaction in my career to be able to do this because I wish I would have had something like this when I was struggling to figure the business out in 1983. It would have helped a lot. So we really run the gamut from super small to very large, and we have something we can provide value to all the way in between.
Michael: Where's the center of gravity for you today, then? So 1,100 active advisors in a coaching business is a pretty darn big coaching business in its own right. Is that where you put a lot of your focus these days? Or is it mostly on the Carson Wealth side?
Ron: It's actually neither, Michael, because Laura Pierson runs Peak and she does a phenomenal job. Paul West runs Carson Wealth Management Group and he does a great job. My focus has been since 2010 is really building out Carson Institutional Alliance. That's where I recognized, similar to the struggles I had in '83, in 2010 I was looking to the future going, "I see a lot of change coming in this profession," and it wasn't just the digital advice platform, but it was the buying attitudes and the way people thought about advisors, and realizing that we were moving to a pure meritocracy in the way people would or wouldn't pay for services, and yet there are a lot of advisors out there that were still stuck in the old traditional model. They probably weren't large enough to fight off the regulatory challenges and emerging technologies that are out there, the demographic trends that we have.
Throw on top of that a fairly fully valued market, zero interest rates. I call them the four buses of destruction and disruption. I was like, I want to build something that advisors can associate with but not sell their practice, but have the ability to plug in and to be part of, to have...I have 38 people dedicated to research and managing money to make those people their people. So when you look at our partner offices, they literally can get back to doing what they were doing, and that was the relationship side, and let us figure out what the offering should be, let us figure out what the optionality for technology, let our people do your writing for you, let us do your websites, let us do your blogging, let us do everything for you so you can really get back to growth mode. Then if and when you want to have a succession solution we can be there, but we don't have to be there. It's like an advisory relationship with an advisor. You can leave anytime you want, and that has been by far the fastest growing part of our business, and in many ways, it's been the most satisfying part because we've really, really moved the needle with many advisors.
Michael: Would you characterize that as a TAMP offering? Should advisors compare you to SEI and Asset Mark and those kinds of platforms? How would you distinguish it?
Ron: Yeah, it's a turnkey integrated partnership. So you think a TAMP. It's asset management. We do asset management, but we do everything else. I mean we literally will get on the phone with your client, we'll come and do a meeting, we do the planning for your client. So our whole wealth enhancement group will do your planning. We do everything, and so all you have to do is meet with the client. You get your local representation, your local brand, everything that you do, and we literally do everything else for you. So it's so much more than what a traditional TAMP would provide today.
Michael: And how do advisors pay for that? Is that a platform fee? Do we pay basis points for the assets that are on the platform, and then the rest of it is bundled in? What does that…
Ron: Yes. It is paid through asset...On all of our strategies run 20-65 basis points that the advisor pays, but a lot of our strategies don't have any additional cost because they're two or three or four basis points. That's it because we're running those strategies internally. So most of the time when an advisor associates, their cash flow goes up because we do 100% payout and their clients actually reduce the cost that they're paying. Then all of a sudden, our guys are writing for U.S. New and World Report or Yahoo, but these become their people, and their clients go to their website and all of a sudden they're relevant in any situation, any market, and any prospect that they're talking to they compete with today.
The Single Most Important Thing Advisors Should Be Doing To Ensure Success Tomorrow [1:14:27]
Michael: So is that the dynamic that you see? You've talked a lot about the looming disruption going forward. So is it your view that going forward, you have to either be in a large firm or at least be affiliated with a platform that lets you feel and operate more like a large firm? Are we on the infamous cusp of the death of the solo practitioner? Is that where you think this goes over the next five and 10 years?
Ron: Yeah, and it really hasn't accelerated yet, but it's very close. I mean the market's the third most expensive it's ever been. Even though rates went up yesterday, they're still virtually zero. So that's putting a lot of pressure on advisors, and if we have a 20% or 30% decline, all of a sudden a lot of advisory practices aren't profitable, and clients are looking and saying, "What have you done for me lately? You really haven't provided a lot of value." So they're going to migrate to those companies that have value propositions that they can see beyond a doubt that they're getting value. And while Trump may do something on DoL, regulatory change is here for good, and the emerging technologies that you talk about, you know about, I mean that is truly the tip of the iceberg.
There's so much in the way that clients are going to be able to communicate and have true data to where they're even going to be better at figuring out if their advisor is truly adding value, and you need to be...Picking your partners for the future I think is the single most important exercise advisors should be going through today so they can be successful tomorrow.
Michael: But the flip side is you are making the case. If I'm out there with a solo advisory firm, I don't need to sell my firm and just go get a job somewhere else because I'm doomed. Platform support systems are at least a midpoint that lets me survive. It's just building everything from scratch on my own is the problem here? Is that where you're looking at this future environment?
Ron: Yeah. That's why CIA was born, because I wanted to give the small advisor the option of saying, "I don't want to sell my firm and I want to keep my brand and all the things I have in my community, but I want to have the benefits of a $9 billion or $20 billion firm. We really have the breadth and depth now of $20 billion because we took an investment in a firm in Chicago, which you probably read about earlier this year, and that just gave us 10 models of a 10-year track record, gave us amazing pricing. So now we're negotiating at a $20 billion negotiating position versus a $9 billion negotiating position, and in three years we'll be negotiating $50 billion negotiating power, and that gives you tremendous optionality for lots of things to really drive the client experience.
Michael: So as you look back over this 30-year career trajectory, I mean I feel there are a couple of days. There are the deep, dark introverted sales days that you only look back, now in retrospect I'm sure it's a lot more entertaining than it was live, real-time back then. Then there's the breakthrough on love affair marketing and the business starts the hockey stick of growth. Then there's the coaching business that builds out over time. Now there's the Carson Institutional Alliance platform that builds out over time. So as you look out over these, is there anything that looking back you wish you'd done substantially differently? Any major regrets? I guess that could be the business lines or just crossroads you hit in the career where...I always feel like when I talk to successful people, we tend to talk about our failures. There are two types of failures. There's the, "Wow that sucks, but I did learn a lot about it, and ultimately it made me better in the future. Then there's the one which is like, "No, that was just freaking terrible and I hope I never do that again."
So I'm curious as you look back, are there, I guess either failures that stick out to you on either side of like, that was horrible but if anybody ever goes through it, view it as a growth opportunity, and any that you look back and just say, "Hey, anyone who's listening, whatever you do, don't do this, because I did it and you don't need to learn that lesson"?
Ron: Yeah, I have a bunch. I failed so much, but I did view failure as a true learning experience. So I was never afraid to try things because I realized I would learn something from it, but I'll give you some of the highlights, Michael. One is, I didn't have enough options early on in my career. I didn't give people many ways to win. I had some lucky periods with performance that I thought I was better than I was, and I realized the market will do whatever it needs to do to prove the largest number of people wrong in any given time. So my realization was, make sure your strategies do what they're expected to do and make sure the client has an appropriate risk budget, and they'll never leave you, because expectations will be appropriate for what they're looking to do. Also, never hire cheap people. Meaning, if you ever think you're getting a bargain on somebody, good people are worth the investment that you're going to make, and I would always try to get people that were, I thought I was getting a bargain on. You never do. I also was a micromanager.
One of my billionaire clients said, "Ron, hire the best people you can find and get the hell out of their way." So that was a major failure I had had. Once I did that and I turned that switch, it made all the difference in the world. I didn't invest enough in technology. Today we're huge investors in technology and have been for a decade now. I thought I needed to be a library. I thought I needed to know something about everything. I need to be a librarian. I need to know where to find it. Also, people smarter than me, which is almost everybody that I know, threaten me. So I didn't surround myself with the best people I could possibly find. So I could go on and on, but Albert Einstein failed over 2,000 times. Most people, the average attempts before they give up on a goal is .78, which means I'd rather fail 2,000 times than never get started trying to accomplish the things I want to accomplish.
Michael: And is there something you do to maintain that persistence? Sadly, most people give up after 0.78 attempts. Failure sucks. It doesn't feel very good and it's depressing personally and sometimes doesn't reflect well on our family or peers. Even spouses are like, "So when are you going to go get a real job because you're failing at this thing for a long time?" Is it just something about how you're hardwired that you pushed through that? Is there some support system that you built to get through those things? How do you deal with it?
Ron: A couple things. One, I early on read a book, and many people listening to this have read it, but I re-read it or re-listen to it every year. It's called Napoleon Hill's Think and Grow Rich. I don't care if you've got an MBA from Harvard or MIT, it's not as valuable as Think and Grow Rich for the mind and how the mind works and how, if you view failure as a learning experience you will become an amazing success at the things you're trying to get done. I have a paperweight that I'm looking at right now. It sits on my desk. It says, "You've not failed until you quit trying." I have that same message on my phone. I have that same message on my iPad, and there is no such thing as failing unless you just don't get up and try it again.
So Napoleon Hill, I've got goals. This time of year I'll be resetting my 20-year, my 15-year, my 10-year, my five-year, my three-year. I'm just looking now at my one year. How did I do? Because when I get to the end of my life, and we're here for such a short amount of time, Michael, it's like I want to at the end say, "I'm glad I did," not that I wish I had. And we have an opportunity as financial advisors to make such a positive impact. Let's be the best that we can possibly be and let's leave this world a better place than we found it.
Michael: So last question then. For someone that's had this level of success, the growth of the business, effectively the growth of three business lines, we haven't even talked about some of the rest of your world. You have a plane. You fly all over the place with occasionally some interesting people. I think I saw a picture last year of you on your plane with Ashton Kutcher and Mila Kunis. So you've gotten to some pretty cool places. So I'm curious from your perspective, how do you define success?
Ron: I define success as accumulating true wealth. I define true wealth as all that we have that money can't buy and death can't take away. When you think about, and I've seen this with people. Jeanie and I experience this as well, it's like money truly doesn't make you happy. It's having a higher purpose and making a true difference.
We started a foundation called Dreamweaver. So we provide wishes for the terminally ill, unfortunate, financially unfortunate elderly, and we did 28 dreams this year. Next year we'll do 50. We started this four years ago. That's what excites me. My vision is when I die I want to have Dreamweaver in every major city in the United States to have a chapter, and I want to have enough money that I can endow that to survive for 100 years beyond while I'm here. So that's something much bigger than me. It's vain. I know it's a little bit of vainness, but my bigger fear is to exit this earth, Michael, and not be relevant at all. And I want to make a positive difference in our profession. I really feel like our profession has not done a great job for the consumer. I think John Bogle is a true hero of mine. By the way, he's got a great book called Enough, that I strongly recommend as well. If those two things are accomplished and I've accumulated these true wealth experiences with my family, that's how I define success.
Michael: Well, that's amazing. Thank you. We'll make sure we get a link in the show notes as well both for John Bogle's Enough book, which I know a lot of people very highly recommend, and Dreamweaver Foundation as well for those who want to look at a little bit more of what you're working on there. So thank you again so much for joining us today on Financial Advisors Success Podcast. I hope it's been an interesting conversation.
Ron: Michael, you've been amazing. You ask great questions. I'm looking at the time. It's almost an hour and a half. It seems like we've been talking for 20 minutes. So thank you for inviting me to be on your podcast.
Michael: Absolutely. Thank you. Again, for everyone who wants some of the resources we talked about, Napoleon Hill's Think and Grow Rich and Cialdini's book and YPO and some of the businesses and the foundation that Ron's created, we'll have that in the show notes as well. So again, go to www.kitces.com/2 and you can take a look at all of that as well. So thanks to everyone for joining us, and have a great day!
DB Hawthorne says
Outstanding! Thanks again Michael.
Matthew in Seattle says
Wow! Another great Success Podcast. I really admire Carson’s commitment to making our industry better for everyone. I can’t think of any other multi-billion dollar firms that are this open about their success and failures. Thanks Ron.
Michael Kitces says
Thanks Matthew! Hope it was helpful food for thought!
Great Podcast Michael and always fascinating to hear things from both of your perspectives. That said, having been in this business for 17 years like you, do I really think or believe my former LPL mate went from almost being out of the business to accumulating 100 million in assets in just 2 years with “love affair marketing”?…….absolutely not. Great story however.
Michael Kitces says
So you’re saying I needed to delve further into what EXACTLY happened over that 2-year period? Duly noted. Will delve further next time. 😉
Not sure if you needed to do anything different. As a blue collar practitioner for lack of a better phrase that has busted his butt year in and year out and thankful for every client I have, my experience in talking to my friends in the business and colleagues is that the mega firm is built on family connections or buying the business outright. I don’t think some of these mega producers are honest in their own story as it doesn’t play well.