My guest on today's podcast is Sarah-Catherine Gutierrez. Sarah-Catherine is the founder of Aptus Financial, a fee-only financial planning firm based in Little Rock, Arkansas, that is approaching $2M in revenue and works with over 480 client households.
What's unique about Sarah-Catherine, though, is that despite the common industry belief that the only way to build and scale a firm is through AUM, she has built a multi-advisor firm serving hundreds of clients while operating as a flat-fee advice-only firm … which is expedited by Sarah-Catherine's focus on building sustainable marketing systems that keep her advisors from being 'distracted' by the time-consuming task of prospecting for clients and solely focused on efficiently delivering financial planning to their clients instead.
In this episode, we talk in-depth about how, despite some false starts and initially problematic underpricing, Sarah-Catherine intentionally built her financial planning fee to transparently communicate her value and the work she does as a financial advisor while also pricing within a range for her originally accidental (but now fully embraced) niche of recently graduated physicians, how Sarah-Catherine built a trust-based Center-of-Influence and referrals system that is so strong that she no longer has to worry about where the next prospect will come from, and how Sarah-Catherine uses her onboarding process to convert ready-to-act from prospects to fully informed clients with action plans in only 2 calls.
We also talk about why Sarah-Catherine has segmented her planning fees by charging an initial upfront fee for the first year financial plan, decreasing to a lower year-over-year fee for ongoing client service, coupled with a consistent additional end-of-year annual review fee, how the unique challenges of Sarah-Catherine's niche clientele caused her to build a completely custom financial planning spreadsheet to do her planning work efficiently, and how Sarah-Catherine builds customized cashflow management plans for new physicians planning to understand their current financial situation and their trajectory towards early retirement.
And be certain to listen to the end, where Sarah-Catherine shares how, as a founder, she has learned to get comfortable simply leaning into her instincts, even when she can't fully back up a decision with numbers, finding her own compass for determining what will best for her clients and the company at large, how Sarah-Catherine's determination to remain neutral in her marketing, rather than 'salesy', has ultimately opened up speaking opportunities and created new prospect pipelines, and why, despite the grueling intensity of deciding to scale her planning business with all the hiring and systems-building it entails, Sarah-Catherine finds it all worthwhile now that she's on the other side, with a healthy marketing system that means she is no longer worried about where the next new client will come from to cover her growing payroll obligation.
So whether you're interested in learning how Sarah-Catherine utilizes her touchpoints to help her "guided DIY" clients continue to act, how she manages both the hard dollars of budgeting and soft dollars of future ambitions to help clients both live the lives they want today while also ensuring they can enjoy their future, or why she muscled through the grueling intensity of the early years of scaling a business in order to deliver affordable financial planning to over 30,000 people who wouldn't be eligible to work with a 'standard' financial advisor, then I hope you enjoy this episode of the Financial Advisor Success podcast, with Sarah-Catherine Gutierrez.
Resources Featured In This Episode:
- Sarah-Catherine Gutierrez
- Aptus Financial
- Ladysplaining Money
- First Step Cash Management System
- The White Coat Investor by James M Dahle MD
Looking for sample client service calendars, marketing plans, and more? Check out our FAS resource page!
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Michael: Welcome, Sarah-Catherine Gutierrez, to the "Financial Advisor Success" podcast.
Sarah: Hi. Thanks so much. It's great to be here.
Michael: I'm really excited about today's episode and getting to talk a little bit about scaling advisory firms, and particularly scaling into the so-called advice-only model. I've been fascinated with kind of this emergence of, we went from selling products or commissions in the old days. Then we started moving towards advisory fees, like AUM model. Then we started kind of charging standalone fees for financial plans with hourly and the like, but a lot of advisors struggled to sort of scale beyond that. We've seen some building towards subscription fees, but a lot of advisors in those fee models, at some point, have a tendency to add assets under management back in or back into the model, because there just is a lot of economic robustness around a lot of clients who are willing to hand over dollars and it provides some stable growing, recurring revenue. And so, I know you have lived this world where you have built very sizable flat-fee, advice-only model when I still hear a lot of advisors say, "Okay, well, maybe you can make a good living at advice-only, but you can 'never' scale that beyond yourself." So as someone who has and has now built a multi-advisor firm in this kind of advice-only model, I'm really excited to understand what this looks like as you start building and scaling where you "just" charge advice fees and planning fees and are not going back to the asset management side of the business.
Sarah: That's right. It's a really exciting, I think, new, as you've just pointed out, it's a new direction, I think, in financial planning. And we can absolutely talk about why it's so difficult to scale. But I always like to just kind of paint just the carrot here of what you're looking at. Imagine if you could be a financial planner and that's really what you're doing all day long. And that's what our planners get to do. There's no prospecting. There's no, the kind of the asset aggregation pressure. We literally just get to do financial planning all day long. So I imagine people listening to this podcast probably highly correlates with financial planners, very talented financial planners, if you're taking the time to really self-educate like this. And so, I think there's a lot of really attractive reasons to think, actually this could be a great thing for a lot of people to go into.
Aptus Financial's Fee-Only Pricing Structure [5:59]
Michael: So I think to kick off here, just tell us about the advisory firm as it exists today. Just help us get us oriented about what this advisory business looks like.
Sarah: Sure. Well, we've got 2 sides of the business. And the side we're going to be, I guess, primarily discussing is on the financial planning side of the business. And on that side of the business, we have several financial planners and essentially we have clients who sign up for a very explicit process that we have that has come over many, many years of refinement and testing and seeing what's successful. And so, it's essentially the majority of people go through a two-meeting process that gets a financial plan in place. And then, they stay with us, kind of a pseudo-subscription I think you could say, on what we call AptusCare, where we're able to help people nudge them along to implement their financial plans, and then we have an annual kind of review, annual rebalancing that we do with our clients.
And so, each planner interviews their own client. So we have all incoming interests from folks, so we get about one email a day from people who want to be clients of Aptus and we distribute those out to our financial planners and they interview. And the interviews are actually 2-way. This advice-only model is not for everyone. We're really careful in our interviewing to make sure that this person or this couple is going to be right for us. And so, yeah, if it's a good fit, basically right there in the interview, they schedule... a lot of people just go ahead and schedule that first meeting, usually a couple months down the road, depending on how busy we are. It can be 3 or 4 months down the road to get that first meeting in place. And we have a whole onboarding kind of system that happens in the background. Of course, compliance and all of that. But it's a pretty straightforward process.
Michael: So a couple of questions I've got here as I'm getting perspective around this. So how many clients is it?
Sarah: So it's going to vary, right, by the day, because it's a pretty high-volume business, as you can imagine with clients, being advice-only. So our trailing 12-month client count's 480, if that gives a good sense of...
Michael: 480 clients.
Michael: Okay. That are in the...is that who are in the ongoing subscription or that's who did any kind of planning that could have been 1-time or ongoing?
Sarah: Well, we don't do one-time, so everybody kind of follows the same path. So yeah, it's people who are engaging in our services. Yes.
Michael: And so then, how do services price?
Sarah: Okay. So we have the majority of people come in with our comprehensive financial plan. And by the way, all of our pricing is on our website. So if anybody's listening here, you can go to aptusfinancial.com and you'll see a pricing page. And we are big on pricing transparency. We want people to absolutely know exactly what they will be paying if they work with us. So you can see that our comprehensive plan is $3,360 and then we ask that all of our clients, the first year, have our more robust, we call it AptusCare, but that monthly servicing, because there's just a lot that usually needs to be implemented when we create the plan with our clients, and then have a pretty lengthy to-do list. And so, that's $187 a month.
And then, from there, we have our clients, every year, pay for that review that I was talking about. And that is $1,120. Now there are some people that come in and they are already very competent. We call them DIYers. They really know what they're doing. They're coming to us because they have a pretty explicit question and want to become a client. They really don't need that 2-meeting process. They really just have 1 thing they're wrestling with. And so, in these kind of a little bit rare cases, we can do a limited review and the pricing is all there as well. So that's $1,680 with a lower AptusCare of $93 a month. And then, once folks come through with us and they're really competent, and we are big on empowering and educating our clients so that they can take on more and more and more, many of our clients will say, "I don't need quite as intense servicing through the year," or we'll suggest they don't need quite as intense servicing in those subsequent years and they can drop down to that lower level of AptusCare as well.
Michael: All right. So a couple of questions I've got here. First, just $3,360, $187. These are remarkably precise prices. So I've got to ask where do these numbers come from or how are you getting to a point that you price there? I found most advisors, for better of worse, like I say, the annual review is $1,000 or $1,100 or $1,200, not $1,120. So I'm assuming there's a method to how we get there.
Sarah: There is. And our clients love us for this. So once we were able to strike what we thought was the right balance of pricing, which was what's good for the client and what is good for a really, really good financial planner, right. We have to imagine the kinds of financial planners that we are attracting. We want the best, right? So our clients understand that they're paying for really high-quality financial planning. So once we found that sweet spot that we thought was right for the client, right for the planner, we have kept our blinders on to kind of sometimes what I would hear when I would go to industry conferences, which is, "Oh, you're running a waitlist. You can't get in for 4 months. You need to raise your prices." We don't do that. We have kept our blinders on to that because we really have a target clientele that we want, and we think this is what they can afford and we think it's fair pricing for them.
Now the precision in the pricing is really because we have an inflation adjustment that we have all of our clients agree to. And so, when we did that first inflation adjustment last year, obviously we had to do that, we sent a letter to our clients, let them know and it was a very kind of precise adjustment that everybody had agreed to. So we didn't lose folks to it. But yes, it does make it seem hilariously precise, but that's the long-winded reason.
Michael: So once you start applying inflation adjustments, all the numbers start moving to not-so-round numbers.
Sarah: Correct. They used to be round and cute, but they're not anymore.
Michael: Right. And then, you move off that as the inflation adjustments kick in. And out of curiosity, so trying to visualize how that works, upfront plans, just the new plans, the new inflation adjusted fee, annual review, I'm presuming the new fee's just the new inflation adjusted fee, how did that work for ongoing clients as you did an inflation adjustment? Just practically, you have to repaper everything with the new agreement? Is there some clause in your advisory agreement that lets you bump up the fee? How do you actually mechanically do that?
Sarah: Yes. We have that in our agreement that we can apply this fee and we notify all of our clients of it. It really is not a big deal. The pricing, I got to tell you, it has migrated. Do you know that I started this business, I was charging $45 an hour.
Michael: $45 dollars an hour...
Sarah: Yes, I was.
Michael: ...that was the hourly rate.
Sarah: Yeah. I couldn't do math, clearly. Math was not a strong suit. But just so you know...
Michael: If you can bill all 2,000 working hours a year and do absolutely nothing else, you can make $90,000.
Sarah: Right. But as you understand probably, that is not the way that works.
Michael: Makes a little bit hard to bill all 2,000 hours for the year. Yeah. At some point, you have to find clients, which is hard.
Sarah: You have to find clients and you have to...and there's an inefficiency and you just can't account for all of those. And so, I'm proud of that. I'm proud that we have explored every single price point you could possibly imagine, from $45 to $75 to $100 to $120. We have explored them all. And so, we've been around this price point for several years and it just feels so good to have finally hit that sweet spot, that's good for the client, good for the planner.
Michael: Is there an hourly equivalent that you target? We know it takes us this many hours to do the planning process, so multiply by a target fee and that's how we get to our numbers. Is that part of your pricing approach?
Sarah: Yeah. It is. So it really is based on hours. And so, we do assume in that comprehensive plan that it's going to be couple, 2 2-hour meetings and 8 hours of work. It is really very much our contemplated time. Our AptusCare, we contemplate and we really hold ourselves accountable to our touchpoints with clients. And so, yes, it does have that...I don't like to call it hourly because I think sometimes people get really locked into that. And we did used to do hourly. And then, people would be really focused on that and they might even shortchange themselves in the financial planning process, thinking about, oh, I can save money if we don't do X, Y or Z. And then, they can end up with a beautiful plan, but who cares about a plan that's gathering dust that's not getting implemented. We used to do 1-time planning. You could just pay for a plan and then come back later and again, we just thought, well, this is not satisfying at all. Our clients aren't...some them would take action, but not all of them. And so, that's when we kinda migrated to this system that, yes, it's based on the amount of work that we know it's going to take, because we've done this so many times, right. We've had over 800 clients come through, so we feel like we really know how this works and how long it takes. And that's how our planners... it's great for them because they're not having to wonder how they're going to make money. There aren't any inefficiencies in this process, right? Yes, you've got to interview, but that's nothing like having to prospect, right. If all you have to do is really interview however many people to get 1 client, it doesn't introduce a lot of those hourly inefficiencies. And so, yeah, it's a great model, I think, for the planner, that just wants to be a planner, knows how many hours they have in a year. They know how many hours they want to work in a year, I should say, because not every planner wants to work a full-time schedule, right? And some planners want to work more than a full-time. So it is great for them to be able to kind of plan out essentially roughly what they're going to make in a year.
Michael: So is there a particular hourly target that you were using as you built this out? Is all this underlying, ultimately we're trying to generate $150 of revenue per advisor hour or $200 or $300 or some number?
Sarah: Yeah. It's gone up. It's migrated. It's $150, $175. It's about $280 now. So that's kind of where we've landed.
Michael: Okay. And then, I'm presuming then the whole, we have an upfront fee, and then an ongoing fee, and then a separate annual review fee, just comes back to that we really want our fees directly aligned to the services the clients are getting at the time. As I hear this, I'm going, well, instead of $187 a month and $1,100 review fee, you could have $287 a month and no annual review fee. I guess, I'm curious to hear more of why sort of all the different fees as opposed to just kind of wrapping it into 1 subscription fee that's more stable and ongoing.
Sarah: Yeah, that would be so much easier and that's what we used to have, right? It's easier to explain, easier to say. But we always go back to what we think is fair and right to the client. And we've really just unbundled this in the last 12 months, within the last 12 months. And we feel like it's the right direction. So maybe if I'm on this podcast in a year, we come back and say, "Oh, that didn't work." But we have been in this just journey, because we don't really have a playbook in the advice-only world, right?
Michael: Right. You are one of the largest advice-only firms out there, so there's not a lot of let's look at what the others are doing and just copy the standard best practice.
Sarah: Right. And so, we're trying to strike this really good balance between, look, we don't want the clients overly thinking about the fees, because we really want the clients thinking about their financial planning process. We feel so good about the fees and the clientele that we're working with, which we can discuss that as well. We feel like it's fair for the budget of our clients. So we feel comfortable in that we want our clients really laser-focused on using us and getting this plan in place. No financial plan is any good unless it's activated, right. And so, that is really what we're trying to do is help clients feel so comfortable that we are taking care of them and we are charging the right fee, we're charging it in a fair way that they can trust. And that trust becomes a foundation, I think, of trusting our financial planning. So that's why I think it's working and it's all on our website. So it feels, I think, good to the client that they know what to expect and I think sometimes in the financial planning world, that's not always the case.
Michael: And I'm just curious. If you were living bundled and decided to unbundle into this, was there some precipitating event, precipitating moment that made you just like, all right, we got to kill this bundle thing and split out the annual review separately?
Sarah: No. We literally decided... in fact, my partner was the one that realized this is the right thing to do. And I thought... as the person leading that part of the business, it did make things more complicated, right? But he was just wrestling with it and we meet every Friday and talk. And he just was coming back and saying, "This just doesn't feel right. This just doesn't feel right. We should be charging explicitly for the annual rebalancing, the annual review." And when he did it, it just felt good. I don't know how else to...you know sometimes you make business decisions and you're like, I don't know necessarily...
Michael: Yeah, it just feels right. I feel it in my gut and sometimes you just sort of have to do that from the entrepreneur end. Because we joke sometimes, if you always did it based on the math and a spreadsheet, you would never go launch a business. Nobody launches a business if you actually do the math of the probability of failure and all the things that go with starting a business. So yeah, there's a whole thing of building a business that relies on a certain amount of "I'm just going with my gut" -ness to it.
Sarah: Yes. That's right.
Michael: So then, what is the setup too from a revenue perspective for the firm overall?
Sarah: Yeah, so, it's a constantly changing number and it's an excitingly changing number. Well I hope we're going to talk about how this is not all unicorns and rainbows. But it feels that way right now. So we're in an extremely exciting period of the practice where it doesn't feel as hard. It feels like it's flowing well. The financial planners that we are attracting are just incredible. So it's great. We're excited to hopefully soon hit that $2-million mark in revenue. And so, I never knew what to expect when I started the company in 2011. But it certainly wasn't this.
Michael: Yeah. Well, closing in on $2 million of revenue is a big number in an advice-only world.
Sarah: Yes. We're not there. We're probably a year away. But yeah, that's where we're hoping to get to.
Michael: So then, what does this look like from a team staff perspective? How many on the total team and then how many are actually advisors doing all this planning work for 480 trailing clients plus new ones coming in?
Sarah: Yeah, so that's about 7. And I say about 7 because there's a couple planners in there that have a dual role. So my partner, Tim, sees clients but really takes on this compliance CFO role as well. We have another planner that works with me closely, Stephanie, and she works with me on the retirement plan side, financial wellness, student loan. She's also a student loan expert. And so, she's kind of part-time planner, part-time financial wellness, that kind of side of the business. And so, we have the rest who are doing full-time financial planning.
Michael: Okay. So if I think about that from client base overall, you end out in this 70 to 100 clients per advisor doing all the ongoing work, supporting those clients. Am I thinking about that in the right neighborhood?
Sarah: Yes. And so, not every client, every planner is going to take on a full load. So...
Michael: Right, because they've got some splits.
Sarah: Right. Or they just don't want to. They want to have more work-life balance, that kind of thing. That's what I love about this is that people can decide that they don't want to work a traditional 40-hour week. So yeah, I think our planners can take on more if they want and still be doable, get to maybe 120-client.
Michael: And I guess revenue-wise, an ongoing client, $187 a month ongoing is about $2,200 a year. Then you get $1,100 review fee as well. A client is about $3,300... a fully engaged, ongoing client is about $3,300 a year. Am I thinking about that correctly?
Sarah: Yeah, that's right. And then it'll drop down, right. So then it'll drop to that $93 a month. Now some people want to stay at that higher level. I think in preparing for this interview with you, Tim was running some numbers and about 35% of our trailing 12-month clients are on that comprehensive, more robust AptusCare. And the rest have been able to graduate to that AptusCare Limited, that lower amount, that $93 a month.
Understanding Client Goals With A Detailed Onboarding Process [25:55]
Michael: You've talked about this 3 steps of there's an upfront financial plan. Then you get into the ongoing level with AptusCare. Then you've got an annual review. So I'd like to understand just what happens with each of these? I'm getting started, "Sarah-Catherine, heard about the business. This sounds really cool. Sign me up for Aptus. I want to become a client. I'm ready to go." What happens? What happens when I actually start down the process of I'm becoming an Aptus client?
Sarah: First of all, like every financial planner out there, we start gathering data. That's really important. And the way we gather data is we have them share through ShareFile, share their statements and get an understanding of their assets or, in our cases, we work with young physicians, their negative assets.
Michael: Or their debt. Yeah.
Sarah: Which is another, I hope we can talk about our clientele, because I really just think for anybody wanting to go into advice-only, there is a huge unmet need. But yeah, so we do a lot of this data gathering. We have a spreadsheet that we have clients fill out. It's not fancy. It is not high-tech. But we do our own modeling, so this is the spreadsheet that we plug into our model. And so, clients do a very extensive, extensive kind of scrub of their finances. And I love the reactions that clients have to this process. It's very, very intensive for them. They come out of this saying, "Wow. I didn't know I spent that on all these different memberships and subscriptions." So it's really a very healthy process, I think, for them because we really want the details and basically what's going to end up being their cash flow management system.
Michael: So I want to make sure I understand the pieces here. So I'm signing up. I get an email from you that says, "Here's our ShareFile. Upload your statements and the...well, balances and student loan information, if there's their context or that's the...upload all the documents. Then they also get a spreadsheet to fill out, which it sounds like is very cashflow-oriented. Where's your spending going? Where's your money going? Go track it and figure out where your dollars are going." That's the focus of the spreadsheet?
Sarah: That is. So yeah. Sorry, I did leave out. So we have that "Welcome to Aptus" email that explains, also it sets the expectations. We really want people to understand what we do and what we don't do. So we're very clear about what this relationship is going to look like and what to expect. And then, we do request this information.
We have the spending areas, like what are you currently spending. But we also have an area, a dreaming area. We want to know, "What are your goals? What do you want with your money in the next... what's your top priority? Do you want to retire?" So this is where we learn about our clients and where they're really passionate about money. We don't want to assume that what we want is what the client wants. So we really get that captured kind of high up in that Excel spreadsheet.
And then, secondary and third goals. And then, we have a section on how much car they have or plan to buy. How much house they have. How much house they want to buy. So we want to get a real understanding of what they're wanting lifestyle-wise on some of the big ticket items. And then, we have an income section. We really want to understand their income. Especially with physicians, it's really, really challenging. Sometimes physicians don't even know what they're making, right? They could say they're making $250,000 and then in the first meeting, we find out, oh, but you get a $300,000 bonus a year. That should probably go in here.
Michael: Minor details, but bonuses don't count in compensation, as anybody who has found whenever you hire someone, you offer this comp and this bonus and people just ignore the bonus and only look at whatever the salary is.
Sarah: Yeah. We could probably do some consulting after doing this with physician practices. But yeah. So we make sure that we really understand what benefits are available to them. So what are they using? What are they not using? Are they contemplating a high-deductible healthcare plan? What HSA is available to you for an HSA retirement saving strategy? So we make sure that we really, really understand everything available. Physicians, a lot of times, have those non-qualified deferred comp plans that they can save into. We want all the details. We want to know what the distribution would look like in those. So we spend a lot of time on compensation and benefits and really asking them, "Okay, can we see this? Can we see this? Can we see this?" Depending on what goes into that section. And then, we want to see the paystubs, because a lot of times, again, we'll have people that are saving into plans that they don't even know that they're saving into, because they had just kind of signed up and forgotten.
And so then, we get to my favorite piece that I think is the most life-changing piece. And that is the actual budget. And this is where we do the expense review where we make sure that we've accounted for bills. We've accounted for spending. But what always gets our clients is those near and intermediate term expenses, those big 1-time things. We force those suckers out. We are not letting those go. If you're going to do a remodel that's going to cost $75,000, it turns out that's actual money, that you had $75,000, you spent it on a remodel and now you don't have it. It's so funny. I feel like there's some spending that people don't consider as actual spending and we do. So this is where we can have some funny moments with clients and really tease out those kind of 1-time purchases. A lot of times, we'll say, "How much will you spend on a car?" And they're like, "Well, my car's paid off." And you're like, "Oh, fantastic. So you drive a 20-year old car. You're never going to buy one again." So we're able to kind of, again, tease out, okay, what are you likely to buy? And so, we try to get all of this out in that initial spreadsheet and of course, it's never right. But we do our best to kind of prompt clients to do it well. And then, in that first meeting, that is really, it's a grueling 2-hour meeting. It is incredible for the client and the planner. It's an incredible experience because you're really going through all...I know I'm preaching to the choir here. Everybody who's done this first meeting knows what I'm talking about. It's really where you get to know the client and you get to go through these numbers and get them right. That kind of that iterative process.
Michael: So I was going to ask when we go from the data gathering spreadsheet to the meeting itself, because you were talking about the drilling clients on, okay, but let's get into those intermittent expenses. Cool, you spent nothing on a car, but are you going to have to have a new one at some point? When's that one going to die? Oh, that remodel counts. So I'm assuming that comes in the first planning meeting conversation where you're going through the sheet. You're not guiding them on the sheet while they're filling it out...
Sarah: Fair enough. It's somewhere between. So the sheet is really good at about kind of teasing out these things, and then we're able to catch those little $75,000 remodel typically comes out the first meeting.
Michael: Little. Yeah. That little thing.
Sarah: So yeah. So then, the first meeting, in preparation with the first meeting, the planner does take the data sheet, is what we call it, and brings it into our model. This model was literally built from scratch. It is a work of art that Tim created. But it really is kind of paste it in, and then the planner has to spend some time ahead of that first meeting making sure that we have our state tax assumptions correct, that we have a lot of pieces of the model. Maybe they put that they make $100,000 a pay period and they meant it was $100,000 a year, or something. So there's a lot of kind of manual fixes to have the model itself in a working form. If they've got 529 assumptions, like college savings assumptions, we make sure that, depending on the kids' ages, that we drop those expenses. We drop the kid expenses at the right time and then add in the college. So there is some manual work that has to be done, getting the home amortization right, so that our long-term retirement projections are working. But I would say it's probably no more than, the model itself...we estimate a good, gosh, I don't know, probably 4 to 6 hours just in prep time, if not more, just going into that first meeting. But the Excel piece is probably not more than an hour or 2.
Michael: Okay. And so, all this is built around just a spreadsheet model that you guys use?
Sarah: Yes. And then, we have a planning report that we've created, the relevant pieces in the model that we want the client to take action on or to understand. We have it so that we can take those pieces out of the model and put it into the financial planning report.
Michael: Okay. And so then, I got to ask. Why not some of the other financial planning software that's out there?
Sarah: Great question. Because that would have been a lot easier.
Michael: I hear there are some other software tools that require slightly less personal software maintenance.
Sarah: It's not that it hasn't occurred to us. It's just that they don't work for us. So think about our clientele. They're in asset accumulation phase. They're not going into retirement. So the average age is closer to early 30s. And our cash management system, we just don't say "budgeting" because no one likes the B word, right? So we use "cash management system." So it's built on that. It drives everything. So we were sitting here testing out all these...and I won't use names, but a lot of different software programs. And the budget – cash management system – was kind of extra. But ours drives the model, if that makes sense. We spend the most time on helping our clients set up cash management systems. That's everything. Our clients end up with really incredible savings rates, 20%, 25%, 30% for many of our physicians so that they can retire on time or early. And so, it's the cash management system. And until we can see software really arrive at that where the planning and the projections are driven from granular, granular data like that, we're kind of stuck with this system. But it works.
As you know, the financial model and the financial plan are such a small piece of this. The real financial planning is the implementation. It's the brain science. It's the behavioral science. How do you get your clients to take action? That is 90% of what you're doing as a financial planner. So for us, we just never really worried so much. The model works well. We're able to get the granularity we need. If a client is saying, "I'm about to move to San Francisco. Can I afford a $2 million house?" Well, we don't have to say yes or no. We plug it into the model and the model speaks for itself, right?
Michael: Right. So what else happens in this first planning meeting? It sounds like the thrust is you're going just through every line item of the spreadsheet. You're doing what we do as planners of, so tell me more about this number and let's talk about this number, the whole, "Cool, you really have nothing budgeted for cars for the rest of your life because your current one is paid off. I get it. Kudos for paying it off. But really? Not a single other car you're going to need for the rest of your life?" So you're challenging them on that and since you're very cashflow intensive, there's a lot of line items of the budget and their spending and how their spending is evolving over time that you talk about. So is that the meeting or what else comes through in this planning?
Sarah: Yeah. And I don't want to overlook the most important, which is the client really being able to kind of flesh out those goals. We never want to assume that we know what's right for the client. And so, it's really important that the client be able to say, "It's very important that I retire by the time I'm 55." And if you have a married couple, we know because we do budgets with married couples, and they're vastly different, right? In my marriage, I'm the spender in my marriage. My husband is the saver, the natural saver. And the cash management system is where we meet. But the goal-setting is where we agree on the terms in the first place. If we don't have general agreement that we're all going towards the same thing, that cash management system will never work. Because we have clients who come...we love clients that are coming to us right out of training where they're going from making $60,000 or $70,000 a year to $400,000, $500,000, a million a year. Because we get to set these things up while this is still monopoly money. Sometimes we'll get the person, the couple that's making a million dollars a year and they've been out of training for a year, and they're already living paycheck to paycheck. And so, in those plans, if you don't have both spouses on board saying, "Yeah, I guess we need to downsize this house. We bought it last year but there's no way we can afford it and live the life that we want to live and save the way we want to save."
So there are easy financial planning processes that we can do, and those typically happen on what we call the transitions. People who are in those significant transitions. But we know that there are going to be some tough ones. And so, the goal-setting is really, really critical where we make sure everybody is on the same page on the goal. And so, when we do get to those tense moments, we can go back and say, "Okay. We really want to make sure that one or both of you are really on pace to retire. Can we get back on track here?" So it really becomes important to have done that process with them.
Michael: So what happens, what's the outcome of this 2-hour meeting? How does it finish?
Sarah: We have a model. We have a working model. So we actually have the model in front of the client. And all of our clients, all of our meetings are done over Zoom. So even if we have a rare... most of our clients are obviously not local. I think we're in 45 states at this point, so everything's over Zoom. And so, we have the model up. And so, our clients are able to see, okay, we know that in order to retire, we probably need to be closer to a 25% savings rate. And we started this meeting with expenses as they are or as we planned them to be, and we're at a 20% rate. So we go through this iterative process until we can get them to the happy medium that they feel like everyone feels good about, saving enough that our projections show that they should statistically be able to retire, and then what their lifestyle that they're signing up would be.
And so, we send a draft report after that first meeting that not only has: "Here's your balance sheet. Here's your income statement. Here's your projected income statement. Here's the cash management system. Here's what we want you to do to start implementing that cash management system." So we go really heavily into how to adopt our cash management system that we recommend. And so, it's all kind of laid out there. So we've spoken through it. They now can read through it. And then, the first page of every plan is the action items that we've already identified in that first meeting. "You don't have a will. We know that you're going to need to set up a brokerage account for our meeting too. So go ahead and start the process of setting that up. Here's how to do it." So we have kind of these to-dos for our clients ahead of that second meeting.
Taking Clients Through "Guided DIY" Planning And Cashflow Management [43:38]
Michael: Okay. And so then, how long until the second planning meeting?
Sarah: Typically about a month.
Michael: Okay. And what happens in between the first and the second meeting?
Sarah: So it can vary by client, but we're really trying to get set up for the second meeting, which is really going to address the investments. So any data we were lacking, let's say they weren't able to give us their new 403(b) and the match and all of that. So this is where we can really tighten up things that we didn't have. So those will be on the to-do list. Like I said, opening up any accounts, like 529s, anything that we've identified that needs to be open so that we can hit that savings rates and those goals. We want to get those accounts set up so that they're ready to go by the second meeting.
Michael: But notably in this context now, relative to most other advisors, you operate on an advice-only basis. You're not setting up these accounts because they're not opening them with you. They're setting them up wherever they want to hold their investment accounts.
Sarah: Right. So imagine how much harder that is.
Michael: Yeah. It's like I can't do the...at least in an AUM world, I'm like, yeah, we have a team. We set up all the paperwork. You'll get a DocuSign envelope and you'll just have to click 47 times and type in your Social Security number again 11 times. But then, we're through.
Sarah: That is not how this works.
Michael: You can't do that for them.
Sarah: No. When I said we have a very clear agreement about what we do and we don't do, when we do our interview process, we make sure clients understand that they are doing this. We call this guided DIY. They are doing it. They are going to hit trade on their own funds. They know what they're getting into and we do expect them to follow through. So we want to set our clients up for success, so we have expectations that we're going to get these things set up. Now if it's not set up by the second meeting, it's fine. But our clients do feel very, very motivated because they know that we will guide them through to the finish line. And I think that we do a good enough job now interviewing where we can get the clients that are motivated, that really are committed to this process. So it is harder because as you know, we can operate with any brokerage account. So we largely advise people to open Vanguard, Schwab or Fidelity accounts. We have the most familiarity with those funds, with how those accounts work. So we really hope that clients will use those accounts and most of our clients do. And their state 529 plans.
Michael: Okay. So in between meetings, they are doing their to-dos largely to get ready to get their investment house in order. So we're opening 529s and brokerages and IRAs. We're getting all the follow-on info from their 401(k), or probably usually 403(b) because of the positions. And so, you're getting all of that in place so that you can talk more directly about investments.
Michael: So then, take me through what happens in the second meeting in practice.
Sarah: Yeah. So the second meeting is really about kind of that tax efficiency and investing and automation. I would say those are our 3 main tennants is how do we make the smartest tax strategies with investing, and then what are the available investment buckets that you already have and that we've additionally created, how much can we fund into those things. And so, if you think about the retirement plans, I run a retirement plan where physicians can put up to $88,000 in tax-sheltered money. It's incredible. So we go through those and why they're so important, mega backdoor Roths when they're available. A lot of physicians have access to these mega backdoor Roths. HSA strategy, brokerage. So we go through this kind of tax-efficient waterfall, if you will, where we're trying to give dollars the biggest bang for your buck that you can from a tax perspective, or in the case of student loans, the best student loan strategy. And we consider student loans to be like an investment strategy, right. So if you can have the smartest student loan strategy, we consider that kind of part of that, what we call pay yourself first, that savings rate, that 20%, 25%, 30% savings rate. Student loan payments for us go into that savings rate because once the student loans are paid off, or forgiven in the case of physicians getting public service loan forgiveness, then presumably those payments would circle back into their brokerage accounts towards retirement.
So the tax management and then the investment and investment buckets, if you will, excuse me, the investments themselves, we teach our clients. We teach them how to invest. So we teach them about capturing average market returns in the most efficient way possible, averaging in, and we have our clients take obviously a risk tolerance test. I didn't add that. That's part of our data sheet is clients take a risk tolerance test. And we walk through investments themselves, help them understand them, help them understand the principles of asset allocation largely driven for us by age, and to some degree, risk tolerance, if we see some major aberrations. And then, from there, we literally teach them how to do it. We teach them how to get the ticker symbol, make the trade.
And I told you the 3rd tenant of this 2nd meeting is automation. So everything we do, we try to automate. So if we have a client that in order to hit their 25% savings rate, they need to put $2,000 a month into a brokerage account, we don't just have them put $2,000 and invest it accordingly to their asset allocation, and then the 3 or 4 funds we're having to put them in. We're actually having them use mutual funds so that they can automate those monthly contributions. And so then, they essentially don't have to think about it. Once they set it up, they can just let it roll until our next meeting.
Michael: And so, does this bring...I guess, 2 questions. Does this bring closure a planning process? And then, what do we finish with at the end of the second meeting?
Sarah: Yeah, it's done. We've got a financial plan by the second meeting. We know exactly what their cash management system is. We have them implementing our cash management system. And I'm happy to talk about our cash management system. It's really inspired by that First Step Cash Management System. I just love it. Having squirrel funds and...
Michael: Can you explain this for folks that aren't familiar with First Step Cash Management?
Sarah: Sure, sure. And we don't use the exact system, but I learned it early in my practice going to an FPA retreat. And just really, really fell in love with the simplicity of it and I think it's so effective for people who make $30,000 or people who make $300,000. So this is the system we teach to people, is we just have people on those, you pay yourself first into your retirement. So that's that 20%, 25%, 30% savings rate that goes into the tax-efficient waterfall that I discussed. So that's our first step of the cash management system. And then, you have your paycheck that comes in. And so, the second step of the cash management system is you set aside money for future expenses. And so, many times that's an emergency fund, setting money into a health savings account. Not your HSA, but if you have an HSA retirement strategy, making sure that you're putting money aside in case you hit your healthcare deductible, and so you just have a pile of cash there to do that. Saving for home repair reserve. We have people save 1% of the value of their home divided by 12 in a monthly contribution. So we'll have people set up 7 or 8 savings accounts. I personally have 7. And again, automation is...
Michael: Across all these. So my emergency fund, my home repair reserve, all my excess medical expenses account, all these are in different little earmark savings accounts that you automate transfers for.
Sarah: That's right. Gift account. A clothing account. some of our clients have technology accounts. 529 would be another account, even though it's not a savings account, we would consider that part of that step 2. So that money is all automated. And so, we have clients that might have it all, the money shoots out on the 2nd of every month, or they'll have it kind of spread out through every month, if they have a tighter budget. And then, the last step of kind of the last 2 phases of the cash management system is you pay your bills. And so, we want people to automate their bills. We want bills to be largely the same on a monthly basis. So we have people levelize their utilities. We really need that consistency so that people can save the way we want them to on a monthly basis, pay themselves first, and not run out of money essentially. And then, of course, then there's my favorite part of the cash management system is where you just spend everything left. You get to spend your account to 0. It's amazing. And we have lots of clients that love it. You just spend it to 0.
Michael: Because that's what's left. If I did the whole pay myself first with savings into the investment retirement account goals, then I paid myself first again, paid myself second for all the future expenses, the emergency fund, the home repair reserve, the gift account, the clothing account, the technology account, the 529 account. Then I've paid all my core bills that I have to pay. Almost by definition everything left is not just discretionary spending but we literally satisfied all the goals and all the future needs and all the current needs. So guilt-free whatever's left.
Sarah: Don't you just love doing things to completion? I sure do.
Sarah: I love spending that sucker to 0.
Michael: Very cool. And so, that's the system you teach your clients as well as they're going through, building these layers.
Sarah: Every client. Yeah. And so, those squirrel accounts, that is just a very, very important piece of the process, because if we didn't have that, I think that that's where clients get in trouble. That's where doctors get in trouble, is maybe they'll have a brokerage account. They'll be funding it. And then, those 1-time items... we have physicians that spend $50,000 a year on vacations, right? That's not the norm, but that's great. Especially for physicians who make $800,000 to a million. That's a great budget. We fully support it. But if you don't account for it, you're going to have a perception that your savings rate is a lot higher, and then you're going to constantly be robbing that brokerage account. And when we look at that brokerage account, we don't expect to spend it. That is not spendable money. That is retirement money. And so, I think that that does a really good job, saving up those squirrel funds is really, really important so that our clients don't play...people play tricks with money. I do. I'm so good at tricking myself with money. And yeah, we know money is fungible. We know that. But our brains love mental accounting. And so, this really works well with the human brain and behavior with mental accounting, to say, "No, no, no. It's all accounted for. It's all here. Here is your actual savings rate."
Finalizing Reports And Plan Implementation [57:12]
Michael: So you get to the end of this process. What comes at the end? Just how does this wrap up?
Sarah: Yeah. So they get their full report now. So it's the finalized model. Because typically, clients will come back and say, "Oh, I checked this number. I don't spend 100 on this. I spend 500 on this. Whoops." So oftentimes, there's some model adjustments in that second meeting as clients start implementing their cash management system. And they kind of slowly do it. Really, the real implementation comes after the second meeting. But they get the report. They have now the full to-do list for the year that's prioritized by what's the most important thing down to the least important. We have a couple financial planners that could have 30 things on the to-do list. Some of these get real detailed. So they get this report. It has also their investment policy statement. We make sure that people really understand how and why you're investing. How is this working? What are you committing to not selling? You're committing to the long haul. So we have all these kinds of...Mm-hmm?
Michael: Even though you're not managing the portfolio directly, you're still creating an investment policy statement with them, for them.
Sarah: Oh, yes.
Michael: Not for you at that point.
Sarah: So we are treated and we treat ourselves as if we are investing their money. So we have all the compliance. We have everything that you would have as if we were making the trades. So our clients are getting actual investment advice from us. We are just simply not holding their assets.
Michael: Okay. And not charging that way because it's covered under the flat fee.
Sarah: Correct. So yeah. They get their report, and then that's where the work really starts. And so, we've got their rank to-do list and that first year, we want pretty much most of our clients, we really want them to be on our AptusCare, that 187 a month. And that's where we're checking in every couple of months. We've got emails, calls, Zoom meetings, could be several hours of time, of a planner's time on just have you gotten this done? Just checking in. Oh, yeah, I was having some trouble with this Vanguard account. Oh, okay. Well, here's how I would troubleshoot that. So we really make sure that things don't drop, and so that we get this whole plan implemented over the course of a year. You learn as a financial planner, I'm sure every financial planner goes through this. You think, oh, your client is really motivated. Here's your financial plan. You're welcome. And that's just not how it works, right? You hand them a financial plan and they probably don't read it. Let's be honest. But if they read it or not, it doesn't matter. We know what the plan is. The financial plan is really good for our planners. It's really good for us to always remember, always...because we got a high volume of clients. It's really important for the planner to constantly be refreshing on where we're going on this financial plan. And then, we have our to-do list just in Excel. We have little checkmarks that we put, that the planner puts when they do a little check-in call or an email and find out that, yup, the will was started. Yes, the investment accounts were created. We got our first deposits going in and we've taken the step to automate them. Done. So that's kind of what the thrust of the first year looks like.
Michael: So how does this work from just a meeting cadence and an engagement perspective?
Sarah: So every couple of months, there's a check-in. And sometimes, it's appropriate for it to be an actual meeting. It could be just a half-hour meeting. Or it's just appropriate to say, "Hey, there are these 3 just kind of quick bullet items." And the planner will just send an email and ask, "Hey, this quarter, I wanted to focus on these 3 items. Have you been able to get those done?"
Michael: And so, how often do these meetings or interactions occur?
Sarah: Yeah. So every couple of months at least. We really drive this by what our clients need. But it definitely takes a few hours at least of dedicated planner time just to nudge our clients to take action. We do not want to show up to that first annual review and the client isn't any further along in their financial planning process. So that's what these check-ins really are meant to do.
Michael: And how do you just track and manage them internally? Especially because there's a lot of exactly which things are which clients working on and relative to some people that track it in planning software, you don't track it in planning software.
Sarah: Well, you'll be very proud of us. We do use Wealthbox and we use that very effectively. We have found that that is a very, very effective planning tool all around, from making sure that we're checking every compliance box, making sure that we have updated contact information. And then, that's also where we can kind of load, just have an email exchange or just had a meeting and then we'll log that in there. And so, you can see, oh, gosh, I haven't been able to get ahold of this client. I really need to up the effort, if you see one kind of slipping away.
Michael: So now, help us understand the clients. Who are you serving and where do these large number of people come from who will pay for all these advice services to implement it themselves? The label you use of guided DIY clients. So who are these folks and where do they come from that you get so many of them to serve?
Sarah: I don't know. It's funny. I do know. But it is remarkable just starting this company in 2011 and where the industry is in 2023. It might as well be 3 decades away. There's so much change. When I was charging that $45 bucks an hour, it was wild. I had intended to work with just, I really only wanted to work with people who were median income, right? It's important for you to understand the why, why I did that. In '07, '08, I had just started a career. I'd gotten my master's degree from Harvard and I was coming back to Arkansas because I wanted to be a sell-side stock analyst. And my partner was my boss at the time. And keep in mind that I started that career in picking stocks in '07.
Michael: Oh, nice timing. Nice timing.
Sarah: Yes. But guess where I lived before I went to Harvard? I lived in Arizona. Now imagine my experience living in Arizona from 2002 to 2005.
Michael: So nice time for real estate.
Sarah: Yes. You would have broker...I thought it was totally normal that you'd be going to your car and a mortgage broker would come and greet you and ask if you wanted to buy a $200,000 house. Now at the time, I was serving the homeless in the Jesuit Volunteer Corps. So not making quite a lot of money, but definitely told I could buy a $200,000, or more, house. So I knew people buying these houses. I almost bought a house and my dad told me I was crazy and I needed to get back home to Arkansas. But I almost bought one and I had a lot of friends unfortunately that bought them.
So here I am, sitting in an office, trying to be a good stock picker. We know how that's going. And then, all of my friends who had bought those houses are literally financially devastated. And I thought about all those brokers who could just sell you the mortgage and then pass it along, and they had absolutely 0 interest in whether it was a good idea or a bad idea. Whether they thought it was a good idea or a bad idea, they had no investment in it. And so, that was really where the seeds of this idea came from is what if I had a place where people could go pay a modest fee and be able to determine if they should buy this house or not. That was it. That was literally the whole concept. I was not a financial planner, right? I was going towards my CFA. I wanted to be in investments, so I had 0 grounding in financial planning. I just had this desire to just open a business where someone could get just unbiased advice. Someone who wasn't going to go sell that mortgage down and would give you the fair opinion. So that is how this all started.
But what ended up happening is everyone that was hiring me was a rich doctor. And that's because all these doctors go into training and then they come out and they're getting approached by insurance brokers, right? They're getting the steak dinners and all this stuff. These guys can also get the match list going to residencies. They have their emails. They're hounding them and there's this growing knowledge, because there's been so many generations that have been plagued by this, that I think there's this, I just started this company right around the time where doctors were starting to say, "Maybe those things aren't so good for us. But we need a financial planner because we've gone from making $70,000 to $500,000 a year."
And so, that is how. I put a shingle out and suddenly, instead of the nurse or the firefighter that I thought I was going to be working with, I've got a bunch of white coats asking me for help. And so, yeah, it really showed me that there is this huge gap, because these doctors largely have negative net worth. It's funny. They go to the AUM industry and they say, "Hey, can you help me?" And sometimes they'll take them on a pro bono basis or whatever. But a lot of times, they say, "Come back when you have $500,000." And I always joke. I like to run half marathons. I'm training for my first marathon in December. And it would be like telling someone, "I want to be your marathon coach. I'll meet you at mile 26." Right? So for these physicians coming out of training, they need help now. And I know they need help now because I know that if they don't get help in that transition, if they don't hit their savings rate, which is hard to do because you can't just go max out a retirement plan, right? You got to work to hit a 20% or 25% savings rate, which is what most of them need to be saving at minimum. If they don't hit that, they will absolutely max out their $22,500 retirement plan when they should be saving $100,000 a year. They're going to live on that 75 plus, and then they're going to find themselves 15 years down the road severely undersaving. They're going to have some money for someone to manage. But they're going to be vastly underprepared for retirement. So I think that this particular niche is perfect for advice-only.
Michael: So I hear you on paper on the opportunity. How do you actually get hundreds of them to come to you to the point that, as you've said, you got these advisors who don't have to go prospect and find young doctor clients. Sounds like the firm is finding them. So how is the firm finding all these clients?
Sarah: Yeah. So I will say that, there was some luck involved. So when I first started the business, it was 2011. And one of those first initial clients paying me $45 bucks an hour, I'll never forget when he handed me a book. And he's like, "You got to read this book. This guy, he's saying all the same things you're saying." And I was like, "No, no, no. I've read those all. This guy's selling gold. He's selling something." He's like, "No, no, no, no, no. I promise, you read this for me." So I read the book and it's called "The White Coat Investor." It's a self-published book by this little known, at the time, just kind of, I think he would be fine if I called him a nerdy financial blogger. And I read the book. I couldn't put it down. And I did the first thing, I've never done this before. I contacted him. And I said, "Oh, my God. I just read your book. Every single physician should read this book. This is phenomenal." And he wrote back and he said, "Well, you're the first financial planner that hasn't chastised me for writing this book." So he asked me more about myself and I told him I...
Michael: Because his...just for those who don't know, White Coat Investor is pretty negative on AUM advisors in particular. Sales-oriented advisors and the AUM model.
Sarah: Yeah. Mostly it's on the brokerage model. You're right. I think in the book, he's really like, "I wish there were people that would just charge a flat fee." He kind of talks about that. But I think that over time, he's really understood, too though, that there is a role to play. And we do too. I am not anti-AUM. I think we need it. We refer people to AUM that aren't right fits.
Michael: It reminds me, it's a version of what we, I think, I've long talked about in the industry, the opportunities of building referral relationships with centers of influence, just our industry almost always treats centers of influence as the estate planning attorney, the CPA who has a lot of tax and business clients that can refer you small business owners. And to me, if your niche that you're going after is young physicians, well, your ideal center of influence is the leading blogger for young physicians. That's who you got a relationship with.
Sarah: But we didn't know. I didn't know. I had no idea that he would get so big. And to be fair, that's not our entire referral system. So if you do a great job in financial planning, people are going to tell their friends about it. So I would say that we get a huge amount, maybe half of our business comes from just direct referrals from other clients. The other thing...
Michael: Now that the fly wheel is going, it can keep amplifying itself, the proverbial snowball rolling down the hill.
Sarah: And then, the other thing I do, and this is really phenomenal, is I speak to GME programs, so graduate medical education residents, interns and fellows across the country. So I just spoke to Kaiser Permanente on Monday. I've spoken to Wake Forest, UAMS to Cleveland Clinic, all over the country. And just on these basic principles that doctors need, like how to manage their student loans. So very high-level sessions. And some of these, like in the case of Kaiser Permanente, that is a full day. So speaking for an entire day and just going topic after topic, going deep, deep, deep into them, it's very much a workshop. I have them build an entire financial plan for themselves in a day. And so, I think that there is an opportunity too where we can really serve education. And it's not like, "Oh, I'm going to come in here and tell you all the crazy jargon that's in this world and guess what? Congratulations. I'm here to manage your money." I don't think they want that. And so, what's beautiful about our model is that I don't sell at all. Oftentimes, I don't even say the name of my company. But people remember, "Wow, you came in and you taught me literally how to do these things. I was able to go and execute on what you said. You didn't sell me anything. You weren't salesy. You didn't make any money off any of your recommendations. And so, I trust you and I'm going to do the work to figure out who you were when it's time for me to get out of training and build my first financial plan." So it's not a huge...that would not supply...as much speaking as I do, that would not fill our business. But I do think it's a nice enhancement and it's a great community thing to be able to offer that.
The Surprises And Low Points Sarah-Catherine Experienced On Her Journey [1:15:14]
Michael: So what surprised you the most about this path of building, and especially scaling up an advice-only business? Again, it's one thing when you do this, generate enough clients to pay yourself. It's a whole other thing when you've got 7 other planner mouths to feed and you're closing in on $2 million of revenue. So what surprised you the most about what it takes to actually build and scale in this model?
Sarah: Well, it is not for the faint of heart, that is for sure. The way I would describe it is initially when it was my partner and me, and we were just kind of feeding ourselves, and then we were helping people, but then a lot more people wanted help. And I kind of remember this conversation – he remembers this as a series of kind of check-ins over time – but I remember where there was, in my head, kind of this moment where we were like, "Is this just a lifestyle business where we're just going to make a ton of money?" Because you can make so much money if you just have a solo practice. And I think that's why a lot of people don't scale. Or we can sign up to have uncertainty, headache and likely be broke on the other end if we try to help all these people that want help and grow the business. And so, of course, naturally we chose the latter...
Sarah: ...and did decide. And then, we did move into a multi-year...for any Catholics out there, it's purgatory. There's just no other way to describe it. You're wearing every hat. You're doing compliance. You're doing just all of it, all of it. You're doing the billing. You're doing the health insurance. It's just awful. And then, the way the referrals were coming in, we'd be choking on referrals for 3 months, and then we'd have 3 months where we might get 10. That's an exaggeration. But you're just feast, and then you're like, "Do we hire?" And then, you go into this famine and you're like, "Oh, my God. What if we can't feed all our mouths?" It has been tremendously hard. But we have gotten, I think that we can, and I checked with Tim before coming on this podcast to see if we can actually say this, but I think we can actually say we are now officially through the purgatory.
Michael: You have to make sure you're not jinxing anything by saying it in public.
Sarah: Yes. We are at a point now where we don't worry about client flow at all. We are just worried about where we're going to get our next financial planner. That's it. That's what keeps us up at night is how do we maintain this high level of talent that we have and that clients expect.
Michael: Well, I think that's an interesting shift in just where you are in the business when that mental mindset and shift goes from I'm not worried about where my next client comes from. I've got a pretty strong sustaining system for bringing clients in. Now my worry is where do I find the next planner to make sure I can continue to serve all these clients on a healthy basis going forward.
Sarah: That's right. And the timing. You get these fakeout moments where we don't get 1 client a day, we get 5 clients a day. And then, you say, "Oh, my God. Is that the pace? Do we hire right now?" So we're always going to have, we don't worry about where the next client's going to come from, but the timing is what's tricky. And I think that Tim has got this down to a science where we can kind of look at how far out our planners are booked and when we see it at that point, "Okay, everybody's really booked out 3 to 4 months. It's time to bring another 1 on."
Michael: That's sort of your measure of capacity and backlog and I guess almost by definition, if they're booked 3 to 4 months out, you do literally have a flow of clients who have already committed to say yes, come onboard and there's revenue coming. So you're not really at risk for oh, my gosh, what happens if I hire them to bring them on board, and then there's just no clients. You always have to worry in the long run, but there's a flow already underway by the time you're pulling the trigger...
Sarah: There is.
Michael: ...which it makes it easier to pull the trigger. I know where the paychecks are kind of being covered, at least initially.
Sarah: That's exactly right. Tim and I, this is a thrilling entrepreneurship kind of experience in building that financial planning practice, for sure. And we have taken personal risks. Anybody who can relate to this, and I know you have young children, I've got young children, and I started the business and then I had my first child. There was a point where I had $400 in planning revenue coming in a month and I was paying $2,300 in daycare for my 3 children under 5.
Michael: That's always fun. That's always fun math to do about working.
Sarah: Yeah. So anybody out there that's in that thing, what I can say is, stick with it, right? Just stay with it. Find a way to live way below your means. Find a way to live, if you're married, on your spouse's income. Get to a position where you don't have to make money if you're trying to do something this risky. And just stick with it. Don't cut corners. Stick with it. Because I do think that, everyone talks about this hockey stick. I don't see a hockey stick. I think that this industry, from my perspective of scaling an advice-only firm, is who can last the longest to build. Because I do think the demand is there. I think that people still don't know what flat-fee or advice-only is. I don't think they know it's an option. But now that it's growing, I think the pie is just going to get bigger of this, of these young millennials wanting to do...this goes with their personality, right? They want...and I say young millennial. I am a 43-year-old. I am the first of the millennials. So it's this group that's like, "Yeah, I want to do this on my own." And I think the pie is going to grow. But you're going to have to stay in business long enough to get access to that pie. So we took incredible personal risks that we had no idea would pay off. And what we have done is said, "We are going to focus on what's right for the client and what's right or the planner." And really not what's right for the entrepreneur for a long time, right? But that's what made the business work. And so, now that we've gotten through the purgatory, we are benefiting from having taken those risks that were very, very significant, I would say.
Michael: So what was the low point for you on this journey?
Sarah: Oh, God. Where I was crying in the bathroom trying to find an attorney for how to unwind a business? Do you think, would that be a low point? That's how bad it got. When just everything compounds, where it's like there's not enough clients or we had a planner that we brought in that wasn't a good fit. Just when the world just comes...we thought we had won this retirement plan, and then they pulled the RFP and we had already been kind of going towards it. It's just everything can just go wrong so, so wrong in those early years. And now, we're at a place where, yeah, things can go wrong but we have so much that's working and going right – where's all the wood I can knock on? – that we feel like we can weather the storms a lot easier. But there were some tough moments, tough moments.
The Advice Sarah-Catherine Would Give Her Former Self, And Younger, Newer Advisors [1:24:00]
Michael: So what do you know now you wish you could go back and tell you 10 plus years ago as you were getting started?
Sarah: Thank you. Thank you for doing what was right for the client. Thank you for sticking with it. There were many times where we...we actually flirted with exiting the model. For a half a second, we were AUM managers, I think for 6 months. And then, we decided that is just not right. So I'm so glad I stuck with the original principle of, "How do you get a fair price and a transparent fee to people who need it and can't get access to the traditional high quality financial planning industry yet, or ever, in the case of people who don't make very much money?"
Michael: So what advice would you give younger, newer advisors getting started today?
Sarah: So I would give the same advice that I was kind of alluding to earlier, is this is not...if you want to go to advice-only and do this, I think it is entirely possible. But it will be very, very hard. I actually am quite good, personally, at selling. I'm very good. I'm able to prospect well on retirement plans. I'm very passionate about what I do and I'm able to articulate that well. Not everybody can. So I think that for people who are good at prospecting, are very passionate about this, very articulate on speaking to people in non-jargony ways, and you can make this work. But have a big old pile of cash to live on. Live way below your means. Don't expect to make a ton of money. Set your expectations right. If you have a spouse, make sure you're living on 1 income. This would be a very difficult line of work to start if you had a stay-at-home spouse and mouths to feed on your own. That would be just a very, very difficult thing.
But for people who are interested in financial planning, that love this work and they don't want to sell, they don't want to prospect, they don't want to grow that practice on their own, join a flat-fee firm. Be a financial planner all day. You're not going to make the kind of lottery-like money that I think is available in the sales industry, or to a lesser degree, on the AUM side. But it's a good business. I think it's a good pay. I think it's a good business to go into.
What Success Means To Sarah-Catherine [1:26:56]
Michael: So as we wrap up, this is a podcast about success. Just one of the themes that always comes up is that word, "success," means different things to different people. Sometimes it means different things to us as we go through the stages of business and life. And so, as someone who's built what I think anyone would objectively call a very successful advice-only business, as you close in on $2 million of revenue, the business is in a very good place. How do you define success for yourself at this point?
Sarah: That is the best question. And for me, how I define success is very, very clear because I focus on this on a daily basis. For me, it is time. It is having control of my own time. And this is something that I want my planners to have access to and that planners can actually inspire for their clients. I don't believe that income or money could ever be worth our time. And I feel like I have my values very aligned in that I have a family that I want to spend more time with than I want to spend in my business. And so, I have structured my life, and I continuously structure my work in the business, so that time is the most important commodity that I can control. And I think that this business, whether it's AUM or advice-only, I think that people can make choices about their time and be able to get some of it back that you can't in traditional industries, where you've got face time and 40-hour weeks and all of that. So that's how I define success, is can I work a 6-hour day? Can I be home at 3 and help my kids with their homework when they get off the bus? I consider that success is every day that I do that, which is most days.
Michael: Very cool. Very cool. I love it. I love it. Well, thank you so much for joining us on the "Financial Advisor Success" podcast.
Sarah: Well, thank you so much for having me.