My guest on today’s podcast is Sheryl Rowling. Sheryl is the founder of Rowling and Associates, an independent advisory firm in southern California that manages more than $300 million of assets under management, and provides a combination of investment management, financial planning, and tax preparation services for clients.
What’s unique about Sheryl, though, is not simply that she’s built a successful advisory firm with a team of 12, but that in an effort to try and make her firm’s investment management process more efficient, she decided to create her own rebalancing software… and then sell it to other financial advisors as the software solution we now know to be Total Rebalance Expert, or TRX, which was subsequently acquired just a few years ago by Morningstar.
In this episode, Sheryl talks about what it was like building a technology firm (while running her advisory firm as well!), how building an advisor technology firm differs from building a traditional advisory firm, the challenging demands of needing to iterate rapidly in a competitive software landscape, and the personal toll that it takes in trying to simultaneously run both an advisory firm and an advisor technology firm at the same time.
In addition, we talk in depth about the structure of Sheryl’s CPA financial planning firm, why they decided to offer – and charge separately – for tax preparation services in addition to financial planning, the core technology stack of MoneyGuidePro, Junxure CRM, and PortfolioCenter (bundled, of course, to TRX for rebalancing) that she uses to operate the firm, and how she positions her comprehensive financial planning offering to her clients as “we answer every financial question you have, and the ones you don’t even know to ask!”
And be certain to listen to the end, where Sheryl discusses her “As If” rule to decide what to focus on and how to build her ideal practice, and the newest solution she’s launching for fellow financial advisors, to purchase her investment team’s model portfolios and due diligence research for a flat annual fee – which, you can then implement in your own rebalancing software, but without the AUM fees of a full-blown TAMP provider.
And so whether you’re looking for fresh perspective on a comprehensive financial planning firm with a strong tax focus, or have ever wondering specifically what it takes to launch an advisor technology solution “on the side”, I hope you enjoy this episode of the Financial Advisor Success podcast!
What You’ll Learn In This Podcast Episode
- How Rowling & Associates is structured, so that every member of Sheryl’s team can take care of any client of the firm. [5:43]
- Why Sheryl’s office is completely paperless, and each employee is equipped with an iPad. [16:59]
- How Sheryl and her team know when they’ve met their capacity to serve clients, and why she hires before she absolutely needs a new employee. [27:56]
- How Sheryl’s structured her firm to allow herself and her employees to take time off without slacking on client service. [27:56]
- What pushed Sheryl to design and launch an entirely new rebalancing software, Total Rebalance Expert (tRx). [37:04]
- The emotional, financial, and physical challenges of starting an advisor FinTech company while also being the CEO of your own RIA. [53:01]
- Why Sheryl sold tRx to Morningstar, and her new role with the team. [56:01]
- Her advice for other advisors that see a software gap in the market that they’re eager to fill with their ideas. [58:55]
Resources Featured In This Episode:
- Sheryl Rowling – Rowling & Associates
- Total Rebalance Expert (tRx)
- Morningstar Office
- InStrategy Investment Services For Advisors
- Allstar Financial Group
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Full Transcript: Becoming An Advisor and #FinTech Software Entrepreneur While Running Your Own Advisory Firm with Sheryl Rowling
Michael: Welcome, everyone. Welcome to the 34th episode of the Financial Advisor Success podcast. My guest on today’s podcast is Sheryl Rowling. Sheryl is the founder of Rowling & Associates, an independent advisory firm in Southern California that manages more than $300 million in assets under management and provides a combination of investment management, financial planning and tax preparation services for clients. What’s unique about Sheryl, though, is not simply that she’s built a successful advisory firm with a team of 12, but that in an effort to try and make her firm’s investment management process more efficient, she decided to create her own rebalancing software and then sell it to other financial advisors as what we now know to be Total Rebalance Expert or tRx, which was subsequently acquired just a few years ago by Morningstar.
In this episode, Sheryl talks about what it was like building a technology firm while running an advisory firm as well, how building an advisor technology firm differs from traditional advisory firms, the financial demands that it takes to continuously iterate rapidly in a competitive software landscape, and the personal toll that it takes in trying to simultaneously run two businesses at the same time, an advisory firm and an advisor technology firm. In addition, we do talk in depth about the structure of Sheryl’s CPA financial planning firm as well, why they decided to offer and charge separately for tax preparation services in addition to their financial planning, the core technology stack of MoneyGuidePro, Junxure CRM, and PortfolioCenter, bundled, of course, to tRx rebalancing, that she uses to operate the firm, and how she positions her comprehensive financial planning offering to clients as “We answer every financial question you have and the ones you don’t even know to ask.”
And be certain to listen to the end, where Sheryl discusses her “as-if” rule to decide what to focus on and how to build her ideal practice, and the newest solution she’s launching for fellow financial advisors to purchase her investment teams’ model portfolios and due diligence investment research for a flat annual fee, which you can then implement in your own rebalancing software, but without the AUM fees of a full-blown TAMP provider. And so with that introduction, I hope you enjoy this episode of the Financial Advisor Success podcast with Sheryl Rowling.
Welcome, Sheryl Rowling to the Financial Advisor Success podcast.
Sheryl: Thank you, Michael. Glad to be here.
Michael: I’ve been excited to do this episode because you are part of what I call a very unique elite club of financial advisors, which is those people who have both been and successfully built an advisory firm and also created a technology firm that serves advisors. You know, there’s kind of this category out there of tech solutions for advisors that I affectionately call the “homegrowns,” which is this group of technology tools that we use that we all basically had the same kind of story. Advisor sees gap in the business, can’t find technology solution, makes own solution, it works, sells it to colleagues and friends, has a technology business.
And so, you know, I know, like, you’ve gone this route with tRx Total Rebalance Expert. You know, Greg Friedman did it with Junxure CRM, Warren Mackensen did it years ago with ProTracker CRM. And, you know, for most of us, like it’s hard enough just to figure out how to run and build one advisory business, you made two at the same time. So I’m really excited to have you on the podcast and just kind of talk about all of what you’ve done and maybe share some business lessons learned along the way with us.
Sheryl: Yeah, I wouldn’t categorize myself as a member of an elite group. I would call it as a member of a mentally disturbed group that took on something without realizing the degree of work I was committing myself to. And my bet would be that the other advisors in this category of yours probably feel the same way.
Michael: You know I forget where as well. I had read some interview with a famous entrepreneur, but basically made the point that if any of us that create businesses actually really understood what we were doing with ourselves up front, we wouldn’t do this. We would just go get stable jobs instead because there’s some kind of like unhealthy compunction within us that causes us to do it anyways and then figure it out as we go.
Sheryl: Yeah, I would agree, but I also think there is that part of us that likes to feel we have control of our own destiny. And the bottom line is someone like me is probably unemployable because I’m too stubborn in knowing what I want.
Michael: You know, I’ve said for a long time that I think most of us that are advisors that go out into independent channels, I mean, the biggest drive to it is that so many of us are basically unemployable. And I categorize myself the same way I say it with the fondness of terms, but, you know, that just, there’s some drive that you’ve got that you want to see things done a certain way and executed in your vision the way that you think it should be. And, like, the fact that you can set a vision of how you think it should be is what makes you a visionary that can create a business in the first place.
Sheryl: Well, that sounds good.
How Rowling & Associates Is Structured [5:43]
Michael: So as a starting point, can you tell us a little bit about the advisory firm as it exists today and then we’ll talk a little bit more about what happens when you run that and then make a technology firm on the side, but can you just share a little bit about Rowling & Associates as it exists today?
Sheryl: Sure. We have about 12 people working here, and we do full financial services for clients. Meaning that we do tax planning, we can do tax preparation, we do financial planning, and we do the investing. And everything is fee-only, so we don’t have conflicts of interest. And everyone here feels really good about what they’re doing. And we have kind of a family feel to our office, both internally and with our clients. So it’s a great lifestyle in terms of enjoying who you’re working with and also feeling proud of what you do while being challenged and enjoying the variety.
Michael: And I think it’s an interesting mixture there that you said. That you’re doing investment management and financial planning, and tax planning, and even down to tax preparation, which I know a lot of advisors don’t do. So you have a CPA background, which I guess made that a little bit more natural for you. You know, in a world where so few advisors don’t do tax preparation, I’m curious how you view it. Like, is everybody else missing the boat because they’re not doing this or is this one of those that you’ve just always done it that way so it’s really hard to let go of, but you don’t really love doing it? Where does tax prep sit for you on that list of services?
Sheryl: It’s kind of in a third category. I wouldn’t say that people who aren’t offering tax preparation services are missing the boat. It’s a question of where their expertise is. And I think it’s very important to provide advice that you’re good at. And if you’re not a competent tax preparer, it’s probably not good to offer it in-house. CPAs can be a good source of referrals. And to some degree, the fact that my firm does offer tax preparation, it tends to dampen the referrals that we get from CPAs. And I say that even though I don’t try proactively to get tax work from my investment clients if they have a good CPA. If I don’t think their CPA is doing a good job then I’m going to suggest that they consider using us. But if they have a good CPA, they’ve got a good relationship with that CPA, I’m happy to work with the CPA. I always say it’s not my goal in life to do more tax returns.
But having said that, there is a benefit to the clients when their financial services are consolidated in one place. For example, they don’t have to gather all of the investment returns and gains and losses to give to their CPA, we already have that. And when we do tax planning, we already have all the background on where they stand in their tax brackets and other aspects of their tax life. And so in terms of an integrated service offering, I think it’s a really good thing, but I wouldn’t suggest going into it unless it really is an area of expertise.
Michael: Well, and I love that frame you were just saying, provide advice on what you’re really good at. And like it’s okay not to do everything, just do the things you’re really good at. And that conflict to it as well around referrals. You know, I’ve seen this a bunch from the other side, which is a few CPAs I know that have launched wealth management firms and then kind of realize like, “We used to get a lot of financial advisors that sent us tax business and they don’t send us tax clients anymore. I can’t figure out why.” It’s like, “Well, because you’re competing with them now since you launched your wealth management business.”
And the same thing goes in the other direction with advisors. Like if you get a lot of referrals from CPAs, you know, be cognizant that if you want to start doing tax preparation work with clients, that you may get fewer referrals from CPAs because at least some of them are going to perceive you as competing with them now and they’re afraid that if they refer you a client you’re going to take the client away from them.
Sheryl: Exactly. And I do have several CPAs that do refer to me and I make it clear to the client that I think their CPA does a great job and I would never disturb that relationship. And that works out very well. But for CPAs that don’t know me, that don’t know my firm, there’s a big hesitation in referring somebody because there is that possibility, at least in their mind, that we might compete for that business.
Michael: So you’re doing this full range of investment management, financial planning, tax planning and some tax preparation, so how many clients at the firm do you have or asset-based? I don’t even know if you measure by clients or assets since obviously, assets doesn’t apply to things like tax prep or revenue. Like, how do you measure the size of the business?
Sheryl: Well, we measure the size of the business primarily by AUM. And that kind of changes on a day-to-day, week-to-week basis, but I think we’re around $310 million right now. We have around 250 clients and I would say that we do tax returns for about 75% of them. Most of our revenue comes from investment management. And we don’t view tax return preparation as a profit center because those services are provided only to wealth management clients. We charge enough to make a bit of a return on our efforts, but it’s really viewed as part of the entire economic ball of wax for each client. And so the tax prep is value added in terms of charging true market value for tax work. We do that with transaction work. So if we have clients that are selling a business or structuring some complex tax transaction, then we will charge hourly for that because we have a lot of expertise in that, and that’s a very focus specialized area.
Michael: And what does your fee structure schedule look like? You said you charge a little bit separately for tax preparation to cover cost but are you otherwise strictly an AUM fee firm? Do you do combinations of AUM and financial planning fees?
Sheryl: Typically we charge a financial planning fee up front for new clients. And obviously that’s to compensate us for all of the upfront work, but it’s also generally assumed that if a client is coming in for financial planning, they’re going to at least consider us to do the investment management. So that’s kind of dipping the toe in the water before engaging us permanently for investment management. Once a client is an investment management client, we bill based on AUM, and we don’t charge for updates to financial plans. And if they have us do tax returns then we do charge extra for tax returns and, again, it’s not a huge amount. Our tax returns generally start at around $600 to $650 and can go up to $1,000 to $2,000 on typical returns.
Michael: And when you’re doing the tax preparation work, like do you limit the scope at all? Like, “We’ll do your individual returns, but if you’ve got full-on business returns then you need to work with whoever is doing your business accounting,” or just you’ll do any and all tax work for anyone that comes to the table that’s got tax returns?
Sheryl: Yeah, we have the expertise to really do any tax returns. The only ones we draw the line at are those that are running international businesses. I don’t consider us to be experts in international tax situations.
Michael: Yes. Once you get to transfer pricing issues it’s time to bow out.
Michael: Okay. And so how do you set fees for up-front planning and then ongoing AUM? Like do you just have a standard fee? Every client that comes in is X thousand dollars or do you kind of adjust the planning fee based on their situation?
Sheryl: It’s really a question of the complexity of the plan. And we have some general guidelines as to this plan has this element and this other element, but it doesn’t have this one. And generally, our plans range from $3,000 to $6,000. And if there’s a situation that’s much more complex then that fee is reflective of the additional complexity. As for assets under management, we charge a sliding scale with greater fees for lesser amounts under management, reflective of the work per dollar under management, and also the risk per dollar under management. So we start out at 1 and a quarter percent on the first $500, one percent on the next $500, and then it goes in 0.1% increments by the million. And when clients get to the magical $5 million number then we charge a flat 0.6% on everything.
Michael: Okay. I’m just kind of looking where you said a little over $300 million and about 250 clients, so typical client is $1.2 million or so. So they’re a little over those thresholds. They’re at the 0.9% tier, but obviously blended fee is a bit higher. That’s kind of….is that fair as your typical client?
Sheryl: That is, that is.
Why Sheryl’s Office Is Completely Paperless [16:59]
Michael: Okay. And so what does the planning process look like for them in your firm? Like, what do you do upfront and then ongoing as part of the financial planning offering?
Sheryl: For the financial plan, what I tell clients is that it’s designed to answer every financial question they have and those they don’t know to ask. And really we look at every aspect.
Michael: Like, “Every question you have and the ones you don’t know to ask.”
Sheryl: That’s right. You know, people like that because they’re coming to us, and when they come to us, it’s an admission that they’re not financial experts, and they’re looking to us for that expertise.
Michael: Yeah, I like it.
Sheryl: So we look at everything. We look at cash flow, we look at investments, we look at long-term tax planning, we look at insurance, estate planning, college funding, charitable giving. Anything that’s relevant to that client. If we’re dealing with younger clients, we’re going to be looking at, “Should I pay off my college loan or should I put money into the 401(k), or should I save for a house?” You know. So we will customize the plan based on who the client is. And we use MoneyGuidePro to help us do the calculations, but no plan is the same as any other plan because every person’s situation is different.
And we try to emphasize to the clients that a plan is a snapshot and not a moving picture. At whatever point in time we do a plan, the next week, the facts are going to be different. They’re going to have a different amount of savings. The investments are going to be worth different amounts. There might be changes in tax laws. They might have a change in their job, or they might have another kid, life changes. And so for that reason, you have to do periodic updates to that plan. And we make sure that our clients understand that when they have a significant life change, it’s time to update that plan. And if we haven’t heard from them in a year or so in terms of updating the plan, then we will proactively reach out to them to find out is it time to look at a new plan or is everything still relatively the same?
Michael: And is that something like literally you track in a CRM? Like, “When is the last time we did planning stuff with them?” And if it’s around a year then you get a little reminder on the CRM?
Sheryl: Yes, absolutely. We use Junxure, and the saying that we’ve drilled into our heads is that if it’s not in Junxure, it hasn’t happened, or it doesn’t exist. So everything about a client is in Junxure, and that’s how we track everything. When was the last time we did a financial plan? What did we talk about in the last meeting? When is it time to touch base with them? Everything is right there, and that’s kind of the hub of our business.
Michael: And you don’t have problems with anyone that says, like, “It’s too time-consuming to type all that stuff into Junxure?”
Sheryl: No. We’re actually a paperless office, so everything is in the computer. If a client asked us for a pad of paper, we’re scrambling because we don’t order paper as a matter of course.
Michael: But I just meant that there’s no one that complains like, “I’ve got too many clients to see, I don’t have time to type all that stuff into CRM?” Just I know a lot of firms struggle with…it’s hard to get everybody in the firm to put everything into the CRM the way that you just described.
Sheryl: Well, we’ve solved that problem in that everybody here has an iPad. And while they’re in the office, the iPad is automatically connected to our company’s server. And we have the special magical pens that write on the iPads, and so they can take handwritten notes and then tap a button and send those notes to Junxure right as they’re done with the meeting.
Michael: Very cool.
Sheryl: So there’s no extra step involved.
Michael: Yeah, because I was going to ask like why do they iPads when they’re already in the office when the computers are there? Because the answer is like they’ve got them in the meeting with them so you’re actually taking notes on the spot and then you tap to upload a file directly into Junxure to capture the notes.
Sheryl: Right. And it’s based on personal preference. I mean, for me, I have my keyboard right here, and so I can generally take notes from my keyboard. But if we’re in the conference room, we’re going to take notes on our iPad and use that to upload.
Michael: Very cool. So as a business owner, you just made the commitment or the decision like, “We’re buying an iPad for every employee.” Just call it a cost of doing business right up there with the computers on their desks and everyone’s got one that’s connected?
Sheryl: Absolutely. And there’s…I mean, there’s side benefits to that. Number one, clients are impressed with it. Number two, the employees view it as benefit. You know, “Hey, I work here and I got a free iPad.” But it really is something that every single employee uses, and it’s a great productivity tool.
Michael: Yeah, you know, I knew a firm a couple of years ago like not long after iPads came out that just made the decision they were buying every employee in the firm an iPad and the employees loved it as a really cool perk, particularly when they were newer and not everybody had them to the extent they do now. But the indirect benefit that the firm found was, you know, once they had iPads, they kind of carried them around everywhere, and when they carried them around everywhere, that actually means that they stay connected to the firm more and they were actually ending out like responding better and faster if they were out of the office or home, or wherever they were because they had their iPads with them dialed in the office because it was the office iPad that the office gave them. So they kind of felt like there was a productivity boost out of buying iPads for all employees.
Sheryl: Absolutely, absolutely.
Michael: So can you talk to us a little bit about the staff structuring of the advisory firm? You said 12 employees, 250 clients, so obviously, that’s way too many clients for you as a solo advisor to have every single client and do everything for them. So if I was to look at an org chart of your team, like how do you divide up those roles? Who falls where? Just what does the structure look like?
Sheryl: Well, I think we have a pretty typical structure if you look in an org chart. I’m the CEO and I have managers underneath me, and they have people underneath them. But what is different in our firm is that every client is a client of the firm. So we don’t have clients assigned to certain people. What we do have is certain job responsibilities assigned to different people. And therefore any number of us might be working on a client at the same time or at different times, but we all have exposure to the clients, the clients have exposure to each of us. And because everything is in Junxure, anyone of us can pick up on a client at any point in time. And so another saying of ours is that we’re large enough to provide any service that our clients need, but we’re also small enough that we know who our clients are.
Michael: So you said your kind of core service is this combination of investment management, financial planning, and tax planning, so does that literally mean like every client’s got three people attached to them? One that does tax, one that does financial planning and one that does investments, or do you curve it up a little bit differently?
Sheryl: They actually have the whole team, you know. So the people that do taxes are myself and Tara, and Nick. And the chances are that each one of us will touch the client in some way on taxes, depending on when the project comes in and what the project is. We have several financial planners, and we have senior people who do financial planning. And so there’s always going to be some combination of people working on financial plans, either someone working on the basic plan and then someone else reviewing it, and maybe different people presenting it. We have other people that work with account administration. And so what happens over time is that every client ends up at some point meeting every member of the firm because we’re all doing work on the clients and there is really no differentiation in client A belongs to Steve and client B belongs to Juan. They all belong to the firm.
Michael: Is there still some lead advisor? Like is someone the point person on every client or are you just…you’re the point person on every client and then everybody collaborates to interact as necessary?
Sheryl: I think that kind of sorts out naturally. For example, when Steve came, he brought some clients with him, and so those clients will likely contact him, although they…down the road, they might end up contacting Sanda if they have an account question, or they might contact Tara if they have a tax question. And so what happens initially is that whoever brought the client in or whoever met with that client initially will be the ones that the client views as their point person. But what really happens down the road is that the clients get to know everybody on our team, and they’ll call whoever they feel is going to be the one to help them.
How Sheryl And Her Team Know They’ve Hit Capacity [27:56]
Michael: Interesting, interesting. Do you have a sense as to where your capacity is for clients to the firm? Like is there a particular target or something that you’re growing towards or just continuing to add clients and you’ll just make the team lighter as necessary as you hire them?
Sheryl: Well, we have capacity, and our game plan is to always have capacity. And so our practice has been to hire before we have a need. The reason for that is two-fold. Number one, if we’re not killing ourselves using every minute to get done the work that has to get done, then it means we have time for our clients. When something comes up we have time and ability to add clients, and we have that flexibility when people go on vacation or someone is sick. And the other side of it is for our health, that we all want to live balanced lives. And if the result of adding new clients is subtracting time to ourselves, that’s not a good equation. And so the idea is that we run operations efficiently so that we don’t spend our time doing repetitive task, and we don’t spend our time doing tasks that are prone to errors if we don’t have it automated. And with that extra time, we’re able to devote more time to actual client communications, creative ideas and having a life.
Michael: So from a practical perspective, like how do you get a sense as to where to draw that line? Like, I mean, I sort of get it when there’s an individual advisor and like, “I’ve got 100 clients, I’m feeling really stressed.” And so I’m like, “Okay, I need to hire a person, and next time we should probably hire when I’m at 80, not 100.” When you’ve got 250 clients distributed in this team structure, around 12 employees, like how do you figure out when you’re getting close to capacity to hire employee number 13?
Sheryl: Well, I’m going to give you two answers, and that’s something that is pretty typical for me. The first answer is probably more the kind of answer you’re looking for. And that is we gauge how busy we are, we gauge how stressed out we are. We gauge whether we’re able to stay ahead of the curve and be proactive with clients or are we starting to get reactive. And we have team meetings every week. We have different committees that handle different things. And we kind of keep our fingers on the pulse to see where we’re at. Now, it could be that one person is starting to feel overloaded while someone else is feeling like life is a breeze. And that might be an indication that we need to reallocate some work. And so what we do is we kind of look at, “Are we really using our resources effectively and fairly?” And if it looks like we’re getting to the point to where we might be hitting saturation then it’s time to hire somebody else.
Now, the other answer is if we happen to find someone that is a perfect fit, we’ll hire them before we have any need at all. And I can give you an example of the most recent person I hired. It was someone that had reached out to me in LinkedIn and sent me a resume and said, “I’m looking for an internship.” And I actually did look at her resume and her resume blew me away. So we didn’t have an internship opening, but we hired her anyway. And the bottom line is she’s in the last year of her master’s program only taking one class a semester. And we actually ended up hiring her full-time, and she’s great. And so I would rather pre-spend and know that I’m adding the right person than to be in a position of needing to hire someone and not being able to find the right person.
Michael: And I guess the flip side is, for anyone out there who is trying to find a job and struggling with it, a moment of hope that cold emails for job opportunities actually can work.
Sheryl: Yeah, surprisingly most of the time it doesn’t, but this one I actually looked at the resume and yeah, it was too impressive to turn away.
Michael: And when you get down to tax season, because I know that can be really intensive if you’re doing 75% of your client’s tax return, like you’re doing close to 200 tax returns, like do you just have the capacity to handle that and other things get sidelined for a couple of months? Do you separately hire up? Like how do you actually handle that volume?
Sheryl: Well, it’s interesting the people who are in our tax division, so to speak, do a lot of work during the year with tax planning and structuring, doing tax projections, working out charitable remainder trust. I mean, there is ongoing work that is related to taxes when we’re doing planning for clients. And so they keep busy with projects like that during the year. And again, we have everything very streamlined in tax preparation. We use Lacerte software for taxes. It has all of our clients’ basic information in there already. We send out e-organizers, and a good percentage of our clients just input their information into the e-organizer. And so that goes straight into our program.
Michael: Is the e-organizer, is that like an extension of Lacerte or is that some standalone program?
Sheryl: No, it’s an extension of Lacerte. So it feeds right into Lacerte.
Michael: So Lacerte can do data gathering online, but most financial planning software can’t, right?
Sheryl: Exactly. And our CPA, our tax manager is I guess for lack of a better term on mommy track right now. And she works three days a week during the year, and in tax season she works five days a week. So really tax season has not been a big deal. Our last tax season, we might have worked overtime during two weeks. And overtime meaning maybe 10 to 12 hours a week, but we also probably got 80% of our clients’ tax returns out on time. And the rest were extended based on clients not being ready yet.
Michael: And you just…well, I guess, again, and the cost of carrying some tax team year-round is just that’s part of the bundled cost of your advisory fee and where you set it?
Sheryl: Yes, that’s true, but they also do a lot of work on the financial plans as well because taxes are integrated into everything we do, that and the investment management. And so they are kept busy. And we have a lot of redundancy in our office, where we don’t rely on just one person who can do a particular task, we have backups. And so there’s plenty of work to keep them busy year-round.
Michael: Okay. And so rounding out the kind of classic advisor technology stack, so you’re on MoneyGuidePro for financial planning, you’re on Junxure for CRM, so what are you using on the investment management side of things?
Sheryl: Well, I use PortfolioCenter for portfolio accounting, and clearly I use Total Rebalance Expert for rebalancing because it’s the best rebalancing software on the market.
Michael: Naturally. And you would have the experience and perspective to know.
Sheryl: That’s right. That’s right. And we use Morningstar products for investment research.
Michael: Okay. So more like the full Morningstar Office suite or another version of it?
Sheryl: Well, we use Morningstar Direct and we also use, you know, the Morningstar Office suite. We use elements in both of those.
What Pushed Sheryl To Design And Launch tRx [37:04]
Michael: Okay. So let me shift a little bit then to talk a little bit more about tRx. So for those who aren’t familiar, as Sheryl has mentioned, tRx is rebalancing software package. You know, I guess in practice you live in competition with a handful of others, iRebal and Tamarac, and RedBlack, and TradeWarrior. And the significance of tRx for you is you made that, you built that. And so I’m wondering if you can share with us a little bit of that story. Like, you know, you’re building this successful advisory firm with a couple of hundred million dollars under management, 12 employees, and then you made a software company to do rebalancing. So how did that come about?
Sheryl: Well, I think I was absolutely crazy, but what happened is way back when there were only a couple of rebalancing software solutions out there, we decided to take the plunge and adopt rebalancing software. And upon hearing through the technology experts in the industry that iRebal was the best one, we went out and we bought iRebal. And we paid $50,000 for it.
Michael: Okay. And when was this? Like timing-wise what year are we in, roughly?
Sheryl: Timing-wise, pretty close to when it first came out. I want to say maybe 12 to 15 years ago.
Michael: Yeah. I think the original iRebal hit in 2004, so okay, so early on.
Sheryl: So we were in the second wave, we were right past the beta testers. But rebalancing was repetitive and error-prone and very complex the way we did it because we managed at the household level and we tried to squeeze out tax benefits. And to try to do that by hand was excruciating, but that’s what we did. And so what happened was we did bite the bullet and paid $50,000 for iRebal. And then it took two of us 20 hours a week for six months to get that up and running. And it was painful. I mean, we went to sleep dreaming spreadsheets. But when all was said and done, it changed our life. It literally changed our life. It took something that was a total nightmare into something that was just a short little easy part of our day. And we were able to stay on top of our client portfolios every day and know we were doing a good job for them. So it was great.
Michael: You know, I know from our end as well we were in that first wave of iRebal, and, you know, and paid $50,000. And we only did it because at the time we were probably $250 million to $300 million under management at the time, and we had three full-time staff members doing trading, and we were about to hire the fourth. And so we said like, “Well, the software will cost as much as the staff member. If maybe it keeps us from needing to hire the fifth then this will turn out to be a good ROI in the long run.” And that was pretty much what it took to get us off the…like out of the gate to be willing to make that kind of spend on the software.
But ultimately we ended out being able to go from three traders down to one. The one had so much spare time in his day we also gave him research duties to, you know, keep him from getting bored and quitting because he was running really important software for us. And we grew all the way to about a billion dollars under management before we had to hire a second person. And we really only hired the second because at that point we had one really complex piece of software and one staff member who knew how to run it, which means we had a lot of business risk if he fell sick.
Michael: And we couldn’t trade a billion dollars of client assets so we hired a second person as a good backup and a bit a little more redundancy in. But, like, that kind of scalability. I mean the same thing for us, like it was utterly and completely game-changing for the practice.
Michael: Like just to run a billion dollars under management and have one trader who has spare time.
Sheryl: Right, I know, it’s absolutely amazing. And so we were very happy, but then what happened is that iRebal got acquired by TD Ameritrade, and the head of TD Ameritrade at the time said that he acquired iRebal so that they could attract the larger RIA firms to TD Ameritrade. Well, I didn’t use TD Ameritrade and I don’t use them now, and I was concerned about two things. Number one, that since I didn’t use TD Ameritrade, at some point iRebal might not be available to me. And number two, I really doubted that a piece of software would be enough to entice a large RIA firm to switch custodians. I didn’t think that would be enough to make a decision to do that. And so if their reason for acquiring iRebal was not going to accomplish, you know, what they wanted, then I was concerned that they wouldn’t put the resources in to continue to support and update it. And so at that point in time, I said, “I can’t risk being without rebalancing software. You know, now that I’ve seen the light I can’t go back.”
And so, yeah, I sent my right-hand person who had installed or worked with me on iRebal, I sent her to look at the competition, which was Tamarac, and she did two thorough demos with them and came back to me and said, “It’s too complicated, we’ll never use it.” And coming from the experience with iRebal, that was really pretty surprising.
Michael: It’s like you went through a process of 2 staff members and 20 hours a week for 6 months to get to iRebal and then the response was Tamarac is going to be worse?
Sheryl: Exactly, exactly.
Michael: That would be daunting.
Sheryl: Yeah, it was. And so I looked at it and I thought, “Okay, as much as I love iRebal, it’s not perfect.” You know, it didn’t do everything I wanted it to do, and I thought there have to be a lot of advisors like me or even a little bit different than me that are not willing to spend $50,000 and don’t have the luxury of having two people spend all their time for six months. And I just thought there had to be a better way that rebalancing software should really be available to the masses. It shouldn’t be that expensive, it shouldn’t be that hair-pulling to get up and running. And in my naivety, I thought, “Okay, it can’t be that hard because I know what I want it to do. And why don’t I just build a software for myself, and if it works for me it will work for other people.”
Michael: It seems reasonable.
Sheryl: Yeah, it made perfect sense.
Michael: So how do you get started building software like this? I mean, what does that look like? How do you like go find a tech partner, go find a development firm? I mean, what was the actual first step to, “I’m an advisor, I’m going to build software?”
Sheryl: I mean, the first step is obviously figuring out if it’s possible. And so I did work with a software developer and I was told that if I could put it into words then it could be programmed. And I had a math minor in school so I think mathematically. And really putting everything we do and want to do in terms of tax efficiency, putting that into words and logical steps, it’s an exercise that boggles your mind. But I was able to do it. I was able to say, “Well, you have to look at this first and then if it’s this you do that, if it’s this you do that. And for each step it has all of these, if this then that, if this then that, and all of these different formulas and hierarchies.” And that part was very difficult, but it was also something that I knew what I wanted it to do.
And so I think because of the math background, the tax background and the investment background, from going to zero to having a beta version in like a year and a half, is, looking back on it, probably pretty miraculous. But from my standpoint, it seemed like forever. And because I’d never done software before, you know, I thought, “Hey, this is going to be easy.” But it wasn’t easy. But I did accomplish what I wanted it to do.
Michael: So how did you end out hiring for this? Like you made this sort of description of what you envisioned it would do and wanted it to do and then like you go hire a development firm? I mean, like, what does that look like? How do you…
Sheryl: I basically went with people I know. And, again, very naïve. I didn’t even think about taking it out to bid or investigating software developers. I just took it to someone I know, and that’s pretty much how I did the hiring.
Michael: Okay. So there are some folks you know that are in the software world and you said, “Hey, you want to make this, I’ll hire you to build it?”
Michael: Okay. And so what does it take to invest into this to actually get it off the ground?
Sheryl: Again, that was something that I thought was not going to be much, right? It’s a little bit of services who have your program. Tell people about it, they buy it, and it doesn’t cost that much money. But it does cost a lot of money because you have to pay people. And once you have it working, you still have to pay people to take care of the bugs and improve it and make sure it can do this, and make sure it can do that. And you have to have people to sell it and people to market it, and people to do the accounting and the billing. And all the while you’re kind of spending ahead of time while you’re building up the client base. And so, you know, in the old days when they had the dot-com blow up the companies that were startup companies, would talk about burn rates. You know, how fast were they going through money? And that’s kind of what I was looking at. I mean, I had and have a successful RIA firm and I was using money off of that to fund the software company. And as I needed more money, I got bank money, I got family and friends to loan me money. And, you know, it was a little bit of a challenge, and…
Michael: So, I mean, do you know like how much money did the building process suck in? I mean, I think there’s a lot of folks out there that are probably really curious. Like at the end of the day how…
Sheryl: At the end of the day I would say it was healthily into seven figures.
Michael: Wow, of profits and friends and family investments. I mean, did you basically go through like a formal raising capital process or it was more piecemeal?
Sheryl: No it was really just asking particular people. You know, “Hey, would you be willing to loan the company X amount?” And, you know, these people had faith in me and they did it.
Michael: And so you were in for seven figures over like the span of a year or two? How much did that progress?
Sheryl: No, I mean, this was over seven years, you know. So we had a salable product, but when you’re developing it and continuing to develop it and continuing to improve it, you need to have developers and you need to have support people.
Michael: Staff it.
Sheryl: Exactly. And, you know, as you build up clients then you hit that breakeven point to where you’re going over to the other side. But it takes a while to get there.
Michael: And like how many years did it take before you got to a breakeven point? Because I’ve got to imagine there was like popping a cork and a lot celebrating at the point that the money bleeding stopped.
Sheryl: Exactly. Yeah, it was probably five or six years.
Michael: Wow. Because the problem is like you’re getting users and they’re paying, but you have to keep hiring more staff to service them and more developers to build the features that they want and so…
Michael: …you like it takes a long time to get ahead. I find that’s one of the things that a lot of people…I’ve seen that a lot in some, you know, like business plans that some folks bring to me because I do a lot of consulting these days with tech firms that are serving advisors, that like the folks that haven’t built one of these before, I find most commonly what they underestimate is how much more money you have to keep putting in even after you’re getting users to keep building the features they want to stay competitive because the companies you’re competing against are going to be adding features to stay competitive.
Sheryl: Exactly, exactly. And then in the technology world, things are changing so fast that you have to always be improving your product. And you have to be on the cutting edge. You can’t be catching up because you will always be catching up and you’ll never be a player in the market. And so you have to always be on the cutting edge. And that’s a huge undertaking, both in terms of coming up with ways to do it, solving the issue and paying for it.
Michael: So you spent the better part of seven years or so of running this technology company and your advisory firm. Just…I mean, what does that look like from day-to-day and week-to-week? Because you’re well past the like, “Hey, guys, I’m going to be busy for the next few months so just I need you to watch a few more client things while I get this project off the ground.” It’s like you’re way, way past that point.
Sheryl: Oh, yeah. I said it was like permanent tax season for seven years. It was excruciating. I basically worked and slept, and sometimes I didn’t sleep enough. It was very, very challenging and much more difficult than I ever dreamed it would be.
The Emotional, Financial, And Physical Challenges Of Starting An Advisor FinTech Company [53:01]
Michael: So what were the biggest challenge points for you?
Sheryl: The biggest challenge point was really more handling the physical and emotional side of it. You know, here I had a very successful advisory practice and I would be worried about making payroll. I would be worried about the competition doing this or that, to worried about losing a client. And, you know, it’s very different when you have a lot of money on the line, and not only a lot of money, but you have employees who are relying on you to keep a business going. And so from an emotional standpoint, it was tough, and from a physical standpoint, it was tough. You know, I wasn’t 30 years old. And so trying to take on this amount of work really took a toll on me. And, you know, I’m only now starting to get back into what I feel is like good health and a good mental state of mind.
Michael: Were there particular like coping mechanisms? Like is there routines or things you found to try to de-stress and manage through that?
Sheryl: Yeah. I mean, for me it’s escape-type activities. You know movies, concerts and taking vacations periodically. That would kind of take me away from my little financial world and give myself a chance to immerse in a larger world. And that would be my way of keeping my sanity.
Michael: And was it hard to get yourself to schedule vacations when you already feel like you’re working two full-time jobs?
Sheryl: It was less hard to schedule them than to actually do them because what happens is before or after a vacation you end up working harder than ever so that you can take the time off, but I knew taking the time off was essential and so I would still find a way to do it.
Michael: Were you like fully running both companies all along? Was there a point where you were like you took on partners or other folks to help you run one or both businesses or like…
Sheryl: Well, I’ve always…I have people in senior positions, but I was the manager, the head of the software business and I’m the head of my RIA practice. So whenever you’re the owner, you can delegate all you want, but the responsibility still ends up at your desk.
Michael: Yeah. And with two growing companies, I guess that’s a lot of responsibilities coming at you from both directions.
Why Sheryl Sold tRx To Morningstar [56:01]
Michael: So you went through this building over time, ultimately Morningstar acquired the company. So what led to the decision of selling to Morningstar?
Sheryl: Well, I think when I got into the business as naive as I was I also realized that I was not a software business owner. That wasn’t my area of expertise. And I always figured that I would be fine at managing the company to the point to where it had 100 to 200 clients, but I would not be capable of managing it as it went to 500, a thousand or more clients. And I also realized that with the competitive nature of the industry, there needed to be deeper pockets than mine that could fund the resources necessary to keep it current and cutting edge. I had negotiated a reseller agreement with Morningstar and it just seemed like we had too much synergy going on to leave it at that. And so it naturally evolved into a purchase situation.
Michael: Okay. And when they acquired, like, was that it? You’re done, drop mic, exit stage left and focus in on your advisory firm or…
Sheryl: Well, I am still a part-time employee of Morningstar, but it is part-time. And I don’t have to make the management decisions as, you know, do I hire another developer or not? I’m not in charge of marketing. I’m really there to be the idea person and to support some of the marketing efforts through writing and speaking, and things like that. And so it’s really a much more manageable job for me because it’s actually within my area of expertise. And so to go from two more than full-time jobs to one and a third jobs is like day and night.
Michael: On a relative basis that’s, yeah, quite a reduction and a relief just one and a third jobs.
Sheryl: Yes, exactly. But I also…to be fair I also have the best I’ve ever had in my RIA firm. And so that’s helping me to keep my hours to a reasonable level.
Sheryl’s Advice For Other Advisors Who See A Software Gap In The Market [58:55]
Michael: So as you look back on it, what advice would you give to an advisor who’s got some similar feeling, right? Like, “There’s all these gaps in the technology advisor landscape. Like I see things that I know could be done and I know what the software would do. And I’m sure people would…I’m sure other advisors would buy it, and I’m thinking about going out to make a company to do this.” What’s your advice to them?
Sheryl: Believe it or not, I’m not going to just say don’t do it, okay? I don’t really look back on life with much regret because I always think everything you do leads you to where you are right now. And I’m happy right now so I can’t regret anything. But I do think it would have been good to know what I was getting into with my eyes more wide open. And I think if you’re thinking about it, you need to realize that it is going to take capital, and it is going to take quite a bit of your time. And I think you need to be prepared for that. You know, it’s kind of like when you take on a construction project on your house, you know it’s always going to take longer than you thought and be more expensive than you thought. And that’s kind of what it’s like in the software business. It’s going to take longer than you think, it’s going to be more expensive, it’s going to be very time-consuming, and it’s going to be stressful because you have to keep ahead of the competition. It’s not like you’re…okay, it’s not like you’re an investment advisor and you’re going to invest clients’ money and you don’t have to reinvent how to do investing every six months. But in the technology field, you have to reinvent what you’re doing continually. And so I think if you into that prepared for the financial and time commitment then I think you might end up going for it. But you also have to be in a position to where if it fails, it’s not going to ruin you financially because not everything works.
Michael: Yeah. Well, I know said, you know, cumulatively over the span of a bunch of years you were in for north of a million dollars, how much does someone need to try to get it off the ground? I mean, how much did it cost just to get to like a piece of software and it worked and someone was willing to pay for it?
Sheryl: You know it’s so hard to say because software is so different. You know, so I really could not fathom to estimate that.
Michael: So looking back on it, I mean, do you regret doing it for the seven years of intensiveness that it put you through?
Sheryl: Well, what I say is I feel like it did take some years off of my life, and so now I’m really focusing my health and exercise to hopefully get some of those years back. But, like I said, I don’t look back on anything with regret. I think I’m in a good position today. I like my life, I feel good about creating something for the industry. I think that really was an accomplishment I can be proud of. And, you know, looking back on it, at that time if I’d known what it was really going to take, would I have done it? I don’t know. But looking back on it, I can’t have regrets.
Michael: And so what are you working on now as you look forward? Is it, “I’ll focus on the advisory firm now and a little bit more of the fixing the work-life rebalance,” or do you have new stuff you’re looking at as well?
Sheryl: Well, those are…those two items are really my main focus, but we also, at Rowling & Associates, we put a lot of work into our investment process, our investment decisions for our clients. We do a start from scratch analysis each year to calculate efficient frontier models and to choose the best mutual funds for each slice. And we do a whole lot of research including alternative funds for tax-loss harvesting and the best 529 plans, and all of that stuff. And we end up with pretty much a book of what all of our research is. And, of course, it’s a virtual book, right, because we’re paperless. And I realized that a lot of advisors out there don’t have the expertise or the capacity to do all of this research themselves, and so they find themselves going to TAMPs or paying a percentage of their profit to get that.
And so what we’re doing is we’re offering our research, our models, our investments, quarterly letters, you know, white-label quarterly letters, everything an advisor would need in terms of what their investment committee would do. And we’re just going to charge a flat of $6,000 a year. I mean, clearly it costs us much more than $6,000 a year to come up with this, but I’ve always been a believer in helping out the industry so that we can all serve the clients that need our help. And so that’s something we call it “InStrategy,” and we’re offering that as a service to advisors if they just want to have our research, our models and our support on their investment decisions.
Michael: So advisors would buy this because they would like someone to just give me the models and the supporting research and due diligence, I’ll manage it, I’ll handle it. Well, I’ll use tRx to manage it, of course. Like I just want someone to give me some models to use?
Sheryl: Right, right. And, you know, if we do have someone that says, “Can you also manage the portfolios for us,” we can offer that as a separate service.
Michael: Okay, okay. But nominally this is just, “If you just want someone to give you the models and the supporting material, here is the solution. It’s called InStrategy. We’ll tell you what to use then you can execute it with your clients.”
Sheryl: Right. And then we also do things like let them know at the end of the year which funds they should swap out of because of capital gain distributions or if there’s a fund manager and we think you need to change funds midstream, you know. So we do stay on top of changing situations. And we’ll also give emails within 24 hours that they can send to clients if there are significant economic or events that might affect the stock market so that they can be responsive to their clients.
Michael: So for you personally at this point, as the dust has kind of settled, what does a typical week look like for you at this point?
Sheryl: I think the typical week for me is not typical. Every week is different. I am not a morning person, so I might float into the office between 10 and 11 in the morning, but then I might do some work at home until 10 or 11 at night. I really…I give myself time to get my 10,000 steps in every day, work out with the trainer three times a week. We bought a place in Mexico, and so we go down there for weekends frequently. I spend time with my dad, my kids. So what I really look for is work-life balance. And I still do plenty of work, but it’s kind of on my timeline and my schedule. And it’s fun. I’m enjoying life.
Michael: Enjoying life is good.
Michael: How long do you think you’ll keep doing the advisory business and the core of what you’re doing? Like are you still eyeing retirement and another liquidity event from that at some point the way that you had for tRx or are you in this for longer?
Sheryl: Well, I think a little of both. I think at some point I’ll probably do an internal transition, but I wouldn’t plan to stop working. I like my clients, I like what I do, but I also have younger employees who are anxious to advance their careers, and I want to make sure there’s opportunities for them. So, you know, I’m not ready to retire right now and watch soap operas and eat bon bons, but, you know, I am looking at transition down the road.
Michael: And where do you go for ideas and inspiration about that?
Sheryl: Probably professional networking. I belong to a study group called the All-Star Financial Group. I get a lot of inspiration from them. I get inspiration from people like you Michael. I do a lot of reading, and I get inspiration from my employees. So, you know, everything happens for a reason, I do believe that, and I try to make sure that I take care of all the stakeholders anytime I do something. And in this case, the stakeholders include myself, my family, my employees and my clients.
Michael: So any advice you would give to newer advisors that are…they’re coming in today or maybe a couple of years in, you know, are where you were a few decades ago looking forward to career?
Sheryl: The advice I would give is to use the “as-if” rule. Run your practice as if it’s your ideal practice. Serve clients that you’d like to work with, do the work that you’d like to do because you’re going to be spending a good chunk of your life devoted to this career and you need to make sure you’re enjoying it and feeling good about what you’re doing.
Michael: I like that. So as we come to end here, this is a podcast about success and one of the things we always talk about on every episode is that ultimately success means different things to different people or even different things to the same person as life changes, and so, you know, you’ve built a successful advisory firm, kind of on the side built a successful technology firm and sold it to Morningstar, and so as you look forward from here, how do you define success for yourself?
Sheryl: I define success for myself as being happy in my life and having the ability to do what I like in my life. And at this point doing what I like in my life is working with and for people I like, being able to spend time with my family and being able to do fun things, and also have time to give back to the community. And, you know, life is varied and I like the variety, but I also like having some flexibility and knowing that if I want to sleep nine hours one night, I have the availability to do that.
Michael: You’ve got to the point. You’ve earned it. Well, thank you and thank you for your willingness to give back a little by joining us here on the podcast. I’m thrilled we could share the story.
Sheryl: Well, thanks so much, Michael, this was actually kind of fun for me too.
Michael: Fantastic. Well, thank you. Thank you for joining us on the Financial Advisor Success podcast.