Welcome back to the twelfth episode of the Financial Advisor Success podcast!
This week’s guest is Sophia Bera, the founder of Gen Y Planning, a financial advisory firm that is successfully and profitably delivering financial planning to Millennials, by charging them an ongoing monthly retainer fee to access her financial advice.
Sophia’s path to launching her advisory firm was first the subject of a Nerd’s Eye View guest post back in 2013, when she launched her independent RIA for under $10,000 (in a world where most people said it wasn’t possible to get launched for so little!). So I decided to check with her to see how it’s going… and found out that she had replaced her prior job salary within 18 months of her new practice, and now after 3 full years, she’s already taking home $100,000 of profits after all expenses, and is growing rapidly with 2 new clients per month, almost all of whom are in their 20s and 30s.
Sophia’s firm is a great example of not only the fact that Millennials can be served profitably, but the power of having a niche. Because not only is Sophia’s firm actively growing, but her primary source of new clients is Google. That’s what happens when you have a niche. Just search for “Financial Planning for Millennials” yourself, and you’ll see that Sophia is at the top of the search results as the recognized expert in her niche!
In this episode, Sophia breaks down exactly how her fee structure and service model work, from how she charges a combination of upfront and ongoing advice fees, how she incorporates investment management for certain clients (using a “robo-advisor” platform to do it!), and what exactly it is she does for clients throughout the year (and why it’s not necessary to do something for them every month!). And Sophia goes into detail about what client retention looks like with a retainer model as well, and how she sees her business growing over time.
And be certain to listen to the end, where Sophia talks about how her practice has evolved into an entirely “location-independent” virtual advisory firm, and how that not only helps her to live the lifestyle she wants, but also to diversify her income streams across financial planning, speaking, writing, and even a new coaching service for other financial advisors who want to build a similar business for themselves.
So if you’ve been curious to know how exactly to serve young Millennial clients in your firm, or have been wondering what it would be like to “take the plunge” and start your own business to do it yourself, I hope you enjoy this latest episode of the Financial Advisor Success podcast!
What You’ll Learn In This Podcast Episode
- The monthly-retainer model she uses to maintain $100k of recurring revenue, and how she plans to grow to $200,000 in revenue this year. [3:17]
- Why she uses Betterment For Advisors for investment management, and how she thinks of the collaboration between financial planners and robo-advisors. [15:08]
- The virtual structure of Sophia’s firm, which uses remote staff and serves Millennial clients all over the country. [22:11]
- The breakdown of Sophia’s revenue per year as a new advisor, and how long it took her to double her salary when working for someone else (hint: shorter than you might think!). [40:57]
- How Sophia has managed to become the top hit for Gen Y and Millennial financial planning on Google, which has brought her enough prospects that they have to be pre-screened by her paraplanner to manage her time! [47:37]
- Why Sophia has no problem sharing her knowledge and “training” her competition to successfully plan with millennial clients. [53:57]
- How Sophia went from actress to financial advisor to advisory firm business owner – and gets more media exposure as a financial advisor than she ever did as a performer! [57:41]
- How Sophia’s unique combination of financial planning experiences, including at a traditional firm in Minnesota, LearnVest, and another startup have informed her approach to running a business. [59:19]
- What Sophia’s mentor told her when she was agonizing over whether to accept another planning job or take the leap to start her own firm. [1:06:34]
- Why Sophia believes that the best route to long-term job security (and quickest path to a six-figure salary) is starting your own advisory firm, rather than working in one. [1:13:30]
- The lessons she’s learned while balancing personal challenges with hustling hard in the business – and why we all need to take care of ourselves well if we want to serve other people. [1:23:30]
Resources Featured In This Episode:
- Sophia Bera – Gen Y Planning
- Information about Sophia’s upcoming paid Mastermind Group!
- Setting Up An RIA and Starting A New Financial Planning Practice On Less Than $10,000 from Nerd’s Eye View
- The Emergence of the “Location-Independent” Virtual Financial Advisor from Nerd’s Eye View
- Ep #3: The Career of Sophia Bera: From Actress to Firm Owner on XYPN Radio
- Ep 011: How Launching An Advisory Business Can Be Safer Than Working In One with Alan Moore
- Betterment For Advisors
- Low Load Insurance Services (LLIS)
- Paula Pant – AffordAnything.com
Full Transcript: Delivering Profitable Financial Planning To Millennials For A Monthly Retainer Fee with Sophia Bera
Michael: Welcome, everyone. Welcome to the 12th episode of the Financial Advisor Success Podcast. My guest on today’s podcast is Sophia Bera. Sophia runs a very unique advisory firm focused specifically on serving millennials in their 20s and 30s and charging them an ongoing monthly retainer fee from $149 and $299 per month to access her ongoing financial planning services.
In this episode Sophia details exactly what it is she does to provide meaningful financial planning advice for millennial clients, how she still manages to generate an average revenue per client that’s comparable to most other solo advisory firms despite having little focus on managing assets, and the career path that led her to launch this innovative kind of advisory firm business model from scratch after being an employee for many years.
Sophia also talks about the exact trajectory that her advisory firm went through in the early years, from how much it took for her to get started to exactly how much she earned in each of those early years, and how her focus on a niche, financial planning for millennials, allowed her to reach $100,000 of net take-home profits from her advisory firm by just her third year in business, all while serving the kind of millennial clients that the industry has long said could never be served profitably at all.
And be certain to listen to the end, as well, as Sophia talks about how she runs her business entirely virtually, allowing her to function as a location-independent financial advisor, and why she sees entrepreneurship as the new form of job security.
And so with that introduction, I hope you enjoy this episode of the Financial Advisor Success Podcast with Sophia Bera.
Welcome, Sophia Bera, to the Financial Advisor Success Podcast.
Sophia: Thank you so much for having me, Michael, I’m super excited to be here.
Michael: I’m thrilled for it because I’m excited about this. You did an article, like a guest post, on Nerd’s Eye View blog a number of years ago now about how you were launching your own advisory firm and you were starting your RIA for under $10,000. Now I think we literally titled it “Setting Up Your RIA and Starting a Financial Planning Business for Less Than $10,000.” And the article was hugely popular back then, I think still gets activity and a lot of people checking it out.
And so I’m excited both to have you on the podcast and just talking about the cool stuff that you’ve been doing for the past couple of years, but there’s a strange completing the circle thing for me, I think, that we had this post from you three or four years ago about launching this brand new business serving young people, doing financial planning for millennials, and now we’re in the three or four years later check-in stage.
Sophia: Totally. And it’s still going, which I feel like is really exciting.
Sophia’s Monthly Retainer Model [3:17]
Michael: Well, thank goodness because otherwise it would be a really short podcast. Yeah, that whole thing, I was completely crashed and burned. So tell us a little bit about your advisory firm as it exists today.
Sophia: Yeah. So Gen Y Planning started in May of 2013 and now I have about 50 clients on a monthly retainer model. I would say the majority of my clients are in their 30s, with a handful in their 20s, and a couple in their early 40s. And my goal is to help my clients use their money to match their values to live awesome lives. And what’s really fun is I work with a variety of different clients across the country and a lot of them, I have a really diverse client base, a lot of them are first-generation or immigrants, they’re often making six figures, they’re higher income earners, but they just haven’t had the time to accumulate assets yet.
However, it’s that time in our lives where we’re going through a lot of transition and changes, and so a lot of my clients come to me when they’re getting engaged, getting married, having kiddos, switching jobs, buying a home, selling a home, starting a business. And it’s really fun to be able to help them navigate through those different life stages.
So that’s a little bit about what I do. I have a small virtual team. I have an associate planner, Alex, and I have a content manager/client service specialist, Sarah. And so we’re a small but mighty team and we are growing and it’s really exciting. So that’s kind of where I’m at currently.
Michael: I find this whole model so fascinating. And you just threw out along the way of that discussion six different sacred cows in our industry that you simultaneously slaughtered all at once.
Sophia: Which ones? No.
Michael: Well, your clients are in their 20s, 30s, and early 40s, right? Like your olds clients actually had their 40th birthday already. You’re charging them monthly retainers, they have no assets, they come to see you because they’re getting engaged and married and switching jobs, right? We’re all trained, “No, no, you find people who are retiring and rolling over half a million-dollar or a million-dollar 401(k)s,” that’s where we’re told to go.
Sophia: Yeah, that’s boring to me.
Michael: So you’re doing none of that. So talk to me a little bit more about that. So you’ve 50 clients that are monthly retainers, so can you explain what that is for maybe listeners who haven’t heard of or seen this model before?
Sophia: Yeah. So when I was launching, the thing that I heard a lot was, “You can’t make any money off of working with young clients because young clients don’t have any assets for you to manage.” And to me I thought it’s not a them problem, it’s an us problem. We haven’t figured out how to charge young clients. Young clients are willing to pay for financial advice, they just haven’t had the time to accumulate the assets yet. They’re 30 years old, it’s not their fault they don’t have $500,000 sitting in their 401(k), they literally haven’t had time.
And so I really wanted to flip the model on its head and instead I charge an upfront planning fee followed by a monthly subscription. So that monthly retainer model, I think, when I first started was like $75 a month, I still have a few people on that. But now my clients pay between $149 and $299 a month to work together on a monthly retainer. That’s starting, I’ve been kind of increasing that each year and it’s going to be going up again soon. But that allows me to have a couple check-in meetings each year with them, they have unlimited e-mail support with me, I do a company benefits package review for them, they have access to my financial network. So when they need an estate planning referral or a tax accountant or an insurance agent, I’m more than happy to connect them with somebody in my network.
Michael: The numbers there are interesting. So for where you are now at $149, so call it $150 to $300 a month. So if I annualize that out, clients are paying $1,800 to $3,600 a year or so. Which I think is interesting because that’s not that different from lots and lots and lots of financial advisors I know. If you charge an AUM fee, just to put it in context, your clients have $180,000 to $360,000 of assets at a 1% AUM fee. That’s most financial advisors. We always like talking about big multimillionaire folks that have enormous ultra-high-net-worth clients, but most of us at the end of the day work in the mass affluent marketplace even when we’re working with assets, which is $100,000 to a million dollars, and a million dollars is a big client for most advisors.
And so when I just look at it like the good old-fashioned revenue per client kinds of numbers, your business is right there in the middle of everyone else even though you’re not charging assets, you’re just charging it differently.
Sophia: Right. And I charge an upfront planning fee, as well, which is where a significant amount of my revenue comes from. That right now is $1,500 to $3,500 upfront. So I’m raising the top end of my range a little bit, it’s going to go up to $5,000 and up to $499 a month just because I’ve had some more complicated small business owner clients where I want to allow for a little bit more of that, the complexity, to charge a little bit more either upfront or a monthly ongoing. But I would say an average client right now is $2,000 to $3,000 upfront and around $199, $249 a month, right in there.
So I get a little bit more on the front end than I think a lot of traditional financial planners do, but I would also tell you that my retention is different than some of these baby boomer type clients who are going to be clients for decades. I’ve had more clients kind of fall off over the years.
Michael: What does that turnover look like? Like do half your clients leave after a year or two? Or just, no, 80% stay around, but maybe 20% leave?
Sophia: Yeah, I would say it’s about a quarter to a third probably fall off after, I would say, like the kind of year to two-year spot.
Michael: Okay. And is that just when they went through, they did stuff with you, they got their financial lives cleaned up, and just come back and say, “Hey, thanks, Sophia, you’re awesome, but we’re in a good place now, we don’t need you anymore”? Is it that kind of conversation?
Sophia: Yeah. It really is. It’s like, “We feel way more educated around our finances, we feel like we got our estate planning set up and our life insurance, and we feel like we can kind of take it from here.” The thing that’s interesting is a couple of them have come back when there’s a life change, so I wouldn’t be surprised if we start seeing more of that.
Michael: And I guess when they come back for enough life changes enough times and every time…do you hit them with the $2,000 upfront again when they come back a year or two later?
Sophia: In theory yes. It hasn’t happened quite like that, it’s kind of been more of like a project fee for this thing that I know that they needed or whatnot. But I think what’s really fun is really helping people, empowering people with their financial lives and educating them around their money. And I feel like no one cares about your money more than you do, and a big part of my job is to make people feel like they’re in control of their money, they understand where it’s going, why I’m making the recommendations.
And I think a lot of my clients are more of the do-it-yourselfers anyway and they just wanted somebody to kind of look at their stuff and say, “What are the holes? What am I missing?” And then they kind of want to take it from there and run with it and whatnot, and I’m fine with that. I’m glad I’m able to help them when I am, and at the same time happy to send them on their way and to help new clients.
Michael: Well, and the industry has long kind of pointed out, the folks that do industry research said for years, you can break consumers in the aggregate into basically three groups. On the one end are the pure do-it-yourselfers, they do everything themselves. You ain’t never going to work with them, don’t bother trying. At the other end of the extreme there are the delegators who just avoid the stuff, don’t want to deal with it, hand it off to an advisor. That’s classically who we worked with because by definition when they want to delegate, they’re a good match for you.
And then there’s this giant group in the middle that the first one I at least thought I saw characterizing was Forrester Research, who’s one of the research shops in the industry, and they called them the validators. These are the folks that have some financial knowledge and wherewithal, they’ve got some comfort doing stuff on their own, but they’re not completely confident in their ability to do everything on their own.
So they do want to work with some advisors to get some advice and validate what they’re doing or point out that something is off and wrong and where they may need to steer differently. But they don’t want to delegate everything, they don’t want to give you all their life savings, they just want to attach for a little bit more piecemeal advice. And historically they’ve been stuck, they either went to an advisor that said, “The only way you can work with me is give me your life savings or bust.” Right? Like, “Because we only manage assets.” Or, “Let me introduce you to Schwab.com or E-Trade, go out on your own.” And there was nothing in the middle, even though Forrester data suggests that like a third to half of all consumers are in the middle. The middle group is actually bigger than either wing.
Sophia: Yeah, I joke that my clients are all smarter than me because they have MBAs, graduate degrees, doctorates, MDs, JDs. Like they’re very well-educated, smart people that know that they need to be taking more action with their money and are kind of paralyzed by, “Which action do I take? Is it better for me to pay down my law school loans or max out my 401(k)? Can I afford to do both? Which payment program do I choose for my student loans? We just had a baby, do we need to start saving for college now?” They’re faced with all of these questions and guess what, they’re busy young professionals, they have really important jobs and they are smart enough to do the research on their own and also smart enough to realize they don’t have the time to learn everything they want to about it.
And so that’s where they’re looping in me and saying, “Hey, we realize that are incomes have increased very quickly over the last few years, we’ve made some strides in our finances on our own, and now we’re to the point where we want to know what’s next, what should we be doing, and what don’t we know that we should be doing.”
Michael: And I feel like it’s worth mentioning, you did say in the asset management world typical turnover is 5% to 15% a year, or some of the really strong wealth management firms get that down to like 2% to 4% a year, which gets to be a really big retention number. But when you say a quarter to a third are leaving in, call it, two years, you still have like 65% to 75% retention. And actually I guess that’s technically about 80% per year, and then some would fall off in year two. So it’s not ultra low, I think you said you have like 50 clients that are still in the ongoing phase?
Sophia: Correct, yeah, that are retainer clients.
Why Sophia Uses Betterment For Advisors [15:08]
Michael: Which at, averaging, $2,000-plus a year per retainer, that’s $100,000-plus of recurring revenue right there. Is monthly retainers the only piece that you do? Do you also manage assets or have other income sources and paths beyond solely the upfront planning fee and the ongoing retainers?
Sophia: Yeah. So the third income stream is I do manage assets. And I’ve actually partnered with Betterment for Advisors, which is a robo-advisor.
Michael: You partnered with the robots.
Sophia: I know.
Michael: What does that look like though? Is it strange? I get paid to give you an asset management solution you could buy directly from Betterment? What does that look like?
Sophia: Yeah. So what I tell people is I offer this add-on service that’s investment management. So if you want help with your Roth IRAs or your old 401(k)s and we want to roll those over, I use Betterment for Advisors. There’s no minimum, so we can set up a Roth IRA with $5,500 or we can roll over a bunch of old 401(k)s or move a brokerage account there. And I just tell them I help you choose the asset allocation on the accounts and I charge an investment management fee on top of Betterment’s 25-basis-point fee, I charge 70 basis points.
So you’re paying about 1% with the ETF fees for me to manage assets. And some people are happy to pay that and are excited that there’s a place to gather all of their old 401(k)s from various jobs and just plop them there. And other people are like, “You know what? We have our things at Schwab right now and that seems to work for us, so we’re just going to do that ourselves.”
Michael: And I guess that’s part of the point when you get a mixture of validators and delegators, right? Your delegator clients are probably the ones that are hanging out in monthly retainers, and they will for a while, and they give you some assets to manage, as well, because they don’t want to deal with it. And then the validator is like, “Yeah, I’m kind of comfortable with what I’m doing with my assets, I really just want to ask you some questions and do the project fee and maybe we’ll work together for 18 months, and then I think we’ll be sorted out,” and that’s the gig.
Sophia: Totally. Yeah, and what I’ve noticed is a lot of people I on-board as a financial planning-only client, and then after a few months they’re like, “Hey, can we talk about the investments again?”
Michael: So after they’ve met with you a couple of times and still haven’t actually done any of the asset stuff that you told them to do, eventually they’re like, “Yeah, can you just do this for me?”
Sophia: Right. And so I’m more than happy to do that. I don’t manage a ton of assets right now, and I’m okay with that, too, because I knew that it wasn’t going to be a huge income stream for me. I basically offer investment management as a convenience for my clients.
Michael: How big is the asset base? What are typical clients in the first place? Are these mostly $5,000-dollar IRAs, and across 50 clients it’s like $200,000 under management? Or some of them actually have sizable 401(k)s and have $100,000 or a couple hundred thousand? What is the AUM as a supplement, what does that look like?
Sophia: So I would say about half of my monthly retainer clients are AUM clients, as well. So about half of the people that I work with choose to opt into have some assets at Betterment. My average client has about $50,000 in assets at Betterment. And I would say that’s skewed by some people having $10,000 in a Roth IRA and other people having $150,000. But a few clients, I think I have like five clients that have more than $100,000.
Michael: So it’s $1 or $2 million under management kind of thing, it adds $10,000 or $20,000 a year to the revenue of the practice?
Sophia: Yeah. So I would say right now I have about $1.5 million in AUM, so about $10,000 or $12,000 a year in AUM. I would say with the monthly retainer that I have right now we’re sitting at around $100,000 a year in recurring revenue.
Michael: Okay. So that’s interesting to add it up. So about $100,000 in recurring revenue between ongoing retainer clients and the AUM. And that what’s a typical year look like for you in terms of new clients? I guess because new clients pay new upfront planning fees, so that adds to the revenue.
Sophia: Yeah. So the past two years I’ve taken on an average of two new clients a month.
Michael: Wow, two a month?
Michael: That’s a big number for most, not a lot of us take on 24 new clients a year, just two a month ongoing. So that’s typically two a month that are paying their $1,500 to $3,500 upfront. And then, I guess, do all of them move on to retainers or are there even some that just come to you, they pay you what basically would be an hourly engagement for some upfront planning stuff, and then they move on?
Sophia: Yeah. So I did like two stand-alone financial plans last year.
Michael: Oh, that’s it?
Michael: So most of them, they sign on, they pay the upfront, they go into retainer that’s just a question of, “Is this a validator who’s going to hang out with me for 19 months or is this a delegator who’s probably going to hang out with me for 5 or 10 years?”
Sophia: Exactly. Yeah, so a lot of people are like…like I just had a new client, I landed two new clients in the last two days, both of the prospects I talked to yesterday signed up. The woman that I talked to was a referral from another client and she just said, she goes, “Yeah, I want to do this. So go ahead and send me it and my thought process right now is I’ll do this for a year and kind of see where we’re at after that.” And I was like, “That sounds great.”
So that was kind of her thought process around it. She’s like, “Yeah, let’s do this. I know I need the help. I’m making good money, I know I could be doing more than I am right now. I trust the people that referred me to you. I could do a ton more research, but I really like you and let’s go ahead and get started. And after a year I’ll figure out if I still want to do this.” I’m like, “All right, I’m in.”
Michael: Yeah. And that’s not a bad client, right? They’re going to pay $2,000 upfront and some dollars over time. You’ll do active planning work with them for the next year and get paid $3,000 or $4,000 for doing the work, and then it just comes down to the same thing it does for any of us and all of us. You’re going to get paid a year’s worth of fees to do financial planning and advice work for clients and either you will or will not validate your value proposition after a year to get them to hang around and continue to pay you for what you do.
So I’m just kind of doing math in my head then to add up. So there are like $100,000 of recurring revenue and almost $50,000 of upfront planning fees, just like 24 clients at $2,000-plus a pop. So like $150,000 of revenue moving through for doing financial planning for millennials, 90% of which is not AUM revenue.
Sophia’s Virtual Staff [22:11]
Michael: You said you’ve got some support staff, as well? You’ve got an associate and someone supporting client service? Or are these full-time folks, are these part-time folks? How much support do you need to do 50 ongoing retainer clients?
Sophia: So I have two part-time virtual employees. And I would tell you that Sarah is my content manager, so she helps do my newsletter, do my social media, helps me with writing, and really has also been in charge of the prospective client application process, as well. So I have all clients fill out a Google form to apply to become a client, and then we have a list of criteria that she reviews to decide whether they get a link to my calendar or whether they would be a better fit for another financial planner, and then we refer out.
Michael: So she screens your prospects for you?
Sophia: Yes. Because I recently got rid of my quick-start sessions, which I think we’ve talked about this before. I used to have a one-time $500-dollar…basically for $499 it was a one and a half-hour financial planning session. We’d dive deep in two to three financial planning topics on the call, and then I’d send them a one-page action checklist after the call with my recommendations. And what was great about those is we’d actually accomplish a ton on the call. We would rebalance their 401(k)s or we’d set them up a Roth IRA at Betterment. But I did 24 of those last year for $12,000 in revenue and now I need to focus on…now that I have 50 ongoing clients I can’t service 50 ongoing clients and also be doing two quick-start sessions a month on top of that.
Michael: So it’s kind of an evolution of the practice. You don’t regret that you were doing them or think it was a bad thing to have been doing, it’s just it made sense when you didn’t have a lot of clients yet and it was another way to get paid for services and generate revenue now that the practice is larger. Now you’re at point of like, “I want good, thick clients that can pay me more in the long-term and not necessarily the one-offs anymore.”
Sophia: Exactly. So I think it’s actually really important for people to have a kind of stand-alone one-time planning session when they’re first starting because I was missing out on a grand a month in revenue by not having that my first year.
Michael: And when you’re getting started from scratch, a grand a month is a big number.
Sophia: That’s important. Right, exactly. And so the first nine months I was in business I was like, “Oh, crap. I need something else that I can offer. I don’t have something that’s a good fit for these people.” And the other thing is, as you remember, three and a half years ago there wasn’t anybody for me to send them to. Right?
Michael: Right, you didn’t even have anyone to refer them out to.
Sophia: Yeah. I was just like, “I have to help these people because there’s nowhere else for them to go and I want to help them.” And so I created a service specifically so I could help those people that just needed a jump-start, a quick-start, just needed to get going. And now there’s all of these planners that I can refer out to, now I realized my retention wasn’t quite as good as I had wanted it to be last year because, I’m like, “If I would have had one more check-in meeting with a client or done a little bit more follow-up via e-mail, I think I could have done a better job at retaining more of my ongoing client base.”
And so that’s what I really want to focus on this year, is steadily adding new clients, but also giving that time and attention to my existing client base. That’s another reason why I’m transitioning my associate planner, Alex, from part-time to full-time starting in April. So she started with me about a year ago and has worked with me about kind of like 10 hours a week in the beginning, and then up to 15, and now up 20. And so she’s going to be coming on full-time. Because what she’s really great at is the follow-through and helping me make sure, “Okay, who do we need to do check-in meetings with this month, Sophia? And how are we doing on this project? And these people, where are they at in their life insurance application?”
And so that is really exciting to be able to bring her on. She is a military spouse and is not able to just walk down the street in New York City to get a financial planning job, she is in Altus, Oklahoma where the nearest Starbucks is 45 minutes away. Right? So I think we have a really amazing symbiotic relationship where she needs me and I need her and it’s just been a really great fit. And she’s completed all her CFP classes, she’s passed her exam, but she’s working on her experience requirement.
And so she’s able to come on full-time with me and start eventually we’re going to also have her bring on her own clients under the Gen Y Planning brand and be able to scale that way, as well. She’s also our resident budgeting expert, so a lot of times if people want more in-depth budgeting help, they’ll set up a separate call with Alex and she’ll dive deep with them on budgeting. Because that’s something that I don’t love that Alex loves, so it’s a chance for her to work with and get to know the existing clients more. So she sits in a lot of my client meetings, she preps my financial plans, she does the prep for my interim meetings.
Michael: So a lot of those classic paraplanner support functions, except she’s not where you are, she’s virtual?
Sophia: Yeah, exactly. It’s fun, it’s so much fun to have her on those calls, too.
Michael: So you mentioned a couple things in there that I want to ask a little bit more about. So number one, you mentioned helping people through their life insurance applications. So is placing insurance and getting paid for insurance business part of your revenue model in working with young folks?
Sophia: No. So I refer out for all of my insurance needs. I really like Low Load Insurance Services, they’ve done a great job. So I just basically send my clients a link to them, they put my name under the advisor tab, and then I’m looped in on all those e-mails. And then when the policy is in place, they send me a copy of the policy specs and we upload that to the client’s Dropbox folder.
Michael: Because I think that’s an interesting item. I still hear from a lot of folks that are in the insurance business that start asking, “Well, if you go into this fee-only RIA in general, never mind a monthly retainer model in particular, how do you make sure your clients get the insurance they need?” And so the answer is just you work with Low Load Insurance and you do the advising and they do the insurance and that’s that.
Sophia: Yeah. And I don’t know the details about long-term disability insurance at all, that is an area that I feel like I’m weaker on. And what I love is that they have experts there that I can say, “Let’s run disability insurance for this client. I have an entrepreneur client right now we’re disability insurance for.” And then I literally can set up a three-way call with Kathy at Low Load and she can talk us through all the riders, right? Because I’m like, “Remind me what this rider does again or why we want this?”
And so we can really make an informed decision with the client, with a disability insurance expert, and with me on the call. And it’s just like I love looping in experts when it’s a little bit outside my area of expertise and that’s how I’m able to do a better job being a financial planner for millennials and focusing on the things that are…really learning the nitty-gritty of things like student loans and things like that that are really going to apply to my clients and let those kind of niche expertise things come into play with like, “Who do we need on our team to help make sure we’re making an informed decision about this?”
Michael: Well, to me it’s the fulfillment of that promise that so many of us as financial advisors always like to set out, that, “I’ll be your family CFO, I’ll be your financial quarterback that works with all the other professionals.” Which, I think, for a lot of advisement firms, we do that because we help with the insurance and investments, but then we bring in the estate planning attorney and we bring in the CPA to do some of the tax stuff. And so I guess you’re living a version of that, as well, it’s just the insurance stuff isn’t inside your quarterback huddle, it’s outside, it’s another one of the interactions for clients that you quarterback for.
Sophia: Exactly, same with investing. That’s why I brought on Betterment, was because I don’t want to research stocks, that sounds boring. I’m not a CFA, that’s not my job. I feel like the investing is what can be commoditized. And I believe that markets are efficient and I’m a passive investor. So my first year I was using Scottrade and I had to like handpick all of these ETFs, and then be like, “Well, is it really worth it to buy? How many ETFs should I actually buy? Because they’re going to get hit with a trade fee for each ETF we buy.” And I just love that Betterment wraps in all of that to 25 basis points.
Michael: It’s like a giant fee-based wrap account and the technology and the rebalancing software and everything just all in one?
Sophia: Right. And every time that $500 hits the account, it’s automatically diversified into the 80-20 or the 70-30 or whatever it is, the asset allocation that we chose. And I don’t have to go in and do the buy. And I can’t tell you how much of my job as a paraplanner was scanning in and organizing other people’s stuff and doing trades. That was like 75% of my job, was scanning and trades. And I got like 25% of my job was like sitting in on client meetings and working on financial plans and helping respond to client e-mails, right?
And now I look at what Alex gets to do as an associate planner on my team and I’m like, “Oh yeah, we pretty much make our clients be our admins, because they have to upload all of their own information.” And then we just send them links to things, they fill out a life insurance application, send them a link to Betterment, they open their own Betterment account. There’s none of this kind of paperwork and overhead that so many traditional firms are wasting so much time and money on still that blows my flipping mind, Michael.
Michael: To me this has always been the endpoint fulfillment of what the robo-movement was going to do. It’s not a threat to advisors, I don’t think it ever really was. Because the only people who are really directly using robos are essentially do-it-yourselfers who are never going to hire an advisor, they’re just using the robo software to do their own thing. For everyone else the robo technology isn’t competition for us, it’s automation for our back office, it’s automation for all the stuff behind the scenes that we shouldn’t really be spending much time on anyways because it’s not really a great value add at the end of the day for the client when you can automate it with technology.
So the robo is not a threat to us, the robo is a threat to a whole lot of operation staff and back-office folks who are going to get automated out of the job and need to move up the line or you’re going to be the equivalent of like a telephone switchboard operator when technology showed up.
Sophia: Right. And I feel like the new…I think that the CFP-plus robo advisor is going to become a more common model because it just seems more efficient.
Michael: So another question I’ve got from the discussion here, so you mentioned at one point that Alex preps your check-in meetings for the upcoming month. So working with clients on a monthly retainer, do you actually meet with them every month as part of a monthly retainer model?
Sophia: Great question, and no. So that’s one, I think, of the common misconceptions, is people think, “Oh, you have to be meeting with clients every month if you’re charging a monthly retainer,” and that’s just not true. I would say I meet with my clients on average about three times a year.
So I do an initial 90-minute call, and then about a month later we do a plan delivery meeting, and then we do a check-in meeting about four to six months later, so that’s in the first year. And then I would say from there we do check-in meetings every four to six months. So an average of three meetings a year, unlimited e-mail support, company benefits package review. But I really try to do an additional meeting as needed, but most of my clients are, again, busy young professionals. They don’t want to hear from me every month, they don’t want to reach out to me all the time. They want to be able to ping me via e-mail and say, “Hey, I got this from HR, let me know if I’m supposed to do anything,” or, “Something is changing on my 401(k), does this apply?”
Michael: “I have a financial question. Be my financial brain and answer it because my actual brain is too tired.”
Sophia: Exactly. Right? Somebody is like, “I just realized my Wells Fargo savings account is charging me fees. Is this normal?” And I’m like, “This is why I recommend Ally Bank.” Navigating through that stuff.
Michael: Do clients fall into that naturally or do you still have to explain to them, “Hey, you’re going to pay me every month, but I’m not going to see you every month, but let me tell you why that’s okay”?
Sophia: It’s pretty clear from the first kind of initial call we do. When I do a free half-an-hour call with a prospective client, I tell them, “This is just a chance for us to get to know each other better. We’re going to dive into what you’re looking for in a financial planner and some of the things that are happening currently in your life. And then we’re going to switch gears and I’m going to tell you more about how I work with my clients and how I think we could work together and answer any questions that you have. Does that sound good?” And then that’s how we really start the call. And then I really dive into, “How can I help them the most? What does this experience look like for them?” And then I lay out, “Here’s how I work with my clients. Is that a good fit for you? What questions do you have for me?” And it may or it may not be a good fit for them.
Michael: Where did you learn that process? That felt very structured, of like, “I do this and I have them talk about themselves, and then I tell them how I’m going work, and I invite them to say what they want the experience to be like.” Did you just kind of figure that out over time, School of Hard Knocks?
Sophia: That’s a great question. Actually I think a few different things. When I was at LearnVest I was working with hundreds of clients across the country, and so I got really comfortable having phone calls with a lot of different people from a lot of different backgrounds and trying to find out the information that I needed quickly, but also helping them feel really comfortable.
And so I think that just through talk to a lot of people I figured out some of that, but I would say another big part of it, too, is that my dad is a psychologist and family therapist and I actually went through a narrative therapy certificate program. And learning some communication techniques and taking some psychology courses really helped frame the position that I take when talking with clients.
Michael: That’s an interesting one. So the advice to advisors is considered taking a course in narrative therapy, is that what you said?
Sophia: Yeah, yeah. So it takes the position that you are the expert in your own life. So I believe my clients are the expert in their own lives. They know what they should be doing and it’s the power of asking a great question that allows them to figure out exactly what that is. And so my job is just to ask better questions.
And I really love, so a couple things, one, taking the position that they’re the expert in their own lives. Which is really hard for a lot of financial planners, right? That just want to say, “No, I’m the expert and I tell you what to do.” Right? Like, “I tell you what to do.” And instead I really try to educate my clients around their different options, give them recommendations, but ultimately through the questions that I ask they’re really using that information to decide which direction they’re going to go. It has to be a good fit for everyone. That’s even how I come up with emergency savings. I tell them, “What I usually recommend is three months of net pay saved for emergencies, but I noticed you have about $60,000 in savings right now. How much do you need to sleep at night?” Right? It has to pass the sleep test. Right? Because I can say, “You only need $15,000, we’re going to do something with this $45,000.” But if they’re like, “I can’t see it go below $30,000,” then I’m like, “Okay, so your emergency savings goal is $30,000. Is it okay if we talk about what to do with this other $30,000? How much different does that feel?” Right?
Michael: Yeah, very different. And then you’re doing this with clients virtually? Because I think you said your clients aren’t local to you.
Sophia: Correct, yeah. So I use Zoom Meeting, Z-O-O-M.
Michael: Okay. So yeah, zoom.us, I think.
Sophia: Yeah. And it’s like $15 a month or something like that and it’s great.
Michael: So your office costs you $15 a month.
Sophia: Right, exactly. And I can Zoom in Alex, as well, which is fun. We can Zoom in spouses if they’re in different places, right? Which is nice, as well, if one person is at the office and one person is at home.
Michael: This is all conference calls, all these weighty questions?
Sophia: Yeah, all video call.
Michael: Video call? So you do the whole Zoom screen sharing or, I guess, video streaming for the meetings and clients do that, or clients are comfortable doing that?
Sophia: Totally, yeah. And I ask them things like, “What would make this an amazing experience for you?” And it’s like I just get them to give me the answers, right? And then I just deliver on that. The other day the woman that just became a client, she’s like, “Two things that I really want to do, I really want to figure out how much I can spend traveling on a yearly basis and I also want to set aside money for retirement and make sure that I can retire. I don’t even need to retire early, I just need to know that that can happen someday.” And she has half a million dollars in retirement and she’s 32, and I’m like, “I think we can make both of those things happen very easily and I think you’ll retire early.” And she’s like, “Okay.”
Breakdown Of Sophia’s Revenue Per Year As A New Advisor [40:57]
Michael: So what does all of this add up to for you? You said like $100,000 of recurring revenue of mostly retainer fees and a little bit of AUM, and $50,000-plus of financial planning fees, but you’ve got some staff. So can I ask? What do you take home out of a practice doing financial planning for millennials?
Sophia: Yeah. So let me kind of break it down for you year by year, Michael, if that’s okay. Because I think that will be helpful because I know when I was on the XYPN podcast I had kind of started talking about this. So I kind of launched in the middle of 2013, so that first year I kind of broke even. I think I grossed like $20,000, and then I had like another $20,000 for my last W-2 job or whatnot. And so basically we’ll just say 2014 was my first full year in business, right?
So my first full year in business my goal was to gross $60,000. Because if I did, I would make more than I did at my last W-2 job. Right? Which I had quit in 2013.
Michael: Because just as a solo your overhead expenses were $10,000 or $20,000 or something?
Sophia: Yeah, exactly. I think they were, yeah, around $15,000 or something like that. And so I grossed $66,000 in 2014, and I don’t remember what my net was. I think my net ended up being about half of that because I was able to write off a lot of my travel for conferences that year.
Michael: Okay. So even then it’s worth noting. So you had a half-year in ’13, and then a full year in ’14. And 18 months in you still cleared only, call it, $30,000 or $40,000. It’s the reality of starting an advisory firm, it takes a while to get the income going and get back to old salaries.
Sophia: Yeah. And for me I was thrilled because I went from working 60 hours a week at a start-up to working from home like 40 hours a week and no longer living for my two weeks of paid vacation, getting to travel and go to conferences and do the things that I wanted to do.
Michael: Well, and I think it’s worth pointing out, as well, the idea of netting $30,000 or $40,000 in your first full year in the business. That’s not unique to monthly retainers for millennials, that’s what any advisor tends to go through. That’s actually, I think, pretty comparable to the requirements you have to have on production to validate your contract at a lot of insurance agencies and wirehouses anyways, at least the gross revenue you’d have to bring in to net that much.
Okay, and so then what happened in year two?
Sophia: So in 2015 my goal was six figures in 2015. Like, “$100,000, 2015, gross revenue, how do I get there?” And I hustled. You know that, Michael. So in addition to initial planning fees, quick-start sessions, monthly retainers, I was also getting paid speaking gigs, I was also doing some financial writing. So I had a couple other revenue sources, as well, but I ended up grossing about $123,000.
Michael: Wow. That’s a big number for only being two, two and a half years in. And still expenses are $20,000? You netted close to $100,000 in the second full year?
Sophia: No, I would say my expenses were a lot more because I was traveling a ton that year. And that’s when I started needing a lawyer to review contracts and a bookkeeper, and that’s when I hired Kendra as my marketing strategist. And so I had a lot more, I would say, 1099 people that were kind of helping me in different projects, helping me do different things.
Michael: Do you know what it netted down to? Because I think it’s an interesting progression.
Sophia: Yeah. That’s bad that I don’t know that. I think it was like $50,000 in expenses, so it was netting around $75,000, I think, $70,000 to $80,000.
Michael: You’re now well above where you were on a prior W-2.
Michael: And owning your business.
Michael: All right. And then what happened in 2016?
Sophia: Yeah, so let’s see. So 2016 I end up grossing, between kind of all of my revenue streams, I adjusted my books the other day, $176,000.
Michael: And so that’s retainer fees, a little bit of AUM, planning fees, quick-start sessions. Is there even other stuff besides that that’s mixed in? Were you still doing, I think you said, financial writing and paid speaking, is that still part of the picture, as well?
Sophia: Yeah, some. Coaching, clarity calls, coaching other financial planners. I’ve also launched a course last year, made like $5,000 from that. So a lot of different revenue streams, but my net was $99,965, so we’re just going to call it $100,000. Okay, Michael?
Michael: You couldn’t find one more client to bill an extra half-hour?
Sophia: I know, right? I couldn’t have ate out one less time and expensed the meal? Yeah, so my goal of last year was to net $100,000, and I did.
Michael: Very cool.
Michael: That’s a big deal. Netting $100,000 out of your start-up business by year three is a big deal, I think, for almost anyone, never mind doing it with all those unprofitable millennials that you can’t serve anyways. Apparently you didn’t get that memo. And you mentioned, as well, that you did even more on this on the XYPN Radio podcast, so we’ll make sure that we put a link in the show notes for that, as well. So for those who are listening, you can get show notes at kitces.com/12, because this is episode 12. And we’ll have a link, the XYPN Radio episode with Sophia Bera, as well, so you can hear a little bit more on the story.
Sophia: Yeah, because I think then I was hoping to hit $100,000 in 2015.
Michael: So I’m curious then, do you have a goal set for this year? We’re a couple months into $2017, you seem to set goals for yourself and then go after them pretty hard. So what’s your goal for this year?
Sophia: I’d love to gross a quarter of a million, I think $200,000 is more realistic. I would have to have some really interesting kind of paid speaking gigs, consulting.
Michael: Maybe one of those early retainer clients will have a multimillion-dollar liquidity event or something?
Sophia: No. I think that it will probably be around a $200,000 year, is what I’m hoping.
How Sophia Became A Top Hit For Gen Y And Millenial Financial Planning On Google [47:37]
Michael: So a lot of this, it works at the end of the day because you’re getting clients, right? The math on a lot of models work as long as… Step one, get two clients every month for three years. Step two, make money. And most people struggle on step one. So I’m curious, I’d love to hear more about how are you getting all these clients, and particularly when you’re meeting with them virtually? It’s like they’re finding you virtually. How do you get two clients a month in a world where you’re not only working with people that aren’t supposed to be profitable, but you can’t even just go out and meet them because they’re not in your area?
Sophia: Yeah. Google, Google gets me clients.
Michael: Google gets you clients? So people google for “Sophia Bera”? How do they know to google you?
Sophia: Yeah, so I’m in the top Google search for “financial planner for Gen Y” and “financial planner for millennials.”
Michael: That would do it. Power of niche right there, right?
Sophia: Yeah. And I’ve been fortunate enough to get a lot of press and to be able to link back to different press contacts on my blog. And so I would say about half of my prospective clients came from Google search, people searching, and then a lot came from, “Hey, we read this article in Forbes that you were quoted in,” or Business Insider, or some sort of press outlet.
Michael: So how you get the kind of media coverage that gets you quotes and then ranks number one on Google for “financial planner for millennials,” how does that happen?
Sophia: Over time. So I know that when I launched, even though financial planners thought what I was doing was kind of crazy, the press thought it was interesting because there wasn’t a lot of other people doing it.
Michael: Right. Well, the irony, you’re the number one Google search in your niche, your niche is the largest generation in the history of the planet.
Sophia: Yeah, it’s funny. When I launched I didn’t think “millennials” would be a buzzword like it is now, right?
Michael: And then life in the industry happens. So you got momentum. And I guess that’s still, to me, sort of the point. And regular listeners to this podcast and especially to XYPN Radio know that I pretty much incessantly beat the drum around niches, but this is the point, right? You had a niche in an area that other people don’t serve and certainly don’t niche into, which meant it was an interesting story that the media wrote about because they’re looking for things for that audience, so writing about a financial planner doing interesting things for that audience is a good way to reach that audience. And, lo and behold, in their efforts to write interesting content for millennials they promoted you as the financial planner for millennials.
Sophia: Right. It’s kind of crazy how it all happened. And then I just was nice to people, and I feel like that’s an underestimated quality.
Michael: Was that me?
Sophia: Yeah. So when reporters would call, I would answer my phone and be helpful and also kind of mention some other…give them ideas for other articles they could write about. They would say things like, “Well, what else are your clients asking about?,” or, “What else have you noticed among your generation?,” or, “What else do you think about renting versus buying?,” or whatnot. And so I would just try to be really helpful and say like, “Here are some things I’ve noticed. And if you’re doing a story on blah, blah, blah soon, I can help with that,” or, “One thing that’s interesting that I’ve noticed, or an emerging trend, or blah, blah, blah.”
Michael: Be a resource for reporters and reporters come back to resources.
Sophia: Yeah. And so it’s really funny because people will just reach out. The other thing is, as you know, a lot of writers are freelance writers writing for a variety of different publications. So I get this e-mail a few months ago that’s like, “Interview for Cosmo?” And I’m like, “Sure, that’s random. Cosmo, okay. Whatever.” Wanted to know about financial myths or whatnot. And she had interviewed me for this other article for another publication months ago, and then she was writing this article on four money rules to break and I am in the March print version of Cosmopolitan Magazine on page 194, which I think is hilarious. And then I’m going to be in O Magazine in June, and then I was in Men’s Health. It’s just like now it’s like the most random mainstream things that I’m in that I would have never had an idea.
Michael: But they find you because you’re the financial planner for millennials?
Sophia: Yeah. That’s the big thing, actually. Which is funny because, again, people are like, “Well, would people really be searching for that?,” and I’m like, “I guess some people are.” I’m getting about 30 to 40 prospects a month that are filling out an application to become a client. I did 104 phone calls last year, which is I needed intro calls last year. Which is why you have to fill out an application and not everybody gets on my calendar anymore.
Michael: Yeah. Which I think is just hopefully reinforcing to everyone out there who’s listening, or even maybe especially newer advisors. I hear so much grief from people that you can’t start out with a niche, especially when you’re just early on, because you have to take anyone you can get to get the revenue going. And I hear so many people say that, I’m like, “Okay, well, show me your $150,000 of gross revenue after three years,” and then it gets really quiet.
And this is the point, like you’re not going to get much revenue in year one no matter what you do. Because no one knows who the hell you are and you just started and no one can even figure out if they trust you because they know you just started, you hardly have any clients. It’s all about where you’re going to be in years two and three and four. Do you want to be the same generalist who’s still scrambling for clients the way you were in year one or do you want to reach the point where by year four Cosmo and O Magazine are calling you because you’re the recognized expert in your niche?
Sophia: Well, thank you. When you put it that way, it sounds very nice.
Why Sophia Has No Problem Sharing Her Knowledge And “Training” Her Competition [53:57]
Michael: Yeah, well, you kind of make the point for it, that you can make material dollars, even working with people that everyone else said you can’t work with profitably, when you just make them a niche and you own the space. You’re not going to work with all millennials because there’s like 80 million of them. But the whole point is once you’re that focused into the niche, you just need a small, small, small subset of them that actually want help. Because relative to our business, 100 prospect calls and 25 new clients that pay ongoing fees is an enormous number relative to the size of the millennial generation. A great niche market you manage to get like 0.0001% of them, but it’s still enough to blow the doors off the business.
Sophia: Yeah. It’s really interesting how it’s evolved because I started with zero assets, zero clients. And I just really believed that there were enough of my peers asking great questions and wanting some financial advice that I wanted to build a model designed to really help them, and that’s what I’m trying to do. And now I’m trying to even help other financial planners. My goal is to help bring financial planning to Gen Y to empower my generation, and I can’t do that alone. As you said, there are 80 million of them. Right? So I think it’s so funny when people are surprised that I wrote this article, 4,000-word blog post, for your website for free to show other people how to do this. Right? Because they’re like, “Why would you give all of this away? Why would you train your competition?”
Michael: Because it’s an abundant world and there’s 80 million of them and all of us together still can’t serve all of them.
Sophia: Yeah. And the other thing is when you’re working with a client base that has never worked with a financial planner before and is hungry for this information and excited to work with you, it’s fun. You can design the financial planning process however you want. Financial planners who are more traditional will ask me, “Well, what do you do for quarterly reporting?” And I tell them I don’t do quarterly reports. And they’re like, “Whoa. But aren’t your clients asking you for quarterly reports?” I’m like, “No, they have no idea that you’d even get a client a quarterly report, they don’t understand why. I don’t focus on investment returns, so I’m not going to give them quarterly reports.”
Michael: Well, and literally your investment revenue is, what, like 10% of your revenue? It’s literally not a focus of the business.
Sophia: No. And guess what, my clients don’t call me when the market goes down either because I don’t focus on that. Right? To me it’s really fun, Michael, to be able to work with these amazing, interesting people across the country that are doing cool things and working great jobs and helping them navigate through their financial situation to figure out how we can maximize that, how we can take advantage of tax deductions, how we can start a SEP IRA, how their stock options work. That’s the fun stuff that I get to do that I get to explain to them and talk them through that other financial planners didn’t want to take the time to do, and I get to do that.
How Sophia Went From An Actress to A Financial Advisor [57:41]
Michael: So what’s your background story for coming into financial planning in the first place? How did you get to the point where you were going out to launch your own advisory firm for millennials?
Sophia: Yeah, so I was an actor turned financial planner, as you know.
Michael: Actress turned financial planner.
Sophia: Yeah. I joke that I get more print work and TV work as a financial planner than I ever did as an actor.
Michael: Which just goes to show you that even in the world of acting niches and specializations work.
Sophia: Yeah, there you go. Because I’m like, “Here I am in these magazines,” which is hilarious because, yeah, as an actor I didn’t get any of that. And then it’s like I go to New York and CNBC is like, “Yeah, we want you to film these segments with us,” and I’m like, “Okay. Sure. Why not?” And then I’m like, “Why didn’t I take the one filming TV class in my undergrad?” I was like, “I’m not moving to L.A.” Like who knew YouTube was going to be a thing. And honestly if you’re a financial planner that’s thinking about using video, do it. I think video is a completely underutilized form of marketing right now in the financial planning space.
But I was an actor, I did 15 full-length shows in my undergrad, and I was a double major in theater and women’s studies. And I really was determined not to be a starving artist. And so I would sit in the personal finance section of Barnes & Noble and read all the financial books I could get my hands on.
Sophia’s Unique Combination Of Planning Experience [59:19]
Michael: Because you wanted to eventually become a financial advisor or just you didn’t want to be a starving artist by learning how to manage your money well as an artist?
Sophia: Yeah, I thought I would just learn to manage my money well as an artist. Yeah. And then what happened was I decided to buy a home when I was 21 and graduated from college, and that’s when my friends started coming to me with their money questions. They’re like, “How do I get out of credit card debt? What do I do about my student loans? I just got a new job, they gave me this packet, can you read it? What’s a 401(k)?” And so I started trying to kind of help them a little bit just because it was fun, and then I realized there was this whole field out there called financial planning and you could become a CFP and become a certified financial planner.
So I started taking my CFP classes. And in my second class I met my future boss, I met the son of a father-son financial planning firm in Minnesota. And they ended up bringing me in to interview and seeing if I could learn some of the back office stuff and they really liked me. And so they ended up hiring me. And I remember when they offered me like $40,000 a year and to pay for my health insurance premiums I thought I’d won the lottery. It was pretty much like they were offering me a million dollars. Right? I was like, “What? Are you kidding me?” Nobody told me that these jobs exist, where you’ll pay for the rest of my CFP classes, you’ll pay for my health insurance, and I get a 4% match on my 401(k)? “Oh my god.”
Michael: Yeah, I guess relative to the acting world that’s really something.
Sophia: Yes. I was just thrilled, right? So I decided to make theater my avocation and make financial planning my vocation and really kind of got my foot in the door. I got hired in July of 2007, by the way. So I got hired at the height of the market and just watched it crash and was like, “What is going on?” It was just this really bizarre time to get started in financial planning. And I worked at that firm for three years, then I switched firms.
So that was a firm that I learned a lot about investing and annuities and it had a broker-dealer, it was a fee-based firm with a broker-dealer. And then I switched to a fee-only firm with my mentor, Scott Oeth, who I absolutely adore who’s still be so instrumental in my career. When I left that firm to go work at LearnVest, which was a start-up based in New York but I worked remotely from Minneapolis, it was really hard to leave, but I really felt like I was going to get more experience working with young clients, which was what I really wanted.
So I left after two years to work at a start-up, thought I landed my dream job, was super excited. At the time LearnVest was a fee-only firm geared towards women in their 20s to their 40s.
Michael: Yeah, LearnVest, they got labeled early on as one of the early robo-advisors. They were really never a robo-advisor because they had human financial planners doing financial planning work, but it was certainly targeted at that group. So what was that like going to LearnVest? Can you compare and contrast for people who aren’t familiar with what’s it like going to a tech start-up doing financial planning, like LearnVest, having come from a more traditional advisory firm?
Sophia: Well, let’s put it this way. When I was at a traditional firm, it would take like three quarterly meetings to get something changed and updated on the website, which felt like we were working…it was prehistoric to getting on a rocket ship and being like, “Okay, here’s this Google Doc, we’re going to implement this piece of technology. This Google Doc shows you how to install it. And we’re using it with all of our clients starting today.” There was no training, it was you were literally sent a Google Doc of, “Here’s this new CRM we just decided to start today with all of our clients, go.” You’re like, “Okay, I guess I’ll learn Salesforce,” or whatever it was.
Michael: That’s the start-up world, right? Like fail forward, fail fast, fail quickly, move on.
Sophia: Yeah. Throw things against the wall, see what sticks. “What’s the strategy of the week?” Right? So for me it was both terrifying and exhilarating and awful and glorious and messy. Right? All of these insane things. But I had never worked with such a group of smart, young woman financial planners. So what they did was hire really well. So some of those financial planners to this day are some of my best friends. Rachel Sanborn is at Advizr now, which is one of the financial planning software fintech companies.
Michael: Yeah, A-D-V-I-Z-R, Advizr.
Sophia: Yeah. And I helped make that introduction to the people there because they were like, “Sophia, we really need a CFP. We really need somebody on our team to help with this stuff.” And I’m like, “You don’t want me, you want my friend, Rachel.” And so she’s there now, and my friend Katie Brewer launched her own firm about a year after I did. And I just met all of these great women that were smart and savvy and really great financial planners because they also had really amazing people skills. And that was incredible to see because I had been to all these financial planning conferences and always felt like I was swimming through the blue shirts. No offense, Michael.
Michael: Who wears blue shirts besides me? I thought that’s my thing. Are people copying my thing? Jeez.
Sophia: And so I also was connected with a bunch of amazing people on the editorial side of things at LearnVest. And that’s when I realized how much I loved financial writing, I would edit a bunch of things for their editorial team and kind of look at things from a financial planning perspective and became close with a couple people like Libby Kane, who’s now at Business Insider.
Michael: So Libby was actually with you at LearnVest?
Sophia: Yes. And Laura Shin, who’s now at Forbes. And so they ended up being amazing contacts when I left and launched my Gen Y Planning. And I guess I will say that I knew that I was ready to make a shift out of LearnVest just because I was working crazy hours, I was really burning the candle at both ends and just couldn’t kind of keep up with the pace of things and really wanted to better serve young clients the way I wanted to. So I couldn’t give a referral to a CPA. It was kind of financial planning lite, right? It was like we could kind of do these things and fit you into these things, but people were really asking me for, “Well, what do I do about my taxes? And how do we plan for having kiddos?” And there’s just some things that I could only kind of take them so far in the financial planning process and I really wanted to be able to just dive in and do even more.
What Sophia’s Mentor Told Her When She Was Agonizing Over Whether To Accept Another Planning Job [1:06:34]
And so I went out to dinner with my mentor, Scott, the day before my 29th birthday. I still remember it so well. And I had interviewed at some, again, traditional firms in Minnesota thinking, “Maybe I’ll just get a job at an office and I have some more experience now,” and I just wasn’t excited. I was telling Scott, I was like, “Yeah, so I have a second interview at this company that has a sister CPA firm and I could probably make like $60,000 a year.”
And it’s just like, “Well, what else do you want to do? What else are you thinking?” He knew that wasn’t it for Sophia, he was like, “What’s going on? What’s on your mind?” And I’m like, “I kind of want to do my own thing.” And he’s like, “Yeah? What are you thinking?” And I’m like, “Well, I want to work with young clients and I want to do it on a monthly retainer, and I think I want to call it something like Gen Y Planning or something for my generation. And I want to charge an upfront planning fee, followed by a monthly subscription. Because we pay for our lives monthly, why wouldn’t we pay for our financial planner monthly?” And then just literally laid out this business plan that was in my head, right? Just spewed all of this stuff out.
And he goes, “Well, what’s the worst thing that could happen?” And I’m like, “Oh, that I’ll fail, that I won’t make any money, that I’m too young, that no one will want to work with me, that I don’t have a graduate degree so I might not be smart enough, that I won’t know how to answer certain questions that are super specific.” I just literally was like, “Here’s all my fears. This is why I can’t do this and shouldn’t do this, and don’t let me do this.”
And he goes, “No, Sophia. The worst thing that can happen is you’ll have to get a job in financial planning, which is exactly what you’re thinking about doing right now.” And I was like, “Oh.” And he goes, “So why don’t you just do it? And if it doesn’t look exactly how you want it to in a couple years or if you’re not making as much money as you want,” he goes, “then you can join another firm. And you might be able to take 20 clients with you and $3 million in assets and that makes you more valuable to the firm.”
Michael: Yeah. Last episode we had Alan Moore on and Alan has kind of a version of this, as well. He had commented, well, two things. Number one is we tend to think about starting your business as risky and keeping your job is safe. But the reality is you can lose a 100% of your income immediately when your boss fires you from your job, your business you own and you control. And you can diversify your income streams and do all those things to maybe make your life more stable. But the second thing that I know that he harps on a lot is for so many advisors, because we see this all the time in XY Planning Network, that they’re afraid to launch their business, “And what if I fail?”
And the comment that he always makes, “Well, what’s failure? Failures are going to go back and get the job you could get now, even though you said you don’t want to do it. So at least scratch your entrepreneurial itch.” And the truth in the industry is you will probably get a better job having gone out and started your own advisory firm even if you “fail.” Because the advisory firms are so focused on people that have an entrepreneurial spirit that can build that if you start it and you fail, you will still get better job offers from firms that are going to come and say, “Well, yeah, you failed because you didn’t have our firm’s infrastructure and support and all this stuff.”
And that’s how they’re going to try to sell you to come in to work in their firm. But that’s the point. They’re going to look at you and say, “Well, if you were willing to try it, I’m betting the reason that you failed is just you didn’t have the resources that my firm can bring to the table. So come work with us and we’ll build together.” Which is a heck of a lot better than the, “Well, I’m going to apply for the associate planner job, and then I’ll see if they vet me and like me on top of all the other candidates.”
And I think people grossly underestimate what a huge career positive it is to launch and advisory firm even if it doesn’t actually work out. You still got some time period there where you’re making less money, so make sure you got a plan for the income gap. There’s a lot of value you create for your long-term career by trying it because the worst case scenario is you go back and get the job you were going to apply for anyways and you’ll just be a better, more rounded candidate with business ownership experience.
Sophia: Yeah. I believe that the fastest way to six figures is to launch your own thing. If somebody would have told me how many jobs I would have been offered in the last three years, I would have started my business three years before that.
Michael: And I think it’s interesting to note you spent a lot of years in the industry before you went out and did this, right?
Sophia: Yeah. I was six years.
Michael: Six years? So a couple at Scott Oeth’s firm. How long were you at LearnVest?
Sophia: I was at LearnVest a year and I was at my first firm two and a half years. So I was in financial planning since 2007 and launched my own firm in 2013. So now I’m in 10 years of experience coming up. And I’m one of the few financial planners that has worked at a fee-based firm, a fee-only firm, and a fintech start-up, and launched my own firm. And so that’s why I’m starting to do more consulting now with financial planners, with financial tech start-ups. And that’s really fun for me, too, because I kind of have this different perspective on being able to navigate through those different landscapes.
To your point to, I think that the other thing is I think that when you’re a business owner you realize that failure is just part of the process. So even if things don’t go exactly the way you want, we reiterate and we learn from those things, and we move on. And you don’t see them as a failure, right, necessarily? So I’m getting rid of my quick-start sessions because they no longer serve the purpose that they once did. It doesn’t mean that I failed and that I should have never done quick-start sessions. It just means that the business…
Michael: Moves on to another point.
Sophia: Yeah. And same with launching this course. I put a lot of money into launching a course last year, I didn’t have as big of a launch as I wanted, I was kind of bummed about that. But now I have this product that stands alone that’s another thing that I can offer. So when I got rid of quick-start sessions, I felt better knowing that I have this lower price course to offer for people who weren’t a fit for ongoing one-on-one financial planning. Right?
And so it’s just like all these things kind of feed into each other and it’s so interesting to me because I think that now I look at risk very differently. Like you were saying, now I’m like, “W-2 employees? That’s terrifying.” If you lose your job, you lose 100% of your income. To me I’m like, “I have 10 different income streams.” I love that. I love that if I lose a client, that it has very little effect on my overall revenue.
Why Sophia Believes Entrepreneurship Is The Best Route To Job Security [1:13:30]
Michael: If you lose a client, you lose 2% of your income because it’s one-fiftieth of your recurring revenue. If you lose a job, you lose 100% of your income.
Sophia: Yeah. And so now I believe that entrepreneurship is the new job security for my generation.
Michael: Wow, that’s going to be a sound bite for you somewhere, “Entrepreneurship is the new job security for my generation.”
Sophia: Yeah, I really do. And I think that it’s this diversification of income streams that’s going to become the new diversification. I think for baby boomers we talked a lot about diversifying assets, and I think for Gen Y we’re going to be talking a lot about diversifying income.
Michael: So you kind of paint this picture of you got started and everything has just gone great. And brought in $40,000 to $50,000 of new revenue every year for three or four straight years, and now trying to cross $200,000 in year four. And picking up two clients a month like clockwork. So it kind of paints this super rosy picture. So has it really gone that smooth, are there speed bumps along the way that we haven’t talked about that people should be aware of if they’re listening to this and thinking, “I’m going to go do what Sophia did because it’s going to go as awesome for me as it did for her”?
Sophia: I think that there are challenges always along the way and that very few times are things as picture-perfect and rosy as we want them to be. When I launched my business, I had almost gotten fired from my job twice. I was living in my in-law’s basement, I was married. Nine months later I was getting separated, I was moving from my in-law’s basement to my parent’s basement. No. And I was determined that the last thing that I wanted to have happen was my business to fall apart just because my personal life was.
Michael: So how do you work through that? Are you just a super cheery optimistic personality and you just power through because that’s how you’re wired?
Sophia: I believe all entrepreneurs need therapy, so if you do lots of therapy, lots of journaling, lots of yoga. That’s when I literally started doing yoga. And I have a lot of really close friendships and I would say that my superpower is that I get close with people really quickly, which is why I have probably over a dozen close friends across the country and that’s why clients hire me after talking to me for a half an hour on the phone.
So I really feel like I value relationships and that connection really strongly. So I had really amazing friends, my mom and I became very close during that time, and then I spent the next year kind of in 2015 traveling quite a bit and figuring out, “Where do I want to live? What’s next for me?” I was living in Minneapolis at the time and didn’t love it and really wanted a fresh start, but didn’t want to just move somewhere without feeling like it was a good fit.
And so I traveled a lot, I went to a lot of speaking gigs, I went to different conferences. Then I went to Austin to visit. And I visited a friend here and I just fell in love with it. And I have been really searching for two things, connection and community. And I thought that I had to travel to find those things, I thought I had to go to a conference and connect with a bunch of friends and a community around other like-minded location-independent entrepreneurs or financial planners doing their own thing.
Michael: Is that your label for it, location-independent entrepreneurs?
Sophia: Yeah. “Digital nomads,” there’s all sorts of terms for people that can work from anywhere and run online businesses.
Michael: A location-independent entrepreneur doing monthly retainers for millennials, just to make sure we kill all of…
Sophia: Yeah, that’s the niche. Me, Mary Beth, Katie Brewer, those folks. Yeah. And then when I came to Austin I started meeting a lot of other like-minded people and decided to move here. And so I went through a lot behind the scenes. I think that if you’re in a healthy relationship and you decide to launch your business, that’s so awesome. I just feel like it’s going to be so much easier if you have a significant other that can help support you during the ups and downs of entrepreneurship. And you can kind of lean on their income for a while while your business is getting started. Unfortunately that wasn’t my situation, but I’m really grateful for the life I have now and I worked my ass off for it. It’s a very different life than I had before and I gave up a lot, but I also gained a lot. And I really love where I live now, I love my friends here, I love that I am no longer living for my two weeks of paid vacation.
Michael: The weather is warmer than it was in Minneapolis.
Sophia: Oh my gosh, yeah. I joke that I moved here for entrepreneurs, breakfast tacos, and pool parties, which I think are three very good reasons to move somewhere.
Michael: Those are some good selling points for Austin.
Sophia: Yeah. But I love it here. I was telling you before the call, Michael, it’s still there are really hard moments. And a couple weeks ago I just felt like really good things were happening in my business at the same time that really hard things were happening in my personal life. Literally one day, it was like my birthday weekend and I was in Vegas with Mary Beth and my friend Paula Pant from the blog affordanything.com. And like two days later I was coming home and getting news that my uncle had passed away from cancer. And then the next day just sucked. He was in hospice and we knew it was coming, but still death is hard.
And then going into Google and getting a speaking gig at Google and speaking there. And then the next day finding out that my godmother’s liver cancer is back and pretty aggressive. And she has two kids and it just tears me up inside. And then the next day going to get my hair done and seeing if they have a Cosmo Magazine at my hair salon. So I was like, “I wonder if they ended up using this quote,” and I find this quote that I’m in in Cosmo Magazine while I’m getting my hair done and it just feels so surreal that this is my life.
Michael: I think that’s everybody’s life, we just tend to only show the nice shiny outward stuff, “Yeah, business is going great and things are going great,” and not necessarily the, “Yeah, I’m navigating it while my uncle passed away and people in the family are sick,” and all those other things. That’s life. It sucks, but that’s life.
Sophia: Totally. And I think that’s the thing. I do a ton of journaling, which has been really helpful, and I spend a lot of time reading self-help and a lot of those things and trying to really collect quotes that I love. And lately I’ve been feeling like the only way out is through. And it’s just there’s been some sad days, but I feel like I’m finally kind of starting to come up from this fog of dealing with these hardships over the past few weeks and kind of slowly getting back on track and getting back to yoga classes and getting back to my routine. But also Americans are one of the only cultures that believes that life should be relatively easy and pain-free.
Michael: That’s the American dream at its best.
Sophia: Right? And I read that and I was like, “Oh.” Other cultures understand that suffering is a part of life. And as Americans we’re like, “Why me? What did I do? Life is so hard.” And then I realize, no, other cultures are like, “Yes, life is hard. And yes, there are challenges. And yes, we keep going and we persevere and we move on and we grieve.
Michael: So I’m curious as we wrap up here, in that context. So this is a show about success and one of the things that I find that just gets reinforced more and more every episode is just the whole concept of success and whether success means very different things to different people, and even means different things to us over time as we grow and evolve, as our businesses grow and evolve. We suit for different things, we create different goals, we frame success differently.
So I’m curious, as someone who’s built certainly what I think most people would objectively call a very successful business and a very successful newly launched business being just over three years out, how do you define success at this point? What do you shoot for from here?
Sophia: I’m really grateful for the life that I have and the life that I’ve created. Because I feel like I’ve spent the last five years kind of living within a vision and slowly seeing different parts of that vision come true. And so I really feel I’ve been successful in a lot of ways, and yet I also feel like I want to donate more money to causes I believe in. I want to help more financial planners launch their own businesses, which is why I’m starting to do financial coaching with other financial planners and thinking about launching a paid mastermind that I’ll send you, I have a wait list for.
Why We All Need To Take Care Of Ourselves Well If We Want To Serve Other People [1:23:30]
Michael: Great. If you can give us a link for where we can direct people, I’ll make sure to include it in the show notes. So, folks, go to kitces.com/12 for episode 12, we’ll have a link out for people who are interested in getting coaching from Sophia.
Sophia: Yeah. And so I feel like my next step is really to help coach more financial planners with their own businesses, continuing to grow Gen Y Planning and be this kind of small but mighty team, and really build a business that supports the lives that we want for me and my team. That’s really important for me, that we first take care of ourselves, and then our families, and then our clients. Building the type of business I want to see in the world is really important to me.
Michael: It’s funny, my early days actually in college I was not on track for financial planning, I was a premed student, actually, and spending lots of time interning in ERs and working on ambulances. And I still remember our EMT instructor and one of the lessons that he just hammered into us is, in the best of sense it’s for all helping professions, the message he hammered into us is you are more important than anyone else.
And the point that he was trying to make is, particularly in a world where you want to help other people, whether it’s financial planning or medicine, if you are not in a good state of mind, if you are not in a good place, if you don’t take care of yourself first, ultimately you’re not going to be able to help the people you’re working with now or in the future anyways. And so kind of this “healer, heal thyself” first. Or as a financial planner, make sure you are doing what you need to do to take care of yourself first, including all those crazy ups and downs and bumps that come along the way, or you can’t be effective with your clients anyways.
Sophia: Yeah. And I think as financial planners and business owners we really want to do it all. It takes a lot. We have this Superman mentality where it takes a lot for us to ask for help. And so I think that’s one of the things I’ve gotten really good at, is finding rock stars on my team that I can delegate things to and really trust that they’ll do that. And people ask me, “Well, what made you hire your first employee, or your first associate planner, how did you become so trusting?” And I tell them, “I got divorced.” I realized I sometimes didn’t have the bandwidth to do as much as I could normally do in my work and I didn’t want my clients to suffer because I was having a hard time.
And so that was when I realized, “No, this business is bigger than me. I need to hire someone that can help me serve my clients better.” And that’s when I hired this amazing woman, Megan Rindskopf, to help me, was my first associate planner. And she was fantastic and she had a full-time job and worked for me part-time. She did a great job working with my clients and it was a really good lesson to learn and I don’t think I would have learned that lesson as soon as I have.
And it’s something that I’ve kind of had to hammer into a couple other entrepreneurial friends, that, “This is where you hire. This is why it’s important.” And I feel like the reason I’ve been able to scale the way I have is because I’ve hired a few key people at really important times. And I think that too often I see these solo shops try to keep doing everything on their own instead of hire sooner, part-time.
Michael: Well, amen. Well, I think that’s a fantastic note of wisdom to finish up on. So thank you so much, Sophia, for joining us on the podcast today.
Sophia: Yeah, thank you so much, Michael, I’ve loved being here.
Michael: Awesome, thank you.