Welcome back to the 210th episode of the Financial Advisor Success Podcast!
My guest on today’s podcast is Sten Morgan. Sten is the founder of Legacy Investment Planning, a hybrid advisory firm near Nashville, Tennessee that generates more than $2 million in revenue per year, serving 220 affluent clients. What’s unique about Sten, though, is the way he’s built his advisory firm by making himself and his planning ideas into his product, charging first and foremost for his advice, and the unique way he’s figured out how to quantify the value of his advice strategies that he’s bringing to the table for clients.
In this episode, we talk in depth about Sten’s ‘the advisor is the product’ philosophy. Why every prospect meeting starts off with a whiteboarding session where Sten tries to highlight new planning ideas for clients right away instead of holding back until he’s been hired before sharing his best ideas. The mental strategy that Sten uses to quantify the near-term positive economic benefits that his advice will bring to get clients comfortable with his advice fees, and why Sten charges a full-rate financial planning fee with monthly retainer fees of hundreds or even thousands of dollars per month and then discounts his AUM fee for those who subsequently implement with him.
We also talk about Sten’s own journey through the advisory business; why he started out in a major life insurance firm but ultimately left because it focused too much on the value proposition of the company’s products instead of his own value. How trying to become more advice-centric at an investment-centric firm led to him being unexpectedly terminated and suddenly forced to hang his own shingle, and the way he was able to get his new practice going quickly by diving headfirst into a new niche with doctors at the local hospital.
And be certain to listen to the end, where Sten shares the mindset changes that were ultimately critical for him to turn an initially struggling advisory career into a successful one, how Sten tries to accelerate his success by constantly seeking out those who have already traveled the journey ahead of him to help him shortcut his own, and why Sten thinks it’s best not to start with your ‘why’ and finding your purpose, but instead starting with your ‘who’ – who you’re building your career for because staying focused on them so you never let them down can be the ultimate motivator through the inevitable challenges that may arise.
So whether you’re interested in learning about how Sten built a successful advisory firm by putting his advice at the forefront of his product, how he leveraged a local niche of doctors to get his practice going, or why proactivity is key to keeping renewal rates high, then we hope you enjoy this episode of the Financial Advisor Success podcast.
What You’ll Learn In This Podcast Episode
- The Challenge Of Getting Started As A Twenty-Something Advisor And How Sten Made It Work [04:51]
- Sten’s Secret To Closing New Clients By Selling Advice As His “Product” And Giving Away His Ideas Upfront [17:22]
- Sten’s Strategy To Quantify The Value That He Provides To Clients [31:58]
- The Services That Legacy Investment Planning Provides And The Fees That They Charge [40:34]
- The Process That Sten Uses For Business Development And Sales [54:53]
- The Meeting Structure And Proposal That Sten Uses To Close New Clients [01:03:18]
- The Value That Sten’s Firm Provides As A “Neutral” Advisor, Their Implementation Process, The Firm’s Workflows, And How They Scale For Growth [01:15:23]
- The Annual Renewal Strategy That Sten Uses With Clients And What Legacy Investment Planning Looks Like Today [01:26:48]
- What Surprised Sten The Most About Building His Own Advisory Business, The Low Point In His Journey, And How He Discovered His Niche [01:33:40]
- The Advice Sten Would Have Given Himself 10 Years Ago, His Advice For New Advisors, What Is Coming Next For Him, And How He Defines ‘Success’ For Himself [01:41:16]
Resources Featured In This Episode:
- Sten’s Elite Advisor Network
- Sten’s Course on Working With Business Owners
- Sten’s Advisor Playbook
- Sten Morgan
- Sten Morgan LinkedIn
- Legacy Investment Planning
- 7 Mindsets Of Success by Sten Morgan
- Getting Naked by Patrick Lencioni
Michael: Welcome, Sten Morgan, to the “Financial Advisor Success Podcast.”
Sten: Good to be here, Michael, thanks for having me, bud.
Michael: I’m really excited about today’s conversation and talking about some of the challenges of what happens when you get started as an advisor as a 20-something and have to build. We’ve had actually a few guests on the podcast lately who kind of started their careers early and I always sort of chuckle a little bit to myself as we talk about these stories, because I feel like I have to put a warning sign in front of these episodes of saying, “So just for the official record, I do not actually recommend that 20-somethings coming straight out of school go directly out to hang your own shingle and try to get your own clients.”
I know there are firms that recruit that way and that that’s a pathway, and technically a lot of jobs are that way. But so much of it, from the advisor’s end, is companies just kind of throw a whole bunch of 20-somethings to the wall, they see what sticks for them, and they just get to keep the winners and let the losers go find something else to do. From your end, as an advisor, that was your one shot at the career, and if you start out on the wrong foot and don’t survive those early years, you don’t get to play the game in the long run.
So, I’m not actually a fan of the approach, but I know you’ve had a pretty cool story about how you’ve done that and starting out in the big insurance world and moving into your own firm and building on your own and doing it while you’re moving, so you’ve got to do it in an area where you didn’t necessarily have a natural client base of your own to build with that infamous natural market of friends and family.
And so, really just excited to talk about – for those like you who are going to persevere through it and do it anyway – and I know even if I warn, “This is not actually a recommended path,” there would be people that are going to do it, anyway. So, for those who are going to do it anyway, I’m excited to talk about how do you actually make this work when you’re starting out as a 20-something and, you know, limited credibility and limited expertise early on, but you’ve got to get clients and get going, how do you make that work?
The Challenge Of Getting Started As A Twenty-Something Advisor And How Sten Made It Work [04:51]
Sten: Yeah, it’s hard. I think one thing…and Michael, I love your iceberg illusion that you talk about because I think as I’ve kind of progressed through my career, I at times forget to talk about the reality of my journey and the start of it was really very traditional. I started with a large insurance company doing their internship program, and this wasn’t a multi-generational career for my family. I took the internship because it was the only one that paid me 100 bucks a week to show up, never thinking I’d own a business or do anything of the sort.
So, I entered – similar to what you talked about – they recruited a bunch of us, and there were a few of us left at the end of the day, and we just started selling proprietary products. But then I kind of had a stirring in me that was like, “I think there’s a different side of this business that I don’t know yet.” So, I jumped ship and I went to a large investment firm and learned about the investment side but again, it just felt unsatisfied because in both scenarios, we were just selling product and it was kind of what the product was that we had to offer, we went out and we learned to sell it.
But in your 20s, that’s hard because what you’re selling against is long-term established relationships that clients have with other advisors. And so it was this grind. I mean, it was the path…I had accepted the 15- to 20-year path that the industry told me was normal of, “Hey, you hang in here and you grind it out, it’s going to be terrible for two years, really bad for the next three, kind of hard for the next five, and then eventually, you’ll hit some momentum.”
And based on my background, I grew up with a single mom and three sisters. Risk was not really something that I was interested in. My whole goal was to get comfortable as quickly as possible. And so, part of what I talk about and teach other advisors now is you need to know what you’re getting into. And I think, Michael, like you mentioned, a lot of advisors don’t know what they’re getting into because the industry kind of sells them on the upside without really painting the hard picture.
Michael: Yeah. I do think we have a huge challenge of, as you said, we sell the upside and don’t paint a realistic picture sometimes. We sell the, “Successful advisors can make hundreds of thousands of dollars,” and don’t always get to the, “Oh, but 80% of your recruiting class will probably be gone within 24 to 36 months.” And, of course, it just sort of preys on that self-confidence that a lot of people have in their 20s of like, “Well, yeah, I know, 80% won’t survive but I’ll be one of the 20% who do.” And of course, everybody in that group says that and 80% of them still aren’t there two or three years later, and we convinced ourselves we’re going to be the one even though we may not be or that may not be realistic.
But I’m really struck by sort of your framing that your approach was that you didn’t want the risk of trying to be out there on your own getting stuff going. I think as you’d put it, you want it to get to ‘comfortable’ as soon as possible, which I think, classically, is not something we associate with entrepreneurship, eat what you kill, get your own clients, hang your own shingle, launch businesses at 20-something. So, talk to us a little bit more about kind of the steps of this journey. So, you said you started out at an insurance company in an intern program, where did you go and how did you find your way to this intern program?
Sten: I was at a college in Oregon, I grew up outside of Eugene and they had just come by, a large insurance company, most people would know them, and kind of did their…put out kind of an all-call on campuses. And I said, “Hey, that sounds interesting,” and it was the only one of probably the five I was looking at that paid something to show up and so, I said, “Hey, let’s give it a shot.” The tough thing there, again, was my mindset. All of us have our own stories and a lot of mindsets are kind of created for us, probably until age 20.
And most of us, for an extended period of time, base our decisions off of the beliefs we made when we were 13 or 14. So, I felt, based on growing up in a small town in Oregon, good things don’t happen to people like us, you just work as hard as you can and eventually, hopefully, make enough money to pay your bills and be okay. So, the bar I set for myself was so low. Running a business? No way, that just doesn’t happen to people from Elmira, Oregon. For me, though, I had to start focusing on the fact – three sisters, single mom – and it was probably in college when I accepted the internship and I said, “I think I have the ability to impact other people outside of myself and so there’s an obligation to pursue that to some extent.”
And so, I actually started taking my Series 7 while I was a junior in college, because the more people I surrounded myself with, I realized there are people who have overcome much harder things than I had, have become very successful, so there must be something they know that I don’t because I believe they weren’t working harder than me, they just figured something out. And so, I started interviewing financial advisors, interviewing CEOs, and just saying, “I need to know what the gap is between where I am and where you are.”
And what I learned is they found a way to tilt the curve in their favor, they didn’t do things in 10 years, they figured out how to do it in 1 year. And so, I just became this sponge of information of saying, “Hey, the quicker I can learn things to avoid wishing I had known something sooner,” which is most of our path, “I think that instead of 15 years to be a successful advisor, I bet I can do it in 3.” That was step one, I just had to believe it was possible and by finding people that had done it already, I knew it was possible, I just now had to convince myself that I was actually capable of it.
Michael: So, as a junior in college, did you already know you wanted to be an advisor in particular, or a business owner in general, or just kind of some things successful, so let’s talk to a lot of different people in industries and careers?
Sten: It was in finance, I think my young mind growing up, we moved a lot and kind of father figures in and out of my life and the one common theme I saw was that money always seemed to be the issue and so I said, “Well, I’m going to learn about finance and economics.” And so, that’s kind of what pushed me down that path to start learning from people in that industry. And then I started realizing, “Well, I think the information I’m gathering, there are products that solve problems for people and I think I can be good at selling those products.”
And so, like many advisors, I started with a product-based mindset, “I need to find a company that has stuff that I can provide to people that helps them.” And so, like many advisors, I started on a very traditional path in the industry: keep your head down, grind it out for a long time. And it wasn’t until I ended up in Nashville, kind of with no market with kind of a bigger wirehouse, and they were selling a bunch of A-share business, and I was like, “I just don’t want to have 2,500 clients that I promised something to once and now I have to go find more because I already got paid.”
And that’s when I maybe didn’t play my cards right, but I kind of brought up to the president of that company, “I just think there’s a better way to do this, what do you think? I think I might explore other things,” and I had a box that afternoon and was walked out of the building. And I remember thinking to myself like, “I should have been a little more strategic about the conversation.”
Michael: Because at the end of the day, from the president’s end, they were like, “Son, you’re at a firm that manufactures and sells products, if you want to do a different thing, bless you, here’s your box of stuff, go find your next thing.”
Sten: “Good luck.” Yeah, and I look back and it was a blessing because he had been somewhat of a mentor for a while and my hope was that he would kind of talk me out of it and kind of usher me into kind of the next season of that life cycle. But the good news was he handled it terribly, which forced me…because remember, I wasn’t at this stage even ready to plant my flag and take over the world. I was still, “Hey, if I make enough money, I can help my mom and sisters and I can pay my bills,” that was the whole goal.
It was… $100,000 was the number I had in my mind, like, “If someday I can make $100,000, then all my problems will go away.” So, because he kind of forced my hand, that’s where I was about to get married, unemployed, which my wife still reminds me of at the time, and I had to just do something. And so, that’s when I just kind of hung my shingle and said, “Well, I’m not from here, I don’t really know anybody.” These letters I’m getting in the mail say I have a non-compete that I wasn’t fully aware of that I can’t talk to anybody I have met, and so I had to start from scratch.
Michael: Interesting. So, you didn’t even realize as you went to the firm and said, “Hey, I’m thinking about doing something a different way,” after which they promptly ushered you out the door, but you were still attached to a non-compete or non-solicit contract that said you couldn’t actually do what you were doing before and you couldn’t talk to any of the clients that you previously had worked with?
Sten: Mm-hmm. And it was a big count, I hadn’t been in Nashville very long, but I think I didn’t know what questions to ask being young in the business. I think I just kind of…I needed some forward movement, so I accepted offers as they came, didn’t really think through and kind of have a vision of what this could look like long term. And a lot of firms have things like that, this one just happened to really take it seriously when enforcing it. So, I was 24 getting letters in the mail and threats of everything, and it was an intense time.
And so, that’s where I had to say, “Okay, I can’t call anybody.” In hindsight, I knew I could have, there are ways to kind of do that appropriately but I just said, “Okay, to avoid that wrath, I had to start fresh.” I remember sitting in an office having nothing to do at 25 and I was just like…I just prayed like, “Okay, where’s the next client coming from? I don’t even know how to do this, I don’t have a lead flow coming in.” And I remember the first client. I had a friend that said, “Hey, I know a guy in West Virginia that might need some help.” And I kid you not, the next day I was in the car. I drove eight hours to have a two-hour meeting and drove eight hours back in the same day, and that was my first client.
Michael: I would say, did it close at least?
Sten: It eventually closed, but I look back and I’m like, “I think there was probably somebody 20 minutes down the road that would have done business with me too,” but that’s the only meeting I had so I took it and closed it and he’s still a client to this day and I don’t think he knows that story fully. But the iceberg under the ocean was miserable and to be honest, I was on the verge… I was days away from becoming the 80%. Because the way I thought of myself and my potential at that time was, “I just don’t think I have what it takes; people like me from where I was from don’t do things like this.” So, I was right there on the edge.
Michael: So, what was it that, I guess, led you to stay in it and want to keep going with all those kinds of layers of fear or self-doubt or, literally, just staring at unemployed with my new spouse?
Sten: I gave myself six months. I said, “Okay, let’s just kind of run this out.” My wife was a nurse, and she was working at the time and I was like, “Okay, I have some amount of runway here to kind of take to see what I have learned over the last two-and-a-half years in this business can be applied to make just even a reasonable amount of income.” But then I became a student of the game, and I think one of the things I took away early on, that I coach other advisors on still, is that you are the product, and I think too much of our industry relies on relationships with clients to get them and retain them.
And I remember telling myself, “If I was so good at what I did,” which means if I got a plate appearance, if I got to meet with a client, and I could give them something they’ve never heard of before or would add so much value, “I bet if I could save a client $100,000 with some tax strategies and different ideas, I bet they would stop working with their brother-in-law for that.” Because at some point, a relationship with your advisor is important, but it’s only to a point.
And so, I started studying, I got my CFP as fast as I could, and I just started becoming a student of the game because I think I told myself, “I don’t think clients really care if it’s Mutual Fund A, B, or C, ETF A, B or C or what insurance company as long as it’s good. What I think they’ll buy is me and my ideas.” And so, I had to break this idea that the product was really what it’s about and say, “No, I think it’s the advice.” And so, I didn’t get as many plate appearances – I was in a cold market – but my close rate became so high because I came in with things that most people just haven’t heard of before.
Michael: So, can you talk a little bit more about just what that was? In practice, what do you…as you put it, what are you coming to the plate with that’s making a close rate very high when you’re coming in as a 20-something stranger in a new practice trying to get the business going?
Sten’s Secret To Closing New Clients By Selling Advice As His “Product” And Giving Away His Ideas Upfront [17:22]
Sten: Yep, so I built my COI network as fast as I could, so I sat with attorneys at estate planning and said, “What are the nuances that I need to be aware of?” I meet with CPAs and say, “I just need a few ideas,” because if I can get a client in a meeting to think even once or twice, “I’ve never heard of that before,” or, “Why hasn’t my other advisor said that?” you’ll have them. Then they want to know what else you got. And so, some of that would be…it’s amazing how many clients don’t do active tax harvesting in their accounts because I had the inside scoop on a lot of the industry, which I had seen was product-based, it wasn’t creative idea-based.
And so, when I go in and talk to a higher earner about a backdoor Roth…I think most of your listeners may have heard of that – financial planners kind of know to think that way, but most financial professionals don’t. And so, I get in front of a doctor who has $3 million parked at a big wirehouse, they get one call a year just to look at their investments, and I had the knowledge to read their estate plan and say, “Do you know that at the age of 35, all of your assets are going to be forced out on your kids? Do you know if you change this line, you can actually just give them access to it, but they can still be their own trustee and the money is still protected?”
Something like that is all it takes for somebody to say, “Oh, I didn’t know that. Well, tell me more about that.” Or you tell a business owner about R&D tax credits; I had one last year. You need to make sure you have a good CPA that’s really up to speed on this stuff, but they invented a chicken light, and they just, like a lot of businesses, put their money into it over time but we found them a tax credit, I think a $250,000 tax credit they didn’t know about.
They’re clients for life, they pay me $3,000 a month just to be on the team because they’ve seen kind of the light. And so, little things like that are really where the power is, but if we get hung up on internal expense ratios, past performance, this insurance ledger looks better than that one, which is most of the conversations that I was trained to have early on, it’s just white noise.
Michael: So, it’s very much kind of – it’s talking about strategies, action items, sort of in a very literal sense like advice things you can do, but trying to get away from talking specifically about products or product comparisons or as you said, expense ratios, illustration ledgers, and all of that and just getting to like, “Let’s talk about estate planning. Let’s talk about tax credits.” It sounds like those are the primary areas that you are raising these conversations, very estate planning-based and very tax-based, backdoor Roth, active tax harvesting, R&D credits, etc.?
Sten: Tax is probably the biggest pain point I come into contact with, that if I can press it and give some ideas, it opens the other doors. Estate planning is pretty low hanging fruit. And they don’t have to take everything you say, it’s just they need to know like, “This person is telling me about things I’ve never heard of before.” And a great book that really helped change the way I think…a quick disclaimer is that if you look this book up, make sure you go to Amazon and then the business book section, but it’s “Getting Naked” by Patrick Lencioni and it’s such a great book about giving the best ideas away right away.
And it really trained me that when I sit with somebody, as opposed to thinking, “Oh, I’ve got to hold my best stuff back because what if they take it and do it with another advisor or try to do it themselves?” That’s a lie, most people don’t have the time and energy to do that. So, if you give your best stuff away right away, almost 100% of the time – I’ll say 99% because it’s probably not every time – they end up saying, “That’s great, what else do you have?” And I think that’s something that I see a lot of advisors missing.
Michael: Yeah, I actually read Patrick’s book early on in my career as well, and it had a very similar impact on me that…you said it well, we get so locked in this mindset of like, “I have to protect all my best ideas. I can’t tell anyone about them until they’re already a client because they might take it and do it themselves, or they might take it and do it with their current advisor.”
And once in a blue moon, someone may end up doing that, but mostly 99% of the time when you bring the idea to the table, their natural response is just like, “Well, I didn’t know about that, now I know about that. Can you help me do that? Because nobody else knew how to do that, or I would have done that already. So, the fact that no one else ever told me or helped me do it, and you apparently know how to do it means I should probably be doing this with you since you apparently know yourself and no one else does.” And we get caught up in our heads about clients second-guessing us or trying to game us when most of the time in practice in the real world, people are just like, “Oh, that’s a great idea, can you help me with that?”
Sten: I remember I had a mentor – I was looking at starting a business vertical outside of Legacy, but it was financial education-related and I was like, “I’ve got to kind of keep this tight chested” – and he’d started and sold multiple health care companies, and he said that it rarely, if ever, happens. He’s like, “The people that will hear about your idea don’t have the time and energy to stop doing what they’re doing all of a sudden to try to copy and steal yours.”
So, as I’ve learned more about business, I’ve realized that we all are busy, whether it’s businesses, families, kids, that the chances someone’s going to overhear an idea and all of a sudden reverse engineer it and try to steal it from you is just not likely. And so, that was freeing for me to say, “Well, let’s just start giving it away,” and that really helped reinforce our brand as, “Man, those guys are creative. They’re saying things I’ve never heard of. I may not implement it, but the fact is, I think having them in my circle is going to make me better.”
Michael: “If they’re saying things I haven’t heard of and wasn’t familiar with, that seem beneficial, even if I don’t like the particular one they put forward and I don’t want to do this one, I will do some of them. I will do the next one because if they’re coming up with that many good ones, something is going to be something I want to actually do even if it’s not this first one they put on the table.”
Sten: That’s right, but there’s a second step of that. A great idea is one thing, and this is something I’ve really kind of tried to hone in on, but being able to quantify the value of your piece of advice to somebody makes all the difference. Because if I tell the client, “Here’s a tax strategy. If we harvest actively from your portfolio, it’ll add X value,” they might say, “Okay, sounds good, I’m not doing it,” but I believe people solve big problems, not small problems. And so, as advisors, we position an idea to a client. If we don’t show them the potential cost of not acting on it, that’s our fault.
And so, for example, let’s say I have an idea that will save a client $10,000 in taxes, “Hey, you fully fund your SEP IRA,” or whatever it is. I don’t tell the client that that’s a $10,000 problem, I tell him, “Over the next 10 years, if we do this strategy, it’ll save you $100,000.” Because that’s the reality of it, but we have to make the problem big enough to actually land on their top five list because they have a bunch of other stuff going on in their life, and they won’t solve a small problem. They’ll get to it eventually, and we have to help them prioritize and show them, “If you don’t do this, 10 years from now, you’re going to look back and say, “Why didn’t I do that?” or “I wish I would have known that sooner.”
Michael: Interesting. And so, in practice, one of the tactics for it is sort of, “Let’s take a thing that we might do for the client this year but we’re not going to talk about it this year, we’re going to talk about, “What happens if you do this on an ongoing basis in the future,” because now we’re talking about 5 years of tax deductions for your retirement contributions, 10 years of tax deductions for your retirement contributions. As you noted, at some point, you stack on enough years there and the numbers get big.
Sten: They do. Yeah, and I think it’s even with taking action on funding a SEP IRA, it takes cash flow away from today, but it’s up to us to kind of expand upon the compounding effect of these decisions. And so, obviously, we want to be positive with our clients, so I say, “Hey, if we do X, Y, and Z, it’s going to help us save this much money.” But at times, we also have to help clients recognize pitfalls, that we say, “If you don’t do this and this happens, here’s what’s at risk.” “If you don’t do this estate planning strategy and X, Y, and Z happens, you’ll have to write a check to the government for $4 million. Oh, and by the way, that’s going to mean that you have to sell your farm to do it.”
And so, it’s up to us to help the client quantify and understand the true value of the decisions that we’re trying to get them to make. Where before, I’d meet with a client and say, “Hey, you should move this investment account over because the investment expenses are 0.02% less and our performance may be better.” Like, that doesn’t move anybody, and that was literally the conversation I kept having with people.
And I’d get one every once in a while, but then I’d have a bunch of people…and I don’t know how many of your listeners can relate to this, but I’d have a file of just the names of people that I would sit there and call for years and years and they would just take an idea here and never move on it. And I’m just like, “How much time have I spent with this person? How many lunches have I bought, and they’ve never taken action?” It was because I was positioning everything the wrong way.
Michael: Because you weren’t quantifying the impact; you weren’t quantifying the outcome.
Sten: Yep, I wasn’t creating the urgency that was necessary. And we shouldn’t create unnecessary urgency. The goal is not to deceive, but with all the facts we have, can we show them the impact of acting or not acting?
Michael: And it sounds like a big piece of this is literally trying to put it in dollars – quantifying impact in dollars. Is that a fair characterization? I’m just saying a lot of what you’re describing keeps coming back to hard dollars of cash.
Sten: That’s right. Yeah, percentage basis points – we’ve got to get out of our own industry language and say, “Business owner, husband and wife, entrepreneur or startup, this is the potential impact of not doing this or taking this action.” And my conversion rate and time to close – for lack of a better word – people will move, and they’ll move quickly if they know, “Wait, I’m now going to bump this to my top one or two action items because I now understand the impact it could have.”
Michael: And so, in practice, I guess even in the context of the infamous difference and expense conversations, this is not like, “Hey, if you move your million-dollar portfolio to me, you can save 0.2%.” This is like, “If you move your million-dollar portfolio, you could have a lower expense ratio, which over the next 10 years would add up to $20,000, the saving is actually almost $27,000 with growth, so can I talk to you about how I can save you $27,000 over the next 10 years?”
Sten: And then I’ll add on top of that tax efficiency for nonqualified money and if you start stacking that, you’re saying, “By working with us…” And I’ll even charge these people planning fees and it’s like, “Well, by doing X, Y, and Z, just alone, before we start implementing any creative strategies we’ve mentioned, we’re going to save you $50,000 over the next year which more than pays for our planning fee.” And so, it’s up to us to show that there’s really no reason not to act. We don’t want to leave it up to chance for them and just hoping.
And I remember a story that an advisor told at a conference years ago, and I got to know him after the fact, and he’ll never shake it. I mean, he’s learned from it but he was…I think he was working on a $60 million investment account, a guy sold his business. And they had a long interview process – I think four or five meetings – attorneys and CPAs were involved, and it came down to him and, I think, a broker from Goldman Sachs or Morgan Stanley. I can’t remember what it was, but he ended up losing out.
And he knew that…he got to know the client well enough that he said, “Can I have lunch with you? I want to know why I didn’t get the deal.” And he said, “My wife and I couldn’t tell the difference between you two, it actually came down to a coin flip.” So, he lost a $60 million client over a coin flip because everything he was saying was the same, and the client couldn’t differentiate really what the value was by choosing him over the other advisor.
Michael: Because we all get into this, “I provide customized, individualized, and personalized financial planning advice with my expertise and years of experience, and we provide great service to all of our clients.” And all of that might be true and valuable, but we literally all say it down to the point that if you’re competing with a good client, it’s pretty certain that everybody else they’re talking to is saying the same thing and they can’t tell us apart.
Sten: Yep, and alpha and returns, so it’s the creative strategies. So, Legacy’s mission statement is, “Changing lives through creative financial strategies,” which means we’re truly there to add value and get results and if we aren’t, we’re going to step away. And I challenged the advisors I coach, and I was like, “You need to think about if I came in behind a client and met with them, how confident would you be that they would work with you versus me?”
And obviously, I have years of experience of kind of honing this, but the challenge is like, “Wow, I don’t know how good my first or second meeting is,” or, “Am I approaching a client like I don’t have any competition?” Sometimes you don’t, but the goal should be that when they leave that meeting, they say, “I’ve never had a meeting like that before. The advisor jumped up on a whiteboard, and she was giving me some of the best ideas, and I hadn’t even paid her yet. We haven’t even talked about fees or expense, literally, she’s just giving me great ideas.” That’s the kind of experience we want to provide because that’s what people remember.
Michael: And then at some point, I’m sure you get into all sorts of other interesting client psychology, like, “If this is what he tells people for free before I’m a client, what strategies do you get once you are a client?”
Sten: Yeah, “Where can I sign?” That’s right.
Michael: So, I am wondering, though, as you talk about just quantifying these, so sort of two things come to mind. One, just how do you quantify this stuff? I mean, I get some are pretty straightforward like, “Your expense ratio is this and your portfolio was that, so I can do the arithmetic and figure out the dollar savings, maybe I’ll 10X it over 10 years just to show the impact over time and raise the stakes a little.” I get it, maybe, on a tax deduction, like just, “Here are the dollar savings.”
But like a lot of what we do, this is sort of the ephemeral…or the always present problem in financial planning, so much of what we do is kind of soft and ephemeral and, “We’re going to do this every six months and we review this for the next 20 years and you will so thank me in the long run,” but it’s really hard to quantify. I think a lot of us these days are struggling with just how to articulate and quantify the value of financial planning and the advice that we do. How do you get everything back to quantifiable? What are we all missing that we’re struggling with this?
Sten’s Strategy To Quantify The Value That He Provides To Clients [31:58]
Sten: I think there’s always going to be the art, which is hard to quantify. We do say, “Hey, by working with us, we’re going to increase the time you have available for other things,” which you can almost help them do the math, “If you had an extra two hours a week to not worry about this stuff, what could you do with it?” But there are a lot of assumptions. So, we try to stay in the realm of manageable where we can actually say, “Hey, we’ve researched this, we’ve done some high-level kind of shopping around for you and if you do X, Y and Z, it leads to this amount of dollar savings, which more than pays for our consulting fee.”
And so, if we’ve already paid for our fee, everything else after that is gravy. So, for example, we may say, “Hey, we have some partners we consult out with, give us all your deck pages for your home and auto and other insurance policies.” And we’ll shoot those out between meeting number one and between meeting number two or three where we actually position our fee, we’ll get back kind of a side-by-side comparison of all their property and casualty insurance and almost every time, we can save them $1,500-$2,000 while improving coverage. Most people don’t shop that stuff very often, so if we can do that for them and we take that over 10 years, we just saved them $15 grand or $20 grand.
Michael: And so, for you, that’s what? Getting a copy of all the declaration pages of their PNC coverage, home, auto, maybe umbrella liability if they’ve got something, and you analyze internally? Or you’ve got PNC agents you know or firms that you work with and say, “Hey, guys, take a look at this. You let me know what you see, and I’m going to bring it back to the client because, obviously, we all win if the client wants to act”? They give you competing quotes or whatever it is and then you can come back to the client and say, “Hey, I found this, it’ll save you $1,500, which over the next 10 years is $15,000, so how about we talk further since I just saved you $15,000 on your home and auto insurance with a review?”
Sten: With one idea, that’s right. And so, between the first or second data-gathering meetings before the proposal, we’re trying to get as much information so we can show them, “In a matter of weeks, we just saved you X dollars, imagine what we can accomplish over the next 12 months.” Almost everybody you meet with knows they need financial advice, whether they’re getting it, or they don’t, they’re going to say, “I need it, I know we need to get to it.” The barrier we’re going to run into is, “The price is too high now. I’ll get to it someday,” which they won’t, it’ll just keep dragging.
Or two, “I have the money, I’m just having a hard time pulling the trigger because I don’t quite believe what I’m going to get out of it.” And so, by quantifying as best as you can, whether it’s, “Hey, I reviewed your estate planning strategy, it looks like this insurance policy is held outside of the trust, that’s why it was done that way,” and then you help them show, “Hey, do you know this will increase your taxable estate? Well, this isn’t taxed, it could tax your other assets and that could end up being a million-dollar tax bill someday.”
Clearly, I’m saying, “Hey, there are some assumptions here, but by not acting, we’re just leaving these pitfalls in the future.” And so, if at all possible – and disclose that you’re making some assumptions at times – but say, “Here’s the potential dollar impact of not doing this, by not having an estate plan, here’s what that issue could cause. You should spend $1,000 to get an estate plan, it’ll save you 50.”
That is the conversation, we have to give people real numbers as opposed to selling off ideas or feelings of, “Just trust me, if you work with us, we’re going to put you in a better place.” I think at least where I grew up in the business and how I was trained, we relied way too heavily on potential plans and insurance ledgers of what could happen. We need to try to bring it down to the concrete.
Michael: And it does make me wonder, though. I mean, you kind of mentioned in there about disclose your assumptions, but I think a lot of us have kind of been trained or had this beaten into our heads of like, “Don’t guarantee results, don’t guarantee performance, you got to be careful what gets promised to clients because then you can become liable if that doesn’t become a reality,” which is a real problem, certainly, with things tying to markets because they may not become reality.
I guess the other part I’m wondering is just how do you quantify these and put them out there in a way that you don’t have to worry that someone is going to come back and say like, “Hey, Sten, it didn’t come out to $50,000 over 10 years and we’ve been working for a few years and it hasn’t ended up to much. I’m firing you or I’m suing you because you overpromised this $50,000 of value and that’s not how it’s materializing,” because, whatever, life changed or something happened but all I remember is $50,000 once you put that number out there. So, how did you think or worry about, I guess, the liability exposure of this, or just how do you quantify this in a way that doesn’t get you in trouble if life and circumstances change?
Sten: Yeah, so I found that the client doesn’t need it documented, all of these conversations happen in like a whiteboard format. And so as we’re up on the whiteboard and I’m saying, “Hey, here are some things we found, consider this.” What we’re giving them is a feeling of confidence that, “Okay, they’ve already identified ways I can save money.” Because we’re not trying to get them to…we don’t need to guarantee them results five years from now, we just need to get them over the hesitation in the short term to take action on something.
Because what I know is that if I get them on my client list for the next 12 months and they pay me a fee, monthly, quarterly, or annually, I’m finding that value, I’m going to make them know, “Wow, having him involved gave me more time back my affairs are an order, I have a balance sheet for the first time, I know what my budget kind of looks like.” We have a 12-month runway to show all the value we have, and the ideas we share upfront in kind of a whiteboard conversational format are just to open their minds up to like, “Okay, this is worth pursuing.”
Michael: So, the idea is less of like, “You literally have to work with me because of this idea which will save you this much money, let’s go and I’ll prove it out to you that you’ll get this exactly as much money back,” and more along the lines of, “Here’s an idea, here’s what the actual financial impact would be for you, if you like these kinds of ideas and this sort of stuff, I would love to work with you on an ongoing basis because just one idea like this is more than enough to cover my fee for the first year and several years to come. As we work together, it may be this or it may be other ideas that we actually bring to the table and implement, but I hope you’re seeing now the kind of advice that we put on the table and the opportunities that we create, and we’d love to work with you on this or some other ideas over the next year.”
Sten: Exactly, yep. And I think if you’re selling a year’s experience and that’s why – and kind of to financial planning – about four years ago, we were doing zero planning fees. I started at an insurance company and transitioned to a wirehouse bigger investment firm. So, at one point, I only thought about insurance. The other side only thought about investments all the time, to settling into I felt kind of my identity as an advisor was more of an advisor with great ideas, you know? And if I sell products where I don’t want to make clients feel that way, then I have to somehow get paid for what I’m doing.
And that’s where I dipped my toe in the water of financial planning and the first one was $1,500 for a year. Lost my shirt on that one. But it was the experience of realizing, “Wow, there’s a lot of value to be added here, they needed me a lot throughout the year.” And so now our minimum fee is $4,500 to $5,000 and we have clients paying us $4 or $5 grand a month, one was $8 grand a month, and we’ll do about half a million dollars in fees in our fourth full year of financial planning.
And I think the reason we’re doing…is because we continuously kind of bear the burden of proof to say, “Hey, here’s why you need to keep working with us.” I put together a financial planning course to kind of show our playbook to other advisors and we talked about in there that there’s magic behind getting them to sign up, where you take away the hesitation because you’re showing them, “Hey, the value is here and here are a few ideas for free right away that shows you that,” you then serve them well proactively and then the power of the renewal is, “Hey, there’s still a lot to accomplish.”
And so, becoming more of a financial planner-based advisor, it’s really helped me understand how much value can be added to all these people. And once you go through that a couple of times, the next time you position a new plan to a client, there’s an air of confidence because you know, “Hey, there’s a lot to come, I’m going to show you some of it now to get you over the hump, but you just wait and see.”
Michael: So, when you start talking about, I mean, “Things as high as $4,000 a month in planning fees for our clients,” what are you doing for someone at for $4,000 a month, $50,000 a year in planning fees? I mean, what does that look like in practice?
The Services That Legacy Investment Planning Provides And The Fees That They Charge [40:34]
Sten: So, those are businesses almost all the time. And so, that involves monthly meetings; we’re in their meeting with their CPA or their HR director if they have questions about compensation strategies. We have become essentially the facilitator of financial-related decisions. We’ll help them structure their buy-sells, we’ll sit in the room for operating agreements. And in that course I put together, we actually have real case studies where I say, “Hey, here’s a client that we charge $3,000 a month. Here’s everything we did in the first year, and here’s why they didn’t hesitate renewing, and here’s what we’re going to do in the second year.”
I did have a client years ago; we went in full bore ahead. She was growing a technology company, acquiring companies, and she just wanted us full steam ahead with her and she was paying us $8 grand a month. And in hindsight, the compliance lift for that, it was so burdensome that I think I’ve learned there’s a line to where it’s like, there’s a point where I’m going to say, “Hey, we’re going to be this involved and here’s a fair fee, beyond that, you’re going to need to pull in some other professionals,” so I kind of learned my lesson on that one.
But it’s amazing how many business owners need unbiased advice and guidance and really, what they’re buying is your access and time. You don’t quite know what you’re going to be doing six months from now, you’re going to try to identify at a high level. But I have one company I’m working with now, we had a great kind of 12-month runway setup, and 3 months into it, they all of a sudden want to buy another company and there’s a 401(k) emerging, there’s all this stuff. And they say, “Sten, we don’t even know where to go to talk about this,” and so I’m helping coordinate with 401(k) providers to consolidate those plans.
And so, there’s enough there for business owners that they just don’t know where to start, most of them ignore it. The value of having an unbiased advisor who’s not trying to sell them stuff, because they don’t need somebody else doing that, pushing along key objectives for them and being a sounding board. These companies, they don’t even think about the fee after year one and a half because they say, “We don’t know what we do without you.” Well, there’s a lot to unpack there, and that’s why I put that course together for advisors to say, “Hey, here’s our playbook from start to finish.”
But that market…and Michael, I’ve heard you speak about this at conferences, the people most advisors are going after of, “Hey, I have AUM to manage and I’m ready to take action,” is so small compared to the number of people out there who are willing to pay for great ideas. Real estate developers, entrepreneurs, and do-it-yourself investors still need good guidance and ideas. It’s just trying to figure out how do I position this well? What’s a fair fee to charge? And how do I document it? Obviously, compliance is part of the game. And then how do I continue to make them feel the value so they keep renewing?
Michael: And so, can you talk to us a little bit more about what the business looks like in practice from a revenue end? Are you all flat planning fees now? Are you still also doing investment management or other product implementation? What does the actual business look like at this point?
Sten: Yeah, so we do advisory and planning fees. So, my background was advisory, so the majority of our revenue still comes from advisory fees, but financial planning is the fastest-growing segment. And then, occasionally, we’ll bring in a consultant to do a large insurance case for a business owner buy-sell or some estate planning case. But the majority of our new focus on prospecting is financial planning and consulting, which leads to investment advisory business, which leads to the occasional insurance sale.
But it’s important for us that when we meet with a client, we say, “Our engagement with you is on a financial planning for a fee basis consulting, there is a second phase if, at some point, we advise something that you want us to help you implement, here’s what that looks like.” But what’s great is I don’t have to think about the product upfront because I’m getting paid well for my time. Naturally, they’re going to come to a place where they say, “Hey, I don’t have anybody else I trust to implement this, are you able to help me with that?” And if it’s a good fit, we’ll do that too.
Michael: Interesting. So, you make a strong point there that…even for a lot of advisors out there that charge something for planning work and planning fees, “We do our $1,500 plans or $2,500 plans,” our recent benchmarking study on the Kitces platform found that our average advisor charges about $2,300 for a financial plan, hovered in that $2,000 to $2,500 range for a long time. But as you know, that’s not a small number, that’s not a minor number, but if you look at most advisory firms once they are at a relatively mature place, the average revenue per client is usually quite a bit higher than $2,000 or $2,500 per client. It’s a nice way of saying like, “We don’t get paid enough of the $2,000 planning fees to grow and scale the business and sustain its growth, we usually have to end up getting into something else or moving further upmarket or expanding the relationship somehow.”
But it’s an interesting framing, as you put it, when you are really, actually charging full value for the planning upfront and there really is no pressure to do anything on the implementation end because it’s really actually profitable to do the planning work upfront to the kinds of fees and numbers that you’re talking about, and then if it turns out that they also want help implementing, you may still get opportunities with that business as well but it doesn’t have the same pressure because your planning isn’t a loss leader, it’s actually a profitable endeavor. It’s just when you do planning work and really build relationships with people, often they end out at some point saying like, “You’ve given me all this great advice and I know I’m supposed to implement it, and I never seem to get around to actually doing it. Sten, can you just help me get this done?”
Sten: Yep. And if we end up managing assets and somebody is paying us for our planning and time, we charge them a lower advisory fee. I think for years, people kind of did the bundle approach. I know what I did at my prior larger wirehouse firm was, “Hey, pay us 1% and we’re going to give you all this stuff.” Well, all the other stuff was, “Hey, we’ll do it if you kind of ask us, but we can’t afford to pursue you in order to get this stuff done.” Whereas now, “Hey, if you’re going to pay me for my time, I don’t need to bundle it, therefore, I can charge you 20% less than most advisors.”
So, you’re going to pick up more investments because you’re even charging less, but you’re still more profitable than you would have been just by going after the assets and being a stockbroker or stock advisor in the client’s mind. So, I would strongly encourage – and I know you do this – financial planning does not have to be a loss leader. There are plenty of clients that want to pay a good fee for good advice but in order to do it well, you need to know the process going in. And I think a lot of advisors I talked to, they’re hesitant to do it.
I was, because I just didn’t know what to do next. I was willing to ask somebody for a fee, but I think the way I did it left them feeling nervous because it was like, “He doesn’t seem very confident when he’s asking for this fee and he doesn’t quite know what’s coming next, why would I want to pay him?” So, since we’ve spent the last four years building this process of what does the whiteboard session look like? What’s the next meeting? What does our proposal template look like? What, based on their level of fees, is their service model that we can commit to as far as meetings, phone calls, and collaborating with their other professionals?
If you lay it out as, “Wow, this is a standalone business,” the clients are going to sense that and they’re going to realize, “Wow, they know what they’re doing, this must be valuable.” But I think too many people try to slow-walk into financial planning or use it as a loss leader so that it ends up being a distraction and maybe adding more risk to their practice than they know.
Michael: I’m struck by this framing, though, of…certainly, there are a lot of advisory firms out there that charge an AUM fee and may do a separate planning fee as well, and if you have enough in assets, they start waiving the planning fee. So, in essence, if the portfolio is big enough, they waive the…they reduce or waive the planning fee. But if I’m understanding you right, you essentially do it the other way around, which is the planning fee is the full planning fee, if they’re working with you on the planning phases and then they also want to have support on implementing the investments, the investment fee gets discounted if they are the planning clients, not the planning fee gets discounted when they are investment clients.
Sten: That’s right. I think there’s a perceived value issue, that if I charge you $500 for a financial plan, it can’t be that good. If I charge you $1,500, it’s like, “Okay, that’s helpful but that’s maybe less than I spent on my estate plan,” and I know that attorney spent four hours on it and you’re going to work for that for the entire year. So, I think when we position it, people realize, like, “Okay, this is an investment,” and the dual benefit is that if somebody is willing to pay your fee, they’re actually committed.
So, I’m not really chasing clients anymore because I don’t tell people that don’t have assets to manage, “We can’t work with you,” like I did for years. Now I say, “Hey, anybody can work with us, but here’s the fee.” And if they take the fee then I know, “Hey, they’re probably going to take action; they’re going to be better to work with.” If they don’t take the fee, that’s probably one of those clients that years ago I would have called once a month for the next two years and they would have taken some ideas from me and never done anything.
And I don’t know how much money I lost over the years from just the time basis and I still see a lot of my buddies still doing that, chasing whales or clients that may be good because it’s just like your time is more valuable than that. You need to be confident saying, “I have value to bring, here’s what the cost is for it, if you’re not ready for it, great, we’re here when you’re ready, let’s move on.”
Michael: Oh, and I think you make an interesting point as well. There’s always this fascinating tension to me around charging for planning. On the one end, when you charge for planning upfront, it makes it a…it’s a very salient fee, it’s right out there, you will force the clients to do the value evaluation of whether this is worth it, which I think as you’ve articulated well, you would tackle directly and try to overcome by saying like, “Yeah, it starts at $4,500 but here’s two ideas that we see that could potentially apply in your situation and between the two of them, they would save you $70,000 over the next 10 years. So, how are you feeling about that $4,500 fee?” It’s like, “Okay, well, it doesn’t seem so bad.”
And then the second piece that goes with it is you will screen out the dabblers because if they’re not really serious and ready to take action – you don’t pay $4,500 if you’re not ready to take action. You might pay $500 because you sort of thought that maybe you would take action and you convince yourself that you might, but then once you actually get into it, you don’t. When you raise the stakes with a higher price point, you kind of get this double-edged sword, more likely to filter people out including maybe folks that might have worked with you, but they were afraid or hesitant on the fee.
But the ones who say yes are much more likely to actually follow through and be proactive with you because you’re paying all that money. Why would you not follow through on it now? And so, it sounds like you’re happy with the fact that the people you work with tend to be much more invested because they’re literally writing a larger check that makes them more invested, and you just try to overcome that upfront hesitation or sticker shock around the fees and what advice really cost by saying, “Well, let me quantify for you what this actually looks like with just one or two of the ideas that we can talk to you about.”
Sten: That’s right. And at $4,500 upfront or even $10,000, our minimum business plan is $10,000, but there are solutions now, AdvicePay and other great ones that are like, “Hey, what if you pay me monthly?” That’s not as intimidating. What about $380 a month? And so, I think there are ways to overcome that, but the initial obstacle is, are you ready to solve the problem? And there was a coach I worked with years ago, Chuck Hollander, and he has this compass that he uses. And kind of the top of the compass is client engagement, the kind of the east on the compass is identified a problem with the client, south is are they ready to solve the problem, and west is proposal or idea.
And Chuck would say, “Most advisors would meet the client, find the problem, and then jump the compass to solving it right away. What most advisors skip is actually realizing or finding out if the client is ready to do anything about it.” And I feel like that’s where most advisors waste their time, is jumping to solutions before they even get the green light from the client that they’re willing or ready to do anything. And I think financial planning helps you do that.
Michael: All right, because the caveat…and I think this is always the hard thing for us in this advice-giver role is sort of recognizing, I guess, the client’s psychology and all the weird client psychology that crops up. The fact that they came in and took the meeting does not actually mean they’re ready to take advice and do something. People take meetings for a lot of different reasons.
Sten: To check the box that they did it just to say, “I’ve done something.”
Michael: Yeah, “I’ve done something,” “I guess I’m making progress,” “I’m here because my spouse said I had to be,” right? Things like, “I’m not actually ready to do anything, but for the sake of my marriage, I have agreed to waste an hour of your time. So, if you’re going to waste more hours of your time, that’s on you but I’m only here to waste an hour of your time for the sake of my marriage. So you ain’t getting anything out of me by calling me more, I was just doing this to reduce my marital strife.”
Sten: Oh, yeah. And I think we have to understand that our industry has been around long enough for people to have a bias. They think they know what they’re going to get by meeting with us, it’s our responsibility to show them something totally different. And one of the best compliments I get from clients is, “I’ve never met an advisor like this, I didn’t know you could work with an advisor like this, I’m really glad I took this meeting.” Because they’re coming in with preconceived notions on, “Hey, what are you going to sell me this time? I don’t believe that managed money does better than passive index funds.”
And if we just overcome all those objections by saying, “Hey, we don’t really think so either, we think there are good, smart ways to manage investments strategically but I’m not going to try to shove a mutual fund down your throat, here’s what we actually focus on. We believe strategy is what moves the plan forward, not which stock you pick. While that’s important over time, if you do that well, that’s not really going to be what moves the needle.”
Michael: So, can you just, I guess, walk me through this process of kind of what do sales and business development look like for you? If I’m a prospect that’s hit your radar screen by whatever means, I reached out, we got introduced, one of our mutual friends in a COI has told me I should talk to Sten, so I call you and I’m like, “I heard you do good creative planning stuff, I’m a business owner, I guess I need some help, so we should probably meet so I can learn more about what you do.” So, what happens? What’s the actual process for you?
The Process That Sten Uses For Business Development And Sales [54:53]
Sten: So, we’ve kind of forced ourselves in our first meeting…hopefully, it’s in person, we’ve spent this year kind of building out our virtual experience. And kind of a side note there, we believe that virtual advice is just as valuable as advice given sitting across the table, so don’t charge less for it. But if we get to that first meeting, it is purely kind of based off of Patrick Lencioni’s book; it is a whiteboard session. There is no three-legged stool talk, there is no, “Hey, here’s the history of our firm.”
We’ll get to that, but kind of like you said, if someone takes the meeting, they kind of assume you know what you’re doing. So, let’s not spend too much time on that, let’s get to the meat of it. And so, I’m up on our whiteboard and just saying, “Okay, you’re a business owner, what’s the entity structure of your business?” And they might say, “Well, it’s an S corp.” “Well, in Tennessee, with the laws, it’s just not really beneficial to be an S corp and you can’t distribute losses disproportionally but you could with an LLC.”
And so, I’m looking for every opportunity to find a rabbit trail to explore or expose something that they probably have not talked about very often. And so, we have a great factfinder template that I share in that course that I put together that kind of walks us through these key questions. “Are you confident with your tax strategy right now?” “Well, not really, I’m sure there are things out there that I’m not doing that other people are.” And of course, there are, most of us know there’s smart people doing things that we could be doing, we just don’t know what they are.
And that’s a pain point I’m trying to push is saying, “You pay more taxes just because you don’t know how to do it is not a good reason, we all have the right to pay the least amount of taxes possible if we know what we’re doing.” So, tax is a big one, estate planning is a big one, I’ll review their investment accounts and kind of poke on that. So, the first meeting is pure idea-sharing and information gathering because I know in the back of my mind that I’m trying to get as much information, give them much as much confidence possible for them to give me the information I’m asking for, so by the time we have a meeting two or three, the whiteboard session can maybe turn in two meetings at times, is that I’m already coming back with firm data.
Michael: So, are they bringing data to the first meeting, or are you truly just going into this kind of cold of, “Let’s just start talking and get to know each other, I’m just going to kind of scribble some things on the whiteboard as we go,” and just start watching for areas where you can point out like, “Hey, have you thought about this? Have you seen that? Do you recognize this?” And just start putting ideas on the table? They may not do all of them or most of them or even necessarily any of them, but they’re going to start seeing like, “Okay, this guy actually puts ideas on the table and they’re things I haven’t heard from others and so even if these aren’t hitting, some of them probably going to hit.” And if they start responding to one, I’m sure then you get into like, “Oh, if we helped you with that, over 10 years, it would be $70,000,” and the stakes start amping up.
Sten: That’s right, you have to fight the desire to get into any kind of traditional sales conversation in the first meeting. It should literally feel so consultative that they’re like, “Wow, these are questions I didn’t even know I was going to talk about coming in here.” The meeting needs to feel so different. And so, for example, a great one is when I talk about real estate, most advisors don’t talk about real estate, we don’t get paid to help clients with real estate.
But when it comes to strategy, a lot of people feel, “Someday, I want to buy real estate,” wherever they get that from, or, “Hey, I bought some real estate and it’s worked out for me, I want to buy more,” we’ll talk to clients about direct versus non-direct recognition assets and we tell clients, “We are fans of real estate if done well because it’s a non-direct recognition asset,” and most will say, “Well, I don’t know what that means.”
So, I’m on the whiteboard, I draw a picture of a couple of houses and I say, “Okay, imagine you paid $1 million for a house and you had $1 million in an investment account. If we took out a half-million dollars from that investment account, instead of it being an undefined $1 million growing at 5%, it’s now half a million growing at 5%. That withdrawal was directly recognized. The beauty of real estate is that if you have a million-dollar house and you owe half a million dollars on it, you still have a million-dollar house growing at 5%.”
And so, if I can tell a client that, “Hey, if we took $600,000 off one house instead of paying cash for it, and we use that 600 to put down payments on two other half a million-dollar homes that you only owe $200,000 on it, now you have $2 million worth of assets growing at 5% where before you only had $1 million.” They may not go out and leverage their HELOC tomorrow, they may not go buy five apartments.
Just that conversation is something most people have never really thought through or understood of how people with money make more money. Just that idea, people’s lightbulb goes off. It’s like, “Oh, that’s how my friend owns 50 real estate properties, he didn’t pay cash for every single one, did he?” And I say, “No, he didn’t, he also didn’t leverage them all to the hilt and probably take too much risk, there was a balance of strategy in that piece.” So, that one perked people up all the time.
Michael: And so I’m going to imagine at this point that you’ve been doing this for many years, you’ve got a list of common areas and items that you tend to get into where there is usually something there if you get into the conversation with them.
Michael: And so what are some of these common areas? It sounds like business entity structures, right? And just some of the tax treatment issues around different types of business entities, the real estate conversation.
Sten: Yep, self-directed IRAs are another one. We’re not recommending it, we’re just telling them something most people don’t know about, that they say, “Wait, I can use my IRA to buy real estate,” or, “I can use my Roth to invest in a startup or give a loan to somebody and get interest back.” We don’t facilitate self-directed IRAs, certain custodians will, but I can almost promise you, most people have never been told by an advisor that they can use their IRA funds to do other things.
Michael: And again, you don’t necessarily worry about the world of, “And then the client actually decides to go and do that and there’s no IRA to manage because they just took it to invest in some real estate.” It’s like, “It’s cool, I’m getting an $8,000 planning fee from this conversation,” and you’re like, “I’m going to do fine with the conversation on the table, so if that’s helpful for the client and helps them actually do what they want to do and achieve what they want to achieve, I don’t have the conflict of, well, if they actually do this strategy, I’m not getting paid because I don’t get to manage the IRA.” It’s like, “It’s cool, I’m getting paid in planning fee.”
Sten: Yeah, and it’s so much easier to refer us because…and I say “us” because I know you think this way too, is if a CPA or an attorney knows that if Michael or Sten meet with a client, they’re not going to try to make them fire every other professional. If your sister-in-law is managing your money in New York, great, I’ll talk with her, we have a common goal. So you’ll get referred so much easier when you can be profitable with the planning fee itself, and what’s amazing is that you get great relationships with people that trust you because you’re giving unbiased advice and not trying to push a product on them.
But one of my top clients was paying me a $7,000 a year planning fee and then he sold part of a construction company and had 10 million bucks. We now manage that money, I didn’t force him to; I showed him some other ideas, but we ended up with, I think, $6 million of it. But I’m still getting a planning fee and then I was able to, in all confidence, say, “Oh, you want to reinvest that in some real estate with a different construction company? They’re letting you buy stock in this new company that’s very large?”
There was a time when I would have – not strong-armed – but maybe tried to talk him out of that when it was actually a good decision, so now I’m able to say, “Hey, okay, let’s put $3 million over there, let’s put four there.” You create these relationships that you will get a bigger piece of the pie, it’s a matter of time, but you’re making great money anyway so you’re not really feeling the pressure to force the timeline like I know I did in the past.
Michael: So, in this first meeting, this kind of whiteboard session, Patrick Lencioni-style, like, “We’re just going to actually start talking about stuff, I’m just going to start putting ideas on the table and if you find them valuable, you’re probably going to want to hire me to help you with that and more. So, I’m not holding back, I’m just actually going to try to find things to suggest and offer up and talk about.” So, what’s the goal at the end of that meeting? Because you said this is not a sales meeting, so what ideally is the outcome that happens at the end or that comes next if this meeting goes well?
The Meeting Structure And Proposal That Sten Uses To Close New Clients [01:03:18]
Sten: So, I get their buy-in to give me the information that I’m going to ask for, probably the last two years of tax returns. It’s essentially saying, “Are you comfortable taking the next step? If so, I’m going to send you a summary of this meeting and show you the items that we need.”
Michael: So, this is essentially getting buy-in to get permission to get the actual data to start going deeper on either of these strategies or whatever else is that we’re going to find?
Sten: That’s right. And if you do this well, and I didn’t for years, but we’ve definitely kind of refined it, a lot of these meetings start with it feeling like, “Sten is there to convince them to do something with him.” As I do more and more of these meetings, I have one later today, actually by the end of the meeting, they’re going to be saying, “Hey, when can we meet with you next?” The hunter has become the hunted if you do it well enough, because you’ve created this urgency of, “Okay, what can we get you next? What’s the next step?”
And I’ll say, “I’ll send you a summary of the meeting and then we’ll get another meeting on the calendar.” Because if you do this well, you’re going to be busy, and so you’re not going to be scheduling meetings the next day, you’re going to have this process of, “Okay, let’s try to get back together next week, between now and then, I’m going to need you to send me X, Y, and Z so I can be ready for that meeting.”
I’ve heard different schools of thought on this, but I don’t wait for the next meeting until they’ve gotten me every single thing. The clients I’m working with are busy, so if of my list of five things they get me four, I’ll say, “Hey, let’s schedule the next meeting and you can bring it in with you,” because I want to keep the momentum going, strike while the iron is hot. So, that’s the goal of that first meeting is to get them to realize, “Okay, yeah, we’ve got to move, what’s next?”
Michael: Okay. So, how does this work in practice, though? It’s still like you get to the end of the meeting, you send them a follow-up like, “Here’s some of the stuff that we need to continue working together.” And I’m assuming at this point, we’re getting into the two years of tax returns, your investment statements, your PNC declaration pages, that kind of stuff is now what you’re asking for?
Sten: That’s right, and so I’ll get that information and we’ll start kind of combing through it. But there is, I’d almost say, 50/50. People are ready to move even before we get all that information, which means they’re ready to pay our planning fee just based on that initial experience. Beyond that, there’s kind of still another meeting to say, “Here’s why, and here’s the fee, and what do you think?” But there’s a chance that they say, “Hey, we’re ready to get going, what’s the fee?”
And if then, we’ll kind of put together a high-level proposal and say, “Here’s what it could look like for the first year,” and that essentially is…the next meeting is more of us prioritizing the action items we talked about at a high level. But it doesn’t necessarily have to take that many meetings because we’ve really dialed it in, and I’ve learned where I can press and show value in a meeting. Because the quantifying thing we talked about a little earlier is harder than it sounds, I was not good at it.
As you get better at it, you’ll be able to do it on the spot. I pull out my calculator and I say, “Well, if you did X, Y, and Z in this, I mean, that could save you $50 grand a year.” “Oh, wow, that’s amazing.” So, the better you get at it, you’re creating the urgency, and then they’re going to want to move forward even faster. I’d say, in practice, if somebody is new to this, you’re doing a whiteboard meeting first, potentially another whiteboard meeting to kind of flesh some things out even further. Don’t feel like you have to rush the process because the client will sense that.
And by the third meeting is when you’ve gathered your information, essentially to be able to go back to them with a proposal and quantify, “Based on a few ideas we’ve had, it probably is going to save you X dollars these two ideas in the first year, our planning fee is going to be $100 a month. Oh, by the way, if you’re a business owner, there’s a good chance that portion of all that fee, depending on what we’re working on, is tax-deductible to you.” And they get really excited about that, they’ll go…people write business checks much easier than they write personal checks, so that’s why I say our business owner market is growing faster than anything.
Michael: Yeah. So, the idea of the…I guess I’ll call it the post-whiteboard meeting, right? It might be the second meeting, it might be the third meeting if you do two whiteboards and get deeper. Nominally, this is the proposal meeting. But again, the proposal for you is not like, “Here’s your portfolio and here’s our portfolio, and here’s a comparison of the Sharpe ratios between the two to show how we have a better risk-adjusted return than what you’re currently doing.” Your proposal is around planning discussions and planning strategies and planning tactics that have come out of the first whiteboard session or two?
Sten: That’s right. And we’ll wait, so the proposal is really an afterthought for us, it’s not this build-up to this big reveal. If you do these meetings well, it’s almost just, “Oh, by the way, here’s what the planning fee is. If you’re ready, you can sign here,” you know? So, it doesn’t need to feel like you’re building to a sale in the third meeting or a meeting should not be dominated by a proposal. We continue to dive deeper into different items. For example, say it was the investments. We don’t say, “Hey, here’s what it looks like compared to ours, work with us.”
We say, “Hey, we’ve analyzed it, and based on benchmarking, we’ve looked around, and here are a few things. It looks like you’re overpaying on fees and your expense ratios are higher than you think. Oh, and you are tax-inefficient; it doesn’t seem like they’ve harvested losses from this account for some time.” So we’re really going into where they could take that advice back to their current advisor and implement it quickly. We’re literally looking to overwhelm the client with ideas and value before we ever say, “Oh, by the way, to move forward with us, it’ll cost you $1,000 a month or $500 a month.” The proposal is at the end of that meeting and it’s, “By the way, if you’re ready, here’s what it looks like, let us know when you’re ready to move forward.”
Michael: And so, in practice, is this literally a written proposal? Is this like a one-pager? Or is this like a five-page template of things that you sort of walkthrough step by step? What do you actually culminate with?
Sten: About four pages. So, I’ve kind of…it was a one-pager for a while but as we’ve worked with some other clients, they expect a little more detail, a timeline, and kind of set an expectation of how many in-person meetings. And so, it’s about four pages now, of which the final page says, “Level of investment,” we express it as a monthly fee or an annual fee, kind of an open page as, “Hey, here’s our philosophy and why we’re different,” and the middle pages are tax planning and we kind of detail, “Here’s what’s going to fall under that, estate planning, investment strategy, and analysis.” So, we’re kind of detailing out at a not too high level where it all sounds like just concepts, but really, “Hey, here’s what we are going to accomplish and deliver over the next 12 months for you.”
Michael: Interesting. And so, just walk me through the…what are the four pages again, just how do you structure this flow?
Sten: Yep. So, the first one is kind of like a title page, here’s the client, here’s the date, here’s our logo. The next page is essentially our process, our philosophy, why we think working with a financial planner is different and better than potentially having an advisor that’s focused more on product. I don’t want to rely on the client to go home and a week later kind of remember all of the stuff that we told them why we’re different; I want to give them at least some refresher. And then, on the third page, we get into the actual areas of planning that we’re committing to.
Michael: Okay, so this is where some of the strategies start really laying out, “We will work with you and your CPA and your accountant to restructure your S corp to an LLC so you can better take advantage of your losses and we’ll introduce you to someone to set up that self-directed IRA because you really actually wanted to invest in real estate using your IRA,” and whatever those items are with, I guess, whatever quantifications you can tag to them. Do you put the quantify stuff here in the proposal and in print, or is this just the things because you’ve talked about the quantified estimate, but this is not a guaranteed projection?
Sten: That’s right. So, here, I pulled one up here with me. So, if it was tax strategies for this particular client, we said, “Research entity structure options and benefits.” Next point under tax strategies: “Coordinate with CPA on potential tax credits.” The third item under tax strategies: “Review current tax planning and provide observations and recommendations.” And then we jump to employee benefit plan analysis, review key main policies and buy-sell agreements, review current employee benefit offerings and benchmark, analyze retirement plan benefits.
Michael: And if we’ve had good whiteboard sessions, you already know these are all pain points for me or points of anxiety because they came up in the whiteboard session, and then I wanted to talk about this further and we had some back and forth. If it was something you put out there and I didn’t respond to it or wasn’t interested or said, “No, that doesn’t fit for me,” that’s cool, you’ve moved on, and that’s not showing up in the proposal here, though, because you’ve already figured out which ones are actually my hot buttons.
Sten: That’s right, and we’ll include some other ones we know were going to come up. If I have a business owner client, I know he’s going to ask me about either setting up or analyzing his 401(k), so there’s a good chance in the meeting I’d said, “Do you have a Roth option on your 401(k)?” Surprisingly, a lot of small 401(k). plans don’t, so I’m able to say…and they usually would say something like, “Well, I make too much money to fund a Roth.” And then I can say, “Well, Roth 401(k)s don’t have an income limit.” “Oh, really? I’ve never heard of that before, of course.”
An extension of that is, “Are you fully funding your 401(k)?” “Yeah, I put $57,000 in this year, but I still don’t know what else to do.” “Well, have you heard of the cash balance plan?” “Kind of, what is that?” “Well, we have clients putting upwards of $200,000 a year in cash balance plans, do you know what that is?” “Well, no.” I stopped there. So, I pique their interest, I’ve told them something they’d never heard of before, but then in the proposal, I’d say, “401(k) plan analysis, evaluate cash balance efficiency.”
Michael: Okay. And then page four is fees – the what it’s going to cost?
Sten: Yeah, we’ve kind of…again, semantics, we call it, “What’s your investment for the next 12 months.”
Michael: Interesting. Interesting, because it just makes the…it just reinforces the point of like, “This isn’t a cost, this is money you’re putting in in order to get an ROI on the planning process in your fees,” which we’ve already been talking about quantifying in terms of, “Yes, it’s going to cost you $800 a month but I can save you $70,000 on this one planning strategy over the next 10 years, and we have 11 things on this page that we’re going to be spending time on.”
Sten: That’s right. And I have some other pretty high-profile clients that have multiple professionals on different levels, and they pay us a flat planning fee a year just to be in the room when they’re looking at different investment strategies and alternatives because we are technically the only one in the room that does not have skin in the game on some type of product. They might have a broker in there, they might have kind of a VC person and they’re looking for some assets, but there’s a market even for a proposal to where I tell somebody, “It’ll be $15,000 a year for me to be on call to help you evaluate the risk tolerance fees and fit of investment opportunities that are brought to you.”
So, the spectrum is so big on the value that can be added. Most of ours are pretty detailed like this: “Business owners, let’s lay a clear path out there.” But as your reputation builds for being unbiased and creative, you’re going to get these clients that just, “I just want you on the team, what does that look like?” And they’re willing to pay more money than you think just to have access.
Michael: So then I do have to ask, you still have a model that you said, at the end of the day, you do advisory accounts as well, in fact, I think you’d actually say like it’s mathematically still the bulk of your revenue. There are some occasional insurance implementations as well for clients that need buy-sell agreements, and you’re facilitating that. So, at the end of the day, you do have at least some, I guess, skin in the game or potential skin in the game because there are opportunities for you to do portfolios or other implementation of things that may have some non-trivial dollar amounts associated with it.
So, I guess I’m just wondering why is that not an issue or how is that not an issue for you that you’re framing it around the clients that pull you in for sort of the neutral Switzerland of the advice fees, but you do have other ways to get paid that added to a lot of dollars that it wouldn’t be nice if they actually do that portfolio thing with you and not someone else, even though you can totally get paid a good planning fee to help them while they do it with someone else? How do you think about that conflict or complication that’s still there as you’re trying to position neutral, but you do have a stake in having them ultimately do some implementation with you?
The Value That Sten’s Firm Provides As A “Neutral” Advisor, Their Implementation Process, The Firm’s Workflows, And How They Scale For Growth [01:15:23]
Sten: Yeah, I think for us – I have to know that based on what they’re doing now that our solution is dramatically better for them in order for us to position an alternative. For example, for years, I managed investments to where I outsourced them; I was technically more of a soliciting advisor and the money was being managed by their advisors or money managers and I had a fee layer in there but it was almost like I was a pass-through.
And we committed years ago to saying, “I don’t know if that’s worth the fee if, I’m getting paid to advise them already, I’m technically double-dipping if all I’m doing is passing that through and shaving some off the top.” So, as I’ve built my team, we manage our portfolios in-house so we can click a button to harvest an ETF, we get the expense ratios down to around 0.25 where a lot of other options are 0.51 or higher.
And so, we’re so confident that that’s a valuable piece, that if the time comes…it’s one of the things where if I see someone’s portfolio and they’re paying 1.5% advisory fee and 1% internal expenses, and I’m just like, “What you’re doing is not right, you need to do something else.” “Hey, we have a solution,” because I don’t want to all of a sudden send you out into the wild west to go find somebody else on your own. “We have a solution for that and it’s best in class, in our opinion, but if there’s a better option, we’ll be the first ones to tell you to do it elsewhere.”
Michael: “But please just get away from the portfolio with 2.5% tolerance fee.”
Sten: Exactly, yeah. But I think for me to feel good about it, we say, “We’re planners first, pay us for our time,” “Hey, we do other stuff, if the time comes, we’re going to show you what that looks like.” But I know within me, there is no sense of urgency because, again, I’m busy enough with what I’m doing that I don’t have to pursue a $250,000 investment account to bulk up our AUM.
Michael: And again, I think that’s an interesting framing or point that there’s no sense of urgency within you because, as you said earlier, you’re getting paid a very healthy planning fee. Again, for so many advisors even who are charging for planning, it’s not profitable at the level we do it for any particular client relationship, so at the end of the day, there’s always some level of urgency to get clients to follow through and do something else and implement something else.
Whereas when you actually get your planning fees to the point that you don’t need the follow through business and there’s no sense of urgency, sort of the perverse irony is that’s when clients actually end up asking you to it and work with them because you actually end up with a healthier relationship with the client because you’re not pushing, you’re not subconsciously pushing because you really don’t need to when you’re getting paid well in the first place.
I’ve seen that over the years, even with hourly advisors, there’s an astonishing number of hourly advisors who start out hourly because they don’t want to get paid for any implementation and they end up building very healthy AUM businesses because they get such a great relationship with their clients, giving them only the advice and getting paid well for it that at some point, the clients have so much trust, they just come and say, “Can I just pay you a separate fee to also do this part for me?”
Sten: Yep. And I think that’s where, me personally, I have to feel so confident that the product we’re delivering for the price we are that, again, if I have that kind of relationship, there’s a moral obligation to let them know there’s a better way. If they bring something to me that’s even better than what we have, I’ll be the first one to tell them, “Hey, you should take that.” But if they don’t, and they don’t want to…a client literally says, “I don’t want to search down another advisor, you’re the one I trust, you’ve done so much for us, would you help me with this?”
I think in good conscience as an independent business owner, you can say, “I have a solution for that, and here’s what it looks like. By the way, we do get paid additionally for this piece and here’s what that looks like.” So, if you’re fully transparent and commit to delivering something of high quality, I think it’s a great business model that will thrive over time.
Michael: So, help us understand now how you actually do the follow-through to implement this planning process with all of this planning-intensive work and a lot of ongoing meetings and at some point, that becomes a bottleneck if it’s just you, so other advisors have to get trained within the firm to do this as well or you get stuck. So, help us understand what the actual process is for the firm? When your client gets a proposal and is like, “Sten, this looks great, I’m convinced, I’m ready to come on board. I’m going to make my $800 a month investment in working with you,” what comes next now?
Sten: So, we’ve had to get better at this over time because I think when I did it early on, I over-committed and undercharged, and then the feeling I would get during the years is I’d sit there and said…I signed clients up in January and in July, I’d be sitting there thinking, “Okay, what did I do for them?” There was a kind of this anxiety around, “Am I following through with what I committed with?” Or this feeling of like, “I need to create something to do for them so that they know I’m still thinking about them.” And all of that was just a lack of a process and setting good expectations upfront.
And so, I have a paraplanner on the team, two other advisors, three staff, to where we use workflows pretty efficiently to where I know there’s a couple of times…in February I’m running a client list to reach out proactively before tax season and probably in August, I’m doing some proactive reaching out to schedule in-person meetings and then my team will do a touchpoint with our clients in kind of mid-year just to say, “Hey, how’s it going? Is there anything we can be doing for you?” Just letting them know we’re thinking about them.
If you sign up a client for a financial planning fee and rely on them to pursue you, you might meet them once a year and your renewal rate is probably going to be pretty low. So, we take it on ourselves to say, “Here are the proactive touchpoints, if you’re a planning client paying us $10,000 a year, we are going to initiate three in-person meetings with you and a mid-year check-in call, but by the way, I’m also going to reach out and meet with your CPA before tax season to make sure everything’s in good shape and also talk to your attorney at least once a year to make sure that nothing’s changed in there.” So, it’s up to us to pursue and try to make sure, “Hey, is there a life event happening? Is something changing?”
It’s really the proactivity of it is what’s going to give them the peace of mind when they say, “Oh, man, you helped me do X, Y, and Z. I didn’t even know that,” “Oh, wait, you’ve already talked to my CPA about funding my SEP IRA? Oh, that’s such a relief.” And you have to keep in mind, throughout the year, you need to document all of this because when it comes to renewal time, there’s two sides to it.
There’s the compliance side of it, which means you need to be able to document, “Hey, here’s how many meetings, here’s how many calls, I delivered enough value for this fee,” but also, you’re making your case for the client of why they need to renew with you. And again, we share all our playbook because I just admit, there are too many people for us to serve and there are more advisors who need to be able to charge for their advice because I believe the 20-somethings – and I was there before – if I knew I could charge, I wouldn’t have charged as much as I do now, but I could have charged something that the extra revenue that would have brought in would have paid my bills.
I just didn’t even know how to start it and what to do and what to charge and what I would deliver for it. And so, we’re kind of at a place where, “Let’s just give that away because there’s enough to go around.” But if you have a good process in place, it removes that sense of urgency or anxiety of like, “Am I doing what I said I would?” or “Am I delivering enough value for them to renew?” And I think a good reminder is that not everybody needs to renew.
It is okay if you get to the end of an engagement and if you feel like you’re creating ideas or value just to get them to renew, you’re their advisor, you may say, “Hey, you could keep paying us, but maybe based on what I see coming up in the next 6 to 12 months, instead of our fee being $8,000, I think it’d be more realistic for it to be $6,000. If something comes up that we’re not expecting, we can always address that. Are you comfortable with that?” “What? You’re going to lower my fee? Okay, yeah, I’m comfortable with that.” You need to continue to hold that posture that the goal of everything is not for you to make more money, it’s deliver great advice, creative advice, and do it in such a way where people are going to say, “Man, they’re different from other advisors.”
Michael: And how do you actually just manage and track all of this? What’s the…?
Sten: So, we use Salesforce workflows.
Michael: These are Salesforce workflows?
Michael: And is that Salesforce out-of-the-box Salesforce, financial services cloud like some other overlay system?
Sten: Out-of-the-box, so this one is kind of what we’ve been really committed to the last year to kind of clean up our data and commit to it. We used for years Trello, which is kind of just a board that can be shared with different team members to kind of track ongoing action items. We still use it for some service items, but we believe if we can commit more to a workflow…and part of the paraplanner on the team, he’s responsible for our financial planning book to say, “Sten, it’s time to touch base with this client.” “Oh, their renewal is coming up in a month,” which is about the time we start positioning for the renewal meeting.
So, if you do this to a small extent, you could do it as, maybe, a single advisor, but I’d say, get a team as quick as you can if you want to scale it because the highest and best use of my time is meeting with new clients and being in the meetings that only I can run. My team can help to service, my team can help with documentation, and that experience we’re delivering is really going to be heavily coming from my team. The ideas and the advice and the in-meeting experience are my responsibility.
Michael: And so, how do you think about that as you look at continuing to grow and scale? What happens when there are so many clients that Sten can’t be in and hold the meetings?
Sten: Yeah, so we’ve just recently promoted our paraplanner, he’s going to start doing advisory work next year, financial planning for himself. We are trying to do that paraplanner role as about a two-year track. I think it’s a great way for people to get into the business if they are ready for the grind, so that’s the position we’re going to look to fill in the near future is a new paraplanner on our team. And so, I think as we can kind of elevate people when they’re ready into this role, if you can enter financial planning with your main source of activity and revenue being financial planning, the other business will come and I think it’s starting the business in the right way, in my opinion now.
Because so many young advisors are out there selling stuff to their friends and family, kind of low-hanging fruit just to make enough money to stay in the business to later look back and say, “Man, I wish I wouldn’t have done that to them.” It doesn’t mean all that stuff was bad, it just they’ll realize someday there was something better. And if our model can help advisors avoid that by actually just getting paid for their expertise…but I put him through a hard track, he had to get a CFP in a year, really, before he could even actually advertise that he had it.
He’s working on his Enrolled Agent information now because I’ve pressed in with him, “Hey, you are the product, I don’t need you to be the best investment guy right now, I don’t need you to be an insurance specialist yet, but I need you to be able to recognize strategy opportunities and position them to clients and feed them into our process. And if you do that well, you’ll make more money than you think you would have and your career momentum…you’ll never look back.”
Michael: So, as you go through this kind of annual process, and as you said, sort of documenting and tracking along the way, so how does it actually work when you come to the end of the year? I mean, you’ve talked about clients renewing, do you literally build up to there’s a renewal meeting and they have to re-up for a contract with another year and if they don’t re-up and renew, they’re not going to continue? Or do they stay in by default, but you still try to do an annual meeting because you just want to reinforce what the value is? How does that actually work?
The Annual Renewal Strategy That Sten Uses With Clients And What Legacy Investment Planning Looks Like Today [01:26:48]
Sten: Yeah, so you’re on the team or you’re not? So, I don’t think we call…we don’t use ‘review meetings’ or ‘renewal meetings’; we call everything a ‘strategy meeting’. I think, again, kind of the psychology of it, it’s like, “Hey, we’re talking strategy. We’re not reviewing what’s happened; we’re looking forward.” And so, if it’s another strategy meeting for the client – I happen to know it’s about four weeks before their one year is up – and in that meeting, “Hey, here’s what we’ve accomplished,” I essentially am making the case, “Hey, in the last 12 months, here’s what we’ve done, X, Y, Z.”
And whenever possible, I quantify it, “Hey, these things we talked about, we actually did it, and here’s what it turned into.” “Oh, by the way, over the next 12 months, here are the things we need to talk about.” “Oh, by the way, it’s time for us to renew the engagement, are you comfortable continuing on?” There was a firm I was with in the past that actually got automatic renewals in place, which was nice, to where your engagement just stayed open until it was canceled.
I think as I’ve done financial planning, I’ve interacted with three or four different compliance departments, so for your listeners, just cooperate with them and work with them because everybody kind of used it differently what you need to deliver what a fair fee is. But when we get to that renewal meeting, “Hey, this is a strategy meeting, here’s what we’re going to keep working on,” and the fact that they’re going to pay us again, it’s kind of a, “We know it’s happening; we’d be surprised if you said no,” is kind of the vibe we’re giving off.
Michael: But compliance in your context actually does require you to at least do something, affirmatively sign something to keep them on board because their view is no open-ended indefinitely renewing fees?
Sten: Currently, that’s kind of the RIA we’re part of, it’s kind of a…again, we’re their biggest financial planning team and they’re a great resource for us so we’re working on that. And so, I’ve seen it where it’s kind of open-ended and I’ve seen it where it’s a, “Hey, we at least need a document once a year they do it.” So, if you streamline your compliance process, take good notes throughout the year. While compliance is necessary, it shouldn’t be debilitating and so we’ll get them to sign a new engagement and again, we can do all DocuSign and so it would say, “Here’s the form, sign it,” and we’re off to the races again.
But if they say no, there’s a chance maybe we’ve picked up enough assets where they become a reasonable client on the AUM side, but more often than not, a lot of these clients are starting businesses, building real estate, they’re not aggressively funding investments with us. And we would just say, “Okay, well, here are some things we would have worked on. When you’re ready, let us know,” and then we’ll take them off our workflow and we’re not pursuing them.
I might have a drip campaign where I say, “Hey, every six months, let’s drip on these past clients to see if they’re ready to sign back up,” but to be honest, we’re busy enough with new business that we don’t really even pursue old clients. Where available, they might be on kind of a drip email list of our newsletter, but we don’t kind of try to keep them on the roster and give the value away for free once they’ve been on it.
Michael: Interesting. And ultimately, this document, you kind of have to manually build, or does this sort of export out of Salesforce with all the different meetings and calls and action on how many things you’ve done? Just how do you actually build the backward-looking review portion of, “Here’s what we did for you over the past year?”
Sten: So, the first version of it is our paraplanner going through the year’s notes, my meeting notes, call notes, and they put together kind of a high-level agenda that matches up with our initial proposal that essentially says, “Hey, we say we’re going to help you with retirement planning, here’s that section and what we talked about.” And so, they’ll give me the framework of that document and then I’ll go through and kind of breed my commentary into it because there are some things I know I just talked to them about or details I can kind of put in there.
But at times, that could be a five-page document. People aren’t buying a book from you of a bunch of documents or reports they’re not going to read. They want like, “Let’s get to the point,” like, “Hey, we’ve established a 401(k), we funded it fully, it saved you X, Y, and Z in taxes, our plan is to continue to fully fund that plan and next year, we’ll evaluate a cash balance plan to see if that makes sense.” Next section, estate planning, “We updated your estate planning to improve the trust language for your kids, we’re going to continue and talk about buying an insurance policy to help pay for estate tax in the future, and we’ll talk about that next year.”
And so, it’s really just a commentary on, “Here’s what we’ve done, and here’s what needs to come next.” And if you can keep it to two, three, four, or five pages, we then put that in a binder for the client that’s essentially, “Hey, here’s an ongoing reminder of all the value we’ve added together.” And we’ve just made the case, but I would tell advisors, “Try not to wait until the last minute and reverse engineer and create this document,” because we did that early on, and it was a lot at the last minute.
Have a process of taking good notes in Salesforce, which we should all do anyway or whatever system you have, but then come up with a good template like we have to where it’s like, hey, by the time we hit that, it’s, click, click, click, we have the process. Because as you build it, I mean, you might have 5 to 10 renewing a month and you’re like, “Okay, we got to have a good system in place.” But it wasn’t that long ago that I was fumbling around and trying to figure this out, under-delivering, undercharging.
I mean, that was four years ago, and I was intimidated, I dipped my toe in the water; I didn’t even jump headfirst. So, I’d encourage advisors that you need to know…you either need to add financial planning to your business because it is the future, it’s growing rapidly. Or at least you need to know what other advisors like us are doing because if you don’t, we’re probably going to take your clients. So, I’d stress the urgency of getting this on every advisor’s radar to some extent.
Michael: And so, what is the overall size of the practice today, I guess, in terms of clients you’re serving or AUM or revenue? I don’t even know how you manage it since you’ve got kind of a blended fee model at this point.
Sten: Yep, so revenue, we’ll be on track for about half a million of planning consulting fees this year. We’ll be at about one and a half million of advisory fees but again, a chunk of those, we’re charging less than we did back in the day at the bigger firms but still a good revenue. And then insurance, I think this year we did maybe 300,000-350,000 of insurance commission.
Michael: And how many clients is this across? How many clients do you work with on an ongoing basis now?
Sten: Two hundred and twenty, I think was the last count. So, when I left the prior firm where I saw a bunch of A-share clients that you just…no matter what you did, you couldn’t fulfill the up-front commitment to 2,000 people. We’ve tried to focus on saying, “Hey, let’s keep client count down, let’s find the people we can really add value to because we know they’re out there, it’s just up to us to go find them.”
And what’s great about financial planning clients is where I used to take a $50,000 investment account and it would be on my roster and I’d eventually be like, “I can’t afford to service them like I wanted to,” a financial planning client, they keep paying you but if they don’t, they’re not a forever client. Where if a client has a $50,000 investment account, I don’t need to go pursue that, they’ll just pay me a $5,000 planning fee and it helps keep my client count from growing to some point where my reputation in the marketplace is, “Oh, that guy never calls me back,” which is something I’ve always wanted to avoid.
What Surprised Sten The Most About Building His Own Advisory Business, The Low Point In His Journey, And How He Discovered His Niche [01:33:40]
Sten: I think for me, it was really myself. It was the beliefs I had early on that were so wrong that were driving all my decisions. And four years ago, I wrote that book, “The Seven Mindsets of Success,” because when I was 28 and received national recognition and then at 30, one of the top advisors in the country under 40 in a cold market, people were like, “What’s your magic bullet?” Like, “Does your family have a bunch of money?” People just couldn’t figure out like, “How are you doing that? Because we’re all trying and working hard and we’re not seeing those results.”
I really had to reflect and say, “Okay, I naturally have a scarcity mentality; I don’t think that’s true, I don’t take feedback very well.” I mean, if it was today when I played basketball in college and they had videos of everything, I would be mortified, I would get in fights on the court. I had this fire in me, this issue with authority that if a referee or a coach tried to correct me, I would fly off the handle and I had to overcome that to realize like, “I need feedback from people, I need to know what I’m doing wrong.”
And so, I think it was really realizing I was the biggest obstacle and then by writing that book and speaking to advisors, I tell them, “What you think is your full potential is much lower than what it really is, and so you need to figure out what things are holding you back first. Are you avoiding discomfort? Do you accept perspective? Do you seek out perspective? Are you asking people to tell you what you’re doing wrong? Or are you getting mad when people try to give you unsolicited advice?”
So, I think there’s this lift to do of advisors saying, “What do I believe to be true? What do I believe my potential is?” And then what I love speaking to advisors about and coaching is, “Hey, here’s where I was not that long ago, I was doing all the same stuff that advisors get frustrated with today but I was able to break out of that and look what I did in three years.” Because I think when advisors hear that story, while it’s slightly intimidating, they know, “Okay, it’s actually possible,” and once we know something is possible, it’s now up to us to figure out how to do it.
Michael: And I note as well, for those who are listening, and this is episode 210 of the podcast, if you go to kitces.com/210, kitces.com/210, we’ll have links out to Sten’s book and some of the courses and other programs that he’s talked about that he’s been building and sharing out to the advisor community. So, Sten, what was the low point for you on this journey?
Sten: When I left that firm, where I was kind of bright-eyed, walked in, and saying, “Hey, I’m going to take over the world and this is where I’m going to do it,” and I was walked out with a box and sitting in an office having nothing, not knowing what to do next, and not knowing who to ask. And I was just about to quit the business and kind of take a traditional route and climb the corporate ladder. That for me, when you start realizing – so I know a lot of advisors are this way – I had a kid on the way and I had a wife, we just bought a house, that the pressures of, “I have a responsibility to fulfill so I can’t chase this dream or take on this risk.”
I was months away from not being where I am today, and I think part of that is why I have a passion for sharing that story. I think when I speak on stages, it’s easy – I’m sure it’s the same way I’ve ever seen you – I’d be like, “Man, that guy has had it figured out from day one,” and I know that’s not true but there’s a tendency to feel that way. I’ve taken the same path that most advisors have, I think I just found some hacks and some strategies that I’ve kind of applied quickly to kind of supercharge that success.
So, I think that was definitely the low point. I think leaving a broker-dealer and moving my book to an RIA was tough, communicating that to clients, so I think that’s part of the business. So, I’ve kind of learned that owning a business is like a chess match and a boxing match all at the same time. And this is true for my business owner clients, it’s like every day I’m trying to make good decisions but randomly, Mike Tyson is going to pop up and punch me in the face. That’s 2020, “We’re trying to do it here, but wow, this is coming up.”
So, I’ve learned to kind of accept that owning a business is hard and things are just not going to always go as planned but now that I’ve settled into that routine and I’ve built established practice, a lot of the risk is gone. But it was at that moment where I had a choice, and I think a lot of advisors do, to say, “Hey, am I willing to go figure out what it takes?” And if they listen to your podcast, they know there are advisors that have overcome a lot to do it. Now, the advisors need to say, “Am I willing to pursue that information and apply it, or do I want to just hope it all works out?”
Michael: So, I am wondering, though, it’s like you’re fired out of the former firm, no clients, empty office, new house, new mortgage, new spouse, a kid on the way, right? All of that burden of responsibilities to fulfill. What ultimately changed or turned it around for you that you are actually still here and didn’t end up being one of the 80%?
Sten: I got some quick wins. I knew I had to get creative, so I snuck into the mailroom at Vanderbilt and put something – and I had to realize, “Hey, who has money and who needs help?” And so I kind of focused on some doctors and found out, “Hey, I’ve realized their disability policy through the hospital was only own-occ for two years, most of them didn’t know that.” also found out there was a company called Eris that would give me backdoor access to the Fidelity 401(k), so I can actually manage the 401(k) while it was still in the 403(b) plan, or manage the 403(b) while they were still working.
So, I found a market niche that allowed me to get some quick wins and it was those quick wins that I realized, “Okay, now I know these people out there, I just have to figure out a better way to get to it,” and so I made enough money to pay my bills for the first year and a half. But I saw the light, I was able to say, “Okay, there’s an opportunity, but I’m thankful for the fact that I didn’t have such a warm market that I could have rested on a steady warm stream of referrals that would have just kept me steady, I had to get creative and do things differently.” And what I realized, thankfully, was that the things I decided to implement were different enough that when people started hearing about it, they referred to it, they wanted to work with it, and it allowed my business to grow as fast as it did.
Michael: And what led you to this particular niche of doctors and tied to Vanderbilt? How did that become the thing out of the clear blue sky while you’re at the moment of despair and on the edge?
Sten: It’s the largest hospital in Nashville, and they happen to list the doctors’ email addresses on their website where many don’t. And so, I was like, “Well, there’s faculty and doctors here, so I’m going to start…” I remember sitting on my couch developing kind of an email drip strategy of saying…I can’t just give them a generic, “Hey, I’m Sten, do you want to meet with me to talk about your money?” I had to give them some nugget to be like, “Wow, I need help with that.” And so, I use the 403(b) example I gave you and the disability to say, “Hey, I work with some other doctors there, they didn’t actually read their disability policy and realize that it was only own-occ for two years, so after two years, they’d have to get a job doing anything.”
And that got me enough response to say, “Hey, I’m going to be near the hospital on Wednesday, can I swing by and just share some ideas with you?” But at that time, I wasn’t doing financial planning, and I look back and I’m like, “Man, if I was able to position a financial plan to these doctors making $300-$400 grand, I wouldn’t have had to try to sell them a DI policy or get their 403(b), I would have just had a bunch of financial plans with a bunch of doctors.” And I think my path would have been even easier if I would have had that offering.
Michael: So, is there anything else that as you look back that you wish you’d done differently? And what do you know now that you wish you could go back and tell you from 10 years ago as you were still getting going?
The Advice Sten Would Have Given Himself 10 Years Ago, His Advice For New Advisors, What Is Coming Next For Him, And How He Defines ‘Success’ For Himself [01:41:16]
Sten: Building a team faster. I did probably do it faster than some when I hired Jamie, my first team member who’s now my practice manager; she’s a rock star. She was probably making what I was going to make that year because I hired her away from another firm, but she increased my capacity to do revenue-generating activity. Because if you get a little bit of flow and you’re doing paperwork and tracking that on your own, you’re going to spend half your time doing paperwork and half the prospecting, I need to spend 90% of my time building my business fast. And so, I could have even done that a little bit sooner where I was a little hesitant to do that.
Michael: Because it feels like such a high-stakes investment when it’s like, “I’m finally making a little bit of money, let’s totally not make that money anymore and hire someone else?”
Sten: Oh, yeah. Especially when you’re married and you’ve been on a budget and you’re then telling your wife or spouse that, “Hey, we’re just starting to make some money but now I’m going to reinvest that back into the business, so we need to keep eating macaroni.” But I think if an advisor can put one more year in of, “Hey, I’m going to kind of keep it lean, and I’m going to bring somebody on to leverage to keep myself available,” you’ll see exponential growth where I think a lot of advisors, they say, “Okay, I’m going to make enough money for me to be comfortable and then I’m going to make another $60,000 on top of that and then I’ll pay somebody to keep myself whole.” That’s not how a business owner or entrepreneur thinks. Most businesses borrow money to start, I didn’t do that, but I just didn’t do fun things for myself for a little while longer to kind of build that up.
Michael: So, what advice would you give to younger, newer advisors that are looking to become a financial planner and start a firm today and they are thinking about going down your path of hanging a shingle in their 20s?
Sten: Yep, I’d say study up, I’d say get your CFP. You are the product. If I was going to get a high-risk surgery, I wouldn’t find the person that barely passed their medical exam; I’d find somebody that’s really good. If I was being sued and about to go to jail, I’d find the best attorney. And so that’s the kind of profession that we need to be on par with to say, “Take it so seriously that you are the professional and you’re going to deliver a great product.” But I’d also challenge advisors, I’d say you need to surround yourself with other top advisors because what’ll happen naturally is you’ll kind of end up on an island or you’ll be in an office with a few advisors and it’ll start kind of looking and feeling like each other.
You need to go outside of that and surround yourself…don’t recreate what I did over the last five years. If you can go get it today and learn all that, why would you do it in five years if you could do it in one? So, I think you need to realize it’s already been done, people are actively doing it now, the only thing you have to do is go find it. I think that’s much less intimidating than, “Hey, go do something that you have no idea what to do and create it by yourself and hope it works out,” and I think, unfortunately, that’s what most people do.
Michael: So, what comes next for you? What are you working on right now?
Sten: So, I’ve spent quite a bit of this year building out what we’re calling the Elite Advisor Network, where it’s just advisors getting access to our team, best practices, “Here are some videos of things we’re doing,” but then they’ll connect with other advisors that are doing different stuff. And I think there’s a need for more of kind of what you’ve been building, where it’s just like, “Let’s bring advisors together. We’re not all competing; here are best-in-class ideas.” Michael Kitces does not need to have a podcast and create content, but he wants to and I think that we need more advisors that are willing to kind of give that stuff away.
And then we’re working on some new kind of financial wellness technology. I have kind of a heart for, if I can deliver unbiased ideas to everyone whenever they want it, I think that helps people make better decisions all the time. So, I used to think really small, and that was just a product of how I grew up and I’ve challenged myself and through experience. I’ve been like, “Hey, I think I can think bigger.” And so, I think going into the next season, there’s something freeing about keeping your head down for three or four years, building a business that’ll take care of you and your family that all of a sudden frees you to think bigger.
And I think that should be the goal is, hey, build a great business that serves people well but don’t be afraid to pick your head up and look around and say, “Hey, there’s some other stuff to be done here.” We opened a donor-advised fund that we fund as a business, and now we give it away. And I put this in “The Seven Mindsets” book that if the only reason you’re building your business is to make more money from yourself, you’ll probably quit at some point.
I think the only thing that kept me going in that hardpoint, in addition to having a family to take care of, is that I knew I had three sisters and a single mom that I could help and those were my ‘who’. It’s kind of start with your ‘why’, I say start with your ‘who’, why are you doing this? Because most of us will quit on ourselves when it gets hard, but if I look at a picture of my three sisters and mom, then I say, “Well, I’m not quitting on them, though.” And so, I think it’s why are you doing it and realizing that your potential is far greater than you think.
Michael: I love that framing, “Don’t start with your ‘why’, start with your ‘who’ because you won’t quit on them.” So, Sten, as we wrap up, this is a podcast about success and one of the themes that always comes up is just even the word success means different things to different people. And so, you’ve had this incredible growth over the past few years and now a multi-million dollar revenue advisory firm, but how do you define success for yourself at this point?
Sten: Coming from where I came from, I think I had the tendency to where it was kind of accumulate, accumulate, accumulate. And so, luckily, I have a sister who’s a missionary and good people around me who have kind of said, “Hey, make sure you focus on the right things,” and so I think at this point, it’s kind of multiplying the impact. I have people asking me, “Sten, why are you giving away the practice ideas you built over five years?” Where it’s like, “Hey, I think I don’t just need more,” I think that if that’s your goal, the number is never satisfied. So, I think if I look forward and two years from now, I’m helping 300 financial advisors scale their practices and create a life and impact 100 of their clients, at that point, the numbers are…I think that’s meaningful and I think those are the things that will kind of fire me up for the next 10 years.
Michael: I love it, I love it. Well, I can’t wait to see…
Sten: I’m just trying to keep up with you, brother.
Michael: We’ll try to help it get going for you. So, again, for those who are listening and just want to learn and see more about what Sten is building, this is Episode 210, so if you go to kitces.com/210, we’ll have links out to all the stuff that we’ve been talking about today. But thank you so much, Sten, for joining us on the “Financial Advisor Success Podcast.”
Sten: You bet. I had a great time, thanks.
Michael: Likewise, thank you.