Welcome back to the thirteenth episode of the Financial Advisor Success Podcast!
This week’s guest is Steve Lockshin, a founder of AdvicePeriod, a Los Angeles-based advisory firm that serves ultra high net worth clients. So if you’ve ever been curious to hear what’s involving in serving clients with tens of millions of dollars of net worth (or more!), and charge financial planner retainer fees that could start at $100,000 and go up from there, you won’t want to miss this episode!
What’s fascinating about Steve, though, is not simply his success in serving ultra high net worth clientele, but his path as a serial entrepreneur who has founded several businesses in the advisory industry. His prior advisory firm Lydian Wealth Management, which also served ultra high net worth clientele and had more than $7B of AUM, was acquired by City National Bank. And the performance reporting software solution he co-founded, Fortigent, was acquired in 2012 by LPL Financial. And currently, Steve is also a part of AdvicePeriod for Advisors, which gives independent advisors access to AdvicePeriod’s branding, tools, and resources, for those who want to use his tools while maintaining control of their own advisory businesses.
In this episode, you’ll hear how Steve first created and sold a software company without a background in programming, and then got started as a financial advisor without any experience in the field either. In fact, his story is a fascinating example of true entrepreneurialism – of someone who sees problems and gaps to be solved, and then marshals the resources necessary to create a solution (and a business around it!), while continuously looking for new opportunities as a lifelong learner.
And be certain to listen to the end, where Steve shares his thoughts on what he thinks is the single most important choice an advisor has to make in building their own advisory business (or shaping their own career trajectory), to be successful in the long run.
So whether you’re curious to get a glimpse of what it takes to serve ultra high net worth clients, or just want to hear the perspective of a true financial advisor entrepreneur, I hope you enjoy this latest episode of the Financial Advisor Success podcast!
What You’ll Learn In This Podcast Episode
- Where the name AdvicePeriod comes from, and how it informs the way they serve their clients. [7:32]
- The flat fee structure Steve uses with his ultra-HNW clients. [9:38]
- Why Steve doesn’t fear robo platforms, and even offers discounts to clients for using them, while focusing on giving even more value on top. [12:49]
- How investing today is like joining a gym, and why people are still willing to pay a premium for advisory services even if they could do it themselves. [13:49]
- The 4 techniques Steve uses for ultra-HNW estate-planning to create enough value for clients to easily validate the cost of what can be a 6-figure retainer fee. [20:30]
- Where to find high net worth clients when you’re first getting started, and how Steve gets most of his clients today. [27:26]
- How Steve balances his time between the B2C and B2B sides of his multiple businesses. [42:40]
- The two paths you can take as a financial advisor, and how to get started in the industry. [1:01:22]
- The advice from his mom that informs Steve’s definition of success today. [1:10:15]
Resources Featured In This Episode:
- Steve Lockshin – AdvicePeriod
- AdvicePeriod for Advisors
- Financial Advisor Success Episode 001: Rick Kahler on Entrepreneurial Persistence & Building a $200 Million AUM Practice
- Get Wise To Your Advisor by Steve Lockshin
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Full Transcript: Succeeding As A Serial Financial Advisor Entrepreneur Serving Ultra-HNW Clients With Steve Lockshin
Michael: Welcome, everyone. Welcome to the 13th episode of the Financial Advisor Success podcast. My guest on today’s podcast is Steven Lockshin. Steve is the cofounder of AdvicePeriod, an advisory firm based in the Los Angeles area that serves ultra-high-net-worth clients, the kind of folks that have tens of millions of dollars or more. So if you ever wondered what it is an advisor does to justify a $100,000-dollar-plus annual retainer fee from the super wealthy, you’re going to love this podcast episode.
But the fascinating thing about Steve is not simply his success in building what actually has been more than one advisory firm serving ultra-high-net-worth clientele over the years. But the fact that he’s a serial entrepreneur who’s also founded several businesses in the advisory industry as well. Including some very successful ones, like Fortigent, which was ultimately bought by LPL, as well as some that have failed. Because that’s the reality of entrepreneurship, they don’t all work out.
The binding theme to all of it though is Steve’s insatiable curiosity as a lifelong learner, which got him to the point of advising the wealthy on advanced estate planning strategies, despite not having any background as an attorney or a CPA, and being the cofounder of a successful technology firm, despite having no background as a software developer. And be certain to listen to the end where Steve shares his thoughts on what he thinks the single most important choice an advisor has to make about their own career trajectory or role in their business if they want to be successful in the long run.
And so with that introduction, I hope you enjoy this episode of the Financial Advisor Success podcast with Steve Lockshin.
Welcome, Steve Lockshin, to the Financial Advisor Success podcast.
Steve: Thanks for having me.
Michael: I’ve been looking forward to recording this episode with you because you have what I think is a really interesting career as a serial entrepreneur in the world of financial advisors. You founded a firm and sold a firm, and founded another firm, I guess, as almost a side project, which I’m sure you can tell us more about. You kind of made a technology solution on the side that LPL ended up buying for a rather sizable number. So you built a lot of stuff and I think it would be really cool to hear some of the story of what you’ve done. But as a starting point, maybe you can just paint a little bit of a picture for everyone of who is Steve Lockshin, what do you do today?
Steve: Jeez. What do I do today? Today I do two things. I spend half of my time working on what I would call creative solutions, I’ve even gone to calling the team that works directly on the clients that I serve as a lab. We like the complex client where there are creative solutions, very tax-driven. And so that’s about half the time. And the other half is imagining what the business will be like in the future and trying to deploy things today, specifically technology, that will help us get there faster.
So arguably I’d say I’ve been early often, which can be painful and certainly not always right in some of the things that we’ve tried, but it has kept us, I think, on the leading edge of the business.
Michael: So when you talk about doing creative solutions and your team is like a lab though you’re not talking about technology innovation, we’re still ultimately talking about financial planning, financial advising, something to that effect? What do you call it?
Steve: I think it’s a little bit of both. Because how we use technology, I’m sure we’ll talk later about Betterment, but we were early adopters, the early adopter, in using robo for clients, at least the robo as we define it in the industry today. And so I think to a certain extent that’s a little bit of technology innovation not through creation, but through adoption. And then there certainly is stuff from a creation standpoint because we will become the cement between solutions and help them talk to each other. So having folks internal that can build to APIs and actually get disparate systems working together are things that we do internally. So there’s a lot of asking, “Well, why can’t we do that?” And then just figuring out how to do it.
Michael: So tell me about the advisory firm itself. What does that look like? How big are you guys? What does the staff look like? How does that business run?
Steve: The business has two parts to it. There’s the core business of the lab, if you will, which are clients that, for the most part, I bring in, I work with, some of my other partners will generate some opportunities. When I say “partners,” founders. The team that works on that includes some folks that have worked with me for a long time and some newer folks. It’s trial by fire, not to mix metaphors, but as they jump into the deep end of the pool. Because we don’t look like a normal shop. So one of the young ladies who works for us came from JPMorgan, she’d been in the business nine years, she’s like, “I’ve never seen anything like this,” the things that we do. It’s not babysitting clients, putting them in local products, and then doing quarterly reviews. It’s a very, very different solution.
And then the other half of the business is another twist on what we did in the past, which is creating solutions and making it available to other advisors, which you alluded to with Fortigent sold to LPL. That business takes all the things that we work on in the lab that we feel are mature enough to push out to other folks and we’ve brought on partners that use our brand and use our solutions and believe in what we believe in, in terms of how we bill and how we service clients, and allow them to do that and we take a piece of their revenue to do so. And we can talk more about that if appropriate.
Michael: So like a TAMP style structure or like a platform business?
Steve: I call it a franchise business, even though it is not a franchise. And the reason I call it a franchise is if you go to Domino’s and you buy a franchise or anywhere else, they’ll give you the branding, they’ll tell you how to make the pizza, they’ll tell you how to run your business, and it turnkeys to a certain degree, but you own your business. We are almost exactly like that. If you want the branding of a United Capital, you have to sell your business to United Capital. If you want to leverage Dynasty or LPL, then you have to run your own brand and run your own business and run your own compliance, but you can use some of the tools. We picked a place in between where we create all the tools and the brand, but effectively allow the advisor to own their business. So if they want to walk because we’re not doing our job, then they walk and we help them take their entire book of business.
So our agreement is you own your clients. And we help them do it so that they can have a capital transaction later. We think it’s a different offering and that also speaks to how we think about capitalism.
Where The Name AdvicePeriod Comes From, And How It Informs The Way They Serve Their Clients [7:32]
Michael: What’s that platform called, if people want to look it up and learn more?
Steve: AdvicePeriod for Advisors, so ap4advisors.com is the website.
Michael: Because AdvicePeriod is the name of your advisory firm, as well. So there’s AdvicePeriod the consumer-facing business, and then there’s AP for Advisors, which is the B2B side.
So talk a little bit more about AdvicePeriod itself. You’ve said you’re a different kind of firm, you brought someone in from JPMorgan who said, “Wow, you guys are a different kind of firm.” What does that mean? What do you do that’s different? Who do you serve that’s so different?
Steve: There’s a number of things I think are different. One, when you ask who we serve, the clients that we typically serve are the ones that make up the majority of our revenue for that part of the business, tend to be very high-net-worth people, where tax strategies can be a very big fulcrum for them in terms of what I’d call the family balance sheet. We like complexity. We also like folks who appreciate technology. Because we deploy a lot of tech, so we went paperless.
Michael: So when you say “very high-net-worth clientele,” because that still means different things to different people, is that people with $5 million? Is that people with $50 million? Is that people with $500 million? What is a high-net-worth clientele look like to AdvicePeriod?
Steve: $50 million to multibillion. But where I was going to go with that is we also have no minimum. So because the technology, I was telling someone, I literally went from a meeting where someone pays $1,000 a year, which I wanted to bring them on because I thought they were nice young folks and had tremendous opportunity and they enjoy technology and I like working with younger up-and-coming folks, to a client that has a billion dollars, and those were back-to-back meetings. And I got an equal charge, while not equal compensation. I got an equal charge out of working with both.
The Flat Fee Structure Steve Uses With His Ultra-HNW Clients [9:38]
Michael: So how do you charge, particularly when you’ve got clientele that span that wide of a spectrum? Are you an AUM model that just tiers down really far as the net worth gets to be like 8 and 9 and 10 digits long?
Steve: That’s the second place where I think we’re different than most. So if a client is still in the accumulation phase, but has less than $10 million their basis points. And the main reason is we don’t know how complex their lives will become, but we do know that as you start saving to when you start having meaningful assets your needs change dramatically from a service standpoint. But once they’re either above $10 million or out of the accumulation phase, so they could be someone who retires with $2 million or they have greater than $10 million, we charge flat fees. And the flat fees are very transparent. We have a calculator that looks at the size of the net worth, the size of the liquid assets, and the role that we’re playing for them in the complexity, and kicks out a flat fee. And that’s what we charge, and it increases by 3% a year.
Michael: Interesting. And the increase is just an automatic escalation that’s built-in?
Steve: Yes, to cover wage inflation.
Michael: So when you’re setting these fees, you said you’ve got a calculator kind of tool. Are you pricing some kind of proxy for complexity, like, “Hey, you’ve got more businesses, so I’m going to charge you more,” and things like that? Or is it kind of scaling more directly off of net worth, like, “We charge a retainer fee, but functionally it’s 0.2% of your net worth structured as a retainer that you will pay?
Steve: So we believe that portions of our business are becoming ubiquitous. Which, by definition, should mean commoditize, but there’s definitely an information barrier for folks. That being said, we also think that the difference between a client with X net worth and a client with 5X net worth, the work is not that much more complicated. So we cap each segment, which is how we end up with the flat fee.
Michael: So I might pay a percentage of my net worth, but up to a cap, and then a percentage of business value is up to a cap and things like that to get to sort of a scaling fee, but one that doesn’t just go up indefinitely as net worth rises?
Steve: At the initiation of the relationship we will tell them what the flat rate will be, based on the calculator, and that’s what’s built into the contract. So I might run the calculator on you and say, “Because you’re net worth is $100 million but you only have $20 million of liquid net worth, there’s part that’s charged on if we’re doing estate planning with $100 million net worth, which will cap out very quickly. Then there’s a part on the liquid net worth for asset management, and there’s a discount if you are willing to go on an automated platform.
Why Steve Doesn’t Fear Robos, And Even Offers A Discount To Clients For Using Them [12:49]
Michael: And a discount if you go on it? “So if you will deem to just let us put your assets in Betterment instead of doing fancy investment management stuff, we’ll charge you less”?
Steve: Exactly. Because our work is less.
Michael: That’s certainly an interesting one. In a world where most advisors are afraid that robo, using an automated robo platform, will cannibalize their business, you openly encourage it and price a discount for it?
Steve: We do. And I think part of that is hopefully not overconfidence, but I’ll say confidence that the other services we provide yield enough value to warrant the fee. Although we’ll talk about a story that we learned recently around this. I’ll tell you a lesson, it was not a story. And we think that the information should be out there. If we truly are fiduciaries, we should provide our clients with all of the information so they can make an educated decision. The last thing I want them to do is show up and say, “Well, I can get this thing online for 15 basis points, why am I paying you X?”
How Investing Today Is Like Joining A Gym [13:49]
Michael: To which you’ll say instead, “We’re going to tell you you can get it online for 15 basis points, but you’re worth $100 million. So either you can screw around with it at night for a couple of hours in your not actually spare time available or you can let us do it for you and it’s part of our flat fee.”
Steve: That’s the story. So I would say I start every discussion with someone new, when it comes to the investment side, with the following story. That investing today is like joining a gym. You can join a gym, you pay a low monthly fee. If you show up religiously, you’re disciplined about it, and you follow the placards on each of the machines, and occasionally read online how to exercise properly, then you’ll get about 90% effectiveness out of it and it will be low cost and simple. However, there’s a segment of people that don’t want to read the placards, that are not disciplined, or want to take it up to 100%. And they elect to use a personal trainer at the gym and the fee for a personal trainer is usually four to five times the monthly fee. That’s the difference between robo and, let’s say, what we do just on the investment side. You don’t need us. But if you want to use us, make a conscious decision that you are using us and what for.
Michael: How often then do you get clients that just kind of say, “Well, whichever one is going to give me better results”? Right? Like, “If you tell me you got a fancy investment process that costs me more, but you’re going to get me better results, I want that. And if you tell me you got a fancy investment process that doesn’t do anything for me, then you’ll seal your own fate and I’ll use your discount robo solution.” Like do they start pushing you about performance and start saying, “Well, tell me which one performs better and that’s the one I want”? “Because I don’t actually care whether you charge or less, I just care whether I get more or less as the client.”
Steve: We usually don’t end up with that conversation because people have made a decision that they want an advisor before they come in the door. It’s like somebody coming to a car dealership. One out of three buy because they’re already interested, that’s why they stopped in the car dealership. So for us it doesn’t happen frequently. Although I had a 26-year-old Snapchat engineer in a couple weeks ago and went through this. And he’s fairly disciplined, young, single, is going to end up with about $7 million, assuming the price holds its head. He may end up doing it on his own, but they’re very appreciative if that’s the case. And the truth is it’s better for us if they don’t come on board if that’s really what they want because they ultimately would leave. So we want people to opt in.
Michael: So what do these flat fee structures look like? If someone comes in, they’re like, “I got $100 million, and $20 million is liquid and the other $80 million is tied up in my business that I founded and we’ll have a liquidity event someday. And I’ve got all these advice needs,” and probably a lot of estate planning needs. What does a $100 millionaire pay for AdvicePeriod services?
Steve: Depending on what we’re doing, and I’ll give you a relatively wide range, let’s say it’s going to be between $100,000 and $350,000 a year. Again, depending on what we do. And so maybe this is a good place to go into the story, or the lesson, that we had recently.
Some tech folks, I won’t say the name of their company, but they sold to a public company in their early 30s. Each walked away with about $35 million after taxes. We met them about six months before the transaction and they hired us. And they hired us predominantly to do the estate planning. Which we did, and we did very well, and got everything out of their estate into generation-skipping trusts, for all intents and purposes. So, knock on wood, so far it’s been a very successful estate planning piece. And the quote we gave them, they were actually three to begin with, was, I said, “If it’s just one of you, it’s $200,000. If there’s two of you, it’s $175,000 each. If there’s three of you, it’s $150,000 each.” So they all came on board.
Michael: Collaborate with each other for a group discount.
Steve: Exactly. And the transaction consummated and we had the liquidity, we put them 100% in Betterment. So large chunks, $15 million each roughly, in Betterment. So two years into it we’ve gotten through a lot of the planning, cleanup, transactions, we’ve got them automated, we did all their estate plan, they’ve got an online vault, their balance sheets are automated. We really have made their lives simple. One of the founders is very pragmatic and he called me up and said, “It seems like the work you have to do is a lot less than the original work and it’s hard to justify the fee.” And I’d say in other circumstances that probably would have bothered me, but it actually just made me intellectually curious if either, A, this was a unique circumstance or, B, this is the future of the industry.
Michael: Kind of like the doctor model, right? You’ve got a problem, you come in, we do the surgery or whatever it is, but after that you don’t stay on retainer with the surgeon five years after he does the surgery with you. At some point you’re all better and you move on with your life.
Steve: Right. And so I stopped and went back and ran the calculator as if they came in that day where all their estate planning was complete, and the number was about a third of what they were paying. A little more than a third, between a third and a half. Because one had more complexity than the other. And I went back and lowered their fee by almost two-thirds, and didn’t feel bad about it at all. And we all feel great because that’s the appropriate fee for the work that we’re doing.
Michael: Now do you otherwise have a process where you update the client’s fee, like you run them back through the calculator? Aside from circumstances like this where clients raise the issue. The standard operating procedure is simply you sign up, you come on board, you get whatever your fee structure is based on complexity and assets and net worth and the rest, and then we do the 3% a year increment, and that’s that and you normally would just be on autopilot for 3 or 5 or 10 years, or however long it runs?
Steve: I think that’s the bulk of the clients are on that program. Mainly because we tend to be lower cost than our peers regardless and provide more services. And that’s, again, where technology has helped out. But if fees are getting adjusted, which they do periodically, it’s usually down because our work has gotten much easier.
Michael: Successfully put yourself out of some fees.
Michael: By helping them, again, get their lives simpler.
Steve: And you couldn’t ask for a better advocate after that. How many folks say, “Well, my advisor came to me and reduced my fee by 50%”?
The 4 Techniques Steve Uses For Ultra-HNW Estate Planning To Create Enough Value To Justify A 6-Figure Fee [20:30]
Michael: So I’m sure there’s a bunch of people that are still listening and wondering, “What the hell do you do in service to a client to earn a $100,000, $200,000, $300,000-dollar annual retainer fee?” What do you have to do to get paid that kind of money and justify your fee?
Steve: The estate planning fulcrum that I mentioned, the tax fulcrum. And it’s a relatively simple question to say to someone who is in an estate taxable situation. Your money goes to one of three places: your heirs, charity, or the government. And unless you’re giving it all to charity, our job is to help disinherit Uncle Sam. And the numbers are very, very large.
And so if you look at the gyrations that investment advisors go through to earn an extra 1%, where I’d argue more often than not they remove 1% from the portfolio as opposed to add 1%, it has no real meaningful impact relative to what they can get in a normal beta portfolio. Versus if you create an estate tax savings on day one, and let’s assume there’s no leverage in it and we haven’t done anything fancy and all we did was get a dollar out of the estate, there’s a 40% return on that dollar. You cannot make that up with investment return.
So being interested in taxes and coming up with solutions are things that add multiples of value to our fee. And so very often we will pay for ourselves for eternity in the first year. And the key is just make sure the clients don’t forget that.
Michael: Yeah. Right. Otherwise, as you noted, they’re like, “Thanks for that great stuff you did for me years ago, but remind me again what I’m paying you for now.” So this is GRATs and IGITs and just all those kinds of, we’ll call them, high-end estate planning strategies that still matter a lot for people that are well above the roughly $11-million-dollar exemption with portability right now, that’s the kind of stuff that you’re talking about?
Steve: That’s it at a basic level. I’ll give you two other examples, and this is where you get creative. Because I call estate planning MacGyvering, there’s only four techniques for the most part. You just have to know how to MacGyver them together into a spaceship.
Michael: And what’s your four techniques, how do you frame them? That’s an interesting way to put it.
Steve: Well, you’ve got freezes. So GRATs you mentioned, sales are freezes. And then there’s discounts, so how do you make something small before you transfer it out of the estate so you get some leverage out of that. And then there is just, “manipulation” is the wrong word, but the understanding of the various tax laws and jurisdictions so you can accomplish what you need to accomplish. Because a single person not married may have a different set of needs than a married person.
So two simple examples. Yesterday somebody who runs a family office for a billion-dollar client came in, and this client doesn’t live in California, and none of the beneficiaries live in California, but the trustees live in California. And California law is such that if the trustee or the grantor or the beneficiaries live in California, California’s long arm reaches in and takes out their 13% tax. Well, it was, “Get me out of California.” And, by the way, they had one of the top law firms handling their stuff who says, “We can’t.” It took us about 10 minutes to figure out how to do it and we got them out. And so they’ll save millions of dollars in taxes. So that’s huge leverage that pays dividends forever.
Or a public company CEO, so understanding all the Section 16 stuff is one of our fortes, who in 2009, when his stock was in the dumper, we did some GRATs and wanted to get a certain amount of money out, and very quickly because the stock came back. We had doubled the amount he wanted out of his estate, but he still had almost a year to go on his GRATs. Well, if you’re an insider, you can’t short the stock, you can’t hedge the stock, he didn’t want to short a basket of his peers because he didn’t want them to find out. So we came up with the idea of doing an intra-family European cashed-settled put on the S&P 500, which is a non-taxable, non-cash transaction. You just have to understand all the various nuances of derivatives, tax law, Section 16 issues, etc., to do things like that.
And so those are the kinds of things that we do. And sometimes I make it sound simpler than it is, but to us it seems simple because that’s what we’re immersed in.
Michael: And then the fourth category? So freezes, discounts, use the laws as they’re written to your benefit. And what would your fourth category be?
Steve: Sorry, I put skip and non-skip freezes were the first two.
Steve: So GST and non-GST transactions. Because they have different pros and cons.
Michael: Right, right. Okay. Very cool. So how many people do you do this for in the aggregate? How big is AdvicePeriod? I don’t even know how you measure it. Obviously the industry standard is to talk about AUM, but you’re in kind of a quasi-retainer fee model that’s kind of tied to assets, but it’s not an AUM fee. So I don’t even know if you measure on AUM or do you look at other metrics to classify the firm?
Steve: The number one thing you look at is EBIT, but at the end of the day I think the…and I’ve always looked at revenue across the industry. Because even at the old firm, by the time I left I think we had gotten probably a third of our clients retainer type fees. So that isn’t just AdvicePeriod, it’s been my belief for a long time that that should be the case.
Michael: So can you share how big is the firm by AUM or revenue or clients, or how do those numbers interrelate?
Steve: On the lab side of the business I’d say there’s roughly 100 clients. And probably somewhere in the neighborhood of a third of those make up 90% of the revenue.
Michael: Okay. The good old 80-20, give or take a little, still applies.
Steve: Exactly. And then on the overall AdvicePeriod, because AP4 really is AdvicePeriod for the advisors, we have many hundreds of clients. But you have to remember we are turning three in about a week, so we’ve grown at the end of each year, in December of each year we’ve grown 100% in revenue every single year. And I suspect we’ll do it yet again this year. And it’s easy when you start from zero. But using the first number, which got into the millions, we doubled, and then we doubled again, and I’m pretty sure we’ll double again this year.
Where To Find Ultra-HNW Clients [27:26]
Michael: I’m curious then. You talked a little about the kinds of things you have to do to justify a $100,000-plus retainer fee, which I get. “Hey, in year one I saved you $10 millions of estate taxes, so let’s talk about value.” Where do you find these people? How do you get in front of 100 millionaires to tell them how you can save them 40% of their assets in estate taxes? How do you get to those kinds of clients in the first place?
Steve: I’ll give you the early story. The late story is easy because it’s all referrals. There’s the network, the billionaire boys club network that know each other. And you do good work for folks and they talk about it. But that’s easier said than done because…
Michael: It’s like, “Okay, how do you get into the club?”
Steve: When I first started I didn’t know any better, so I just went after big accounts because I figured…and big accounts for me then was $2 million was our minimum, this is in 1994. I figured it would be just as easy to hear “no” from someone with $2 million as it was from someone with $200,000. And I remember doing cartwheels when we got our first $5-million-dollar client. And it just mushroomed.
Michael: You may get almost as many nos from a $2 millionaire as a $200,000-aire, except anytime someone says “yes” you get a 10 to 1 kicker.
Steve: Exactly. And then we just kept going from there. And I think it’s a relentless pursuit of tangible solutions so that we can demonstrate, “Here’s what we did for you and why we’re different than everybody else.”
Michael: So you’re not just out there with sort of networking to say, “I’m a financial advisor,” or, “I’m a private wealth manager,” or whatever the label du jour is. You would be leading with, “Hey, we help executives save $10 million on their option liquidity event,” as an example, that kind of stuff? You would lead with the strategy as opposed to leading with the “we’re a private wealth management firm”?
Steve: Yeah. If you’ve seen a picture of our office or you go to our office, we look like a tech shop. It’s all open-desking, all Macs, sayings on the wall, instead of having oak paneling we have a quote from Wedding Crashers, people are in tennis shoes.
Michael: A quote? I’m kind of curious.
Steve: I forget. God, now I got to remember which rule it is. “Rule number 72, play like a champion.”
Steve: So we look like a tech shop and clients walk in like, “Wow, this is different.” Or even if it’s the dog and pony show where they’ve invited four firms in and it’s a consultant, some Wall Street firms, us. We come in wearing Lululemon and tennis shoes and maybe didn’t shave that day. And the first three say, “I can get you a better asset allocation and I can get you access to managers the other three can’t,” which is all a lie. We go in, listen to their problems, and, pardon the expression, but we’ll vomit answers all over them in terms of, “Well, you can do this and you can do that and you can do this.”
So the family office guy who came in yesterday has been working on this tax problem for years. And I said, “Well, you just do this, do that, and it’s fairly straightforward.” He’s like, “Well, I’ll pay you whatever you want if you can make that happen.” I said, “Well, it was easy, you don’t need to pay us whatever we want, we’ll figure out if we add value.”
So we just take a very, very different approach to what we do, how we bill, our name is different. It isn’t three names on a placard. It’s, “We provide advice, that’s at. Advice, period.”
Michael: And thus the name. So where do you even learn the strategies like this in the first place? How do you get in the know about ultra-high-net-worth strategies and how to transition a trust situs so it’s not tied to the California trustees? Where do you learn this?
Steve: It’s somewhere between a lot of reading, a lot of experience, and a lot of curiosity. And I was fortunate in that my career path took me through a bunch of different twists and turns that added to the experience. So way, way, way back when I was in the insurance business for very high-net-worth folks and we had a lot of public companies’ execs that we did work for. And so I learned anybody could sell insurance, and the pricing was generally the same, so the only way you really get the business is figuring out the tax strategy. So that started the interest in tax. And then we started doing a lot of concentrated position-diversification and hedging. And so let’s say you get derivative knowledge from there.
But it’s doing it. I don’t play Dungeons & Dragons, I don’t even know how. But from what I’ve seen you got to learn a whole bunch of rules, and then you know how to play the game. And that’s basically what this is, it is learning rules, and then understanding how to apply those rules productively. And that’s where a lot of lawyers fall short. They know the rules, but they only see in a linear fashion and they do one or two things and stop, they don’t see it in a three-dimensional model and go, “Well, you could do this interlinked with this and this, and here’s the result that you get.”
I may be the only person that doesn’t have a graduate degree, same thing in my family. But I’m curious. I joke that I have been practicing law for 25 years, I just can’t be disbarred. But the truth is we work very closely with a number of law firms. And there are only a handful of folks that we truly respect that think and are proactive the way we are. And we work very closely with them and it helps because they now become an extension of us and we have them in formulating solutions for clients.
Michael: So can you talk a little bit about how you did get started? I think you said you got going in the industry in ’94, early ’90s, so take us back to the beginning. How did you land in financial services to begin with?
Steve: I really landed in financial services when I got sick at the beach my senior year of high school. And my girlfriend’s father’s tennis partner had a place and I was kind of stuck there. And so he was a senior vice president at Legg Mason and their top producer, and I got to know Marvin McIntyre, who’s now a very senior person at Morgan Stanley, because I was embarrassingly stuck on their couch for a day or two. And about a year later I called him up, I’d seen him maybe once or twice since then, I said, “Mr. McIntyre, Steve Lockshin, don’t know if you remember me, blah, blah, blah. But I was wondering”…
Michael: “I kept trying not to puke on your very nice couch.”
Steve: Exactly. “I was wondering if you had any summer job openings.” He said, “We don’t hire kids who haven’t graduated college and we don’t take summer interns. But you can come work here for free if you want.” I said, “When can I start?” And so I worked for him for the summer.
The little quick side story on that, which was the start of Fortigent in a way, is I waited tables at night at a restaurant that I hated and I hated waiting tables. And about a week or two into it, they had this huge restaurant, 150 servers, and I noticed it would take the manager two full shifts to do the schedule each week. And so I went up to him and I said, “Look, I got an idea. I would have made about $3,000 working here this summer. I’ll quit, you pay me $3,000, and I will design a software program that will do all of your scheduling for you.” He says, “Deal.” So we wrote it on a napkin, I kid you not. I left.
Michael: Did you have a computer programming background experience to know how to actually deliver on this promise?
Steve: So this will get to the essence of my career. So the next morning I come into the office, I said, “Mr. McIntyre, I got great news.” He says, “What is it?” I said, “I quit my job last night that I hate.” And he says, “That’s fantastic.” I said, “There’s only one problem.” Oh, and I told him about I sold them the software program. He says, “That’s fantastic.” I said, “There’s only one problem.” He said, “What’s that?” “I know nothing about computers. Do you know someone that can help me?” So he says, “Ride home with me tonight.”
So I rode home with him and I get in his house and he screams, “Jamie.” And Jamie McIntyre, who became my partner and ultimately my brother-in-law, comes down, 13-year-old pimpled-faced kid, and Jamie was a computer nerd. And Jamie and I spent evenings all summer, I designed the workflows and he programmed the thing and we sold it to them. And then when Jamie graduated college, his dad said, “I need to figure out what Jamie is going to do, he’s sleeping until noon.” I said, “Well, he can come work for me for free.” And that was the beginning.
Michael: Wow. Very cool. So pretty amazing story.
Steve: I went from there to the insurance business. I went and I interned, I did more at Legg Mason. Went in the insurance business, learned that. And then one of my clients knew that I was tied to some people, a guy named Bob Levy, who’d written a ton of books on investing, who’s now the chairman of Cato. Very, very smart guy, had a company called CDA Investment Technologies, which was ultimately sold to Thomson, in the data business but around financial services. And he said, “Can you introduce me to Bob?,” which I did. And as we left he said, “I want you to do for me what Bob and his firm do for institutions.” And that was my first client in 1990, or 1989, 1990, working really for one family and helping them do what institutions had done. It was an early family office and that’s how I got in the business.
Michael: Interesting. And that was networked around or through your insurance days? What were you doing on the insurance side?
Steve: Big estate planning cases, which is again how I got into that, and deferred comp. for public companies. So I had clients like Circuit City, General Dynamics, and I was this punk kid, I was 22 years old, 23 years old. And so this one individual was an entrepreneur and they had done a number of public companies, so he had stuff all over the place. And I helped him clean it up and started hiring outside managers.
Michael: How did you get started in high-net-worth then in the insurance business? Is this another one of these “I met a really wealthy person and sold them on a strategy, and then had to find someone to help me actually implement it”?
Steve: It was exactly like that.
Michael: Restaurant software business?
Steve: Totally. Yeah, I was lucky enough to learn from one of the top insurance guys in the country. I knew he was successful, I knew who his clients were. We didn’t have the e-mail and the Internet back then, so it was cold-calling. And he had a very large presence in the real estate market, so I started calling all the big real estate companies in D.C. and saying, “We do the work for these big companies, can I come in and meet with you?” And then I would bring him and I would do nothing but sit there and listen, taking notes. I’d split all the commissions with him and he would say things like, “According to Section 101 of the code, insurance proceeds are free,” and I’d write that down and I’d go back and I’d pull out the tax facts and I’d read up on it.
And so everything I heard I just started reading about and learning. You have to be curious.
Michael: Forever curious. So you started the business in ’94 with basically the big client who launched you, so that was Lydian Capital?
Steve: The original company, Marty, the guy who was my first client, so for four years I only worked for him while I still had my insurance business. And in ’94 we decide, also in March of ’94, I seem to start businesses in March, we launched the company. And the idea was we would be the middle man consultants, which that business really didn’t exist. So I did it just for him, and then we decided to do it for other people. And it started as Capital Management Strategies because his company…actually his company was Capital Management Strategies. We named ours, we took his logo, dropped the words “financial services” underneath, and it was Capital Management Strategies Financial Services. So CMS, which became Lydian in 2001.
Michael: And so what was the transition like walking away from the insurance side of the business to just do this investment wealth management family office kind of model?
Steve: Well, paying for my first vacation was a shock because in the insurance business if you’re a top producer you go on nice vacations. And I had a great business. I worked four days a week, I was in my mid-20s, was doing very well, lots of great trips. And so I would have stayed in the business had this opportunity not emerged. But it was a slow transition out of the insurance business while I was slowly building up the advisory business. I didn’t rip the Band-Aid off, and so it made it very, very simple. And then ultimately I think by ’97 I completely jettisoned all of my insurance work.
Michael: And so what was the path then for Lydian going forward? Once you’re underway, you’ve cut yourself off from the other businesses, you’re now all into this. Were you envisioning at that point, “We’re a multifamily office and that’s what we want to build”? What was the vision at that point?
Steve: If you ignore what we called ourselves, because the industry keeps changing names from external CIO to MFO to consultant, but it was serving wealthy families around their total balance sheet and wealth advisory. And early on it clearly had a much bigger focus on investments, and then morphed into a much bigger focus on taxes. But a couple things happened. One, we didn’t want to look like everybody else, so Jamie came to work with me right out of school and we started immediately building our own software. And this was when Advent was on DOS, it was called TPP, their product.
Michael: So building your own software to do?
Steve: Performance reporting.
Michael: Performance reporting? So an alternative to Advent, I guess. What else was there around then? Advent DBKM’s early portfolio center?
Steve: Yeah, PortfolioCenter was out then, too. We used Advent for the accounting, and then the report writing we did on our own. That became the foundation for a number of different products that we built, some of which we sold and some of which we trashed. But in 1996, I believe, we started doing work for another RIA for the first time and shortly thereafter we ended up winning the contract to do all of Arthur Andersen’s reporting nationwide. And so that really put us into the business that ultimately became Fortigent, that’s how we ended up in that business.
How Steve Balances His Time Between The B2C And B2B Sides Of His Multiple Businesses [42:40]
Michael: Interesting. And so you’re running both of those in parallel?
Steve: Yeah, and we always have, we’ve always had a business that was B2C and a business that was B2B, but we were running them at the same time.
Michael: So what’s that like from the management perspective? Were these literally under one umbrella? Were these two separate businesses and two separate entities, just you and Jamie and others crossed over and spent some time in each?
Steve: Same office, a holding company, with separate entities underneath it. Which is exactly how we’re structured today. So ultimately we split the two into separate locations, separate management once they got big enough. But initially when you’re a small company you do everything. You’re the maître d’ and the dishwasher and the cook and the waiter and you just do what you need to do until it grows.
Michael: So I’m curious then, what were some of the roadblocks or stumbling blocks you hit along the way as you were going down that road?
Steve: Technology not working. I remember nights sitting in reconciling. Always having the right people is key, and keeping people happy. There’s always a tension between paying them too much, you’re not paying them, are you providing the right opportunities, did you get the right people on the bus. The fear of losing people and change, everybody hates change.
Michael: All right, so how do you deal with some of that? You just unloaded a lot of challenges there. Finding the right people, making sure they’re in the right seat and compensating them so it’s good enough, but not too good? Have you ended out forming philosophies or structure of how you try to do that?
Steve: Running a business is no different than investing in the markets. There are some periods that do exceptionally well and there are some periods that are exceptionally poor and there is no straight line. And the key is not to overspend when things are going well and not to underspend when things are going poorly. It’s trying to reduce the volatility. Which is yet another reason we moved to flat fees, also. It allows us to manage our budgeting much better than an AUM-based RIA who has to work twice as hard in ’08 and ’09 for a third less money.
There’s a ton of lessons that you learn along the way, occasionally you’ll have a Snapchat. Which I think even Snapchat did poorly in the beginning, and then took off and got lucky. But in a normal business cycle you’re going to have a lot of ups and downs. And while it may look easy looking backwards, it’s not, it’s a lot of pain and suffering, but that makes the pleasure that much greater.
Michael: “That makes the pleasure that much greater.” So what did the growth trajectory look like for Lydian, for Fortigent? So I guess by the early to mid-2000s you’re running both in parallel?
Steve: Yes, it was all the same. At the time it was CMS Reporting and CMS. In 2001 we sold to Lydian, or what became Lydian, probably for the wrong reasons. We ended up growing eightfold after that in about seven years.
Michael: So does that make you feel a little bad to watch the business grow 8X after you sell a piece?
Steve: Yes and no. If you sit back and go, “Well, wow, we sold the company in 2007 for around eight times what we sold it for in 2001,” and you think that could be in your bank account, it will make you bummed out a little bit. But I really don’t think any of us had any gripes because who knows if it would have done as well?
Michael: Because Lydian brought capital and resources and things to help to power that growth in the first place?
Steve: A little bit. To a certain extent they left us alone to build our business. They did bring some resources, so we were willing to invest a little more than we otherwise would have been. But what we really got out of it was lessons and the ability to get to the next level. So I wouldn’t trade the path for anything because that was the path. And it’s not like we were missing meals, so things went well.
Michael: What were some of the lessons that drew from that experience then?
Steve: Knowing who you are and knowing who you’re not. So a perfect example is my very good friend and partner Andy Putterman said something a long time ago which I repeat often, which is, “Steve doesn’t make a good pet.” So I don’t do well working for other people. And so that was a lesson that we learned. A little bit during the Lydian time, but they left us alone, but certainly more as we sold the company. Again, in ’07. You learn the lessons about trust and about overextending yourself and about concentration. And we could spend hours talking about the things that didn’t work out and minutes talking about the things that did work out.
Michael: And so what led to these decisions to ultimately do sales, selling Lydian, selling Fortigent? Was this a “hey, I’m done, I’m ready for my liquidity event and check” kind of thing, or “I’m ready to move on to something else,” or “hey, the business just needs more resources, let’s have a buyer that can help fuel the next stage”? What drove some of those transactions?
Steve: It was never the latter. The first sale was purely ego-driven. I was watching clients sell their businesses and I was telling them the risk of being concentrated and why it was important that they diversify, and decided to have my own liquidity event, if you will. In hindsight, it probably was not the right decision, although it worked out just fine. But it certainly was for the wrong reasons, I just wasn’t mature enough to recognize it at the time.
Michael: It just felt cool to say you sold a business and had a liquidity event and a bunch of money moved?
Steve: Exactly. But it wasn’t needed, it wasn’t necessary. And then it was a different answer when we sold in ’07, which is I was literally out fishing with one of my clients who was a partner at Sequoia Capital had said to me, “Why are you still there? Why don’t you just go out on your own?” And the truth was I wasn’t enjoying my job, I just didn’t know it, or wasn’t as attuned to it. And a light bulb went off and literally I left that trip, we were in the Bahamas, went to Florida where Lydian was based, and said, “I’m giving you a year’s notice or we can sell the company.” And we ultimately sold the company. In that instance I did want to continue to grow the business and do things that we weren’t able to do because we had become too big for Lydian, to a certain extent. And that was the driver.
Michael: Under Lydian you changed from being a growth opportunity to being a cash flow thing, so now suddenly people aren’t as excited to reinvest and drive growth and take risks because the parent company just wants you to keep doing the nice steady cash flows you’re doing, that kind of shift?
Steve: That was part of it, although they were still in growth mode. But we were becoming a disproportionately larger part of the holding company. Back then there were some opportunities, we had pushed them to sell the holding company. They didn’t want to, the CEO did not want to. And unfortunately they missed a few opportunities, they overleveraged, they had a bank, and the Feds took them back, after we were gone, in the crisis.
And so there was a real missed opportunity there. And I think we saw the lack of control and wanted to take some of that control back. But we also made the decision, which was one of the more painful decisions in my career, to split the companies and really make Fortigent its own and leave it behind while we sold the client-facing business. And that was purely driven by economic circumstances.
Michael: So what was the timing then of what got sold? Because I know ultimately the client-facing side of the business had a sale event, the Fortigent side had a sale event.
Steve: So the client-facing side sold in May of ’07. And the main reason was that had significant profits, and Fortigent was still in growth mode and had actually losses at the time. And so if you take something that’s making $10 and you add something to it that’s losing $3, then you can get a multiple on 7 or you could break it apart and get a multiple on 10.
Michael: And then figure out how to separately get the capital to sustain the one that’s losing until it grows to a better point.
Steve: Right. So that was the decision. Fortigent did a capital raise and did another transaction, but ultimately it was sold, I believe, in 2012 to LPL.
Michael: And so what was your transition through all this? Your role is changing as well as all these liquidity events happen or you get a check tied to some of this and drop mic and say “peace out, I’m done”?
Steve: Yes, I had my hat on backwards and dropped the mic. No, I stayed. Nothing changed, there’s the same team, same leadership. Other than kind of splitting the people who’d built the company together was some going to Fortigent, some staying at what became Convergent, but I stayed as the leader of the company. And as I say, I lost my right-hand man, Andy Putterman and I were a very good combination. And so it became a little more challenging. And plus were now owned by a public company and they had different ways of doing things than we did. And that ultimately led to my departure from there to start this because, going back to I don’t make a good pet, now I’m back with great partners where we work together and we’re doing things at our pace, our way, and I’m infinitely happier.
Michael: So I feel like there are a lot of advisors out there that either have gone or have thought about this path of, “So I see a problem in my business that I could solve with some technology. I’m kind of thinking about building it. It would be really cool if I could build it and then sell it to other advisors and make my money back.” Which I feel like is basically kind of the starting point for Fortigent, right? You solved your own problem first, and then you sold it to other advisors, and suddenly here’s this B2B business? Is that a fair characterization?
Steve: Exactly. We didn’t plan to go into it, we fell into it.
Michael: Yeah. When I look back there’s a lot of companies in our industry that went that same path. Junxure was Greg Friedman’s CRM solution for himself that he sold to others. Warren Mackensen did the same with ProTracker CRM. Orion Advisor Services was originally an internal portfolio accounting solution for CLS Investments that then became a stand-alone company. TRX was a rebalancer started by an advisory firm that split into a tech company. We have this history of, I fondly call them, the homegrowns, these solutions that we home grow for our own advisory business, and then sell to other advisors, and then ultimately, at least in some cases, build them up into substantial businesses of their own.
So I’m curious as you look at the landscape today, is that still a reasonable path, is that still realistic? Do you have advice for advisors that are maybe thinking about doing that?
Steve: Yes, although I would never want to talk someone out of pursuing something they believe very strongly in. Because the road to entrepreneurism is littered with failure, it has to be. In order to be an entrepreneur you have to buck the system. But I think people need to understand their limitations. Our industry is unfortunately rife with complacency that people are not tech-driven, they are generally cheap, don’t want to spend a lot. “What’s the bare minimum I need to do in order to keep my clients happy?” And when you go into the development side of the business you have to be prepared for detours, losses, capital infusion, changing course, and also the fact that in an instant nowadays people can replicate what you’re doing or find a way to build something better.
And so it isn’t the long slow development cycle that you had before. It’s something is out there, you see it, and your competitor is like, “Well, we’ll just code that up in a weekend,” and all of a sudden they’ve got a competing product.
Michael: Right. Just be aware of that?
Steve: Just go in with your eyes wide open. Again, I don’t want to take away the wanderlust of “this is really cool, we should do this,” and perhaps it creates the next great thing. I’ll give you a perfect example. There’s a company that you know and I know that I’m an investor and on the board of advisors of which is Advizr, A-D-V-I-Z-R.
Michael: Yeah, financial planning software company.
Steve: Yeah. First time I met them, I’ll never forget, they came into the hotel I was staying, they showed me their software, I’m like, “It looks nice. Doesn’t do anything special. You guys have no shot.” And that was basically my message to them. They went home and they’re like, “Okay, good feedback. What do we need to do? We’re not stopping.” And six months later I come across them again and they’ve made a lot of improvements. And now I’m like, “Okay, you really are doing something different.” And I end up investing in the company and now I’m actively involved trying to help them succeed.
And I think they will succeed, they’re building amazing stuff. And they have the ability because they started later. And I don’t mean for this to be a promote for them, but they started later and they’ve got new architecture. So when they’re competing with MoneyGuidePro and eMoney, which may have deeper tools that don’t get fully utilized, I believe, by most advisors, they’re hitting the core in a much more flexible way that will allow them, I think if they do it right, to slingshot past the incumbents.
And so if you’re an advisor, you have to think, “Am I going to buy the incumbent because it’s safer or am I going to buy something new because it makes sense?”
Michael: Well, and I feel like that’s always been the path of technology development, right? You guys competed with Fortigent in part because you slingshotted past, at the time, Advent still building on DOS. Right? And you used more modern technology from the early 2000s as opposed to their infrastructure which is probably ’90s or even ’80s technology at the time.
Steve: I think it was part technology. I actually think we had an unfair…and I will call it a marketing advantage only. And while it was unintentional, it doesn’t mean we didn’t capitalize on it. Most people who signed up for Fortigent said, “I don’t understand how Lydian grew so fast, I want to be like Mike. So if I use your software, then maybe I can grow so fast.” And that’s really one of the major contributors to the growth. Hopefully it was also the product, but that helped us along in the early years.
Michael: Interesting. So getting some of that initial traction. So what ultimately led to the launching off AdvicePeriod? The deal happened with Lydian, the old firm got sold, you wanted out because you’re not a good pet and you just said, “Hell, I’m just doing this again on my own and off I go”?
Steve: I actually quite three times.
Michael: Well, I hear the third time is the charm.
Steve: Yeah. Well, I have a rule, if someone quits twice, we don’t need to have the second conversation. Sometimes you talk people into staying, but not twice. It was very clear very early that I wasn’t a great fit for a large company corporate culture. But, like a lot of our industry, there was significant revenue that was tied to me. So I was encouraged to stay. But finally, 2011 I think, it had gotten to the point where I wanted to get out. And they struck a deal that allowed me to do things on the side while still maintaining my executive post. And we started Advizent, which didn’t succeed, but I still think is needed desperately in our industry. Tried to find ways to do other things in the business that resonated with my belief system, but didn’t compete with the company.
Ultimately in 2012, after we folded up Advizent, it was clear that I just needed to go. Was going to be out of there in short order, and then, like my insurance business, we worked out a deal where I would phase out over the next few years. And during that time I hatched the plan to build this new business.
Michael: And so when you made the transition, did you bring clients with you or did you have non-competes in other deals that meant you had to launch the new business from scratch? At some point you flipped the switch and, “Any new client I get now isn’t going to the old advisory firm I was at before, it’s going to the new advisory firm I’m building now”?
Steve: Because I was in California, non-competes were not enforceable. However, and I say this for a reason, I honored my non-compete and was very transparent and worked out a deal for everything. So clients that we knew would leave because they were the large complicated clients that were very tied to me we agreed could transition and I would pay them for those clients. We agreed I wouldn’t take any employees for three years. It happened to be that a few other people were leaving at the same time. I was allowed to effectively merge the start-up with their start-up before we started up, so we did it together. So that helped. But I did everything, I hope, in the most honorable, friendly, supportive fashion and we have a very good relationship as a result. And that is yet again, I think, one of the challenges in our industry, with people jumping from firm to firm and folks being stolen from other firms and midnight exits, and I think it’s dishonorable.
The Two Paths You Can Take As A Financial Advisor [1:01:22]
Michael: So for someone who’s listening who is trying to figure out, “How do I go this path?,” or, “I want to work with really high-net-worth people, I’d love to get $100,000-dollar retainer fees from ultra-high-net-worth clients.” If someone wants to figure out how to go down this path, where do you suggest they start? If they want to be like Mike, be like Steve, how do you be like Steve?
Steve: My first piece of advice is be careful what you wish for. My second piece of advice is decide very early whether you want to go down the, I’ll call it, a tradesman path or a business path. I think it would be too generous to call the tradesman’s path the artist path.
Michael: I like to talk about them as practices versus businesses, right? Like there’s the practice where you are the advisor and it’s built around you and you deliver the services because you are the service provider, and then there’s being in the business of building a financial advisory firm which may or may not have anything to do with actually being a financial advisor at all, it’s about building a business.
Steve: But I’ll make even one more distinction. I agree with you, there is definitely a difference between a lifestyle business or a practice and a real business. But even at the business level, because I would argue I’m on the tradesman side or the artist side, being generous, versus the business side, you still can build a business, it’s just that you make a conscious decision about maximizing profits versus maximizing experience.
So I have peers in the industry that have built amazing, amazing businesses that are absolute machines. And the charge that they get out of it is building that business. Whereas what floats my boat is the creativity around the planning and solving a complex problem. Truth be told, I probably would do this for free because I enjoy it so much. It’s all the follow-up work that is a pain. But the same thing is true of the technology side, I truly enjoy that. So the time that gets taken away from building a business gets spent on building a craft. And you just should just know what you’re going for. I’ve made that conscious decision and I’m happy with it. Otherwise I’d look at my peers and go, “Why haven’t I done that?”
So that would be part of my advice. And then relentlessly pursue with extreme curiosity how to maximize whichever path that you choose.
Michael: So that means reading? That means?
Steve: Reading, questioning, learning. If you’re a tradesman, you apprentice somewhere. So the people that come work for us, and our phrase of the year is “opt in,” we don’t want someone who wants a job, we want someone who has opted into our culture. And you’ll know very quickly whether you fit or don’t fit. But who has made the decision that they want to learn and become a really skilled surgeon or artist or whatever around the tax stuff.
So the person I mentioned who was at JPMorgan probably, had she stayed at JPMorgan, and it’s been two and a half years, would be making more money if she were at JPMorgan. But she’s getting an education here that I think will slingshot her past what she might be able to do, but more importantly do it in a way where she can get up in the morning and go, “I love what I do, I’m not just working in a machine to crank out dollars.” I’m not saying everybody at JPMorgan operates that way, but, “I’m not just on a team trying to generate as much AUM fees as possible. I’m actually solving complex problems, and that feels good.”
Michael: Well, and I think you make an interesting point around the idea of if you want to view yourself as a tradesman building a skilled craft, you need to find someone to apprentice under. Because I guess you had a few stages of that early on? Like how do you view your apprentice path?
Steve: I’m still an apprentice, but yes. First I had Marvin McIntyre, who’s still a mentor of mine and a very good friend. I had Allan Meltzer, who’s one of the top insurance guys who works 25 hours a day, is tireless when it comes to pursuing solutions, who showed me the benefit of creativity. I’ve had Marty Schwartzberg, who was the first client who believed in me who, before he ever would go through his report, would start looking for errors. Everything had to foot tick and tie, and I really learned precision from him. And I can go on and on with all the attorneys, and just I constantly honor my elders and folks that I can learn from and will sit at their knee at every opportunity to learn how I can do things better.
Michael: So is this also just simply a time thing? Like are you just one of those guys that puts in more hours than everybody else puts in to be able to take in all the stuff that you take in?
Steve: It goes back to curiosity and, I’ll call it, love, not to be too squishy about this. Ron Carson is a perfect example. Ron is immensely successful, more so than most people in our industry and by a quantum difference, and a good friend. And Ron came up to me one day when we were at a Barron’s conference and said, “I’d love to just sit down,” I’d never met him before, “and pick your brain. I’m so impressed with what you’ve done.” And he wasn’t BSing me, he really was interested in learning. But Ron was way beyond where I was from building a business and just from an economic success standpoint. And here he was asking me for advice. But he often says, “If you do what you love, you don’t work a day in your life.” And he truly loves what he does.
And that’s why I said it’s about love. If you love what you’re doing, I want to read, I want to solve these problems. I could have taken that meeting yesterday trying to solve the tax problem and just added it to my pile and dealt with it in a couple weeks. I got home and started reading tax law last night to see how to fix this thing. But it’s passion.
Michael: As you look back on your career and all the different trajectories that you’ve had, I’m curious what was the low point from your end and where did it get hardest on that journey?
Steve: 2008 aside, because I think that erased a decade of my life just living through that. I think it was like what war must be like going home on Fridays, as many people will probably recall. But the low points for me that stand out when you ask the question are things like when I sold the business the first time I was really depressed afterwards.
Michael: You successfully sold it and got a nice big-ass check, and then was depressed.
Steve: Right. I got more money in the bank than I’ve ever had before and I’m still running my company, but I had personified with the company and it wasn’t mine anymore. So it was an ego issue. Then, again, when you realize you have a different kind of control. So for me, back to not making a good pet, those were some of the most difficult times. There were lots of twists and turns along the way of people leaving, clients disappointing you. Be prepared to be disappointed by partners, clients, teammates. That’s just life. In hindsight, all good education, but at the time torturous.
Michael: Rick Kahler was our first guest on the podcast, kitces.com/1 for those who want to go back and listen. He described these as AFGOs, “another freaking growth opportunity.” Right? And I feel like there is something kind of essential about the entrepreneur’s attitude and mental state that they’re not failures, they’re growth opportunities. “Didn’t necessarily enjoy going through that, but I did learn some stuff from it and I’m better going forward, even though it was an unpleasant failure or challenge or struggle or problem.”
Steve: You have to, otherwise you’re really not an entrepreneur. Because if you aren’t prepared to just keep plowing forward, you’ll fail quickly because, like I said, life is not a straight line.
The Advice Steve’s Mom Gave Him That Still Informs His Definition Of Success Today [1:10:15]
Michael: So for someone maybe then who’s coming in new to the business today, because we have some listeners who are still getting ready to start their advisory career, what’s your advice to someone who’s just looking to get started and come into the business? How do they set themselves down a similar path? Maybe it won’t be exactly the same because the industry is different now then it was when you traveled your journey in the early years. But how do they get started? Is it just all about find an awesome place to work and become their apprentice and that’s the deal? Or how would you frame it for them?
Steve: I’d go back to a similar question of which path do you want to go down, because that’s going to drive what you want to learn and where you learn it. Do you want to be planning-focused? Actually the first thing is, “Is it about making money or is it about doing what you love?” And when you’re young it’s harder to make that decision, but I would always encourage folks to think about it that way. Because if you do what you love, it won’t matter. The money will become less relevant. I think most successful people will say it was never about the money, it was about the passion. And the cynics will say, “Well, that’s easy to say now after you’ve already had the money,” but it really is a truth. And then I think it’s feeling good about what you do every day.
So my mom always said, “There’s only one person you have to answer to in life and that’s yourself.” You need to be able to look in the mirror and know you’ve done the right thing. So are you doing that which makes you feel good? And who do you learn from? Is it go work at a wirehouse that still manufactures product and sell a bunch of it knowing, “Maybe this isn’t the best solution,” or decide you want to be a planner that is solely driven around providing solutions for clients? And then you get to the point of curiosity. What do I want to learn?
So I met with an attorney yesterday, she said, “I work on clients with less than $20 million. I don’t want clients over $20 million, I’m great at what I do, I don’t want to learn all the other stuff, I want to be awesome in this niche.” And she’s built a very nice business and I respect that she has done that as opposed to doing a half-ass job for too many clients. So I think it’s just definition of what you want to do.
Michael: So for young advisors who are trying to come in, how do you find those firms in the first place? How do you find your way to them to figure out who do you want to apprentice under or be a tradesman under in the first place?
Steve: Well, the good news is there’s the Internet and there’s the Barron’s list and Forbes list, and there’s plenty of ways to find out about, I’d say, well-established companies. And there’s probably a ton of great mentors out there that are not as well-known, but they’ll be harder to find. And if I go back to my earlier story about going to work for my mentor, I went to work there for free. I got paid very well, I learned a ton and made a lifelong friend and have a lifelong mentor.
So I would say invest early. It’s pay now or pay later, just like we tell our clients. So go spend the time and any entrepreneur worth their metal, if someone came in and said, “Look, I really want to be in this business, I love this. Here’s what I know, here’s what I don’t know. I will come work here for minimum wage, I just want to sit at your feet and learn. And if I suck, kick me to the curb.” Who wouldn’t hire them? I’d hire that person on the spot. I’m probably going to get 100 resumes after this.
Michael: You might. We’ll have a link in the show notes if anybody wants to try to track you down, kitces.com/13 for episode 13.
Steve: Yeah, so go find a mentor.
Michael: So as we wrap up here, this is a show about success, and one of the things I’ve long observed is that success means different things to different people. And, I think, as you noted, sometimes even the definition changes, evolves for us as we go through and live our lives and hit certain milestones. So as someone who’s built what, I think, most people objectively would call a successful business, or even several of them since you’ve had a number of liquidity events over the years, I think you don’t give yourself enough credit for how many things you’ve built, but I’m curious for how do you view success at this point?
Steve: I would go back to what my mom said, it’s being able to look in the mirror and know you did the right thing. It’s not the money. Financial success is an easy measurement stick. And, again, the cynics will say, “Easy for you to say.” But Larry Ellison is still pissed that he’s not Bill Gates. So it doesn’t matter how much money you have, there’s always somebody that’s going to have more than you do.
So it isn’t about money, it’s feeling good. Because when you’re lying in bed at your last breaths you’re not thinking…there’s an old insurance joke. Three things you never hear on someone’s deathbed: “I wish I worked that extra week,” “I wish I got married a year earlier,” and “I have too much life insurance.” But the truth is what are you going to be proud of, what are you going to be remembered for? “He made a lot of money,” or, “He sold a bunch of garbage to people,” or, “This person really cared about his or her clients and delivered a good solution,” or, “wanted to be a professional and was fantastic at what they did.” Look what we see with judges and professors and folks of that ilk that become great at what they do.
Michael: Your success gets defined by your legacy and what you’re remembered for, so you get to control what you do to control what you’re going to be remembered for?
Steve: Well, but more importantly how you feel about yourself. Because that’s all that matters. That’s all that matters. And the happiest people I know are, and we deal with lots of wealth, and if I had to say anything was true it’s that the more money you have the less likely you are to be happy. In other words, you’re happiness goes down because your complexity goes way up. Unnecessarily, but it does. It’s just about, “Do I feel good about what I do and who I am?” It comes with maturity.
Michael: Amen. Well, thank you. Thank you for joining us on the Financial Advisor Success podcast.
Steve: No, thanks for having me, it’s an honor.