Welcome back to the 240th episode of the Financial Advisor Success Podcast!
My guest on today's podcast is Thomas Gau. Tom is a financial advisor at Materetsky Financial Group, a hybrid-RIA located in Boynton Beach, Florida, that manages $525M in assets under management for just over 500 clients.
What's unique about Tom, though, is the way he translates abstract financial planning strategies into very concrete and practical terms that he can enthusiastically communicate to address the very specific tax and estate planning needs of his retiree niche clientele.
In this episode, we talk in depth about how Tom’s quintessential client communication and persuasion skills landed him on the radar of Malcolm Gladwell (who profiled Tom in his book “The Tipping Point”), how early in his career, as he expanded his focus beyond his accounting services as a CPA, Tom decided that he needed a niche, focusing first on retirees and then niching down even further to a concentration on the tax ramifications of retirement distributions, and why Tom feels that the best way for financial advisors to differentiate themselves to prospective clients isn’t by discussing investment solutions, but by offering to help with specific tax planning issues, because, as Tom points out, “investments are a matter of opinion, but taxes are a matter of fact”.
We also talk about how Tom utilizes educational workshops to get in front of prospective clients as well as the specific strategies he uses to create awareness for and interest in his workshops, why Tom feels that the three keys to having a successful advisory practice include having a solution to a common pain point felt by a specific target market, being able to easily implement that solution, and making sure that the issue involves a not-insignificant amount of money, and why Tom believes that most financial advisors still underappreciate how addressing advanced planning topics with their clients can be a powerful differentiator against a vast number of advisors in the industry who are still generalists.
And be certain to listen to the end, where Tom shares what led him to turn his business development success into a Coaching Program for other advisors, the surprising consistency in the issues that retirees face regardless of their locale as Tom builds an advisory firm for the third time in a new location after selling the first two, Tom’s philanthropic efforts in less fortunate countries (which also makes him appreciate all the more the abundance in his own life), and how, at the end of the day, Tom finds that it’s his enthusiasm and passion, even more so than his tax and estate planning focus, that gets prospective clients excited about working with him.
So whether you’re interested in hearing the story behind Tom being featured in “The Tipping Point”, the advice he offers around how financial advisors can differentiate themselves, or how he runs his educational workshops to generate new business, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Thomas Gau.
Resources Featured In This Episode:
- Thomas Gau
- Materetsky Financial Group
- Tom Gau Coaching Program (email for information)
- The Tipping Point by Malcolm Gladwell
- Academy of Preferred Financial Advisors
Michael: Welcome, Tom Gau to the "Financial Advisor Success" podcast.
Tom: Hi, Mike.
Michael: I'm really looking forward to the discussion today. I think, probably, a lot of advisors out there, I first became familiar with your advisory business about 15 years ago, when Malcolm Gladwell put out a rather popular book called "The Tipping Point," that talked about the way ideas get out there and spread, and had talked about the idea of all the different people that help make ideas spread. There are Connectors that get the word out, there are Mavens who accumulate the knowledge that gets spread, and there are the Salesmen, the people who persuade us that this is a thing worth paying attention to. And you were featured in the book as sort of this quintessential salesman who just has the ability to connect with people and communicate ideas, and had built a successful business doing it.
And so, I'm excited both to talk about what it's like just growing the advisory business. I know you've been through a few cycles just of building firms and selling them and building firms and selling them. I guess I'm curious to start there. How did that come about that you ended out being featured as a financial advisor in Malcolm Gladwell's “Tipping Point”?
How Tom Ended Up Being Featured In Malcolm Gladwell’s “The Tipping Point” [04:31]
Tom: Well, thank you. I appreciate that. Yeah, it's interesting. I've had a lot of people tell me that I'm probably the most enthusiastic person you'll probably meet because I love what I do. And I know everyone here that's listening, they love what they do too. And I think it's great. The question is, can you communicate that in a manner that other people really can relate to?
So Malcolm Gladwell, and I had a series of calls, reviewing, really, what I do and how I can help people. And, in fact, what's interesting is he said to pretend that he was a prospect. And just talk with him, telling him what we do, etc., etc., and how we deal with a client, and etc., etc. And believe it or not, Mike, at the very end he says, "Well, I never do business with the people that I interview. But if I didn't know you through this, I'd be your client."
Michael: I was going to say, you went through the process. Did you get Malcolm as a client? So he's got a separating rule.
Tom: Exactly. And I respect that. But it goes back to the same issue. I'm probably the most optimistic optimist you'll ever meet. And basically, I tell people, I like to do three things. Number one, I like to help my clients. Which we all know we do. But the second issue is I can only meet with so many prospects in a particular geographic area. That's obvious. So what I then do is I said, Why don't I go and take the ideas that really worked for me, and why don't I teach other advisors so they can help their clients?
And so, back in '93, I started a company called Million Dollar Producer. At Million Dollar Producer, I basically started giving what's called a boot camp. I've had thousands upon thousands of people attend my boot camps. Because in a two-day period, all I'm doing is showing the people there how I work and how my business is run. Okay?
And similarly, I know we're going to talk more about it a little bit, Mike, how you were saying, Well, some people might want to have their whole office secured upon mine, or somebody else's, for that matter. And others might just want to get a little tidbit about, maybe they found a good idea. Well, believe it or not, I know that it's been at least a few hundred advisors that have taken my specific blueprint of my companies, and basically built their company based upon the blueprint I gave them. And again, in this boot camp. Because here's the thing that I look at too.
The third thing I do, as we all know, we like to help people more than just in business. And so what I like to do is I actually do a lot of missionary work in third-world countries. And my favorite thing I like to do is I play Santa Claus in different countries. And I like that because as we all know, we're lucky to be in The States. And I find it very gratifying that if I can help someone else in another country, that they virtually have nothing, not only can I help them, but it makes me appreciate more what I have. So when I come back to the States I say, “Man alive, am I lucky, and let's work that much harder to help more people.” So that's really how I work.
Michael: So, out of curiosity, just how did you end out on Malcolm Gladwell's radar screen to be having this conversation in the first place where he's saying, "Pretend I'm a prospect and take me through your process"?
Tom: Well, that's a great question. I've always had a lot of, when I say PR, it doesn't have to be paid PR. But for example, I did a lot of work with a sales psychologist. Now, believe me, there's a sales psychologist by the name of Dr. Donald Moines. And Dr. Donald Moines knew Malcolm before he got super famous as he is today. And so, Dr. Moines told Malcolm about me, and then Malcolm called me. And it was one of the things. I didn't even know him when he first called and I'm saying, "Well, you sound great. And you seem legitimate. And also, the concept is simple." His book, as you probably know, "The Tipping Point," basically says, “Listen, we've got all these great companies, whether it be our industry or someone else's, but nonetheless, we've got great companies. At what point did that company go from good to great? At what point did it really...were able to go to that next level?”
And that's what I did in my firm. And I'm not here to brag. I want to clarify that. I'm not here to brag. But I am here to say, “Here are the facts.” So when I first started off, I was a CFP, surprise, Certified Financial Planner. Pretty weird. I only have a four-digit code. Four numbers.
Michael: Okay. Oh, your CFP number is a four-digit. Okay, so you were in early. You were in early.
How And When Tom Decided To Focus On Helping People Navigate The Tax Implications Around Retirement Accounts [09:27]
Tom: 1984. I was also a CPA at the time. I said, “I want to do more than just accounting. I want to do financial planning.” And blah, blah, blah, blah, blah. And I said, “You know what? Why don't we go and help clients out from a big picture perspective?” Sound familiar? Well, no kidding. We've all thought of that. So it's like, that doesn't really differentiate me. But nonetheless, I hooked up with this one attorney, this back in 1987, in Los Angeles, southern part of Los Angeles, California, of course. And what happened? We said, “Why don't we go and do this? Why don't we specialize with people that are about to retire or retired?” Wow, what an unbelievable niche, right? That's not that common? Excuse me. It's all common. Everybody's heard of that. That doesn't differentiate me. But we said, “Why don't we focus specifically on tax ramifications of retirement distributions? Let's focus on that.” So, guess what, we did all these workshops in Southern California? And believe it or not, most of my clients were engineers. I've learned if you can close an engineer, you can close about anybody.
So we built our practice, and in this case, too, believe it or not, within about five years, we were actually the second-largest financial planning firm in Southern California. With that said, we got a lot of, let's put it this way, publicity from, I was with a broker-dealer at the time. Because can you imagine Mike, I actually earned commissions then. Can you imagine?
Michael: Back in the olden days. Yeah.
Tom: Exactly. Whoa, wow, wasn't that incredible. Wow. And then fee-based? Are you kidding me? But the bottom line is, so I got all these awards. I got interviewed. I've been on like, Barron's Top Advisor list since they first started that back, was is it '89, or '91, or whatever that is? And I'm not saying that to brag, because I'm going to do what I need to do. I'm going to run my practice. And wow, was I very unusual. My practice was about knowing the most I can about my target clients. These are prospects that I want to focus on to convert to clients. Wow, that's not different. But guess what? Let's do that and make sure we look at everything, all the different areas. Let's put together a marketing package to do that. Wow. Well, guess what, that's what we did.
And once I started getting that information, and I started being interviewed by all these places, whether it be "Money Magazine", “New York Times”, "Wall Street Journal," all these other places, which again, I'm not saying that to brag as much as I'm saying, because I'm still doing what I'm doing. It's not like I'm thinking, “Wow, I better do something so I can get quoted in one or the other magazines.” No, but then guess what I started doing? I started teaching other advisors. And I'm saying if I can help my clients achieve their goals, and I have a very good practice, a very good module, it goes, why shouldn't I teach other advisors? Why can't I share my ideas with them? Because, Mike, I'm going to share something with you. And you tell me yes or no. I don't know about you. When I really want to learn something I can implement in my practice, I learn the most from people who were either doing it or have done it, but at least they have hands-on experience. Agreed?
Tom: Okay. That sounds obvious, because to me, how many times would I go to one of these conferences, and someone would say, "You need to get more qualified clients." No kidding. Wow. You should have more money under management. Really, you think? I mean, so many obvious things. And it drove me crazy. So what I did in my teaching was very simple. It's not just what to do, but how to do it. You got to get in front of more people. How do I do that? That's what blows me away. Because when I said this, that's where that, call it exposure, when I say just publicity, however you want to call it, that again, I had, in this case, Dr. Donald Moine, he and I actually wrote together a couple of books together. And again, and that's where Malcolm Gladwell came in, etc., etc.
So anyway, that's to give you a broad overview. And I've been teaching advisors since '93 like I said. And at that stage of the game, I grew my company still, until the year 2000, which I sold it, at which time we had little over $2 billion of assets under management, mostly fee-based at that time.
What happened is that I moved up to Oregon, and you know what? I get bored easily. So I started another firm up there. And after 14 years, we had the second-largest financial planning firm in Southern Oregon. So I sold that. Took off for a couple of years, went over to the Philippines, built some more churches, schools, hospitals like I always do. Came back here and said, “You know what? I want to go to an area that my wife is going to be more happy with.” Because my wife being from the Philippines, we said, Hey, let's move to Florida. My daughter lives here. I've got clients that are here. I've got other financial advisors I've been teaching, they're over here. So I moved over to Florida, about four years ago.
And what's interesting, here's what's bizarre. I don't know about you, Mike. But don't you agree, if it ain't broke, don't fix it. Right?
Tom: Well, guess what I did. I said, “All right. Let's take the same ideas that I used in both California and in Oregon. And let's see if it still works in Florida,” which again, I already knew that answer. Of course, it would. So what happened is that we started this up. And I actually joined this one firm, that I actually helped set up their practice. They were one of my students. For believe it or not, since '02. But nonetheless, they said, “Yeah, we'd love to have someone to help grow our firm,” etc. So guess what? When I started there, about, oh, gosh, a little over three years ago now. And what's funny is I had zero clients when I started. And right now, three years later, I've got $142 million of assets under management, all fee-based, from scratch. And I'm not saying that to brag, as much as what I'm saying is what I like to do is I to share my ideas on how I was able to do that. And it's not to brag. Like I said, I don't care. The issue is to help, whether it be, the people who are listening on this, your subscribers, or anyone else. Anytime I teach is to help them become better financial planners, and better advisors for their clients. That makes me feel good. All right?
Michael: So, help me understand more. I'm curious even just to go back to the first cycle of this. As you're getting going in the mid to late-1980s. That you said, “Okay, we want to be more holistic. All right, but lots of advisors are being more holistic. We're going to go after people transitioning to retirement. Okay, well, lots of people are doing that. We're going to get more specific and really focus in on tax ramifications, retirement distributions. Okay, now we're getting a little more specialized and unique. Not everyone has that depth of expertise to be able to have those conversations.” So, what came next? I mean, it's one thing to say, “Hey, we're going to go after retirees and talk about the tax ramifications of retirement distributions,” but what did you do at that point to start marketing, selling, getting the word out, and growing the business?
How Tom Started Marketing And Growing His Business [16:44]
Tom: Great. Okay, great question. Because here's what's interesting, and that is, I know it might sound obvious, but the key thing, of course, getting in front of people. As we all know, the big, big issue is when people say, let me show you how to close people, let me show you how to manage things, etc., etc. Well, my attitude is, let's make sure we get in front of people first. Okay? Because you can't obviously, talk about how you're going to run your business unless you have some clients, to begin with.
So what happened is we said, “Okay, well, I've been a teacher off and on in different places for some time, and I love to teach. My tax attorney partner, he also liked to teach.” So we started giving workshops. Education only. I want to clarify too, very simple. I've never, ever sold a product at a workshop, ever. I've never sold anything at a workshop except selling that particular person to come in and meet with me. So the only thing I'm selling is myself. All I know is that, guess what, when I give a workshop, it's simple. I want to make sure of the following. Number one, I want to make sure that the people there are my type of potential clients, which in this case, retirees, which to me is like, again, that's nothing new. But the question is, how did I differentiate myself in order to A, get the people there, and number two, get them to make an appointment with me? Those are two different animals. Getting them to the workshop. Number two, making an appointment.
Why would someone want to come to the meeting itself? Why would somebody want to come? Well, you know what's so funny? Is what you always want to make sure of is, how do you differentiate yourself? People that have a lot of money, what's their major goal? Income tax reduction. Now, Mike, this again, drives me crazy. Mike, do you agree with me that the subject of income tax reduction has been a major, major goal of affluent people? That's not new. Correct?
Michael: Yep. Most people who have a lot of dollars and are writing a large tax bill would prefer to write a smaller tax check.
Tom: Exactly. So my question is, okay, wow, let's just have common sense right now. Wow, why don't I go and start giving some tax advice? No kidding. It's like, duh. Well, then here's my question.
Michael: Particularly since you were coming to the table with a CPA license. So, had a wee bit of tax background.
Tom: Well, and that's true too. But think about it, even if I didn't have a tax background. Take away my CPA just for a minute. I do agree, that adds to my credibility with regards to them possibly becoming a client. That's very true. But whether you're a CPA or not, let's just talk about the concept of, “Hey, why don't we focus on giving tax reduction strategies?” Why don't we focus on the issue of, “Hey, let me go and use that as my niche?” And like I said, it doesn't matter what your background is, you can always learn something about taxes.
What I also like to clarify, I'm not talking about tax preparation. No, don't do that. No. No. Tax planning. So I'm going to ask you a question. I'm going to ask you a loaded question. Because Mike, you know what I love to do? I love asking loaded questions. Because you already know what the answer is going to be. So you're in charge of your conversation. Which is, Mike, do you think it'd be a good idea to know the tax consequence of a transaction before the transaction takes place?
Michael: Yes, yeah. I wouldn't want to be blindsided. Yeah.
Tom: Exactly. It's like, really? No kidding. Notice that I'm walking through. This is the same question I ask at the workshops I do. If I'm even meeting with someone, or whatever, I say, “Listen, do you think it'd be a good idea?” “Sure. I do.” Then my next question is, “How often does your advisor look at your tax return?” What's the answer, Mike?
Michael: Not at all. Aside from while we're preparing it in real-time.
Tom: Well, you say preparing it. That's true. But even if they're preparing it, the question is, “How often does the financial advisor actually look at the client's tax return?” In my experience, less than 4%. Very few people. And this is why I look at it. Well, I'm saying, “Hey, then how would that particular advisor know what the tax ramifications would be of his recommendations without looking at your tax return and seeing what tax bracket you're in?” Correct? So the same logic, because here's what's bizarre. Think about it. I call this common-sense financial planning. Problem is, as we all know, common sense isn't so common, after all.
So what I've learned is I realized that, guess what? Most clients or prospects, they're not even aware of that until you ask that question. The $64,000 question is, how often does your advisor look at your tax return? Never. So right there, what you're doing is you're undermining the client's perception that they've got their act together. Because when they finally realize, “Yeah, you're right. Let's see, I'm not getting any type of advice on that. Because then we learn the following. Mike, I'm sure you've heard this. Here's the adviser talking to you, the client, or prospect. “Boy, Mike, have I got a deal for you. My investments are so great. It's going to double and low -risk.” And blah, blah, blah, blah, blah, blah, blah, blah, blah. You know it already. Your eyes are rolling and saying, “Yeah, right. I've heard that before.” Right? Which is why I tell people, investments are a matter of opinion. Taxes are a matter of fact.
Michael: I like that. Investments are a matter of opinion. Taxes are a matter of fact.
Tom: Exactly. So what you want to do? And when I say this too, remember, so many people think that this is just what I think. Like, wow, investments are a matter of opinion. No. You convert what you think, into your words, to talk to clients about? Because you know what's really weird? We forget. We're smarter than these other people, of course. But sometimes we think that they know what we think. Which is why your words will make you rich. Choosing the right words are going to make you more money than ever, assuming you know what to say and when to say it, obviously. But what's bizarre, going back to taxes is that wow, here's what's so strange. Guess what? This isn't again, one of the things. Instead of just saying, “I can help reduce your taxes.” Well, it sounds good. But what does that mean? How about instead, I'd say, “You know what? I'd like to know if you're interested in how to sell your appreciated property income tax-free. Is that of any interest to you?”
Michael: Sure, I like tax-free.
Tom: Okay, good. So guess what? Part of what we're going to cover in this workshop is how to sell your appreciated property income tax-free. Is that okay if we cover that? Is that all right?
Michael: Sure. I'd like to hear more.
Tom: You bet. Also, how about this? How about if we can show you how you can take a charitable contribution deduction, even without itemizing your deductions? Is that okay?
Michael: Sure. More tax savings.
Tom: Exactly. How about if I can show you how you can take your money out of your IRA income tax-free? Again, is that important? Is that okay?
Tom: Notice what you're doing is saying like, “Wow, instead of just saying tax-reduction ideas...” by the way, I'm not trying to be a smartass here. I refer to these as a 5 Star Tip. We've all heard of a 5 Star Mutual Fund. A 5 Star tip is very simple. Always, again, make sure too that you go and address things that the client is going to say, I've never heard of that before. I want more information on that. Because that's how you're going to differentiate yourself. Okay?
Now, not to get too ahead of myself. But let's go back a moment, which is how do we get people to come to the workshop in the first place? And in that particular case, guess what? Wow, what did I do? I contacted all these different companies in the area and told them I'd to give a presentation on tax reduction strategies. Period. Do you think that a lot of these organizations get calls all the time from brokers that say, “Listen, let me show you our investment theory and how we work”? They're going to say, “We don't want someone to sell us something.” On the other hand, if you sell advice, if you sell strategies, taxes, again, are the biggest area that you definitely want to look at the tax return. Because I'll share with you something. If you don't look at that client's tax return, and that particular client comes in to see me, you'll lose your client to me. Okay? So you really want to make sure that you get that focus.
Now, the next question, but what if you give a workshop? What do you do there? The key issues of the workshop, remember, you want to make sure to overcome the audience with facts. You want to make sure that you review all the different areas that are going to be the most important things. Can I share with you some of the biggest things that I use all the time to get people to come in?
The Opportunity Facing Advisors Right Now [26:20]
Tom: Okay. Well, the first thing is first, as I said before, let's take a look at taxes. I'm going to share something with you, Mike, right now, which is one of the most incredible things right now that anyone listening to this, please, please, please, please, please take a couple of notes here. Here's what I'm looking at. Right now, we have something in front of us, at this exact moment, that you very rarely get. And it goes back to the same issue. It's called The New Tax Law Proposals. Now, one thing I'm going to mention to you, and I tell this to my clients, too, I'm not political. I'm not. I'm basically independent. I don't care what party, what company, what country, it doesn't matter.
Michael: And any of them that make a change in tax law give us an opportunity to plan around it.
Tom: Exactly. But here's what's bizarre. Here's what's bizarre. Number one, no one's doing it. But here's what's bizarre. Anytime they have this, remember this. Confusion equals opportunity. When people know what the facts are, when people know all the information, many times they'll just go and do it themselves. Or after a while, it just becomes complacent. It's no big deal. Nothing new. And they'll learn it. Guess what? This is new. This is new. It's also, of course, the unknown. That's the key issue here. Is it's again, the unknown.
Now, what's bizarre about all this, what's really bizarre is that anytime they have these new tax law changes, I refer to it as called the AAFAFEA. Which stands for Accountants, Attorneys, and Financial Advisors Full Employment Act. This will get you more money because people want you to help them. And in that case, guess what, you're going to be super, super, super busy with everything. Now, the other interesting thing about this is, guess what? Don't you agree right now too, Mike, that at this stage of the game, the worry about inflation, interest rates, again, going up the fear of all these other factors, etc., do we agree we have right now a pretty nervous society? Correct?
Tom: And the same thing with the market. So what you want to do is the following. Never waste a crisis. Never waste a crisis. Take advantage of right now what you have that you can go and basically... I mean, think about it. You've got all your free publicity right now. You've got all this media, whether it be written or in the news, they're talking about all these possible tax increases, etc. Well, guess what? Even if you hardly do any marketing in the paper, or whatever, which we'll talk more about later if you want. The key issue is getting people to understand that you're aware of it and that you're going to help them with this. Okay?
So going back, when you give this workshop, you want to make sure to cover certain things that no one else covers. What's so bizarre is called differentiation as we know. So how do you differentiate? Well, let's think about this. Let's be more specific. Believe it or not, the two biggest ways that I differentiate myself, the two biggest ways that no one else covers, hardly, they should but they don't. Income tax planning, like we just said. And number two is estate planning.
Those two areas are the biggest areas that, I'm serious, it is so simple they just learn the basics. Because guess what? Here's what I've learned, Mike. For those advisors that are listening, anything to do with taxes, estate planning, etc., looks very complicated. It does. And you'll learn by doing to a certain degree, but remember this, you don't have to know everything about everything. What you want to do is to be able to identify when someone comes in and they've got like a large issue that,” Oh my god, they're paying too much tax here or there,” whatever. You don't have to give all the answers right there. What you want to do is say, I'm going to go and do some more research on this. I'll get back to you. You schedule another appointment for them to come back, you close the door, you go back to your office, and you go, “What do I do now?”
That on-the-job training, as we know, you'll learn more from that than anything else just in theory. I know it sounds obvious, you want to work with an attorney, CPA, whatever, get them involved, too. But the key issue is, think of it. As a certified financial planner, or any financial advisor, for that matter. Think of yourself as a general practitioner doctor. The general practitioner doctor is basically going to know what to look for. But they're not necessarily going to be an expert in that particular area. Obviously, they can't be a specialist in everything. If I went to a doctor that said they specialize in everything, it's time to get a new doctor. Right?
Tom: So, in this case, what I want to do is, think about it, that general practitioner is going to look at your, if you're not feeling well, whether it'd be your heart or whatever else is, they're going to do some tests, etc. And if they find out you've got a heart problem, they're going to refer you to a cardiologist, right? But the doctor still is going to be overlooking everything. That's why I call myself, and everyone should also call themselves two things. One, you're a financial doctor, because you are like a doctor. And number two, you're the quarterback. You're the quarterback of the team. Everything gets run through you. That way you know what's going on every step of the way. Because guess what also that does. You're never going to get fired. You know the quarterback, hey, without you, they're in deep doo-doo. But the key issue is you want to tell that to your clients. Say I'm a financial doctor. And I'm not going to do everything. But I'm going to identify things.
Because there's three words that I love to use to clients all the time. And you want to use these three words with your clients, which is, Warrants Further Investigation. Which means if you see something that looks odd or unusual, or whatever, you want to say, “Hey, I want to look into that more. I'm concerned. Is that okay with you?” Why? Because no one else has brought this up. No one else probably brought those issues up. So what you're doing is not only are you helping them, but you're also undermining their existing adviser. The same logic, when you're giving a workshop, your goal is to go over things that no one else has gone over. The key issue, the 5 Star tip is, create doubt about their other advisors. Don't go on the issue of the investment part. You might lose. Because unless you're the unbelievable best one, again, how many times do we hear that? But to differentiate yourself through the income taxes and the estate planning part, that's where it hands down. You win.
How Tom Reconciles Differentiating By Developing A Specialty Versus Being A “Quarterback” [33:50]
Michael: So, I am curious, though, Tom, that, you've talked a lot about trying to position yourself for differentiation for this deeper expertise. Deeper expertise around tax reduction strategies. Just how do you jive that, like, advisors trying to position themselves with more specialized expertise and advisors positioning themselves as the general practitioner or quarterback?
Tom: Well, that's a great question. Well, let's give you an example. Let's assume you're taking a look at the tax return. Remember, I'm not saying preparing it. Absolutely not. Let's assume you're looking at a tax return. Right off the bat, number one, that differentiates you because no one else does. That's number one. Number two, you might look at something and you might say, I'm not even sure what that means. In that case, guess what? As I mentioned earlier, Warrants Further Investigation.
For example, imagine if you looked at someone's tax return and said, Something doesn't look right. Or what about if they're paying a lot of taxes, or whatever. The favorite line you always want to use is the following. “Mr. Client, I see a number of things that can help reduce your taxes. But I don't want to get too ahead of myself. I want to do a little research. And I'll go over the details of this with you at the next meeting. Is that okay with you?” Your client is going to say, “When can I come back?”
Now, this goes back to the same issue. Remember you're the general practitioner. True. You've identified a few things. True. But now when it comes to it, Mike, and I'm sure you'd probably agree. Some certain things on taxes are easy. Others are more complicated, right? So things that are relatively easy. Yeah, I expect everyone to know what a person's tax bracket is, for example. But let's make sure we differentiate between something that I think most advisors should know, the basics of income taxes, versus advanced planning. Like that operating loss carryback. I don't even deal with that anymore. What about depreciation and recapture? Blah, blah, blah. I don't expect anyone to look at that. But on the other hand, you bring in a specialist when necessary.
I'll give you just a quick example. This is again, one of these things that I love, again, just a couple of the very simple areas that whoever is listening here, you will make so much money on this. I'm serious. It's not even funny. If you can do me a favor, Mike. Here's what's bizarre. If you've got a married filing joint couple. In that case, if they have a taxable income of $80,000. Any and all of their long-term capital gains and dividends or income tax-free. Period. Next, excuse me. Yeah, $80,000. Think about it. Imagine if all of a sudden, you looked at someone and says, “You know what I can do? I can put together a plan so you can go and sell some of your assets, income tax-free. Is that important to you?”
Michael: Sure. I like income tax-free.
Tom: Exactly. So even if the answer right there too, say, “I'll go over the details of this with you at the next meeting.” That way too, you can make sure to double-check, triple-check yourself.
Well, again, what about this? I'm sure we've heard, “Wow,” think about it. “Let's convert part of your traditional IRA to a Roth IRA.” “Okay, that's a good idea.” The question is, how much? Now, Mike, don't you agree that the how much answer is going to be dependent upon your tax situation? Correct?
Michael: Yeah. Got to run the numbers.
Tom: Exactly. Exactly. And I know you know that already, Mike, but I'm using this as an example. Because here's my question. Do you agree with me? You wouldn't be able to do that calculation without looking at the tax return in the first place. Correct.
Tom: Exactly my point, which means that, oh, you'd not believe how many of these meetings I go to. And the concept is convert part to a Roth. Great. How much? “Well, we don't know. But you should convert part to a Roth.” That's too generic for me. Instead, if you told someone at a workshop, say, “By the way, when you come on in, we'll calculate the optimal amount to convert to a Roth. Is anyone interested?” That's another reason they want to make an appointment right there.
The same thing. And not to get too complicated. But again, in terms of the income tax, always talk about qualified charitable distribution. Which again, I'm not going to go through all the details. I'm sure most of you deal with that. But the 5 Star tip is, always cover that. Because what you want to do is say, “By the way, I'll show you how you can go and make your charitable contribution without even itemizing.” How to do it? Qualified charitable distribution.
So the key thing here is you don't need to know everything about everything. Because here's what's bizarre. This goes back to “The Tipping Point” for a minute. Here's what’s strange. Think about it. Mike. Imagine if I showed you three or four ways to help reduce your tax. You're impressed, of course, hopefully. And hopefully, you'll do business, correct?
Michael: Sure. Save me some money. I'm usually pretty fired up.
Tom: Exactly. So, how about if I did five tax savings? How about six, seven, eight? How about after a while you say, “You already had me? You already had me at the third or fourth one?” Meaning, it's almost with Tom Cruise in "Jerry Maguire" where the girl says, "You had me at hello." And in this case, once you show the people, Listen, I'm different. I can help reduce your taxes in many different ways. Keep it simple. Have them come in. Convert them to a client, etc., etc. All these different things that people spent hours upon hours. Don't do it. Make sure, again, you sell the income tax strategies.
I'd like to now elaborate on that a little more. Everyone, can you do me a big favor? I'm very serious. Please, convert your tax strategies into dollars of taxes saved. You want to say, “By the way, this just saved you $3,000 bucks of taxes.”
Michael: So quantify hard, quantify the value
Tom: Correct. And the key issue on this too. How many times have I said, Yeah, most of my clients, I save them more in taxes than they do repay my fee? Really, I can't promise that. But that's the whole issue here. “Let's keep your taxes down. Is that okay?”
Michael: Sure. Don't pay any more taxes than I have to.
How Tom Helps Clients With Estate Planning [40:12]
Tom: Exactly. Anyway, so that's the tax part. Now we go to the other fun part, which is the estate planning. And when I say this, let's keep it simple. And I really do mean it. I'm not saying this to be negative, but just to keep it simple. I say, let's write down what are the most common mistakes people have with regards to, again, estate planning? Just keep it super simple. Number one, they don't have one. They don't have a plan. Well, get one. Number two, they have one which is 10-years old, what should they do? Get it reviewed. Wow, am I smart?
Number three. If someone has a living trust, what's one of the biggest mistakes people make when they have a living trust? They don't fund the trust.
Michael: They never get around to putting any assets in it. Yeah.
Tom: Exactly. Which is why... Bear with me. There's two things I do require when people are going to meet with me. One is the last year's tax return. But I also want to take a look at their statements, the investment statements. Why? Because the investment statement, you're going to look at the title. And very often, you're going to see it's still held as joint tenants, which, if they have a trust, as you know, that's not correct. So when you can show them and say, “Why isn't this in the name of your trust? Didn't your advisor bring that up?” Because think about it. Do you think the adviser even knew they had a living trust, to begin with, anyway? Probably not.
The next issue. What I look at is very simple. This next area, Mike, probably the most important area, because, again, as I said to you, I have always specialized in IRA distributions. Whether it be retirement accounts from a 401(k) into an IRA, but obviously, even more, in this case, with people that, you know what? They've got a large IRA, and they want to go and pass it on to the next generation.
Okay. Here's the fun part. I really do mean it, Mike. This is one of the biggest things that, again, I can't believe how many people don't differentiate this. I tell people very simple. “You have two types of assets. Number one is your retirement accounts. And number two is everything else.” Okay? The everything else, when you think about it, well, you've got a will, you've got a trust. In this case too, you basically say, I want my assets to go to whom, at what time, and blah, blah, blah, blah, blah, blah, blah, blah, blah. Good, good, good, good, good, good, good. Well, guess what? What only applies to your non-retirement assets. Your IRAs are governed specifically by your IRA beneficiary form. And that IRA beneficiary form overrides everything. Overrides your will, overrides your trust, overrides everything. “So, therefore, Mr. Client, don't we want to make sure that beneficiary is done correctly? Do we want to make sure the beneficiary form is done right?” Because, Mike, I have a simple question. Do we want to make sure that the beneficiaries of your retirement accounts match the beneficiaries in your estate plan?
Michael: Absolutely. I set it up that way for a reason. Right?
Tom: Exactly. But guess what? It doesn't. Are you aware that 90%-plus of beneficiaries of retirement accounts do not match the beneficiaries of your IRA? “What do you mean? Give me an example, Tom.”
Well, number one the first thing is I always pull up because, again, most people say I don't know. It's called per stirpes. And I know you know this Mike already, of course, but per stirpes, again, you got an IRA? The primary is going to be each other if you're married, in most cases. Okay, I know, I know. The secondary, of course, is usually the children. It doesn't have to be, but usually. In this case, the kids have per stirpes after their names. I don't know. You explain per stirpes and say, do you think it'd be a good idea for us to check to make sure your beneficiaries are okay? Do you think that's important, Mike?
Michael: Sure. I need to make sure
Tom: Let's just make sure. And by the way, very rarely do I ever see per stirpes. Very rarely. But now, here comes the fun part. Here's the fun part. This is where I get the majority of my assets under management. Okay. It's very interesting because it's again too, I can't believe how few people really address this. Sticking with IRAs for a minute. I'm going to talk to you about the concept, the first part of which most people are aware of, I mean, most good advisors are. It's the second part where people go, “I didn't know that.”
Step one, inherited IRAs. As we all know, okay, okay. Okay. Like, I said, primary beneficiary is, each other. Second spouse passes away, you're now going to look at again, that next beneficiary, the next generation. Usually the children, right? In this case, too, kids can take it out up to 10 years, blah, blah, blah, blah, blah. Sound great.
Here's where the deal is. The 5 Star tip here is tell a story. And I tell a story. This is absolutely true, at least from my experience, and that is the following. I say, “You know what? Everybody,” remember, I'm giving a talk on this. In fact, I just gave a workshop yesterday, I had 36 people attend. And in this case, I asked him, I said, “Okay, think about it. With regards to an inherited IRA, there is no downside to establishing an inherited IRA. If you're a child, a non-spouse beneficiary, It doesn't hurt you at all to establish it. The problem is very few people do.”
In fact, Mike, my experience has been, 2020 was an odd year because of COVID. But 2019, I had 72 cases that came across my desk where the beneficiaries could have established an inherited IRA. Guess how many did out of 72? One. That's it. One. Why is that? Well, believe it or not, just keep it simple. And remember this story I'm about to tell you, only tell this to your clients if it's true. But from my perspective, what I've done, I said, “Listen, the major reasons that people don't establish one. Number one, they're not aware of it.” If they're not aware of it how would they know? I tell people all the time. Most people, they don't make mistakes on purpose. It's just they didn't know any better.
Michael: Or it wouldn't be a mistake.
Tom: Exactly. They din't know any better. So bear with me. But now it gets better. It gets better. Okay, well, let's see here. Okay, I've got a smart kid. And in this case, they're smart enough to know that they don't know. So what's one of the biggest mistakes that the beneficiaries make is they contact the IRA custodian and say, “By the way, my mom just passed away, I'm the beneficiary. What should I do?” Mike, I don't know about you. I think that's a good question. Right? It's a good question. I don't know what to do.
Here's the answer. Standard answer. “We're really sorry to hear about your mother. We're going to send you out a form, please fill it out along with a certified death certificate, and we'll send you a check.” Period. That happens over 90% of the time. They get a check and that's it.
Now, the question, of course, why wouldn't the IRA custodian tell them to set up an inherited IRA? Why? Because their companies don't allow them to tell them that. Why not? Because they were sued so many times. I don't know of one IRA custodian that will recommend an inherited IRA, period, because of tax liability reasons.
Now, here's what happens. Think about it. Just recently, I had a couple come in and they said, "We don't believe you." And they had a very large IRA custodian. One the largest ones. They couldn't believe it. I said, "Okay, let's do this. Let's call them up." So I put them on speaker, called the 800 number, the very nice person at the other end said, "Oh, thank you very much." I said, "Hi, my name is Tom Gau. And I'm the financial advisor for this couple that has an IRA with you. And I just have a question. And that is, could you please tell me the pros and cons of establishing an inherited IRA?" Guess what their response was? "What's an inherited IRA?" We give way too much credit toward other companies thinking that they know what they're doing, which, in fact, they don't.
Michael: I'm struck by just a lot of the discussion here. I feel a lot of these things, as advisors, they're areas we often talk to clients about. Just tax planning and IRA planning, and distribution planning, and inherited IRAs. But what strikes me about the the point you're making and the conversations you're having is that we perhaps sometimes take for granted too much how much we know and how common it may be for us doing this with our clients, and that the average human being out there is not advised or not advised by someone who has much training and experience. And there actually is a pretty good chance that things you do routinely they have never heard of.
Tom: Exactly. And you know what's bizarre? Here's what's sad. It's one thing if someone is a do-it-yourselfer, and they've never done it, etc. Okay, I can understand. But what makes me sick is when you've got these other advisors that don't even do anything. I mean, look at it. I'm very serious, Mike. Always ask a very simple question. Everybody listening just ask, and I'm not here to put someone down. Ask your clients, “How often does your advisor look at your tax return?” They don't. Less than 10%, or I'd say 4% has my been my history of advisors who look at the tax return. Well, if they don't even understand the tax return, why would they understand about an inherited IRA? That's the issue. It's like you're asking for someone to go... Because I'm with you, Mike, some of this stuff, I think, shouldn't everybody do this? They don't.
So one of the biggest things I look at is, even if I only knew the basics, I'm 10 times ahead of the people below me in terms of financial advisors. It bugs me because I think that most people should be aware of that. And not to get too off tangent. But guess what? Now the issue is, because now here's the fun part. Here's the fun part. I have a question. And this part here, I know, you've actually had a few articles on this over time. I read all your articles too, Mike, they're great. But one of the issues is very simple.
Let's assume that someone says, “You know what? I've got a large IRA. And I'm worried. My kids are probably not going to do the right thing. And I'm just concerned that I've got a $2 million dollar IRA or a million, whatever it might be. And in this case, if they don't want to establish an inherited IRA, they're not going to have so much tax to pay.”
So step one is you want to show them how much tax they're going to owe. For example, someone has a million bucks, they've got a kid, all taxable at once on a million bucks, as you can imagine, especially if they're, who knows, let's say, in Washington, or New York, or whatever. The tax on that is going to be at least, 45%, federal and state. In that case, it's $450,000 bucks. And instead, you say, “By the way, if we decided to take it out over a period of time, over 10 years, or whatever else is, the first year, instead of $450,000, it might be $25,000.” And they say, “Well, would you like to reduce your tax the first year by $400,000? Absolutely.” Now, you got to pay tax on it later on. I understand that. But it goes back to the same issue. Giving them the tax advice.
So the question is, how do you prevent them from blowing it? How do you prevent the child from not doing it right? And the way you do that is by establishing an inherited IRA trust. This is something you want to look into, this is one of the biggest things, at least, you want to bring up, work with a tax attorney that can help set this up. I get more clients, probably from that alone, because number one, I educate them on the importance of an inherited IRA.
But the second issue is, how do we make sure that they do take advantage of the inherited IRA? And again...
Michael: Which again, to me, it makes a striking point. We like to talk about the breadth and comprehensiveness of our financial plans to get into 27 different areas, of which estate planning is going to be one. You're driving one strategy with one conversation that resonates with people and just driving business off of one core conversation that resonates with people in an area where they have pain or concern.
Tom’s Keys To A Successful Advisory Business [53:03]
Tom: You know what I found out too? Here's what's bizarre. Let's think about it just for a minute. I know it might sound obvious from what I'm about to say. But anytime you're going to go and have any type of business, whatsoever. It doesn't matter what niche you have, it doesn't matter. But there's three steps.
Step one, you have to have a situation in your niche that there's a common problem. It has to be a very common problem. Like, for example, if someone comes in, and while they have a question because of a farm that they owned, and they weren't sure how to pass it on to the next generation. I don't know about you. I don't deal with farms. So if it's something that's really not common, I'm not interested, because I don't want to know about everything on something that I'm very rarely going to use. That's step one.
Step two, the problem must be easy to fix. If it's going to be too complicated where it's going to have all the different issues, like if someone has a large estate state tax problem, and you got to do this, this, this, and jump through all these hoops. Most people aren't going to do something if it's that difficult.
The third issue is it must involve a lot of money. How many times have I seen different articles or different people talking about, “Wow, you know what? You can put away money in your IRA or your Roth IRA that's $5,000 or $10,000 a year?” Well, that might be fine. But the question is, how many of these cases are you going to have to do before you start getting a lot of assets under management? You got to make sure is it going to make enough money for you to actually have a business? So in this case, my specialty has been people that are retired or about to retire, which in this case, we're using, have a lot of money, even if it's just in their IRA. I don't know about you, Mike, I'm looking at someone that's worked for 30 years, they are usually going to have $500,000 or more in their 401(k). Agreed?
Michael: Yep. If they're hoping and working towards retirement, there's a good chance that by then they've accumulated a decent chunk of change.
Tom: Exactly. So notice, too, by the way, that's not that unique, because I'm focusing on people that are retired or about to retire. So, it's not that difficult to come up with that niche. But the issue is then, you want to find out, well, what are your major areas that people are interested in? And obviously, a good rate of return, like I said, but when you think about it, the two biggest things we've determined, study after study, and I know you, Mike, you've also done this as well, on your end, and that is, you know what? Like I said, taxes, especially taxes on retirement accounts. And if they don't know that there's a lot of taxes on retirement accounts, they'll certainly know after they meet with me.
And the second issue, of course, are the beneficiaries, like I said. The retirement account in terms of where it's going to go to. So, in my opinion, I'm very serious, Mike, let's think about it for a minute. If we look at things from the standpoint of “Well, how many niches are there?” And you could obviously go and put, however, many sub-accounts, or the one to look at. When you think about it, you're dealing with people that have a lot of money. They're retired or about to retire. You can deal with people that, let's say doctors, dentists. A specific niche. It doesn't matter, whatever that profession is, but that's okay. Then you have others. And after a while, there's only a limited number of niches. Now, you can always say, “Well, my niche is helping everybody with everything.”
Michael: Otherwise known as generalists.
Tom: Exactly. And you know what? I love generalists, where the client comes in with a lot of money because, guess what, that generalist is going to lose that particular client to a specialist. And I look at it where, to me, why not go and do it in a manner that people are going to want the information and they want help? Like if someone asked me, “What do I do for a living?” I don't say I'm a financial planner. No. What you do is you say what you do, which is, someone asked me, “What do I do? I say, I help people pay less taxes and make more money.” Simple as that. I help people pay less taxes and make more money. If someone says, I'm a stockbroker, I'm a money manager, a wealth advisor. They don't know what that means. But if you say, this is what I do, I help people pay less taxes.
You got to be careful, though. Because if someone asked you that question, and they don't look they have enough. Like, let's say they're barely starting out, they just graduated from college. With all due respect. I don't want that person. I really don't. So they say, “Well, what do I do for a living? I say, I sell life insurance.”
Michael: Well, that probably shortens the conversation a bit.
Tom: Exactly. And people say, But you know what, Tom, they might be very successful 30 years from now. Thirty years now I'm retired. “Excuse me?” I want people that have money now. As simple as that. Maybe I'm just too impatient. But I want people to have money now so I can help them.
Michael: So help me understand now, going back to the overall marketing strategy, this kind of education workshop-based approach. So, can you walk us through a little bit more like, what are the workshops? What are you advertising as the workshop? How do you get the word out to get people to show up at the workshop? Just what is the actual workshop process that you're going through?
How Tom Creates Awareness For His Target Market [58:35]
Tom: Excellent question. Excellent question. Because obviously, the first thing is getting people to come to the workshop. The second part, of course, getting them from the workshop to come in and meet with you. Right? And I completely agree, because you've hit the nail on the head. And so, how to get people to go. Well, let's see here are the number of ways to do it. Number one, as I said, do some private workshops, if you can, get your feet wet. Private workshops can include all the way from, again, companies, for example, you can also do it from local organizations, you can also do it, like here in southern Florida, as you can imagine, there's a lot of 55-plus gated communities. So what I do, I contact each of these gated communities. I give talks at their clubhouse. There might only be 15 or 20 people there, but they're qualified. Plus, guess how much it cost me for the marketing? Zilch. The main thing I have to do, it costs a lot of money, though, because remember, I have to bring bagels. And that's expensive. But going back, though, the other issue is, remember, you got to get your feet wet anyway. I'd rather have you get your feet wet in front of 5 people than in front of 50 people.
The other way that we do it, we do public workshops. And a public workshop, in this particular case, we go and actually put an ad in the paper. Or you can do direct mail. Or there's a number of other ways. You can invite your clients and have them bring a friend. But the key issue that people forget is marketing is not an expense. It's an investment. Example. I just spent about $10,000 on a series of ads. Two workshops I did yesterday, I'm doing two tomorrow. Well, guess what? Let's think about it. My average percent I charge AUM is 1%. Okay, Mike? So in this particular case, “Wow, let's do some simple math. Wow, let's see here. I spend $10 grand, and I'm going to make 1%. Oh, you mean, I got to bring in a million bucks? Which is $10,000 for the first year. And you mean, I get to do these workshops? And I only need to bring in a million bucks from all these new people. I usually bring in between $10 million to $15 million.” Which means that, why shouldn't I do that? You know what I mean? And this is the whole issue. People forget. Because if you're going to have to spend a lot of money, and you're not going to get a lot of AUM from it. I agree, maybe it's not your area to do workshops.
Michael: But, I get it. Like, you can do lots of different things, advertise in the newspaper, do direct mail, etc. Like, what is your process? What do you do that's working so well and driving such results for you?
Tom: Excellent. Believe it or not. I put an ad in the paper. And the ad goes, usually the Sunday right before the workshop. So, for example, I had two on Tuesday, yesterday. I've got two tomorrow, Thursday. So I put an ad in the paper last Sunday, a couple of days ago. And the same ad went in last Wednesday. And the same ad went in the Sunday before. So basically, the same ad, the same newspaper. All in the first section. So there's three ads. The total cost there is about, I don't know, $8,500 bucks, $8 grand. And then plus, of course, the cost for the hotel, or whatever. But the bottom line is I'll put that ad in there. And it's very simple.
Like, for example, I'll put in there for the headline. “Income and estate tax survival workshop. This special seminar covers the new proposals that will increase your income and estate taxes.” And what I always put in there, always, always put in any of the ads on the title. Make sure you always put in there. “Don't pay any more taxes than you legally have to.” I tell people that to get them in. I tell them at the workshop. I tell them when I'm meeting with them in person. You got to remind these people. They can't remember everything. You can, because you've been doing it all the time.
Then I said, “But why didn't their advisor bring it up? It's not so obvious. Why didn't they know about it? It's not so obvious. Why didn't the taxpayer bring up? It's not so obvious.” There's so many things, and I mean this as a huge compliment to you and your team, Mike. We think that most of the other advisors are at a certain level when they're not. I'm not trying to put anyone down. I'm saying this to everyone listening to this to say, “Use that to your advantage.”
I know, Mike, you mentioned to me, recently, with regards to the analogy of the iceberg, right? And you said, Many times, people have a certain problem below the water they're not even aware of. Well, guess what, what you want to do is you want to look in the mirror and say, “Gosh, darn it, I'm good. Gosh, darn it, these other people don't know diddly squat.” And once you can say that, there goes your confidence way up, beyond that waterline, up to the tip of that iceberg. That's the key issue here. Getting that confidence, realizing, My goodness, these other people, I hate to say it, I'm not going to say this, but they're dumb.
You want to make sure you do a major blast of these workshops. But what is important is the following. Is that in the workshop, you've got to go and get excited about how you can help someone and say, “I'd like to keep your taxes down.” I'd to do this. I'd like to do that. People, remember, enthusiasm is contagious. The more that you can then say, “Wow, this is really good.” I don't know. Well, think about it. Mike, do you agree with me? How do you like it when you hear a success story? Whether it be from a client, whether it be from one of your, for example, people that are subscribers to you, whatever it might be. And they say, “I took your advice. And oh my God, thank you. Thank you. Thank you. Thank you.” Doesn't it make you feel good, Mike?
Michael: It feels great.
Tom: Exactly. And that everyone hearing me too, you know that too. So guess what? Think about that. Think about all the people that are in the audience that you can help right now. And you're going to feel good about yourself, but also guess what else is going to happen? You're going to get a lot of AUM. Why not? They're not mutually exclusive.
And so this is why, like I said, I can't not get excited because that’s how I am.
Michael: So Tom, then, when you get down to the workshop itself, what are you delivering? I mean, is this an hour-long structured PowerPoint presentation? Is this like a 30-minute informal conversation? Is this like a four-hour thing with workbooks that they go through and fill out along the way? What is a workshop?
Tom: That is a great question. I'm serious. I love it. After all the studies back and forth, etc., etc, here's what I do. I give basically, a two-hour workshop. Two hours, and I usually end out the last 15 minutes Q&A. But you know what I do? I cover more information in that two hours than you can imagine. We give more facts, because guess what you want to do? Overcome the audience with facts. We don't talk about any type of investments. We don't say, “Well, municipal bonds here.” No, we might say, “Go into some tax-free bonds that might help reduce your tax.” But that's the limit of the investments. You know what I'm saying? Like we're going to talk about how to convert a Roth IRA. Investment is not relevant, for obviously, purpose for the workshop. Because what you want to do is make sure, the 5 Star tip is to address the problems that they have that they're not even aware that they have. Remember, there is no solution if the problem does not exist. There is no solution if the problem does not exist. And that's why in the workshop, you want to sell the solution, not the product.
We do that via a PowerPoint. What we do is on the PowerPoint. We have theater style seating. We don't want to have people that are going to sit at desks because otherwise, the room is got to be a lot, lot, lot bigger. People are fine. One of the things you should definitely do on the PowerPoint, take a copy of the slides. And make sure that those are handout materials. That when the person's taking notes, they can make notes on top of the slides. They're going to love you for that.
But then when we also do, of course, is we have the other handout materials such as what? Well, how about my bio? How about the firm, okay? What we also do is very simple. You want to make sure you have the right response form. And the response form. If you have people, if you're going to ever do a workshop, here are the steps. Step one, get them to the workshop itself, obviously. This case to the marketing, etc.
But the second thing is now there at the workshop, it's very simple. Make sure that they make an appointment right there at the workshop before they leave the room. That's the key issue here. How do you do it? Well, we have over 50% of the people that come to our workshop will make an appointment right there before they leave. Why? Because all part of this closes. You want to show them, “Hey, listen, we suggest that you come in for a meeting with me to review the different areas.”
And this is the phrase I like to use, Mike. I'm not kidding. Imagine If you're in the workshop, Mike, and I say, “Okay, how many of you have ever gone to a doctor for a physical?” And they all raise their hand? “Well, when you went in, were you sick? No. Then why did you go in? To make sure that everything was in order? Right? Because if it wasn't an order, you'd hopefully have enough time to fix it before it got out of order. Right? Cool. Well, I have a question. When is the last time you've had a financial checkup? When was the last time you've actually met with an advisor that looked at your tax return, looked at your estate plan, looked at your investments, looked at your retirement, and looked at everything to make sure everything was in order? When's the last time you've had a financial checkup?” What's the answer, Mike?
Michael: Usually, never.
Tom: Never. Exactly. They're going to say, “You bet.” Well, then guess what? We encourage everyone to come in for a free financial checkup to meet with me. It takes about an hour. It's all it is. Because you know what? “I'm willing to devote an hour of my time if you're willing to devote an hour of yours.” You'll not believe, It's a no risk situation. We also tell them, they've got to bring in, basically three things. Number one, last year's tax return. Number two, their most recent investment statements. Now, I want to clarify something. I don't want them to bring in their latest investment holdings because the holdings don't tell you much except for here's what they have and here's what the values are. I want to take a look, in addition, at the end of each month, for example, it's going to show the cost basis, right? If it's a non qualified account. In that case, I can see what the unrealized gain or loss will be, right? I'm also going to look at the title to make sure it's held properly. But the other thing is, remember, it's much easier to do a change of dealer when you have an account number.
Tom: I've heard people say, “Well, look at the applause I got. Look at how many people love this workshop.” “How many appointments did you make?” “Well, I told them I'll call them later to make an appointment.” Are you kidding me? Bring them in while you're doing that. And that's what bugs me so much, because people confuse the issue of being, “Wow, I'm so smart.” Versus, you got a business to run.
And that's why too, what's bizarre is that, again, it goes back to the same issue. Differentiate yourself using whether it be taxes or estate planning. And you know what? That has worked everywhere I've gone. I've taught thousands of advisors, and almost every one of them that's attended my sessions, the number one thing that they've said is, “Tom, you're the only one that really is emphasized the issue of the taxes and estate planning,” but bear with me, you want to make sure that are going to make the most impact.
And by the way, one last thing too. Always make sure you have something else that's going to be helpful to your credibility. Like, for example, Mike, in my own entire career, I've written so many books, or booklets on these subjects. One of which I'm coming out with. And it's actually the most recent one is at the printer right now. And it's called "The IRA Survival Booklet." IRA Survival Guide is one of these things that incorporates all the different rules on the secure act. And I could go on and on and on and on and on. And we don't use this as mailers as much as what we do is we put these in our lobby. We put these in our handout materials. But guess what it does? Instant credibility. Instant credibility.
And this goes back. The same issue. Think about it. Mike, do you know anyone that might be moving from the northeast down to Florida?
Michael: Yeah, happens a wee bit.
Tom: Yeah, just a few times. Right? In that case, sell their house up there, even though prices are getting pretty high down here, too. But most people, when they buy a house in New York, it's twice the cost here. And in that case too, most people that are moving down here that I know are retired or retiring. So guess what happens? Wow, why don't we capitalize on that?
So I have another publication. It's called, Planning Your Move to Florida, Steps to Take to Become a Florida Resident. So, in that case, I'm working with other realtors down here that are already doing marketing up in New York, for example, and offering this free guide if they basically come down to look at a house. And that's again, you want to make sure because all that's around your niche. That's the key issue here.
And, and by the way, do you know what else we do when someone says, “I know all the rules about inherited IRAs”? I also have what's called an inherited IRA quiz. The quiz consists of 10 questions. When someone says they know what they're doing, I say, Fine. Here's the quiz. Take it, let me see how well you do. The average individual gets 4 out of 10. The average financial advisor gets 7 out of 10. And when you can show that directly with a client and say, “Listen, I'm not telling you that I know more. The quiz is showing you I know more.”
What Surprised Tom About Building (And Selling) Advisory Firms [01:13:34]
Michael: So, having gone through this cycle now of doing workshops to build clients. You've built it and sold it in Los Angeles, then built it and sold it in Oregon. Now building for the third time in Florida. So I'm wondering, what surprised you the most about building your own advisory business?
Tom: Well, what surprised me about is that number one, it doesn't matter what part of the country you're in. The same concerns are there for people that are retired. They usually have more money, obviously. The same people interested in reducing taxes. No kidding. While in this case, they have an estate planning issue that they want to address. No kidding. So in that case, the consistency is there. The same issues appeal and apply to wherever it is you're going to. So in this case, in southern Florida, yeah, I know it might sound obvious, but one of the other reason I chose it is wow, there's a lot of retirees in Florida. No kidding. Right? And so, from that perspective, I don't really see any difference.
Michael: So what was the low point for you on this journey?
Tom: Low point on the journey? Oh, probably the key issue is learning more of the specifics of the area. Like making sure that where I wanted to market in terms of where my office is, where people are going to go to, etc. I had to do some testing on that because then we discovered there are certain locations people aren't going to go to, but other locations are more popular.
The other issue is, and it goes back to where... You know what? When you're thrown to the lions, you got to make sure you know how to deal with lions in the lion's den. Right? And it's funny, because to me, a lot of people here that are retired, although we have the same issues, many times, they are different in a 55-plus gated community because there's no kids, etc. So when I moved, I wanted to make sure it was not going to be in a 55-plus gated community. But overall, like anything else, you got growing pains when you're starting off. And as long as you know, really, what you're doing. It's great. In fact, it's so funny, because many people, like you said with the iceberg approach, they really don't even want to test the waters to see what works. It's sad, but it's true.
Michael: So, having gone through this growth cycle, three times now, what do you know, building your third firm now that you wish you knew when you were doing the first one, 20-plus years ago?
Tom: Well, I agree. I think the biggest thing was it took me a long time to have the unfortunate realization. Believe it or not, this is the mid-80s. If you can imagine. In my opinion, if you're a fiduciary, you've got to place the interest of the client first. And I've always had a very high bar as most people I know are listening, you still have a high bar too. That's okay, good, good, good, good, good.
However, in my opinion, if someone's going to place the interest of the client first, they better know what the tax consequences would be before they recommend something to someone, right? But they don't. And that's why part of this whole fiduciary duty, in my opinion, is a joke. Because how can you tell me you're doing what's right for the client, when in fact, you don't even know what's their tax bracket?
I'll give you an example. I had a person that came in last year, at the end of the year. And you know what? Because of COVID, they had to go. And they had a lot of these expenses for their businesses, and blah, blah, blah, blah, blah. The guy had over a million dollars of losses. And again, it's sad. Blah, blah, blah, blah. Okay. Okay. I said, "Do you know what we could have done? We could have converted a million dollars, from your traditional dual Roth, we could have been able to transfer a million dollars income tax-free to the Roth, and it'll be tax-free for the rest of your life. And then some." Do you think anyone even brought that up? No. That's what's upsetting to me. And you know what? When I finally realized, guess what, that same problem exists back then. It exists today. And until this industry gets its act together with regard to making sure that people give tax advice, that's never going to happen. It's just not. I wish it would, but it's not.
The Advice Tom Would Give To Newer Advisors And What Success Means To Him [01:18:07]
Michael: So what advice would you give for younger or newer advisors coming into the industry today?
Tom: Great question. The first thing I would do is work for a quality financial planning firm. And I say that. Make sure you check them out, make sure they release it down. They look at everything. They don't just look at their investments. They don't do cold-calling and all this other stuff. And be a junior rep. That's the number one thing. Even if you have your CFP, guess what? Just like I said, you got let's say medical degree, but you don't have your residency. Well, guess what? You who might have the education, you don't know diddly squat about working on a patient. The same logic. You say you got your CFP, you say maybe even have some other education. The key issue is, you want to make sure that you work.
Make sure too, if you can, have those people basically, have you as what's called double-coverage. And what is double-coverage? Well, what you want to do is this. Think about it. When I had a much larger firm, especially in Southern California, what I would do is this, I'd say, You know what? I'd hire someone. I'll say, “You know what I want you to do? I want you to learn by watching me.” And what I want to do is, any of my clients, I'd have this person come in, take notes, watch me, and basically, mirror me. I wanted to have them go and basically be cloned because I know what I'm doing. In this case, I can tell my clients, I can say, “By the way, just in case I'm not here, we have what's called double-coverage. And I've got my assistant here too, my associate, other financial planner. And guess what? If I'm not here, you can always talk to him or her. I'll still be the key contact point, but just in case, you can talk to him.”
What does that sound like to you, Mike? Doesn't it sound your doctor or your dentist? Because you're not always going to get ahold of the doctor. You're going to get ahold of the nurse practitioner or the nurse or someone else, right? The same logic.
So what you want to do is if you're starting out, go to your boss and say, “I'd to help you increase your assets under management and reduce the amount of time you have to spend working. Is that okay with you?”
Tom: Exactly. Exactly. Wow. Wow. That's what's so bizarre. I'm not kidding you. That's what's so strange about everything here because to me, one of the other items. I'm serious, if you're ever taken on a new client, or even if you have existing clients, do me a big favor. Do you know what I used to do Mike? A long time ago, I kid you not. When I first started off, I was so smart. Wow. I was a CFP. I was a CPA. And blah, blah, blah, blah, blah. And, “Wow, now I can do anything.” So we used to do these thick financial plans, abut two inches thick. We called them Financial Planning By The Pound. And we quickly realized, that's not what people want.
So guess what? We said, if we were a doctor, what would we do? Think about it, Mike. If you're not feeling well, you go to a doctor, and they're going to do the testing, and blah, blah, blah, blah, blah. And now you come in for that second appointment. And he says, “Let me tell you what's wrong with you. Here's what you need to do.” Basically, he has a checklist. Whether the checklist is in front of him, or that he's giving it to you, but he's keeping it simple.
So what I do is I prepare what's called a Financial Action Checklist. In that case, it divides it up into the different categories of what they need to do. Some of which are easy. Others are not. And that's okay. But the reason I'm bringing this up. Check that financial action checklist at least once every couple years, because there's going to be a few things that you had two years ago, you still haven't gotten done. That's where you can now still meet with the client, help them out, and get referrals, etc., etc. Do the same thing if you're starting out as a junior advisor, working with another financial planning firm, and suggest to do the same thing. That way you can offer to them, say, “Listen, I think it would be a good idea if it's okay, to do these financial action checklist on some of your existing clients, and make sure we haven't overlooked anything. Is that okay with you?”
Tom: Okay. And notice, other advisors are going to say, “That's good. That's really good.” Because remember, as you know, there's three things about business. First, you got to make sure you get clients. And then the other item, of course, is you want to make sure to retain the clients and making sure you service the clients. And that's the part where people sometimes, they forget that. Like, you better make sure that you retain those clients. The way you do that is continuing to add value.
We meet with our clients, my average is four times a year, every quarter. And even if it's just to basically say, “There's no changes to be made, but I want to make sure how are you doing.” And as we know, that's the key issue here. People don't understand money, but they understand relationships.
Well, that's why too. All these items I've mentioned, it's really strange, because, to me, I used to teach advisors from a mass production perspective. Many times we would do, like I said, these boot camps, etc., etc. I also had a company, basically, it's now The Academy of Preferred Financial Advisors with Ken Unger. And that's where I met a lot of people through because he and I started this firm, Million Dollar Producer. We continued that about 20 years ago. But I decided, you know what? I don't want to do it on a mass level. Right now, I have what's called the Tom Gau Coaching Program. And all that I do there is I have a few number of advisors. They have to have at least $100 million of assets under management. And would take one on one. That's what I really prefer to do. Because that way, I can help them design their papers, their marketing, write these books for them, and etc., etc. Because that's where I get the most out of it. I want to see their success when they go from $100 million to $300 million, which a number of them have done. But the key thing is, I love helping clients. I love helping people.
Michael: So, what else is next for you? Like, what else are you working on from here?
Tom: Well, it goes back. That's a great question. I look at it this way. After a while, I love what I do. I don't know. For every set of workshop, we probably bring in, say $20 million. And in this case, like I said, last year was a very strange anomaly, because of COVID. But nonetheless, I look at this, I'm saying, “Well, do I stop at 140? No. Do I stop at 200?” I don't know. It's like, as long as I'm doing what I like to do, but what I don't want to do is get too many clients. So right now, my personal goal, I want to have a maximum of 100 households, 100 clients. So when I say "clients" it's "households". And right now I think I'm at 72. So, once I get up to 100, that's not even full-time for me. But hey, then I can do other things. Last year was the first year I didn't play Santa Claus in a different country because of COVID. So now, I'm getting ready to play it in the Philippines. Coming up in December.
For example, I like to do things in a big fashion. Two years ago, in the Philippines, we had 16,000 people show up for Christmas.
Michael: That's a big number. A big number.
Tom: Exactly. We passed out 20,000 toys, all these other gifts, and over 10,000 tons of rice. And I could go on and on. And that's what I like to do. That's another one of my biggest things. If I can help people, I'll be damned if I don't help people. So that's what I like to do. But I love life. Like I said, just being on the phone with you here. For anyone that's listening. I'm hoping we went over a few things that might help people increase their AUM.
Because I do want to clarify one other item that's very important here. Okay. So I want to share something with you. There's a lot of places, teaching advisors, which is fine. By the way, anything I subscribe to, you're the best. By the way. I'm not kidding. I'm not just saying that because I'm on with you. But there's no question. You got good stuff almost every week. But the point I'm leading up to, but going back, I focus on my coaching program on assets under management. A lot of places focus on practice management. I don't focus on practice management. I focus on assets under management. Which is why it's very simple. The logo I have is Increase Your AUM. Then you can do more whenever you want to do too.
Michael: So, as we wrap up, this is a podcast about success. And one of the things that always comes up is just the word success means different things to different people. And so, as someone who's built a number of very successful advisory businesses over the years, I'm wondering, what does success mean to you at a personal level at this point? How do you define success for yourself?
Tom: Well, that's a good question. I mean, success, as we know, in my opinion, based on a number of different factors, one of which is business, the other is personal. From a business perspective. I'm not trying to brag, I think I'm already successful right now. It's like, what else do I have to prove? That's why sometimes I look at this, then I ask myself, What would I do anyway? So, the issue of success, I'm already successful. But, you know what I'd do? Imagine, someone said, “What would you do if you made another million bucks?” Do you know what I look at that, Mike? I ask myself, “How many mouths can I feed? How many more gifts can I give with that million bucks? What can I do to do something special for someone?” That's success to me.
Michael: Well, thank you so much for joining us on the "Financial Advisor Success podcast" and being willing to share the story and the journey.
Kevin Kroskey says
Wow. That was an interesting podcast.
Kaleb Paddock, CFP® says
Love Tom’s focus on the tax ideas to generate client curiosity and value. I’m also curious if Tom has worked with Kevin Knebl since they have a similar speaking cadence, vocabulary, and delivery?
Also, has any podcast guest ever used “Mike” more than Tom? LOL
I felt dirty listening to this.
brian c says
Yep, so sleazy
Jacob Rothman says
I think he is a refreshing voice to hear since we have a sea of advisors who pedal a bunch of kumbaya nonsense.
Luis Guardia says
This felt exactly like the tactics used/taught when I worked at a life insurance company……
Jacob Rothman says
Interesting how little tax planning many advisors do. I want to figure out how to systematize tax advice within a financial planning practice.
I’m also curious what MMAN, brian c and Russ found so objectionable.
At the hour and sixteen minute mark of the podcast Tom says, “I’ll give you an example. I had a person that came in last year, at the end of the year. And you know what? Because of COVID, they had to go. And they had a lot of these expenses for their businesses, and blah, blah, blah, blah, blah. The guy had over a million dollars of losses. And again, it’s sad. Blah, blah, blah, blah. Okay. Okay. I said, “Do you know what we could have done? We could have converted a million dollars, from your traditional IRA to Roth, we could have been able to transfer a million dollars income tax-free to the Roth, and it’ll be tax-free for the rest of your life. And then some.” Do you think anyone even brought that up? No. That’s what’s upsetting to me.”
Someone please correct me if I am wrong, but you can’t offset ordinary income with portfolio losses by more than $3,000 in a single year. If that is correct, then Tom’s statement above is incorrect. What am I missing here? Why didn’t Michael correct Tom? Tom also said that if you file married filing jointly and your taxable income is $80k you wouldn’t pay any taxes on the realized gains of an investment. if the investment is sold, wouldn’t the gain from the investment increase your taxable income, which would put the client’s taxable income above $80,800, forcing them to pay the 15% cap gain rate on the amount above $80,800 (assuming the holding period requirement has been met)? I am pretty new to the industry, but there were moment in the podcast I felt like this guys was misleading the listeners, his own clients and prospects.