Welcome back to the 98th episode of the Financial Advisor Success!
This week’s guest is Zach Teutsch. Zach is the founder of Values Added Financial, an independent RIA in the D.C. area that has quickly grown to more than $300,000 in recurring retainer fees since launching under 18 months ago.
What’s unique about Zach, though, is that, in a world where we as financial advisors are typically trained to never talk about religion or politics with clients, Zach has specifically formed a niche in working with progressive Democrats, which undoubtedly drives some prospects away, but has also quickly accelerated the growth process for his firm in reaching the primary clients he wanted to work with anyway.
In this episode, we talk in depth about how picking a niche, even based on politics, can actually be quite effective, precisely because it helps to deepen the relationship with clients by having a shared set of beliefs. The kinds of clientele that Zach has been able to attract by focusing on a political niche, the way he’s created a sliding scale retainer pricing model specifically to fit his target clientele, and how he’s now developing his investment process specifically to combine impact and ESG investing, tax-loss harvesting, and an additional layer of charitable giving that his clients are uniquely engaged in.
We also talk about the rest of Zach’s financial planning process with clients, which isn’t just about working with progressives, but also simply the fact that most of his clients are high-income professionals in their 30s and 40s. The way he’s developed a list of what he calls financial planning interventions that he uses to demonstrate why his average financial planning retainer fee of $10,000 a year is still so worthwhile to his clients, how Zach has developed a unique exercise of helping clients prioritize with a deck of custom cards with financial planning needs and goals written on them, the kinds of career-related advice that he often talks about with his clients, and the way that Zach handles budgeting conversations with his younger clientele.
And be certain to listen to the end, where Zach talks about how he balances out his own needs to generate income from his practice while giving back to his community with pro bono services, and how the way that he’s chosen to structure his firm has, in his own words, gotten him to the point where he no longer feels like he has to choose between work that feels good and being financially successful.
So, whether you’re interested in how Zach builds trust and by being upfront about who his ideal client is, how he helps his clients achieve their values-based goals, or why his “interventions” help demonstrate the value of his services, then we hope you enjoy this episode of the “Financial Advisor Success” podcast with Zach Teutsch.
What You’ll Learn In This Podcast Episode
- How picking a niche can help deepen relationships with clients. [4:48]
- How learning about behavioral science and therapeutic skills have helped in his financial planning. [17:48]
- What made him walk away from a salary and take the risk of starting his own firm. [29:48]
- What led Zach to his unique niche. [39:28]
- The three pieces of his fee structure. [45:49]
- The pricing model Zach created specifically to fit his clientele. [52:30]
- The “financial planning interventions” Zach uses to demonstrate the value of his services. [58:21]
- His financial planning process. [1:10:32]
- The unique exercise he uses to help clients prioritize their financial planning needs. [1:15:55]
- How Zach uses direct indexing to help his clients achieve their goals. [1:33:17]
- His vision for his firm’s future. [1:40:35]
Resources Featured In This Episode:
- Zach Teutsch
- Values Added Financial
- Job Openings at Values Added Financial
- Kingdom Advisors
- Consumer Financial Protection Bureau
- Alliance of Comprehensive Planners
- XY Planning Network
- Episode 94 with James Osborne
- All It Takes Is 50 Great Clients
- Heather Jarvis
- New Heights Solutions
- Zach Teutsch on XYPNRadio
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Welcome, Zach Teutsch, to the “Financial Advisor Success” podcast.
Zach: Michael, thank you so much for having me. I am a loyal listener, so it’s a real honor to be here with you.
Michael: Excellent. Well, welcome to the, I was going to say like, the other side of the microphone, the other side of the headset, the podcast.
I’m excited about this episode because you have a really interesting unique practice that you’ve been building over the past 18 months or so, that I feel like the most straightforward way to do it is just to quote directly from your home page, that, you know, your advisory firm is about helping progressives build thoughtful, prosperous, impactful financial lives. And the big piece of that is you help progressives and you’re right out there with it, in a world where I think most of us as financial advisors just get trained, like, I feel like it’s beaten into us, you know, you never ever talk religion or politics with clients ever because you don’t want to risk offending them or being caught on the wrong side of something. And if anything, that’s only more extreme in today’s political environment because there’s just so much energy, not always positive, around political views and the political divide.
And you have literally taken it as the lead of your advisory business that, “I’m going to help people of a particular political type.” And the point of the podcast today is not literally about progressives versus conservatives or the political issues themselves per se, but just the idea of, what does it look like to not try to toe the middle line on political issues and actually making that the center of your practice to, I guess at the most basic level, like, take a side about having a particular view, especially in today’s political landscape?
How Picking A Niche Can Help Deepen Relationship With Clients [4:48]
Zach: Yeah, that’s right. I mean, the conventional wisdom is people say not to talk about politics and religion, but we found absolutely the opposite. Sure, it’s going to turn some people off, but that’s okay. That might be good even. For the right clients, us being candid about our values has built trust and the depth of connection that can only come from having deeply held shared beliefs.
Now, let me be clear, we don’t have a political litmus test. It doesn’t ask you who you voted for on our intake form or anything. It’s okay for us if a client has views that are different from ours, they just need to know who we are and what we stand for and feel comfortable about that. And most people at our firm, you know, have overlapping shared beliefs about that stuff to us, but not everybody. I mean, we don’t discriminate in any sense. Like any person who has a niche focus, we have specialized depth of understanding on a range of issues. And it’s the most valuable to people who get the most use out of it.
Michael: Right from the start there, you made what I think is just an incredibly profound statement. That, “For the right clients, us being candid about our values builds trust, and there’s a deeper connection that comes from having shared deeply held beliefs,” right? Like, whatever those beliefs are, not necessarily about particular ones, but just coming together with shared beliefs and being candid about values that people who do identify with them for the right clients was kind of how you let that off. For people who identify them, it’s magnetic. And obviously for the rest, it’s kind of not, or it may turn them away very strongly in the other direction. But then, you know, that just means there’s some advisor on the opposite side of the political aisle who can literally do exactly what you do and have replicated the model, they can just do it on the other side of the political divide, and anybody who has strong beliefs in that direction, like, you know, conservative financial advisors is for you.
Zach: That’s right. So I think actually, the fact that this really help some people connect in a deep way is a benefit, and also, the fact that it turns some people off is an indirect benefit to us too. Like I don’t have any, you know, clients that post a bunch of “Make America Great” stuff, you know, on Facebook, at least that I know of. I guess they’ve done the privacy setting so I couldn’t see it, or whatever they do. But the point is, I think I would find it a little difficult to connect with that person in the way that I connect with most of my core clients. But somebody else would be really well positioned to serve them if they have, you know, shared beliefs about the world. And, you know, a lot of what we do is fact-based. So the fact that we have people in our same reality community is probably a plus. You know, it gives us a lot of shortcuts. But I think you’re right.
And in fact, one of the more surprising things to me has been, as I connect with other advisors in our field, I’ve encountered almost nobody doing the kind of work that I’m doing and my colleague Ari at my firm is doing from a progressive standpoint. And in fact, the people who are the most similar are folks who are Christian conservatives usually, whose clients tend to say, you know, that living a fulfilling life is about being engaged in your community, having a religious practice, having work that you’re committed to and makes you feel of service, and where you’re really committed to spending time with your family. And those are the drivers of a good and proper life. And actually, our clients tend to think most of those same things. And I think the research supports it pretty well as well.
Michael: Yeah. Well, I know there’s…I mean, there’s an organization out there called Kingdom Advisors that just it is a networking community for Christian advisors that want to deliver, you know, biblically-founded financial planning and investment processes with clients. And just that’s what they do, and they’re very straightforward and out there about it, and they have, I believe, many thousands of advisors in that network. And, you know, different configuration of particular values and political views, although ironically when you go all the way back, a lot of these actually line up pretty well.
So, you know, very different end of the political spectrum perhaps, but it works anywhere. Like, just, people are diverse and have a range of views, but as you said, and I think you so hit the nail on the head from the start, like, for the clients that have those views, whatever those views are, when you as the advisor are well aligned to your clients or your clients are well aligned to you, you end out with a deeper connection that builds on those shared beliefs, and you build more trust if you’re just willing to be out there with those values because the people who share them and believe them too will bond themselves to you more when they understand the shared values.
Zach: Right. The opposite of what we’re doing is not what Kingdom Finance is doing. The opposite of what we’re doing is the vanilla middle. And in fact, the people on the right who do a similar thing, especially with the religious focus, are our peers in a kind of intuitive way.
Michael: Yeah. You know, different particular set of beliefs that you happen to be building around, but it’s still fundamentally a practice around very specific values and beliefs and finding clients that align with those and helping them do financial planning in a way that is consistent with everybody’s shared beliefs in that community. Which is a powerful thing. Which is a powerful thing. And what strikes me about this for you is not just, like, that you’re doing it, but that you’re doing it and people are showing up. So, you know, I know you are just about a year and a half into the practice and have already very quickly ramped up to nearly $300,000 of recurring revenue, which is just an astonishing growth rate for advisors coming into the industry new, even for kind of career changers. Because I know you were doing some other stuff before, you know, much of which was working back in the labor movement as a progressive. And it works. Like, people find people with shared beliefs. It works in a very powerful way.
Zach: Yeah. Let me first offer a caution, which is, it does not work if you’re faking it. You have to really believe it, and your life has to be organized around it. So, the fact that I spent most of my career working directly in the common good builds a lot of credibility. I started my career working at the Service Employees International Union, and then I went to the American Federation of State, County and Municipal Employees to build the first national financial education training program for union members. And then eventually we grew and ended up training hundreds of thousands of union members in financial skills. Then I spent some time at the AFL-CIO and teaching financial skills at the National Labor College as a faculty member. Eventually, I went to the Consumer Financial Protection Bureau, which I think is the only government agency where people are fond of telling you their employee number. So I was a fairly early employee.
Michael: Well, what was your employee number?
Zach: You know, after that setup, I really should have it. I think it was in the 200s and we eventually had about 2,000. And I stayed at the Consumer Financial Protection Bureau until the recent administration change, which meant that my ability to do really innovative work was substantially curtailed. But then, as soon as I started working on teaching financial skills, friends and family members started reaching out for help, and I soon…
Michael: Yeah, you became the financial guy that everybody knows because you do that thing at your job.
Zach: That’s right. And in fact, it’s notable that very few of anybody in my social network knew anybody else who is a conventional financial advisor. There just, like, aren’t very many people who hang out doing social change work and are financial advisors. The answer is not that there are none, but, you know, very few friends of mine from college did that kind of work. Very few people I knew from D.C. were doing that kind of work. So it’s not lost on me that there is sort of a blue ocean element to this.
Michael: Yeah. Well, and to me, that’s the nature of a lot of what tends to happen with niches of almost any type. That just, you know, populations world…the world was big. I mean, at the end of the day, like, we’re 300,000 advisors, there’s about 80,000 CFP certificants. Like, even if we’re generous and give, you know, 100 active financial planning clients every one of those 80,000 CFP certificants, you’re talking about serving 8 million people. There’s about 120 million households in the U.S. So, like, if every CFP is full-on clients doing full-on financial planning, we might almost be working with, like, 6% of the population and the other 94% is just open.
And as soon as you start carving out more specific and targeted niches, it gets pretty easy to carve down to a particular segment where just almost no other advisors are there. It’s easy to focus on pots of money, but once you start carving up clients around almost any other definition besides, “What is the value of your rollover IRA” as a screening criterion, all of a sudden all sorts of people show up that aren’t necessarily being served by any other advisor in their community.
Zach: Yeah, that’s right. So I was one of the first people in my community to have the skills to help people. And I really enjoyed it. So eventually, once people had had such good experiences working together that they were connecting with people I didn’t know, it was clear it was time to set up some sort of practice that was not just, you know, having dinner with friends and chatting about their retirement plans. Mostly other things because then it was an interesting dinner. So I did financial coaching alongside my work in the labor movement and at the Consumer Financial Protection Bureau with very careful conflict rules to make sure that, you know, nothing was interfering between my day job and my nights and weekends role.
Michael: So what were you doing at that point? Like, what was financial coaching? Like, what were you doing? Were you getting paid? What did that look like?
Zach: Yeah. So I would normally work on an hourly basis using a sliding scale. So that was the revenue piece of the model. And then I would talk through people’s big questions and help them think about how to think about it. I would often work with people on cash flow issues, which is very obviously in bounds. And then the thing that’s a little trickier is the rules about giving investment advice for compensation is it’s pretty strictly regulated. So I didn’t do that. But I would often provide general information about, you know, best practices and evidence-based principles that we then…I wouldn’t tell people, you know, “Buy this,” or, “Buy that,” but I would say… You know, generally speaking, the research shows that one of the most important drivers of long-term success is managing expense ratios.
Michael: Right. So, on the investing side, in essence, you weren’t giving investment advice for compensation, which triggers register as an RIA and start down that road, you were, in essence, doing financial education on the investment side advice on, you know, cash flow and household budgeting and such, but technically, that stuff does not require registration as an investment advisor. Like, our whole RIA status, the trigger event is not actually the doing financial planning and getting paid, it’s the giving any kind of advice pertaining to investments, specific investment recommendations.
Zach: That’s right. So I never gave specific investment recommendations, which was my way of policing that line for myself and my own practice. But honestly, a big part of the reason that people seek advice is because they don’t want to have to decide whether to go to Vanguard or Fidelity or Schwab, and to decide whether they want the S&P or the Total Market or something else. Just helping people see that the evidence tends to support passive indexing is not sufficient for a lot of people. And even once people know what to do, they often have trouble executing. So, you know, I’m really glad that I think I was able to add a lot of value to people in their lives at that time. I mean, I was working a lot with people who were planning to get married or recently got married and helping people understand different models for money and relationships.
Michael: So lots of, “Are you going to do one shared bank account or his and hers bank account?”
Zach: Yeah, exactly.
How Learning About Behavioral Science And Therapeutic Skills Has Helped In His Financial Planning [17:48]
Zach: You know, so…I mean, I developed some really useful principles at that time, which is, to this day, when I work with young couples who are thinking about those sorts of questions, I always say, “Take the pressure off yourselves, we’re not trying to find your forever solution, we’re trying to find the first experiment to run. And we’re going to set up something to try, and then we’re going to learn from it. And it’s really important that when we set up the first thing to try…” And then, you know, we talk through exactly what you were saying, you know, one checking account or two checking accounts. Do you have side accounts for personal? You know, how do you want to do it?
Then I would always encourage people to have a date and schedule it, you know, three to six months from then. And that way, because they’re checking in on a random day, it’s very unlikely that they will have had a trigger event. What I really didn’t want was people talking about whether it was working when somebody was pissed and they were having a fight.
Michael: Oh, interesting. So just, like, set a date three to six months out to check in and see how it’s going or maybe even come back to me and we’ll talk about it together. But, like, let’s make sure there’s a trigger for us to see how it’s working, aside from having the conversation because someone is upset because it’s not working in that moment, which is the worst possible time to have the conversation about whether it’s working.
Zach: Exactly. And it’s usually late at night because both people are working. Usually, somebody is hungry. I mean, it’s just not likely that it’s going to be productive. And I know that it’s hard to have careful conversations about important things when somebody is upset, you know. So I learned a lot in my coaching time about the behavioral side and a lot of sort of, you might even call them therapeutic skills or pastoral skills to see if either client feels defensively, we have to make them feel safe again to be able to make any progress in a quiet meeting. You know, and you can tell from reading the body language or what people are saying how they’re feeling.
You know, it was actually really helpful to have almost 10 years where I couldn’t use the normal crutch of just, deliver somebody, you know, the capital T, capital P, The Plan, and have a computer have done the work. So actually, listening to people and understanding their feelings and understanding what were their hang-ups and what was making it hard for them to move forward, you know, without having the crutch was really helpful in me developing my skills as a planner.
Michael: Yeah, it is an interesting phenomenon that… You know, look, I’m a big fan of financial planning software to help, you know, just do some of that heavy lifting analysis, right? If you’re going to project some stuff, it starts getting pretty complex after a while. Those are not numbers we can do in our head. No one is good at doing compounding math in our heads. There’s a lot of value to the software.
Zach: No, I thought you were good at doing compound math in your head, Michael.
Michael: I do some of that. You know, rule of 72.
Zach: Yeah, 4% drawdown, right? Some of it you can do.
Michael: Yeah absolutely. But I do think there’s a challenge sometimes that it becomes easy to just present, as you said, The Plan, capital T, capital P, The Plan, and it can kind of become your script. You know, I think I was guilty of that early on. Like when I look back to early days of just making plans and presenting plans, I think there was a piece for a while that it just kind of became my script and it was very comfortable, and I kind of knew my routine of what I would say about each page. And it was like, you know, “Pause here to see how the client reacts to this projection.” And it was kind of what I was doing in my head, and realized like, “I’m no longer actually doing a meeting for the client, I’m just kind of running my script and allowing them to insert where they’re going to along the way.” And, like, I didn’t do it that way on purpose, it was actually kind of disturbing when I sort of had that realization about what was going on in the meeting.
But, you know, it is different about using The Plan as a talking point as opposed to using The Plan as a script that you walk through, right? Like, it’s helpful to have some things to look at and point to and say like, “Hey, let’s have a conversation about this number and what’s going on here and what do you think about that,” but it’s not actually about the number, it’s about the conversation.
Michael: You got there a hell of a lot faster than I did if you realized this in your early coaching days. I had to do bad planning presentations for probably two or three years before I realized I was doing wrong.
Zach: I might have done it a lot longer if I had that option.
Michael: Oh, yeah, you didn’t even have the planning software available, so you kind of had to do this.
Zach: That’s precisely right. Anyway, fast-forward a few years, I have a fairly…you know an ongoing practice of coaching, and then the administration changes, and I ask some hard questions of myself and realized that I’m much happier doing the client-facing work than I was helping run some really big national programs, which I think were very valuable and did really good things, it’s just, it had been almost 10 years since I was out in the field talking to union members who had just gotten a raise or had just lost their job or were trying to, you know, figure out how to get things to the next level.
Michael: Oh, because in your early days, you actually were, like, out there in the field. You were doing a lot of that face-to-face, call it end client stuff, different kinds of clients, but end client stuff.
Zach: But like any job, if you’re too good at it, they don’t let you do it anymore and they make you train other people to do it.
Zach: Okay. So I loved that. I realized I wasn’t doing…that my coaching was very meaningful to me and my day job was about to become much lower impact, so the argument that I was doing it to really make a difference declined somewhat in potence. So I realized it was time to really focus on doing the client-facing work. And it was at that time that I joined the Alliance of Comprehensive Planners, which was extremely helpful in my case because there were things I was already really experienced with, but then there were a lot of…and I knew that I wanted to serve people comprehensively, but there were a lot of things I just didn’t know very much about. Like I had never had a meeting where I reviewed people’s life insurance policies. So it was really helpful to innovate on the things I cared about innovating, and then having good, existing solutions for the places that I didn’t need to innovate or at least didn’t need to innovate now.
Michael: So for folks who maybe are listening and aren’t familiar, can you just talk for a moment about Alliance of Comprehensive Planners? Like, what is ACP? What did they do for you? Like, why did you join them when you were doing your firm?
Zach: Oh, great question. So the Alliance for Comprehensive Planners is a nonprofit organization of tax-focused, fee-only financial advisors. And it’s somewhat distinct from the other options because it gives really deep, actionable tools to set up a firm running the ACP system, which works very well. If you’re a reasonably entrepreneurial person and have some good relational skills and you just run their system, you will almost certainly be successful. And it’s got models and scripts and things like that for how to run I think it’s 12 different meetings. It teaches you how to have a discovery meeting and pitch meeting with clients and what to talk about and what to do and what’s persuasive and what’s not persuasive.
And really helpfully for me, it has a fee calculator that our fee calculator is based on, but we started running theirs at the outset, that looks at some complexity factors and some income factors and asset size, and, you know, all the things you would typically think are important, and then it spits out a number. And then it has a different sheet which helps you figure out what the benefit of working with you is and how it compares to the cost, which is a really helpful thing to, you know, think about with certain sorts of clients who are a little bit more numerically-driven. So the system was really helpful for me in setting up my firm because it let me really focus on building the things where I cared to be different and relying on something that worked really well in the areas where I just wanted to have something that worked and was good but where my clients didn’t need something different.
Michael: So it wasn’t so much a like, “I just literally want to run exactly the ACP model.” Not that there’s anything wrong with it. Like, you didn’t join to say, “I want to run your model,” you joined to say, “Hey, your model would be a really helpful template and then I’m just going to start modifying the few things I want to modify for the clients I want to work towards.”
Zach: That’s exactly right. And then eventually, I expect that I won’t…it’s a little bit like the ship that you rebuild piece by piece. You know, so at the beginning, my practice hat was mostly ACP parts, and then eventually, it’ll probably be all Values Added Financial parts. But it was really helpful to not have to reinvent the wheel on a whole bunch of different things, from how to structure the revenue piece, to how to structure the service model, to, you know, how to actually do a lot of the analytics and how to actually deliver high-value outcomes to clients. So it was really nice to be able to have a lot of material to start. And that really helped me make a fast start, I think, because I was able to focus on the areas where I wanted or needed to innovate to serve my specific clientele the best.
Michael: And what did it cost you, like, to launch and join ACP and go through all of this?
Zach: So I think my…or I can tell you exactly. My last day at the CFPB was May of 2017, and that year I had about $25,000 in revenue between my coaching practice and my RIA. My RIA was officially registered I think as of mid-July or late July, and I ended the year with roughly $20,000 in cash flow expenses. So I had a slightly negative tax year but a slightly positive revenue year. I mean, sorry, revenue minus expenses, like, you know, cash flow accounting here. And so ACP then I think cost $10,000 for your first year. Now it costs I think $4,000 for your first year. So, you know, I guess thank you to XY for driving down the price point a bit.
Michael: Well, as far as I know, they kind of shifted that just, it’s a little less upfront, it’s a little bit more ongoing, so amortized it a little. Makes it a little easier when you’re getting started and looking at all these cash outflows before you have clients yet.
Zach: That’s exactly right. So I think ACP probably…you know, it’s a non-profit, so I’m certain that they lose money in somebody’s first year. Because it’s really intensive to have the training program that they have to teach you all the different things about the system. And you get a mentor. And, you know, it’s staff time-intensive for them to make sure you’re having success going through their program and all that kind of stuff. But it makes sense to amortize it over a period of time because advisors tend to be the most cash constrained in their first year. And if they’re successful, you know, a few hundred dollars a month becomes less meaningful over time.
So yeah, ACP was really helpful for us. And, you know, I hadn’t been…I still don’t prepare taxes most days. About half of AC peers maybe do. But it’s really terrific to be in a community of people who have that level of experience because most of the people in the ACP community have been successfully running practices for a long time. You know, maybe some of that is survivorship bias. But of the, you know, 150 members or whatever, I would guess the vast majority have 10, 15, 20 or more years of running really successful practices, often sort of lean lifestyle-style practices.
What Made Zach Walk Away From A Salary And Take The Risk Of Starting His Own Firm [29:48]
Michael: So talk to me about the transition from a family perspective. You know, I know you’re married, you have some kids, you’ve been, you know, working for the government for many years with a nice steady paycheck, and then you’re going to say like, “Hey, honey, I’ve got this awesome idea. I’m going to take my salary to zero.”
Zach: Yeah, that was extremely scary. And it was really helpful to listen to all the, you know, podcasts where people’s advice to their younger self is just, “I wish I’d done it sooner.” That was persuasive to me. Now, I’m sure people who fail don’t come on the podcast, and their advice is, “I wish I’d never done it.” So there’s, like, some…you know, there’s some bias to that.
Michael: There’s a little bit of survivorship bias there too. Yeah.
Zach: But, yeah, the point is, it was really scary. And I want to just cut it, my wife Becca, for being an incredibly supportive person and really helping me to believe in the vision and realize and help me realize that when I feel the most alive is when I’m working on these kinds of projects. And she was the one who really clarified for me just how excited I am when I left a good client meeting where they thought they won’t be able to go down to 80% time to spend more time with their kids, and I helped them realize they could. Or, you know, that just how amazing I felt about being able to help people in that way and help them reorient to the things that were the most important in their life. So Becca really helped me understand that this was something that I needed to do. And she’s just a tremendously supportive partner, and, you know, she is very successful professionally, which helps.
So thankfully, we’d been setting aside…we’d been living somewhat beneath our earnings, just being naturally somewhat frugal people, and so I had a runway. I thought the runway was about 18…I could not be positive revenue for about 18 months. The good news is we’re 18 months in and I didn’t need the runway really. But it was really good to know that I had it because it let me from the start, say, “What do I want this practice to look like in 3 years, 5 years, 10 years? And still, you know, I made some early decisions that were, in retrospect, you know, I just didn’t realize how much demand there was going to be, you know, and at what levels. So I learned that over time. Thankfully not that much time. But it was scary. And, you know, by now we’re in good shape and it’s generating plenty of comfortable salary, and I feel good.
Michael: So for your family, like, I’m going to presume this means that you were living on less than two people salaries but more than one. So at the point you made the transition, it was, “Okay, we’re going to have to dig into savings here. I’ve got, you know, 18 months of, we can be cash flow negative and kind of whittle down the savings amount, but by 18 months out I’ve got to at least be cash-flow positive so that we’re not draining the household resources even further.”
Zach: That’s right. And we’re actually pretty aggressive savers. I guess maybe isn’t surprising for, you know, a financial planner. So, you know, I… When I was at the federal government, I was in the Federal Reserve Thrift Savings Plan, which is an unusually low-fee, good retirement plan. So I made sure to do all my 2017, $18,500 in those first 4 months, you know. So I had, like, pre-saved by the time I left the government. So we actually were even able to pretty quickly get back to our normal savings level. And our expenses are roughly one-person salary minus saving. Some of the saving can come out of one person’s salary.
Michael: Okay. So you were…no savings going on with the transition, but you were at least fairly close to household cash flow breakeven. So now it just gets down to like, “So how long can we let Zach run with this little experiment while we don’t get to do any saving until…?”
Zach: Exactly. And it was scary. You know, but thankfully pretty soon we realized that everything was going to be fine or better than it had been previously. I mean, the other thing, you were asking about family I think from a financial standpoint, but there’s also a just…there’s a parenting standpoint here too, which is, one of the things I like doing the most is, you know, walking my daughter to school in the morning and picking her up in the afternoon. And I absolutely love it. And one of the reasons I switched to doing this work was so that I could have some more flexible time and as much as possible, you know, lean in as an anchor parent. And my colleague Ari is just the same way. You know, we really like that we have relationships with our kids’ teachers, which is not maybe as common as it should be for fathers.
Michael: So to me there are two interesting pieces for the launch for you. One is just, it’s hard for anyone to walk away from a salary and become a business owner and start up from scratch. And I think even more so for those who are career changers, I mean, it’s hard enough if you’re, say, already an advisor in the industry. You’re in an employee model. You were getting a salary, and you have to take that really deep breath and say, “Oh my God, I’m going to walk away from the salary at a pretty good firm because I’ve just got this thing in my head that I want to serve my clients my way, and I’m going to take the leap and pray to God I can get back to my own salary in three years or however long it’s going to take me to rebuild.”
You know, it’s totally another when you don’t even have as much experience in the industry at all. You, I think, had more than some career changers in that you had a bunch of years of coaching on the side that at least you got to practice a skill set that most others don’t get to practice until they take the leap and then they have to start learning cold. But it’s amazing how much more manageable that gets if your household expenses are more manageable in the first place. I feel like it’s one of the things about being successful and launching as an advisor that maybe doesn’t get talked about as much as it should, that there really is this dynamic. You have to really have your own financial house in order first or, like, the math doesn’t work. Like, you just…even when it goes well for most people, it takes a while to get back to their old income. And if your own household expenses are not well managed, like, you’re just stuck. Like, you have a vision of a firm that will be incredibly successful in 5 and 10 and 15 and 20 years, unfortunately, you can’t survive the first 3.
Zach: Yeah, I think that’s exactly right. So, I mean, in our case, well, you’re in the region, so you’ll know. You know, we bought a house a bunch of years ago for $650,000, which for, you know, our incomes in D.C. is actually pretty cheap. Most people in most parts of the country probably are just thinking that’s silly. That’s wildly expensive. But, you know, it means that our mortgage is pretty manageable, and just keeping our house in order was really not terribly hard for us, thankfully. The timing was pretty convenient because my daughter was switching from daycare, which is very expensive in this region, to school. So that also helped manage our…
Michael: That saves some dollars. When you look at, like, areas by cost of living, you know, on the list in general, D.C. is bad but not the worst. Like, we’re still below San Francisco and, you know, Manhattan and a couple areas like that. But once you add in the cost of childcare, D.C., like, rockets up to being the number one most expensive city to live in for families.
Zach: I didn’t realize it was literally number one, but, like…
Michael: Yes. Yeah, by I think MarketWatch or CNBC or someone ran the headline last year like, “We’re number one, not in the good way.”
Zach: Yeah, that’s not great. But, you know, one of the things about D.C. is that, you know, it’s one of the…there might be the most high-quality, high-paid, high-social impact jobs of anywhere in the country. You know, it’s pretty typical. No, I wouldn’t say typical, but it’s pretty common for there to be a household where their main focus is having a positive impact in the world that makes, you know, $200,000, $250,000, $300,000, which is, you know, one person is a lawyer doing policy work for the government and, you know, the other person does communications for an environmental or women’s rights group or something. You know, you pretty quickly get to…which is part of why our housing is expensive because all those people want to live somewhere. And they do great work. You know, it’s sort of an unusual place because most people will come to D.C. because there’s some change they want to see in the world, which makes it a really inspiring place to live and sets up some really incredible people to work with.
I’m trying to remember even where we jumped off from here. Yeah. So it’s terrifying to have to figure out how to make the money work. And I’m glad that we were able to. So I was able to get back to being revenue positive about, you know, a quarter and a half in, which was great. And it’s hard to know whether that was going to be possible. My own projections were too conservative.
What Led Zach To His Unique Niche [39:28]
Michael: So the other piece about the launch of the firm for you was this decision about focusing on progressives. So, like, was that the vision for you out of the gate? Like just, “I’m going after this group. I’m going to focus in on this, you know, political peer group as a niche?” Did you start more general and then kind of pivot to this relatively quickly? Like, how did that come about? Or were you just not in the industry enough that nobody was around to tell you like, “Zach, that’s a horrible idea. You can’t be political as a financial advisor.” So since no one told you, you just went and did the opposite.
Zach: Right. So I think part of it is that. Like, I’m much more likely to be hanging out with people who do social mission-driven business than people who are financial advisors. I have only a small number of people who are friends who are financial advisors and almost none of them pre-existed my filing my RIA. I’m really glad that I’ve been able to find some really tremendous, you know, peers doing great work. But, you know, before that, I had, like, maybe one friend who was in the industry. So I talked to people all the time who were doing, you know, movement building and social mission-oriented business and stuff like that. So it was just so intuitive to me that it made sense to build with people who had a shared set of values and beliefs. And then when I learned more about niching, I had more of a sort of like business strategy superstructure to, like, use to understand why that may be…you know, why that intuitive idea was a good idea. So that’s sort of how I got into it.
Michael: It was the deliberate intent from the start like, “We are going after progressive as a niche.” That was never a question for you?
Zach: Oh, yeah. And, you know, the fact that it turned out to be good business wasn’t really the point. I mean, I’m pleased by that, it makes my financial life easier, but the real reason to do it is because I really love the work and I love having a sense that my firm has a social mission, you know, and it’s not just simply helping people, but it’s also helping to articulate a view of the world, where the goal isn’t just to die with the most money. The goal is to have a fulfilling and meaningful life. And being able to begin to do some writing on that and teaching other people about it and doing workshops in the community about it is really part of, you know, why I feel the work I’m doing is of service. And I really believe it. And it makes me feel great to be able to help people learn those ideas in ways that can be transformative in their own lives.
Michael: So talk to us a little bit about, like, what the business actually looks like today. What do you charge clients? Like, who is your typical client? What do you charge them, and what do you do for them?
Zach: Yeah. So one of the things about having a little bit of a different kind of niche is we don’t have quite as…it’s not just like our typical client is a doctor who just recently transitioned to running their own practice. You know, it’s not so neat and tidy. But we’ve got about 30 comprehensive client households. You know, most of those households have multiple people in them. Our average revenue per client is somewhere in the neighborhood of $10,000, a little bit more, although a median somewhat lower.
The kind of people we serve, I think by decade we serve the most people in their 30s then 40s then 20s then 50s then 60s then 70s, but we’ve got people in all those generations. A lot of our clients are people who, you know, a couple years ago were single or recently married but now own a house and have one or more kids. And all of a sudden things got way more complicated and, you know, they felt they had it under control before and they don’t anymore and they don’t really have that much time. We have people who are very professionally varied. We’ve got all your sort of traditional kind of people that work with a financial advisor. We’ve got several doctors and therapists and, you know, various people in those sorts of professions. We’ve got, you know, a number of lawyers.
Michael: Because, again, like, your niche isn’t a…you have a niche but your niche is not a particular profession: doctors, lawyers, vets, whatever it is. Like, your niche is around a certain political affiliation. But then I guess you get this cross-section like…
Zach: That’s right. And it’s not literally a political affiliation, you know, it’s really more about a way of looking at the world. But, yeah, maybe that’s an unimportant nuance. But yeah, we have… And then we work with a lot of people in tech. We work with a lot of small business owners because a lot of people who do political and communications and other kinds of consulting in D.C. for some of the big national organizations, you know, like the Sierra Club or, you know, the Human Rights Campaign or whatever. A lot of those people have small shops, sometimes solo proprietorships, or I should say sole proprietorships. So we work with a bunch of people like that. We work with quite a few designers. We work with a bunch of entrepreneurs. So, you know, all the kinds of people.
Michael: So the fact that you’ve got this fee level that’s still $10,000 a year on average, which when most of your clients are in their 30s and 40s, like, it’s not a trivial number for clients at that level, you do sort of end out with this cross-section of people that are in professional services or above-average income because you just literally need people that can afford a fee at that level.
Zach: It doesn’t make sense. We would not recommend to anybody that they use our services unless we thought we could add a substantially greater amount of value than we charge. We would feel terrible about that, and we wouldn’t think it was appropriate for fiduciaries to accept people where we couldn’t substantially exceed the fees. So we don’t have a literal asset minimum or anything like that because we don’t charge AUM. Actually, we charge…you know, the part of our sliding scale that looks at assets looks at assets under advisement because we don’t want the conflict that we get paid more or less depending on whether people have investment property or equities.
The Three Pieces Of Zach’s Fee Structure [45:49]
Michael: So can you explain what that fee structure looks like for you now? Are you doing just like a net worth fee? Just a total advised assets fee but you make distinction between advised assets and others? Like, are there additional pieces to this formula?
Zach: Yeah. So the three pieces are income, which is just a flat percentage, assets, which has breakpoints in it. So it’s a little more complicated. And the key thing there is that we use assets under advisement rather than assets under management. And in fact, as a result, we don’t really track our AUM numbers very carefully because it’s not relevant for me.
Michael: Not under your central managed accounts, and it’s not as relevant whether it’s kind of dispersed.
Zach: Yeah, exactly. And then the last part is the complexity adjustment. So for instance, we find that when we have people who run their own businesses, in fact…you’ll find this interesting, you know, with your financial wonk hat on. We have an intake form that we ask people to fill out before we, you know, meet with them to figure out whether we think…hear more about their situation and figure out whether it’s a good fit. And one of the questions is, “Are you a small business owner or not?” Because we find that really changes the level of complexity and it’s important for us to know. And very often people say no and it turns out they’re a freelancer or, you know, run a sole proprietorship. And it’s really interesting to me that they don’t think of themselves as small business owners and telling actually.
Michael: Right. You know, they think of themselves maybe as self-employed but not business owner, right? Like, I’ve got to have…I have employees or a shop or something, right?
Zach: Yeah, it’s sort of an interesting thing. That’s an example of a complexity adjustment. Because we find we do a lot of work helping people, you know, understand solo 401(k)s and when it is or isn’t appropriate. And, you know, we’re not actually the plan advisor, but it’s a lot of extra planning work that we really are happy to do but, you know, we need to make sure that it aligns properly because we want our fees to have some semblance to how much work we’re actually doing.
Michael: So can you give me a sense as to how these break down? Like, what is the percentage of income and, like, I guess the range of percentage of assets under advisement?
Zach: Yeah. So I’d say, like, on average, if we just sort of back out from the sliding scale, you know, we’re typically charging somewhere between, for most of our clients, between, like, you know, 40 or 50 basis points and 100 basis points, depending on how high their income is relative to their assets. And, you know, in an extreme situation where people are early accumulators with high income, sometimes it’s higher than that. But usually, our goal is to have a situation where the client gets way more of the value we create working together than we do and where…so we feel really good about it.
Michael: So if I just kind of stack on top of each other, you know, their income, their AGI, and then their assets on top of it, you’re somewhere in a sliding scale graduated rates 50 to 100 basis points, unlike that total number thing?
Zach: Yeah, I would say. I mean, obviously, there’s edge cases, but that covers most of the people we work with.
Michael: And then when you do these complexity adjustments, is it like, “Hey, you’re a small business owner so I’ve got to add $1,000 to that number,” or is it like, “Hey you’re a small business owner, so I’m going to take whatever that number was that I just calculated and, like, gross it up by 20% of whatever it is?”
Zach: No, no, no, it’s just a straight amount of money because we think that that just adds a few more hours of work. Yeah. And then the other one is if we think people are pretty likely to…this has actually changed a little bit with the recent tax changes that sort…because now bunching is a much more plausible and common strategy. But historically, we’ve been very curious whether people were itemizers or not because that actually creates a lot of extra tax planning work. And tax planning is an important part of the services we deliver. So, you know, there’s a couple of things like that. But I’d say the complexity adjustments are fairly small.
And typically for small business owners early on, they’re going to have…you know, a bigger share of their fee is going to be complexity adjustments because typically, they’re going to have, you know, lower assets and income. So we actually often add even more value for small business owners because, you know, we’re deeply curious and we’re extremely ambitious in terms of trying to figure out ways to add value in clients’ lives. So, you know, we’re always looking for new ways to help clients. So, you know, we help them think about fee setting, and even in some cases the morality of how one thinks about fees. And so we end up doing a lot of implicit business consulting too.
Michael: You’ve got to expound it from, like, the morality of charging fees.
Zach: No, no, no, no. So everybody sort of agrees that, like, in capitalism, you charge a fee for a service or whatever and that’s how it works. But how do you figure out what the right way is to charge fees? Do you just let the market decide and you raise fees until, you know, the right number of people are coming or do you charge fees artificially low and use some other criteria? What’s the right way to even think about how you charge fees in terms of…?
Michael: Right. Which we tend to struggle with in the advisor world, but really anybody that charges for their time and expertise just has this challenge, right? You know, I’m just spewing things to you that come out of my brain, what’s the appropriate price point for that? Like, it’s sort of a deceptively hard question.
Zach: Yeah. Really, it’s hard. And then imagine it’s much harder if you’re on a mission context. Like, imagine…I don’t believe any of our clients works for the National Resources Defense Council, which is why I’m choosing them as an example. So, like, say the client is NRDC and you care deeply about their mission. And you know that if you charge them the most amount of money you possibly could, they’re going to have slightly less money to do litigation to protect you know, wetlands in Florida, right? That’s a tough thing to figure out. You know, it’s even harder, I think, in some sense then our situation as advisors, where, you know, the question is, who has a more right to…you know, if I charge a client somewhat more, I get a little more consumptive resources. And if I charge them a little less, they get a little more consumptive resources. You know, so that’s a different category. Anyway. So we love that kind of stuff, and very few advisors will have any interest in it.
The Pricing Model Zach Created Specifically To Fit His Clientele [52:30]
Michael: And so, how did you set this fee schedule for yourself? Is this essentially just the ACP has a fee calculator to do these retainer fees and you’re effectively just doing the ACP calculator or did you, like, adapt it further?
Zach: We started with theirs literally and then we adapted it to more precisely…adjust some of the complexity adjustments for our niche and that kind of stuff. But, you know, they had something really good out of the box, we moved it over to…you know, we just keep a Google Sheet that calculates it for us. And then, you know, we adjust it if it feels like it’s too high, for one reason or another. We always offer discounts to friends and family.
And I think another thing that’s useful is, even though assets under advisement is one of the components, we only review it every few years. You know, we have the right to review it as we want, but we just bill people quarterly based on what we started at. So, when we give them an agreement, it doesn’t say, “We’re going to charge you X percent of this and Y percent of that and Z percent of that.” We think that’s an unreasonable thing to push on to the client. So we just say, “The quarterly fee is going to be, you know, $2,100.”
Michael: Okay. Because that was going to be one of my questions. Like, do you actually pull out the Google Sheet with the client and peg in some of these inputs and show them or this is just on your end?
Zach: Some ACP members do that and have found it to be a very successful strategy, but I find that since we deal…given the community of people we mostly work with, they’re extremely used to the idea of sliding scale. You know, they’re used to theater shows where you pay a ticket price based on your income or whatever. In the progressive world, the idea of a sliding scale is very well understood. So when we say we have a sliding scale, you know, and it…
Michael: You’re talking the talk of your people at that point.
Zach: That’s right, you know. So we don’t have to do much explaining about the…and people get the idea that higher-income people would pay more for service and lower-income people would pay less for the same service. You know, that’s a pretty comfortable idea in progressive land.
Michael: Okay. And so, you don’t…I mean, do you even just get questions like, you know, prospective client comes in, talks about their situation, you get a handle on their income, their assets, and their complexity. You go back to your calculator, you figure out the number is $13,000 a year for this client. You come back to them and say, “The fee is $13,000.” I mean, do you get any of the like, “Hey, look, Zach, I like you and it sounds like you do valuable stuff, but, like, where the heck did $13,000 come from? Like, can you justify that fee for me?”
Zach: Yeah, very…I can’t recall a situation where in response…it happens very often that the fee is higher than people thought, you know, which makes sense because everybody thinks financial planning is…you know, people who haven’t been financial planners assume, “Oh, you just do two or three hours in, you know, a year and we’re done.” So even at a nice salary, that’s maybe 1,000 bucks or whatever, but they don’t realize that it’s really 30 or 40 or more hour, 50, 60 hours a year depending on what exactly we’re doing for them, sometimes more. You know, so, like, it’s a lot more work than most people realize.
Michael: So, your fallback when they ask is not so much the like, “Well, it was this percentage of your income and this percentage of your assets,” and so on and so forth. You would just come back to them with, “Well, so let me remind you. Like, here’s the stuff we’re going to be doing for you. And just to give you a sense, like, it takes us four hours to do this piece and six hours to do this. And just, by the time we add up all the time, $13,000 is the fee.”
Zach: Yeah, that’s typically right. I don’t think it’s very persuasive to anybody to say…you know, to create a sort of precision around, “Well, we took 0.42 of this number and 0.61 of that number.” Because then they’re going to want to know where the coefficients are from.
Michael: Right. It’s a threatening rabbit hole once you start opening that up.
Zach: We want to focus on value and helping people understand what we’re going to do for them and what it’s going to mean for them. And sometimes, you know, they will want to know about examples of what we’ve done for people in similar situations. And so, we can help people understand that a little bit better. And then we always make sure to say, you know, “No example could possibly be representative of every person.” You know, that’s the whole idea of an example. So, you know, we don’t want to mislead anybody, but we always are happy to share examples that help clarify for people. You know, like we had a client who was a lawyer and a really, really smart guy, and we were looking at his retirement accounts that pre-existed us, and he had several positions that were over 200 basis points in expenses. You know, we were able to reduce the basis points there by, like, 95% or something like that.
Michael: Right. So you just start showing them the math on that. It’s like, “Do you realize I just saved my whole fee for you in one fell swoop?”
Zach: Just on the one thing. So, you know, that’s the idea is we have a whole slew of interventions, and if any of them work, it more than pays our fee. And we’ve never had any less than several of them work. You know, like another thing that happens a lot is, you know, people are buying a house, and in the run-up to buying a house, most people never bother to comparison shop their mortgage. So we make sure every client who’s in that process does that. And I think the last 3 clients to buy a house, the average savings, if they make every payment over a 30-year mortgage, would be over $100,000. You know, that’s going to pay our fee for years, just that one thing.
The “Financial Planning Interventions” Zach Uses To Demonstrate The Value Of His Services [58:21]
Michael: So you used an interesting word there. You said, “We have this whole slew of interventions,” which I think is kind of a throwback to your financial coaching, financial education days perhaps. I hear the term used there much more than in our financial planning world. But it’s an interesting way to frame it that like, “How am I going to justify my fee, particularly in the early years? Like, I have this giant list of interventions of things we do that often help clients save money or do something different that makes it more cost-effective. And if I can just apply enough of my effective interventions, I’ll make back my fees on that one.”
Zach: I think that’s right, you know, because we want to be in the situation where we’re constantly figuring out how to add more value in clients’ lives. Like, if we’re ambitious, that’s who we’re ambitious for, is how to really make a difference for clients. And I want to be in a situation where our compensation is not related as narrowly to exactly how much time does it take to do something because clients don’t really care how much time it takes us to do something. They really care what happens in their lives. How does their life transform? How do we add literal dollar value to their life or harder-to-quantify, you know, emotional value or justice value to their life? You know, that’s what clients fundamentally care about is how do they feel? “What have you done for us?” Not how long did it take? And it’s a trap to… I mean, that was my reflection on listening, you know, to James’s podcast the other day, which I found very interesting and compelling, but just, I don’t want to get stuck in the trap of thinking that how many hours it takes me is the thing that matters or is important to clients.
Michael: Right. It’s a powerful thing. You know, I find we tend to get caught in the trap of, like, how much time will it take because I think we sometimes feel our own fee pressures. And, you know, as you said earlier, like, when a client says, “Well, why does it cost $13,000 and not $12,000 or $11,000,” like, we tend to come back to the, “Well, my time. I’m a professional. My time has certain value, and here’s the value of my time and how much time it’s going to take.”
And, like, it’s not because we’re actually trying to price out our time per se. I feel like we’re trying to come up with an easy way to justify our value because it’s really hard to say, “Well, you know, you won’t care because I’m going to do $18,000 of things for you in year one anyways.” Like, sometimes we’re able to say that, but the nature of financial planning, it’s sometimes hard to figure out or quantify in advance what the value is going to be, and so we get, I don’t know, maybe we get stuck in a trap sometimes of just, the easy fallback is to talk about time, even though I don’t think any of us want to feel like we’re, you know, least time employees to our clients. That’s not a good feeling in a relationship. You know, it’s not meant to be an on-the-clock relationship, but quantifying the value is hard.
Like, that to me is why I’m fascinated with this, like, list of interventions that you go through. It gives you a framework to say to clients, you know, “Here’s 17 ways that we often help clients and save what could actually even be all of our fee or more. I’m sure many of these things will apply to you in the coming years.” And the more focused you are in your niche I guess even the more skeletons in the closet, you don’t want to go far.
Zach: Yes, that’s absolutely right. And I want to just go back and say somebody who didn’t know too much about us and our practice might listen to the last few minutes and think, “Oh, man, those guys are really savvy business people at revenue maximizing,” or whatever. And I don’t know whether that’s true or not. But the point is that’s not what we’re trying to do. It’s very much not our goal here. Our goal in getting the revenue per client right is so that we have expansive time to get the service for client right. You know, the whole idea of getting this to work this way is so that we can always be responsive to a client and we know them really well.
And in our firm, we don’t serve 80 or 100 clients per advisor, or 150 like some other firms do. We have set an internal limit that advisors will serve no more than 30 people, and often less, because that’s the only way they can do the kind of comprehensive work and really understand people’s lives and work in 15 or 20 different content areas. So, you know, if we want to be ambitious about serving clients creatively and as well as possible, we have to be able to figure out how to make the revenue make it sustainable so that we can staff it properly and so that we can serve them properly.
Michael: You know, on the one hand, you know, in so many advisory firms where advisors are serving 100-plus clients per advisor, you know, some firms with a long history of transactional clients are 150 to 200-plus clients per advisor, like, the idea of 30 clients per advisor, I suspect for a lot of people listening feels sort of shockingly low. But on the flip side, like, you know, you’re averaging $10,000 of revenue per client. Like, it’s a $300,000 revenue base. And to say, you know, “Do you think if you just had 30 clients paying $300,000, like, the clients are there, the cash is there, could you find some human being who you can pay a salary to just be awesome for those 30 people as a financial planner? No business development responsibilities, no business management responsibilities, nothing else. Like just, be awesome for those 30 people and $300,000 of revenue. Do you think you could find someone where you could pay them well and still earn a profit?”
Zach: And answer is, “Absolutely.” And, you know, I’m glad you mentioned that because I wanted to just say two things. One is, in the next couple weeks, we’re going to put up a listing for a junior advisor. So if people are listening to this and think, “Man, I want to be super ambitious about how to serve progressives really well.” And, you know, thankfully, that person won’t have to do a lot of business development, unless they find that interesting. So, you know, that person should feel free to email me or join us at Values Added Financial.
Michael: Yeah, we’ll make sure we have a link out for it as well. So for folks who are listening, this is episode 98, so if you go to kitces.com/98, we’ll have a link out to Zach’s website, Values Added Financial, so you can go there and check it out or apply for a job if you are so inclined.
Zach: Thank you, Michael. The other thing that relates to this is, I actually don’t want to run a huge firm with, you know, 10 or 20 or 50 advisors. Like I said earlier, I really love being deeply involved in the planning process. But, because our model works, because our clients, for the most part, are really, really pleased and whenever a friend of theirs posts on Facebook they’re looking for somebody, they hasten to throw our name in the ring, you know, and because we do a fair amount of teaching and community engagement, you know, a lot of people come to us.
And I know from my own personal experience when I started out, I could profitably serve people at a $3,000 retainer, and now our minimum, because of how much demand we have, has gone up to more like $8,000 a year as a comprehensive retainer. And I know that there’s a huge number of people who would happily pay $3,000 or $4,000 or $5,000 or $6,000, but it doesn’t make sense to work with us because we want to keep a very small firm. We’re only ever going to have 30 clients per advisor. And there’s a huge number. And I don’t want to run a huge firm. So my instinct is to help other firms who want to do similar stuff run their own firm with their own brand. And if people are interested in that, we’re just in the early phases of figuring out what that would look like, to have a network of values-oriented, progressively-engaged advisors who, you know, care about feminist issues, who care about anti-racist issues. And, you know, if people are interested in that and want to, you know, be a part of this decentralized experiment, you know, I hope they’ll reach out to me too.
Michael: So we’ll have Kingdom Advisors Network and we’ll have Progressive Values Advisor Network. So, you know, we can cover the full spectrum.
Zach: Yeah. And then I’m sure people can find their own clients who are very high, you know, retainer clients too.
Michael: It is a striking thing to me, though that, you know, one of the criticisms frankly that’s out there around the RIA model and the fee-for-service model is that a lot of advisors tend to have some fairly high minimums that sort of limits access to how many people can be served. You know, I know particularly during some of the Department of Labor’s fiduciary debate, there was a lot of back and forth about whether the RIA community is only for the affluent. And, like, the challenge to me that I think your story and path here highlights pretty quickly is, yeah, like, you did ramp up fairly quickly from a $3,000 retainer minimum to an $8,000 retainer minimum, but the reason is there’s a lot of clients and not enough advisors. Like, it’s not as though the model only serves affluent clients, it’s that there are so few of us to serve all the clients in total that we end out drifting upmarket just due to the sheer demands.
Zach: Right. That’s right. There aren’t enough fiduciaries. There aren’t enough, you know, folks generally who are commission-free, and there’s a huge demand for it. It’s just a supply/demand incongruity like anybody learned about in econ 101. And there are some barriers to entry because of compliance, but thankfully, XYPN and other organizations have really been doing a good job at helping figure out how to increase the supply of capable, honest, mission-oriented advisors. And that’s awesome because I think that’s helping to solve this problem. I don’t think it’s the model, I think it’s the demand/supply incongruity that’s the issue.
Michael: Yep. Yeah So the more the space grows, the more we see advisors just, I don’t know, like, maybe going down market is the wrong label for it, but just serving a wider range of clientele. You know, the early RIA pioneers, I mean, so many of them now have $1 million minimums and higher, and it’s because, like, they were getting so many clients, they were able to do that. Like, it wasn’t that you can’t serve further down market. Almost every RIA I know that has $1 million limits today started with $100,000 clients 20 years ago, when you didn’t even have the technology and, like, it was way more expensive to run the firm. You needed more administrative staff and more overhead. And now it’s a lot easier to do that, yet their minimums went up 10X, because there’s just not enough advisors.
Which on the flip side means, you know, if you’re looking to grow a business in this space, you know, to me, notwithstanding all this discussion about robo-advisors and the rest, like, we talked about the math earlier. If every CFP was always doing comprehensive financial planning and serving 100 clients, and not all the CFPs are and not everyone will even serve 100 clients, right? Your target is 30 clients per advisor. But even if all the CFPs did comprehensive financial planning and all of them served their 100 clients, we barely get to about 6% of U.S. households.
Zach: That’s absolutely right. Yeah. And it’s not a great situation because, I mean, my view is just about everybody needs financial planning. I myself, you know, my colleague Ari and I are each other’s financial planners, and we believe in the process. You know, like, I have way too much cash drag in my own life because I don’t look at my corporate accounts enough. I know that that’s incorrect in theory and I know that I have behavioral biases in practice. You know, this is an extremely valuable thing. I think it should be accessed by way more than 6% of people. And that’d be great. Now, Michael, I realize we talked before a little bit about interventions, but we haven’t talked a lot about what actual services we do and how they’re different. Is that something you’re curious about?
Zach’s Financial Planning Process [1:10:32]
Michael: Yeah, I was going to ask, as you’ve been talking about this, you know, “We think we need to limit at 30 clients per advisor in order to provide the service that we want to provide.” Like, that was actually my next question. Like, what the heck are you doing for clients that you can only do it for 30 of them in a year? I get the math works, as we talked about earlier, but that is a much lower number than what a lot of other advisory firms do. So what are you doing for these clients that both A, justifies the $10,000 a year retainer fee, and B, that you think your capacity limited at 30 clients per advisor to do it?
Zach: Yeah. Absolutely. So let me just say one thing about the 30 piece, which is, that’s partly because I want to leave…because I really believe the research that says there are substantially diminishing marginal returns on additional money. Money doesn’t drive fulfillment or happiness. Like, I really want to have few enough clients in the long run that I can be active in my community and my kids’ school and in my son and daughters’ lives in a really serious way. And, you know, I love playing Ultimate Frisbee. I want to get to my Ultimate Frisbee game, not catch up on work email on Sunday morning. You know, so, like, part of this is not that I couldn’t work 60 or 70 hours and serve more clients, instead, I just have no interest in it because the extra money isn’t worth it to me.
All right. So anyway. So what do we do for them? The first thing that we do in almost all cases is we hope to get really clear on what clients’ goals are, you know, using… I haven’t actually done the Kinder training formally. I’m going to do it in November. But, you know, asking those kinds of questions. Because if we’re not trying to solve for the greatest amount of money at death, like, what are we actually trying to solve for? We really need to know. Because for some clients, they want to take mini-sabbaticals often, and for other clients, they want to retire early. And you have different investment strategies for those things. So we really want to get to know our clients. And that’s not just about knowing their financial goals but also really knowing their life goals. And in some cases, they’ve never really taken a lot of time to figure it out for themselves, and having a process is really useful to them.
And then, the next few things I’ll mention are what I think of as our more conventional things that I would think all good fiduciary advisors do, which is we do investment advice and investment management. Our process for investment advice is a bit different because it has a values layer, which we’ll talk about in a minute. Then we do investment implementation and monitoring, and all that sort of stuff. We also do tax planning, both related to investments and related to non-investments. Which I think everybody should probably be doing. Then we do what a lot of people call budgeting, but my years as a financial coach taught me that the right way to think about it and talk about it is…really doing is maximizing people’s happiness by aligning their spending with their goals.
Michael: Oh, wait, wait. That’s a much better euphemism than budgeting. Say that again. It’s a little weird, but it sounds better. Maximizing…
Zach: Well, maximizing people’s happiness. Because budgeting is about saying no to things that people want to do. But the reason we’re saying no to something, so we can say yes to other things. And if we focus on saying yes to the things we want to do, people like it a lot better and it works much better. And the way that we figure out what to say yes to is by going back and thinking about, “What are somebody’s real goals, and how can we align their spending with what they say is really important?” So if they say, “Travelling with my family is really important,” and then they have way too expensive house and their mortgage means they’re not traveling enough, they’ve got a real incongruity between what they say they want and what they’re doing.
So anyway, we think of that as happiness maximizing. So we do some cash flow and budgeting stuff that relates to investments, but we also do retirement projection, planning, modeling, all that kind of stuff. Then I think, like most people who serve folks in the ages that we serve, we also help people think about student loans. And when they’re complicated, we usually work with Heather Jarvis on that. And then we also do, helping people think about college funding planning and how it relates to their own retirement savings and how to understand the priorities around that.
Then we get to a couple of things that not all firms do but we think are important to do but are not explicitly linked with our values orientation, which is, we help people think about real estate. And, you know, if they don’t own, whether they should buy some, and often people have investment properties or are thinking about them, so, you know, we help them negotiate that whole world and figure out what makes sense for them. We help people with real estate finance and figuring out mortgages and comparison shopping mortgages like we talked about earlier.
Michael: I was going to ask, so, like, how do you work through this stuff with the client? Like, is there a standard process through the first year of like, we have a budgeting meeting first and then we do an investment meeting and then we do a retirement meeting? Like, what does that process look like for you through the first year with the client?
The Unique Exercise Zach Uses To Help Clients Prioritize Their Financial Planning Needs [1:15:55]
Zach: So part of the thing that’s great about having, you know, 15, 20, 30 clients or something per advisor is we’re not forced to have the same kind of rawness to our process that a lot of firms need to to accommodate their scale. So what we do with clients is, at our kickoff meeting, I take out a deck of cards, which we’re in the process of getting a nice set designed, but I still use ones I wrote myself on the back of business cards, and I create columns that say “year one,” “year two,” “year three,” “TBD,” and “N/A.” So every card is going to go in one of those columns.
And then I produce the cards that are the things we do, and we say, “Is this going to be a topic that we cover in year one, year two, or year three, or never?” Like, say, somebody who doesn’t have student loans or paid them off already, you know, student loans goes in the N/A thing. Or somebody just doesn’t know when. Like, they don’t own a house and aren’t planning to buy a house but they think someday they might, so we put that in the TBD category. And, you know, this isn’t…the whole reason to do it with cards that you can shuffle around is we’re just trying to get an idea of it, and everything can always move around later.
Michael: Right. And just the nature of doing it by cards, right? We can start laying them out. Then we lay them out and there’s like, “Oh my God, we have a whole lot of stuff in the year one column, we might have to move a little of that to year two,” or, “Jeez, like, you put everything into the TBD column, shall we talk about which of these you actually want to work on over the next year? Because you’re kind of delaying everything at once.”
Zach: Right. So we have expertise in figuring out what things should happen first. So, like, we usually are going to do our investment sequence before we do the college or retirement piece. Because when we teach people about the fundamental drivers of investment returns and, you know, expenses and volatility and all that kind of stuff that we do as part of our financial empowerment education piece, you know, that’s really helpful to understanding why the retirement stuff works the way it works or how you decide what to save, you know, what to invest 529s in. So, like, we sort of know that we should probably do that beforehand, but, you know, if there’s an exigent reason not to, you know we’re flexible. But yeah, usually what happens is people don’t come to us until a whole bunch of stuff piled up and overwhelm them. So there actually are a bajillion…
Michael: That’s the trigger.
Zach: Yeah. There just are a bajillion things that they want to do in year one and we help them… We know that people don’t have the emotional bandwidth to do all our 15 or 20 different areas in one year or they’ll go nuts, so we want to really help target their available bandwidth to the things that are going to have the highest impact and have the greatest exigency and, you know, don’t waste a lot of effort by being in the wrong order. And then for people, you might say, “Oh, but you obviously can’t do cards if somebody is remote.” So we just have a Trello board that does the same thing, where we just have an…
Michael: That’s cool. If they’re remote, you do it by Trello.
Zach: Right. Which I guess is intuitive for young advisors, but, like, it’s great. They can watch it in real time either via screen share or being logged in to Trello. So, you know, I’ve done that with people all over the world, including some foreign service colleagues, eight hours different timezone-wise. It’s my afternoon and they put their kids to bed.
Michael: So out of curiosity, like, what do you do with the cards at the end? Like, do you take a picture of it so you can commemorate this? Like, when you do update meetings with them do you pull all the cards back out and, like, put them back out in the order they were originally and then let them, like, rearrange it after the first year?
Zach: Oh, that’s a great idea. We have not done that. I could imagine doing that. Yeah, we just snap a picture, and then… We work with the folks at New Heights, with Dan and Tracy Kellermeyer and their team. And they do really nice work. And one of the things they do is update our CRM to include, you know, our tentative plan.
Michael: Okay. For those who aren’t familiar, so New Heights Solutions does some technology consulting, like back-office support work for advisory firms. So you have Dan and Tracy doing customizations to your CRM just so you can capture this stuff?
Zach: Oh, no, we just put it in as a note. I just mean they actually put…you know, they are outsourced solution, so they…it’s going to be somebody on their team usually, not literally. I don’t think Dan does. Sometimes Tracy does it, sometimes somebody on their team does it. But somebody is going to turn that into a note in the CRM. Because, I’m not sure it actually takes me all that much less time, but I know that if I have the picture, I’m never going to do it because of, you know, everybody has a peculiarity of what they will do or not do. And I know I’m not…I will send the picture, but I won’t input it to the CRM. So we’ve designed a system that works around our faults instead of hoping they’ll get better.
Michael: So early on with clients, you do this. I think it’s a really cool card exercise. So they start setting their priorities, and then what does it look like from there? Like, do you just say, “Hey, okay, now we’re going to sit down once a quarter and we’re going to knock out a card and we’ll just keep going through until we get to the cards?” Do you meet more often? Less often? Like, is there a structure or a cadence to it?
Zach: Yeah, we imagine that we’re going to meet with people, you know, roughly six times their first year, although sometimes more. And we don’t limit it. We think of this as an unlimited engagement. And, you know, usually clients have other things going on in their life and they’re the one to limit and not us, you know. So we’ve never had somebody who wanted to meet too often. Although we definitely have some clients who, you know, it happens sometimes that we meet with somebody almost once a month. Sometimes it’s for short periods of time, even more if something important is going on.
We haven’t mentioned it yet, but one of our areas that is not unique to us but I think is really important is, since we serve a lot of younger clients, you know, people in their 30s and 40s compared to the industry, we do a lot of work on career, because one of the most important drivers of people’s long-term financial picture is the earning side of the equation. So we really think helping people manage career growth is absolutely essential. So we do a lot more of that, I think, than most firms. You know, we encourage every client to set up a Google…
Michael: Like what? I mean, what do you do there?
Zach: So some of it is when you’re in a job, we help people… One of the things I encourage most clients to do, and I would encourage probably advisors to do this too, is come up with a Google Doc, and then whenever you do something that seems good, write it in the Google Doc, because people are terrible at remembering a year’s worth of positive interventions they had. So if they have a once a year review, they should write a memo for their boss, you know, a week or two before that could even just be a one or two pager that says, “I know reviews are coming up, here’s some of the work that I’m the proudest of.”
Michael: Oh, so, like, this isn’t a Google Doc of, like, what you do for your clients that was good through the year, like, this is for the client to keep. Just keep a running list at your job of, you know, small wins or big wins that you have throughout the year so that when you get to your annual review, you can pull this out for your boss and say like, “Hey, by the way, just, here’s, like, seven things I did that I’m really proud of that were pretty damn awesome that you might have forgotten about from earlier this year, but just food for thought while you’re thinking about my raise.”
Zach: Exactly. And it really works well. I have no idea… The thing is if we help clients get a $5,000 or $10,000 raise, that pays our fee forever because it stays every year, you know. So that…it’s a really high-quality intervention. And also, it makes clients feel great because people are very bad at remembering. If you ask people to actually do this without having made the Google Doc, they tremendously oversample the last quarter and almost never have anything from three or four quarters ago, which is why we…and I know that because I’ve read some research on it. Which is why I developed this very simple intervention that we suggest. So that’s when they’re in a job. That’s the sort of, like, internal growth.
And then another thing that we do is help people understand how to ask for raises and when the right time is. So sometimes somebody will say, “Oh, man, my work is really stressful. A lot of people left my team and I’m doing way more work than ever.” And we say, “Oh, okay. Well, maybe it’s time to ask for a raise because they couldn’t afford to lose you right now,” you know. So we just think about that kind of stuff.
Michael: Yeah, just give them a little helpful nudge like, “Now might be a good time to bring that up.”
Zach: Right. Maybe they will, maybe they won’t. But that kind of stuff is important. Then we help people a lot with thinking about the right amount to work and how to work. So we very often help clients realize that if they want to quit their job, they can quit their job. And we give them our official financial advisor blessing, which often really makes people feel differently about it. So that’s not explicitly revenue maximizing, although in the long run, helping people be picky about the jobs they take actually probably does help. So we’ve got a couple clients right now who are thinking about moving to new jobs, and we help them think about their strategy about how to manage the job searches.
And partly, you know, we’re not professional job coaches, but we’re just…Ari and I are both really interested in this. And we have noticed when we help people, their outcomes are better. And our clients are never…especially our high-achieving, you know…like, our clients are almost always very smart, very high-achieving people, so they’re not, like, going to call the career center at their college or something. So the fact that we’re doing this for them means somebody is doing it for them rather than no one. So, you know, there’s a couple clients that I’ve, you know, been talking to every couple weeks because they’re in an active job search, and it’s really helpful to feel like they have an ally who can help them take a step back and think strategically.
Michael: But then at some point, they’ll get through their job search and then maybe they’ll ask some questions about employee benefits and then they may go silent for three to six months because they’re just immersed into their new thing.
Zach: I mean, we rarely meet with somebody less than once a quarter, except for very unusual circumstances. But, you know, if they want to take a little break when they get settled they’ll take a little break when they get settled. The last piece of the career is just, we do a lot of help with people on salary negotiations and help remind them that salary negotiations start the second that you apply for the job and they ask you your salary requirements, which you should just put in straight zeros or straight nines if you have to put something in to submit the form. But, like, it’s a fool’s errand. You know, it’s really a no-win proposition. If you guess too high, you get removed from consideration. And if you guess too low, you’re in a really disadvantageous position. So the only way you can even just be neutral, if you guess exactly right. And that’s a terrible game to play. I get why employers do it, but… So we don’t ask for anything like that.
Michael: Because the game works well for the employer, right?
Zach: That’s exactly right. I just think it’s immoral, and it systematically hurts women and applicants of color. Which is why, you know, when we release a job description, we’re going to say pretty explicitly, you know, what the pay ranges as well as we can and not ask people what they make now or what they would accept, because we want to find whoever is the best fit, not whoever we can manipulate to keep the greatest mass surplus. All right, so that’s the career management piece.
Michael: And then, talk to me a little bit more about just this…you mentioned this values layer to the investment side.
Zach: Oh, yeah. Let me just quickly rattle off the other things before I get to that. So we also do help people think about insurance and life insurance, property, casualty, disability, all that kind of stuff. My colleague Ari is an estate planning lawyer, but we don’t draft estate documents but we do estate planning strategy too. You know, we do couples communication of the sort we talked about earlier. We do multigenerational family money stuff. We also help people with any sort of referrals they need. You know, we’ve had clients who needed a trust litigator, for example, because some of our clients are, like, artists who are trust fund beneficiaries or something, and in some cases, yeah, whatever, somebody tries to steal their money or whatever.
Michael: And so, these are, like, all things on your cards. Just like, these are all areas on your cards that they’re, you know, rearranging and prioritizing around?
Zach: That’s generally right. I mean, I don’t, for instance, have trust litigator referral because it doesn’t come up enough. But, like, you know, that kind of stuff. So those are the things that I think are basically the good services that anybody, whether in my niche or not, I would like to see them offer if they want to be truly deep and comprehensive.
Then we do some stuff that other people don’t really do at all that’s really important to our niche. And those have to do with social impact, charitable planning, investment ethics. And these interrelate. And then we also, in our real estate space, we often help people think about solar panels and weatherization and other sorts of environmental interventions they can do in their own real estate portfolio, like their house. People come to us because they want to feel good about their financial life and they want to feel like their financial life winds up with the kind of impacts they want to have in the world, which fundamentally is about social impact.
So one of the interesting things is historically, people who are generally in our niche have sought out advisors. And since most advisors historically, even RIA-type advisors, are investment-only or investment-focused, the way that they meet somebody’s values need is to put them in SRI or ESG kind of funds because they only have one tool. If you’re investment-only and somebody says, “I want to do values things,” you do an investment tool. The problem with that tool is the average expense ratios are very, very high.
And, you know, we can talk more about how we talk about it with clients. I actually did a deeper dive on this with Alan in the “XY” podcast. But the point is we, thankfully, are comprehensive. So we can say, “If you want to spend $200,000 over the next 35 years on social interventions, would you rather have the intervention be an SRI fund or would you rather have the intervention be putting solar panels on your house,” which in some places like D.C. is actually a really smart financial decision and that the IRR is so high that the payback period is like four or five years? So that’s actually…
Michael: But that’s just striking to me. So you’re basically, like, you’re not just saying, “Hey, why don’t you save,” whatever it is, “30 basis points or 50 basis points or 100 basis points in expense ratio,” you’re framing it to them as, you know, “Over the next 30 years, you’re going to spend,” whatever it is, “$200,000 on this. Would you rather spend it on SRI fund expense ratios or solar panels on your house?”
Zach: Exactly. Or charitable giving.
Michael: It’s like a really, really tangible way to put it that will make you feel pretty bad about an expense ratio.
Zach: Yeah. I mean, it’s not lost on me. I’ve been working on talking to progressives about this for 10 years or actually more now, it’s more like 12 years, and so I have a lot of practice in helping people get to the heart of the issue in ways which help them make really informed, good choices that align with their own personal values, right? And it’s really great that I don’t have a stake in the outcome. I don’t get paid more or less if they choose charitable giving or SRI. I mean, maybe I get paid somewhat less if their assets diminish over time because we help them give money away, but actually, we’ve got clients who are really engaged in resource generation and effective altruism movement and that kind of stuff, and we’re so excited when we help a client realize that they can give away more, you know. And if it hurts our bottom line, I could care less. I just feel so excited that we can help somebody with that kind of thing.
Michael: Well, and, you know, if your biggest problem is, you know, clients who have a lot of wealth and want to give some of it away do it enjoyably with you and then tell their wealthy friends that they should work with you because you’ll also help them give away their money in meaningful ways, I think you still grow a lot faster than the outflows come at that point if you want to take it to the logical extreme.
Zach: Well, and it’s a really hard set of questions too because we…our clients trust us to care both about their financial security and about their impact in the world. So we sometimes help people realize that they could afford to give more and faster than they were planning on if they cared to and not pressure them to but just help them understand that they’re going to die with a lot of money on their current trajectory. And help them understand the specifics of that. And then sometimes we help people slow down a little bit to say, “Why don’t we practice with smaller amounts of money giving away?” Well, you know, you don’t want to go from giving $100 away a year to giving $100,000 away a year. That’s a bad idea. We want to start giving, you know, $5,000 or $10,000 or $20,000 away and learn from your experience so that you can do it over many years. So we have a lot of experience with that.
How Zach Uses Direct Indexing To Help His Clients Achieve Their Goals [1:33:17]
Michael: So then, how do you invest clients? I mean, is this a scenario of like, “Hey, you know, don’t buy an SRI fund or portfolio with that higher expense ratio, buy, like, you know, just normal passive, you know, total market index funds that aren’t SRI-specific because we’re literally going to free up the money from those SRI fund expense ratios and use it for more social purpose giving and engagement instead?” Like, is that ultimately the end point?
Zach: So to be clear, I don’t insist that people don’t do SRI. We’ve got a couple of clients who really, they just…it keeps them up at night to know that they have some link with Exxon or with Ruger, you know, so they really just can’t stomach it. And it’s fundamentally not about maximizing social impact, it’s about, “How do you sleep at night?” And we really want clients to understand the trade-offs, not to tell them what to do.
So anyway. So once we figure it out, the vast majority of our clients say, “Oh yeah, I feel great about knowing that I’m making more of a difference, not getting, you know, in these high expense ratios.” And sometimes people, you know, feel like they avoided being a sucker or something like that. I think it’s more complicated than that. But the point is, what do we do next? And we generally buy into Modern Portfolio Theory and efficient markets and that kind of stuff, so we’re inclined to broad market, low-cost indexing, but we’re in the middle of exploring direct indexing for some clients under certain circumstances.
Michael: Oh, because if you do direct indexing, once they’re buying the fund, you buy all the underlying stocks of the fund. Now you can actually kind of do both? Like you can say, “We’re going to own a broad market index fund, but if you can’t sleep at night with Exxon, we’ll just pull the Exxon out and you’ll own the other 499 stocks in the S&P 500?”
Zach: Exactly. And people might feel comfortable with a little bit of…you know, they’re willing to give up a little tracking error, but I’d much rather have them take on a little tracking error, than take on an extra 150 basis points in fees or whatever. Less if, you know, obviously Vanguard.
There’s another enormous benefit to this, which is the traditional benefit is you have more control over doing tax-loss harvesting if you’re direct indexing because now you…like any set, the more numbers that are, you know, only somewhat related, the more losers there are going to be. So it’s really, I’d rather have, you know, 30% or 40% of the stocks go down in year one rather than just have the average. So the traditional logic applies here, too, but there’s an additional logic, which is, now, the traditional problem is you have a survivorship issue. If you just tax-loss-harvest everything, pretty soon you’ve concentrated your gains, which is good because you’ve deferred them, but, you know, eventually, you have to pay them. Unless you’re a very charitable person, you give them away. Then it’s more tax-efficient to have more concentrated gains because when a client wants to give them away, I can almost always find some positions that are, like, 95% appreciation.
Michael: So ironically for you with clients that tend to be high-income progressives that do a lot of proactive charitable giving, the fact that direct indexing loss harvesting tends to concentrate gains in a small subset of stocks that have run actually just amplifies the tax efficiency for you because you don’t have to donate a shares of SPY index fund up 10%, you can donate the individual stocks that happen to be up 40%, while you also loss-harvested the ones that were down, and you did it more granularly.
Zach: Exactly. So this strategy doesn’t lend itself well to, you know, having everybody at the firm in the same portfolio, which is…you know, my understanding is most people who do this will just do it through an SMA or something, but actually, every client’s situation is going to be different because their charitable giving is different. So this really requires a deeply hands-on thing approach, and it requires more detailed and more precise work. And it totally makes sense in our niche, and it would not make sense for a lot of advisors. But it does make sense for us because almost everybody in our firm, who comes to our firm, gives charitably. You know, Ari and I both more than tithe. Which is pretty unusual for Americans generally, and especially outside of the context of, you know, people who are of lower income and part of a church or Mormon. You know, it’s pretty unusual to tithe. We both do it. Most of our clients do it. So our folks are really charitable. So this matters a lot.
Oh, the other thing that matters in a general context is, you know, you also have a stepped-up basis strategy. If you’re doing this with older clients, you know, eventually, the concentrated capital gains won’t matter as much either.
Michael: Right, because they’ll pass away and get their step-up basis.
Zach: Right. We’ve carefully not called it the dying strategy. Although one of our clients jokingly says that we recommended the dying strategy, and he thinks it’s very funny.
Michael: It is a good tax strategy, just saying.
Zach: But it has some downsides, such as you’re dead.
Michael: Yes. Every efficient strategy has trade-offs.
Zach: Right. So anyway, that’s one thing that we do is help people think about charitable giving. Another thing we do is help people think about investments. Another thing we do is help people think about taxes. And another thing we do is help people think about social impact in the context of their jobs. And you can see how all those things are synergistic. If we didn’t really do really…like what we just talked about for a while was how our investment strategy relates to our tax planning strategy, relates to our social impact strategy. And there’s tremendous synergies because we have pretty…those are the places that I wanted to innovate, you know.
And I think we’ve come up with a set of tools that really combined to offer an exceptional kind of value. Because if we’re dealing with people who have substantial assets, the amount of excess social impact tax reduction and tax reduction we’re doing is just dwarfing any amount of fee. And that’s just in that small area, not to mention the fact that they feel completely different about it because they have…
You know, there are very few people working in financial services who have ever been an impact specialist, you know, working in the social mission space. Like, it’s just really unusual to have people like my colleague Ari who is just brilliant and terrific and thoughtful. And, you know, his job before this, before he opened an estate planning firm and then joined Values Added as an advisor, was that he was a legislative director for an extremely progressive council person, you know. So he really thought a lot about, “How do you arrange economic and financial reality in the District of Columbia to help change people’s lives? And how do you create social impact and economic justice here?” You know, that’s not the kind of person who usually ends up looking at a financial firm. So, you know, our clients, I think, for the most part, are just appreciative that they have people who have this additional layer of stuff that they care about and think about.
His Vision For His Firm’s Future [1:40:35]
Michael: So in that vein, like, as we approach the end of the interview here, like, where do you see this going from here for you? Like, I feel like, on the one end, you’ve sort of tapped into this incredible niche that’s growing incredibly quickly for you, but you’ve also said your goal is not actually to build a giant firm and staff up a whole bunch of advisors and sort of scale this up big. So, like, where does this go for you? What is your vision from here?
Zach: You know, Michael, I’m so glad you asked. And I would honestly be very curious for your feedback about what we ought to do. We find it really useful to figure out what we’re steering toward. And currently, my thought is to steer towards a model where we have two more senior advisors, Ari and I, and then, you know, one to three other people in the firm, and where I’m training some people to really understand how to do the kind of stuff we’re doing and the way we’re doing it, and to run a fairly small, fairly lean firm, because I love teaching and I love coaching and I love helping people get really good at this kind of stuff. So I think the core Values Added Financial will probably stay fairly small. You know, I wouldn’t imagine it ever serving more than 100 clients, unless something really dramatic changed, and possibly as few as 50.
And then I want to do what I can to start building out the space, what I now think of as the sort of Values Added Network, although I’m sure it would get a better name if it was, you know, growing and thriving, to help other advisors learn how to do what we’re doing. Because I want lots more people to have access to it. And I think most other advisors are happiest when they get to put their picture on the website and choose their name for the thing and their process.
Michael: Well, as you said earlier, you know, the natural path for people who are good at doing something is that eventually, you have the wonderful privilege of being promoted to the point where you teach and train others how to do it instead?
Zach: Yeah, I just got the balance wrong the first time. You know, the first time I was teaching almost 100% of my time. You know, then I was teaching 20% and teaching teachers 80%. And then I was teaching teachers 20% and training trainers to teach teachers 80%. And then eventually, I was all behind my desk, you know. And I’m just not going to make the same mistake again, which…mistake is too strong. I learned my lesson, which is, I’m really happy to be doing teaching and training, you know, some percentage of the time, but I don’t want it to be all my time.
And I really love the idea that there are tons of creative, talented entrepreneurial people who are ambitious about serving clients well but also, you know, care about the social impact stuff. I think I want…part of the reason I’m doing the podcast today, in addition to the fact that I love the podcast and I’m happy to spend time, is I just wanted to be really clear to people that they don’t have to choose between doing work that they feel really good about and serving people in the progressive world and being successful. They can do both. And in fact, it might actually make them more successful. And there’s a huge need in my community of progressives to be well served. And there’s a huge number of people who need help. And, you know, I’m hoping that people hear this and realize that they want to be part of the solution there and you can, you know, run a very good practice doing it. So that’s that piece.
Oh, and then there’s the last leg of this that I haven’t really talked about yet, which is that, though our one-on-one client practice will stay kind of small, I really like doing group teaching, as, you know, for my story, you know, that’s how my career started, and I miss it. So I’ve been…a lot of my pro bono work has been with groups. So, you know, just in the last few months, I’ve done some work helping young people of color who want to start businesses understand, you know, how credit scoring works and how getting credit works, and that kind of stuff, which is a public program here in D.C. to help, you know, build entrepreneurship in inner-city at-risk contexts. And, you know, I did some training work for young public interest lawyers, who, you know, it’s really hard to make it in D.C. if you’re a young public defender or prosecutor or you work for the ACLU or something and, you know, rent is very expensive.
Michael: Interesting. So, like, the balancing factor is, like, the profits will come from the one-to-one work with some people who are a little more affluent, and then the give-back to the community comes at the other end of the scale where you’re going to do it in more of a one-to-many format so that your pro bono can get more reach while the one-to-one work stays with the clients that write the bigger checks.
Zach: That’s exactly right. It’s a sort of a barbell strategy I guess you would say. And then the other thing is, I’m just starting to scale up a group, you know, fee-for-service model, where people come and…our first one is going to be in December for new parents. You know, people who will soon or recently had kids, and we can teach them about life insurance and saving for college, and a little bit about estate planning, which are the things that we usually do with our own clients. And we have a lot of expertise in, you know, how to help people who are about to or recently had kids.
Michael: So like a paid workshop?
Zach: Yeah. So probably do a morning session, a lunch break, and an afternoon session. And, you know, I don’t know, it’ll probably cost a few hundred dollars, including lunch. Then the idea is then a lot of people…
And the other thing that I’ve realized is that a lot of advisors are terrified about this kind of stuff because they think money is so private and nobody wants to talk about money in a group. And my experience is it’s cathartic and powerful to talk about money in a group. And if you help people to see that one of the ways that we’re oppressed is by forcing us to feel uncomfortable talking about this thing that’s so important, that there’s actually some really important aspect to starting to do this taboo thing and feel comfortable doing it. And we actually want to lean into the fact that people sometimes feel uncomfortable about it. You know, so that’s another thing that we’re working on to reach more people, because it really is our goal to help more people. It’s also my goal to, you know, walk my daughter to and from school every day. And it’s, you know, hard to do all the things one wants to do.
Michael: So on that theme as we wrap up here, you know, this is a podcast about success, and as we know, that word means different things to different people. I think you even have talked about it in a couple of different dimensions now of what you’re trying to work towards and achieve. So, as you look at it just at a high level now, like, what does success mean to you?
Zach: Yeah, you know, because I’ve listened to most of the podcasts, I knew the question was coming.
Michael: It was easier in the early ones, no one knew it. Now everyone is like, “What am I going to say when he asks?”
Zach: Yeah, it’s very…you know, I genuinely don’t know the answer. You said it at the top of the podcast and I’ll say it again, our goal as a firm is to help progressives build thoughtful, prosperous, impactful financial lives in service of living fulfilling lives. And the reason that that’s what we do for clients is that’s what we think success is. We think, you know, having a life that is financially comfortable but where one feels that they’re of service, where one is engaged in community and in family, that that is where real fulfillment comes from. And so that’s what I’m aiming at in my own life. And I feel my firm is successful when it furthers me having a fulfilling life. And that comes from surveying people and really knowing that I’m making a positive difference in their lives and the world. And that’s what success is for me.
Michael: Well, and again, I think, you know, getting back to the theme at the very beginning, that’s part of why it’s working, I think, so well for you and the niche that you’re serving. Like, you have this foundational belief of finding success and happiness and fulfillment through service. And you are now aligned to clients who have that same belief. And the shared belief both makes it fulfilling to do that for everybody that’s doing it, and gives you that bonding point that lets you have this, you know, rapid growth practice of $300,000 of recurring revenue in under 18 months.
Zach: Yeah. And, you know, it’s not lost on me that if I’m doing my job right in the very financially wonky area that we were talking about, social impact and investments and charitable giving, that we’re helping people give hundreds of thousands of dollars that they wouldn’t have otherwise. And that feels incredible, too. And just speaking personally, you know, I think people overrate the importance of big scale mission and whether their jobs make them happy and underrate the impact of the people they work with, supervise, you know, and their colleagues. And I just feel so happy that I really enjoy my clients and I really enjoy my colleagues. And that’s part of success too. It’s just feeling like you’re excited to go to work every day because you love the people you work with.
Michael: And there’s something really powerful in that. That, yeah, you know, I’m a fan of some big scale missions too and get involved in some organizations like that, but, you know, day-to-day, you live with the people you work with for a huge portion of your day, so there’s a lot to be said for just liking the people you work with, your co-workers and colleagues, and the clients that you serve in a business like financial planning. And just actually being able to be excited to wake up and go to work every morning.
Zach: Yeah, I mean, like, a lot of my life has been making some unconventional decisions. You know, I get to work with my best friend. And that’s an incredible feeling.
Michael: Well, very cool. Well, thank you for joining us and sharing the story and journey. It’s, again, I think certainly a unique one just when you start on this foundation of, you know, “We’re not afraid to be political and talk about some political things.” But as I hope people take away from the discussion, like, it’s not really about the politics per se or any particular political position, it’s just, this is what happens when you get really clear alignment between what your own values are and what’s important for you, and then finding and working with clients that have the same values, which, you know, Zach, again, I think nailed it, like, the first 30 seconds of the discussion like just, “For the right clients, being candid about values builds trust, and there’s a deeper connection that comes from having shared deeply held beliefs.” And there’s a real power to that.
Zach: I think that’s right. You know, in the progressive side, we have a lot of…a lot of our social movements have taught similar lessons. You know, there was The Black is Beautiful movement, which is, you know, really be who you are. And in the LGBTQ+, you know, queer space, you know, a lot of the work has been about really coming out and being who you are. And, you know, I think that those same lessons apply whether somebody is conservative or progressive, is it’s really liberating to be able to be who you are and be proud about it, instead of, you know, if you feel ashamed of who you are, it creates a sort of fundamental discomfort in your whole life. And so, like, that’s…
You know, this is obviously a very different kind of situation than those other social movement situations, but, you know, if you are who you are, it’s liberating. And thankfully, you know, it also happens that it’s good for business. But the reason we do it is because it fundamentally, you know, moves us towards the successful kind of…towards a life that’s successful in the ways we want, which is being of service and being able to powerfully serve the people who we really want to help have a social impact in the world in a really high-quality, happy, comfortable life.
Michael: Well, amen. Well, thank you…
Zach: Thank you so much for having me, Michael. I really appreciate it.
Michael: Absolutely. Thank you, Zach, for joining us on the “Financial Advisor Success” podcast.