Financial Planning & Advisory - How Do I Run Verbatim, and Why?
I want to take a minute to speak to something that’s often misunderstood about the financial planning & advisory business: yes, it is a business, and must be treated like one. Businesses have expenses, and need both revenue & profits to maintain themselves, or else no one benefits, not the owner, and certainly not the clients.
It might be funny, sad, or even ironic - if I’m using Alonis’ broad definition, but I have chosen one of the few professions where, along with my wife’s, people feel a constant desire to question why they should even pay for it. (Yes, my wife is a doctor. No, we won’t get into that here.) Now, to be honest, I myself question the level of many advisory fees charged under the assets under management (AUM) model. In fact, I structured Verbatim as a flat fee advisor because I don’t believe an advisor can have a truly fiduciary relationship with a client while charging fees based on a percentage of their clients’ assets. So let’s get into it. How do I make money?
My business currently has two “products,” an initial portfolio review, and ongoing advisory. The one time portfolio review has a one time fee, and ongoing advisory has an ongoing, but fixed annual fee. So, if I want to make any money, I need to either add permanent clients or analyze investment portfolios.
At first glance, the “formula” appears simple - add a whole bunch of advisory clients who pay their fee annually, and you’re all set. At its most basic level, that’s completely logical. Of course, the other thing you could do is review portfolios like they’re going out of style. This actually makes sense as a strategy as well, since more people might feel like their portfolios could use a second look by a professional than evidence the desire for a long term relationship with an advisor, and every portfolio you review is money in your pocket. You could even develop a pretty good template to use to churn reviews out one after the other. It’s been suggested to me that I look into that option. The devil, however, is in the details.
Beginning with the portfolio review option…
Even though, in my view, investment management is often the least important portion of advisory, one of the first things I do for every client I work with is analyze their portfolio for both unnecessary fees and embedded risks outside of the client’s risk tolerance.
And then, planning & advisory…
After that, however, all ongoing advisory clients get a comprehensive financial plan. There’s simply no other way I know how to do my best work for people without one. Plans are tailored for each client, because although it might sound like marketing-speak or touchy-feely, we are all different. Our histories are different. Our family situations are different. Health issues, life goals, etc. Most people might have a desire to “retire,” but the definition and timing of “retirement” can look significantly different, even among a seemingly homogenous group of folks.
The other important thing about plans, designed to be “comprehensive” in the way that I do them, is that they are a lot of work. They’re also stressful - not for my clients, but for me. I genuinely worry about each client, and I take a meaningful amount of time to think about every person involved, to learn as much as I can about them, and to create a plan that has the best chance to set them up for whatever “success” looks like to them. Because of the level of detail & depth of relationship that I feel is necessary, financial plans stress me out. Why? Because I want all of my clients to succeed & to reach their chosen goals, despite the fact that I don’t control the market, the global economy, or (as we have seen recently) the state of the world’s health.
Advisory, however, I fully enjoy. From a career standpoint, you could say I live for it. In fact, I don’t ever plan on retiring from my advisory business because I enjoy it so much. Are there stresses? Of course. Any good professional should experience some stress as he or she tries to deliver the best possible service to their clients, but it’s an empowering stress. The “problem” with the advisory side of the business is that it is naturally slower growth. The process of bringing on new clients is time consuming, including the full financial planning process, as well as cumbersome account opening and asset transfer paperwork. For a sole practitioner such as myself, adding more than two clients per month is unrealistic, even setting aside the marketing aspect.
So, back to the old P&L…
When I look at how Verbatim Financial will thrive, along with my clients, it will not be because I churn out portfolio reviews like a human Xerox machine, no matter how much more quickly I could generate revenue for the firm with them. Not because I couldn’t, but because I’d rather not. And to the extent that there is commonality within portfolios which I feel is beneficial to everyone, I’m more than happy to share that through my blog, podcast, or on various social media platforms. Will I do portfolio reviews? For the foreseeable future, yes, because if someone is willing to go through the process, I’m happy to do it with them, and I know it will help. Could I envision a time when I develop other products, such as semi-custom financial plans, which could be delivered more quickly to a larger customer base? Possibly, but at this point in time, I’m focusing on providing outstanding service to the clients who choose to work with me, on a schedule that makes the most sense for all of us.
What to look for if you’re in the market for an advisor…
The most important thing to do first, before making any calls or even opening the google box to rummage around for, “financial advisors near me,” is to decide what you really want. As I’ve mentioned many times before, it’s incredibly important for everyone to have a financial plan - even if rudimentary. Maybe you’ve gotten to the point in your life where you feel the need for a comprehensive plan. Maybe, on the other hand, you have “enough” of a plan, but you feel you need help with investment asset allocation. Or, maybe you’re open to ongoing advisory.
What makes your task difficult is that all of those things are often provided by professionals (and too many times, amateurs) with the title, “financial advisor.”
Either way, you will most easily find your match by limiting your search to what you’re actually looking for. Logically, you can imagine that a financial advisor who bills him or herself as an “asset manager” is not actively looking to do financial planning. And if all you need is an analysis of your investments, you can work with me or I can point you to some fantastic hourly advisors who specialize in that. Finally, if you do wish to begin a relationship with an advisor for both planning and advice, aside from interpersonal fit & philosophy, it’s best to find someone who really wants to do that kind of work. So…
1) Figure out what you want first, not what an advisor says you “need”
2) Find the right person or firm to work with, who wants your business, not just your money
3) Work with someone who charges clear and sensible fees, which don’t rise with the value of your investment portfolio
