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Uncertainty and The Pursuit of Contentment
The Upfront: A good chunk of this is my personal path to my (second) career change from a technology consultant to a financial advisor. While it is necessarily specific, I hope you find something valuable as you pursue your own “enough” in our uncertain world. You may catch the fact the business failure, in a ten-year period, is about 70%, while financial advisor failure is more like 85%. The odds are against us (it is 20% ‘harder’ to survive as an advisor than in the average small business).
This is a story of a 15-year “overnight success”. Uncertainty is rampant, though, because most people don’t succeed. Mostly what you read is the success portion of someone’s story.
“According to data from the Bureau of Labor Statistics, as reported by Fundera, approximately 20 percent of small businesses fail within the first year. By the end of the second year, 30 percent of businesses will have failed. By the end of the fifth year, about half will have failed. And by the end of the decade, only 30 percent of businesses will remain — a 70 percent failure rate.”
I have never been interested in being financially wealthy. My goal has always been to be comfortable and happy. The definitions I like, and work to help clients pursue, are “funded contentment” or “enough”, so being a millionaire has maybe a different context for me than you. Also, this is one of the few AC/DC songs that can be played in a public audience.
There is more than one person who told me that leaving a large, rapidly growing technology and strategy consulting firm after a fourteen-year run was unwise. Another few years, a little more hard work, and it was entirely possible that I would be admitted to the partnership and earn many millions. To me, it was not quite that simple. I had become uncomfortable with my role. My work did not seem to fit my strengths. There was lots of counsel regarding my weaknesses and need to improve certain aspects of my work - in particular, client interactions, which made up more and more of my work product. This was discouraging, as I seemed unable to implement what I knew was good advice insofar as this role was concerned. Unknown to me at that time (this was 1999): I am an introvert who has ADHD. This is not exactly a great combination for a high human contact, politically sophisticated and savvy role - things I needed to excel at to sustain success: I was not coding or developing process designs anymore. In hindsight, my willingness to stop trying to change some of my behaviors, accept my “weaknesses” (I sort of regard them today as superpowers), and focus on my strengths instead was a major behavioral victory and led me to where I am today.
“Research shows employees with ADHD can be more curious, creative, imaginative, innovative, and inventive. They tend to be out-of-the-box thinkers, with an approach that can be highly prized in the workplace. Your ADHD symptoms can work for you, when you learn more about them and have proper treatment. The key is knowing how your symptoms affect your work, developing strategies to overcome them, and identifying your strengths.”
Having quit my consulting gig; committing career suicide effectively, I rattled around in the technology business for a few more years. I got involved with a fledgling software business, then joined another consulting firm, and my last role in the field was in IT program and portfolio management for a high-growth, mid-sized (now large) bank. In all of those roles, I was highly compensated, had a nice title, and I was miserable. The voice in my head kept calling me to financial planning.
Over the course of a year, I decided that I had two choices: I could make a ton of money, retire between 50 and 55 and be really unhappy doing it (at the time I was concerned that employment stress would drastically affect my health), or: I could pursue my avocation professionally, maybe be successful, and at least not be 65 saying: “I wonder if…”. Part of my realization as I thought through my situation: My goal to retire “early” wasn’t really the driver - I was miserable in my career and needed to be in a position that leveraged my strengths, where I could do things I valued.
You know which way I went. Naked and afraid? Uh… yes. Uncertain? Yes. Did I understand the 85+% failure rate? Heck no, and the firms I interviewed with did not make this clear. It wasn’t exactly in their best interest to do so, at least not the way they think about it.
What Does It Take to Career Change and Become A Financial Advisor?
First, there is a distinction I make between someone who sells financial products and a real financial advisor, although we are all called financial advisors. Someone who sells financial products, if they are to be successful long-term, either has to build a stable client base by being at least considerate of their clients’ needs or has to continually find new clients, or both. My experience is that most of these folks are most focused on their own income. They do not worry about losing clients, they simply replace them when this happens. They may or may not be concerned about the client’s long-term success.
The big difference? Mindset.
A real financial advisor only thinks about and does what is best for their clients. A client-first, human-first decision might create revenue and income for the advisor or it might not. What matters is that the decision or advice is right for the client, not my wallet. Subsequently, building a real financial advisory practice takes much more than product knowledge and great sales skills. Real advisors have to truly, deeply care about who they serve. They want clients to achieve success on their terms. There is no indicator (like the CFP(R) designation) to tell you that an advisor is committed to you and your best interest. This is what makes it so hard to distinguish a true advisor from someone who is not.
Building a real advisory practice takes time. You want to find the right clients - the ones who value excellent advice, specific to their scenario, who trust you. You have to trust them, too, your livelihood depends on their compensating you fairly and being your client for many years. This takes capital investment. There is no substitute I have seen, yet, for real experience with real people. Taking on a new client is a 3-4 month journey, with as much 5-10 hours weekly of time devoted to the client during that period. If you are on your own, you have to run the business, too. There are plans to build, advice to render, follow-up to do, meetings to schedule and prepare for, maybe accounts to open and manage, clients to bill, fees to collect, your P and L to maintain, taxes to pay, bills to pay, and yours and probably others’ paychecks to write. You, the advisor, unless you have a team, have capacity, maybe, to take on four new clients over the course of a quarter, and that’s if you are dealing with relatively simple client situations. Your first couple of years are going to be lean at best and for most practices that I have seen, cashflow negative. You will lose clients. There will be mistakes, both in client selection and in your execution. Your turnover will not be anything like the salespeople, and at the same time it will not be zero in the early years. Once you have made it, you have a different and really good problem: clients never leave.
What Does My Investment Look Like?
There are several components. The actual amounts depend on your desire to insource or outsource, the type of business you want to build/advice you wish to offer, how you leverage technology, your need or desire to maintain a physical office, and whether you join an established firm or start on your own. Everyone has their own needs (Example: I cannot operate out of my home, as there are too many opportunities for distraction), so there is no right or wrong. What I can say, and this is a sample size of one, is that I spent roughly $500,000 building this business and thousands of hours of time, so add another $400,000-$800,000 to that in opportunity cost relative to what I was likely to earn working for someone else. Are the returns worth it? Absolutely and completely. No brainer, both financially and mentally. As the saying goes, past results are not indicative of future performance. Your results may differ.
Is this expensive? Only you can decide that. I changed careers earlier, too (perhaps I am a slow learner). I was an auto mechanic, quit that for college, and ended up as a technology consultant. This took seven or so years, and while the absolute cost was much smaller, if I took the time to track the costs and restate them in today’s dollars I am betting it would be similar.
It Starts With What You Want to Build
Do you want to work with technology entrepreneurs, sex workers, tattoo artists, dentists, women executives? I know advisors who do quite well in all of these niches. There is nothing wrong with being a generalist, either.
Are you thinking of building (or being part of) an enterprise or being a solopreneur? Something in-between? If you, know, great. If not, be aware that your thinking may change.
How Advisors Get Started
There are few firms who have a place for a start-up advisor where that advisor earns a reasonable salary as they get started. There are lots of firms that will provide a place for you as an ‘eat what you kill’ advisor. It is extremely difficult to create a real advisory practice in this scenario. Regardless of your initial mindset, the incentives tend to be all wrong here - you have to generate significant revenue, quickly.
Regardless, read your contract carefully, as the firms understand the failure rate. Their benefit is in keeping the clients you generate when you fail, and your contract is probably biased to the firm. If you succeed, at some point you are likely to want or need to move on. You want to be sure you own your clients’ information, there is no proprietary technology, there are no proprietary investment products, insurance products, or planning solutions, there is no non-compete, and you own the right to serve them if you separate from the firm.
The people I have seen changing careers are either not particularly successful in their current career and therefore have limited savings or are quite successful and therefore tend to have a fair amount of personal overhead/spending that they wish to maintain. Either way, there can be lots of pressure on your personal financial condition. Here is the fact, starting this business or any other: you need probably twice as much capital reserve as you estimate.
Education is a significant factor in your investment, with some of the necessary knowledge being:
How to use planning software properly.
Developing outstanding listening skills.
Earning a CFP(R) or something similar like the MSFS or ChFC (and there are plenty of others, these are examples).
There is continuing education as well.
You may wish or need to hold certain licenses, which have their own education requirements.
You need to spend a substantial amount of your time here and there is a financial cost, too. Your time is the big one, though. Guess what? The need for expanding your knowledge and skills never stops.
However fabulous a person you are, precious few clients will find you. You will need to make an investment in business development. You may have several conversations with someone, over a period of years, before they become a client. There are a zillion ways to do this and plenty of services/vendors who believe that they have a better marketing mousetrap. My two cents is that you must be willing to at least contact your professional and personal relationships, inform them that you have changed careers and that you would be happy to have the discussion with them if they so choose. I started in this business with an insurance broker-dealer. The firm taught all the sales techniques. None of them felt good to me, although I tried a few of them. Personally, I prefer offering choices to people rather than making some sort of assumptive close or aggressively seeking a meeting and thinking I can sell them anything. Did I take the harder road? Not for me. It is the only one that I believe in.
Doing business development well is the key to attracting the clients you want to have: the ones who believe in you, who stick with you when you screw up, and who you love serving. It is damn hard to fix on the back end what you did wrong on the front end. It is costly, too. Rework hurts in this business just as much as it does in manufacturing, software development, and logistics.
Technology and Operations
At minimum, you want a CRM, billing and collection software, accounting system, and planning software. There is a decision to make as to your business entity. There is a planning agreement you want to have in place with your clients. You may have employees and need to pay them. You will probably need investment management tools. There there are related services for your clients: tax services, estate planning, banking/lending (mortgages, in particular, in the US)/debt management, personal and property and casualty insurance. You may or may not want these services within your business. It is my belief that the more related services you can integrate into your offering, for one, single, flat fee, the simpler your clients’ lives become. Making these things simple and easy for clients is what clients want. Profitability comes when you deliver quality services in a fashion that makes the client’s life simple and easy.
These days, arguably, you can deliver your services completely virtually. We do have some clients that get comfort from the fact that we have offices. Offices are expensive. You might want to spend money on one. For me, I have evolved to thinking that I cannot function without one - because of my own behaviors.
For another view of the various components, and this article also discusses paths other than client-facing advisor, look here.
Building the Right Team is Hard.
When revenue got to about $200,000, I had to hire someone. I split a person with another advisor. This person was a poor fit for me and I only had partial control. That approach lasted six months. Then I hired a part-time person, Angela. Angela is now a CFP(R), full-time, and our co-advisor. We have been working together for more than 15 years at this point. As we continued to grow, I hired a full-time person. That person had no industry experience. I did all the training and development. One day, I received two weeks notice, that person joined another advisor’s team (in my own complex!), and I had to start over. You know the phrase: “One door closes and another opens?” Melissa joined us and our relationship is now at thirteen years. We continued to grow, and we added a third person for schedule and marketing management. That didn’t really work out, and we let that person go after about a year. When we grew to about $1,000,000, we realized we needed someone to run the operation and provide leverage to Angela and Melissa. Danielle joined us. That is the team we have today.
A Small Business Leader Leads Alone, A Lot
I love my team, I truly do. However, when they have issues, so do I. In contrast, there is no one to help you with some your issues. Your spouse will absolutely freak out when you have trouble making payroll, for example. A coach can help with many, but not all of your issues. Like Washington, DC, if you want someone to love you, get a dog (this is partly, but not completely, said in jest).
In roughly an eight year period, we went from solopreneur to independent, niche, boutique practice, to enterprise merger. That was a ton of change to manage, for me and the team. It was up to me to manage the change.
Who You Partner With Can Make or Break You
My initial business was formed as a sole proprietor IAR and insurance agent with an insurance broker-dealer. The contract was restrictive, especially as I moved farther and farther towards fee-only work. There were insurance sales minimums. Thirty-six percent of my revenue went to the firm as payment for services and I still paid for rent, furniture, and other shared services that I barely used. There was a focus on sales awards, which are anathematic to me and contrary to client best interests in my view. Even though the revenue we generated placed us in the top 15% of our firm, we received limited support and even less attention because we avoided commissions, worked for fees, and our insurance revenue was about 10% of our total. The local managing partner blocked my attempt to form a larger team that would provide leverage and succession for our team and clients. I learned that what I owned and had invested in as an insurance BD IAR was the right to an income stream and five pieces of client data.
I spent close to $120,000 to take our business independent. The managing partner of the firm I left issued a nasty letter to my clients and assigned four of his advisors to try and retain my clients. He accused our team of stealing proprietary data. We spent over three months moving our clients to our now independent firm. I had hoped to find a succession plan as part of this move. I wanted to make sure our clients had continuity. I wanted to make sure the team had continuity. For a variety of reasons, this just did not happen. After two years of independence, I started searching for a firm that could provide this continuity. We spent close to a year determining our final move. We interviewed 15 firms. We made a difficult choice between two firms. That is how we got to Journey Strategic Wealth. With six months at JSW, I know we have finally landed where we need to be (no confirmation or endowment bias here, promise!).
There Has To Be A Better Way
It is not hard to understand why there is something like an 85+% failure rate for career changers (it is nearly as high for new advisors, too). You really need to understand your own commitment and love for the business. You put yourself out there every day. It is extraordinarily hard to hear “no” every day and be emotionally unaffected.
This business is absolutely ripe for a real advisory firm that can offer an apprentice program for career changers and for people who want to start their careers as advisors. Designing that is a topic for another day, though, like once I hang up my hightops.
Punxsutawney Phil actually does belong in the Forecasters’ Hall of Fame - his success rate, and this is a groundhog, folks, is 69%. H/T to Bob Seawright for this data.
I was going to write a piece about college hoop, it’s another passion of mine, but I don’t have the story that Ryan Krueger has, so listen to his instead.