This plan should include:
- A solid leader. A part time CPA will never get you there.
- A clear vision regarding who you can serve best.
- A tasteful marketing and communications plan that fits in with your culture.
- A structured work process and product where quality control and professionalism rule.
- A talented team with a genuine career track for advancement.
- A feedback mechanism from your clients regarding what they like and how you may improve This hour will give you a structured process to continuously grow your wealth management firm and improve your clients' relationships and image of your firm.
John Napolitano (00:11):
Good afternoon everyone. Thanks for being here. Lots of sexy topics that this is not. However, I'll tell you this one is probably the most profitable opportunity for your firm and what can create probably the most endearing long-term relationships with your clients. Because like it or not, they want this bad, real bad. And I'll give you a little background. I'm recovering CPA sold my accounting firm in 1992 and swore I'd never do it again. In fact, I had the closing on leap day cause I never wanted to forget the day I got out of public accounting roll the clock forward 40 years later. I bought into a firm two years ago, and you'll see why by the time we're done with this. So roll it back to the eighties. I was the first CPA in Massachusetts, first CPA firm to actually register the firm as an investment advisor. Now, for those of you that are not well schooled in financial planning, in order to deliver financial planning, you've got to be registered as an investment advisor.
(01:13)
The name has no connection. So it doesn't mean you're managing money, running stocks, or doing any of that stuff just to be a financial planner. Give advice. You need to be registered as an investment advisor. So I did that in 1992 until the AICPA, I mean 1982 till the AICPA came out and had the great idea to say, don't do that. You got to slide onto the radar screen and be incidental and not be so direct and give advice and all that good stuff. I said, that's not for me. So we withdrew our registration and grew the accounting firm and to get put it into perspective, we're talking 1980s numbers. It was a small little sole practitioner firm that I worked for, said I want to start a financial planning division. The guy says, yeah, do it. Three years later, we were 400% larger in terms of revenues, seeing ideal clients, not the chumps he used to have with $200 tax returns.
(02:08)
And it was growing fantastic. So I said, man, there's something to this. And I said, this shit's easy. So I'm going to now change this business model and teach other accountants how to get into the wealth management space. So I then devoted the next 20 years of my life getting 400 accounting firms into the wealth management business. And toward the end of that, I got a little bored and I got bored because you've heard the saying, herding cats, I was herding cats. I'd fly out to California, spend three days with a firm, and I could tell already by the time I hopped on the plane, the half-life had halved twice already and they weren't going to do any of the stuff that we talked about doing. So I said, I'm going to test this now. So everything we're talking about today is tested in the trenches by yours, truly done this stuff, and I'm still doing it.
(02:58)
So we said, I'm going to build a team and I'm going to resign as the CEO of my firm. I'm going to take a half my paycheck and then the other half I'm going to start from ground zero and build a team. And I hired a kid right out of college and trained them exactly how I wanted as a financial planner. And 10 years later, that little team is 12 people, 4 million of revenue, 400 million of assets under management, a family office division, alternative investment division. And we are killing it. Landed our first two billionaire clients this year. And that's testimony to where you can go with wealth management. And remember, I didn't have an accounting firm behind me. I didn't have a list of 500, 5,000 or whatever clients to pick from. It was just me and my old natural network and people that I knew that started to build it.
(03:47)
So why wealth management? Clients love it and they want it and they need it. You know what you're up against out there in the world of wealth management, Merrill Lynch, Morgan Stanley, UBS, Northwest Mutual, New York Life, they're not financial planners. Their mission is to sell something and move on. In fact, I use this all the time. You see the statements that your clients get from Goldman Sachs, we cannot give tax advice. Says it right on the statement. I'm like, well, no, I cannot not give tax advice because as a fiduciary financial planner, that's a really important part of the big picture, dirty little secret. Really wealthy people love that. They absolutely love it. So it's like love it first sight, you know, within the first three minutes of a meeting, you know, got them. It is a consistent repeatable subscription type based revenue system, whether it's flat fees or assets. I gave up all my licenses for commission stuff years ago, so I don't get involved in sales of insurance or sales of commissionable products or anything like that. It's strictly all fees. And I tell a client, you'll never get a bill from us unless you know how much it's going to be for. And you'll know that before we engage. They like that. This is another dirty little secret. It's a talent at attractant. These people that leave public accounting after 2.8 years, guess where they go?
(05:17)
I have no talent problems. Literally none. In fact, we'll talk about it a little bit later about building this staff and how do you find great talent? But I can tell you just this subject matter alone is of terrific interest to young professionals today. And then if you swallow the hook I did a long time ago, there's other businesses that come out in addition to this. So the family office business, there was an article, I think just yesterday in Barron saying the family offices are going to struggle for the next two years as the economy slows down. Really, I don't think so. When someone has hundreds of millions, they don't really give a crap what the s and p's doing. They don't really care about their portfolio because they own real estate, they own businesses, they have sustainable forms of cash flow, and generally many of them live fairly modestly.
(06:06)
So their income needs are not that terrific. Family office is a great business to be in. Mergers and acquisitions. Your clients are going to be selling businesses, buying businesses, succession agreements, 83 B elections with junior partners or next gen people. There's lots of cool stuff to be done. So that's important. And exit planning and succession planning. I put this little PowerPoint thing together about two months ago and I'm really thrilled so far in every session I've attended, damn near all my bullet points have been addressed by other people from a completely different context. Now, again, you wouldn't think you're going to find great talent if you have a great wealth management division, but I'm telling you, you will because this is what they want to do. And I've had great luck with people. I always joke when someone says, oh yeah, my kid just graduated college, got an offer early from Northwest Mutual. I'm like, okay, so what's the matter? He couldn't find a real job. I mean, they'll hire anyone because they know 99% of them are going to fail out. And as long as they sell their friends and families, the retained revenue they get from that when the agent's gone is really good stuff.
(07:21)
Succession planning is important as well. And that's for us, for your clients. And that's another business line that's going to come out that also was on the list many times today. So where do we start? Just like anything else, you need a business plan. I think too many people, even the firms that I coached early on wing it. They just wing it. They get licenses, they put a shingle in the ground, they nail a few large, you know, 401k rollovers and think that they've made it. It's like, no, no, no, man. You're just starting. You're absolutely just starting. So you have to figure out what is it that you're really going to offer people. And I'd say I'm a big fan of the AICPA's PFP division, but in my opinion, way too much over emphasis on assets under management. All they talk about is AUM AUM AUM, new assets, AUM AUM.
(08:13)
Well, okay, today that is how the lion's share of us get paid, but that's changing like everything else. So I wouldn't hang your hat on a u m only for the time being. Thanks to the Wirehouses, the big brokerage firms and all the insurance guys that want to get into the wealth management business, we're going to be able to sustain that for a little bit longer. So we're not a big race to flat fees, but flat fees are coming. And in the family office business, it's all about flat fees. There's no AUM at all in the family office side. It's all about flat fees. Then I want you to think a little bit about your structure. So how are you going to set this up? You're going to have partners now partners, two sides, right? If you're a multi-partner accounting firm, do you just automatically have all the partners in the accounting firm own their pro rata share of the wealth management business?
(09:08)
Or are there some guidelines or structure to who owns how much of it? And does it matter whether they participate or not? Does it matter whether they help it grow or not? I frankly think it should matter. So if you had a tax partner that refused to send any accounting work to you because he's like, I don't do that, man, I'm just the tax guy, you wouldn't be real happy with that. Well, that's how I would feel if my tax guy or my CAS guy wasn't helping to fill the wealth management business. I'm like, dude, I don't care that your brother's at Merrill Lynch, man. This is your firm and you own a piece of it. You need to help us build it. And a systemic process from the top on marketing communications, those clients will get your message, but again, as you'll see later, they don't read your messages that seriously. And if they're not in the mode of making a change right now, they're not going to make a change right now. When they're ready, they will. But you need to have that partner support at the point of engagement. So when you're eyeball an eyeball with them talking about something, that's how you reinforce the marketing messages.
(10:18)
Other partners are third party partners. Now, a lot of firms have brought in an advisor to kind of lead and run this practice for them that they have an equity stake. They often are a little misguided in my opinion, on the compensation. And the compensation is usually an eat what you kill, a percentage of the business that you kill, you get to keep. If I owned the accounting firm, wealth management business, I would structure it frankly, just like the accounting firm. People have base salaries and bonuses and then a share of the profits. I've structured our firm like that. Not many wealth managers have done that. And it works out actually quite well because people know what to expect. They get paid pretty damn good and it works. So those are the two sides of partners. And then again, you might even expand it a step further, depending upon where you are in the wealth management business, you may want your own RIA, your own registered investment advisory firm, or you may want to pony up with someone that's already got one and kind of let you hit your wagon to them and they might provide other back office or compliance or other services.
(11:26)
We used to do that for a living no more. I sold that two years ago. All I focus on are my 14 team members and our a hundred clients. We only work with a hundred clients. We take on about five to eight new ones a year. And now I used to say, well, they're in the 10 to a hundred million range. But now fortunately I can say, well, there's now two that are over a B and one of them's 33 years old. And I can't tell you who it is because you'd know.
(11:56)
And then it's a startup. You're just going to start from ground zero or you're going to go out and do an acquisition. Personally, I'm not a huge fan of acquisitions, and the reason is the valuations are like through the roof. A firm like mine, if I were to sell it today, I'd probably get 12 times EBITDA, maybe a little bit more because of the unique niche that we have with high net worth and the depth of service that we have and the fact that we have never lost a client, never in 12 years. We fired a few, but we've never lost one. So I'm not a big fan of acquisition, but again, if you're starting at ground zero, you got some capital and you want to do it, go ahead and make an acquisition. And by the way, in terms of what you want to offer and how you're going to do it, capital's a big part of this thing.
(12:41)
So approach this. If your client was selling chairs to hotels and said, I think we're missing the boat, man, we should be selling tables and rugs and table claws and all that stuff, you're not going to say, yeah man, go for it. You're going to want to see some forecasts. You're going to want to know how much capital, what about supply chain issues? Who's going to manage your inventory? Blah, blah, blah, blah, blah. Same thing in wealth management. Now you really need a thorough business plan to figure this through. And then lastly, what do you envision? Think about the end game. What do you really expect this to be like? My contention is wealth management could be your largest line of business of anything that you do because it's so in demand and so in need by the right clients. In fact, that four four banger, the four bagger that I told you about in my little accounting firm, of the 400% increase at the end of three years, the firm was 60% wealth management billings, no assets under management, no commissions, purely flat fee wealth management business, 40% accounting and tax.
(13:50)
So in three years we dwarfed the original accounting practice. And then the other dirty little secret is once you have a brand of your wealth management business and it begins to grow and take on a life of its own, it will deliver other ideal accounting clients. People will come to see you for wealth management and they'll go, man, my guy never talks about that stuff. I've been using the same guy for 20 years. He's never raised these issues before. And I'm talking in some cases tax issues and estate planning issues. Because when you get down and deep in the estate planning area, a lot of times it's just a trade off. So we talk and you want to pay income and cap gains taxes or death taxes, especially when it relates to the state and local element of the taxation. You're going to gift property now at a low basis, you're going to wait till you die. It's timing and a trade off. Which tax do you find less offensive?
(14:47)
All right, leadership. Too many firms have a part-time leader in their wealth management business and they are the ones that never hit their potential. So I don't think maybe you have to start that way. Let's be realistic. If you're not that big yet, you can't afford to go out and spend maybe a million dollars up front on to capitalize the business, but it can't be, shouldn't be a part-time CPA. And if you have to be that way for now, have a plan, have an exit plan for that partner, how to get out of the accounting side and full-time lead the financial planning business. And I truly mean lead. And again, what I mean by lead, I don't even know how to use the software in our firm. I have no idea. No idea. It was that way when I sold my accounting practice as well.
(15:37)
I had no idea how to use ProFX by the time I sold that firm. It's the same thing with legal planning. So someone full-time, similar qualitative criteria as selecting a CPA partner. You know, want someone who can hit run and throw. You want someone that's technically competent that can communicate with people well respected in their community. They can convince clients to deal with you because someone's going to say, dude, I deal with Goldman Sachs, what can you do for me? Well, just a few little things like I noticed your 1099 comes in joint name, now you have trusts. Well, yeah, what does that have to do with it? Well, why didn't your guy tell you to retitle this asset to the trust? I also noticed that your large IRA rollover with Goldman has your spouse as the beneficiary and then equally to your three kids.
(16:30)
Yeah, well, isn't one of them going through a real nasty divorce right now? And by the way, isn't one of them special needs too? Yeah, well dude, they don't talk about that stuff. That's why you need us. So these are common issues hidden in plain sight that you have the benefit of seeing because of the other work that you do for the client. By the way, the AI CPA PFP handbook, like paragraph one, page one talks about the leader needs to be persuasive, a good communicator and be persuasive because people don't want to talk about their demise, their disability, their screw ups in their lives, whether it's their kids, their jobs, or their own marital situation. You want someone that's got a really good relationship with the other practitioners and the staff in the firm, someone who's credible, someone who might have had a hand in mentoring of people in the firm or someone you can tell is going to be good at that.
(17:24)
Someone who's got really great relations with the community, the lawyers, the accountants, all the other people that you're going to need on your team because it's okay to be the financial planner and I call it the head coach, but you can't do everything. You can't practice law, you can't sell insurance, you can't do all this other stuff, but you need to be responsible for it. In fact, on that train, I trademarked the term it sounds silly, personal head coach and I did that, being from the Boston area, there's a certain football coach that gets a lot of attention like it or not. So I would always say, Hey look, we are the Bill Belichick in your life. Everyone else is an assistant coach. You are Bob Kraft. You get up in the owner's box, take a look at the field, tell us what you want.
(18:13)
Our job is to make sure all the players on the field are moving in the right direction at the right time and to deliver that end result that you've asked for. Now, clients are a lot tougher than Bob Kraft. Kraft was easy. He says, dude, here's the money. Go build me some championship teams. And that was it. Game set match, didn't medal until the Brady end of the years. So that's, that's the role. That's what you want to be. You want to be the head coach in my opinion. And then you also want someone who's got the ability to train partners and key staff on the front lines. So I remember the days of old schooling 12 years ago where I used to sit down with my guy and teach him how to read wills and trusts, and I used to make him highlight it and take notes. He said, well, how the hell am I going to know if you actually read the thing if I can't scan the papers and see that you highlighted it and you have notes and you ask them the right questions. So after about a year or two, finally, I don't have to do that anymore. So that was good. So you want someone that can train someone that understands that your ideal clients.
(19:20)
When I hired my guy 12 years, we came from Merrill Lynch. He did two years at Merrill Lynch, two year internship there. I said, look, I have really one rule, no jerks for client grants, no jerks. Second one is if they don't want financial planning, I don't want them. And he goes, yeah, right with clockwork man, as if I scripted it in the first month. Some guy walks in and this was 12 years ago, 5 million bucks. So I go through my normal financial planning head coach story and he's like, that's great man, I don't really want any of that. I I'm going to for two months, take the money and see you later. I'm like, Nope, not interested. He's sitting there going, are you crazy? I'm like, dude, you know my two deal killers, right? No jerks. And financial planning is what's going to rule this relationship because reason for that, I never get asked about performance.
(20:19)
So if a client markets have a meltdown quarter, month, year, well I do Last year, well, you were down 14, how's that? Pretty good S and P was down 18. Ha ha ha. They laugh next game over. So very rarely do I get into performance discussions with clients. And the second reason for that is some of the financial planning tools you can use, there's a couple of risk analytic tools like Riskalyze is a very popular one. They've just jacked up their rates big time. So people are using hidden levers and a few others now. But you can put together a portfolio. You can even look at a client's existing portfolio and tell them historically with a 96% level of confidence that your performance is going to be between this range up X and down Y. So when it's down Y, right? Remember we expected that.
(21:13)
So really the conversation doesn't happen. I find amongst a lot of partners and CPA firms that are not the wealth management partner, they seem to be worried about that conversation. I don't want to piss them off and lose the money and then they're going to fire us for everything else. Dude, that doesn't happen. It doesn't happen. It does. If you're an idiot and you don't do financial planning and you rave about performance all the time, but if you're doing true financial planning and wealth management, not going to happen. So you heard this morning, A, B, C, D, your clients, we want to know who they are. I want to know who they are because that's going to help dictate and drive what kind of practice you build. So what's the profile of your clients? What's their gross income? What's the character of it? Is it schedule C, schedule E?
(21:58)
Is it rental properties? Is it W2 income? Is it pass throughs from Sub Ss and other businesses? So understand your demographics. Get a good handle on that. And I'm going to say go with what you have. And what I mean by that is when we started our wealth management practice 12 years ago, I didn't say I want to serve billionaires. I didn't say that. I said, I want to serve high net worth people. And how I said that was, I want to serve people that have federal estate tax issues. Now anyone with means knows what that means. Like, oh shit, you're talking like 25, 30 million in net worth, right? I'm like, yeah, but I didn't have to say that. So when people say, well, what's your minimum? I don't really have a minimum, but my clients are concerned about federal death taxes and making sure they don't get clobbered and lose a lot.
(22:49)
At the end of the day, message delivered. The American Express guy ain't saying that. So go with what you have means you carve out your A clients from your existing client book of business, whatever that looks like, start with them. Why they need it more than others. They'll appreciate it more than others. They're already an A client. A clients don't give you grief over bills. They don't pay late, they don't argue with you over your advice. They take it, they thank you and they pay on time and they send you their friends and colleagues to work with them. So go with what you have. If it's not a high net worth book of business, you know can decide that's where I want to be. I want to serve the middle affluent, et cetera. Or you can then slowly but surely work to improve that through your marketing communications, et cetera.
(23:40)
It's not for all clients. Some clients don't want it, some clients don't it. Some clients think they're all set and that's fantastic. Don't go upstream. Because what I learned early is when they're ready, they're ready and they'll call you. But the previous session I saw, they need to know what you do, so we'll get to that. But they need to know what you do and they didn't know you're a resource for all these various things that you can do so that when that need does come up and it pops into their head or they get the letter from their advisor, Hey, I'm moving from Morgan Stanley to UBS sign here and everything's going to be the same, or their bank just failed last week, or whatever other stupid things happen, your number's going to come up. You're going to, what I want to be is first in line.
(24:28)
I always want to be first in line. If it's someone that's not using you now, you want to be that very next resource. And you may do that by second opinion. Some things, expanding your conversation around your ordinary services for things you're casually observing and seeing that are not getting attended to. There's lots of ways to do it. Focus on where you can add the most value. So I think the most value is in the gaps. And what I mean by the gaps are right, every client has a lawyer for business, an estate planning lawyer, a lawyer for real estate, a life insurance agent, a property and casualty agent, maybe a benefits broker, a investment broker, a banker picket. They all have this who's who, roster of people. But you know how stuff just doesn't get done. So if you've got a good lawyer and a good Goldman Sachs guy, why aren't your accounts titled properly in trust?
(25:27)
Why aren't your beneficiary elections making sense? What am I missing here? And what I learned is clients don't like it when I beat up on their incumbents and say, geez, I mean these are some gaps that I'm noticing that I think should probably be filled. So go where you can add most value, go to the gaps. Because in some cases it is about unfortunately picking scabs. And then I'd say nine out of 10 clients that we work with, we end up replacing the entire professional team. The lawyer's gone, the insurance guys are gone, investment guys are gone. Probably become us, but not always, especially the really big ones. We never intend to manage money for the billionaires, but we oversee everything that they've got. We evaluate their managers, we report on their managers. We evaluate private equity deals and business acquisitions and business sales for them, which all the aforementioned firms cannot do.
(26:23)
Cannot do it. If you're affiliated with a broker dealer, you probably won't be able to do it either, which is why I ditched the broker dealer and the license because it was more restraining than it was enabling, and the talent must match the need. So another thing I hear a lot is talking the CPA firm last week somewhere in southwest Washington and felt like, oh, we got a CFA running the money. Big deal. Small clients, not a lot of them kind of fledgling, but they went out and paid huge money for this CFA because he has the CFA credential. I'm like, oh man, dude, that's not what you need. You need a wealth manager and a practice leader. You don't need a CFA. So you don't get overwhelmed with or overjoyed with credentials and that kind of stuff. Talent's got to match what you need. By the way, if you have any questions, feel free to pop in at any time. Well, the saying about if the tree falls in the forest, right?
(27:29)
Same thing with wealth management and financial planning. The marketing communications plan is very important and maybe very different than you think. Most CPAs are inclined to go and either buy a canned newsletter that's going to have four to six technical topics in it and send it out frequently. Your clients ain't reading that. They're not reading it. We send a newsletter weekly, and you know what? The weekly letter and our open rate is like 65%, 65% our story. The first story is a personal story. Guess what clients want to know most about you, man? What's on your laundry line? What are you doing on weekends? What happens in your backyard? That's what they really want to know. So we write a personal story. It could be about the birth of a grandchild, a recent trip, whatever. It's a personal story that gets read. We get, again, only a hundred clients, we get 10 email replies every week.
(28:36)
Oh man, that was awesome. I never knew that about you. Fantastic. And then we have one technical article, 500 words written at a third grade level, and I used to do that for a living as well. I've been writing for accounting today now for probably damn near 15 years. Mr. Carlino actually got me started doing that. And even before that, I've been writing for newspaper. So now about 25 years. So I have 25 years times two a week of articles in the can that I can go back and update and freshen up as needed. They don't get nearly as much reading as my 28 year old staff guy talking about his puppy dog that drove him nuts, kit him up all night. It's like whatever. That's what people want to read about. So your communications are really important. It's the personal connections that are going to matter. Point of engagement, reinforcement. I talked about that a little while ago, and that is if you guys are sending out information or you're adapted website to reflect the wealth management division and maybe even try to integrate it a little bit more like it's really a part of your service and not just, oh, we can do this too. No, this is who we are and this is who we work for.
(29:57)
If that partner doesn't bring it up in their face-to-face meeting or when they're out for cocktails or whatever, phew, he's going to leave. The prospect will leave, your client will leave and say, well, she didn't even bring it up. So it can't be that important. So it's important to bring it up and have that reinforcement. What's current? Yeah, in the marketing environment, I think they want to reduce confusion. We're all on information overload, so they want to reduce confusion. So right now, a great short topic to write about, and I'm talking real simple man, third grade level, talk about the bank failure stuff and read some of these cool articles that are out there. I mean, I had one the other day where the guy actually listed 40 banks. He goes, these are the vulnerable ones. These are the ones. I'm like, woo. Wow, that's interesting.
(30:52)
And some of that bank failure stuff is created by investors. They've been short selling the hell out of these banks, forcing them to sell assets to cover their losses, and it just goes right down the toilet from there. Centers of influence. We don't do any traditional marketing. You'll never hear about my firm, ever, ever, ever. We just don't market. We market to our clients, to our COIs and our natural market, and we do it through the newsletter. We occasionally hold events, charity outings here and there, but our centers of influence are where really our clients come from. And I did some polling. So there's a lot of talk about polling clients. We spent 300 grand about eight years ago on a firm that did extensive research into our eight clients. They spent a day with 25 A clients and a day each. So that cost a lot of money.
(31:48)
But what came out of it, what was really, really clear is well, we would never reply to an ad. We would never call someone that was advertising on TV or radio or whatever. We get our referrals from, our trusted advisors, from our lawyer, from our accountant, from whoever it is. So right. Last year I think we actually took on nine new clients last year. Six came from a law firm and an accounting firm. Three came from existing clients and they were all primo ideal clients. I mean just fantastic clients. So the center of influence is something that's really important. And they talked earlier about documenting your ideal client profile. Well, she's right or he's right, whoever the heck said it is. That really is important to make sure that you're getting the right referrals from your partners. We even have the audacity to train them on how to make the introduction.
(32:44)
We provide a written script and we spend time when we go to lunch. It's not just casual BS. We're doing 10, 15 minutes of serious drill down. Hey, how are you introducing us? What are you talking about? And it's only four or five people that are on that COI list for us. But it's enough to sustain 35% growth per year for 12 years running. Do the math. That's pretty good. You're doubling every three years at that rate. A minimum expectations if you don't have all these things get on it. Yesterday, the website really pretty important. I've seen some phenomenal websites recently that integrate the accounting and some of the other things pretty well. Our site is not even that great at that yet. Little secret, like I said, I bought into an accounting firm last year. We're just getting the integration together from a marketing perspective and communication perspective.
(33:36)
So that my guess is by Labor Day or so, you'll look at it and think, wow, this is one killer entity. Family office accounting, wealth management, the newsletter, again, we do it weekly. Some find that offensive and too much, but our clients don't because we keep it really light. In an easy read, probably two minutes. All in the personal articles are two to 400 words. The technical is 500 words. And some weeks it's like the newsletter is as simple as, Hey, there's eight pictures from our Christmas trees of all the people that work here and have a great holiday. They love it. They love it. They open them up and they look at all the pictures because of course if you use constant contact, it tells you who's opening and who's clicking and what they're clicking on educational presentations. This is something a year ago I might not have had up there because that's how when you think of an educational presentation, you're mainly thinking of a sales pitch.
(34:35)
One of those plate liquor seminars that advisors do where they invite you to a free dinner and they just want to jam shit down your throat. That's not what I mean. Now what I mean by that is our really rich clients don't want their kids to be blithering idiots about money and entitled spoiled brats. That's what I mean about it now. So that's really important to the wealthy clients. It's like a parent trying to educate the kid. It doesn't always work that way. So that has become a really important part of our business. And the other thing about it, it ain't me that's educating these kids because I look like dad or grandpa even worse. And I don't want to be a lecturer to these people. So I put my 27 year old staff guys on that, and now I got a 27 and 24 year old with a 24 year old and a 22 year old that works out really, really well.
(35:31)
Of course they're not ideal clients yet, but when their parents are paying you a 50,000 a year, you can afford 10 hours to educate the kids and spend time with them and hold their hand and help them make their 401K allocations and proper beneficiaries and walk them into the lawyer to get their own will or trust or whatever they need. So that's really important. Events. Events should be fun. So we don't do as many big events as we used to, but the big events we do, we do a large charity golf outing, which is a lot of fun. We have a scotch tasting coming up for the last two years. We've bought a barrel of bourbon. We bought a barrel two years ago. We just bought another barrel about six months ago. And that's a topic of conversation amongst our clients, especially those that have a lot of money.
(36:24)
So I think the events are important and tasteful swag, I think tasteful swag is okay. Now how do I define tasteful? I guess in the eyes of beholder, but super brand names really high quality stuff. So if you're of a golf geek today, Peter Millard's, the hot brand or something like that, subtle logo, I don't want to see it. Subtle. Subtle. I learned this from Fidelity. Little swag I got from them years ago. Navy blue golf jacket with a little lighter shade of Navy that had the Fidelity logo on it. Very cool. You actually had to look to see it so it doesn't just like smack you in the face. People appreciate that and they'll wear it if it's really good, high quality stuff. So that's kind of what I consider to be marketing that's going to get the word out there and get the communication out about who you are and what you're doing.
(37:19)
All right. Systems and processes. Not many people use mutual funds anymore, but do you remember the day when the mutual fund was like nothing but a walk down the runway? The star manager Peter Lynch, woo, Jeff Venek, woo. You notice they don't do that anymore because shit happens man. People have bad years, they die, they change jobs. And all of a sudden that great story you told about this guy, well now he's at that firm. So what are you going to do? Sell that fund, incur the capital gains and go buy this one because he moved over to a different firm. Not really. So financial planning is the same way. It's not superstar driven, it's process driven and it's team driven. So one of the things I do, I've set a rule from the beginning. No one will ever have a one-on-one meeting with a client.
(38:15)
I mean it happens occasionally. Someone's sick or they just want to talk to you about one thing. I want two people minimum in every meeting. I want one person to engage with the client. That's the lead advisor. I don't want the junior guy. Dude, you better take a lot of notes. So when I used to train, we're rolling along 15, 20 minutes later in the conference room, I'm looking over, I'm like, you having fun? What do you mean? I said, dude, we've been talking for 20 minutes. You haven't written down anything yet. Let's go client chuckles laughs, ha ha ha. But that's what it takes and involve multiple staffers. Engagement client to say, Jake's my financial planner. I want them to say level four group is my financial planner. I don't want them to talk about a person. I want them to talk about the firm.
(39:06)
And it's the firm that's the planner. And if you've got enough expertise in the firm and people, natural course of events is they will get advice from many people. So we tell our new clients upfront, by the way, we're a small team, everyone's going to know not everything about you, but a lot. We now sign non-disclosure and confidentiality agreements with our clients. We were asked by the first billionaire guy to do that. And I'm like, dude, that's a great idea. Immediately distinguishes us from everyone else in the business. Wow, no one's ever done that before. Exactly. Not only are we required as fiduciaries to be confidential, but we just put it in writing that says we're going to be this way and everyone that we deal with is going to be this way. And by the way, it extends to the other people we bring in. If we bring an insurance guy, a lawyer, a new accounting firm, whatever, that agreement also extends to them. They love it. Absolutely love it.
(40:06)
You ever read the book, the Checklist Manifesto, pretty cool book. That's how financial planning should go. Now, AICPA has a pretty good guide. It's like gazillion pages and a lot of NA's, kind of like the audit guys guides of the old days. By the way, I was a failed auditor, lasted two years on the job and I was part of the Easter parade. Like, dude, you don't fit the profile. I'm like, you're right. Thank you for doing that to me. I hate this job. So anyway, so I'm real big fan of that. It also makes it a lot easier to review the work. If you can see, did you address the property and casualty insurance? So I feel I've saying this for years, the number one area of exposure for wealth managers in my opinion is property and casualty insurance. Because there's a lot of errors of omission there.
(40:58)
No one reads the damn policies. No one talks about gaps in coverage. No one talks about limits. No one talks about exclusions. No one talks about riders named insureds or any of that stuff. What do they say? Oh, well make sure you have replacement cost coverage and you go talk to your agent to make sure you have umbrella and that there's no gaps in your coverage. That is malpractice. If you ask me again, if you are a fiduciary financial planner, you're required to give advice on all this stuff. Now you may not be the expert, but being CPAs, you are well schooled on how do you work with experts to get to the stated objective? And that is good sound advice for your client that is going to hold up the test of time. So that's what I mean by an error of omission. The scope of work is very broad.
(41:49)
Our engagement letters are boring as hell. They're really simple. And when a client reads it, they're like, dude, this really doesn't say anything. I'm like, no, it really doesn't because how I interpret it is anything and everything that falls under the category of your family with money in it is our responsibility. So no, I don't, I'm not on the hook for the lawyers drafting of the documents, but we let them know that we are going to be accountable and are willing to be accountable and on the hook for crappy documents because we're going to read them. By the way, that's a slippery slope when you have a client says, no, no, no, I got a great guy for the wills and trusts. We let that happen twice in the last three years. What a mistake. All times it was like the corner real estate dude that sometimes after the meeting would call us up, Hey, you got any documents?
(42:44)
You could redact the names for me so I know what the hell you're talking about. I'm like, oh boy, not good. So be careful with that one because you can chew up a lot of time working with some of the client's, existing advisors. So just make it clear in your presentation that you hold the authority to recommend that this person needs to go, that person needs to go, this person needs to come in to get this job done and it needs to be reviewed. Any other other work that any other CPA firm does. You can't just have advice, get out the door, no one's taking a second look at it and the client deliverables. So a lot of financial planners print out an 87 page E-money dump of a lot of garbage. So I once asked a client like, you like that crap?
(43:33)
They're like, hell no, man. I said, well, what do you want? They said, how about just a real plain English summary? So our financial planning memo, and I'm talking some of them 75 grand in fees, six pages, bullet points, that's it. That's what they want. And now we've documented what we've done, documented our advice and they're happy. So make the client deliverables easy, simple, easy to read, easy to understand. You've got your backup. So if someone wants, you're using E-money, you give them a login, they can go in and look. Of our a hundred clients, we have two that look only, two that look one that fiddles. And I'm glad he fiddles because he owns a lot of outside investments, a lot of private companies and is a private equity junkie. So he goes in and updates all the values. I'm like, thanks Matt, we appreciate that buddy. This makes it even easier. So again, systems and processes are really, really key.
(44:33)
A plan for regular reviews. You know what the number one complaint clients have about their financial advisor? I never hear from the person. I never hear from them. That is number one. The number one reason why people change firms. The number one complaint. Don't ever be guilty of it. So someone also this morning talked about a plan of work and a communication strategy, son of a gun. We have all the above. We have for A, B and C clients. We don't have any Ds. We have a plan of work and a communication plan. And we up upfront say, this is what we see is where we're starting with, how's that fit with you? What's important to you? How often do you want to get together? Now when you open the door like that, rarely do we meet someone and learn something really new and radical that we didn't know before about the client because we condition them to, we're not billing by the hour, man.
(45:27)
This is flat fee stuff. So you call us anytime something comes up, you want to do something, call us. So I haven't had a call in 15 years. Hey, just bought another vacation house. Really? Why didn't you tell us ahead of time? Or I paid off my mortgage. It's like, oh that was really smart. You had a two and a half percent interest rate and you paid it off. I'm glad that peace of mind works for you. I look at my mortgage statements, I'm pumped. I see two 15 year notes at two and a quarter. I'm like the first time in my life I ever timed anything good communication plan. So write it be clear, a culture of proactivity and holistic service. That sounds like jargon, but it's not. I really mean it. So you have to anticipate your client's needs. So turn in 65, right?
(46:18)
What happens six months before you turn 65? The junk mail starts coming in. Hey, you've got choices, you've got choices. The Medicare advantage plan, the this plan, the that plan. Why don't you beat them to the punch? And I used to think, who gives a crap about that? These clients have so much money, it doesn't matter who gives a crap about that. They do. They care a lot about their social security and their Medicare and having the right insurance. They care a lot about that stuff. So I learned the hard way. That's just a real simple example of proactivity. But another could be durable power of attorney. Have you ever ran into a situation where a client had a durable power of attorney that was three years old and the bank said, we can't take that. You can't take that. Well yeah, read the fine print in our account opening agreement.
(47:07)
Any durable power is older than 12 months. We don't have to honor. So it just turns into a fight. Eventually they'll honor it, but it's a fight. So why don't you be the one that reaches out and says, Hey, it's time to update your durable power of attorney. We're going to copy the lawyer and get you involved. What do you think? That's fantastic. Or hey, and I noticed your son got and it's not done yet. Can we amend your trust language here? In fact, one thing we now put in all trusts is divorce proof provision for the clients. So the most common age for marriage now is like 65 plus silver haired second trip around the sun. And they sometimes have the nerve to, or the smarts to ask what happens if we go separate ways? Cause they're always afraid to talk about prenups.
(48:00)
I don't know why everyone's afraid to talk about it. So we build language in the trusts. Say if there's ever a divorce and then one spouse chooses to remarry, you must have your new spouse sign a prenup or you're getting cut out of the trust. And I haven't had a client yet that objected to that language. Haven't had one yet. So put the same language in for your kids and your grandkids. Like, well, my granddaughter's only five. Exactly more the reason why you need that language. Who the hell knows what she's going to be like in 25 years? So it's why it's so important, your allied service team. So another mistake accountants make a lot is they'll go to lunch with anybody with a pulse in the hopes that maybe they'll get a client out of it in the future. There's a book called Rainmaker that I think is really cool, the Brett Van Bortel one, and that he rearranges that whole center of influence conversation to where you know, don't need 40 lawyers, you don't need 40 insurance guys, you don't need 40 Merrill Lynch guys.
(49:08)
In case everyone sends you a client, you need one great one in each area that you really need to get tight with. You need to know their work, know their style, know who they are, anticipate each other's needs. So the lawyer that we send 95% of our estate work to now is obviously he's our best source for new clients. He gives our clients a 25% discount on his fees because we do all the work. He's an order taker. We give him balance sheets with titles, with values, with basis, and with the documentation of the conversation about spend, thrift provisions, beneficiary elections, et cetera, and works out really good. Bottom line, be the head coach. That's really what it is. You probably hate the Patriots. I don't even know if I like him anymore either. But think Bill Belichick. All right, you got to be the head coach.
(50:00)
All right. Now building the team, unlike most in our industry, I believe structured exactly like you do a CPA firm. I like starting them young, training them how you want them base salary bonuses for metrics. So year one metric might be, you know, pass the first three parts of the CFP exam. Cool, that's good enough for a 22 year old kid to prove that they're serious. They're all studying at night instead of going to happy hour. Comp plans. Talked about it. I'm not a big fan of percentage of revenue. Hey, we're going to give you X percent of all the revenue you bring in from a CPA perspective. I think that's stupid because you already have the revenue and the clients. Why the hell would you pay someone a piece of the revenue that you're going to get anyway just by being there? So I don't like that at all.
(50:49)
Career development, just as important on the wealth management side. In fact, today's younger, the twenties, that's really important to them. It's one of their most important things is feedback and constructive growth and career track development in financial planning. I know this sounds silly. Three, four firms I can point to that. Have a genuine career track similar to what an accounting firm might do for someone that wants to be a build a real wealth management group. Professional designations really important. They have to understand the career track and hiring ahead of the need. Bad habit I have. Most people don't want to hire until they absolutely need it. And so what happens when you absolutely need it? You got someone in the seat that doesn't know what the heck they're doing and you have a little bit of a disconnect. So we always have one full-time equivalent more than we actually need always do.
(51:45)
Probably got another four month runway, maybe six month runway on that. Because the last hiring we did was 15 months ago. We had two candidates we really liked. So I said, let's hire them both. My junior guy now the president, I'm just chairman. I don't do any real work anymore. He goes, dude, really? We don't need both. I go, great, hire them both. And we did. And there's both still there and they're both really happy. One of our high end assistants got pregnant and didn't go real well. So she was out quite a bit and this kid stepped right up and he was doing damn near some administrative work as well. To me that proves a lot. That proves a lot. This kid's got what it takes to be great. So I love to hire ahead of the need. And then in building the team, where do you find talent?
(52:34)
I've found great talent from like the CFP board, the CFP website, the AICPA website and how you word your ad is critical. So if you can google up and look at some of the ads we've run in the past, I always say, this is not a sales job. You are going to learn how to be a financial planning here. And we get off the charts, replies off the charts. So I've never had trouble hiring someone and I'm probably the only guy in this room that can say that with a straight face. So that's how you do it. Feedback, you've heard a lot about that today too, right? Feedback from clients. Again, only a hundred clients. So a formal survey's not that important to us, but you know what? Out for lunch or out for dinner, A few pops on the golf course, dude, what do you think about how we're doing it, man?
(53:23)
What do you want to see more of? What do you like? What don't you like? They'll open up to you. They'll open up. Especially because remember more about them than anyone else on earth, more than their spouse. So that's important. What can we do better? Anything else you wish we did? And what can we do to be even more valuable to you? The answer to us was, I want you to help me with my private deals. My UBS guy couldn't do that. So I'm like, fantastic. So we're reviewing deals, sometimes we're flying to places to check out sites, et cetera. Works out well. So the feedback is important. On that note, I got nothing but a blank screen for you. So this is all stuff I've done in the last 12 years. There's nothing up here that I haven't done and I'm not doing today. And I can tell you it works. So I thank you for being here. See you around. Any questions? I'll hang out a bit.
Audience Member 1 (54:23):
I have lot of questions.
John Napolitano (54:24):
Okay.
Audience Member 1 (54:26):
And another presentation. What are your revenue streams?
John Napolitano (54:32):
Revenue streams. She asked what are our revenue streams? Our revenue streams are primarily flat fees for financial planning, flat fees for family office and assets under management. We do very boring ETF portfolios at low cost rich people dig it because they believe that markets, who knows man up or down tomorrow, I don't know. And so they buy into efficient market theory and just being allocated. And the really rich people like say 500 million, they hardly want stocks and bonds. They want real estate businesses, private equity. They say, just put enough in that crap so that I'll never go broke.
Audience Member 1 (55:11):
Ultra high net worth.
John Napolitano (55:16):
Ultra high net worth. The revenue comes more from the family office and flat fee? Yes it does. Okay. Yes it does.
Audience Member 1 (55:23):
And you're saying question, you said earlier?
John Napolitano (55:31):
Yeah, two third It's it's one law firm primarily and one accounting firm primarily. And that's why we bought into it.
Audience Member 1 (55:39):
Are your relationships from to firm your firm, that law firm.
John Napolitano (55:43):
Yes.
Audience Member 1 (55:44):
Are they work at your firm?
John Napolitano (55:45):
Absolutely. It's not a lawyer and me. I'm like nobody in it now. It's my other guys that they work with. But yeah, absolutely. We work with 12 of us and 20 of them. Yep. Takes time. By the way, this is probably a five year track I'm talking about. So if you do all this for five years, you'll look back. In five years, you will scare yourself how successful you'll be. Yeah. You let me know when we got to get out of here. Cause I know someone else is waiting to talk.
Audience Member 1 (56:15):
Two questions. When you say flat fee, how do you come up with a flat fee?
John Napolitano (56:20):
Great question. How do I come up with a flat fee? When I say flat fee, sometimes it's what the market will bear. So if I know they're paying Merrill Lynch 200 grand a year for AUM fees and getting nothing else, it's going to be 20 grand a month and we're going to do all this. And they're like, wow, that's a lot. I'm like, well, no dude. That's what you're paying now and you're not getting all that. And then sometimes we go the old fashioned way where we think we're going to spend this much time, let's put a premium rate on it and get it out there. And a lot of times the family office starts the latter way, the second way because you really don't know how messed up their stuff is already. And family office is glorified, bookkeeping really is glorified bookkeeping. And then layer on advice.
Audience Member 2 (57:00):
Second quick question. I'm a CPA financial advisor. Do you think it's worthwhile to take the CFP?
John Napolitano (57:07):
Is it worthwhile to take the CFP if you're a CPA financial advisor? Unfortunately, I think so, only because the public recognizes it and you may learn some things that you otherwise didn't know. So it's probably worth it. And what the hell? It'll give you a CPE for your CPA license. All right. Thanks again guys.