Editor’s note: Today we bring you the fifth episode of “Building a Better Advisory Firm Series: How to Earn More, Better Serve Your Clients, and Work Smarter, Not Harder.” Broadcast live in June, it is part of a series of interactive discussions about practice management that we are hosting weekly through July. The series is simultaneously streamed on YouTube, LinkedIn, and Facebook on Thursdays at 10 a.m. You can learn more here about future session topics, how to attend live, and how to add sessions to your calendar. You can also watch replays of past sessions here.
You can either listen to the complete discussion above—which includes additional conversation—or you can read selections from the talk in the edited transcript below.
Do your clients know everything you can do for them?
Douglas Pierce: Do your clients understand everything that you do for them or all that you could do? If you’re like most advisors, that answer is probably no, not even close. So, today, we’re going to be talking about ways you can communicate all of your services that you provide to your clients, so that your value is increased in their eyes and you can justify your fees that they pay you.
This is part five of the Building a Better Advisory Business series. If you would like to add the next two sessions to your calendar, you can go ahead and go to horsesmouth.com/series to get those on your calendar there. Also, if you missed any of the past sessions, you can go ahead and get caught up by going to horsesmouth.com/betterbiz and find the replays there.
Now, this series is part of the build-up to Debra Taylor’s practice management workshop running July 19th to the 22nd, which will be happening virtually. It’s the “New Normal Practice Management Workshop,” where she is going to be going crazy in depth about all of the systems, the practices, and techniques that you can put into place to take your business to the next level.
She provides worksheets, checklists, really goes deep. So, if you can spare the time, I highly recommend it. It’s probably one of our workshops that people have raved about the most. So, you can go to horsesmouth.com/newnormal&v=0q5alv4u4iewzf0egmaaeptd to find out more information about the workshop and to go ahead and sign up.
Now I’m going to go ahead and kick things over to Horsesmouth Editor-in-Chief, Sean Bailey and the woman herself, Debra Taylor. Over to you guys.
An expanding range of service
Sean Bailey: Thanks, Doug. Good morning, everybody. Welcome, Debbie. So, Debbie, this is an interesting topic. This question of value proposition is linked to the range of services that advisors provide for their clients.
Thirty years ago, people had their stockbroker and it was really just about placing trades and maybe calling up your client when you knew there was going to be a good stock offering or whatever the case may be. Of course, since the late ’70s or early ’80s, the whole financial world has exploded. We’ve had the financialization of the U.S. economy, where I think it now accounts for well over 15% of GDP. Everybody’s in it. We had the end of Glass-Steagall.
So, the guy who used to buy 500 shares of IBM for you now potentially is selling you stock, may want to be concerned about other issues in the insurance space or in the banking space, whatever the case may be. So, value proposition in my mind is linked to all the other things that advisor can do for a client beyond simply investment management. But what is your sense, Debbie, before we dive in a little more deeper, about what does that value proposition really mean to you? And then how does that translate into you communicating with your clients about it?
Debra Taylor: I think the communication aspect is key. There’s a real execution gap there, informing clients about what goes on behind the curtain, right? Some advisors honestly aren’t doing enough for their clients to justify a 1% AUM fee when basically what they’re doing is this flurry of activity once or twice a year around a client meeting. They should feel uncomfortable charging 1% of AUM when they’re really not working for that client the way they should be, right?
So, to me, the value proposition for these clients is this: My goal is to make your life easier. My goal is to make a difference in your life, a meaningful difference in your life. So, in the broadest way possible, that’s how I view my role. And then I’m willing to wear a number of different hats to accomplish that role.
Sean: Over the years, as I’ve observed advisors and their practices, the ones that appear to be the most successful have either explicitly or implicitly adopted this attitude of “I am my client’s CFO.” I mean, that is the value proposition to me, because this stuff is hugely complicated. I don’t want to spend all my time learning the ins and outs of every last little thing that is important to my family’s financial life. To me, that is the role of the advisor. They educate the client and they execute on these things. I think a lot of people still come to the relationship with an investment lens unless the advisor talks these services up, talks about financial planning. But the truth of the matter is, especially with your AUM fee pressure, it really is a matter of acting like your client’s CFO. But why do you think the average client still is not aware of all the services that advisors actually can deliver for them?
Alert clients to your service range from the get-go
Debbie: Honestly, that’s on the advisor. There’s a communication issue, right? There’s an execution gap. So, to me, there’s a few ways that you address that.
First of all, in the onboarding process, you need to do a very good job of communicating to the prospect and then client, “These are the services that we offer?” So, for example, at Taylor Financial Group, literally, there are 60 different services.
And we have a handout, a chart that we call the financial futures planning chart, the financial futures chart. We basically take the different services and we break them into six categories, including tax planning, retirement, investment management, and so on. And then under each of those six categories, there’s literally anywhere from 6–10 specific services that are provided, OK?
So, we give that to clients very early on, before they’re even clients, during the discovery process. You want to start educating them from the very, very beginning about all the things you do. For instance, long-term care insurance. You’ll hear, “Oh, gee, I didn’t know you did that.” Cash flow, budget. “Gee, I didn’t know you did that,” Right?
Particularly folks who’ve been self-directed, they don’t know what they don’t know. I mean, you can be super smart. We have clients who are MIT engineers, right? They’re trying to do social security analysis on a spreadsheet that they’ve created. I’m like, “There is special software for this. You can’t create a spreadsheet for social security claiming strategies.” So, people don’t know what they don’t know. It’s not a function of how intelligent you are.
We have doctors. We have engineers. It’s not about being smart. It’s that I spent 8 hours a day doing this, 12 hours a day doing this. How are you supposed to catch up to that in a weekend of learning, right? So, part of it is in the discovery process. When you’re meeting with those prospects, you want to be educating them right up front.
And of course, that helps you with the fee discussion. Then with your existing clients, because you’re like, “OK, Debbie, thanks for that help, but what about my existing clients?” Well, again, always be closing, always be selling. Every time I walk out of a meeting, my goal is that client says, “Thank God, I have Debbie Taylor on my team.” Right?
So, you always need to be caring and nurturing and feeding these existing clients. So, that’s then in your weekly newsletter. That’s in your monthly planning letter. That’s in your monthly or quarterly webinars or your weekly office hours. These are all things that we do for our clients.
Financial planning is a must
Sean: What are the kinds of services that you think advisors probably ought to be offering to their clients? To fit into the broad Chief Financial Officer for your client’s lives, outside the traditional investment piece. Services that help their clients and are not necessarily a huge lift? Service that can be used to tacitly support the battle against fee compression?
Debbie: Yeah, so first and foremost is planning. Every valued client should have a plan. I will tell you that once we started doing good plans for our clients and pulling those plans out when we had inflection points or had discussions about buying a second home in Naples or helping a grandkid go to college, whatever, once we incorporated planning into just about everything we do, there’s no more of, “Gee, Debbie, I didn’t think you did that. Oh, I went to this other guy.”
Because what happens is, if you have a good plan, then you are opening the door to all of those other conversations. Clients come out knowing, “Oh, she does offer long-term care insurance, because she just talked to me about that. Oh, she offers life insurance, because she just talked to me about that.” And then they’re not going elsewhere. So, there’s a couple reasons that we want to do these plans. First of all, it’s the right thing for our clients!
Years ago, you charged 1% of AUM and all you did was investment management. Look, we didn’t know any better, right? All right. We’ll defend ourselves, give ourselves the benefit of the doubt. We didn’t know any better; we, as a profession. In defense, investment management was a little bit more difficult to do back then, because we didn’t have the technology, right? So, I’m going back 10 or 20 years, right? Now, we’ve evolved. The investment management is generally speaking a little bit easier, a little bit streamlined. We have technology for that, but also we have technology that helps us in a whole host of other areas.
If these clients come to you and they trust you with their life savings, we would be remiss then, I believe, if you’re cherry picking the things you’re going to do for them. Because you know full well in the back of your mind that you should be talking to them about tax planning and you should be doing financial planning for them.
So, there’s a lot of reasons we need to do this. First of all, it’s the right thing. If you want to defend that fee and not have to negotiate and you want to protect your client retention, then you need to be doing more of the investment management. You need to be doing more than just waiting for a meeting to service this client.
Don’t wait for the meeting
I don’t think there’s anything worse for this profession, worse for you as an advisor, than waiting for the meeting to do the thing, OK? Because that’s why your clients don’t want to stay with you. That’s why they don’t want to pay you 1% of AUM, because they know that the services they’re going to get are only once or twice a year. Who wants to pay $10,000 or $20,000 to be serviced once or twice a year? I mean, that’s a rip-off. I know I’m oversimplifying it, but I think you’re getting the point.
So, we need to do planning like it matters. If you really commit yourself to doing the planning with these clients, you’re going to cover all these other areas. All the data shows that when you do this cross-selling, when a client buys several products or services from you that they are going to be stickier, you are going to have higher retention, it does create loyalty, and then the whole ecosystem works very well. So, those are my thoughts.
What service do you outsource?
Sean: I wanted to come back to this broad question of insurance, because, again, pre-Glass-Steagall, it was three separate areas: brokerage, insurance, and banking. Now, of course, people can be in all those places. You mentioned long-term care and life insurance. Also, for a lot of advisors, annuities are part of their toolkit. I guess that means becoming licensed and putting in a little bit of time to be able to sell those products, right? How did that evolve within your practice?
Debbie: So, there’s philosophically some differences in how to approach this, right? So, we might have some folks who are RIA only. They’re not accepting commissions. They’re not selling insurance. I understand that approach and I do respect that approach. My thinking is that I do want to be a one-stop shop. Honestly, I don’t trust anyone as much as I trust myself. So, if I send a client out to the life insurance guy or whatever, God knows what they’re coming back with.
So, I got fully licensed very, very early on in my career, but not because it’s a huge source of revenue for us. Literally, 95% of our revenue is fee-based. It’s literally 95%. So, I’m not making any game-changing money. But when I do the plan and I do see that there is a gap, when I do see that we need life insurance and I am a big believer in long-term care insurance, then I want to be the one to have that conversation within the context of the plan and make the recommendations. Again, in a very responsible way. That goes for annuities as well.
Sean: Right, right. Now, of course, advisors can’t do everything. We’ve talked about Medicare before, and at Horsesmouth, we have Savvy Medicare. It’s largely designed for advisors to be informed about the topic, so they can speak knowledgeably to their clients. But getting into the weeds on that one is challenge. How have you dealt with that over the years?
Debbie: I have tried between myself and my team to really absorb and get our arms around as much as possible. Having said that, there are some areas where the learning curve is so great that I do believe it would be a disservice to the clients to try to keep it in-house. There are three areas that we outsource. Health insurance we outsource.
Then Medicare, I’ve also outsourced. We proactively alert our clients: “Hey, you’re turning 65. Hey, it’s open enrollment season again.” That goes to all of our clients. But we’ve outsourced Medicare, because Medicare is constantly changing. It’s very dynamic. You need to be certified every single year for that and I just don’t have the bandwidth for that. I think it would be a disservice.
And then the third area that we really aren’t great at, full disclosure, is the college planning. I know that Horsesmouth has a lot of support in that area and I think that’s great. It’s just that my clientele, literally, the average age is 65. It’s just not our book, OK? But if we had a lot of families, absolutely, then I’d be all over that.
Handouts help clients visualize your service spectrum
Sean: So tell people the story of how you started to be deliberate about showing all the different services that you offer.
Debbie: Well, many years ago, we had that experience where some of our clients were like, “Oh, I’m talking to a broker about long-term care insurance.” I’m like, what are you talking about? We do that here. So, that happened to me 10 years ago, 15 years ago. I’m like, well, I got to deal with this. So, we’ve created a number of visual pieces, because to me, a picture’s worth a thousand words.
You know, as an advisor, unfortunately, when somebody hires us, I cannot take them out back to my widget factory to show them how beautiful our widget manufacturing is, OK? It’s very frustrating. It’s frustrating as somebody who provides services. I wish I had a widget factory, but I don’t.
So, what I’ve done in place of that is create a number of, let’s say, educational pieces, one-page handouts. Again, from the very beginning of the discovery process, we use these pieces to educate these prospects, because then it helps us when that fee conversation comes up and they think they can negotiate with us. It helps to then obviously support the 1% fee that we basically charge.
We have a few points. One of them, like you talked about, is the financial futures planning chart. Like I said, it has the eight categories on top and then the drop down of the 6–10 services within each, OK? So, it’ll be tax planning. And then under tax plan would be tax-loss harvesting and tax-gain harvesting, asset location. All that will be there.
So, that’s one piece we use. A lot of people copy it!
The 3-lane highway
There’s a few other pieces that I’ve developed along these lines. One of the other ones is the three-lane highway—if I had to bring one piece to a desert island, it would be the three-lane highway. This is geared towards our niche. Again, you can use this or adapt it for your own practice.
So lane one is investment management, which everybody’s in, of course. The middle lane is retirement and financial planning, which everybody should be in, but they’re not. Just imagine three lanes. The right lane is tax planning and retirement distribution planning, OK? So, I literally show them this three-lane graphic and it is written in the three lanes.
I basically say, Mr. and Mrs. Prospect, right now, you’re in the left lane here, investment management, that’s with your current broker. That’s on your own. That’s a very crowded lane. Of course, you’re in that lane. You probably did pretty well for yourself with the 11-year bull market.
But now you got this middle lane with retirement and financial planning. This is a critical lane for anybody with any wealth. You need to have somebody who can service you in this lane. And then this right lane is tax planning and retirement distribution planning. You with your $1 or $2 million IRA, you definitely need this lane as well. You need an advisor that can go across all three lanes. That’s what we do. So, that piece is incredibly powerful.
I tell you this because the way we’ve done the piece may be helpful to you. But if it’s not, think about your practice, think about what you’re offering and how you can visualize that for the client. Because the picture’s worth a thousand words, because you don’t have the widget factory out back. So you need to help the client visualize what you’re doing for them and how it can make a difference in their life.
Adding the emotional piece
Sean: OK, great. So let me ask you this…I’ve just been looking at a lot of research. I think some of you out there are familiar with this idea that people make their decisions emotionally and then come to justify these emotion-based decisions rationally. So, you’ve just laid down the rational markers for working with Debbie Taylor; to the emotional piece, the broader emotional piece is the public’s desire to be financially secure.
Debbie: I got you, Sean. So, then the next step, OK? So, you’re right. That’s the rational part. It’s theoretical and it’s conceptual. Anyone can say that, right? I mean, you guys can print that piece off my website and say that, right?
So, you’re right, after we present the facts, we have got to drive it home, make it personal and emotionally real. So, then I have my little cheat sheet, because I can’t remember all these numbers, right?
So, I say: All right, so let me walk you through this, Mr. and Mrs. Prospect. Let me show you how this thing’s going to work, because right now, the government is hoping that you don’t talk to somebody like me. So, let me explain to you, if you do not work with somebody like me, what is going to happen down the road?
I call this the Ghost of Christmas Future, OK? So, I say: OK, so you’ve got this $2 million IRA. So, at age 72, you’re going to have $100,000 of distributions that have to come out, RMDs, right? Let me just read this now.
And then you’ve got some of this other income here, whatever it is, OK? So then right now, married filing joint, your income is— I’m just picking random numbers here. Your income’s $250,000. We’re just going to go with that. Right now, under current tax laws, you’re at a 24% marginal rate. So, you’re saying to me, “Gee, Debbie, that isn’t so bad. I’m OK with 24%, right? Not a big deal.”
But let me explain to you what happens when you don’t do this tax planning, when you don’t have an advisor who’s in that right hand lane. One day, one of you is going to pass, OK? This is called the widow’s penalty and nobody talks to you about the widow’s penalty. So, the survivor is going to have to be filing single. Let’s assume that’s Mrs. Prospect over here, right? So, now Mrs. Prospect has $250,000 of income, because she’s going to take all the IRAs. She’ll drop off one of the social securities. It’ll be the lesser amount.
But 90% of your income is basically going to stay the same. So, now you’ve got all this income and you’ve lived within your means, because you’re trying to be smart, because you want to pass this money on to your children and make sure that Mrs. Prospect has enough to live off of. So, now at $250,000 a year, Mrs. Prospect is filing single. Now, she’s in the 35% tax bracket. By doing nothing, your wife is going to end up being 10% higher tax bracket than you were married filing joint.
Now, at this point, she’s looking at him. She’s thinking, “I thought you had this covered. I thought you had this covered.” OK, that’s what she’s saying. She’s either saying it or her eyes are telling him, “What the…? You had this covered,” right?
So, then I’m like: But it gets worse. Not only will she be at the 35% tax bracket… By the way, Mr. and Mrs. Prospect, you realize this is under current tax rates. You realize that if Biden has his way, some of this will be going up. Even if Biden doesn’t have his way, the TCGA expires in a couple years. It’s right around the corner and then these tax rates are going to go up again to the former tax rates.
So, best case scenario, you’re 35%. She’s paying 10% more in taxes, but it gets even better, that Medicare IRMAA surcharge that we were just talking about that’s totally irritating to you. Do you realize that she’s going to pay more as single than the two of you as joined? That’s impossible. Those are premiums. Yup, OK, but at $250,000, she’s at single. Now, when you guys were joined, you were at $300 a month, $350 a month. Now, at single, she is going to be at $550 a month. So, she’s going to pay almost $3,000 more in Medicare IRMAA surcharges. She’s looking at him again, “I thought you had that covered.” He’s like, “What the…? I had no idea about any of this.”
I say, But then it gets better. You two have lived well within your means, because that’s how you’ve accumulated all this money. That’s fantastic, but the government is waiting at the finish line to tax you. So, even if all this stuff doesn’t get to you, then you’ve got the Secure Act. That $2 million IRA, which by the time the second of you passes will be worth maybe $4 or $5 million. Now, little Suzy, your only child, little Suzy’s got to take out that $4 or $5 million over 10 years.
Now, all that hard work, all those years of you living with your means, all of that effort you have made, and you think you’re passing $4 or $5 million on to Suzy. She’s literally only going to get half of that, because she’s got to pull that all out within 10 years. That is absolutely going to push her into the top tax bracket. These are the things that are going to happen if you don’t work with somebody like me.
Is that emotional enough, Sean? Because I tell you right now, by the time I’m through with that, they are closing me
. They are literally saying to me, “What are the next steps, Debbie?”
Leading with tax planning
Sean: Yup, yup, yup. So, you touched upon tax planning there, which of course, I think, when we address this issue of value proposition and services to be offering clients, we’ve been talking about this for a few years now, because we’ve entered this period of tax chaos. I think when we started talking about this topic more in depth back in 2017, there had been a sense that taxes was a sleepy thing.
Now we’ve been getting a lot of these big changes. And then, of course, it’s happening, like you said, at the end of a long bull market with the wealthiest generation in the history of the country going through retirement and starting to have to deal with issues like, “Gee, well, how will we turn our nest egg into some flow of monthly income? How much can we take out? What’s the tax situation?”
So, the value proposition for advisors, there’s just a very strong case now for them to be way more involved with taxes. So, can you just talk a little bit about how you have folded that in as the lead of your value proposition when you’re talking with clients?
Debbie: Yeah, so obviously, I’ve been a CPA now for 30 years. My father was a CPA. A lot of these things we’re talking about, I was doing them in some more rudimentary way, because of course, we didn’t have the technology, the software. I always thought it was an important addition to my value proposition, the fact that I was a CPA. Nobody really cared, OK? Nobody really cared up until four or five years ago. And then the TCJA passed at the end of 2017, the Secure Act, 2019. And then over the last two years is tax chaos. Now, taxes are just front and center. It’s a polarizing issue and it’s everywhere, right? It’s just constantly changing. So, now, it is absolutely what I lead with, everybody is listening.
So, we have incorporated this as basically our specialty. It’s all over our website, the acronym SMART, Save More After Retirement Taxes. So, it’s everywhere you go. It’s the key part of my approach talk. This is who we are and this is what we do. Our business has never grown as quickly as it has over these last two or three years, because of this tax niche and because these high-net-worth clients, who after this bull market are sitting on all this money. It’s like this perfect storm for them, because they made all this money.
Now, the government wants to tax it all. It’s all happening now, right? So, it wasn’t like this five years ago, because we’re still in the middle of a bull market and we didn’t have a lot of tax-law changes. So, truly, it is a perfect storm that is just hitting us now. So, everything we do is geared towards this tax planning, tax niche, large retirement accounts, distribution planning. Everything we do is geared towards that. It’s a winner. It’s a winner.
Sean: Yeah. Just a small aside, I monitor a number of retirement-related private Facebook groups just to see what people are out there talking about. Just this morning, I think there’s one called Retirement and Taxes and turns out there’s a CPA who’s in the group. He was saying “One, I’m ready to quit this business right now, because my clients over the last few years just have become so angry.” And the other point he was telling the group is, “You know what? I’ve been a CPA all these years. I don’t really know that much about retirement taxes.”
So, that part was funny, but I was curious about his observation about anger and taxes. Is he on to anything there? Are you seeing or experiencing that at all?
Debbie: No! Here’s the problem, OK? Here’s the problem. His clients are angry because he’s not helping them. At the end of the day, people are angry because they feel powerless, because they feel like they don’t have a plan or a path forward. I come and I give them a path forward.
I say, look, we’re going to do this. I got your back on this. I read about this stuff every single day and I’m going to do everything I can for you. They’re like, “Thank God, Debbie. Thank God because I don’t even know where to turn.” So, this has an opportunity here to help his clients to make a ton of money, win all the way around. He’s like a typical tax preparer. He’s a typical tax preparer. Which is why people need us, right!?
Tune into the conversation at 35:10: to hear more about how Horsesmouth’s Client/Advisor program provides turnkey communication packages that let your clients know every month about the variety of services you offer. Plus Debbie discusses the value of estate planning and how she no longer negotiates fees.