Sean: Today I’m talking to Michael Scott, who is an advisor currently in the planning process to go independent. I thought this would be a good time to talk to him and give a sense of why he’s looking to make a change--and then we’ll talk to him in the future after he’s made the switch and see how the process goes over the first 6-12 months. So, Michael, thanks for joining me.
Michael: Sure, thank you.
Sean: Why don’t you give me some background on your experience in the industry, where you are at the moment in terms of your business, and why you're planning for on a change.
Michael: Sure. I've been a financial advisor now for 17 years-all with my current firm, so I've been never transitioned between firms before. I currently manage a book of business that is about $67 million AUM. My trailing 12 months revenue is about $700,000. I have just really started the process of realizing that the best way that I can serve my clients as well as maintain the level of independence that I want to have for my practice will require me to make a change that give me more control.
Sean: How long has it been since you really started thinking about the idea of maybe making a change? Because I’ve known you a long time and from my observation that hasn’t really been of much interest which is probably one of the reasons you’ve built a pretty successful business. Give me a sense of how that process looks from being “all in” at once place to thinking, “well, maybe there are other options.”
Michael: I think anybody who’s going to go independent needs to have done their homework. I first learned about the independent model not from you but from another gentleman who was independent back in 2006 or 2007. I wanted to understand the differences between my current model and the independent model. After learning a little bit about it, it didn't really appeal to me at the time. I felt like that the book of business that I have needed to grow to where I wanted it to be before I found a place where I could have more control. I have really gotten more interested probably within the last 5 years, but certainly within the last 12 months, with all the changes that have come forward--like the DOL ruling, etc..
Sean: How do you go about thinking about options and make sure you're running your business the way you need to? How do you keep one foot in both worlds, so to speak?
Michael: I found that one to be a little bit easier so far than I expected because honestly, the clients are always going to be with you, so you have to put them first. You have to service their needs and their issues first and by doing that, I feel like you've build up a little more confidence to moving forward for the other step. It kind of gives you a little extra pep in your step for getting everything lined up the right way but it also keeps you focused on the fact that this is a job that requires you to serve your clients the best way you can. And I really found that to be honestly a little bit easier than I expected it to be because that’s never going to change. Whatever model or platform you’re used to, it just becomes the fact that how you’re going to make sure that your clients know you're there for them and that hasn’t been difficult as I may have thought it would be originally.
Sean: Great, that's good to hear. I guess the first time we talked about this was about 2 months ago---and at the moment it looks like in about 6 weeks you’ll be pulling the trigger. So the good thing is, in your case, you’ve built a business that doesn't require years and years of planning to make that kind of change. So for a few months if you're doing the right things to your clients it shouldn’t be too hard to take on extra work, I guess.
Michael: I feel that way too. I would say that one thing I have learned in all of this is that you better have done your homework to know how you're going to approach this from a very high level. One thing that I think I have seen from people who make this leap from, not just from an employee firm to independent but especially from wirehouse to wirehouse, is that they get enticed by just the check or the increase in payout. But that only really comes in the play--especially if you're getting a check--if you're going to be able to get the assets over. You have to spend plenty of time making sure you're prepared for that.
Sean: Yeah, that’s a great point. All the comparisons make some assumptions about how much revenue will you have relative to what you have. That is such a huge consideration in the planning: estimating what you’ll end up with on the other end of a transition.
Michael: Certainly. And you need to remember, for a lot of folks like myself, that have been only in the world of wirehouse or the big brokerage firm, we are used for the reduction in payout. These are all new and different things whether it’s paying for staff, for office space, or equipment, furniture, you name it. And so switching from that world, it is for a lot of people a difficult one because you’re having to get your arms around “now I need to pay for this stuff, I have to pay for some things that were covered before” but on the other end of it, once you get to the place where you feel like, “I can make this change happen.” You almost turn all that around to say that you can control that will be able to hopefully do a better job of controlling the expenses that are overhead at an employee firm. You can control that in way that’s better for your practice and for your clients both from the expense side and the time standpoint.
Sean: Yeah, I know the time issue is a big deal in your case. From personally spending time at your current firm, I know that, when you have a little bit of success you're going to be asked to contribute quite a bit of your time. We can maybe touch on that in the future conversation about the difference. I think you know that it’s going to be there but you’ll feel it and it will be fun to hear your thoughts. Maybe just briefly touch on that. What do you look forward to from that aspect?
Michael: Well you know again, you get to a point in your career, just like you’re at, just like a lot of us are, where we don't mind giving back for the greater good. I mean, I think all of us want to do that in some form whether it’s through our neighborhood or civic duties, church, whatever it might be. But then there becomes a point where, I find it to be part of human nature, where once somebody finds out you're willing to help, then they keep going back to that well over and over and over. It gets to a point where that’s taking away from the bottom line for what you could be doing or just from your own personal satisfaction or enjoyment for your job and then we know, especially with any volunteer opportunity, anything. I don't care if it’s in your job or outside of it, you get to a point where you don't want to do it anymore.
You really should never catch flak for that. And if you feel like you're catching flak or you feel like it’s going to come back to bite you, that probably should be a pretty clear indicator that this isn't the right place for you to stay for your business anymore, especially for a fairly successful financial advisor. It’s definitely an honor to be asked to volunteer for a lot of different things and to represent an office, represent a branch, represent a firm. We should be proud of that--but when the moment comes that you decide “no, I can't,” that shouldn't be something to see that being forced upon you or that it’s going to cause some kind of inherent, I don't know, problem or worry that could come back to bite you in any way. That’s not what the sense of volunteerism should ever be.
Sean: It could be in your “permanent record” so to speak that if you want to do focus on other things at a point in your career, your life, when your kids are young, for example, when you still have a long career ahead of you it would seem to reason that we all have seasons in terms of what we can contribute and how.
Michael: I would agree. I agree on all of that and I think, too, that sort of thing is wonderful early on in your career as you’re moving up a ladder, making your way up “the ranks.” All of it makes a lot of sense then, but what you do in year 3 or 4 of your career doesn't need to be the same that you’re doing in year 13 and 14, or 23 and 24 and beyond. I think some people forget that at these larger employee firms---certainly at the one I work for.
Sean: Yeah. And ideally in any organization it’s great to have the stalwarts who can always help. I enjoy sharing whatever wisdom I’ve got and it’s flattering when people want our opinions, but at some point there should be other people in the organization that could provide an opinion or an outlook. If it’s all one person (or a small group of people) then probably the organization needs to relook that.
What are the things you're most concerned about and you’re kind of thinking “Well, I know this will be okay” or “I think it will be okay but I’m kind of on edge about _____.”? What are the things in front of you that you’re looking forward to get behind you?
Michael: I thought you said you wanted it to be a short conversation but...
Sean: Prioritizing, I guess. Just the top one or two.
Michael: I would probably say in all seriousness that the worry is a two-fold, one is, are you going to be able to ingrain yourself into a new set of software, a new set of system, a new set of mindset, from a regulatory standpoint in terms of what you've been used to? A lot of times from a system standpoint you've got paperwork, you’ve got to generate, to open accounts, to transfer accounts, to set up accounts, to look the right way to the client from you know, do they need monthly checks so they’re sending in monthly contribution. You get used to one set of way through a system and that you need to adore the other one. That obviously is always a little bit alarming to think about.
On the other part, is what kind of reaction would you get from your current clients on making a change like this? They've known you as the advisor at your firm for this entire time. How’s that going to be received when you tell them I'm going “out on my own” so to speak. And third, how’s the previous firm going to handle that? You know obviously there are a lot of ways that if you make the missteps that lead to a cease-and-desist letter or any other form of legal action can be taken. You just want to try to do everything you can to avoid that and hope that it doesn't turn into anything messy, because it could literally leave you for your practice out on an island without the clients and obviously the longer you go without a client being able to move to you the hole is going to be deep, maybe even too deep to really dig out of.
So those are the concerns that you look at, but if you’ve got the right advice, you’ve got the right group, you’ve got the right people to deal with as I’ve had with you Sean and your group, it tends to alleviate some of those fears. And then it becomes more of, instead of looking at this from a fallback position or I'm looking at this as the worst case, all of a sudden now you start looking at it from a positive standpoint of “wow, if I can do this the right way and lean on the fact that I've got this relationship that goes up over the years I got a pretty good chance to making this thing really grow and work. And the increase in payout, be it increase in control over your expenses now really start to look pretty good for your bottom line.”
Sean: Well, good luck with your bottom line and I look forward to talking about this further and I'm excited for you. It’s a lot of work but I always tell people, that are kind of where you are, I get excited because there’s a little bit of adrenaline. There are certainly some unknowns. That’s what makes it fun in some ways but it’s always fun to help people--especially in your case--where I know how you built this over the years we’ve known each other. I know what you're about and it’ll be fun to see how well (I think) it will go. So I guess we'll leave it here and maybe we'll talk again at least once before you make a move if that works for you.
Michael: That sounds terrific to me and I’ll look forward to it.