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Kate Holmes of Innovating Advice is a consultant to financial services professionals, host of the Innovating Advice Podcast, and founder of the IA Community.

In this interview (Part 2 of 2) we discuss the overarching challenge of moving from Peak 1 to Peak 2 – the intergenerational handover.

The talk follows the findings of the report ‘New Frontiers in Wealth Management‘ , which Kate (along with 15 other thought leaders) contributed to.

Visit Kate’s website and download the podcast / view show notes here.

Find out more about the Innovating Advice Community here.

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Introduction

Kate Holmes: You’re listening to the Innovating Advice Show. And I’m your host, Kate Holmes, bringing you the global pulse on financial services innovation, featuring financial planners, financial advisors, and related professionals from all corners of the globe. Let’s dive in.

Hello, Matthew. Welcome to the show.

Matthew Jackson: Hello, Kate. Good to be here.

Kate Holmes: I am stoked for this conversation because we are chatting about a white paper that you recently put out, co-authored with Bob Veres, and it’s called New Frontiers in Wealth Management, How Advice Firms Can Ensure Long-term Survival In A Changing World.

And there is a ton of great stuff in here. I highly encourage everyone to read it. It is 86 pages, but don’t let that be too daunting. It’s actually a pretty quick read. But really thoughtful. And we’re going to be specifically diving in today, talking about the intergenerational challenges of moving from Peak One to Peak Two, which is the basis of the paper.

So Matthew, can you share where the idea for this paper came from and what Peak One and Peak Two means?

Matthew Jackson: Absolutely. So we have a separate conversation where we get into it in more detail, but essentially the idea is you can be humming along pretty nicely with a certain way of doing things, and getting better and better over time as you add and enhance.

But if there’s a change in the external environment, this might render your paradigm obsolete and you have to change to a new paradigm altogether. So the concept of Peak One is when you’re incrementally improving, it’s like climbing up a hill and getting slightly closer to the summit with each step.

And if there’s a higher plane somewhere, Peak Two, what you’re going to have to do to get there is actually descend into the Adaptive Valley in between. And this makes it look like you’re going backwards. And you may be at a disadvantage to your competitors on Peak One initially. And it’s a dangerous journey. But if you do make the journey successfully, you will be in a position where you’re head and shoulders above the competition literally.

And other people won’t be able to catch up with you very quickly. So a practical example of this would be, the classic example is the digital camera. And this is an interesting one, because Kodak famously discovered the digital camera in 1971, and didn’t do anything with it for 30 or 40 years, and then went bankrupt as a result.

And this actually blends into our conversation quite nicely, because what we’re going to focus on in this conversation is less on the actual findings of the report, which we’ll get into in a separate discussion, but focusing really on the challenge: why do firms fail to update? Why do they fail to move from Peak One to Peak Two?

And I think you’ve got some really great examples of this. We’ve got some examples that we’ve we both heard about. And we’re going to get into that in more detail.

Kate Holmes: Yeah, absolutely. And that’s a big thing. Because this has to be looked at in that intergenerational way. As you mentioned, Kodak, we’re talking about decades here, so that right there is intergenerational.

So who within Kodak might have been forward thinking enough to say, “Hey, actually, this could be the way of the future. We should do something with this now”, but they were held back. And so we’ve got three examples that we are going to be looking at in terms of the intergenerational challenges.

One, we’ll talk about first where the owner refuses to change strategy and the next generation then buckles under.

The second one is where the owner also refuses to change strategy, so the next generation actually leaves and founds a new firm. And many people know that’s my story, that’s my history.

And the last one is that the owner actually allows the next generation to develop a new model within the firm, which is super exciting.

Option One: Founder Digs In

So we’ll end on that nice positive note, but let’s start with that first one where the owner refuses to change the strategy and the next generation buckles.

What did you see as you were having conversations for this report? Which I have to say has an incredible lineup of industry professionals in it. So you got some really great insight from a lot of different people.

Matthew Jackson: Yeah, we heard a lot of stories. Some positive, some not so positive. And with this Option One, where the Founder refuses to change, this isn’t necessarily negative. There are Founders who have established client bases, and they have staff pretty much the same age as they are. They don’t really see their business as multi-generational, as going into the future. They’re just happy to have a business and they enjoy working with their clients.

And the idea there is that they’re happy, to use the expression that you used, to “evolve or dissolve”, they’re quite happy to dissolve eventually. And that can work out. There is a danger, I think that you pointed out that for the clients, everyone has to be at the same age for everything to work, if the advisor is going to die with their boots on.

What can of course happen though, is that the Founder doesn’t want to update the model, but they do want it to be a multi-generational business. And that’s a bit tricky for the next generation.

So we heard an example: it was a father and son. Working in a town, which was formerly the headquarters of a Fortune 500 company. And there was this pipeline of execs coming out with their retirement plans and it was all working great.

The firm then moved away from the town, and the son, who was a former college athlete, came up with an idea for a different type of business.

It wasn’t focusing on wealthy retirees, but instead was focusing initially on college athletes and getting them into college, and eventually expanding to their family and managing their wealth. It was a much longer term play, but it was a very innovative approach. It wasn’t the classic approach.

And he got somewhere in developing this, but the father eventually stepped in and said “Hang on. Let’s be realistic. You want to come up with something that’s going to be a bit more predictable. So why don’t you just go and learn to prepare taxes? Everyone needs taxes.” And this is a really interesting case because from the outside, at least the way I’ve told the story, it sounds, “Oh, why did the father do that?”

You can absolutely understand why the father did that because, I bet, if you looked at the business case for that College Athlete Advice, it wouldn’t look stellar. It would look risky for a start, and it wouldn’t look like it was bringing in a huge amount of money.

So you can understand the father’s point of view, but also from the son’s point of view, the son’s looking into the future and saying “Is tax preparation going to be laying the golden egg for the next 30, 40 years?” Probably not. If you think about what AI is doing to the tax preparation business.

I think you’ve heard similar ones as well.

Option Two: Next Gen Breakaway

Kate Holmes: I have, and you’ve mentioned the quote that I’ve got in the white paper there at the very end where, ultimately it comes down to a simple decision of, do you want to evolve your business and have that multi-generational business that grows and builds with your clients and their children?

Or do you want to dissolve? And as you mentioned, that is a decision. And there definitely are cases where advisors have been at this for decades. They’ve built a really incredible business. They probably got a really incredible life that goes along with this successful business.

They’re no longer working a hundred hours a week. And so, they don’t want to get pulled back in and put in all of the time and effort that it takes to revamp and to go through that Adaptive Valley. And that was the situation with my Mom and I came into the industry and I became, or I was, her succession plan for the business.

And about eight years in, we hit this place where I wanted to evolve. And I wanted to bring all these new things to the business, and make it multi-generational. And I completely understood that just didn’t make any sense for her. Why change this amazing life that she had to then fundamentally change the business?

And I hear that a lot from other advisors around the world. And so, we get into this challenge of, the Founder needs to really be honest with themselves about what they want. Do they want to put in that work to continually evolve the business, cause that never stops, and knowing that it’s gonna bring them back in the business, or do they want to just reap the fruits of their labor and have attrition naturally occur?

And then, you’ve led into a nice retirement.

Matthew Jackson: And the point is you can’t have it both ways. And your case is actually an example of the second option, which is the founder doesn’t want to change. So the next generation goes and establishes their own firm, and it obviously worked out well in your case.

And if the founder is happy with the lifestyle business, then the founder could be fine with it too. I think the issue is, as you say, if the founders are honest with themselves, they absolutely want the firm to survive in the future, but they don’t want to change it. That’s where the issues come.

And there’s another example which comes in the white paper, a firm called Facet Wealth, which is, they’ve really gone all out on Peak Two! They’ve said, “Okay. Let’s think about everything. Let’s think about technology. Let’s think about the planning and thinking about pricing. How would we do it if we were going to establish this from the ground up?”

And the story about that was one of the co-founders Brent Weiss was sitting in a room in his traditional firm, with the senior advisors. And they were saying “Look. We know that the direction the industry is going in is very different from where we are right now, but we’re five years away from retirement. Why would we go to all of this effort to change?

Kate Holmes: Exactly right.

Matthew Jackson: Brent thought to himself “Okay. I can see how that makes sense for you. Not so much sense for me.” And went off and established this firm. So that’s good.

Let’s think about why this is maybe not the ideal option in some cases.

So for example, if you’re not a natural Entrepreneur. You can have a great idea for a business, but it is very difficult to set up something from scratch. In Brent’s case, he had these amazing co-founders with different skill sets, and they managed to do this amazing thing. But it may not be an option for a lot of next gen advisors.

And what we don’t hear about is the failure stories. So it’s not as simple as just saying, “If you don’t like it, then just go and set up your own firm”. That requires a lot of luck and it can work out really well, but it’s not something which is an ideal solution for a lot of people.

Would you agree with that?

Kate Holmes: Yeah. For some people, it is working out amazingly. But no, it’s not easy. And even for the people where it is going really well, none of them would tell you that it’s easy either, but we’ve seen thousands of financial planners just in the US alone, to say nothing of all over the world, over the last few years, leave these firms often because they weren’t evolving.

Because people were in situations where one of the other challenges we see is that the Founder, wants to pass it on to the next generation, but look, they’ve been in this business for decades. It is their heart and soul.

And so they can’t actually easily walk away. And so the goalpost often keeps moving. So if you are the next generation, you think you’re going to take over and it’s, “Oh, it’s going to happen this year”. And that year comes and goes and the next year.

And so that gets back to the Founder, really needing to be honest about what’s going to happen. But it’s been so interesting to see how many people are going the second route and leaving and starting their own firm, knowing how hard it is. And it’s so interesting to me because when you hear from all of them, most of them were accidental business owners.

I called myself an accidental business owner, I did it out of necessity. I didn’t grow up thinking I was going to do that. And I wanted to build a business that fit around my life. And that’s what a lot of people say. They say, “Look, I couldn’t find a firm that provided the flexibility I wanted to live the life I want, in an efficient way with technology and allowing me to work with the clients that I want.”

And we’ve got so many of those people out there that I think at some point we’re actually going to see them start to come together and put all of their various talents together and, potentially form some of these Peak Two firms because people are experts in different areas.

But, just knowing that there are all those people out there, that’s a tremendous amount of talent that could be going to continuing a lot of these firms that have been around for a long time. And that…

Matthew Jackson: And that’s the point? Yeah. If we think about evolution, eventually you have to take risks and you have to experiment or mutate, but most of our genetic code is based on what our parents gave us.

And if you break that link, you can lose a lot. And an experienced Founder, the external environment may change, and you may need a bunch of new assumptions, and you may need you need a bunch of new systems, but there are things which don’t change. There are things about dealing with clients, about relationships, about this, that, and the other, which are really wisdom, rather than knowledge and expertise.

And that’s something which having an older person in the firm can really benefit you. When there’s a sort of acrimonious split and someone gets frustrated and goes off and founds their own business. Obviously that itself is not particularly pleasant, but also something’s lost in the process. (Yeah.)

For some people it’s the right thing to do. And there’s no fixed hard and fast rules.

Option Three: Rebuild From Within

But maybe it makes sense to go on to Option Three now, which is this “best of both worlds” situation where the next generation is allowed to innovate within the existing structure.

Kate Holmes: Yeah. And I love this one because this is hands down my favorite. To me, it’s a win-win for everyone.

It’s a win for the Founder. It’s a win for the Next Gen. It’s a win for the clients and it allows you to do it in the way that preserves that wisdom and you get the mentorship. And it’s a two-way mentorship. The original generation learns from the new generation and vice versa. And there are some great examples of this around the world.

And one of them is Adam Carolan at Xentum in the UK. And he came up with a plan wanting to innovate in the business and evolve and serve younger clients. And he was given the space to create that business plan very slowly, very thoughtfully, and present it to the founder who kept giving him more and more space over time.

It was almost like done in phases in a way. To say, okay let’s work on this first and see how that pans out, and then work on the next thing and see how that pans out. It’s when you empower people. And that’s something that we don’t see enough in the world, not just in this profession, empowering other people to be their best selves and try and fail.

Everybody’s going to fail every single founder of every business in the history of the world has failed. And we need to remember that and allow the next generation to fail as well, because who knows they could come up with the next best thing.

Matthew Jackson: Yeah. And may maybe worth at this point, just taking a step back and understanding why this is so difficult. Because if you’re a successful firm, by definition, you are the fittest.

As in survival’s for the fittest, right? So you’ve seen other colleagues in your cohort who maybe started businesses 20, 30 years ago, maybe give up out of business, do less well than you.

So you have every reason to believe that you know how things work. And if you look at the next generation who “know nothing”, or like when you were their age, you didn’t have the first clue about how to do things, it’s quite reasonable for you to assume that if they come up with an idea that’s radically different from what you think, it’s probably not a good idea.

So it’s very natural to think this way. The difference of course is when the external environment changes, as we’ve been saying, your old assumptions are maybe not helping you so much anymore.

Things in the realm of technology, for example, they’re just so different to how they were when you started out. If we think about how, so you gave one example which was an interesting one about people being allowed to innovate within the existing structure.

There were various ones, actually, when you look out there, there are some really good examples of traditional firms. Altfest Personal Wealth Management, for example, is a very well-established firm.

In fact, they were one of the first to innovate in the fiduciary space. The next generation there, Andrew Altfest, he developed a really great new software called FP Alpha, which for me is just one of the stand-out FinTech solutions.

And it’s developed by an advisor. It’s not developed by a FinTech company. And to be able to do this, I think he’s now running it as a separate business as well, required the older generation, the successful older generation to say, “This sounds a very ambitious scheme. It may not work, but I think you should give it a go.”

And the result has been a splendid success. Another example, which we referenced in the white paper, is Brad Felix. And this is weird because he started off, I think in Option Two. So he went off and founded his own firm.

And his thought process was very much, “I wouldn’t build a firm like the way I see firms being run today, if I had to do it from scratch.” And then a traditional firm bought his firm as an answer to the question, ” What does financial planning for mass affluent clients look like?” And now he’s actually revolutionizing the way they serve traditional high net worth clients using the techniques he developed in this other business.

So that’s an example of a traditional firm actually recruiting the next generation, not just allowing the existing next generation to innovate, but saying “We need to install this some way in our business in order for our model to survive”. So it is possible to do it, if you have this open-mindedness and recognition that the old model isn’t going to work for the next 20, 30 years.

Digression: “The Explorers“

Kate Holmes: It’s not. And one of the conversations we had in our other chat was around, what’d you call them evolutionaries? And people are just born.

Matthew Jackson: Yeah, no “Explorer Mode” is I think what we discussed.

Kate Holmes: Explorer Mode and some people are like that. So it doesn’t matter if you’re in your twenties or you’re in your seventies, do you have that mindset of wanting to go there?

And I think those are going to be the founders and the owners that we see in Option Three, that even if they don’t have the answers themselves, they’re willing to try it out. And they almost have a higher calling, because this is risky. But as we know with risk can come reward. And knowing that they want to see the profession continue, and that they do understand what worked 20 years ago isn’t gonna work 20 years from now.

And there are, as you mentioned, lots of great examples. Another one that I recently talked with is First Pacific Financial, which is in Washington State. And they’ve grown, they’ve built an amazing business. They’re at 25 people right now with incredible growth plans. And Todd Striker, the founder there, he’s absolutely an Option Three person.

And he’s looked around and seen, he’s had the success. He’s been in this profession in the same company for decades. And he’s like, “How can we do better? How can we do more? How can we continue to set an amazing example for this profession and serve more people? And so he’s done this, and built this team within a team that is playing around with how do we serve the next gen, and how do we create different business models?

And it’s this wonderful adaptation of all of his wisdom and with the space and it’s actual physical space, they’re connected to the office, but they’ve got their own physical space as well.

And so again, it’s that nice blend of giving people enough room to go play in their own sandbox and figure things out while still having the support and encouragement of all of those years of experience and expertise and the rest of the team around them.

Matthew Jackson: Absolutely. And that’s obviously an expense which doesn’t have an obvious immediate return. If you give people space in their calendar to come up with new ideas, it takes a certain amount of commitment and resolve,

Kate Holmes: But you’re only talking about financial return right now, aren’t you?

That was a fascinating conversation with Todd is again, we were talking about the business has been successful. It’s proven that it’s scaled that peak and he’s looking around going, how can we just have a bigger impact? It’s not all about money. And I think that’s something that we’re going to see across everyone that moves to Peak Two, and that is in this third option right here, where they’re allowing that play space, is you have to be in it for something more than money.

And there was a great quote from Peita Diamantidis in Australia. She was on the podcast last year and she rightfully said the reason that a lot of advisors aren’t truly entrepreneurial, they aren’t explorers, is because they’ve been fat and happy so long, there’s been no need to.

Why fix something if it’s not broken? And there are so many successful businesses, which kind of gets us back into that Option One, if you’ve been successful why change? It’s working! No need to fix it. So you have to have a greater desire and a desire to make a bigger impact than just making money. And the best part is, the firms that do it, I think actually are and will be more financially secure.

Matthew Jackson: Absolutely in the long-term. I think it comes back to, do you have a long-term perspective? Because if you’re going to wind up your business in a couple of years time, and you don’t really see a future beyond that, it doesn’t make sense to update your firm.

But only in those conditions, does it not make sense to update your firm. Because as you point out long-term financially as well, there’s no future on Peak One. But that is a really interesting point, which I never considered, which is the people who tend to undertake this perilous journey, give power to the next generation, are motivated by something intrinsic, more than money.

Those are definitely the first people, the Explorers. And the guy who came up with the Explorer Mode theory, Bret Weinstein, he was told by his, I think one of his professors, that wherever you work, whether it’s in academia or in a company, you should never work in an institution without undergraduates.

People who literally don’t know anything yet. Because when a field or industry becomes stuck, it’s typically because some faulty assumption has been baked in to everyone’s mindset. To the point where they can’t remember having made the assumption. And it could have been an assumption that was valid in the 1960s or 70s or 80s, but which is no longer valid now.

And those undergraduates, those “no nothings” are going to be the people who don’t have that assumption and ask the stupid question. “Why are we doing it like this?” And having that experience (I love that) I’ve had this experience myself with people who are say 10, 15 years younger than me in consulting.

They make these points, which are like “No, that’s not how it works” is my initial reaction. And then you let them play with the idea of it more and you say “Actually, what you’ve said makes total sense”. And it is a bit embarrassing, frankly, because when I was there, I really did know nothing. But the world’s changed I think so much since then, that being younger and having fewer misconceptions is a real advantage when it comes to innovation.

Kate Holmes: It is that, and even people that come from other careers that don’t understand how financial planning works, or how things have traditionally been done, it gets into the whole “That’s the way it’s always been done”.

I love that. ” Why is it still done that way?” Anyone that comes in with that fresh perspective is so valuable. And I try to have conversations with friends sometimes even, or family members or my husband. And I love the questions they ask because it gets me thinking. I’m like, “Oh yeah”, this is getting more complicated than necessary, or we’re doing it in a silly way.

Matthew Jackson: And just to build on that point. A lot of the success of financial advice, because it is a successful industry, super-successful, growing, resilient, highly profitable. A lot of it is predicated on stability, and that’s why changes to the external environment are such a risk because if something challenges that stability, then all of a sudden people who thought they understood how things worked, and thought certain things didn’t need to be questioned, are suddenly going to be scrambling for solutions.

And the solutions are there. In fact, the old cliche that the future is all around us, just unevenly distributed. Parts of that future already distributed in parts of the US and Australia. And we mentioned some of them in the report.

And that’s a real opportunity actually, if there’s things which people typically haven’t addressed or people typically ignore about the way we do financial advice, that is a huge opportunity for a firm, not just who wants to survive and thrive into the future, but actually it’s also about serving clients.

Because if a lot of firms start doing badly, that’s really not good for the clients who aren’t going to receive their advice. So from so many different perspectives, if you’re looking at this intrinsic motivation to change, without necessarily making a huge amount more money in the next few years, there are plenty and plenty of reasons to do so. And now’s the time to do it. In fact yesterday was probably the time to do it, but certainly today.

Kate Holmes: 10 years ago might’ve been better. (Yeah. Even better. Yeah.)

What are some of those examples you said distributed in the US and Australia?

Matthew Jackson: Oh, sure. We’ve mentioned a couple of them in this conversation, but it’s typically smaller firms because smaller firms have more latitude.

They can take more risks and they can do things. But the trouble about smaller firms is they don’t tend to be the ones that get invited to speak at conferences. At least most conferences it’s generally the big successful firms that you hear from and by definition being big and successful means that you were innovative 20 years ago. It doesn’t mean that you’re being innovative now.

But one firm that I really love to talk about is Dentist Advisors. They exemplify so many of the things that we talk about in the report. For the people that don’t know about it, it’s a firm which went literally all-in on a niche. They didn’t say we’ll advise you if you have a million dollars, but we like to serve Dentists.

It was more a case of we only serve dentists and everything we do is built around dentists. We mentioned this in the report. So that was an example of I think it was Option Two. The founder, Reese Harper was I think he started off, I think at one of the big firms. And then went and founded his own firm, and he did something completely different.

And if you’ve got your ears open and your eyes open, you can find these firms. And talking to the founders is absolutely fascinating. Abacus Wealth in Santa Monica, not Abacus Wealth Partners, which is also a great firm, but Abacus Wealth in Santa Monica is another great one.

[Correction: Abacus Wealth Partners is the one referred to in this example. But both great firms!]

This was a couple of founders who, I came across them because of their pricing model. But they decided they wanted to be able to serve anyone who walked in the door. They were Buddhists and they had this, it was an intrinsic motivation. It wasn’t to do with making money. It was to do with to doing something more.

Ironically, of course, they ended up with a bunch of ultra-high net worth people coming through the door, because ultra-high net worth people are often Buddhist, it turns out. But in the course of being able to serve everyone, they had to innovate. Cause they had to come up with a new pricing model in a way that would not just rely on assets.

And they have this really interesting modular system of pricing and financial planning. And the founder, JD Bruce is quite open about it, he shares it with people. And I think I wrote an article on it a couple of years ago, which people can look at. I think the US market has a real advantage in terms of the sheer number of advisors that it has.

And when you have a large population, inevitably, you’re going to have a number of people who are doing weird and wonderful things. It’s a case of finding them. So listening to your podcast is a great way to start because you don’t, we joked about this, I think you don’t focus on who’s top of the Barron’s list. (No!) It’s more case of who’s got really good ideas.

Kitces is obviously a fantastic resource. He’s really done that. He’s sought out the, I don’t wanna say weird and wonderful because that’s not doing them justice. There was a podcast a while back about a lady who runs a financial planning business, which is also a pie shop.

Keeping your eyes peeled for the small, but innovative, I think is a great way to get inspiration and those are the people I think we try to honor in the report. Exciting times and everyone can be a part of it.

Kate Holmes: They can. And again, if you’re in one of those situations in Option One where you’re realizing that you are that next generation, however old you are. But if you’re in a situation where the Founder is not willing to evolve, where you can tell the business is just going to dissolve, know that there are tons of these amazing people out there.

There are tons of innovative firms. And the other thing I have found, again, First Pacific Financial is a great example where they’re not out there telling everyone. And so, I actually want to share their story because they’re doing so much great stuff. And I want other people to know that firms like that exist.

So we see all the big firms, like you said, they’re the ones on stage. They’re the ones with the big booths at the conferences. But you’re so spot on, that does not mean they are the ones innovating. And in a lot of cases, they’re not, once you get that big, the bureaucracy is too much.

Closing

Matthew Jackson: Yeah. You, so you were saying, if you are in this situation, I believe there are communities you can join, which are in line with this mentality, including there’s something called the IA Community. I can’t remember who set it up, but it’s a really great resource, a really great place you can join, where you can speak with like-minded individuals, so definitely check it out.

Kate Holmes: The IA Community. Thank you so much for mentioning that. And that’s exactly what it is. It’s the Innovating Advice Community, full of all those forward-thinking people that are continually trying to evolve. And there are some incredible people in the community, and we also collaborate with people all over the world.

So we’ve got the largest global financial planning conference in the world coming up in a couple of weeks. So if you want to hear from lots of innovative people, come join that. And again, read this white paper. It’s so worth it. I’ve actually read it I think I’ve probably read it three or four times now.

I keep going back because even though I was part of it, there’s just so much great thinking, thought-provoking stuff in there, and I’m so excited to see in another, hopefully, five years that the report is actually just featuring a whole lot of Peak Two advisers. So Matthew, thank you for all of the work, I know it was a ton of effort to put this together and it was so worth it.

Matthew Jackson: Yeah, it was a real pleasure. And just to resonate at that point, joining community is a great thing. Cause it can feel very lonely when you’re going against the orthodoxies of an advice community, which doesn’t necessarily recognize that what you’re doing is important or even sensible.

So community is a great thing and there are people that can help. So keep it up, keep going.

Kate Holmes: Likewise. Thank you so much.

Matthew Jackson: Thanks for having me here.

Kate Holmes of Innovating Advice is a consultant to financial services professionals, host of the Innovating Advice Podcast, and founder of the IA Community.

In this interview (part 1 or 2) we discuss the main messages (or as many as we can) from the report ‘New Frontiers in Wealth Management‘ which Kate (along with 15 other thought leaders) contributed to.

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Introduction

Matthew Jackson: We have a separate conversation coming out, which is looking at the specific issue of intergenerational transfer. But what we’re going to do in this conversation is take the brave leap into the report itself.

So maybe just very briefly starting off with the intro. This concept of Peak One and Peak Two. How would you describe it, Kate?

Kate Holmes: [00:00:17] Intuitive. Yes. Terrifying also. Yes. And that’s the thing.

When we think about anything new and big, what is it? The big, hairy, audacious goals. And that’s what I would say, becoming a Peak Two adviser, a Peak Two firm is, that is a big, hairy, audacious goal. And it takes a special kind of person that is willing to go through that adaptive Valley to get out the other side, knowing that there actually isn’t a guarantee as you’re going through the trials and tribulations of that Valley, that you actually will make it to the top of that Peak Two.

So it’s exciting. It’s terrifying. And it’s something we need a lot of, but knowing that [00:01:00] not everyone will make it.

Matthew Jackson: [00:01:01] There’s a guy called Bret Weinstein, he had this alternative idea about how evolution happened. As opposed to just random mutation, he thinks that there’s something called Explorer mode, which kicks in in the minds of a limited number of people in a given population, a clade of animals or advisers. And that is what steels this group to take this journey you’ve just described through the Adaptive Valley. So it’s not for everyone, but some people will be motivated by the challenge.

And I think that’s really who we’re speaking to or about at least in this conversation. What do you think, if you had to describe the type of advisor who you think is right for this journey, how would you describe it? Because you know loads of advisors. What would you say about this group? How would you describe them?

Kate Holmes: [00:01:43] I would first off say that it doesn’t even need to be somebody from an advice background. And I think that’s what’s so interesting. And so often as we look at growing our businesses and who’s the next generation, we stay focused in the industry or in the profession.

And sometimes we need to think broader. So [00:02:00] there could be people that come in with these completely fresh ideas, because in fact that’s what it means, right? It’s not improving on Peak One, it’s doing something totally different. So it honestly could be an outsider. That’s just looking at the profession that maybe has actually had experiences with advisors, potentially not great experiences, and they have the mindset of, “I want to do something completely different.” I think that’s certainly one type of person that could do this, that isn’t held back by the fear of changing something, because it is again, I’ll use the word terrifying, but starting new. Would that be possible to not even start from Peak One, but can you just come into the Valley and go up Peak Two?

Matthew Jackson: [00:02:39] That’s one of the things we get into in our other conversation, which is in a lot of successful firms, there’s this group of individuals, this clade of explorers who may be in the junior ranks, they may have come from outside the industry, who want to experiment. And the easiest thing for them to do in one sense is to move away and set up a new firm.

So in other words, just skip this journey down Peak One, and just [00:03:00] start directly at the bottom of Peak Two. And there are pros and cons to that. But I think what you said is correct. And there’s a sort of flip side to what you said too, because if a lot of the insights are going to come from outside the industry, by definition, that’s not coming from the old hands, the people who have been successful within the current paradigm, and that represents this challenge of “Hang on, I know this industry. I know how to succeed.” You have to move forward from that view and essentially have a bit of humility in order to be open to the sort of things that are going to get you to the next stage. That’s not easy.

Kate Holmes: [00:03:31] And neither is being at Blockbuster and looking forward thinking, “Hey, not everybody’s going to come into a store and get a VHS and take it home to their VCR.”

And so when we think about what are the types of advisors that would go on this journey and down this Valley, and up to Peak Two, it would be the ones that do look around, that want something different, that feel a change coming, not knowing when it’s going to be. This could happen in five years. This could happen in 25 years. But looking forward, knowing that [00:04:00] whether we want the world to change or not, it’s going to.

And so do you want to be at the forefront of that change or do you want to maybe ultimately fall backwards on Peak One and just dissolve.

Section One: The Managing CEO

Matthew Jackson: [00:04:13] So why don’t we dive straight into the first section, because I’m really interested to get your thoughts on this. All of the sections I realize sound like something else, which they’re not.

So in the Management section we have this concept called the Managing CEO, and what this is not is saying you need to have professional management, which of course is a good thing. But professional management, as defined as simply having people like a Chief Marketing Officer, Chief Operating Officer, Chief Technology Officer, et cetera. That’s obviously good if you want to grow.

But a Managing CEO is a specific concept, which means that you have a co-CEO, who’s on the same level.  So you have two CEOs. And very often the founder is the visionary element of the partnership. And the Managing CEO is the person who is the integration aspect, who makes all of these other functions, which may be professionally managed all work [00:05:00] together.

And the rationale for this is as the business grows, or as the firm grows, it becomes less about the advice, although the advice is still an important component to it, and as much about the functions that are supporting the advice, and those functions need a manager.

Kate Holmes: [00:05:15] I was fascinated with that first chapter on the Managing CEO and in all honesty being a bit selfish, if that was a role that I knew existed a few years ago, I would have jumped on it. But that gets into the other conversation we had around what you think about succession planning within this industry, what are some of the challenges, and so often it is the Founder, as you said, they’re the Visionary, they started it, they have their blood, sweat, and tears in this business, and it can be so hard to let go of that. And so the idea that you’re going to have somebody come in, at that equal footing, and you talk in the report about having equity compensation for that, and shifting where the focus is. We know that there’s a lot of performance-based compensation, [00:06:00] bonus compensation around hitting sales targets and all that. But I love that this is positioning that the other areas of the business are equally, if not, in some cases actually more important, right?

You can be good at the technical side of it. If you have a terrible client experience, then the clients might not stick around. But we get into that issue of how many founders are going to be willing to let go of that much control and oversight, and hand that over to someone else. It’s something that we need that leads into Peak Two. But how often is it going to happen?

Matthew Jackson: [00:06:31] It’s this issue again of psychology. There’s a technical challenge to making this change, but also there’s this psychological Adaptive Valley of “letting go” that may be the toughest Valley of all. There’s also an element of this, which you got into.

I was talking to Stacey McKinnon, who I know you’ve had on the show. And she made this very provocative statement, which I loved. Because I was asking her something which I’d love us to discuss as well, which is Operations doesn’t seem to be Operations anymore. It’s this unsatisfactory term which conjures up images of the back [00:07:00] office.

She took the view that instead of advisors being the top dog and the operations being in the background, she sees advisors as part of operations. So it completely flips that whole thing around, which I thought was a really interesting way of looking at it. I very much doubt most advisors see themselves that way.

What do you think about this? Is this a change that’s happened? Operations has suddenly become something else? How would you define Operations properly in the modern wealth management firm or the firm of the future?

Kate Holmes: [00:07:27] I think I’ve probably always thought more into the future and everything I’ve ever heard Stacey say is amazing. I love the way she thinks. And she’s actually a perfect example of somebody that came in, not through the advice channels, but from outside the industry, and brought a ton of amazing thinking and that shows and what she’s built there at Morton Capital with the team.

And I think advisors absolutely are part of Operations. And that’s been one of the challenges is when we have everything so disconnected, then that doesn’t serve the advisor as well, that doesn’t serve the back office as well, and that doesn’t serve [00:08:00] clients. When you look at how businesses work, and this is one thing I often do when I go into businesses, I do parallel tracks.

I secret shop the company, as much as possible, which can be hard in small businesses sometimes. But I try to go through, how would I find you, what is your messaging, what is the client experience, do I understand who you work with and how, and then how is this also in parallel working in the back office?

Because that uncovers some really interesting bottlenecks and disconnects. And it’s not really through anybody’s fault, it’s often just through, when you start with one person and grow a business, it’s hard to do it in a way that has those consistencies, that is built for growth from Day One, so you have the documented systems and processes and consistency across everything.

And it’s because of that, that you get all this piecemeal stuff, and everybody’s trying so hard to do their job, but really it could be easier again on both the advisor business side and on the client side.

[00:09:00] Matthew Jackson: [00:08:59] Absolutely. And you talk about disconnects there, I think a big part of the role is this integration aspect, this integrated way of thinking, of not thinking I’ve got Operations and I’ve got my Marketing.

It’s more a case of I’ve got this symphony that I’m trying to conduct. And as the conductor, this is what the Managing CEO is doing, who’s really in the people, the processes and the data and getting into the details of things.

Kate Holmes: [00:09:20] So that’s why I love the idea of the Managing CEO is it does all need to be brought together. And if you have somebody that is in a traditional back office or Operations role, if they’re siloed back there and they’re not exposed to the advice or planning or client-facing, then how are they going to know if that’s how they want their career to progress?

And how is that really in the best interests of the client in terms of how they’re moving through their client journey with your business?

Section Two: The Non-Generic Advisor

Matthew Jackson: [00:09:43] So moving on from the Managing CEO, who’s I think probably that hire or that appointment is the first step and the Peak Two journey, let’s go to the Offering now.  What this is not talking about is a marketing niche. It’s not saying that you start targeting your messaging to a [00:10:00] specific type of client.

This is talking about having an actual offering shift, where you have a clientele, you have a clear idea of their needs, and you build the offering around those needs. And crucially, you don’t serve people who don’t have those needs. So, a marketing niche will be “Well, we like to serve dentists, you know there are a lot of dentists in our community.

I used to be a dentist. And we deliver comprehensive fee-only financial planning for dentists.” What you might find with a Peak One advisor, is if a client comes along with $10 million and they’re an engineer,  absolutely they will take you on. If a recent graduate from dental school comes and says “Well, I don’t have any money right now, but I really need some advice.” They’d say “Sorry, our asset minimum is X.” So that niche dissolves fairly quickly when you bring in the assets factor. And it doesn’t actually mean much at all, it’s more of a marketing messaging thing.

The example we’ve given the white paper is a firm called Dentist Advisors, who are as good as their word. They only serve dentists, and they serve all dentists, regardless of assets. They have obviously fees that they charge all of their clients. But they’re different in that they have this exclusivity [00:11:00] about who they serve, and that means that they can really build something that is tailored to the needs of these clients.

Kate Holmes: [00:11:04] And in all honesty, I was actually thinking, this is going to sound funny, but because there are so many dentists that we need in the world. And every time I move or something, I feel like I can’t get a dental appointment for six months. I honestly go to anybody that can get me in as soon as they can get me in.

And because you use that example in the white paper, I was thinking, I wish there was a dentist that served people in their thirties and forties, because how great would it be to like go to the dentist, and maybe I could meet new people, cause we move around a lot. And the same thing applies to financial advisors and financial planners.

We need so many more. And how amazing of a business would that be for the advisors and planners and for the clients. You can do so much more. You can have way more fun. Whether you’re working with people that, I don’t know, own airplanes or they have Etsy shops or whatever your own personal hobby is.

To me that’s almost like one of the best [00:12:00] ways of merging your personal and professional life in a way to really love what you do. Because you can bring in people that talk about whatever that specialty is. It becomes more of that concierge business. And to me, that’s more rewarding. And I wish that we would see more people doing it, but it’s for the exact reason that you mentioned it’s “Hey, you’ve got 10 million great that’ll help me hit my goals this year.”

Matthew Jackson: [00:12:23] Yeah. It it takes some guts to turn down a $10 million client. But I feel like I’m always reading articles either by consultants or advisors saying don’t accept clients who aren’t a good fit. You need to have the courage to turn down clients and advice is rare. I don’t think I’ve come across it actually anywhere else where the service provider fires the client and not the other way around. (Right.) And it’s there because there are limited number of spots for a given advisor, and you can afford to fire clients and you should. And having a specific offering is really gonna help you do that. It’ll make a lot of those tricky decisions for you because if they don’t fit in the niche, then I can introduce you to another advisor. Which reminds me, you had a [00:13:00] really interesting thing, which I wanted to bring out in this conversation, which was the sense that Peak Two is much more of a profession than an industry.

And one element of the profession you mentioned, was to do with this idea of collaboration.

Kate Holmes: [00:13:13] That’s a huge part. And so we think about the medical profession. That is the perfect example. You have people that specialize in all of these different things, and you collaborate with each other. And those people, those are very specific niches. You also have your general practitioners and we’re always going to need them as well.

But that’s what we need in this profession. We need the people where we know, “Hey, this person specializes in exactly what you need and we can refer.” Whereas right now, the fact that we’re taking whatever clients come our way. Again, if we think what is actually in the best interest for the client, that often isn’t. And you might be very technically proficient, but if we get to this Peak Two, forward-thinking, more holistic offering that we’re talking about, which goes beyond just holistic financial planning, [00:14:00] then that is the better client experience.

And that in turn, I think, will help spread the message of what financial planning is, and it will increase demand. And that’s what we always have to think about. In parallel we have to both increase supply and increase demand. So how do we do that? We need to be changing our messaging. We need to be changing our offering. And we need to be attracting more people into this profession, while making it clear who we work with and growing that message. Because right now think about it, let’s say you love golf, very generic, but let’s say you love golf. If you work with a generic advisor now, then you might not be as inclined to refer them. But if you work with advisor that specializes in people who love golf and they do golf outings and they bring in golf trainers or whatever, then you’re going to be more inclined when you’re out on the golf course to talk about your advisor.

Matthew Jackson: [00:14:47] Just to look at the other side of the equation, you will probably lose some people in the process.

If you’re saying I’m the golf guy, you’ve got loads of golf balls on your website or something, then, that’s not going to work for everyone. But you don’t mind as much because if the person shows up [00:15:00] and they’re really into it baseball you say, I’ve got an advisor is all about baseball.

This is getting really weird. But yes the coming back to this point you made about the profession. I don’t want my anesthesiologist to being competition with my oncologist, because they’re doing different things and then not in competition, which is great because they have their clearly defined niches.

If everyone’s a sort of general practitioner trying to get as many operations done as possible, that obviously wouldn’t be good. So it’s really genuinely a case of evolution.

There’s another point that I think is worth making, which is, there’s a reason why a lot of people don’t do this. It’s not just because it’s hard to turn down people outside their given area. It’s also because it’s difficult to come up with a proposition. For a long time, you haven’t had to think about it.

It’s already done. Fiduciary, comprehensive financial planning. It’s all settled.  And this is really going into new territory where you have to think what does a proposition look like for someone who’s in the middle of that career?

Some advisors can’t even imagine what you would do with a client who wasn’t a retiree. So it does require a lot of first principles thinking, and there is a risk [00:16:00] attached to it. You have to come up with a price point. And you have to come up with something that people actually are prepared to pay for.

And all of that is really hard. Let’s not make any bones about it. It requires this Explorer mindset we were speaking about.

Kate Holmes: [00:16:11] It is hard, but I think it’s absolutely worth it. And I would recommend as people consider going down that path, do focus groups. Because even if you want to work with people that are like you, maybe it’s your hobby that you want to niche down and maybe it’s your former career, maybe it’s what your spouse does. Whatever it is, people even within that niche are going to have different needs, wants, desires. So put together some focus groups, and have them facilitated by someone else, and you’ll get a lot of that feedback. And this does take time, but it’s absolutely worth it. And the other thing we have to think about, you mentioned fee-only-fiduciary-holistic, these words still don’t mean a lot to most people.

I am constantly having conversations with my friends, with my family, with well-educated successful people, that have no idea what an independent financial planner is. They have [00:17:00] no idea what financial planning is. And again, that gets back to how are we actually changing the conversation, and how are we getting the word out there?

And so if you can niche down to these very specific things, again I think that’ll really help propel the conversation and growth and spreading the message. How exciting is that? Let’s say, you’re in your mid-thirties and you work in the tech sector and you’re making a lot of money, and you’re thinking about money on a Tuesday afternoon.

Okay. So I’m going to go look for a fiduciary, holistic, fee-only financial planner.

But could you imagine, let’s say you go to a website and you see, “Hey, I work with women in tech, in their thirties” and you can introduce each other, you can provide networking through your business.

And that’s one thing that I found fascinating when I joined this industry or profession is all of this focus on client privacy. And yes, I understand that, but I remember thinking way back then 15 years ago, what a huge opportunity that’s missing, because if you’re working with all of these people, wouldn’t it be [00:18:00] great to connect them, and whether they can help each other professionally or personally, or become friends, how cool would that be?

Matthew Jackson: [00:18:06] And the point you make around focus groups is of course vital, because it’s linked to this point around the terms of art that we like to use. There’s this paradox that we’re fascinated with the product and the process and all of that stuff by definition.

If you’ve made it through the CFP, you have to have a tolerance for certain amount of detail, which most people aren’t interested in. Your customers are probably not that interested in the product .And this was the issue. I think that set the iPhone apart. It wasn’t designed by an engineer. Whereas most phones were, by engineers for engineers.

And it was described in very engineering type language. And Steve jobs translated it into English. What you’re doing with a focus group is you’re saying you tell me what you find interesting about financial advice. Cause I have no clue. I’m just fascinated by financial advice. So it’s very hard to do this and you need to do it advisedly and slowly and with respect.

But as you say, it’s completely worth it.

Section Three: Propersonal Marketing

So you’ve got your Managing CEO one of that first tasks after they’ve had a look at the firm, how it works, and [00:19:00] whether it’s integrated or not is to think about this offering. And assuming that’s done the next step in the process is marketing and the term Propersonal Marketing, which came from Tina Powell, the more I try to explain it the harder it gets, but also the deeper the topic seems to be. I’ll have a crack at it, and then let’s see if we can tag team. So the idea of propersonal marketing, I’ll start with what it isn’t. What it isn’t is ” professional” marketing, you have a really nice website with really great copywriting, really nice photos, glossy brochures. The advisor’s there dressed to the nines, looking confidently at the camera.

And maybe there’s a couple on the beach in the background who are in retirement. So the issue with this is it’s impressive, but it’s highly generic because there are a ton of websites just like that out there. And it doesn’t really tell anyone about you. Because you’re imitating what you think an advisor should look like, essentially a cliche.

 And you’re probably using a bunch of terms around returns and portfolios and so on, which presents an understandable, but narrow view of financial advice. Everyone [00:20:00] understands stock returns, and it’s a story that works, but it’s not really what financial planning has become and certainly not what it could be. The alternative to this, the propersonal approach, is actually giving up some information about yourself. And this is what is meant by authenticity. It’s not easy to do. And you’ve done a lot of work with advisors on videos and how you present yourself. So you’ve been through this Adaptive Valley with a number of advisors.

First of all, like how do you think of propersonal marketing as a concept? Second of all, what are the challenges that advisors face when moving from professional facade to authentic persona.

Kate Holmes: [00:20:37] Yeah. I found this concept really interesting. And I actually read that section a couple of times, because it is a hard thing to wrap your head around.

And I will preface this by saying, I don’t know that I 100% understood it cause it is a new thing. But I am a huge fan of being your authentic self.

But we’re talking about one of the most personal things in life, which is money. Most [00:21:00] places in the world, that’s a taboo topic. You don’t talk about it. You don’t discuss it with your family or friends. You hide in shame when thinking about money, whether you have a lot of little or none.

And we need to show our personality to have people connect with who they are actually going to finally open up to about this challenging topic. And so when I launched my first financial planning business, I was a big proponent of I’m going to be who I am, because I also only want to work with people that respond to that.

And I’m going to share a bit of my story. And I actually turned clients away. Some people would come to my website and read a bit about me or see my videos or my photos, and I would share a personal photos. And they would think, “Oh, she’s not professional. So I don’t want to work with her.”

That to me is perfectly fine because I was being my authentic self. And I didn’t want to work with clients where I felt like I had to put on this professional mask. And so that gets into your second question of what is some of the challenges. And that’s what it is [00:22:00] especially as a young woman in this profession it’s hard to be yourself. You feel like you have to prove something, that you have to put on this professional persona. And it took me years to say, you know what, ” I am who I am.”  I joked 10 years ago that I’m the same person, whether I’m in an $800 suit or I’m in pajamas. But it’s hard to put yourself out there, and there is that fine line between oversharing and making it about yourself and sharing just enough to where you really create a genuine connection with your clients.

Matthew Jackson: [00:22:33] So I think you’ve put your finger on what makes this topic hard to get your head around, and also what makes it difficult to implement. Because you’d think “Well, being authentic, that’s great. I just remove the filter, job done, and I can say whatever I want.” It’s not actually that simple, because you said there’s such a thing as oversharing. The advantage of the professional facade is at least it’s all nicely tucked away behind the curtain. But when you open the curtain, you’re like how far do I open the curtain, and am I happy with what’s behind the curtain? We’ll get on to [00:23:00] that in a second, but say more about this fine line between sharing enough and oversharing.

Kate Holmes: [00:23:06] I’ll go back to the dentist because we did recently move, so I did recently go into a dentist. And when you’re at the dentist, you can’t talk, they’re in your mouth, and so you’re a captive audience. And had I known in advance through video or the website who my dental assistant would be, I can tell you I would have gone somewhere else. She told me her entire life story and was the epitome of oversharing. I couldn’t wait to get out of there. And that’s the extreme example, but I think it does happen with advisors and planners.

And as I’ve met with wholesalers over the years, people love to hear themselves talk and we can start down a path and then just keep going. It’s going to be different because some people are incredibly private people and they’re not comfortable sharing anything. And so you don’t want to make them uncomfortable by forcing them to share. Other people naturally are oversharers and that’s not helpful.

You have to start off with where are you on the spectrum? What [00:24:00] are you naturally let’s say with your best friends, what are you, and then find that middle ground.

Matthew Jackson: [00:24:05] There’s a couple of points that occur to me. One is, once you start going down this path, you can go down at to different extents. And where you end up will determine the client base that you end up with. So if you do go down the oversharing route, there’ll be some people who really just find it entertaining, but those are the sorts of clients who that dentist is going to end up with. And that needs to be a conscious decision. It needs to be part of the strategy. So when you are with your friends, even when you’re with your friends, you don’t just literally say, whatever’s on your mind, or you wouldn’t have many friends. So there’s always a certain extent to which there’s control. And the question is you need to figure out where that boundary lies. When you get into this propersonal approach, it’s like doing the Offering. It requires you to think about it. It requires you to think who is this actually going to appeal to?

Kate Holmes: [00:24:48] And the other thing I would say, think about how does it play into the business you want to build and the clients that you do want to attract.

So for example, my husband and I are very spontaneous people. We travel all over the [00:25:00] world, but we will up and move across the country at the drop of a hat. So I would want to attract other spontaneous people if I was starting a new financial planning business. And so I would share that part of our life.

And I would talk about that. Because that’s who I connect with. If you want to work with, young parents with young children if you are that yourself. Then share that. So think about how does it actually attract those clients that are in the similar situation, if that’s what you’re going after. Is it adding to the story, or is it just information that doesn’t really serve a purpose?

Matthew Jackson: [00:25:34] Absolutely. And it’s linked very much to this thing we talked about with the Offering that, you may start with this mindset that you have to get every opportunity that you can, and that in the past may have led you to suppress certain aspects of yourself or to put up with certain things that are just not healthy for you to put up with, certain personality types that you just don’t fit with.

And just like with the Offering the courage to say no to some clients, is also the courage to, for want of a better word, alienate certain clients [00:26:00] who just don’t particularly align with your philosophy and values. And that’s okay. I guess the final aspect here is were talking about this as though it’s a choice.

The interesting thing is people are going to find out about you in the future. Because we’re all living online now. So the idea that you can somehow keep yourself as a separate person is increasingly impractical, so you might as well lean into it.

Kate Holmes: [00:26:21] It’s impractical. And I would say if you think about a mental and emotional health standpoint, I don’t think it’s healthy. And that gets back to the professional mask that we often put it on. It’s exhausting and it does catch up with you. And if you try to be different people at different times, I just don’t think that’s beneficial.

Matthew Jackson: [00:26:38] Bad for you. And also it’s not successful because people are going to find out anyway, and then that just makes it all look worse. It’s not just about being authentic as a founder. It’s also about the fact that your employees have their own online persona as well. So people are going to be drawing conclusions about who you are, but also about your firm from what they see your employees talking about and tweeting.

And again, this is [00:27:00] not something you can hold back. People have their personal social media accounts, and they will be advertising for better or worse what it’s like at your firm, particularly the younger employees. So again, the answer here is to lean in. You now basically have a marketing department that spans your entire firm or a recruiting department that spans your entire firm. This could be a huge positive. What are the opportunities and risks here?

Kate Holmes: [00:27:19] It could be a huge positive, and it should be a huge positive.

This is a great way of making sure that you’re actually cultivating the culture that you do want out there. And we’ll go back to Stacey McKinnon, because I just love the way she approaches this. And she approaches everything in the business, whether it’s from clients or the employees, in terms of making sure that people have really great dinner table conversations.

And that’s so powerful because so often when you have a bad day at work, you’re frustrated, maybe you missed dinner with your family, or you’re sitting there and you’re just grumpy and not having any fun. And then your kids and your spouse see that. And then, it just manifests itself out into the world.

So what can [00:28:00] you do to have that great culture? So the people are having those great dinner table conversations. So that people are putting really good things out there on social media. It’s a really interesting forum of accountability for what the firm is building.

If you want to think about it from the negative. One thing I have long said is when you think about these firms that don’t want their employees posting on social media, or that monitor everything they do on social media. I turn that around and say, “Why don’t you trust your employees to not post something that goes against compliance or regulations, or is damaging to the firm?”

If you don’t trust them, then we actually need to go back a few steps and maybe you shouldn’t have hired them in the first place. So as you’re building this Peak Two business, not only are you thinking about what are the clients you want to attract, you need to be very clear on what are the employees and the team members that you want to attract.

And that gets harder because sometimes, especially as firms are in rapid growth mode, they can get into just [00:29:00] needing another warm body or somebody that maybe has a great resume, but isn’t actually a cultural fit. So when you have those little questions pop up, those are always good opportunities to pause and go. There might actually be a . Bigger issue here.

Matthew Jackson: [00:29:11] You’re saying suppose your firm has people in there that actually don’t fit with the culture, or suppose the people are fine, but your processes are a mess. That’s also going to come out in the comments that people make or it’s going to become obvious. So the Managing CEO is the person who needs to actually appraise the situation, before diving into an Offering or diving into saying, “Okay, everyone just tweet your hearts out”.

You need to do a whole load of spadework before this happens to get your phone Peak Two ready. And so it’s sequential. It’s not just a case of for example, I’m sure you could, if you sat down for an afternoon with a white board, come up with a new offering, and a new pricing model.

I know from experience that is a completely disastrous way to go about it because it’s not giving the subject, the respect it deserves. And to your point, it’s not testing it with clients. The risk factor increases.

This point you make [00:30:00] around, if you try the propersonal approach, you realize “Well hang on this isn’t going to work because I don’t trust my people to be out there.”

You need to start reappraising the fundamentals of your firm. So it’s all complicated, but it’s all necessary.

Kate Holmes: [00:30:12] Yes. And Matthew with great risk comes great reward.

Matthew Jackson: [00:30:16] That’s true. That’s a nice twist on Spider-Man.

Section Four: Tech From The Ground Up

Let’s see if we can have a stab at technology. We called this section Tech From The Ground Up, and it’s similar to the spirit of the report, which is how would we reimagine the firm of the future from first principles.

And the issue that we’re dealing with here is that there’s so much tech in the industry. Choice is not the problem. If anything choice is the problem. But even if you have a professional IT department who are managing this full-time and scanning the marketplace and getting tech from here and from there, there’s a sense that even if you jam all of these tech solutions together, you’ve still got a sort of unruly system, which you have to keep worrying is going to break down, and getting the data to flow between the different applications is really difficult. [00:31:00] And the question is how do you solve this problem apart from being constantly vigilant and having a really good firefighting team?

And that’s a difficult question. What we stumbled across was the solution. At least at one adviser called Brad Felix, who was very much a Peak Two guy, set up his own firm to target mass affluent clients called RhineVest, which is now rebranded Commas, which was acquired by traditional wealth management firm.

Truepoint Wealth, initially just as a solution to serve mass affluent clients. But it’s become something more, which we’ll get on to in a second. What he did was, when he started his firm, because he had a blank slate, he said, “I see how the industry does things. That’s not how I would do things. I wouldn’t use a custodian, I’d use Betterment. I wouldn’t use Microsoft, I’d use Google. And he just built everything from the ground up. And what he ended up with is something that actually makes more logical sense to your point around looking outside the industry, he used a lot of non-wealth tech solutions, and unfortunately the rest of the world is much more advanced in many areas than the wealth management world. The wealth management world has had it very easy. I was thinking about this yesterday. If you’re an advisor and your [00:32:00] say 50 years old or 55, and your clients are 65, 70 upwards, this isn’t actually very good for you because all of your life, you’ve been focusing on people who formed their expectations of technology and finance like 30, 40 years ago. So they’re very much looking backwards. From your perspective you’re ahead of the curve because you’re 10 years younger than they are.

But from the rest of the world’s perspective, you are definitely not ahead of the curve. There are people who are 20, 30 years younger than you, who are already doing things with technology that wouldn’t even occur to you to do. So we haven’t had to move as fast as the rest of the world.

We can still think of ourselves as the young hip cool things. Whereas in fact, there’s this massive revolution happening in decentralized finance and all these crazy things happening, particularly accelerated by the pandemic, which we’re very vulnerable to now. And the solution is, as you said, to look outside the industry, but also look to the young, I think this is for me is the thing that came out the tech section. Brad Felix is a very young guy, and he’s done things which fly in the face of a lot of the conventional tech wisdom and expertise, but frankly, get the job [00:33:00] done much better.

Kate Holmes: [00:33:00] And that was the thing when I started my financial planning business in 2013, I took Brad Felix’s approach. And I was like, all right, I’m scrapping everything. And starting from scratch. And I did a lot of things that people weren’t doing back then. And I don’t understand why it’s been so slow to have technological evolution in this profession.

And it’ll be really interesting to see over I think just the next couple of years, just about every human in the world has everything at their fingertips, from getting plane tickets, to ordering cars, to getting everything off Amazon, why we don’t have that same level of customer service.

I’m going to bring it back to customer service, the ease of working with advisors and planners, the technology to see everything easily at our fingertips. And yes, there are some tools out there, but by and large, even from a client experience standpoint, it’s often a bit clunky, to say nothing of from the actual firm standpoint, having all these huge tools that don’t really integrate.

It’s honestly been fascinating to me [00:34:00] for years. And so I’ve loved companies like Dentist Advisors that say, “Hey, I’m not seeing what I need out there. So I’m going to build it in” and then guess what they’ve got Elements out there that, other advisors can use.

And I think we’re going to see more and more of that. The advisors coming up with their own solutions and having it be something that actually worked in their business. Cause that’s the other challenge that we’ve had is a lot of people have come in that have no advice or planning experience that have seen the gold rush that is FinTech over the last decade.

And said, okay, I’m going to come create something solely thinking that they’re going to sell it in three years and disappear. And that’s another challenge. As you said choices, overwhelming. And you add that on top of it, “Hey, is this a business that’s actually being built to last and to truly help advisors, or are you just trying to build something to sell it?” And then we have to start from scratch again.

Matthew Jackson: [00:34:49] And there’s a lot in there, but I’d like to update what I said before, because it’s not about age per se. It’s probably going back to what we said about, there are some people who explorers and the Explorer mode thing is about [00:35:00] who you are, it’s not about how old you are. I suppose if I were to rephrase what I was saying, it would be that as an older advisor, you shouldn’t look at a younger advisor and say “You know nothing, because when I was your age, I had everything to learn.”

There are plenty of things that we can learn from the younger generation, because they do have an advantage growing up as digital natives. But if we think about Brad, for example, the two things that particularly revolutionized his approach was Zapier and Airtable.

Those are two non wealth tech things. One’s focused on automation. The other is focused on databases. And the kind of the jaw-dropping thing he told us was he and his brother without any coding, because these are low-code no-code solutions, rebuilt their CRM from scratch in two weeks. And he said they could have done it in the weekend if they tried.

So this really is a 10X type change. You would not have been able to even contemplate doing that even five years ago. And it’s happened so fast. Probably a lot of firms aren’t aware of it. I think a lot of people are probably skeptical about it, but the ability to do this, it’s not just efficiency, it’s actually enhancing what you do. AI, nudging, all of these things are now possible for you to [00:36:00] program yourself. That’s really huge. And because it’s new, you don’t need to be an experienced advisor to do it and need to be experienced advisors in the room and in the process.

Kate Holmes: [00:36:08] Yeah. And you mentioned earlier, we talked about websites and I have a quote in the white paper talking about websites. And that’s another example. And I’ll just use that for a second because how many advisor websites honestly are terrible? Truly, most of them are pretty bad. And in years past you would have to pay somebody five or ten or twenty thousand dollars to put together a website.

But that’s another great example where you can build a really nice-looking website by yourself, or get an intern to do it, or have your niece or nephew do it, whatever. But it’s so easy to do. Everything’s just drag and drop. But the challenge with that is that we have so many tools in the industry, when you go to these conferences and you see these vendors and things are always coming up and Michael Kitces has his map that I don’t even think he can fit any more logos.

It’s overwhelming, so there’s that much. And then the idea that [00:37:00] beyond that, you’re actually going to look outside the industry. And I spend a lot of my time doing that. What are other businesses doing? What are other companies doing? And it does get overwhelming, but that’s where I think that Managing CEO comes back in and says, “Hey, we actually do need to dedicate time and effort to this because it’ll be a bit of short-term pain for tremendous long-term gain.”

And Brad Felix is a great example of that. So often we get stuck in these things that are bottlenecks and we don’t just pause to say, “Okay, there’s gotta be a better way. I don’t know what it is yet, but there’s gotta be a better way.” And then you go find it and execute it. But technology is absolutely amazing.

These things that are low cost, that are no costs, that are easy to use. And it doesn’t have to be as intimidating as it was 10 to 15 years ago.

Matthew Jackson: [00:37:45] Something occurred to me about why is it she have these interesting tech solutions, which are very often advisor built.

So they’re not built by Oracle. Sorry. Terrible example, but they’re not built by a massive institution. And I was thinking, why [00:38:00] is this the case? And it struck me that if you’re talking about designing tech for Peak One, that’s very different from designing tech for Peak Two. Peak One is obviously the majority of the industry as it stands.

And as a software vendor, you need to target the majority of the industry. Whereas an entrepreneur, you only have one client, yourself. And so you can be as far sighted and as experimental as you like. And you can take those risks because it’s all upside for you.  If it turns out to be something you can sell to other advisors, that’s great.

But your main aim is to make your own business work better. As a Peak Two firm you’ll be designing Peak Two technology. So you have a lot more freedom as an entrepreneur than you might do as a software vendor. What you didn’t have in the old days was the ability to execute on that inspiration. And the low-code no-code thing is really changing that.

So that’s an interesting change. So we can expect more from advisors, I think in the future when it comes to tech innovation, rather than just focusing on the software vendors.

Kate Holmes: [00:38:51] Yeah. And I’m super excited to see how that plays out.

Matthew Jackson: [00:38:54] With technology as we know that stuff, which humans do well and the [00:39:00] stuff which Tech does well, and they very often don’t overlap, which is a good thing. Humans have been doing things by hand and automation comes and does that better.

But what also can happen is that humans do stuff well, and then automation comes along and does it worse. We can’t necessarily tell where the dividing line is. And advice I think is interesting because it’s this area of fluctuation and change. Probably in the process, the mistakes that are going to be made are not just keeping manual process, which could be automated, but automating processes, which should be, I don’t want to say manual, but human intermediated.

Kate Holmes: [00:39:31] Yeah, and this is, I’m going to say it again, think about the client experience. And this is where I get a lot of my ideas is, whether I’m joining a gym or a yoga studio or going to happy hour somewhere, you have different experiences. And sometimes they’re good and sometimes they’re not good.

And so think about for yourself, are there things that really frustrate you? For example, we went to a comedy show recently and I could not believe they called and left a voicemail the day before, and they asked me to [00:40:00] call them back to confirm that we were coming to the show. This happened two weeks ago.

And I was thinking, why don’t you have the text message system where I can just respond “Yes”, or “Confirm” or something else. That was just such an inconvenience, cause we were out running around all day. So think about that as you’re experiencing service in other industries and where do you get really great service? What is something somebody does? Maybe you’re working with a new realtor and they say, “Hey, Matthew, really looking forward to seeing you tomorrow and finding the right house.” That doesn’t take any time. And it’s a tremendous added human touch, even though it’s not face to face.

So we need to just shift our thinking on that. And again, remember that people are having experiences all over the place. When you log into Netflix, it personalizes what the options are. When you go to Amazon, it tells you what they think you’re going to want. So when people are really used to that, how can you add a bit of that in your business in a way that isn’t going to overwhelm the team, but you’re going to find the right things to automate and the right [00:41:00] things to keep manual.

Matthew Jackson: [00:41:02] Yeah. Technology can obviously enhance the experience when it’s eliminating painful things, but when it’s replacing the meaningful things.

So for example, if you were to automate the comedy show. You don’t have to show up to the venue, I’ll just send you the jokes by email in a text file . That’s more efficient.

Kate Holmes: [00:41:17] That wouldn’t work.

Matthew Jackson: [00:41:18] Yeah, but it’s more efficient, right?

Kate Holmes: [00:41:20] The experience, think about the customer experience, that’s a terrible customer experience.

Matthew Jackson: [00:41:24] And if you’re thinking about it, if you’ve got a tech guy in charge of a comedy show that’s probably not the best way to do it. What you need is the tech guy in charge of the booking and maybe the comedians in charge of the show hopefully. The person who’s going to make that call, needs to sit above both. The Managing CEO, the head of the comedy club in this case.

Closing

So that brings us back to the first section and what has been a truly marathon conversation. So can’t thank you enough, Kate, for making the time to do this for contribution to the report and for leading the charge in so many of these areas, it’s a real privilege working with you, and I look forward to many conversations in the future,

Matthew, to you and Bob, I know this was a ton of work, you worked with so many consultants. This really is an [00:42:00] incredible report. It has been so thought-provoking. So thank you for diving in and creating this. And I’m so hopeful that in a few years, it can be a report featuring a lot of Peak Two advisers.