Carl Richards and Reese Harper talk about the opportunity advisors have to simplify their services and concentrate on the core value of human interaction.
They discuss how the traditional comprehensive financial planning model may not meet the needs of most people and how reimagining the delivery of financial advice can help advisors reach a broader market and make a greater impact. If you’re interested in learning how to serve more clients by honing in on what truly matters, this episode is a must-listen.
Transcript
Jordan Haines: Hello friends and welcome to another episode of L mentality. Over the weekend. I was listening to an interview with one of the founders of Instagram. And I thought their story was fascinating. Those of you who don’t know the story. Here’s the TLDR, the summary. In 2011, Instagram was founded as a company called bourbon, [00:01:00] B U R B N. And the focus of that app was that it was going to be a location location based a check-in app, similar to. Um, like 360 or the location sharing in Google maps.
Right? Many of you have used something like this. And one of the features on that app was a photo sharing feature. And the founders found over the first couple of months that the people using their app were primarily using it. For photo sharing. So they were taking one of these tangential features and saying, this is the thing that we really love.
So what they decided to do. Is strip out all of the other features related to location sharing and things like that. And focus entirely on photo sharing. Now we know what eventually happened because of that. They were purchased by Facebook and they are still a very strong. Uh, presence in our culture today. The thing that stood up to me about this particular story was how they went to market with one thing, listen to their customers on another thing and [00:02:00] decided to focus entirely on that thing.
The keyword was stripping out all of these other features so they could get entirely focused on a single space, which was photo-sharing.
Now, this makes me think a lot about the conversations we’ve been having recently. Um, last week in particular, around this idea of comprehensive financial planning as this end all be all service offering that we have for people. So, what are the alternatives to this? Well to start this conversation, I want to share a recording that we did almost two years ago between Carl Richards and Reese Harper.
Talking about the opportunity that we as financial advisors have to focus on helping people that traditionally don’t hire financial advisors today, but still want the human conversations. So, if we look at your, how we’re serving people, the comprehensive financial plan might not be valuable to them, but the conversation. Might be incredibly valuable to people. So this is one example of something that we can pick out of our traditional service offering. And [00:03:00] double down on that thing to create something spectacular and wonderful for our clients. If you have any questions, if you have any concerns or thoughts or comments, and you want to talk about it with me. Please feel free to reach out to me on LinkedIn Jordan Haynes, H a I N E S.
Or send us an email podcast@getelements.com. Otherwise. Enjoy the show.
Reese Harper: I think related to this is one that I know you and I care a lot about, which is we all feel like we are normal people that are struggling just like everybody else.
But. Some of us have vastly different levels of income and wealth. And when you look at the pie of the marketplace, um, you know, of, uh, somewhere between, you know, 110, 120 million households, you know, that are in the United States, the financial advisory marketplace has the solution, I think, for a lot more people than we actually serve right now.
Do you feel the same way?
Carl Richards: Yeah, I know. I have [00:04:00] spent. Lots of time thinking about other ways to solve this problem of how do I have a better relationship with money? How do I get the answers to the financial questions I have? I’ve checked on all the cool kids and their cool robo apps and like all of that stuff.
And there’s the problem at the end of the day is that there’s still this massive need for a human. And so once we get to this human at the center of it, we have a scale problem, which is what you’re pointing to. Like we. Yes, the tool is there, the human with all their tech, et cetera, but the human, but the challenge is we haven’t been able to serve most of the market.
Reese Harper: Yeah, it’s interesting to me because there’s not, like if you look at, um, take therapy, for example, just, um, take all the therapists in the, the U. S. and why don’t they have a scale problem? I mean, they kind of do. I mean, therapists are very busy people. So, [00:05:00] But I, you know, you can find a fairly reputable therapist at a pretty approachable hourly rate.
For most people. Yeah. Um, and I think I, I mean, I, at least in Salt Lake, I’m familiar with some of the data here. Yeah. Um, you can find, you know, varying levels of competency, but I, the therapist job begins and ends in the meeting. Yeah. Does that make sense? Yeah. And I think there’s something about financial planning, like we don’t, we need so much more than just a meeting.
Like it’s not, you 45 minute interaction. Yeah. And have it end up being really valuable on the other side because you need more information than just what, or we think we need more information or, or we feel the need to, we can’t answer the question. Right. And so I want to explore that problem a little bit.
Cause I think that’s part of like, we shouldn’t have a scale problem if we, [00:06:00] if, if just talking to people was quick and easy.
Carl Richards: It might be also, uh, underneath that too, may it also be that there just aren’t enough. Good financial advisors. Yeah in the world.
Reese Harper: Yeah. Well, that’s definitely like it’s sort of like a
Carl Richards: pilot like the pilot problem Like there’s a shortage of pilots for sure.
I mean shortage of financial and if there’s
Reese Harper: 90, 000 of the let’s just say 90 to 100, 000 CFPs and they each work with 70 80 90 100 households, which we know it wouldn’t be an average of a hundred just because that’s You know, most advisors don’t have full books that are in that group. Some are at least that, you know, but let’s just give it the benefit of doubt and say, there’s a hundred, you know, then yeah, we, that group can only service 10 percent of the households.
They could do 9 million, 10 million households of the 110, you know? So yeah, we do have a shortage problem.
Carl Richards: Yep,
Reese Harper: but I also know there’s a ton of people that tried to go into financial advice Lots of people and [00:07:00] the failure rate is incredibly high. We’re talking like a 90 percent Failure rate in the independent advice kind of space.
So it’s not I don’t know that I think there’s yes, a shortage of qualified advisors, but there’s also a massive failure rate and people that are like, I really want to help. I would love to help. I mean, I want to talk to people. Yeah. So I think it’s both the difficulty of, um, turning it into a business.
And the shortage of humans.
Carl Richards: Yeah. And I, there we have to have a quick disclaimer because I please, whenever you use specific numbers, and so I’m just begging those of you listening. And those of you who are watching, I’m looking right in the camera. If you’re not watching, I’m talking right into the mic. As soon as it don’t get confused about the problem.
As soon as you mentioned specific numbers, people want to argue about the data and miss the point. And so I just want to have a big disclaimer that like Reese just used a bunch of numbers. Don’t worry about the numbers.
Reese Harper: He’s probably wrong. [00:08:00]
Carl Richards: Yeah. Who knows? That’s not what I was saying. What I was simply saying was I could feel myself wanting to debate the numbers and realize, wait, that actually doesn’t matter.
It’s why, I don’t know if you know, notice, but But the behavior gap chart, the original graph of investor return and investment return, it used to have numbers on it. I took the numbers off after like a year because everybody wanted to debate whether the numbers were like, that doesn’t matter. The point that matters.
So the point here that matters is, look, there’s a huge need for this service from a human. to get answers to their financial questions, right? There’s a huge need. Humans, we haven’t figured out how to provide for that group of people at scale, right?
Reese Harper: Well, we not that we have, we think we have a solution, uh, elements, but we haven’t actually.
Sure. I’d like to have the hubris of saying, Yeah. I think I have no, no, no. And I agree. That’s my
Carl Richards: hope is that using a tool like elements will allow you to do it at scale. But we haven’t to this point, to this point, we’re [00:09:00] not talking about like the, the model of serving the wealthy client with one advisor, having a hundred clients, that’s not broken.
No. It’s not broken at all. It’s not I don’t even think it’s going away. I like it’s not to me It’s just it just helps us understand that there’s a whole group of people you can’t serve with that model. Yeah And I actually was having a conversation with somebody on Twitter about this idea and they said, well, financial advisors don’t want to serve the people in the, I was just using 90%.
I was like, look, we can only serve 10 percent of the market. So we said, well, financial advisors don’t want to serve the rest of the market than 90%. And that to me has not been my experience. I bet most people listening to this have some sense of like, look, I want to make a larger impact. I want to, we’ve been talking for 20 years about how to go.
Quote unquote down market how to serve mass market. The problem isn’t that we don’t want to. The problem is that we, we don’t have the tools.
Reese Harper: Yeah. Well, I, I, a [00:10:00] couple of numbers I’m going to pull from actual, um, Bureau of labor statistics data that I’m looking at on my phone just to help solidify kind of a little bit of shaping here.
I think you can make the argument that there’s a poverty line that Carl and I are not addressing in our conversation right now. Right. Right. Like there is a place where we’re like, I don’t, I don’t know yet how to solve that problem. Um, and that to me, I’m just going to use the example today of anything under like 30, 000 a year in income, which I think is generous of me to do that.
I think there is probably some definite financial pain and questions that advisors can handle below that line, but that if you take all of the households in America, I mean, that makes up like 24 percent ish. Okay. So you, you have 75 percent plus of the market, well over half the market that are, um, [00:11:00] you know, 50, 000 and up, right?
You have almost that much that are 75, 000 and up. I mean, it’s half of the population is, um, a. Um, easily a target for getting some financial questions answered that would make a massive difference in their lives. I think 75 percent of the market is, um, looking for answers to questions and they’re going to Google.
They’re going, you know, to Twitter. They’re trying to find, uh, Quora, I see that one out there. Ask Jeeves. Okay. There’s still some of that happening, but Carl and I both feel like, again, like we talked in the last thing, this isn’t an answers problem. It was never an answers problem, right? This is an emotional job to be done.
This is a anxiety issue. This is a financial wellness issue. And those types of issues are handled best through human to human interactions. And [00:12:00] so if, if, if medical and finance are the American psychology associations, top one and two pains of stress in America. I mean, look at medicine. How are they handling it?
I mean, did telemedicine eliminate the doctor? Right. No. Right. Did, did hospital networks, like, stop having doctors have conversations with people? No. Right. Like, medicine can see, and people are demanding that personalized interpretation and counseling from their professional. The same thing is going to be true with money.
It’s just not a functional job. It’s not just about the answer. It’s about this underlying emotional pain and anxiety that only a human can properly address. So let’s just, as we talk about today, I’m just trying to emphasize. We aren’t even scratching the surface of this TAM. I mean, this market for answer my question, it’s massive and they do have the pain.
It’s just, we’re taking the [00:13:00] same thing that works for the top 1%. And we’re saying, let’s just try to make it work for everyone else, too. Yeah, we’ll just hire more people, we’ll throw more people out, we’ll pay less people out. We’ll pay less, uh, we’ll just, you know, we’re gonna keep doing it exclusively on AUM.
Even though AUM doesn’t exist in the same quantity for that market. Yeah. I mean,
Carl Richards: Yeah, it’s interesting, that piece in particular, I’ve heard that comment so many times, that people are like, I’d love to help those people but there’s no way for me to get paid. Yeah. Right. Which is a legitimate concern. Yeah.
Has historically been a legitimate concern. I think that is legit. You, we’re not talking, there is a difference between running a non profit and running a business. And I’ve always felt like sometimes I had to, I had to, I had to play that game of like, well, okay, fine. I’ll do some of this work pro bono work and there’s nothing wrong with any of that.
And there’s always going to be some need for that. But how do we, you can’t do pro bono work for how many
Reese Harper: households? I mean, we’re talking [00:14:00] 75 percent of, of, of, of the 120 million.
Carl Richards: So yeah, I, the question becomes like, how do you serve That market in a way that is still human, but scalable.
Reese Harper: 15 years of my life, like building an advisory In a segment of the market that has the highest debt level of like any occupation in the professional community. I mean dentists have um, far more than physicians, far more than lawyers. I mean they, dentists are the highest DTI ratio of any professional.
Their average income is not 300, 000 a year. I mean that, that’s, we’d like to target, you know, in our firm people who have higher than average incomes. But the average dental income is still sub 200 and their average debt balance is well over half a million. Well, and so I’m targeting a market that doesn’t have a lot of liquidity.
We are average client was sub 40 I mean, they’re in their thirties.
Carl Richards: Well,
Reese Harper: right. And so when I [00:15:00] looked at that market and I saw the pain, I’m like, well, I can go target people that are have 50 that are 55 and up and go after a retiree model model and go after the boomers and compete head to head with Fisher investments.
Or, I’m gonna go after the blue ocean. No one’s at these dental schools. No one’s like going around the country speaking to these people in study clubs, you know No one is addressing these, you know, 20 25 dentists in a room with their basic question about student loans But how are we going to be able to like address the needs of that market?
Well, they don’t have enough AUM They’re not gonna build AUM. They’ve got a bunch of student loans like they got to pay these things down So I’m just painting the picture real quickly of the same dynamic exists in a market of people making 180, 000 that exists in the 75k market, which is a lack of AUM, a tolerance and a pain for answering a financial question, right?
So what are your options? Well, you can just in today’s world, luckily, you know, it’s starting to become a possibility to actually get [00:16:00] paid, not just through AUM. And I’m not saying that AUM is going to go away. I’m just saying, if I say, well, we have an AUM minimum of 100, 000, it’s really going to make it very difficult.
For this customer to feel like I’m meeting them where they’re at, right? Cause they’re like, man, that feels like, uh, you’re just part of an industry that I don’t, I can’t be a part of. If I say, no, it’s just, it’s a subscription fee or it’s, I’ll just charge you for answering this question. If I just address them where they’re at by asking them to pay for a reasonable amount of, you know, my time, that’s where they’re at.
That’s where that market’s at. That’s where 75 percent of the households that we’re talking about are at. There don’t have. the tolerance for a large planning fee that belonged to the top 1%. And they don’t have a tolerance for, um, large AUM minimums. So you, you have to meet them where they’re at. Now, I don’t think that that’s rocket science to anyone listening.
We haven’t figured out a [00:17:00] way to do that profitably yet. Like that’s where our problem is, right? Cause we, the business model that we’re delivering. Is still the same as what we were delivering to the top 1%. Sure. And that’s like implied in that is like we’re talking 12 hours of like implied work, 10 hours of implied work.
Like Yeah, there’s a, we have built a business model for the top 1% that just doesn’t translate down market. Yeah. So you have to fundamentally like reimagine how you’re going to Yeah. Someone, if someone has 300 bucks or someone has $500, is it really like over the course of a year or they only have a hundred and they only have $75 for 10 minutes.
Yeah. I don’t know what the, the price is that you’ll, your market, your niche in this new world will be able to pay. Your question has to be, how can I do that less expensively than they used to do it in this other model? And that’s where I want to keep innovating. But your thoughts on, that was a lot to throw at.
Carl Richards: No, I just [00:18:00] think that, that, that, that’s the challenge, right? What, how do we do that at scale and how do we rethink? And anytime you start doing this rethinking thing. You bump up against this idea that like, look, I’ve gotta do something new and novel. Mm-Hmm. . And as soon as I do something new and novel, there’s no one to follow.
There’s no path, there’s no it like, it gets scary. We’ve gotta, yeah. That was super scary for
Reese Harper: me. Like just thinking like, well, does the market even want to pay a subscription fee that’s this high? Or, yeah, I don’t know. And can I deliver anything of value? Is that the right frequency? Is that the right cadence?
Because financial planning really isn’t kind of like this monthly thing.
Carl Richards: Yeah.
Reese Harper: It’s more, you know, infrequent. And it was really scary. Super scary. It’s so
Carl Richards: interesting, right? We have built, and again, it’s not that it’s broken for the, the market that it was intended to serve. It’s working great. Yeah, it really is.
But the idea that we want, we all say this at conferences, we all say it individually. I know talking to all my favorite financial planners and advisors around the world, they all, even if they’ve been super successful, especially if they’ve been super successful, they say like, wait. [00:19:00] How can I have more impact?
How can I serve more people? How can I make a bigger difference? Yes. So that idea of being able to do you at scale requires you to rethink how you deliver it. And I mean, I think the good news is like, we can look at all sorts of interesting models, like membership models that you’ve seen. There are ways to do this for sure.
I, in fact, I remember having a conversation with a, uh, a venture capital friend of mine and I was, I was like, yeah, I have to say no to eight out of 10 people who contacted me at, this is after the book had come out and I was getting all these emails. I was like eight or eight out of eight out of 10 people who contacted me have to say no to it.
He’s like, why? So because it’s not profitable. And I was walking him through the, like the line for profit, like what I meant by not profitable. And he was like, you know, because the margins were some crazy, it was below a 50 percent margin or something. And my venture capital buddy was like, you guys run businesses that like a 30 percent margin doesn’t make sense.
You know, you look at like, I always think of superhuman, the email app as a like, wait, they used to do [00:20:00] 15 minute demos before you could buy an email app that costs you 15 a month. And then we think, well, we can’t build a membership model that works at. 29 a month, 49 a month, 170 a month. So I think it’s just interesting to realize like, look, there’s a huge problem.
It’s not getting better. Like pounding on it with the same tool that you use. That’s like saying, I’m a brain surgeon. I’m going to operate on this knee with the same tools as I do on the brain. Like it’s maybe a terrible analogy, but it’s, we’re trying to use the same. It’s not that those tools aren’t perfect for the job they were intended to do.
It’s just, they don’t do this job very well. Yeah.
Reese Harper: Yeah. I, I’m hesitant to jump into the. Um, different ways, uh, that we’ve explored solutions here, um, in this episode, just because I think I wanted to focus this one on just the TAM, the size of this pie. And by TAM, just [00:21:00] make sure you understand. Oh, you’re right.
I’m into venture capital speak. To
Carl Richards: total. That’s like a, that’s almost like a ding dong, I think. A TAM. Do you have a TAM TAM? Oh, a TAM TAM. Yeah, a snowball. That’s what it is. A TAM TAM in Australia, I think is, anyway.
Reese Harper: The TAM is the total addressable market of, um, a product or a service. So when you look at your opportunity set, you know, out there, if you’re the, what the biggest like impact businesses do is they try to figure out how to architect a product that meets.
the largest group of consumers possible, right? You start with a niche, you kind of scale from there and then continue to go out. Um, I think for a lot of people, like really high income niche businesses are a great way to, you know, get your business off the ground. And, um, you’ve been the beneficiary of, you know, running a business that way.
I’ve done the same thing. Um, I think I’ve done it a little bit [00:22:00] differently. People assume that I’m working with like just the oral surgeons, just the orthodontists, you know, but that wasn’t the biggest market. When I looked at the dental market, it’s, you know, orthodontists make up like less than 5 percent of the total market and oral surgeons are even smaller than that.
And those are the really high income, kind of sexier income levels. But really what made our business work was that instead of saying, we started out saying specialists, like dental specialists, because we wanted to really target the highest income group. But what I found was just like the, if I could build a product and a service that addressed average Joe and make it profitable.
Like we could get a lot more, we could have a lot more impact and grow a lot deeper and actually not, um, have the cost of customer acquisition be so high, you know, and cause to get a dentist who’s struggling, who has major financial pain and doesn’t have a lot of AUM to say, yes, it’s a lot easier than going.
And my conversion rate on that sale is much higher [00:23:00] than if I go to sell an orthodontist who’s got super high income and he’s got 10 people pitching him and he’s already got a great financial advisor. He’s got anyone he can pick from like my conversion rate on that clients can be lower. And, and so I think that the message here isn’t to like, you know, at all costs, work with people who can’t, you know, who can barely afford a service.
It’s start, it’s to start thinking about whether, you know, You can really question, you know, whether the advice you’ve been given of building a business around the highest incomes, most scarce, you know, people you can find is really the right plan because I mean, there’s 50 people probably within one mile of you.
You know, who would die to talk to you today about a financial question they have. But we’re, we have to rethink and reimagine the way we’re addressing this giant market. Yeah, and to
Carl Richards: me that’s the important takeaway. At least for me, the way I was thinking about this was that [00:24:00] most people don’t need most of what we think of as our product offering.
Yeah, only a small group of people needs that and so when we start to think like well, I can’t serve this group You’re like wait that group doesn’t need it’s not planning light It’s right sized planning, right? It’s planning that’s fit for purpose for that group of people and it turns out that that’s the It’s their simpler questions.
It’s at most of the population. I don’t need I don’t need the service that most financial planners deliver So that’s because you live
Reese Harper: in the mountains
Carl Richards: Eat twigs and small animals So yeah, I don’t, I’m not, but I’m just simply saying that that to me is the distinction is like this thing that we’re doing is not broken.
Yeah, it’s not bad and the evidence is clear like there’s so much demand for that because there’s a shortage of advisors It’s like when I go to try to find a home For I get this inquiry all the time like the last two have been like [00:25:00] between 10 and 25 million dollars I’m trying to find an advisor like it’s actually hard for me to find the right kind of advisor because many of them are saying Look, I don’t have room for that or it’s not in my niche or well, there’s a reason for that.
That’s not broken But man when I go try to find help for somebody like a normal human that makes up most of the population It’s really, really hard. It’s because we’re not, we’re, this set of tools does not work for the, the group of people. So we just need to rethink that. It’s a big pie out there, everybody.
Um, it’s a, the last thing I’d end with here, a big pie of opportunity, revenue, and most importantly, impact. And
Reese Harper: that’s what I was about to say. You jumped to my conclusion. I just wanted to make
Carl Richards: sure I, this was, yeah.
Reese Harper: So what I was going to say was, I just feel like all of us got into this business to make a difference for the person that was most in need.
You know, I had an exchange with some, uh, uh, uh, prospect who’s now in my Elements app, and I am working through my [00:26:00] conversion rate, uh, hopefully gonna land this prospect. Um, it’s just a, um, a PT, um, that’s, um, working on my, uh, low back. And we had a, financial interaction when I was getting my, uh, one wheel wreck straightened out.
And it was so interesting to see how much, how big of an impact, um, I’m able to have inexpensively and with the right technology and the right interaction. But it’s the fulfilling part of it was just feeling the relief, um, that this person. Felt by just getting an answer to their question.