The market of people needing answers to their financial questions is enormous—it’s been referred to as the big blue ocean. However, questions remain on whether advisors can go downmarket efficiently. For one, how to get paid has been a historical concern. And while the industry serves the top 1% well, the current set of tools is not designed for this wider audience. So what can we do to serve everyone? To reach deeper into the market, it will take new strategies that can overcome these prevailing barriers.
On this episode of Elementality, Reese and Carl look at the issues preventing advisors from expanding their reach. They explain why we need to fundamentally reimagine how to reach this massive market in a way that is still human and scalable.
Podcast Transcript
[music]
Carl Richards:
The model of serving the wealthy client with one advisor having 100 clients, that’s not broken.
Reese Harper:
No.
Carl Richards:
It’s not broken at all. I don’t even think it’s going away, it’s not… To me, it just helps us understand that there’s a whole group of people you can’t serve with that model. And I actually was having a conversation with somebody on Twitter about this idea, and they said, “Well, financial advisors don’t wanna serve the people in that… I was just using 90%. I was like, “Look, we can only serve 10% of the market.” So he said, “Well, finance advisors don’t wanna serve the rest of the market, the 90%.” And that to me has not been my experience. I bet most people listening to this have some sense of like, “Look, I wanna make a larger impact. I wanna… ” We’ve been talking for 20 years about how to go, “downmarket”, how to serve mass market. The problem isn’t that we don’t want to. The problem is that we don’t have the tools.
Jordan Haines:
Welcome to Elementality. I’m Jordan Haines, Financial Planning Specialist at Elements. Each episode, Reese Harper and Carl Richards will explore the major challenges faced by financial advisors and the things they can do to manage the functional, emotional, and social jobs of delivering real financial advice to real clients. We hope you enjoy this episode.
Reese Harper:
Welcome to another episode of Elementality, everybody. I’m your host, Reese Harper, here with my co-host, Carl Richards. Carl, thank you so much for another great episode. I’m stocked for this.
Carl Richards:
Me too, super excited.
Reese Harper:
How do I like… I could spend like hours talking to you and I just have a good time. I never get bored. You always have good insights.
Carl Richards:
That’s very nice of you, thank you. It’s ’cause you ask good questions.
Reese Harper:
Oh, well, I feel like it’s been really good to get into this first set of… Or the first topic that we covered last time, which was on kind of the main problem in the industry.
Carl Richards:
Yeah.
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 of somewhere between 110-120 million households 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, no, I have 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 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. Yes, the tool is there, the human, with all their tech, etcetera, 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… I think if you look at… Take therapy, for example, just take all the therapists in the US and why don’t they have a scale problem? They kind of do; therapists are very busy people.
Carl Richards:
Yeah.
Reese Harper:
But you can find a fairly reputable therapist at a pretty approachable hourly rate for most people.
Carl Richards:
Yeah. Can you?
Reese Harper:
I, at least in Salt Lake, I’m familiar with some of the data here.
Carl Richards:
Yeah.
Reese Harper:
You can find varying levels of competency, but the therapist’s job begins and ends in the meeting. If that makes sense. And I think there’s something about financial planning, we don’t… We need so much more than just a meeting. You can’t have a 45-minute interaction 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 we feel the need to… We can’t answer the question, right? And so I wanna explore that problem a little bit, ’cause I think that’s part of… We shouldn’t have a scale problem if we… If just talking to people was quick and easy.
Carl Richards:
It might be also underneath that too, might also be that there just aren’t enough good financial advisors in the world.
Reese Harper:
Yeah, well, that’s definitely…
Carl Richards:
It’s sort of like a pilot… Like the pilot problem, like there’s a shortage of pilots.
Reese Harper:
For sure.
Carl Richards:
There are a shortage of financial advisors.
Reese Harper:
And if there’s 90,000 of the… Let’s just say 90,000-100,000 COPs. And they each work with 70, 80, 90, 100 households, which we know it wouldn’t be an average of 100 just because that’s… Most advisors don’t have full books that are in that group. Some are at least that, but let’s just give it the benefit of doubt and say there’s 100. Then yeah, that group can only service 10% of the households. They could do 9 million, they could do 10 million households of the 110. So, yeah, we do have a shortage problem, but I also know there’s a ton of people that try to go into financial advice, lots of people, and the failure rate is incredibly high. We’re talking a 90% 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 in people that are like, “I really wanna help. I would love to help, I wanna talk to people.” So I think it’s both the difficulty of turning it into a business and the shortage of humans.
Carl Richards:
Yeah, and I, there… We have to have a quick disclaimer ’cause I… Please, whenever you use specific numbers, and so I’m just begging those of you listening and those of you watching, I’m looking right in the camera, if you’re not watching, I’m talking right into the mic, as soon as… Don’t get confused about the problem. As soon as you mention specific numbers, people wanna argue about the data and miss the point, and so I just wanna have a big disclaimer that Reese just used a bunch of numbers. Don’t worry about the numbers.
Reese Harper:
He’s probably wrong.
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 I realized, wait, that actually doesn’t matter, it’s why… I don’t know if you noticed, but the behavior gap chart, the original graph of the investor return and investment return, it used to have numbers on it, I took the numbers off after a year ’cause everybody wanted to debate whether the numbers were right. 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…
Reese Harper:
Well, we not that… We think we have a solution, at Elements, but we haven’t actually…
Carl Richards:
Sure.
Reese Harper:
I’d like to have the hubris of saying, I think I have some solution.
Carl Richards:
No, no, no, no, and I agree, that’s my hope is that using a tool like Elements will allow you to do it at scale, but…
Reese Harper:
We haven’t yet. No.
Carl Richards:
To this point we’re not talking about… The model of serving the wealthy client with one advisor having 100 clients, that’s not broken.
Reese Harper:
No.
Carl Richards:
It’s not broken at all, it’s not… I don’t even think it’s going away, it’s not… To me, it just helps us understand that there’s a whole group of people you can’t serve with that model, and I actually was having a conversation with somebody on Twitter about this idea and they said, “Well, financial advisors don’t wanna serve the people in that… ” I was just using 90%. I was like, “Look, we can only serve 10% of the market.” So he said, “Well, financial advisors don’t wanna serve the rest of the market, the 90%,” and that to me has not been my experience. I bet most people listening to this have some sense of like, “Look, I wanna make a larger impact, I wanna… ” we’ve been talking for 20 years about how to go “downmarket”, how to serve the mass market, the problem isn’t that we don’t want to, the problem is that we don’t have the tools.
Reese Harper:
Yeah, well, and I… A couple of numbers I’m gonna pull from actual Bureau of Labor Statistics data, that I’m looking at on my phone, just to help solidify, 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?
Carl Richards:
Right, right.
Reese Harper:
There is a place where we’re like, I don’t know yet how to solve that problem, and that to me… I am just gonna use the example today of anything under 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, that makes up 24%-ish. Okay? So you have 75% plus of the market, well over half the market that are 50,000 and up, you have almost that much that are 75,000 and up, it’s half of the population is a… Easily a target for getting some financial questions answered that would make a massive difference in their lives. I think 75% of the market is looking for answers to questions.
Reese Harper:
And they’re going to Google, they’re going to Twitter, they’re trying to find Quora… I see that one out there. [chuckle] 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?
Carl Richards:
Right, right, right.
Reese Harper:
This is an emotional job to be done, this is an anxiety issue, this is a financial wellness issue, and those types of issues are handled best through human-to-human interactions, and so if medical and finance are the American Psychology Association’s top one and two pains of stress in America, look at medicine, how are they handling it? Did telemedicine eliminate the doctor?
Carl Richards:
Right.
Reese Harper:
No. Did hospital networks stop having doctors have conversations with people? No. 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 same thing that works for the top 1% and we’re saying, Let’s just try to make it work for everyone else too…
Carl Richards:
Let’s hire more people, we’ll throw more people at it, we’ll pay less people…
Reese Harper:
We’ll pay less.
Carl Richards:
Yeah.
Reese Harper:
We’ll just… We’re gonna keep doing it exclusively on AUM, even though AUM doesn’t exist in the same quantity for that market.
Carl Richards:
Yeah.
Reese Harper:
Yeah. It’s interesting, that piece, particularly, 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. Which is a legitimate concern. That’s historically been a legitimate concern.
Carl Richards:
I think that is legit.
Reese Harper:
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 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 gonna be some need for that, but how do we… You can’t do pro bono work for how many households?
Carl Richards:
We’re talking 75% of the 120 million.
Reese Harper:
Yeah. So, yeah, the question becomes like, how do you serve that market in a way that is still human, but scalable?
[music]
Jordan Haines:
Hey, Elementality listeners, it’s Jordan. The Elements Financial Monitoring System is revolutionizing how you attract, on-board, and deliver ongoing advice to clients, so you can scale your business far beyond traditional limits. If you want to profitably help more people make smart financial decisions, head over to getelements.com/demo and schedule a time to see it in action today.
[music]
Reese Harper:
And I just spent the last 15 years of my life building an advisory in a segment of the market that has the highest debt level of any occupation in the professional community. Dentists have far more than physicians, far more than lawyers, dentists are the highest DTI ratio of any professional. Their average income is not 300,000 a year. We’d like to target, 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. And so, I’m targeting a market that doesn’t have a lot of liquidity. Our average client was sub-40, they’re in their 30s. And so when I looked at that market and I saw the pain, I’m like, “Well, I can go target people that are 55 and up and go after a retiree 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 going around the country speaking to these people in study clubs, no one is addressing these 25 dentists in a room with their basic question about student loans. But how are we going to be able to address the needs of that market?
Reese Harper:
Well, they don’t have enough AUM. They’re not gonna build AUM. They’ve got a bunch of student loans, they gotta pay these things down. So I’m just painting you 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. So what are your options? Well, you can just… In today’s world, luckily, it’s starting to become a possibility to actually get paid not just through AUM. And I’m not saying that AUM’s gonna go away, I’m just saying… If I say, “Well, we have an AUM minimum of 100,000, that’s really gonna make it very difficult for this customer to feel like I’m meeting them where they’re at.” ‘Cause they’re like, “Man, that feels like you’re just part of an industry that 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 addressed them where they’re at by asking them to pay for a reasonable amount of my time, that’s where they’re at, that’s where that market’s at, that’s where 75% of the households that we’re talking about are at.
Reese Harper:
They don’t have the tolerance for a large planning fee, that belonged to the top 1% and they don’t have a tolerance for large AUM minimums. So you have to meet them where they’re at. Now, I don’t think that that’s rocket science to anyone listening, but we haven’t figured out a way to do that profitably yet. That’s where our problem is, ’cause we… The business model that we’re delivering is still the same as what we were delivering to the top 1%. And that’s like implied in that, is we’re talking 12 hours of implied work, 10 hours of implied work. There’s a… We have built a business model for the top 1% that just doesn’t translate down-market, so you have to fundamentally re-imagine how you’re going to… If someone has $300, or someone has $500, is it really… Over the course of a year, or they only have 100 and… They only have $75 for 10 minutes. I don’t know what the price is that 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 why I wanna keep innovating. But your thoughts on… That was a lot to throw at, just saying, Carl.
Carl Richards:
No, I just think that that’s the challenge. How do we do that at scale and how do we rethink? And any time you start doing this rethinking thing, you bump up against this idea that, “Look, I’ve gotta do something new and novel.” And as soon as I do something new and novel, there’s no one to follow. There’s no path, there’s no… It gets scary, we’ve got [0:17:33.3] ____ issues.
Reese Harper:
That was super scary for me just thinking, “Well, does the market even wanna pay a subscription fee that’s this high? Or I don’t know, and can I deliver anything of value? Is that the right frequency? Is that the right cadence?” ‘Cause financial planning really isn’t this monthly thing, it’s more infrequent, and it was really scary.
Carl Richards:
It’s so interesting. We have, [0:17:53.6] ____ bill… And again, it’s not that it’s broken for the market that it was intended to serve, it’s working great.
Reese Harper:
Yeah, it really is.
Carl Richards:
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, how can I have more impact? How can I serve more people? How can I make a bigger difference?” So that idea of being able to do you at scale requires you to rethink how you deliver it. And I think the good news is we can look at all sorts of interesting models like membership models that you’ve seen. There are ways to do this, for sure. And, in fact, I remember having a conversation with a venture capital friend of mine, and I was like, “Yeah, I have to say no to eight out of 10 people who contacted me,” and this is after the book had come out, I was getting all these emails, I was like, “Eight out of 10 people who called on me I have to say no to.”
Carl Richards:
He’s like, “Why?” Said, “Well, ’cause it’s not profitable.” And I was walking him through the line for profit… What I meant by not profitable. And he was like… ‘Cause the margins were some crazy… It was below a 50% margin or something, and my venture capital buddy was like, ” What? You guys run businesses that like a 30% margin doesn’t make sense?”
Reese Harper:
Yeah.
Carl Richards:
You look at like… I always think of Superhuman, the email app, as a like, wait, they used to do 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 month, $49 month, $170 a month.” So I think it’s just interesting to realize like, “Look, there’s a huge problem.”
Reese Harper:
Mm-hmm.
Carl Richards:
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, and that’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.
Reese Harper:
Yeah. Yeah, I’m hesitant to jump into the different ways that we’ve explored solutions here in this episode, just because I think I wanted to focus this one on just the TAM, the size of this pie…
Carl Richards:
And by TAM, just make sure you…
Reese Harper:
You’re right, I’m into venture capital speak.
Carl Richards:
Yeah. That’s almost like a ding dong, I think, I think, a TAM, you feel the TAM TAM…
[overlapping conversation]
Carl Richards:
A TAM TAM In Australia, I think is… Anyway.
Reese Harper:
The TAM is the Total Addressable Market of a product or a service, so when you look at your opportunity set out there, if you’re… The… What the biggest impact like 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, then it continue to go out. I think for a lot of people, like really high income niche businesses are a great way to get your business off the ground, and you’ve been the beneficiary of know running a business that way. I’ve done the same thing. I think I’ve done it a little bit differently. People assume that I’m working with like just the oral surgeons, just the orthodontists, but that wasn’t the biggest market. When I looked at the dental market, it’s orthodontists make up like less than 5% 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, ’cause we wanted to really target the highest income group, but what I found was just like that, if I could build a product and a service that addressed the 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 have the cost of customer acquisition be so high.
Carl Richards:
Yeah.
Reese Harper:
And, ’cause to get a dentist who’s struggling, who has a 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 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 client is gonna be lower, and so I think the message here isn’t to like, at all costs, work with people who can’t… Who can barely afford a service.
Carl Richards:
Right.
Reese Harper:
It’s start… It’s to start thinking about whether you can really question you know whether the advice you’ve been given of building a business around the highest incomes, most scarce people you can find…
Carl Richards:
Yeah.
Reese Harper:
Is really the right plan.
Carl Richards:
Yeah.
Reese Harper:
Because there’s 50 people probably within one mile of you who would die to talk to you today about a financial question they have.
Carl Richards: Yeah.
Reese Harper:
But we have to rethink and reimagine the way we’re addressing this giant market.
Carl Richards:
Yeah. And to me that’s the important takeaway. At least for me, the way I was thinking about this was that most people don’t need most of what we think of as our product offering.
Reese Harper:
Yeah.
Carl Richards:
Only a small group of people needs that. And so when we start to think like, “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.
Reese Harper:
Yeah.
Carl Richards:
And it turns out that that’s… There are simpler questions, it’s most of the population. I don’t need…
Reese Harper:
Yeah.
Carl Richards:
I don’t need the service that most financial planners deliver.
Reese Harper:
That’s because you live in the mountains all by your self alone in a tent.
Carl Richards:
That’s right, I eat twigs and small animals. So, yeah, 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, it’s not bad. And the evidence is clear. There’s so much demand for that, ’cause 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 between 10 and 25 million dollars, I am trying to find an advisor, like it’s actually hard for me to find the right kind of advisor, ’cause 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.
Reese Harper:
Yeah.
Carl Richards:
And it’s because we’re not… This set of tools does not work for the group of people, so we just need to rethink that.
Reese Harper:
It’s a big pie out there everybody, it’s a… The last thing I’ll end with here is…
Carl Richards:
A big pie of opportunity, revenue, and most importantly, impact.
Reese Harper:
Impact.
Carl Richards:
Yeah.
Reese Harper:
And that’s what I was about to say. You jumped to my conclusion…
Carl Richards:
I just wanted to make sure, right, this was, yeah.
Reese Harper:
So, what I was gonna say it was, I just feel like all of us got into this business to make a difference for the person that was most in need. I had an exchange with some, a prospect who’s now in my Elements app, and I am working through my conversion rate hopefully, gonna land this prospect, it’s just a PT that’s working on my lower back, and we had a financial interaction, when I was getting my… One-wheel wreck straightened out.
Reese Harper:
Yeah.
Carl Richards:
And it was so interesting to see how much… How big of an impact I’m able to have inexpensively.
Reese Harper:
Yeah.
Carl Richards:
And with the right technology and the right interaction, but the fulfilling part of it was just feeling the relief that this person felt by just getting an answer to their question. It’s just amazing. The impact is just astronomical. It is, I would say, it’s… You’ll see it, you’ll feel it, you see it in their eyes. It’s a bigger impact than the one where someone has hundreds of thousands of discretionary income every year.
Reese Harper:
Yeah, yeah.
Carl Richards:
Just because they… That… The person with plenty knows they can buy their answer…
Reese Harper:
Yeah.
Reese Harper:
With the right price.
Carl Richards:
Right.
Reese Harper:
This person that you’re helping in this 75% of the market, they’ve never had someone actually take them seriously…
Carl Richards:
Yeah.
Reese Harper:
And address them at where they’re at, and I think we just have a huge impact that we can make as an industry, and it can’t be done without humans, I mean…
Carl Richards:
Yup.
Reese Harper:
We need… We need all of you listening to do it, so.
Carl Richards:
Yeah.
Reese Harper:
Anything left we didn’t…
Carl Richards:
No, we just have to say, “Amen. Amen, Reese.”
Reese Harper:
Amen to that. Carry on everybody. Look forwarding to seeing you next week.
Jordan Haines:
Next time on Elementality.
Reese Harper:
I already knew the answer in advance.
Carl Richards:
Sure.
Reese Harper:
But by bringing her into the…
Carl Richards:
Yeah, there’s a whole game with that, there’s a game…
Reese Harper:
There’s a whole like righteous trick there of getting someone to come in and be like, “Hey, finances are bigger. See these other 12 indicators that you don’t yet know about? I’m gonna explain them all to you eventually, but just for this one question, you had, it depends on one thing, and this one thing, I don’t need to ask about everything else, and I’ll answer your question.”
Carl Richards:
Yeah.
Reese Harper:
And that’s what we’ve got to get to is getting… Get to the question faster, but don’t answer the question until you teach them something about the context behind that question.
Abby Morton:
You can learn more about the Elements Financial Monitoring System at getelements.com/demo and schedule a time to talk with one of our friendly financial planning experts. Elementality’s executive creators are Reese Harper and Carl Richards. Elementality is produced by Abby Morton and directed by Jordan Haines. Have a good one.