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Why Planning Is Finally Reaching Its Potential With Bob Veres

For the idealist, pure financial planning succumbs to a practical need to generate income through product sales—which keeps it from reaching its true potential. But a 40-year-career financial planning curator shares his vision of where the industry is now headed and why times are changing.

Reese Harper welcomes Bob Veres, founder of the industry-altering newsletter, Inside Information, on this episode of the Elementality podcast. Reese and Bob look into how the gap between pure financial planning and product sales has slowly closed—and why that transformation has led to changing value propositions, alterations in revenue models, challenges to an older generation to keep up, and questions on how best to navigate the future.

 


Podcast Transcript

Bob Veres:
So the question becomes, alright, what is my value proposition and what is my revenue model for the future? Your value proposition is not, “I’m gonna make you wealthy when you retire, because I don’t have that power and I don’t have that forecasting ability.” It is, I’m going to help you in your day-to-day ability to navigate the financial world in a way that it makes you more efficient, more effective where you make good decisions for now and for the future. That’s the value proposition, that’s not an AUM model and that’s not a projecting out into the future model, that is a here and now model.

Abby Morton:
Welcome to Elementality. I am Abby Morton, CFP and producer of our podcast here at Elements. I love being a financial planner, but I know it’s a challenging profession as well. That’s why the number one goal of our show is to help you prosper as an advisor as you better connect with your clients. We know your time is very valuable. Plan on a good return when you spend it here with us.

Reese Harper:
Welcome to another episode of Elementality everybody. I’m your host Reese Harper here on a beautiful fall morning, looking at the leaves flowing outside falling from the sky and excited to have a fun conversation with someone who I knew way before he ever knew me, Bob Veres. Bob, you’re a legend, welcome to the show. We’re excited to have you.

Bob Veres:
Well, thanks for having me. I’m looking forward to it.

Reese Harper:
When I was at Northwestern Mutual back in the day, this was 2003, maybe 2004, I remember coming across your name in the early 2000s and as being an industry thought leader around technology, you’re still that thought leader today. You’ve maintained a conference for many years. Your conference that I just attended was one of the most interesting and kind of high energy conference, is a small conference that’s intimate and had a lot of diversity, surprisingly. I think going into it, I thought that maybe your audience would be advisors that were older, that had kind of were on the sunset of their career because you’re in your 50s now. And I actually don’t know Bob’s age, but I’m giving him a compliment ’cause I know he’s probably slightly older than 50. But the conference surprised me, there was a ton of students, there was a lot of interest from academics, there was interest from industry. How have you managed to kind of maintain what, to me, is a surprisingly diverse audience as you’ve continued your publication and conference has continued to grow over time, how have you been able to do that?

Bob Veres:
The common denominator of all the people who were at that conference and the people who read my newsletter is they’re people who think and read. And one of the interesting things about this profession is that, I would guess, only about 10, 15% of the total audience thinks and reads or listens to podcasts or try to improve themselves, try and find out what’s going on.

Reese Harper:
Interesting.

Bob Veres:
Now, that could be pretty much anybody. That can be older, that can be fossils like me, that can be people who are new in the business, anybody who is ambitious about being better for their clients and running a better business and improving their career, that’s kind of… And our conference is geared toward people who’ve outgrown the traditional conference experience, and that’s a pretty eclectic band of people also. We have a target audience, unlike most conferences, and it’s people who are incredibly hard to please. And we love them because we don’t have to talk down to them.

Reese Harper:
Your origin story, your newsletter has been in publication since what year?

Bob Veres:
1991.

Reese Harper:
Okay. [chuckle] So in 1991…

Bob Veres:
The kids were using stone back then, it was kind of a work in process.

Reese Harper:
Okay, you’re gonna have to remind me ’cause that was nine years after I was born. I don’t think the internet was functioning at that point, was it?

Bob Veres:
Tech back then was all… We didn’t have nearly the ability to do things back then that we do now and yeah, there was a lot of pencil and paper, there was a lot of people signing physical forms, the financial plans were big and bulky and if you dropped one on your foot, you were liable to have to go to the hospital. It was a whole different experience. And the interesting thing is, we’re still doing things more or less the same way we did then, or most people are, even though we have a lot of different technological options.

Reese Harper:
Yeah. I think it’s just interesting that your newsletter started in ’91, that the audience you kind of cultivated, you’re saying the reason that your audience has maintained some diversity is it tends to be kind of a psychographic profile, not a demographic profile, meaning these are people that are really interested in information, they’re readers, they read your actual content. You’re one of the only people that still is publishing a consistent actual written publication, which I find kind of refreshing. You’ve maintained this kind of newsletter series. Have you seen Insider’s information readership in the last, let’s say, five to seven years as blogs and free digital content has taken off, have you maintained, have you flat-lined? I would expect a decline in readership.

Bob Veres:
It’s been a very slow leak. And I attribute that. You’ve got a lot of really interesting podcasts going on, you’ve got Ketsus doing his thing now. It’s not really information overload so much as suddenly, there are better, not better than what I do, of course, ’cause nothing could possibly better than…

Reese Harper:
Nothing could be that.

Bob Veres:
There’s better material out there than there was five or seven years ago.

Reese Harper:
But you feel like it’s been a slow leak, that’s a good sign, ’cause a lot of people have no incentive to publish any kind of newsletter publication anymore. And I feel like I’ve found a lot of value in curated, high quality copy, and you’re one of the only people that actually puts thoughtful, very, very thoughtful copy out there in a newsletter format. And I guess, for me, I’ve found that copy takes so much more time, it takes a lot of time. Writing something out is harder than just sitting on and gabbing about it for 30 minutes with no filter and no preparation. Do you feel like you got to the point where publishing a newsletter though is really easy for you, or is it still an effort to kind of write and publish on the written page?

Bob Veres:
Well, what I do is I talk to people and gab with no filter for an hour or so, and then I distill what they’re saying into the importance stuff. So a much more concentrated package of information. In other words, you can get probably more out of what I do. The hour interview might be a page worth of material, and there’s not a lot of chit-chat in there.

Reese Harper:
Just so that people can know that don’t know, we’re gonna go to another topic here, but how can people find your newsletter and what do they pay to subscribe? Where do they go to subscribe and what does it cost them?

Bob Veres:
It’s called Inside Information. It’s bobveres.com, B-O-B-V-E-R-E-S.com, and it costs $349 for the first year, and then all subsequent years, it’s $299.

Reese Harper:
So tell me about when the conference launched and why did you feel the need to push a conference versus just continuing with a newsletter? When did that start?

Bob Veres:
Well, that was our joke, that was 11 years ago. And we sat around and we said, “What the world needs is another financial services conference.”

Bob Veres:
And the world didn’t really respond that first year to the growing need. But there was this underserved niche, it was the people who’d outgrown the traditional conference experience. I remember going to a FPA conference and somebody got up and he was talking about a fairly sophisticated investment topic. And he said, “Now, I wanna make sure everybody understands that when you buy different kinds of asset classes, that’s called diversification. And what that does is it means when some assets go up, other assets might go down and you get a smooth… ” And I’m sitting here thinking, “Why in God’s name?” And so I asked him afterwards and he said, “Well, they told me that the audience, some of those people weren’t up to speed on things like that.” And we don’t want those people in our conference. If we have to explain diversification, you’re in the wrong room.

Reese Harper:
So how did you decide to work in a different… What was the differentiation that you… If you had to just restate it, what’s the traditional conference experience and what were you trying to set out and do that was different?

Bob Veres:
Well, a traditional conference experience, somebody in our audience would walk out of that session and say, “I could have presented that session better than that person did.” And the chances are… And so when they come to our conference, they can’t present that question better than our presenter, they’re gonna learn something.

Reese Harper:
It seems like you’ve been able to maintain a pretty intense passion for this financial literacy and seeing the community of advisors evolve. I get the sense that at this point, this is a legacy that you’re working with, that you just really still enjoy. How did you get into the financial planning industry to begin with? I wanted people to understand that context just a little bit more.

Bob Veres:
Well, there’s a long version of the story, but the short version is, I was hired as editor of Financial Planning Magazine, which was an IAFP publication before the merger with the ICFP, before I had ever balanced my own check book. I had no idea what I was doing, they just needed somebody to improve what was really an awful magazine. And so I got to know this financial planning thing, and this was back in 1982, believe it or not. And in 1982, what a cool concept, financial planning, you could help people navigate the most god-awful complicated investment financial landscape the human mind could possibly create, and you could help people achieve their goals, and this is really great. And then I went to the first IAFP convention, and it was all about sales, and there was an arms race for who could pay the highest commissions.

Reese Harper:
Yeah, exactly.

Bob Veres:
And people were talking about having the one write-offs. And it was this deflating experience, what was the ideal of financial planning and what the actual reality was. And I have consistently championed the idealist view of what financial planning can be for, gosh, close to 40 years now. There was such a disparity between what was real and what was potential. And I saw that gap, and I wanted to close that gap. And even after 40 years, I see that gap having closed tremendously. I would suspect most of the people who are listening to this podcast, are very close to that ideal if they’re not there already.

Reese Harper:
Yeah, most of them are. And the elements, the product itself too, if you’re wanting to sell something, it doesn’t lend itself very well to that. [laughter] All of our ratios are more tied to financial health metrics, not gap analysis. [laughter]

Bob Veres:
____ your presentation in Miami about how the whole profession has changed over the last year, I’m gonna cite elements as an example of the fact that financial planning has been… The calculation has not changed very much since the first spreadsheets. Suddenly, there’s some new thinking going on.

Reese Harper:
I’m gonna ask you, this is a question that I know I could have given you hours of research and time to prepare for, ’cause this is a tough one, but if there’s anyone who spontaneously might have a gut feel about this, I think it would be you, and the audience pays us to be spontaneous and not always have answers pre-packed, ready to go for them. [laughter] This concept of the Monte Carlo Simulation or The Retirement Forecast, or being able to look into the future and predict a happiness number of some kind, where do you think the forecasting, forecasting as the kind of primary user interface that we are gonna interact with a client through a projection, when did you start seeing that? Did you see that back in 1982? Did you see that in the late ’80s? When do you remember first being exposed to this idea of a future forecast of what your life is gonna be like 20, 30 years from now?

Bob Veres:
Well, that started with the spreadsheets. There was actually something called VisiCalc and then there was Lotus 1-2-3. And what you would do is you would take the client’s current assets and you would estimate how much they were gonna contribute every year, and you would put that in a different column, and then you would estimate that the markets were gonna deliver 10.6% a year, which is roughly what they would. And it would be the same return every year, and you would project that out, and that was the projection. And people believed that. And then I’m Lynn Hopewell, one of my great friends early on in the 1990s, introduced Monte Carlo into the profession, and it was a revelation. Oh my God, there’s this sequence of return risk. And this was around the time my other friend, Bill Bengen, started doing the 4% rule and pointing out the 10% is probably not what you can project. And he actually did that because Money Magazine was writing articles saying that you can take 10% out of your portfolio ’cause that’s roughly what markets return every year.

Reese Harper:
Yeah.

Bob Veres:
And what they have historically. So it’s only been in the last, I guess, 10 years that people realized that Monte Carlo is a very inefficient tool for individual circumstances. You may be very flexible with your spending needs, you may have most of your money coming from social security and a pension, or you may have everything coming from the markets. The variability of circumstances is not reflected anywhere in the Monte Carlo analysis, and certainly Monte Carlo doesn’t help you decumulate intelligently.

Reese Harper:
I was working with the XYZ generation, people that were still 10 plus years out for the most part, and maybe 15 years out. And they had a lot of financial questions, but none of them were related to their precise retirement date or, and they were less motivated by that. It’s not that it doesn’t become motivating soon, the closer you get to that point in time, I think the more urgent and acute the need for a precise forecast might be. But a lot of them had Just a lot of present day concerns around immediate activity. I didn’t have a way of pushing back or a way of challenging preferences. If somebody says I wanna do A or B, I don’t always know how to answer that except if my only answer for that is in the context of, well, you’ll have this much less than 20 years from now. I think the question that they’re asking is more related to, is this normal? Or is this okay? How many people do what I’m about to do?

Reese Harper:
And essentially, it got to the point where I felt like all of the questions were almost comparative questions. Have you seen this before? I’m about to buy a second home or I wanna buy a cabin, or I wanna pay off my mortgage, but I don’t know if that’s a good idea. And it’s less in the context of What am I gonna be worth down the road? And more in the context of, is this normal? Do a lot of people do this? Do you think it’s a good idea? And I found myself just being very data poor in that situation, ’cause I only had eight clients or 10 clients or 15 clients. And even if we have 100 clients, it’s like you might only have a few people if you’re not very specialized that have actually shared those concerns. This was a whole host of new questions. I think we have consumers of financial advice and financial planning. Now, that it’s getting a little bit more concrete and a little bit more of a trustworthy industry, more people are starting to consume it, they wanna consume financial planning. What does it look like for a 40-year-old? And we just didn’t have…

Reese Harper:
We didn’t have tools, we didn’t have systems, we didn’t have revenue models that would even allow someone in the past to access advice that early because they just didn’t have the means and the questions they’re asking feel very different to me than what a forecast can do, that’s what we essentially use as our primary interaction with them, but that’s kind of where Elements was born, and I felt like when I first pitched that to you, that’s what I remember you kind of responding back with is like, “Oh, this is an interesting way of… There’s different calculations that we could consider as part of the conversation,” just new calculations that could be considered… I don’t wanna put words in your mouth, but I wanna hear you react.

Bob Veres:
This is a way to measure your advice and the value of your advice in real time, which has never been done before, that’s what I said, and that’s what I said in my article. That’s what Element does.

Reese Harper:
Thanks for… Well Thanks for clarifying that. I think that’s… The inspiration for me really was, as I look at… I was starting to grow the firm. We have a few people that are in the firm with me, and I started wondering, “Do I matter?” I guess I just started thinking about that. “Do I matter as an advisor?” Like what… How do I know if me intervening into this human’s life actually mattered, or did I just skim some off the top and it would have been the same with or without me? [chuckle] And I just didn’t have a way to measure the impact of my intervention. I wanted to know that, “Hey, if I have 10… Look at this client, I have had him for three years. His scores are so much better because of all of these conversations. I wanna believe that the dinners, that the lunches, that the meetings, that the hours on end of blood, sweat and tears actually moved the needle somehow. Did it?” And then that’s where the origin, I think, came from I was like, how would I measure whether I mattered as an advisor? How would I quantify that? Would it show up in investment returns? Would that be the measure of my value, right? No, because I don’t really control any of that. [chuckle] And so that’s where… Anyway, can you riff on that just for a second, because I don’t think my team internally actually connected with that as fast as you did in our first interaction.

Bob Veres:
There are five or six different directions this could go, but let’s start with the fact that you’ve got the value proposition that advisors adopted after they gave up sales, and yet you remember what it was like to give up sales, and you have to think, what’s my value proposition now? The value proposition they adopted was assets under management. Assets under management is fundamentally a transactional arrangement. It is an extension of sales. I sit down in front of you, and every single client I sit down in front of just happens to need me to manage their assets. Otherwise, I don’t get paid. And so the profession is gonna have to evolve to something other than a transactional relationship with their clients. That’s number one. Number two, the investment, management, value-added is going away dramatically. There’s really no value. Anybody can put together a portfolio of ETFs, and with diversification. It’s not a complicated…

Reese Harper:
Yeah, yeah. That value prop is getting awfully sleepy, Bob.

Bob Veres:
So the question becomes, “Alright, what is my value proposition and what is my revenue model for the future?” Your value proposition is not, “I’m gonna make you wealthy when you retire.” Because I don’t have that power and I don’t have that forecasting ability. It is, “I’m going to help you in your day-to-day ability to navigate the financial world in a way that it makes you more efficient, more effective, where you make good decisions for now and for the future.” That’s the value proposition. That’s not an AUM model, and that’s not a projecting out into the future model. That is here and now model. And so a lot of advisors, they sit down in front of a 30-year-old client and they say, “I’m gonna make you wealthy when you retire at age 70.” And that 30-year-old client, their eyes turn to porcelain at that point. “That’s really exciting. Thank you for that. I’m really motivated to do something for me when I’m 70.”

Bob Veres:
I can hardly wait.

Reese Harper:
That’s what I mean. You sit down. They have all these questions. They have all these things and they basically want… They want help with the big picture, with everything. They want financial integration with their life, and what do we give them? We give them like, “Here it is.” [chuckle]

Bob Veres:
So here’s another riff though. And your dentist advisors is another example of another… There are several things that are going on in the future, that are gonna happen in the future. One of them is people are gonna have to specialize in a specialized clientele. It’s not a niche, it’s a specialized clientele, because when they do that, somebody walks in and they know their idioms, they know their jokes, they know the nuances of the financial challenges they face. They know what they’re facing in a deeper level than a generalist ever could, and at that point, that person is delivering more value than anybody ever has in the financial planning profession before. Person A says, you know, “I’m gonna give you a balanced portfolio.” And Person B says, “I’m gonna help you negotiate your career as you leave dental school into an existing practice and what your marketing challenges are gonna be and who you should affiliate with.” And it’s a whole different level of service.

Bob Veres:
And that’s when finally financial planning will achieve its ancient promise. It will help people at a deeper level and people will eagerly pay for that advice. Because it’ll mean millions and millions of dollars and a better life. If I’m right, in the next 10 or 15 years, there’s going to be a small number, maybe a 100, maybe a few more than that, of advisors who are working with very specialized clients who have very specialized challenges that they are the world’s living experts on. They’re very good at financial planning, and they’re also very good applying the general principles of financial planning to very specific needs. And those people are gonna refer to each other. That’s gonna be a really interesting, complicated, multi-faceted referral network where if somebody comes in and they’re a CEO of a start-up, you’ll know exactly who to refer that person to who will give that specialized advice, and when a dentist walks into their office, they’ll know to refer to you.

Reese Harper:
Just being able to experience that as an advisor makes me have so much more hope for our profession. When we see that kind of altruism happening, where you care so deeply for the end client’s welfare and benefit that you’re going to make sure they’re in the right hands. That starts feeling more like the Hippocratic Oath to me. It starts feeling a little bit more like the medical market, and a little less like the life insurance sales market of the 20th century, it feels like we’re headed somewhere more altruistic. I love that, and I think it’s great that you’re able to… You probably saw that before I did, or we wouldn’t be… I just feel like you’re taking the words out of my mouth in a lot of ways.

Bob Veres:
Well, you’re experiencing it, you’re living it. And I’ve talked to people who are in the early stages of living it, you’re probably a more advanced… At a more advanced stage than pretty much anybody I’ve talked to about it. But it’s happening. And then you have the younger advisors who are just coming into the business and they’re trying to figure out what do I do, and you know my advice, and I get these calls periodically, how would you start a business? What would you do? And first thing I say is, join the XY Planning Network. That’s the easy advice. They don’t have to pay me for that, ’cause it’s… That’s perfectly. But I would start an hourly practice, I would start myself off at $300 an hour, I would set a goal of 50% of my time as billable hours, and I would take in younger clients who, like me, haven’t really figured out what they’re gonna be doing yet, but they can really benefit early on from advice, and then eventually you specialize.

Bob Veres:
Who do I really enjoy working with? What kind of people do l enjoy working with? And at that point, you can start to really explore what their challenges are, who they are, what they need, what kind of advice they need, and you sit down and talk to them. That’s the way you find out. It’s not a one-way conversation where you tell them what they should be doing, you sit down and you find out as much as you can about them as well, and then talk to other people who are their friends and neighbors and find out what they are, and we could call that prospecting, but I’d call that an exploration.

Abby Morton:
Something I often struggle with as an advisor is knowing if I’m doing enough. I tend to wonder, “Do my clients think I’m worth what they are paying me? Or am I delivering enough value?” Having used the Elements financial planning system for over two years now, this system provides me with the peace of mind we all need as advisors. Your clients can receive professional easy to comprehend score cards focused on key indicators of their financial health. They can actually see how your advice is improving their life. With an occasional update from you, they’ll know you’re right there with them watching their progress, so come check out Elements at getelements.com/meet.

Reese Harper:
This is another dimension that I think you probably saw that we were trying to do, but the technology that we have to work with… I like the idea of sharing more information among these professionals. Meaning, I don’t think there’s a lot of standards of care right now that we can adopt as best practices as an industry, for example, if someone’s earning $200,000 a year, do we have a centralized or even heuristic set of data that says what the average median savings rate is across 200 samples. If someone says, “How much should I save?” Are we gonna let the Monte Carlo Simulation dictate the need for retirement success, or is it more appropriate to say, “Look, austerity feels like a 31% automated withdrawal rate on savings, if you have two kids and you’re married living in California but relaxed feels like 7 to 9%. The median is 14.2.” There’s real consequences here for establishing savings rates for people.

Reese Harper:
 There’s consequences on how they feel, like whether life’s enjoyable, like if they’re living in the present moment, really able to enjoy it, and there’s consequences on the back side of under accumulation and kind of regretting the time value of money that you’ve passed up on. But I feel like whether it’s savings rates, whether it’s spending patterns, whether it’s liquidity, amounts of liquidity that we should have before we start putting a down payment on a home or buying a second home. We don’t really have a lot of good heuristics or debt to income ratios. I feel like we could do a lot better at establishing some financial health heuristics that help us as a community start to advance the profession a little further than just like, “Hey, we can all tweak our inflation assumptions and investment returns and maybe our Monte Carlo simulations are all showing 100% complete now.” I’m like, “That doesn’t feel like we’re attacking the root, the today, the behavioral side.” Maybe that behavior might be a strong word, but just the present-day cash flow and balance sheet, heuristics are… We don’t have a vernacular around that, so your thoughts on that topic. I know it’s a little bit different than what we were talking about.

Bob Veres:
… little overly leveraged is to hurry up and inherit something.

Reese Harper:
Find a friend.

Bob Veres:
Yeah, that’s right, but…

Reese Harper:
No one wants to say, you gotta move. No one wants to say that, and I don’t wanna say that’s the first place to start, but that needs to be at least apparent to the client that you’re at risk at this level, that’s a high DTI…

Bob Veres:
This is gamification. I touched on this earlier.

Reese Harper:
Alright, I wouldn’t have thought of it this way, so go ahead, I wanna hear that.

Bob Veres:
We have a lot of data on what people have saved at different… The government collect statistics… There are several. University of Michigan collect statistics. There’s a lot of statistics out there about what people have saved at certain times in their lives, what people… Different financial ratios that could be calculated based on those statistics. The problem is that nobody has ever rolled up their sleeves and figured out how to apply that to, somebody living in New York City would have different ratio than somebody living in Manhattan, Kansas.

Bob Veres:
There are… And somebody in their 20s should have different ratios, and somebody in their 30s and 40s and 50s. And there are… Am I ahead? , Am I behind? Where am I? Well, what we need is a good apples to apples data set that really I think could exist if somebody were to go into a lot of those… And the alternative is if 90% of the human population were to use Elements you’d have that data right there in your database.

Reese Harper:
It’s hard to get that, right?

Bob Veres:
I would use the numbers you have in elements that you’re collecting, and I hope you’re doing some analysis on that. What is the typical ratio for data equity or whatever you wanna…

Reese Harper:
Yeah, that’s the goal of the system right now, it’s just creating a compliant and privacy-protected way for consumers to say, “I wanna empower my advisor with my anonymized data so that he can understand or she can understand better how to advise me given my situation.” I think that’s the future of better advice. Imagine a CRM where the client populates their own data and immediately you’re presented with some really important heuristics that identify structural balance sheet problems or structural cash flow problems that the system is able to identify just because there’s so much data in the system that we’re able to notice when someone’s on the tangential bell curve of a particular heuristic.

Reese Harper:
If someone’s savings rate on $100,000 of income is different than $200,000 of income is different than 300 and debt to income ratio is different at 50,000, than 150. I think in order to get down market and add value to really help people have healthier finances, you’ve got to get technology to be able to do some of that heavy lifting. So that, like you said, someone could just start a firm and say, “I’m $200 an hour. I’m $300 an hour. I’m a fixed rate for this type of service model. I’m a specialist, so I might be… ” like Denis’ advisor is probably more like $800 an hour. The more you specialize, the more you can actually demand a higher fee. But man, there’s big… Look at the law firms, look at the law industry, the legal industry is ginormous, and there’s a lot of specialization in there at very high rates.

Bob Veres:
If we look at every other profession, we can see our future. I did a debate, Mark Early, years ago when he was saying that there were only gonna be like 10 or 12 Mega financial planning firms and everybody else was gonna be screening around in the bushes.

Reese Harper:
How long ago was this?

Bob Veres:
Oh, gosh, around 2000, 2003 or so.

Reese Harper:
Was the state of the industry at that time more diverse or less diverse than it is today?

Bob Veres:
About the same. There’s more consolidation, there are more bigger firms now, but there are also more smaller firms. But what I did, I did a very simple thing, I went and looked at what the legal profession and accounting profession spectrum of firms was. And both of them have some national firms, Kirkland & Ellis or any of the big four accounting firms. And then there are regional firms, large regional firms. And then there are firms that kind of dominate a city, if you will. And then most… The bulk in both cases, more than 70% of all lawyers and accountants are with much smaller firms. And you know why? Because you join a law firm as an associate, you don’t make partner and you go off and you start your own firm, and maybe that becomes a giant firm. And then there’s another big city or a giant firm, or maybe it just stays as a small firm and you hire lawyers who have washed out of that. And the financial planning profession is going to become that as well. At the same time, every other profession has gravitated towards fee-for-service hourly.

Bob Veres:
And that suggests to me that the future of the planning profession… You can buy packages of hourly by doing a retainer basis or something, but it’s all fundamentally hourly. And I’m recommending that most advisory firms track their time because number one, they need to know which clients are profitable and which ones are not, and that’s the quickest way to find out. Number two, they need to know what their advisors are doing in their non-billable hours. Are they doing something that we can be outsourcing? It’s a really good managerial tool for people. And every other profession tracks hours, we don’t.

Reese Harper:
As hourly and as fixed rates and a retainer based and subscription models, as they continue to become a preferred method, ’cause JD Power’s research, Accenture’s research showing that everyone under the age of 45 is preferring that type of fee structure, that’s like 70% of people preferring…

Bob Veres:
That’s everybody I talk to. Every younger person I talk to. That’s right.

Reese Harper:
So they want that kind of fee structure. As that fee structure becomes the predominant preference, then AUM’s gonna be under a spotlight in a way that it hasn’t been before, and it’s not gonna go away, it’ll just be more transparent. And it’ll be like, Okay, if you’re paying 40,000, if you’re paying 30,000, if you’re paying 10,000, what are you delivering for that? And how does that break down in a rough hourly heuristic? Eventually it’s gonna get there. It’s like, “Wow I’m paying 2000 an hour.” That’s how people are gonna think about it. I’m paying 3000 an hour I’m paying 1500 an hour. Now, good news is folks, there are lots of $1000 an hour professionals out there, okay, there’s a lot of that… Cooley Law Firm is probably north of 2000 an hour for certain types of transactions that…

Bob Veres:
Yeah but if I’m gonna pay that, you better get me out of prison.

Reese Harper:
Yeah exactly, you better get me out of prison. Now, you know, 500 an hour’s not a bad place to be, 200 an hour is a great living too. I just think that eventually it kinda gets down to that, and you kinda say, “What are our costs?” And until you get there, you don’t even really know what your costs are, and right now, because the industry, I would say, still is 80-plus percent predominantly not, transparent and not that customers don’t know what they’re paying, ’cause a lot of them have invoices, but the firms themselves don’t know how to translate their revenue into their expenses and really understand their economics. We have some of the most incapable internal controls in our industry, our advisors do not know the economics of their firms.

Bob Veres:
So look at what that means for the future. It means that a lot of people who were founders of firms who grew up in a transactional environment and went to a quasi-transactional AUM environment, are gonna have to make major, major, major changes in their revenue model, which requires a whole new way of thinking. And what I’m saying is the best thing they can do is retire and let their… Or not retire necessarily, but maintain client relationships and let their G2 just create a new firm.

Reese Harper:
Yeah, that’s how I feel.

Bob Veres:
Create the firm that they want to inherit. Create the firm that you want 10 years from now.

Reese Harper:
I agree. Yeah, that’s the best plan. ‘Cause that’s the one’s gonna be around, and then they can just continue to enjoy the legacy book that they have, right? That legacy book’s not gonna go anywhere, ’cause these clients, they’re used to a certain fee structure, they’re used to a certain service model…

Bob Veres:
So you’re looking at me right now and you’re noticing that that part of me is fossilized, I’ve gone to a certain age where… And the people I grew up with were the innovators, they were the people that created this revolution against the warehouses and created financial planning. People my age, the people I grew up with are now the obstacle. They’re the people who are saying, “Do I really want to change?” “Thank you for bringing this radical change idea to me, but I don’t think I wanna change until after I retire, 25 years from now.”

Reese Harper:
I’m getting it every day, man, my sales calls are like beating a dead horse right now. I’m doing five, six of these a day, and one out of the five is like, “Alright, it’s the future, I’m in.” Four out of the five, or like, “I know this is the future, but like meh, I don’t wanna change.”

Bob Veres:
“It’ll be too much for me to change and that’s all that matters.”

Reese Harper:
Yeah, yeah, and I’m like, “Man, seriously?”

Bob Veres:
Now, this is your moment to feel sympathy for me, because the people I grew up with, I was thinking, “Well, we’re gonna change the world.” And now, “We’re gonna stop the world from changing.” That’s not exactly the legacy that I want my cohorts to take with them.

Reese Harper:
What are you telling them?

Bob Veres:
I’m telling them every day, this is one of my consistent messages.

Reese Harper:
And you’re just saying, “Look, build your G2, you don’t have to change, you don’t have to kill your income by going back to your current customers and changing their price structure, but don’t keep perpetuating the problem, and start a G2 different view.” That’s what you’re saying?

Bob Veres:
I think you heard a lot of that at our conference.

Reese Harper:
Yeah.

Bob Veres:
There was a lot of, the operations people need to be promoted to managerial roles and the G2 need to be promoted to decision roles, and that combination needs to take the firm, in most cases, in a different direction. But take a look at something else, you’ve got these mega firms now, you’ve got these firms that are acquiring other firms, and that’s a great thing because there are a lot of people that wanna sell their firm and who are they gonna sell to? There gonna sell to these roll-ups or these acquirers or these people who wanna have 15 or 20 billion under management, and that’s their goal, and that’s the problem. They are building something very similar to the warehouses.

Bob Veres:
“You’re an advisor with us, you have to give advice the way we give advice, you’re there to gather assets because that’s how we make money.” What we’re creating is a whole another category of dinosaurs that I don’t think is gonna last too deeply into the future. And I wonder how the profession is gonna deal with that when someone says, “I’m paying an AU… I’ve got $2 million, I’m paying an AUM fee, and I’m working with somebody who has been told this is how you work with somebody and don’t over-serve us clients because we need to make money as a firm.” That’s exactly what the warehouses do. That’s not the future. We did a survey and we wrote a whitepaper on the financial advisory firm in the future, and what all the consultants told us was these big mega-firms are not going to be the leaders into the future. At best, they might have to cannibalize almost everything they build and start over.

Reese Harper:
I think the industry has been kind of lulled to sleep, feeling like, “I got great retention, no one ever leaves me, I got high client satisfaction scores and no one walks away.” The industry has a great retention model in general. But we’ve never been at this place in the past where the techs been as good, the pricing been as good, the value proposition is good, investment value prop is going down, planning value proposition going up. I feel like we could wake up in five years and these massive roll-ups could just have been like, most of their share could just have been eaten up by a more efficient world. But I don’t know, maybe I’m being a little optimistic because I feel like that’s what I wanna see happen is people delivering more value to the customer. I don’t want to see them just like sitting around waiting, you know?

Bob Veres:
Well, my guiding star, if I’m trying to predict the future… A lot of times when I’m giving a presentation, I’ll have people raise their hand, I’ll say, “How many people think that it’s possible to predict the future?” [laughter] And this is gonna stun you, but not very many hands go up when I say that. And I said, “I just wanna tell you what my process is for predicting the future. The future lies in the people who are delivering the most value in the most transparent and customer service-oriented way. That’s the future.” And I said, you know, “I always look for the crazies.” The crazies are the people who, you know, you ask them, “Well, what’s your revenue model?” And they say, “I don’t know, this is what our customers want so we’re doing it. We’ll figure it out.” You know? And those crazies inevitably end up revolutionizing everything, they inevitably end up being the ones who make things happen. The future is in the people who figure out a better way to serve the customer and then figure out how to make money doing it.

Reese Harper:
Well, you’re great. You’ve got a ton of wisdom for the industry, Bob. I love chatting with you. I am excited to watch what you do over the next 20 years, and hopefully we can keep hearing your stories and getting your insights.

Bob Veres:
The last word is that financial planning is one of the coolest things that’s ever been invented, and if you live up to its promise, then you’re doing something tremendously valuable for the population at large, and if you’re doing that, I’m here to support you and help you because I’m a fan.

Reese Harper:
Thanks, Bob. I look forward to connecting again. You have a good one.

Bob Veres:
Alright, take care, thanks.

Abby Morton:
Next time on Elementality…

Reese Harper:
They don’t know how to assess the difference between active management and passive, that’s too deep and that’s too analytical. But you can explain that to them and they’ll get it, but they’re not looking for that. What they’re sniffing for is, how do you talk? How do you write? What familiarity do you have with my situation? And they’re getting a gut check and a gut feel, and they’re looking at your emails, the way you correspondence looks, the way your visual communication is displayed on your documents and stuff, and they’re making the decision based on that.

Abby Morton:
You can learn more about the Elements financial planning system at getelements.com/meet and schedule a time to speak with one of our friendly financial planning experts. Elementality’s executive creators are Reese Harper and Chad Jardine. Elementality is produced by Abby Morton and directed by Jordan Haines. Have a good one.

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