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Why Can’t Advisors Help More People?

Why does the financial services industry, with its established business model, processes, and tools seem to only serve the top 1% of Americans effectively? If the industry was built for only the wealthiest, is it even possible to expand our influence?

On this episode of Elementality, Reese and Carl explain why more innovation is needed to reach a wider audience of people who want and need financial help. With our current model, when trying to solve even simple problems, the tools we use actually end up introducing greater complexity and are too time-intensive and costly. After all, the system was built for complex financial problems. Find out what needs to be done to better serve people who are only looking for answers to specific financial issues.

 


Podcast Transcript

Reese Harper:
Think about all the businesses you know, think about every business out there, think about… Or think about every industry if that’s helpful, think about hotels, how many different flavors of service are available for you to get a room, right? How many car wash options are there, how many restaurant levels of service are there? Right now, we just… In our industry, we haven’t innovated around what an amazing service level might be for someone who doesn’t need as much time or as much…

Carl Richards:
And not just service, but tools and business model.

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. We pulled Carl out of the mountains, he hiked down after a 42-mile barefoot run.

Carl Richards:
Stop building up expectations.

Reese Harper:
No? That didn’t happen?

Carl Richards:
Yeah. [chuckle]

Reese Harper:
Well, lately Carl has been up atop of the mountains, I’ve been really admiring his running and trying to get myself motivated to do the same thing in my OluKai sandals. [laughter] But you’re killing it, bro. I’m really proud of you.

Carl Richards:
I’m enjoying it. It’s been great.

Reese Harper:
Yeah, it’s been fun.

Carl Richards:
Yeah.

Reese Harper:
Check him out on Twitter if you don’t see him, @BehaviorGab.

Carl Richards:
There you go.

Reese Harper:
He always is motivating to me.

Carl Richards:
Yeah. Thank you.

Reese Harper:
Anyway, we brought Carl down out of the mountains to get him in studio here. If you want to see him in the flesh, you can check out the YouTube channel. We’ve got two followers on there right now, we’re trying… Our goal at the end of this episode, to get up to five, so go to the Elements YouTube channel, check it out.

Carl Richards:
I’ll call my mom.

Reese Harper:
Yeah. [laughter] Mom, dad, we’re here looking for a follower, hit that little bell, it’s like a golden bell and subscribe and then you can get all of our updates and check out our wardrobe. I am in sweats, so you’re gonna be seeing those. Excited for today’s episode. Carl and I kind of… I think it’s probably, I don’t know, a couple of months ago, when me and you talked about this concept for the first time and you said kind of a light bulb went off and that light bulb moment was, “Oh my gosh, maybe everything we’re doing as an industry was revolving around the top 1% of people,” to throw a familiar kind of metaphor out there. Did we really build this whole industry just around the wealthiest people and what kind of introspection does that create for us?

Carl Richards:
Totally.

Reese Harper:
The problem that we kind of talked about was just this 1% versus the 99%. Like, wow, we have 300… We’ve got 120 plus million households in the country, how many of them are we even touching? How would you describe that light bulb moment for you? It’s not like you didn’t know that but I don’t know.

Carl Richards:
No, it’s just interesting to me what was important to me to understand was that it wasn’t because… We’ve been talking about this for decades, how do we serve more people? And it wasn’t a lack of desire.

Reese Harper:
Yeah. This super altruistic industry.

Carl Richards:
Yeah, for sure. You get into this, you’ve got the service mentality, I really wanna help people and I’ve been… It’s just been a challenge to figure out, “Oh, well, then why aren’t we?” And obviously, we all have this whole profitability revenue discussion around that, what’s the right way to charge and all that but what was interesting to me was to understand that the tools that we use, this broad base of… The tools, all the way from the business model, the pricing and the actual tools we use aren’t broken. They’re doing exactly what they were designed for. They were specifically designed to serve. And I wanna be clear, it’s really a challenge any time you use a number. So, this 1%, 99%, please, we don’t need to debate the number, this is just to get us in the right… It’s certainly in the ballpark, that’s all that really matters here. And it’s become so familiar that it’s easy to use. So the tools, the business model, the way we charge, everything was designed around serving 1% of the population. And then we’ve made this effort to try to make other people fit into it. And to me, that was the interesting… The thing to understand, is those tools were specifically not designed to serve that group.

Reese Harper:
Yeah and what’s interesting is, the word serve is, I think, worth highlighting here, because there is a customer type that is buying a service and there’s a customer type that is not really in a financial position to buy a service. I think that’s been one of the big aha moments for me, is watching the financial services industry [chuckle] sort of exist because at some point there’s someone with enough wealth, enough liquidity, a high enough income where they’re like, “I don’t really want to use any of my mental bandwidth to think about this stuff. Anything money, you just deal with it.” And that’s why you see these family offices evolving really rapidly and like, taxes, I don’t wanna think about it and estate planning and I want all…

Carl Richards:
Well, let’s just… Real quickly, I wanna just pick up on something in that term, ’cause we’ve all modeled… We hear mini family office, like a small family office.

Reese Harper:
Yeah, I’m like a small family office.

Carl Richards:
Yeah, we’ve all modeled that service and some version of that service, of a wealth manager.

Reese Harper:
Yes.

Carl Richards:
It all points to this idea that once you get to the spot where, “Argh, it’s so complex, I need somebody to take it over.” Right?

Reese Harper:
But dude, that is… That spot, I mean, if I’m honest about it, I’m not even at that spot and I’m a really…

Carl Richards:
Look, this is the real secret, little truth, is like most people don’t need it.

Reese Harper:
It’s like I’ve got a high net worth, I’ve got… If you looked at my finances, you’d be like, “Okay, this person is quite complex relative to the average person.” But I’m still at a space where… And many of my customers, we’re talking people with almost, I would say… Once people have hundreds of millions of dollars of net worth, I think they start really understanding, “I’m in a different place,” but people with tens of millions of dollars that I’ve interacted with regularly, they think they are like the average Joe. They’re still not at a place where they’re thinking, “I need to buy a service, truly be served. I don’t wanna touch anything.” That’s a very interesting kind of place to explore as an industry, is like we really did start in this place where someone wanted a service to purchase, which relieved them of any involvement, any management, any stress, any pain around this management of their money and then we just said… I mean, we didn’t say. We didn’t consciously say, let’s bring this down market. I just think we don’t know what else to do. We don’t have anything else to do, so we keep trying to say, how can the same things that I’ve been doing for this wealthier person just work for all the other people?

Carl Richards:
Well, everything’s oriented around not just the tools, but your mindset is oriented around you getting there as fast as you can, like how soon… How can I increase my minimum? How can I raise my… I wanna deal with increasing the complex… Like we’ve become seekers of complexity and we wanna be… And I remember this feeling very specifically, I remember thinking, I’ve gotta move… In fact, I remember having a conversation with a friend of mine who’d just sold his business for a crazy… Definitely airplane money, amount of money, right? And I told him, “I’d like to serve more families just like you.” And he’s like, “Are you sure?” This is back during the Blackberry days. He’s like, “I’ve got eight people volunteering to sleep with their Blackberry so I can call them any time of the night. Are you sure you wanna serve… ” I was like, “No… ” He said, “Why do you think that?” And I said, “Well, ’cause everybody in the industry tells me, I wanna serve more families just like you.” So we’re all oriented towards the spot and it also turns out that we’re trying to convince people that don’t have a lot of complexity in their lives, we’re trying to introduce complexity.

Reese Harper:
Like, you need this, like estate planning for… It sounds…

Carl Richards:
So we can solve… Yeah, it’s like…

Reese Harper:
When you say estate planning, it’s like, well, I guess I need it.

Carl Richards:
Yes. It’s very… It’s like we’ve dug a hole called mini family office and I could use wealth management, private client services, we dug a hole called that, we’re throwing normal people in it and we’re looking down and saying, “Sorry, I’m the only one with a rope, this is the only rope out.” And it’s the only rope we have.

Reese Harper:
Let’s talk about why that happens. Look at… Especially for new advisors, the failure rate in the industry is super high and one of the reasons it’s super high is because it’s very expensive to acquire a customer that is this complex…

Carl Richards:
I guess we’re gonna get into a bunch, right? Yeah.

Reese Harper:
We can touch that. But it’s very expensive to acquire a customer and it’s very expensive to serve a customer and what that means is that you don’t have a lot of that [0:09:36.7] ____ during a calendar year to meet these people. Or you have to spend a lot of money to get these people and they’re not in your network of family and friends. Your hundred closest people to you, there’s like five of them that might be this person. But the bulk of the 95 people, they all wake up with financial pain in the morning, but we don’t have anything for them and so we end up fighting for years, like five years is the break-even point? Look at any other profession, you’re not breaking even at year five, you’re breaking even right out of the gate, because there’s a salary waiting for you when you get out of law school, or a salary waiting for you when you get out of CPA school.

Carl Richards:
Yeah, the whole thing.

Reese Harper:
So why is there a problem in the industry? Because we literally don’t have a service for 100 million people, 100 million households, we don’t have anything for them. So all these new advisors are fighting, waiting, waiting, just waiting for this one shot in the dark to get that one client that finally helps them break even and they just fail in droves. In the meantime, there’s all this blue ocean of people that have financial pain everyday when they wake up, but we just don’t have a way…

Carl Richards:
We have not had…

Reese Harper:
To help, we haven’t figured out a way until…

Carl Richards:
Not had a way to know how to do that. That’s so…

Reese Harper:
Until someone like Carl came around and he’s like, “I’m gonna create that.”

Carl Richards:
Not me but…

Reese Harper:
We’re close.

Carl Richards:
I think what’s fun is that we can break… So this really serves as an introduction to an outline of this overall sense of this problem for the next couple of episodes, we’re not exactly sure how many. We’re gonna break down… This word we’re using, problem, by the way, I think we should real quickly just make this clear, I mean that in the textbook sense, like a math problem. Puzzle would be a good word too, just something to be solved. It’s not negative, it’s not bad, there’s no shame around it, it’s just like, “Look, we gotta solve this problem.” So we’re gonna take the next couple of episodes to break down some of the problems really specifically and then talk about potential solutions for those problems. And one of the reasons you just touched on that, this is so important to me, is I literally last week had a conversation with an advisor on… That I have met, we’ve become friends on Twitter and he was talking about how… He asked a question like, “Hey, at what point do you call it quits?”

Reese Harper:
Exactly. I hate that question. It hurts…

Carl Richards:
And I was so… I know. It was painful, ’cause I was actually surprised because I know this person’s work and I’ve been following them on Twitter and I’ve been impressed, like, wow.

Reese Harper:
Probably an amazing person.

Carl Richards:
I was like, “This person must be doing really well.” And then to hear like, “Hey, at what point do you have a responsibility to your family that this isn’t gonna work?” And it reminded me of conversations I had with people trying to make the PGA Tour. You know what I mean? Like, “Hey, at what point do I call it quits?” And I was like, “Oh, we can’t lose a person like… ” And I’ll not mention his name here, but “We can’t lose a person like… ” I’m gonna just call him Jim, “We can’t lose Jim.” And so I got on the phone with Jim, I just sent a tweet saying, “Hey, call me, my number’s in your DM,” and he called and we talked for a little bit and it’s such an interesting dilemma. Here you’ve got salt of the earth, amazing, honest person who is a technical rockstar, knows how to do the planning piece and is really struggling, ’cause doesn’t have the business model, the tools, the mindset, has always been about this thing and he can’t get to this thing that we’ve all held out there as the ideal and then you’ve got other people in the industry that have wait lists because they’ve been around so long. And so we’ve really done a disservice in terms of trying to figure out that model. And I love… We know that there are people out there thinking hard about this stuff.

Reese Harper:
Let’s just make it crystal clear what we’re trying to do at Elements, we know that there hasn’t been a way to get advisors to succeed fast. We know there hasn’t been a way to serve the 99, we know there hasn’t been a way to really crack the code of, why does our industry have such a long break even period for all of these professionals and all of these other industries seem to be getting off the ground faster? And the truth is, we just haven’t had the right service for the majority of the population and we’ve had the right service for a small segment of the population. And I would say that that has been working really well for a long time, we got great tools for that market and it’s like…

Carl Richards:
One important thing here is we’re not saying that’s gonna end.

Reese Harper:
No.

Carl Richards:
Right? Like there’s no big, like, “Oh no, you need to change if you’re serving that end of the market,” which is what most… That was a lightbulb to me, was like, “Look, there’s nothing broken about that model, except trying to make it fit this huge population of people that we’re not currently serving.”

Reese Harper:
Yeah. And it’s… I just think of all of… Think about all the businesses you know, think about every business out there, or think about every industry, if that’s helpful. Think about hotels. How many different flavors of service are available for you to get a room, right? How many car wash options are there? How many restaurant levels of service are there? Right now, we just… In our industry, we haven’t innovated around what an amazing service level might be for someone who doesn’t need as much time or as much…

Carl Richards:
And not just service, but tools and business model.

Reese Harper:
Yeah.

Carl Richards:
Service, tools and business model.

Reese Harper:
What would that support look like? What would that resourcing look like? I don’t know what to call it ’cause it may not be a service. We may call it something different, right? It might be a disservice to call it a service because it implies something that we’re not actually able to do. We can’t commit to serving someone if…

Carl Richards:

And that the people… It implies something that the people that we’re trying to serve don’t even need. Right? That’s the other piece that’s really important.

Reese Harper:
And we need to be actually honest about that. Like are we cramming down a cost burden onto…

Carl Richards:
Yeah.

Reese Harper:
I mean, how many clients do you currently have in a model where you’re like, “Kind of, this probably is a little bit overly complex, but they were dying to get access to me.” They were dying to get access to me, so they signed up.

Carl Richards:
That was my favorite group of clients, that were just like, “Well, why don’t we just build a simple business model, with simple tools,” that serve them better than anywhere else they would get? Kinda like the tax things always… Like, does somebody need tax planning when they’re just gonna take the standard deduction? You’re like, how… I mean, I don’t wanna over-simplify, please don’t send me any emails, but I’m just… I’m simply saying, when we start thinking about how we’ve taken the model, the tool, the business model, the service model and the tools built for this and try to jam it down here. And I think it’s gonna be fun to explore that in the next couple episodes.

Reese Harper:
Yeah and please bear with us as we are figuring this out real-time. Carl and I decided to bring you all into this journey, live.

Carl Richards:
Little messy.

Reese Harper:
And it’s a little messy. We’re figuring out our words, we’re trying to figure out what we call things. We don’t know if it’s the 1% versus the 99 or if it’s mass affluent versus ultra high net worth, versus high net worth. We’re figuring this out and trying to figure out that with you and we hope you’ll participate with us in the journey.

Carl Richards:
Yeah. Cheers.

Reese Harper:
Cheers. Carry on.

Jordan Haines:
Next time, on Elementality.

Reese Harper:
Their ability to pay for me, right? Through either AUM fees or planning fees was very much… It was very different than some of my high-end clients. And I didn’t have the heart to say no. And I was just like, “Okay, what do we have to do to re-engineer?” Instead of just being like, “Sorry, come back when you have more AUM,” or “Come back to me in 10 years when you got some money,” ’cause I had…

Carl Richards:
You know, I can’t serve you, but I know somebody…

Reese Harper:
I had seen all… I was meeting with these people that were late stage in their careers and they had made so many mistakes. And I was heartbroken.

Carl Richards:
I wish I had known you. Where were you 10 years ago?

Reese Harper:
Yeah and I was like, “Oh my gosh, so I’m gonna turn away these people so that they can go get broken and then I’ll fix them at 50 [chuckle] when they have resources?” So, that’s where Elements was born, from that problem.

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 Mortin and directed by Jordan Haines. Have a good one.

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