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Why Tech Is Key to Firm Owner Success with Tim Welsh

In the past 20 years, digital innovations have transformed the financial planning industry. Unfortunately, RIAs have failed to keep up with those changes and fallen behind. Too many advisors are comfortable with older systems and firm owners have not adapted to solutions that would make them more efficient and able to scale their businesses faster.

On this episode of the Elementality podcast, Reese Harper interviews Tim Welsh of Nexus Strategy who explains why staying up-to-date with technology is so critical. While the digital transformation has been the biggest change in the RIA business, it has also created a huge challenge since understanding the latest innovations is a key to being an effective advisor and owner.

 


Podcast Transcript

Tim Welsh:
You know, we went from DOS to Windows, to the cloud. Now it’s cloud native. And I’m sure there’ll be another iteration. We’ve been chasing this technology evolution of the operating systems, the whole time. And I think, what’s always top of mind, for advisors is, “How do I take advantage of this?” I know I’m still in a regulated business, I know I still have documents and I have to get signature sometimes, but there’s so much more, that’s happening and available. So, I think our other job here is to try to help transform the industry and move them forward… Technology forward. So, digital transformation is everything right now. Everyone’s trying to play in this game, the custodians, the asset managers, the advisors themselves, they want to have better experience, they wanna offer your client.

Abby Morton:
Welcome to Elementality, I’m 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 Elementality everybody, I’m your host, Reese Harper, here for an exciting episode with someone I met, over the last few months, who has actually been in the dog fight with financial advisors, building technology and software companies and startups, for quite a while. Welcome to this show, a friend, Tim Welsh. Tim, how are you doing man?

Tim Welsh:
Doing great, Reese and I love your analogy there, of the dog fight, ’cause that’s, pretty much, what it is, yeah…

Reese Harper:
Yeah man! Well, tell me why that felt apropos for… To call it that, I guess. What have you seen about, how people are trying to differentiate in this world?

Tim Welsh:
Well, it’s a classic conundrum because you know, advisors do such a great job, with their clients and a great job with, you know, helping them meet their goals and so forth. But then at the same time, they have to manage a business and that’s not always top of mind and fun and kind gets in the way of what they really wanna do. So, the lack of focus, on either, one or the other, kind of, creates opportunities for them to you know figure out what they wanna do. And often times, we get in these conversations of what’s important and how that works. So, it’s always… It’s a trade-offs, in life and everything. So, I think that was a good analogy and we’re all in it together, so I definitely thought that resonated pretty well.

Reese Harper:
Well, tell me, let’s go back to your background, kind of, giving the audience just, a couple of minutes of how you got to where you’re at today and kind of, some of the experiences that you’ve had, along the way.

Tim Welsh:
Yeah, it’s a great story and I love sharing it. Like, everyone else, I started my career at Merrill Lynch in the 90s. [chuckle] And I was fortunate enough to come out of grad school and land in the MBA program at Maryland. And, they gave us two tracks, one was institutional, corporate investment banking and trading, which I really wanted to do. And then, there was this other one called retail. And, of the 120 analysts, only nine of us went into retail, which I think, it was like, “Hey, I wanted to do that.” But actually I feel very fortunate that I was able to go into the private client side. And I… My first gig was financial planning. So, we’re trying to tackle, how to evangelize financial planning across the 17,000 financial advisor force? So, I’ve always worked advisors directly, my entire career. And what did we know about planning? Not much. So, we went and looked at the independent space and we saw that, these RAAs are really you know, creating relationships, doing fee based management, building a financial plan… We said, “Aha, that’s it.” And so, my goal then was to really evangelize the financial planning process as pioneered by the RAA. So, it’s my fault people, I’m sorry.

Tim Welsh:
We stole your receipts and documents, we copied it and we gave it to the evil empire of Merrill Lynch and… By the time, I left in ’99, we had about 3,000 CFPs on the roster, which was fantastic. So, we know it definitely worked and they did believe in it. But along the way, I kind of said, The puck was moving somewhere else. We kept hearing about this company called, Schwab, “What the hell are they doing?” And how they were being custodians for RAAs. And so, when they came calling in the ’99, I said, “This is great, I’ve been looking for this opportunity. I know I don’t wanna leave the Wall Street ivory towers, but… ” Schwab really had the great foresight to create this custody business and work with these independent advisors. And so, my job there was really to build a platform and market it and roll out products and services to the RAA community. And it was great, because we had their phone numbers, their names, we knew what their accounts were, we had all the data, but structurally, Schwab was not a sales-driven organization, so they struggled mightily. And I think they still do today. I basically built, the consulting business within Schwab which help companies and products within that platform, roll out to advisors.

Tim Welsh:
So, in 2006, the light bulb went on, we said, “Aha! You know what? The happiest people I know, are advisors because they own their own business, so maybe I should try that.” And so I left Schwab in ’06 and created Nexus strategies, which is a consulting firm I still manage today. And our focus is solely on helping platform services, technology companies, wealth management platforms, anything to do with the investment advisor community, the RAA’s ecosystem, we support them in their process. Along the way, we also worked with a few advisors ourselves on some of their strategies, but it’s been mostly a B2B focus and that’s consulting background and it’s great to navigate all that landscape because you kind of boil up a lot of the trends in what you see. And I also write a couple of columns, you might have seen the byline out there and quoted a few times in the press. So, it’s been a great journey and I wouldn’t change, a minute of any of it so…

Reese Harper:
Tell me a little bit, Tim, since most of our audience is mid-sized RIAs to small RIAs, you know… I know that… The reason I had you on, is because, as someone who’s kind of, in the B2B wealth management arena, your customers are people that are selling to advisors typically, or they’re interacting with advisors, what trends have you seen change or evolve, over the last few years that you kind of, feel like are top of mind for you, right now?

Tim Welsh:
Well, I know it’s kind of an overused term, but just the digital transformation of this business… When I got to Swab, we were trying to get everybody off their modems, and dialing in the internet. So we’ve been helping advisors as well along this way to their businesses and understanding how they operate and what are the best practices, and trying to roll out the latest and greatest software tools and approaches and business management techniques to help them do well. And I think all along the way, since the very first advanced software license was sold to somebody with a PC and they could then finally break away and start their own IT firm, technology has been the number one contributor to the success of the industry. So I think that evolution, we went from DOS to Windows to the cloud, now it’s cloud native, and I’m sure there’ll be another iteration. We’ve been chasing this technology, evolution of the operating systems the whole time, and I think what’s always top of mind for advisors is that, How do I take advantage of this…

Tim Welsh:
I know I’m still in a regulated business, I know I still have documents and have to get signatures sometimes, but there’s so much more that’s happening and available. So I think our other job here is to try to help transform the industry and move them forward… Technology forward. So digital transformation is everything right now. Everyone’s trying to play in this game, the custodians, the asset managers, the advisors themselves. They want have a better experience they wanna offer your client. What you’re doing at elements it’s a key component of trying to digitize this stuff that used to be paper-based and manual. I mentioned back in the day… It took us six weeks to do a financial plan. Hell, I’m pretty sure you could do one in six minutes on elements because that’s how powerful the data has been in a digital format to be able to do that. So to me the digital transformation industry is still going, we’re in the early innings, and there’s so much opportunity there.

Reese Harper:
That seems like a pretty big highlight. Who do you think… You have customers that are large institutions and you have customers that are selling into these, we’ll call it wirehouse models, you’ve got the broker-dealer space, then you have the independent RIAs, how do you see the… When I look at the data, I see RIA as being… Yes the most cutting-edge, yes they’re the fastest to adopt tech or they’re the quickest to sort of adopt new things because they don’t have compliance oversight as much and they can move quicker. But it seems like their efficiencies are also not there. They don’t manage as many assets per rep, they don’t have as many client relationships they support… The wirehouse model still has a significantly higher level of households and assets that they manage per person and… Why do you think that happens? I guess, do you have any insight into that? And what is it that the RIAs are sort of struggling with? You kind of alluded to this earlier, so I guess I have some assumptions, but can you kind of speak to the differences between these two business models and what you see the independent RIA struggling with?

Tim Welsh:
Absolutely, and it’s an area we’ve done a lot of research. I just wrote an article on it and you’ll read about it next month, and so it’s very top of mind. But we call it the RIA-ification of the industry. If you look at those employee models, the wirehouses, the broker-dealer models, they desperately wanna look like the RIAs because they have choice and flexibility. They have just much more of a personal touch. They can customize the software tools that they have available to them. Whereas everyone else is hard-coded, they have governors on everything, you can’t model different things. So they have scales of advantage. But that sounds all terrific, and you’re absolutely right. And the RIA world is still incumbent upon me, the owner operator. I have to buy the software. I have to deploy it. I have to install it. I’ve had systems that I put in place 20 years ago.

Tim Welsh:
It’s sort of like my golf shot, starts off straight, by the time it lands, it’s three fairways over. That’s kind of what they started with this technology, and they might still be on the desktop and they’re missing out on the cloud opportunity, because they have so much data. Inertia is such a powerful thing, and if it’s working, it’s tough to break it on purpose and then go on to the next opportunity. So I think those sort of syndromes are very incumbent in the industry itself, that’s how advisors have evolved. And I think we’re getting there. But you’re absolutely right. There’s still tons of opportunity sitting in those wirehouses. I think last time I checked, there’s 5 trillion dollars in a separately managed Wrap account at 300 base [0:10:55.2] ____.

Tim Welsh:
If I’m an advisor, I’m pretty sure we could attack that one right there all day long and say, “How much you’re paying for your managed account?” And they’ll say, “I have no idea.” So we’ll take a look and I said, “OMG, you guys are at 1%. That’s an amazing savings.” So the opportunity to attack the wirehouses and gain share there remains remarkably great and still can be a great… Just a focus message saying, “Hey, we’re not them.” I know this could work there, and it’s that simple, but we don’t do it as advisors ’cause we’re much more humble and not as sales-driven as we potentially could be, which is fine. These are businesses owned by entrepreneurs and they wanna run the business, absolutely okay with that. But there is a challenge of adopting technology, back to my digital transformation comments earlier… That we’re still not there yet. It’s still manual.

Tim Welsh:
There’s still opportunities. And that is just the beauty of the business is it’s so right for the picking, because a lot of the clients are just unaware of what services they’re getting for what they’re paying, and that battle has been hammered for the last 20 years and still continues to go. They’re just better at selling, they’re just better at marketing. And they have such a massive scale and opportunity in brand. Now they’re owned by these big massive banks that have millions and millions of accounts to cross-sell that I don’t think their momentum will stop at all, but at the same time, they’re still losing share to the independent space.

Reese Harper:
Yeah, but it’s still… The independent space still represents a significantly smaller share of the total assets in the country. I mean by a significant margin. I don’t know my numbers as well as you do, but what does the independent market represent, the true RIA space relative to the whole market? Do you have any back of the napkin numbers on that?

Tim Welsh:
Yeah, it’s roughly…

Tim Welsh:
Give or take a trillion dollars. It’s not five trillion in the RAA space, and that’s really family, individual assets, not institutional or professional-managed money, because there’s a lot of RAAs that are managed at the big institution level. So just in the family wealth space, it’s about five trillion RAAs. So now those four firms the wirehouses, guess what, they’ve got about seven trillion, so it’s almost apples to apples right about now. I mean, just think of the growth that’s happened over the last 20 years. To go from zero to five trillion, it’s just unbelievably remarkable, and it’s estimates to the momentum.

Reese Harper:
Yeah.

Tim Welsh:
But there’s still seven trillion to go. Let’s go get it and bring it over. Why not? And that’s kind of how it all maps out. And maybe the independent broker-dealer space, another 1.5 trillion. So that’s kind of like… And again, we’re not talking like 401k money or rollover, stuff that isn’t investable. That’s kind of like somebody can ACH or roll your… Cast your account over. That’s that five plus seven plus two, so about 14 trillion all in… That’s managed money that’s available for anybody to go get.

Reese Harper:
As you look through strategy for these institutions, what are the first steps that you feel like you have to go through in a PR and marketing strategy to sort of define and position a firm, and how… I wanna see if our audience can learn something from that, about how they’re positioning and marketing their own business. What are the main lessons that you’ve learned, maybe mistakes that you’ve seen firms make when it comes to positioning?

Tim Welsh:
Well, so a classic example of trying to be all things to all people, if you put up your shingle… I think reassure the poster child for how to do it, pick a niche and get really good at it and then get known for that, and then the referrals come in and then also your processes are all similar because your same, kind of a client base, and you can really streamline your back office and your business if you’re working with a very focused niche versus try and say, “Well, I’ve got a million dollar client here, I got a $100 million client over there, and I’ve got about 50 $100,000 clients.” I’m all over the place, and I probably can’t service that business at all very efficiently because they have such different needs, different requirements.

Tim Welsh: So when you go to market with a message saying, “Hey, we help investors succeed in a conflict-free environment and objective and no commissions and blah, blah, blah,” it just kind of washes through everyone versus, “Hey, you know what? We work with people just like you.” This whole aspect of personalization, I think that’s kind of where the industry is moving, it’s part of the digital transformation, like, “You know what? Hey, mutual fund is great, but it has nothing to do with you as the shareholder, because you may not want to have any of those stocks and they’re giving ESG tilt or focus,” or you know what you say? “Hey, why do I have general motors in my portfolio. That thing… I want Tesla. So get that out of there, give me a portfolio that has what I want.” If you could start speaking in those terms, I think as an advisor to potential prospects and your existing clients, “Okay, we work with you. We understand what you wanna do. We have technology that can help unbundle a lot of this crap that’s been built up through wealth management over the years and actually deliver the components that are valuable to you,” it can help you and your family meet your goals and can, again, align your values with your investments and what you can accomplish with your wealth.

Tim Welsh:
Those kind of terms are resonating now versus, “Hey, you know what, we’ve got this top-down sector style analysis portfolio with tactical this, and we’re delivering 40 basis points above the risk return efficient profile.” That’s garbage. Right now, Walmart has a robo-advisor. Think about that for a minute. I can go to Walmart and get a robo-advisor that’s gonna be talking about commoditization, and the robots are everywhere. That’s a real challenge, I think for any one industry if it’s mass marketed to that level, and what we offer as advisors becomes so watered down that Walmart can do it.

Reese Harper:
Yeah, let’s jump over to another topic which is kind of been an important one in the last few years, which is M&A in the RIA space, the independent space. I know you have some experience in this domain. Can you give the audience a sense for what you’re seeing happen and kind of what the next few years might look like from an acquisitions and consolidation, or where are the trends when it comes to the industry composition over the next few years?

Tim Welsh:
Yeah, great. It’s just near… Dear to my heart. My last project, Schwab, was to build an M&A platform, and we use the succession planning message like, “Hey, you know what? Make sure whatever you do, don’t sell your firm to somebody else because then you’ll lose the assets.” [chuckle] So more of a custodian-driven dream than it was the advisors, and that was 15 years ago, and I think we were 15 years too early, because right now… The volumes then were very small, very low, but now everyone’s 15 years older. They’ve built fantastic businesses that have become extremely valuable. The one thing they forgot to do, however, was to actually train somebody in their business to take over, so they go… The time comes, “Hey, I know I’ll sell it to my key employee,” and then you walk down the hall and the key employee says, “I don’t want your business. I’ve got three mortgages and two kids, and I don’t even have a down payment. You want a million dollar down payment, that’s beyond me,” and all of a sudden, now the advisor’s left with no option other than to sell externally. And maybe that wasn’t part of their vision or what they promised their clients, to sell to some big consolidator, but a lot of them are ending up doing that because of the box they found themselves in.

Tim Welsh:
Also, we talked about the scale in the digital transformation. They don’t wanna invest in that, so all these confluence of events… Oh, by the way, they’re all 65 and 70 years old baby boomers, so all of these big macro trends have really now come together and are really driving volumes of the advisory firm saying, “Hey, you know what? I wanna take care of my clients, number one. Number two, I wanna take care of my people. And number three, then I then wanna get paid.” So how do I do that if I haven’t planned and I haven’t strategized and I haven’t developed my team? I have to find a partner. And what you’re seeing is just the emergence of these national RAA firms who know how to absorb firms, they’re financial planning focused, they have a wealth management approach, they’ve got family office services, their value prop is so tremendously appealing to this financial planning based 65-year-old principle.

Tim Welsh:
They’re like you know, “Why wouldn’t I do that? People will all have careers, my clients will all get better services at in lower pricing, and I’ll be able to kinda sunset myself.” So that’s such an appealing value prop that didn’t exist 5 or 10 years ago. I mean, these big consolidators didn’t exist. And that’s one model. The other model is really, okay, we’ll just buy a chunk of your business and revenues give you a bunch of money and then you gotta go figure this out yourself. That’s not optimal, I don’t think for most firms, and they haven’t really appealed to them, so the low-hanging fruit for those groups have already been taken. So you’re gonna see a lot of jockeying for position, you’re gonna see the emergence of these big national firms like a Mercer or a Wealth Enhancement Group who are offering how to bring you into the business and not have to just sunset it, and then you get a check and then you walk away and wave goodbye at your clients and say, “Did you just sell us?”

Tim Welsh:
So I don’t know if it’s optimal, ’cause there’s so many different choices and solutions, there’s new lending options, but the key is, if you don’t wanna do that as an aging advisor and invest in doing all that, there’s some great options for you. So I definitely see the consolidation happening, it’s too good right now. The pricing is such a great seller’s market. Oh, by the way, we’re at all-time highs in the markets, Biden may pass another tax capital gains law, and at the end of the year so you better, it’s amazing. Those three triggers right there are driving all this activity ’cause advisors don’t wanna pay taxes on a capital gains basis, so they’re willing to make a move now versus thinking it through. So I don’t know if I would make a million dollar decision just based on taxes, but they’re doing it. So the volumes and the  ____ is there. But again, the good news is there are great options, it’s not gonna be traumatic, it’s not gonna be, “Wow, I have to wind this thing down and give away my clients and my employees are gonna walk away.” There are some great things that they can consider.

Reese Harper:
You’ve probably seen the different ways that these transactions are structured, so what do you… Is there kind of one standard kind of way that both the equity and cash is split and a rough sense of valuation that firms get? What are you seeing in terms of broad brush strokes that apply to an acquisition target?

Tim Welsh:
Well, the deal structures are fairly similar across the options, it’s gonna be, “Okay, we’ll value your firm at X, say it’s valued at a million, we’ll give you 300k as down payment upfront 30% and that other 70%, which could be maybe 80, 90, or 100 based on earn-outs will be then paid out over three to five years.” So that’s kind of how it looks. So there is an incentive for you to keep skin in the game so that your clients transition that you’re still there, it’s not just, “Tim left the building and he’s gone, and he’s never coming back and the clients wander away.” They’re all sort of dicots. Some are very compressed, like a two-year deal, half upfront, half in the second year, but those are much more of an exception than the rule.

Tim Welsh:
So the challenges, the deal structure is everything, ’cause if they don’t give you cash they give you stock in the parent company, you’re just trading your equity for theirs, and maybe that’s a good trade or maybe it’s not. You still have an illiquid approach. So I personally, I wouldn’t do that. If I’m gonna sell, I’m gonna say, “Give me the money, I want cash.” And I’ll go and take that, and I’m okay with this promissory note that I’ll give them over the next three to five years ’cause I’ll perform, ’cause I know there’s a lot of equity in it for me to do that. That’s kind of the typical structure, valuation multiples, people like to do it on cash flow or EBITDA, whatever you wanna call it, small firms, five times big firms, a billion plus 15, maybe 20, and you’re starting to see some really eyebrow raising deals at the higher end, because ultimately, whatever into you’re selling it to, they’re not looking at your multiple they’re looking at theirs, and so they know that if they can bolt you on your multiple, they pay you maybe just a fraction of what they’re gonna get when they sell 10 years from now.

Tim Welsh:
So you wanna think about it, you know what, I’m actually gonna contribute 2x to your multiple down the road, maybe you should pay me more, and that’s like a leverage point for negotiating. Again, this is, it’s finance, but it’s not the finance that advisors know. They’re good at their thing, but they don’t understand these nuances. And it’s always the cultural fit too, by the way, if you don’t like these people, think about the cost of unwinding that deal, that’s life traumatic killing business value destruction. If you have to peel this thing back and take it back, ’cause you still have 70% of the firm and you hate these people and you don’t want your clients to go there and your staff gets fired and… So it’s a high risk proposal. Again, the consultant in me, what we started way back when was, think about your success in yourself, think about doing an internal deal, training people, all the risk comes off the table, you control it, and you have the right people who understand your business, already know your clients and have them take you out over time, maybe a seven to 10 year buy-out or whatever, or however you wanna structure it.

Tim Welsh:
To me, that’s the cleanest option, also, by the way, it’s the hardest option. So in life trade-offs, that’s the biggest trade-off right there. And I think we’re seeing it right now as this industry consolidates because of again the digital transformation. The tech is hard to do, if you’re small, you need to have a tech forward approach from the get-go, but if you’ve been in the business 20-25 years, I think you’re basically, your future is set for you. And if you haven’t planned and you haven’t trained anybody and you don’t have that key generation too in your firm, you’re gonna be left with very few options.

Abby Morton:
Do you ever get out of a client meeting and feel a little frustrated because you spent the whole time getting updated and more accurate data? Do you leave feeling like you want to have another meeting just to further develop your relationship with them? The elements financial planning system assists you in taking care of all the functional jobs that need to be done in advance, and because the technology was created with the client in mind, they’re more motivated to come prepared. That means you can spend additional time actually listening to what your client needs. To learn more schedule a time to talk to us today. By going to getelements.com/meet.

Reese Harper:
Where do the multiples start expanding? When you said you’ve got a billion-dollar firm… Let’s assume a billion dollar firm’s… Most of these firms are generating a 20% operating margin or a 25% operating margin. What is the operating margin typically at scale? Is it…

Tim Welsh:
It’s north to 40. Yeah, ’cause again, if you’ve got that scale and you’ve got the ability and infrastructure and you’re bolting on asset, you can really drive that thing up. And that’s what… The other sort of valuation driver is a marketing engine, that you actually can prove to potential buyers that “Yeah, I can generate business. I’ve got this great, you know… Facebook ads, social media, thing I’m doing with my financial planning on the web, and I get clients and we’re just booking in meetings and… ” That to them… They value that because that means this is not just a depleted oil well that we’re buying the remaining million barrels of oil in, this is growing and that get [0:26:36.9] ____ returns.

Reese Harper:
Yeah.

Tim Welsh:
And so the bigger firms, a billion north of that, they’ve proven that they can grow. And that’s what they’re getting the multiple on is that growth premium. But even… So, if you’re racking that 200 million to 700 million, we call those “tweeners”, because what you’re going to do in that spot is really double down on investing in the business, taking every penny of cash flow and going and reinvesting your systems, going and buying and hiring great new hotshot advisors that you have to pay way more than you ever think is they’re worth, but you need them to grow, you have to do that. And that for mindset for many advisors is just foreign to them. Like, “I’m not paying that guy anything. I mean, I built this business, I’m not going to pay him more than me.” But, if you are sort of smart and you thought about it, you absolutely would. You should do it. But, that’s again, it’s a mindset and that’s sort of where the blockage is, that getting north of 200 million into 750, then life is golden, and then people will shower with offers that you wouldn’t believe.

Reese Harper:
Yeah. And so you wouldn’t be surprised to see… You threw a random 20 EBITDA multiple out there, have you seen firms be acquired for 20 EBITDA multiples?

Tim Welsh:
Yes, but again, think about this, it’s the…

Reese Harper:
Gotta have a growth rate.

Tim Welsh:
The value was at 20X but the currency they paid you in wasn’t in cash. It wasn’t stock, so you can really razzle dazzle people. So, when you read these valuations of, “you know we’re talking about” getting a billion dollar valuation, that wasn’t cash.

Reese Harper:
A cash deal. Yeah.

Tim Welsh:
That was stock. Which means, “Okay I still am retaining a ton of risk that this will pan out.” And if it doesn’t pan out, just like the NFP, when they’re buying those firms with NFP stock and then all of a sudden they cratered in the financial crisis from $20 to $3, there went all your equity if you sold your business to them, it’s gone. So you gave you basically gave your business away for free. So, that’s the problem with the headline pricing and the 20X EBITDA is, look at the terms of the deal, way more important than the actual price. It’s always going to be, “What did you get?” And so, I think the more cash you take the lower the price. But maybe that’s the better trade because who knows what’s going to happen? If you’re going to take stock, again, your trading your equity for theirs. Is that a good trade? I don’t know.

Reese Harper:
Yeah. And do you see the trend being… Because we went from wirehouse to this move to RIA, where we have lots of smaller volume shops. Where is the next five years lead us? Are we consolidating again to some degree? Or is it still going to be… Like, what’s the composition of the size of firms in the independent RIA space? What’s that look like, if you had to guess?

Tim Welsh:
I know it’s going to be because it’s natural contraction and expansion. So, as much as this thing consolidates at the top end, I’m pretty sure there’s going to be a dozen hotshot advisors in those firms that got sold and said “I didn’t get anything, I’m out of here.” Boom, breakaways. So you’re going to have breakaways from the wirehouses start RIAs, and you’re gonna have breakaways from the breakaways from the breakaways. So this place will always be a mishmash. It will consolidate at the top and then that’ll fragment again. And then people will come up from the bottom and they’ll grow and they’ll have the same issues. So, it’s just the beauty of the independent marketplace, which makes it so attractive and yet challenging, as you know, trying to get some critical mass in some of these segments. But I think if you have a movement, you have a point of view, you have something that really captures the imagination, it’s very forward thinking, that will always attract people.

Reese Harper:
Yeah.

Tim Welsh:
This industry is made up of leaders and followers, there’s tons of followers, but they were leaders in their own right, because they started something. But they still don’t know where they’re going. And that’s really where you know what you’re doing with elements, and your podcast, and your content you’re putting out there. That’ll help people kind of say, “Hey, what’s Reese up too? I want do what he’s doing ’cause he’s got it figured out.”

Reese Harper:
It’ll be interesting to see… I could see how at some point the value proposition of the wealth management firm has to get better, it’s got to get better in order for the next generation to want to stay, or retain, or use them. Do you believe that, or do you see it a little bit differently? I don’t know if I would have been as… I see a lot of conflicting research right now on, depending who’s funding it, it either looks like, “Hey, humans have got a great future!” or it looks like “Humans have got to start delivering more value.” My general gut feeling is that advisors are a little complacent right now in terms of “Things aren’t gonna change.” And it’s striking to me sitting down over lunch with somebody who’s like, “You know what, the value proposition is just not there”, and that’s an interesting…

Reese Harper:
I guess that’s where, for me, I feel like I’ve got a pretty secure future with elements just because the value proposition, what we’re trying to do, has less to do with kind of a static traditional financial planning projection, and it has more to do with completing jobs for people and reducing the work on their plate and servicing them across a new set of jobs that have less to do with asset management and more to do with just time-consuming activities that they don’t wanna do. But, I’m curious how you see this consumer. Do you have a sense for what the next few years look like for advisors? Or am I overstating maybe… Some of the data that maybe robos just really aren’t gonna be able to provide that much utility. I don’t know. So what are your thoughts?

Tim Welsh:
Well, I think it’s a fantastic question, kinda goes back to the underlying assumptions that everyone is focusing on the assets, the investments. And I think we know that there isn’t… Very few humans that add value on investing because if they knew what they’re doing, they’re not gonna tell you. And the robots are so… Everyone, I think in this generation has grown up. We know that automation makes sense and they know that the markets are not that easy to slice and dice and pick a handful of stocks and go from there. It’s always gonna be a diversification game, and yet and we know and I think the profession knows that investing is not the way to go as your value prop, it has to be a broader set of services. You have to be able to talk to people about their money, their goals. “How do align my investments with my values?” That’s a great ESG conversation, ’cause everybody will think about that, and I’m sure that this next generation does care about that.

Tim Welsh:
Also the same thing as saving for college. You got three little kids. That’s great. How hard it can be to say for college. I know I’m gonna need half a million for each ones, and so I put away $1,000 a month. Alright, great, that sounds very simple, but what account do I use? Is it a 529? Is it a UGMA? Do I let the grand parents do it and have them own it? All of a sudden, the complexity of saving for college on the tax advantage basis becomes enormous, and I think once you start to probe past that you’re like, “No, I’m good. [0:34:04.8] ____ well front. We’ll figure out.” Like, “Okay, I never thought about this. No, I didn’t know about that.” That’s where advisors can use their technical skills and knowledge to navigate the simplest thing. And oh, by the way, did you know that college… Those headlines of 50k a year, that’s not true. It’s really… The offer letter that you get is like, “Okay, we’ll charge you 50K, but I have 13 grand in scholarships for you,” did you know that? So the headline prices people are thinking, they don’t even start to look at the right colleges to shop for.

Tim Welsh:
They don’t shop for college, they just assume it, and there’s so much value that can be added just in that one little segment. There’s a niche for you. I could start nine advisory businesses just doing that, and I’m pretty sure with 20 million people going to college every year, I’d have a pretty good supply chain of people coming to my business having me, particularly ’cause it’s the last minute. That’s just one example to your question. Recently I think… You’re absolutely correct. It’s not about the money, it’s how you deploy your assets in the right way, and how you think about it and how you do things smartly, because people just don’t know, and they buy or lease a car, or how do I get that house that I wanna do and the taxes and so forth. That’s the value of the advisor. That’s the profiling they can do. Then they can use these great tools, you have to automate all of this stuff. And they’re often running and talking about different things than which… “Is Tesla in my QQQ?” That’s the big question. People are all freaked out like, “Do I own Tesla? Shucks, I need to know.”

Reese Harper:
Well, Tim it’s great insight, man. We’ve covered a lot of ground from MNA to positioning to marketing and sales, and I felt like you’ve got just a lot of great experience and appreciate you sharing that with advisors today. I’ll let you leave everybody the last word before I let you go.

Tim Welsh:
Well, one, thanks for being on the show. I really appreciate it. Definitely, the future is bright. I think there’s a lot of negativity out there and everything’s under… But if you look back in history and you look back on what we’ve all seen and gone through the last 20 years, it’s always been better than before. So instead of focusing on the negative… We just got 15 inches of rain here in Northern California after crying for the drought forever and guessing, “Oh mud slides in here.” Like all these problems like “Are you kidding me? We just got Noah’s ark for some rain that we’ve needed for years, let’s focus on that as a positive.” So I’ll just say think positive. It’s all gonna be good.

Reese Harper:
Thanks, Tim, I look forward to it, man. If people wanna get a hold of you, how do they get in touch with you?

Tim Welsh:
Just go to the website, nexus-strategy.com, and we’ll meet you there.

Reese Harper:
Okay, Tim, I look forward to catching up again soon, man, you have a great one. Enjoy the rain.

Tim Welsh:
Thank you.

Reese Harper:
See ya.

Abby Morton:
Next time on Elementality.

Reese Harper:
Of course, you can also just run one Monte Carlo simulation at the first meeting with a client when they’re 65 and hope that it works out over 20 years and check in every five years. And a lot of people will do that and be like, “Wake up.” You know, six years in they will be like, “What happened? Our networth is half what it was.” Well, you never actually monitored the pace at which they were moving and they’ve made some adjustments.

Chad Jardine:
Yeah, of course.

Reese Harper:
You didn’t track them. You didn’t notice them.

Abby Morton: You can learn more about the elements financial planning system at getelements.com/me 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 Haynes. Have a good one.

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