Scaling Up To $1.4M Of Hourly Planning Fees w/ Mark Berg

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Executive Summary

Welcome, everyone! Welcome to the 64th episode of the Financial Advisor Success Podcast!

My guest on today’s podcast is Mark Berg. Mark is the founder of Timothy Financial Counsel, an advisory firm that does purely hourly financial planning for hundreds of clients in the Chicago area.

What’s unique about Mark’s practice, though, is that while “hourly financial planning” is usually characterized as a purely transactional business, for less affluent middle market clients, that can’t be scaled effectively… Mark’s firm actually did a whopping $1.4M of hourly planning fees last year, across a team of 5 advisors and 2 support staff, and 75% of the firm’s clients are recurring hourly clients!

In this episode, we talk in depth about how Mark structures the hourly fee model at Timothy Financial, with a series of 5 “Levels of Service” based on client complexity and hourly rates that vary from $280 to $400 per hour depending on which advisor is serving the client, why he publishes all of the details about his fees and service tiers on his website for clients to see before ever talking to him, and how doing so has led to a whopping 83% close rate on his qualified prospects last year.

We also talk about some of the “myths” of the hourly model, including how Mark has been able to successfully scale of the reach of the firm, why he believes that firms interested in doing hourly financial planning work should only do hourly work to focus on efficiencies, how he has been able to drive the growth of the firm because so few other advisors are effective at doing hourly financial planning for clients, the tremendous opportunity of building an hourly model precisely because so few advisors do it well, and yet why most advisors who start out fail at the hourly model despite the opportunity.

And be certain to listen to the end, where Mark talks about how he decided to come up with the name Timothy Financial Counsel – instead of just naming the firm Berg Financial Counsel after himself – and why, 17 years later, his decision to not name the firm after himself has actually helped him to scale it up with additional advisors beyond himself.

So whether you are interested in learning how to deliver hourly financial planning services in a scalable and profitable manner, how you can boost your close rate through being transparent about your services and fees, or are interested in why so many advisors are bad at delivering hourly financial planning more generally, I hope you enjoy this episode of the Financial Advisor Success podcast!

What You’ll Learn In This Podcast Episode

  • Timothy Financial Counsel as it exists today. [3:55]
  • How Timothy Financial structures their hourly fees and their five levels of service. [10:07]
  • Why Mark shares all the details about his firm’s fees and service tiers on the company website. [10:07]
  • How Mark justifies charging between $280 and $400 an hour for financial planning services. [13:54]
  • How Timothy Financial generates 75% of their revenue from recurring hourly business. [28:36]
  • The key perspective Timothy Financial brings to clients. [40:32]
  • Why Mark says firms interested in doing hourly planning should only do hourly work. [46:46]
  • Why most advisors who start out using an hourly model fail. [57:22]
  • How Timothy Financial uses price as a way to ensure their advisors live a balanced life. [57:22]
  • Advice for advisors who want to get started in the fee-for-service business. [1:20:58]
  • The reason Mark didn’t name his firm after himself—and the unexpected benefits of this decision. [1:25:00]

Resources Featured In This Episode:

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Full Transcript: Scaling Up To $1.4M Of Revenue With (Only) Hourly Financial Planning Fees with Mark Berg

Michael: Welcome, everyone. Welcome to the 64th episode of the “Financial Advisor Success” podcast. My guest on today’s podcast is Mark Berg. Mark is the founder of Timothy Financial Counsel, an advisory firm that does purely hourly financial planning for hundreds of clients in the Chicago area.

What’s unique about Mark’s practice, though, is that while hourly financial planning is usually characterized as purely transactional business for less affluent middle market clients that can’t be scaled effectively, Mark’s firm actually did a whopping $1.4 million of hourly financial planning fees last year across a team of 5 advisors and 2 support staff, with 75% of the firm’s clients as recurring hourly clients.

In this episode, we talk in depth about how Mark structures the hourly fee model at Timothy Financial with a series of 5 levels of service based on complexity and hourly rates that vary from $280 to $400 an hour, depending on which advisor is serving the client, why he publishes all of the details about his fees and service tiers on his website for clients to see before ever talking to him, and how doing so has led to a whopping 83% close rate on his qualified prospects last year.

We also talk about some of the myths of the hourly model, including how Mark has been able to successfully scale the reach of the firm, why he believes that firms interested in doing hourly planning should only do hourly work to focus on efficiencies, how he’s been able to drive the growth of the firm because so few other advisors are effective at doing hourly financial planning for clients, the tremendous opportunity of building an hourly model precisely because so a few advisors do it well, and why yet most advisors who start out still fail at the hourly model despite the opportunity.

And be certain to listen to the end, where Mark talks about how he decided to come up with the name Timothy Financial Counsel instead of just naming the firm Berg Financial Counsel after himself, and why 17 years later his decision not to name the firm after himself has actually helped him to scale it up with other advisors that have come on board.

And so with that introduction, I hope you enjoy this episode of the “Financial Advisor Success” podcast with Mark Berg.

Welcome, Mark Berg, to the “Financial Advisor Success” podcast.

Mark: Thanks, Michael. Glad to be here.

Michael: I’m looking forward to having you on the podcast today because you are running what to me at least is the largest advisory firm that I know that is doing purely standalone hourly business. I know you guys are doing over $1 million of revenue, you’ve got 5 or 6 advisors under the umbrella, including you, all doing hourly planning in a world where, you know, I continue to hear and I suspect you have as well like, “Oh, you can’t build a big hourly planning practice. It’s not scalable. It’s not profitable. You can’t make any money at it.” And here you are with more than $1 million of revenue and half a dozen advisors doing it and gladly executing it.

So I’m excited to have you on the podcast today and maybe bust a couple of myths around hourly planning as a business model and just delving into, like, how do you build an hourly practice that generates that much revenue? Like, just how do you even get enough clients to do enough billable hours to build a practice that gets to that size? So I’m really appreciative that you’re joining us on the podcast today.

Mark: Well, I’m really looking forward to it. It’s a topic I’m passionate about, so I’d love to share the story.

Timothy Financial Counseling As It Exists Today [3:55]

Michael: So maybe just as a starting point, why don’t you tell us a little bit about the advisory firm as it exists today? Like, just paint us a little bit of picture of how you would explain, you know, who you guys are and what you do.

Mark: Sure. So we are a fee-only, hourly only financial planning firm. Our main office is here in Wheaton, Illinois, which is about 20 miles west of Chicago. And we also have a Chicago office. And we serve just over 400 clients, between 400 and 450 clients in a given year and growing. As far as my team is considered, we have five advisors that are face-to-face advisors, meaning working directly with clients. We have one person who just joined us last year who is more in a support role, probably traditionally considered a paraplanner but certainly has capability to move into the advisor role, and then one person that basically keeps us in line and manages the office.

Michael: So you said about 400 clients, and, you know, I know you guys are north of $1 million of revenue now, so, like, can I ask you, like, what was revenue for you guys last year, like, relative to serving about 400 clients? What was the revenue base from that?

Mark: Yeah, we earned just under $1.4 million in 2017. That was about a, I think it was a 17% or 18% increase over the prior year.

Michael: Oh. And just to be clear, that’s all hourly, that’s 100% hourly.

Mark: One hundred percent hourly. I would say about three-quarters, right around 75% of that is what we would call recurring clients, so clients that we’ve served in prior years who are back for view or to work through a specific issue that they may have, and then a quarter of that revenue is from brand-new clients, in this case, 2017.

Michael: So I’ve got a couple of questions about that, particularly around recurring clients, but I’m just trying to sort of break this down in my head really fast. So $1.4 million of revenue, about 400 clients that you served last year, so, like, I’m doing the envelope math here, that’s about $3,500 per client. So, like, you’re not just meeting with people for an hour or two and, you know, “Here’s a bit of hourly advice and off you go on your way.” Like, your average engagement for a client is much deeper and longer than just saying like…the fact that you’re working with them hourly doesn’t mean they’re typically one-hour engagements.

Mark: Actually, the answer is yes and no. So we don’t have any minimum as it relates to the client themself or our service. So we have some individuals who come to us and we call it our Start-the-Clock, where they come in, they have a specific topic or issue they’d like to talk through. Let’s say it took 45 minutes, they get a 45-minute bill, they took an hour and 27 minutes, they get an hour and 27-minute bill. So it is that simple. We literally just track our time by the minute.

But then, on the other hand, we have clients that, I’ll probably get into this maybe a little bit later, that are on the higher level of complexity. We call them level four or especially level five clients, where we can spend significant time with them. My largest clients last year we billed, oh, I think it was right around $85,000, $90,000 because that’s the amount of time they needed. A significant net worth, significant issues, and we had to work through those issues.

Michael: So I kind of get Start-the-Clock service. I guess in the context of what I was maybe framing earlier, that’s perhaps what at least some advisors would call the classic hourly business, right? Like, Come in, ask us some questions, I’ll bill you by the hour, or as you said, like, you know, broken all the way down to the minute, you pay for the time. Bring your dollars. I’ll lay some knowledge and wisdom on you. Off we go on our merry way. But then you said you’ve got, you know, more complex client needs that you termed as level four and level five clients. So can you maybe talk a little bit about what these levels are and how you think about this?

Mark: Yeah. So a level four client will typically be a high-level corporate executive having, you know, pretty substantial stock option, RSU comp planning needs, where we have to get in pretty deep with them to help them with their tax planning, cash flow planning. How that translates into all the other areas of their personal financial situation. So that’s a typical level four. Also some small business owners but really on the smaller end of the small business, whether it’s sole proprietor, a few employees. That would all fit in a level four.

Level one, two, three and four are all kind of incremental levels of complexity. So as you go up in number you’re seeing more and more complex situations. More complex typically means more time, more time is higher bill. So it just follows pretty normal path. The level four to a level five is really a leap. So instead of incremental, it is exponential often, where instead of those situations, you know, we may be working with the CEO of a publicly traded company or a small business owner that, you know, their business is worth $20 million or $100 million or anywhere in between or higher, where we’re dealing with succession issues, sale issues, key man issues, but also a lot of personal planning issues. So it can get very involved depending on the client’s desire. The client retains control, and we’re there to come alongside them and help advise them in the areas that they seek.

How Timothy Financial Counsel Structures Their Fees And Service Tiers [10:07]

Michael: So when you talk about these different tiers, level one, two, three, four, five, like, does that mean they actually all get billed at different rates? Like, “Hey, you’ve got a level 1 problem so we’re only going to bill you $150 an hour, but if you’ve got a level 4 problem we’re going to bill you $300 an hour,” or is it more like a scope kind of thing? Like, you know, level 1 problems mean you probably only have to work with us for 5 to 10 hours, but level 4 problems mean you’re going to have to work with us for like 20 or 30 hours.

Mark: It is more the latter, meaning the complexity translates into the amount of time, and so that creates the cost. But there is some very modest distinctions as far as our hourly rate. So we do have a service for people in their 20s, early 30s that don’t really need comprehensive planning quite yet. They’re more kind of issue-specific, a lot of transition going on. And because they’re working with an advisor and not really getting the advantage of our team because it’s an in-meeting as-you-go planning, we charge a little bit lower hourly rate than our standard rate. Level 1 through level 4 is all at our firm rate, which is $280 an hour. Level 5 is $400 an hour. So you can see there’s a pretty big leap from one through four to five.

And there’s a couple reasons behind that. One, as we already talked, there’s a much higher level of complexity at the level five than in the other area. But when we came up with that distinction of time, it was really driven by necessity. So at that time, which is about five years ago, from a capacity standpoint, I was the only one working with level five. My partner Hoan was supporting me, but it was just becoming a bit burdening. And partly because we kept having people come in, and is a typical problem, you know, once they find out you’re the founder, they want to work with you. And if you’re all the same rate, why wouldn’t you. You know, why don’t you work with the most experienced person.

Michael: So you kind of teared it apart really to sort of create like a, well, maybe this is a strong term for it, but like a financial disincentive for everyone wanting to just work with you because you’re the founder and owner and head honcho guy. Like, “Okay, if you want Mark, that’s fine, here’s what it costs. And it’s more than everybody else. Now, who do you really want to work with?” And give them a choice.

Mark: Right. Right. And it’s really helped us quite a bit to narrow that funnel because we still even to this day get calls and say, “Well, I was referred to you so I want to meet with you and I want to work with you.” So we can very honestly go into that initial part of the relationship and say, “Well, you’re welcome to work with me but let me tell you kind of the big picture of how we work. We work as a team. All of our fingerprints are all over the planning. You’re going to get the same result either way. Would you rather be charged $400 an hour for the entire plan or $280 an hour? Because really that decision will help determine who you’re face-to-face with.” And what we found is 90% of people who initially come to me decide, “Well, if you think they’re good enough and you’re working as a team, that’s good enough for me.” And it’s their decision to do the handoff. For those that say, “Well, I don’t really care, $400 an hour is fine, it’s not a big deal,” well, they’re probably level five anyway. So that’s why.

How Mark Justifies Charging Between $280 and $400 Per Hour [13:54]

Michael: I’m struck even just with the numbers. I feel like a lot of people when they talk about hourly planning, you know, the most common rates I hear thrown around are like, $150 to $200 an hour or occasionally $250 an hour, and you’re sitting at $280 to $400 an hour. So can you talk about that a little bit? Like, is that just a function of hey, you’re in Chicago and it’s a big city so people pay these…like, people just pay these rates because this is a going rate or is there something more about like what you guys are doing or how you’re positioning it that you’re commanding $280 to $400 when it seems like a lot of other hourly advisors are more like $150 to $200?

Mark: Yeah, that’s a fair question. There’s a couple of different ways to answer that. One way I would answer it is people are undervaluing their own value. And that to me is the number one issue that creates challenges for other hourly practitioners is they don’t value their own time. And I feel like financial planning is one of the most valuable things out there, period, to help individuals, and frankly I feel at $400 an hour, they’re getting a bargain, and even more so working with my colleagues at $280 an hour. And as I talk to Tracy Beckes, who’s my coach, Angie Herbers who I connect with a reasonable amount, they’re both pushing me in the other direction. Angie in a recent conversation said, “You should be at $520 an hour.” And I chose not to go in that direction. But just to say, you know, some of the brighter minds out there from business consulting who work on an hourly basis also, they understand that time value proposition or supporting that.

The other thing that I would say is if you ask the average hourly practitioner, “Are you having trouble finding business? Are you only filling a couple of days a week?” To a person, at least from my experience, it’s the absolute opposite. They cannot keep up with the amount of work that’s coming in. And they’re working 6, 6 and a half days a week, putting in 12-hour days, which I personally have no interest in doing either of those. So it’s creating its own issue. And so we’ve used price as part of our metric to keep our lives in check and to be able to live a balanced life rather than an out-of-control life. So we use the price.

The other factor which helps us make sure that we’re in the market, in the right ballpark as far as our fee is concerned is our close rate. So we track with prospects how many of them become clients. And as long as we’re north of 80%, we feel like, “Okay, we must be pricing at least at a good level.” And if we’re over 90%, well, we’re probably underpricing, meaning we’re undervaluing our service. So I don’t think honestly it has anything to do with the Chicago office.

Michael: All right, I’m just even going to pause there. It’s like you’re charging $280 to $400 an hour with an 80%-plus close rate on people who come in.

Mark: Yes. Yeah. So we have about a 15-minute when they first contact us, a 15-minute phone call just to see what they’re looking for at the base level, we give them a sense of what the cost could be.

Michael: And that’s a free call?

Mark: Oh, yeah.

Michael: Well, because I know you’ve got your, like, Start-the-Clock service. They’re not on the clock yet.

Mark: They’re not on the clock yet. Yeah. Well, and they’re actually not even a prospect yet. They’re just an inquiry.

Michael: Okay.

Mark: And our goal is to see are they a prospect? Because if they’re calling saying, “Hey, I’m looking for somebody to manage my assets.” “Oh, well, that’s not us. Let us help you find somebody that might be a better fit.” Or, you know, “I’m in debt over my ears and I’m looking for somebody to wave a magic wand and take it all away.” “Well, sorry, that’s not us either.”

Michael: Okay. So the distinction for you between an inquiry and a prospect is in essence like a prospect, I’m going back to my old early sales days, like, a prospect is a qualified prospect. Like, someone who is interested in the actual services you provide and has the financial wherewithal to pay you. So like, they could legitimately be working with you, now it’s just a question of whether they will.

Mark: And I might take it one step further, at least as far as our definition is concerned, and are willing to meet face-to-face, or at least…no, I shouldn’t say face-to-face but at least have an extended conversation related to their personal finance as well as what we do from a service perspective. That connotes a prospect for us.

Michael: Okay. And does that mean, like, sort of by definition around that face-to-face framing, like, you don’t do any of this work with clients virtually across the country? Like, your clientele is pretty much all Chicagoland metropolitan area so you can meet with them face-to-face?

Mark: Yeah, that’s actually why I paused because actually, we have quite a few clients that are from out of state. So I use the term generically of face-to-face.

Michael: So it could be video or face-to-face.

Mark: Video. Yeah, we do extensive video conferencing and meeting presentation with clients. Even clients here in Illinois who just don’t want to battle the snow will just do it virtually. It’s not an issue at all for us.

Michael: Okay. So you’ve got this very high close rate I guess of like…these would be actual prospects. So you’ve affirmed that they’re qualified and then you have to move forward to see but are they actually going to pay you $280 to $400 an hour. That’s the group that’s got an 80% close rate of moving through?

Mark: Yes. Yeah, last year was 83%.

Michael: Okay. So I don’t even know where to begin. Like, how do you sell $280 to $400 an hour? Like, what does that conversation look like? I mean, I’m imagining a few people that probably literally say like, “I don’t even pay my accountant that much,” or, “I don’t even pay my lawyer that much. You’re how much and you do what for me exactly?” Like, how do you make this pitch of, “What’s the value of what you guys do at $280 to $400 an hour?”

Mark: Yeah, that’s a great question. And we actually honestly don’t face that question all that often. In fact, I was looking at an email that I got this morning when I came in from a prospective client, and he basically said, or I should say an inquiry at this point, but just based on what he wrote, I think he would fit. He gave me his whole profile situation, his net worth, how it’s broken out, what his issues are. And he just said…you know, kind of one of the bottom sentence was, “Not clear to me where I would fit in your service level continuum, but we can talk about that when we meet.”

So we don’t do a whole lot of marketing, but what we do do is always push people towards our website, because if you go to our website, it is very transparent. We have our hourly rate there, we have our levels, we have fee structure. So by the time the prospect calls us or emails us, a lot of those issues are already dealt with. And if they weren’t dealt with then we address them in that 15 minutes. Because we don’t want to get into the situation where, “Oh, I expected the $250 Vanguard financial plan or that you did it free and somehow got paid some other way.” We don’t want to deal with that. We want to make sure upfront everybody is on the same page. So the value proposition is really laid out on our website very clearly, at least we hope or that’s what we’ve been told by our prospective clients.

Michael: Well, yeah. And I am fascinated by the way that you guys present this on your website. So, you know, we’ll actually include some links in the show notes as well for people who are listening and want to go check this out. So this is episode 64 of the podcast. So if you go to kitces.com/64, you can go to the episode and scroll down to the resources mentioned in this podcast.

We’ll have some links out because I am kind of fascinated by, like, you know, right there, like, your homepage goes straight to your fees page, and your fees page has this interesting layout that says essentially, “Estimate your cost. Level one, two, three, four, five.” You know, level 1 is typically $2,800 to $4,000, you know, parentheses $280 an hour. And then you say the number of hours. You know, level 2 is usually up to $5 grand, level 4 could be $7,000 to $11,000, level 5 is $16,000-plus and there’s $400 hourly rate. Like, it’s all right there with this little circular meter gauge that says, you know, “Low complexity, level one, moderate complexity, level three, high complexity, level five.” And then you can drill down even further off that page. And you’ve got literally, like, just a giant matrix-style thing of like five columns for level one, two, three, four, five and every possible service you could do as an advisor and which ones are included at which tiers based on complexity.

Like, I think it’s a really interesting way to lay out in such granular detail. Like, for all those people that say, “Well, you know, what am I really going to get from my financial planning,” like, I’m sure you have to reinforce some of that in the meeting, but it seems like you’re not even actually selling that in the meeting, you’re selling that on the website.

So frankly, the people who might have not closed with other advisors, they don’t even show up as inquiries and prospects for you because they probably just see it on your website and like, “Oh, man, I’m not paying that guy $280 an hour.” So no skin off your back, they literally don’t even take a one-minute phone call because they just see the website, don’t like it and move on. So your website basically screens out all the non-qualified people and just serves up the ones that are actually interested.

Mark: Yeah, it does. And, you know, again, it goes back to that concept that time is our most valuable, most precious asset that we have. And that’s true of any advisor, not just somebody who charges by the hour. But we happen to actually track our time.

Michael: Well, yeah, you’re in the time sales business, you really track your time.

Mark: Yeah, we do. We do. So for us, you know, we love to help people. Even if we’re not the right fit, you know, if we can point them in the right direction, that’s great. But, as you pointed out, our website does do a fairly thorough job of answering some of those initial questions that may…they may disqualify themselves. So we’re not disqualifying them, we’re not saying, “We won’t work with you if you don’t have $1 million or earn X,” or whatever. We have no problem with that. And again, we have the Start-the-Clock. So that’s still an option for just about anyone.

Michael: Right. For the people who say like, “Yeah, yeah, I don’t know that I was ready to do this. You know, level 1 starts at $2,800.” Your response is like, “No problem, we can…” Well, I guess, you know, it literally says your website, right? Like, “Not looking for comprehensive advice? Learn about our Start-the-Clock hourly service.” And they can drill right there.

Mark: Exactly. Yeah. For us, you know, even though people often will presume, “Well, you probably over time want to work with more level four and level five clients and, you know, really shrink down that level one, level two, or even do away with the hourly.” Well, it depends on what your definition of success is. And our definition is not driven by revenues, our definition is driven by clients served. That is the success, that is the value, that is what we get excited about as a firm is one more family, one more individual impacted that are making better decisions for their personal financial situation. That is our success. So for us to do away with the Start-the-Clock or level one or next-gen would completely go against our definition of success. You know, you talk to Tracy and Tracy is going to say, “Well, yeah, you want to work with fewer clients, with, you know, larger revenues.” And that makes sense if that’s your success metric. And it’s just not us.

Michael: Well, and, you know, at the same time, like, from the building of business perspective, I mean, at the end of the day, like, your hourly rate for level 1 is $280 an hour and your hourly rate for level 4 is $280 an hour. So the only difference is, you know, like, the client is going to pay the same for the time, it’s just a matter of what sized chunk of hours they’re buying just based on how much they need.

So, you know, granted, it maybe takes a little bit more work to find, you know, 3 level 1 clients instead of 1 level 4 client because that’s about how the hours convert on your system, but if you’ve got a website that’s bringing in clients anyways, like, if at the end of the day you’re going to get to charge $280 an hour for 40 hours of work, who cares whether it’s 3 level 1’s or 1 level 4? From the business perspective, like, you’re going to drive the same revenue and make the same profits, and you’ve got the clients coming in, now it’s just a matter of do you have the planners to do all the work, which you do because you’ve got four or five of them now.

I mean, I guess it’s one thing when it gets to your services because you charge differently for yours because you’re at $400 an hour because there’s only you, but, you know, it strikes me, I mean, for the rest of them, like, there really isn’t a difference in the rates here, it’s just different people buy different packages of hours based on what they want and they need. And the more people you serve the less you have to sell large chunks of time because you can just sell fewer or greater number of small chunks of time and still generate the same revenue.

Mark: Yeah. Yeah, and I think either way can work the same from a revenue standpoint, but again, one of the reasons why I got into this approach to doing financial planning in the first place was to serve people. I felt that there was a massive gap in the industry that was frankly just not being filled. And so it would go against my personal principles as to why I left a great firm and started this firm if I decided to close my practice or only work with, you know, a few large clients. You know, that’s really the driving force of why we exist.

How Timothy Generates 75% Of Their Revenue From Recurring Hourly Fees [28:36]

Michael: I want to circle back to this comment you made earlier that of the $1.4 million of hourly revenue, about 75% of it was from recurring clients and 25% of it was from new. So can you talk to us a little bit more about recurring clients and what’s going on there? Is this like you have people on basically an annual retainer structure, you just bill them hourly? Is this just you figure out how to get people to keep coming back for regular hourly services? Like, what’s going on that you’ve got such a volume of recurring hourly revenue? It’s like I feel like, for a lot of us, those are…like, that’s a self-contradicting term. Like, you’re supposed to be hourly or recurring, not recurring hourly. So talk to us about what that is for you guys.

Mark: Yeah. Well, as I think any financial planner would attest to and would desire in any connection with a client is they want to build a relationship, and we’re the same. You know, we want to create a value where they see the value of regular ongoing connection to help them as their lives continue to change, as things change around them that are outside of that control, that we’re keeping track with them to make sure that they’re working towards the goals that are important to them.

So when we go into an engagement, we go in with the assumption that they want to be long-term clients. They just happen to want to get charged a little differently and a different approach than others out there. And it’s not a right or wrong. Like retainer is better than hourly or hourly is better than AUM, it’s just a different way. And different people have different, you know, in their mind how they want to be charged. And for some, and obviously the people that are attracted to our revenue model, they like that they pay for exactly what they get.

And they have control of that meter from the perspective of if they have a lot of issues, a lot of work that needs to get done, they know because we’re very upfront. We charge for our time. If you’re emailing us, if you’re calling us, even if you want us to come to your office versus you coming to our office, our time is our most valuable asset, so you tell us how you want to use it and we’ll do accordingly. So I think that just setting that expectation from the beginning when we do our plan presentation, again, we’re presuming they want to continue on. And we ask them, you know, “Would you like us to reach out to you in six months or a year or whatever?” And again, they’re in control of that.

Michael: I just want to follow this. So you’ll routinely ask them like when do they want to come in again, you’re not necessarily, like, saying, “Hey, you have to work with us.” You know, “You have to do a renewal every year,” or, “You have to come back every time period of X.” Like, you’re not forcing them to do it, they are just trying to set an expectation, “Hey, we’ll continue to be here when you need us,” and they come back?

Mark: Yeah, that is the case. We do not have any requirements as it relates to time or ongoing. They can say, “Hey, thanks but no thanks,” and that’s their right. The engagement doesn’t go any further than what we originally did in the plan. But, you know, this is probably one of the areas we’ve been weakest in tracking but we’re just starting to…we now have a person on staff that that’s one of their responsibilities. Lydia who has been off the charts for us, especially with Excel, and being able to identify some of our metrics that we weren’t keeping as tight a track of and now we are. But yeah, we’ve really been fortunate that there’s been that value proposition that they’ve been able to clearly understand to see the benefit of an ongoing relationship. And so we typically see, you know, our core level one, level two, level three-type clients, once a year is a pretty normal cadence.

Michael: Interesting. Yeah, I guess I was going to ask around that as well is sort of what the cadence looks like. So, you know, you said, like, 75% are recurring clients. I’m presuming, like, that doesn’t necessarily mean all the people you saw that were recurring in 2017 were people you actually had just done work for in 2016 as well. Those could have been people who came back two years later or three years later or four years later but they’re in your roster because you’ve been doing this for a while so you’ve now got a pretty wide base of people who may come back to you at any particular time looking for more service and support?

Mark: Right. Or 15 years, meaning we have clients, I was just talking to one last week that we started working with in 2003 and they have been regular ever since, and they’ve moved twice since then. They now don’t live in Illinois but we continue to serve them from their soon-to-be retiring location.

And again, that’s a metric that we’re trying to get more intentional of tracking is of those initial clients. So if we have let’s say 70 or so new clients in a given year, what percentage of those become recurring? And our desire would be, I don’t know that I would say 100% because some of them truly just have a single issue and really are just looking for an answer and there might be a couple of different things we need to do to help get them to that answer. But that really scratches their itch. And we’re fine with that. But I would say a good two-thirds of those we feel would get the greatest value from our service having a regular ongoing relationship. And I think we’re fairly successful but room for improvement of conveying that.

Michael: So I’m fascinated by just the framing that you have. That you assume most of these clients who come to you on an hourly basis still want to be long-term clients. They just want to be charged in a different way. I mean, to me, what you’re articulating is essentially like a certain kind of niche business. And, you know, people listening to the podcast rightfully know I love to talk about niches. But, I mean, to me it really is, there’s kind of a framing here of a niche business of there are people who want to pay for advice on an ongoing relationship, are comfortable paying for an advisor. They don’t mind, you know, paying for the value of what they’re receiving, they just want to have a version where they are in complete control about exactly how many hours they’re engaging for, which a lot of us don’t do, right? Like, if you’re in an AUM model, you know, your billing is based on your assets regardless of how much time you use.

A lot of advisors even that do retainer-based structures, you know, “Here’s what you’ve got to pay for, it’s up to you to use the hours effectively to get value out of it.” And obviously, the advisor wants the client to do that because that means they tend to retain, but, like, you know, the retainer structure says, “Here’s the cost. Now, you’ve got to use me to make sure you get the value.” Whereas you have that flipped around a little to say, “No, no, you’re in full control, but you’ve got financial needs and complexity and you may need help from time to time and we’re here and we’ll simply bill you for whatever time you use. And it’s your call about when you want to use us and how much.”

Mark: Yeah, yeah. Yeah, and it really is that simple. And just like any good advisory firm, we are building that trust so that when the client says, “Hey, do you think it would be good to meet in a year, and what will we be talking about,” we can have a good, honest conversation of, “You know, actually I think you’re in good shape. Let’s maybe push it out to 18 months,” or, “Absolutely, and this is why,” or, “This tax law change is coming down the pike and we see it affecting some of the decisions that you had made prior, you know, that you might be making, some different changes or decisions now.” And just like any, you know, relationship built on trust, you know, yeah, there’s a cost there, but it’s no different from a law firm. It’s no different from a CPA practice. And if you have that trust established, the hourly rate is acceptable.

Michael: Yeah. So can you talk to us a little bit about, like, what these engagements look like? Like, I’m looking at this and again, you’ve got these kind of level 1 through level 4 in particular, the hourly rate is the same but it’s a different scope of hours from, you know, roughly 10 up to 40, depending on complexity level, which is kind of the breadth and the amount of planning stuff you have to do.

You know, when you go through this with clients, like, is the end result still basically, like, are you producing the classic comprehensive financial plan for a client and that’s what you build towards and it just so happens that based on the complexity, you know, about how long it’s going to take to build a plan, so, you know, simpler plans are level one and complex plans are level four and you bill for the time accordingly? Like, does this all build up to producing and delivering financial plans and using traditional financial planning software to create them or does your end results and output look a little bit different in these kinds of hourly engagements?

Mark: Yeah, I would say from a level one to a level four, there’s a pretty similar deliverable. We use eMoney as our planning software, prior to that we used NaviPlan Extended. So you could probably guess we prefer the cash flow approach as opposed to the goals-based, though there’s obviously a tremendous amount of goals discussion in our engagements, but our clients tend to like the cash flow-based planning. And we are more comfortable in that world.

Michael: What led you from NaviPlan Extended to eMoney Advisor?

Mark: You know, the primary reason, NaviPlan had been acquired I think twice, and we were on the Windows-based platform. They had been promising to move to the online platform and to have a good transition of those using the Windows-based. So we were probably one of their earliest adopters of the transition, and I will just say it wasn’t quite what we had hoped.

Michael: A complaint I heard from a few users at the time that, you know, some of the depth on the cash flow planning elements were not there in the, at least the initial online version during the switchover. And given that, well, NaviPlan’s roots going back 20-plus years was like they were the in-depth cash flow-based planning software, unfortunately, when the cloud version didn’t quite have all of those tools, there were people who were not happy and made some switches. So I guess you were in that camp, unfortunately.

Mark: We were. We actually did try it for a while. And we came across eMoney because we were looking for a little bit simpler solution for…we were about to launch our next-gen-oriented… I mean, we work on planning software every day, most of every day, so we’ve become clear on all the issues, and that helped to know us very well and become a friend as we’re trying to figure out how to create what we want to create. And that was the case with NaviPlan. But when we were looking at eMoney, we realized, actually, they’ve already intuitively addressed a lot of the issues that we were having with NaviPlan, and it had the scalability that I could work with my most complex client and we could work with the simplest of clients. So that was why I made the switch.

The Key Perspective Timothy Financial Brings To Clients [40:32]

Michael: Interesting. So you’re still doing, like, a classic gather financial planning data, put it into eMoney, produce a plan, deliver a plan. Like, is that ultimately what this builds towards?

Mark: Yeah, ultimately. But we look at plans as organic, as opposed to kind of a fixed, “This is the next 40 years of your life.” Because as I know most planners would attest, you know, the next day it’s obsolete. So we’re really trying to focus on that reality with the client to say, “This is an iterative process, an organic process so that as we see the ups and downs of your life and as your goals change and your situation changes positively or negatively, we can continue to see are we still on the overall trajectory to accomplish the objectives and goals that you want to accomplish?”

So, you know, back in the day, I used to basically charge by the pound, it felt like, as it related to the delivery of plans, and now it’s nearly nothing. I mean, it’s almost all digital in their vaults and, you know, they can go on since most of their accounts are linked and get updated perspective on their plans when they like, and then we meet together periodically to make sure everything is fresh and see what goals have changed, etc.

Michael: And I guess part of that is just the reality that when you’re…I mean, when you’re working with clients where, you know, as you said, like, your largest client you billed something like $85,000 to $90,000 of planning fees, I mean, I get it, that’s sort of the most extreme client, but you’ve got a level 5 here that starts at $16,000 for the planning work, like, you’re getting into some complex stuff. So I guess that in and of itself kind of necessitates just more robust cash flow-based planning tools because that’s literally where you’re getting into the details to try to show and generate value? Is that a fair characterization?

Mark: Yeah, for sure. Though, as you can imagine, you know, probably our average net worth of a level 5 client is north of $20 million, so they’re not scratching their heads, they’re not staying up at night wondering, you know, “Where am I going to eat my next meal? Am I going to be okay?” That’s not the issue.

Michael: They’re used to paying professionals who often cost hundreds of dollars an hour to do various work things, so they’re paying you a couple hundred dollars an hour to do various work things.

Mark: Right.

Michael: I’ve got to ask as an extension of that, though, you know, when you do come back to rates like $400 an hour, particularly for clients that are that affluent and have, you know, lots of choices about professionals they can hire and they can afford a lot of people to do whatever it is that they need done, like, does the conversation ever come up with those clients of like, I guess either A, you know, “Jeez, Mark, you cost as much as my attorney or my accountant,” or just like, “Why would I hire you to do all my business planning work when I could just pay a attorney or a CPA?”

Mark: Yeah, it’s a great question. And the response that I’ve heard from our clients to that… You know, who likes to pay…I mean, I just had somebody out to fix the ice maker on our refrigerator and it cost $270 to do, you know, 35 minutes of work. So that was a painful check to write, you know, for an ice maker. But, you know, nobody likes to pay for service unless you feel you’re getting value for that service. And I think that’s where our level five clients are especially seeing the translation for them.

You know, the client that I billed so much for 10 years ago, I probably billed $2,000 or $3,000 to. Why? There was a very narrow focus that they wanted to start. He was a very private person, but he was in a very illiquid situation. And even though he’s actually a very well-known person nationally, he has a completely illiquid balance sheet and wasn’t planning on having a liquidity event anytime soon and could not find advice. It just wasn’t out there.

Michael: Right. Because anybody he would have gone to for advice, even a fee-only context would have said, “Sure, I’m happy to give you advice. My minimum is X hundred thousand dollars or X million dollars,” for which he says, “No, no, no, I’ve got the net worth but it’s illiquid. Like, I can pay you but there’s no assets to give you.”

Mark: Exactly, exactly. And that’s part of the heart of what we’re trying to address here is we use this term internally, “We’re here to serve the underserved and the unserved.” And to some, they would think, “Oh that’s, you know, people at poverty level,” or whatever. Well, it’s a different perspective from our vantage point. There are people who are more do-it-yourself-oriented that like to retain that control but get to a point where they understand that things are getting just too complex for them to understand how everything works together.

And that is the value…that’s probably as much as anything else a key perspective that we bring to our clients is they’re trying to make decision X, well, how does it affect A, B, Y, Z. And that’s…I mean, that’s planning. And so that’s where we get very little pushback when they get our bills because they’ve seen the value that they’re getting on the other end, which is the advice. And, you know, we could easily translate up, “Oh, look how much we saved in taxes or improved your estate plan or, you know, reduced your cost or premium on X or Y.” We just don’t go down that road. That to me is a losing game.

Why Mark Thinks Firms Interested In Doing Hourly Planning Should Only Do Hourly Planning [46:46]

Michael: Interesting. Yeah, like, you know, to me, one of the things I’ve long pounded the table for around sort of this emergence of frankly both hourly and retainer models is this idea that we get to open up new markets who just aren’t served particularly well by traditional advisory models. And it’s not necessarily about going, you know, sort of to less affluent clientele, although that’s an option, it can be, you know, high-income, young professionals who have a lot of debt but also have a lot of income and could easily have the financial wherewithal to pay for advice, but they don’t need the products right now and they don’t have any assets to manage because they’re still paying off student loan debt but they’re, you know, doctors or lawyers making hundreds of thousands of dollars a year, or business owners who have significant financial wherewithal but are illiquid and they don’t mind paying for advice but they have to actually just pay for fee-for-service advice because they don’t fit any other model but they can do hourly or retainer or something to that effect.

I know some advisors out there, and, you know, no offense to them but, like, they’re primarily trying to use these hourly or retainer models to compete against the AUM model and say like, “Hey, like, I’ll just charge you cheaper because I’m not getting paid all this money for a portfolio that we’re not doing much on.” But to me, like, the bigger opportunity is for all those folks that just they would happily pay for advice but they just can’t and won’t do it in an AUM basis or a product basis because they don’t have the available assets or they don’t need to buy a product or they’re just not willing to hand them over, but they will pay for fee-for-service advice if you just give them a fee-for-service option.

Mark: Yeah. I know. Absolutely. Though, when you say, “If you give them the option,” I’m actually personally not a big fan of mixing service models. So there are some that say…you know, they basically will give you a menu, “Oh, you want to do hourly? We can do hourly. You want to do a retainer? We can do a retainer. You want to do assets under management?” What I have observed as I’ve observed the industry over the last 20-plus years is those that try to be everything are nothing. I mean, you know, you’ve talked about that term a niche. I think that translates also to the way you’re paid. Because an hourly person has to be very conscientious of how they spend their time. An AUM person less so because they’ve got the leverage of an assets model.

So when I used to be in the RIA world, in the AUM world prior to starting Timothy Financial, if I got a golf invitation from a client, I was all over that. Nowadays, you know, $400 an hour, 5-hour round, I have to make the decision, “Is this worth $2,000 of my time?” And it just changes the whole complexity as to how you think about how you’re spending your day. Now, I don’t translate that into, you know, my family time because that time is priceless. And, you know, when I volunteer and whatever. But my work day, I do translate my time into an actual cost. Whether it’s lunches or golf or anything that’s not doing work, what’s the value proposition? And when you mix models, you mix that all up and you tend to be much less efficient in the way you do business.

And frankly, I have an abundance mentality. There’s plenty of work out there for the AUM model. There’s plenty of work out there for the retainer model. And to me, you know, you have that iceberg image, I think hourly, I mean, there’s almost no one on a relative scale doing it, and the need that it could meet is absolutely, I mean, it eclipses the other two models by a factor from my vantage point.

Michael: Oh, yeah, because, I mean, we ran numbers for this on the site at one point, but, you know, like, there’s something like 110 million households in the U.S., barely a third of them have at least $100,000 of investable assets outside of their primary residence, like, people you at least potentially could work with. A big chunk of those have the money but it’s tied up in their 401(k) plan so you’re not going to be managing it anytime soon, a big portion of those are either do-it-yourselfers or, you know, maybe validators. Like, they would pay ad hoc for advice but they’re not going to delegate assets and hand them over to anybody.

And so by the time you slice through all those different pieces, you get down to…there’s probably only, like, 7 million or 8 million households in the U.S. who can actually do this. Like, who could actually delegate assets to an AUM advisor, and there’s something like 300,000 financial advisors, give or take a little. So if you just start doing the math, like, there’s only about 20 to 25 clients, AUM clients for each of us across all…like, we are so overlapping. There’s actually only about 20 to 25 clients per advisor when you go through that math.

Now, we stay in business because, even though we all like to say we have all of our clients’ assets, many of us do not actually have all our clients’ assets. So the fact that, like, affluent people split up between multiple advisors means they keep five advisors in business at once or probably at least two or three. And so we can all have enough clients when we’re carving out that base. Like, we’re all going after the same hyper-narrow group and leaving, you know, literally, like, 90% of the marketplace unserved.

And it’s not that the AUM model is a bad way to serve people who have piles of money and want to have advantage while getting comprehensive advice but, like, most of the pie ends out being unserved. And granted, some segments of them just don’t have the financial wherewithal to pay us by any means. They just don’t have income or assets or any financial ability to pay for advice. But, like, you know, there’s still tens of millions of households who have some level of affluence and some ability to pay, but they just don’t have liquid assets available and an interest in delegating them. And so we exclude all those with AUM models and product models, and you open all of that up with the kind of hourly model that you’re talking about.

Mark: Well, and even in your math, it presumes that $300,000 or $400,000 in the industry are all equal.

Michael: Right.

Mark: And, you know, in my world, we get a fair amount of business from other advisors. We position ourselves as a gracious out. So, you know, their A client has referred, you know, a neighbor or a friend or a family member and, you know, the advisor is all excited, “This is my A client,” so he probably hangs out with A people, gets the questionnaire, goes, “Oh, no, you know, what am I going to do with this person?” Or has a conversation with the person and the questionnaire looks fantastic, but they’re like, “Oh, and I’m looking for a fee-for-service type of model,” which they don’t do.

So what happens often is before there were any options, most often they would serve the client anyway, and it would be a lose-lose. The client is kind of, you know, square peg in a round hole. They know it. The advisor, you know, is just trying to make the A client happy because he just wants to serve his friend, and it doesn’t go out well. So, you know, we have become that gracious out. If you run into those C clients that really have no business, whether they’re below your minimum or even they’re where you’re at or above but aren’t looking for your service model, that there’s another option that saves face but doesn’t mess up your business, which we all, you know, can be prone to.

Michael: Yeah. You know, we had Anna Sergunina on the podcast in the past as well, she was episode 49, and, you know, she similarly has a pretty sizable hourly practice. And I know one of the things that she talked about as well is a non-trivial portion of her growth and clients and revenue simply came from referrals from other advisors. I love your framing for it. That, like, “We’re your gracious out on those awkward, you know, referred in client situations.” But, I mean, it’s really true. Like, there are clients that are just not a good fit. And I think a lot of us tend to try to have this scarcity mentality. Like, “Anybody I can possibly get a chance at, I’ve got to do business with them, whatever I can do even if it’s not really a good fit.” And usually, you end out regretting that later. But part of it is just because sometimes you’re not sure, like, where else to refer that client.

I mean, I know a lot of advisors that take non-ideal clients because the justification they use, right or wrong is, “Well, I know there’s so many other bad advisors out there, and I don’t want to just turn them away and, like, let them be thrown to the wolves for whoever can go after them.” And, you know, you make the good and powerful point here like, it’s not either/or you must serve them yourself even if they’re a bad fit or throw them back to the wolves, like, there is a third option which is just make a professional referral to a colleague, to another advisor that you know actually does good work.

And, you know, yeah, as you know, like, that’s how you built some of your business, that’s how Anna built some of her business. I know for a lot of our XY Planning Network advisors that’s how they’re building their businesses. They say, you know, “We specialize in working with Gen X and Gen Y clients.” And they go to work, they go to talk to large RIAs in their area who tend to work with affluent retirees because that’s where the AUM model focuses, and they just say, “Look, you know, when you get those referrals of people who are young and not a good fit, like, you don’t have to serve them as a bad fit or turn them away, just refer them over to me. That’s all I do. I’m not even in competition with you.” And that to me is the fascinating thing about sort of these different niche models in general. Like, we’re really not in competition with each other. We just serve different types of clientele.

Mark: Exactly. No, I could not agree with you more.

Why Most Advisors Using An Hourly Model Fail [57:22]

Michael: So all that being said, like, I’ve got to ask from the flip side then, you know, like, we’re sort of mutually talking up the virtues in market opportunity of the hourly model or fee-for-service models in general. So, you know, you’ve been doing this for almost 18 years now in your firm, you know, you’ve built a great sizeable firm but you’re still one of the largest I’ve ever seen in our industry doing this. I don’t know any others offhand who are doing more than $1 million of revenue. You know, Garrett Planning Network has been championing this for also about 17 or 18 years. I think she got started right around 2000 as well. So why hasn’t this caught on more? Like, why aren’t there thousands of hourly practices if there’s so much opportunity in the hourly and fee-for-service space?

Mark: Yeah, honestly I wish there was. There’s so much opportunity out there, so much need. I mean, we’re in a town of 50,000 and obviously we’re near a big city, but, you know, we’re not even scratching the surface of our county, much less the city or the state. So there’s plenty of room.

But as the reason, I’ve had a lot of conversations with different hourly people, and a couple of things that I’ve identified, one is often they’re undercapitalized. So they go into this with kind of a shoestring budget, working out of their home and, you know, basically trying to cut corners in order to create a good profit margin. Which I get, but it doesn’t create the image that I would want of a good…you know, I don’t want to be a, “Well, let me see if this works” client. You know, I want to go into a firm where I’m like, “This is a firm that’s going to be around for the rest of my life, which is what I’m looking for.” So undercapitalized is one thing.

We already touched on the underpriced. I feel like those that are charging $150 or $180 an hour, you know, as I said, I don’t think they understand or appreciate their own value. And if they’re working like most of the hourly practitioners that I know are working, where they’re working Saturdays, they’re working Sunday mornings, they’re working 12-hour days, so you’ve got to ask yourself the question, there doesn’t seem to be a demand issue here, so why not up your price? You’re underpricing your service. And when you ask them about close rate they’re going to say, “We closed almost everybody.” And okay, well, you know, but you’re going to burn yourself out, which is another point.

You know, if our poster children for hourly are these burned out solo practitioners, who would want to do this? You know, it doesn’t paint a very good picture. Which actually leads to, you know, another point, which is that whole stay solo. I would say that it is difficult for any advisor, hourly, retainer, AUM to do things solo. It’s possible certainly, and I think AUM probably has the best chance or having some component of AUM has the best chance if you want to stay solo. Hourly, you would really have to charge, you know, that $400 an hour type of rate in order to make a good living.

But one last point I wanted to make on this whole why it hasn’t caught on is I think that a lot of, and this will sound funny, but I think a lot of hourly practitioners don’t track their own time, which can be a little bit of a head-scratcher. But I literally track my entire day, whether it’s billable or not billable.

Michael: Do you use software for that or are you just particularly studious about, like, recording things on a spreadsheet? How do you actually track your time?

Mark: Yeah, we use QuickBooks Enterprise as our software, and it has timesheets. And, you know, it’s the same thing we use it for our billing so that we don’t have to do double entry. And there are online softwares out there that you can sync to QuickBooks so that…I mean, it’s really very easy, and we do not find hardly any difficulty to keep track of our day-to-day work.

Michael: You make an interesting point in there as well that just the most basic level, like if you’re…and I think this is a good message for any advisor, if you’re feeling too busy in your practice and overwhelmed by all the stuff that’s going on and clients are coming in, like, that’s a nice problem to have but you’re feeling overwhelmed, like, the solution isn’t hard. It just means you’re undercharging. Raise your fees. Just raise your price. Like, worst case scenario…

Mark: That’s it.

Michael: … a few people will go away, everyone else will pay more, and you’ll probably still make more money while doing less work.

Mark: Well, and it’s not a probably. I mean, I started at $150 an hour myself back in 2000. And I remember 1 year I had 100% close rate, I’m like…

Michael: You know, that’s actually not a good thing from a business perspective.

Mark: And that’s not a good thing. No, exactly, exactly. So I went from $150 to $180 to $195 and finally I kind of broke the $200 mark. And so every three to four years, we adjust our rates accordingly. But we track our close rate to make sure that, you know, we’re still suitable and reasonable.

Michael: And I think that’s an interesting dynamic to say like, “For all of you who are not, you know, rigorously tracking close rates…” And I love how you do it, Mark, because it really should be three tiers. One is just the number of leads or inquiries, just like the volume of inbound, number two is how many of them were actually qualified to do business with you, and then number three is how many of them actually became clients. So you can calculate a final conversion rate from qualified prospects to actual clients, And, you know, if your close rates are lower than 20% or 30%, you’ve got a problem, something about how you’re conveying or communicating your services. You know, most advisors I know are frankly probably in the 30% to 50% range, and it tends to be higher on referrals because they already come in with a level of trust so it’s usually an easier closing process.

But then at the other end of the spectrum, like, if your close rates are materially higher than 80% and sustaining you, and especially if you’re above 90%, like, you can get 80% with really targeted marketing, if you’re getting above 90%, you just don’t charge enough. It should not be that easy for everybody to say yes.

Mark: Exactly. Right. Right. Now, if you have capacity, okay, well, that’s fine. And if there’s other, you know, success metrics that are more important to you like number of people served and you have the capacity and can do the life balance that you want to accomplish, that’s definitely workable. But we’ve found that those two together have really helped us keep a balance to our cost structure.

Michael: You know, you talked about the fact that you’ve got this 75% of clients who’re recurring revenue, which, you know, on a $1.4 million gross means, like, $1 million of your revenue was just people who you’ve already worked with who are coming back. Which is an amazing thing, right? But obviously, like, it takes some level of time and number of clients you serve cumulatively over time just to get to the point where there’s enough people to come back and pay for your services again to build that kind of recurring base.

So I’m curious if you can take us back to the beginning when you first launched the firm. Like, what did that look like? What were you coming out from? You know, like, what was in your head about how this was going to go? Like, what were you aiming to build when you first did this in 2000, in a world where, I mean, as we talked about even today, there were not that many hourly planners, but back then, like, “nobody” did it. Like, virtually nobody was doing this. So what was going on back at the time? What was going through your head at the time and launching an hourly firm in 2000?

Mark: Yeah. Well, I was working at a large RIA, one of the largest in the country, fee-only, fantastic firm. Had a great experience, was on a great track there. But probably about halfway into my time with them, I was there for 6 years, what I saw was we kept getting these calls, and out of 10 inquiry calls, only about 2 of them actually were qualified and the other 8 weren’t. And as I started to assess the other 8, roughly about half of them I would call middle market. You know, they earn household income of $80,000 to maybe $150,000, and the other half were millionaire next door. So they were more do-it-yourself-oriented that accumulated assets.

And as we explained our model of AUM and retainer, which is the way our firm worked, they just, “Well, you know, I’m just really looking for the planning,” or, “I’ve got my money in the 401(k), you know, if you can just give me advice on that, that’d be great.” And, you know, like any good business, we knew what we wanted to work with, high-income, high-net-worth delegators. And, you know, that’s pretty classic. And we had a minimum of $1 million. We had a minimum financial planning fee. And it really just didn’t make sense for them.

And so typically, the next question was, “So who do you recommend then? Who out there does this?” And that led me on the search for someone who I could refer these people to because we weren’t going to serve them. And what I found was, as you alluded to, there just really wasn’t anyone out there that wanted to work with these people. And I frankly couldn’t figure out how it could be done. I just didn’t know the industry well enough. And it was reading actually an article in May of 2000 about Sheryl Garrett and the hourly, it was like, “Duh.” You know, you look around and what are the two other professions that are in our orbit? CPAs and attorneys. And how do they make a living? They charge for their time.

So after spending probably three or four months wrestling with the decision of, “Why would I leave a great firm that I’m doing very well at with clients that I love, you know, with a wife and two kids and another one coming to go into that uncertainty?” But, you know, as I sought advice from people I trusted, they just said, “The need is so big, you know, we suggest you give it a shot.” And my firm was so gracious in saying, “Hey, if it doesn’t work out, you know, the door is open.” They were just really…

Michael: “Oh, this is great. Mark is going to go out on his own and then when it doesn’t work out he’ll come back and he’ll stay with us forever.”

Mark: Well, and frankly there was probably more than a little bit about it in my own mind because I didn’t… I distinctly remember that first day, and I had no clients because I left all my clients at my old firm, and I went to an Office Depot to pick up some office supplies, and I had this, like, weight that I could not identify. And I realized I was feeling guilty for not being in my office. And it was the first time I realized, “I’m self-employed.” Yeah. So it was interesting. But then I also learned that there’s no such thing as paid vacations and things like that. So there’s other aspects that I came to learn. But, you know, that was really the starting point back in 2000. And, you know, I had a three-year business plan, accomplished year two in year one, and I blew out year three goal in year two. And that’s when I hired my first person, Chris, who still works with me to this day. And that kind of started the journey.

And I will point out, you know, I mentioned Chris who actually works remotely for us out of Arizona, he’s been fantastic. He works with a lot of our level four clients, that’s kind of his sweet spot. And then Hoan Taussig, one of my partners, she supports me with level five clients. There’s just a lot of work to do with those. And then we’ve got Kara who works with level one through level three. She came from Mercer. She’s just an excellent planner, just heart of gold and just can’t say enough about the team.

And then we brought on Michael. And Michael joined us only about three years ago, and he is an absolute rock star. And he is now working. In fact, last year, I got a call from somebody out of state, level five, extremely high-net-worth, extreme complexities, now probably our second-largest client, and I said, you know, “Michael, I’m pretty booked out, why don’t you take this one?” And so when the client flew in, Michael met with him and he became a client and he’s been working with him. And now he’s still working with other level five. So that’s really helped free me up because I felt like I was becoming the pinch point of our firm, and now he has brought so much to the table.

And then Lydia, most recently, is just a godsend. We needed somebody to help fill all these gaps that we had. And then we found other things that she could do that we didn’t even know she could do. Like she’s an absolute Excel whiz and has created some metrics and key metric tracking that is…I’ve never seen anything like it. So great, great team. And then Becky, she just makes sure that we’re sane and keeping it all together.

Michael: Always good to have someone keeping just all the operations and systems together.

Mark: For sure. For sure.

Michael: So how do, like, having employee advisors work in an hourly practice like yours? You know, in the AUM model, at least historically, you know, if advisors managed clients they got basically a share of the revenue. You know, you get some percentage of their AUM billing. Some firms I know now are converting towards more of a salary plus bonus structure, but at least historically, it was sort of a revenue-sharing kind of model. So do you do a similar structure in an hourly practice like, “Hey, you know, the firm charges $280 an hour, you get X dollars of it for servicing the client,” and then the rest goes to the firm to cover staff and overhead and all the rest? Like, is it a similar sort of split or do you just pay advisors a salary to be working in the firm and then it’s up to you to make sure they’ve got enough billable hours to make the firm profitable? Like, how do you structure this in an hourly environment?

Mark: Yeah, it’s an ever-evolving area for us, and we’re always trying to tweak it. So for those who are new, obviously they don’t come with business. They can’t kind of start right off and do significant billable work for us, and so it’s salary and bonus. And then when they hit a certain threshold as far as billable hours is concerned, which is somewhere in the 700 to 800 hours range, then we transition to more of a percentage of your hours billed. So the number of billed hours you did the prior year effectively sets your salary for the coming year. And then we also have a bonus structure, and then on top of that, I’m very big into having good benefits. And so we’ve got some I feel very competitive benefits.

And we took a page out of Angie’s book, her four Ps. In fact, we took a lot of advice from her four Ps, one of them being we don’t have a vacation policy. They can take vacation whenever they want because they know their responsibility. They know, you know, where they fit in the team. And we do truly work as a team. It is such a joy to work with these individuals where we’re all kind of focused on the vision and the mission of what we’re about. Yeah. So it’s a great environment.

Michael: So as you’re looking at all these advisors on the firm now, you know, a lot of mouths to feed as it were, particularly since you mentioned you also have a spouse and several kids at home, so lots and lots of mouths to feed.

Mark: Sure. Yeah.

Michael: Like, just what does marketing and new client development look like for you? Like, where are you getting clients, particularly people that pay $280 to $400 an hour? I mean, I get that they’re looking at the website and you’ve got a lot of information there, and that helps screen some of them out so only the good ones come through, but, like, you still have to get people with money to go to your website so that all that work. Like, where does all this business come from for you?

Mark: Yeah. Wow. First of all, it kind of cracks me up to hear other advisors kind of just be so shocked at charging $280 an hour, $400 an hour because if you actually do the math as to what most advisors charge out there, they’re not that far off. In fact, oftentimes on a per hour basis, they’re charging far in excess what we’re doing, and maybe or maybe not doing the same or less or more work. And so ours is actually just scalable relative to the complexity and the need of the client. So we don’t have the situation where we have the C client that takes so much time but we’re getting so little revenue or vice versa. It just kind of self-manages itself.

But back to your kind of core question, where do we get our business, I mentioned earlier other financial advisors are a big part of that. We get clients from all over the country, largely through our NAPFA connections. Advisors that we’ve gotten to know that don’t in their area, Austin, Texas, or Hawaii or whatever have an hourly option either at all or that they feel comfortable with. And so we provide a gracious out, as we talked about earlier. NAPFA is a great resource for us as people do their searches.

Michael: So, like, the NAPFA website or the NAPFA advisors or both?

Mark: Yes. Yes, both. And other professionals, CPAs, attorneys, kind of typical. And it took a little while but they actually really get our value because they charge the same way, and especially when we’re working collaboratively. I just had a meeting with a client, his CPA and myself as we were working through a business transition, and it’s just so great to be able to work interactively with the advisory team, you know, where I’m helping on the personal side, they’re helping with the business, and it’s a wonderful thing to behold from my vantage point.

But existing clients is obviously an area that actually we have failed in, I would say. Meaning we don’t often ask our clients cardinal sin, I know, “Hey, you know, we’re taking more clients. Feel free to let us know. We have extremely high satisfaction rate. We do a satisfaction survey, our average is 4.85 out of five so, you know, we get good reviews from our clients.” But then we don’t ask them, “Hey, you know, do you have anyone that you think might benefit?” So that’s just…it’s just not our nature. We’re not salesy.

In fact, I think we’ve gone too far the wrong direction because of, you know, the insurance salesman or whatever that perception. And I think we’ve taken it too far and extreme because we love what we do. We highly value what we do. We feel it’s a value to so many people out there. And so we’re just literally this year saying, “We’ve got to get the word out and we need to be more intentional with our clients.” So we’re tracking that metric to help increase that percentage. You know, I would say by and large our sources of clients are no different from, you know, most fee-only firms.

Michael: Now, what did it look like when you got started, right? Because you said your growth got going faster. I feel like when you’re getting started, you don’t have this big network of other, you know, attorneys and accountants to refer you to, you don’t have a network of other NAPFA advisors that you’ve gotten to know yet, you know, even just like internet was not as big back then so I don’t think you were getting as much off like NAPFA Find An Advisor referrals. So, you know, granted, some of the opportunities maybe are different in today’s environment than they were when you got started but, like, how did you get going in the first year or two just to get the clients going, to get the volume going?

Mark: Yeah. It was for sure other advisors. I spent a lot of time going door to door, getting their permission. I wasn’t just the old knock on the door but…

Michael: You weren’t literally going door to door. You just called them first. Okay.

Mark: No, no. Yeah. No, these were almost exclusively NAPFA advisors in Chicagoland area that I was just saying, “Can I meet with you to tell you my story?” And, you know, NAPFA advisors are so generous with their time, and I try to reciprocate too as a NAPFA advisor. And that led to a great number of opportunities to connect with people and for them to see, “Oh, yeah, this is somebody that might fit.” So that was a big source for me.

Michael: So, like, did you find almost all of them were open to it or was this still like, you would meet with 10 advisors and, you know, 8 were polite, but that was that, and then 1 or 2 of them actually gave you some business but you still had to, like, get 8 noes to get 2 yeses to refer? Like, how quickly did that open up for you?

Mark: Yeah. I would say probably, you know, out of 10 maybe 5 or 6 polite, you know, “That’s nice.”

Michael: Yeah. “Wow, that’s awesome. Well, good luck.”

Mark: Touched me on the head. Yeah. Yeah. And two that were politely suspicious because…

Michael: “You really are going to go AUM once you get them, aren’t you?”

Mark: Exactly. Exactly. “We’re not going to refer, you know, kids of clients, you know, then we lose that succession dollar.” So there was that. And what I found was by being consistent from day one, “This is how I do business. This is what I’m all about. If I wanted to be AUM, I would stay where I was.” And when they saw, “Wow, he’s actually growing, you know, and we’re hearing word that he’s doing a good job,” you know, the two that were, “Hey, this is great. We have people that, you know, don’t fit us and, you know, it sounds like you could help them,” you know, would grow to four and then it’s, you know, word has gotten out from there.

Mark’s Advice For Advice Who Want To Get Started In The Fee-For-Service Business [1:20:58]

Michael: Interesting. So for an advisor that wants to get started or go down this path today is that basically still what you’d tell them? Like, the best way to get started in the fee-for-service business is just go talk to the AUM advisors in your area who aren’t going to serve these clients anyways and just, as you said, like, tell your story and ask for referral or hope some referrals come?

Mark: Well, I mean, that’s one avenue. You’ll also find just from the natural conversations of, “Hey, what do you do for a living?” “Oh, I do financial planning by the hour.” “What?”

Michael: “Wait, what? What?”

Mark: Yeah. And that generates conversations and you’ll get opportunities just in your community. So again, it’s just like any model out there. You have to have multiple lines in the water in order to get that opportunity. It’s not an easy way of doing business. I’m not going to try to paint a pollyannaish picture, especially as a solo. I think that it’s a difficult road as a solo. Can be done, it can be done profitably if you want just kind of more that lifestyle as long as you apply some of these other things that we talked about to avoid burnout and to make it profitable.

But where I think the opportunities are unlimited is if you grow practice by intentionally bringing on A players, you know, top-grade people, which I feel we have here and we’re continuing to seek out, and you let them run. You know, Michael is three years out of college, CFP, working with level five clients. He’s a partner here at the firm. You get good people and you let them succeed, they’ll succeed. So I think there’s just great opportunity for this model. I’m really excited about its future, but I think it’s going to be a slow evolution, maybe due to pressures in the other ways of doing business, maybe the popularity and the supply/demand issue. Who knows? But I think there’s room for everyone.

Michael: So where does it go for you from here? Like, what’s the future of the firm? You know, you’re still a relatively young guy, you’ve got some time left in the business, like, what’s your vision about where the firm goes from here?

Mark: I get lesser and they get bigger. And that’s kind of my goal. So, you know, you look at like a Roy Ballentine who I think has done such a great job of really releasing the control of his firm over time to key people, and then figuring out, you know, “How can I add unique value to the firm? You know, what could I bring that maybe nobody else can bring to this firm?” So that’s really my desire for Timothy Financial is to grow it, not for growth sake, not for revenue sake, not for financial sake, but because there’s so much need out there. And I think that our model can meet such a massive need out there in so many different ways. So that’s really kind of a key on my business and the business my partners and I have.

And then personally, I mean, I like to work. I love what I do. I love coming in every Monday. And so I don’t see a natural, like, I’m going to no longer do this. You know, I’d love to be more part, and I’ve tried already through NAPFA to be part of the industry and some of the change and move the industry towards a self-regulated profession. That’s my heartbeat. You know, I am active with Geof Brown and some of the people at NAPFA to help kind of push towards that. And it makes me very excited about that. But that’s going to be a long haul. And I’m 47, I’ve got some tread left on the tire.

Why Mark Didn’t Name Timothy Financial Counsel After Himself [1:25:00]

Michael: So one other question I’ve got to ask about this, you know, maybe tied indirectly to some of what you said about building the firm bigger and beyond you, but, you know, you’re Mark Berg, Founder of Timothy Financial Counsel, you’re Mark Berg, Founder of Timothy Financial Counsel, not Berg Financial Counsel, Timothy Financial Council. Can you explain, like, where did Timothy come from?

Mark: Yeah. Well, it’s a little bit of a humorous/sad story. So I could not think of a name for the firm. I tried everything, you know, something to describe it. But one cardinal rule I had as I went down that path is I didn’t want it to be Mark Berg and Associates or whatever, kind of a typical approach because I’ve got a big enough ego, then I don’t need anything else to…yeah, in retrospect, the beauty of it is it has pointed people away from me. It’s not all about me, which, you know, I wish I could say I was smart enough to have thought of that enough.

So what’s funny is what I often do now, I thought nobody would ask me, and everyone asks me, “What’s Timothy? What does it stand for?” And I’m in the middle of the Bible Belt, so I usually turn the question back to them. I say, “Well, what do you think?” And about half of my clients say, “Well, you know, is it like a biblical reference, like the Timothy in the Bible?” And then the other half say, you know, “Is it a grandparent or, you know, a special someone?” And I went to a Christian college, I’m a Christian, so it would be a natural assumption, but that wasn’t the reason. And yeah, I have special people that I know that are Timothy, but that wasn’t the reason either. It’s just my middle name. And it was really that simple. I just thought, “Well, nobody is going to ask. It’s such a generic name.” And it’s just been funny how everybody asks.

Michael: Although, you know, I had looked it up in the discussion as well because I was kind of wondering, like, are there any Timothy’s in the Bible? And apparently, there is a St. Timothy. He’s apparently the patron against stomach and intestinal disorders. I’m not quite sure, you know, if money is making your stomach turn, St. Timothy Financial Counsel is here to help.

Mark: Well, there actually is a Timothy in the Bible. He was kind of a protégé of the Apostle Paul. And there’s actually a lot of conversation about money in the letters that Paul wrote to Timothy. So again, it would not have been…but it wasn’t intentional. That I guess is my point is I didn’t really do it by design, but after the fact, you say, “Oh yeah, well, it sounds good.”

Michael: So as we come to the end here, you know, this is a podcast about success, and one of the things that we always talk about is just that success means different things to different people, sometimes even different things to us in different stages of our own life and career. So as someone who’s built what I think anyone would objectively call a very successful hourly fee-for-service business, you know, from your personal perspective, like, how do you define success at this point?

Mark: Yeah, that’s a great question, Michael. And there are components of it that are pretty fixed. So I’d mentioned several times that success to us is lives impacted, it’s clients served. So I would love for the industry to change from their first question being, “How many assets do you have? You know, are you $1 billion?” To me, that’s completely irrelevant as to how many lives are impacted. That to me is so much more important just for our world. So that will always and forever be a driving force from a success metric standpoint.

Beyond that, I would say within Timothy Financial, it’s really raising the next generation of planners. And it so excites me. We have a lot of young people, Michael, Kara Beth, Lydia, who are all in their 20s, who are doing some amazing work and working with clients of all ages, including their own but also those far, far older than them and making real-life impacts for those clients. So really helping raise up that next generation of planners. You know, if you ask, “Well, what was, you know, Michael’s background?” He was an accounting major and had no interest in financial planning until I approached him. And, you know, what was Lydia? She had some finance but, you know, again, this wasn’t on her radar screen. Yeah.

So you don’t have to go through the program. I think these new programs are great and I think there’s going to be some opportunity, but you can get some just really good people and train them up pretty quickly to be excellent financial planners.

Michael: Well very cool. I’m excited to see how many more you get to hire and build and develop and train up as the firm keeps growing. And I think the challenge for so many advisors, right? It’s always so challenging and painful to start. Although as you astutely pointed out, like, the worst case scenario is you can always go back to the firm you were working for before. They will almost certainly take you back because there’s talent shortage out there.

But, you know, it’s challenging for everyone when you get started, but once you get established and clients get to know you and other advisors get to know you and sort of the referral and marketing machine starts, like, it’s really amazing how advisory firms compound out over time and the opportunities that you get to create for other advisors who come along in the business as well.

Mark: Yeah. For sure.

Michael: Well, thank you so much for joining us and sharing your story on the “Financial Advisor Success” podcast.

Mark: Well, thanks for having me, Michael. It was a pleasure.

Michael: Absolutely. Thank you.





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