Independent Perspectives: Making the Leap to Independence

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Now's the Time: Making the Leap to Independence

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Tim Oden
Managing Director, Business Development, Schwab Advisor Services^TM

TIM ODEN: So, with that, why don't we take a moment, and let me introduce my colleague Tony Parkin. Tony Parkin is the VP of Field Consulting and Education at Schwab. Tony and I have worked together for a very long time. He leads the delivery of our Practice Management and Consulting efforts. So it's Tony's team of consultants that my team of business development officers, they work together to be able to provide you with information necessary, to be able to support your overall business. So, with that, I want to welcome Tony and kick it off to him for our panel discussion. Tony, thanks for joining us.

TONY PARKIN: Great, Tim. happy to be here with you. Thanks for the kind introduction and the invitation to join you, your team, and our audience of advisors this morning.

So as Tim mentioned, my role here this morning really is to facilitate a discussion with each of our panelists that brings their individual stories of a move to independence and their life as an RIA to life. I'm excited to be in this position because I know from engaging with each of them in the last number of weeks and from knowing some of their stories over the past few years that they have some amazing things to share. They have times to share that were galvanizing moments in their decisions to go to independence, They have stories to share about opportunities unlocked in their business, And they also have stories to share just about how much of a fulfilled life that they're able to live now.

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Tony Parkin
Managing Director
Schwab Advisor Services

Carrie S. Gallaway, CFP
Managing Partner
YorkBridge Wealth Partners

Milo F. Hanke, CFP
Principal, Financial Planner
Hanke & Co. Wealth Management

Gil Baumgarten
President, CEO
Segment Wealth Management

So, with that, I'm excited to Gil Baumgarten from Segment Wealth Management, Carrie Galloway, from your YorkBridge Wealth Partners, and Milo Hanke from Hanke and Company to join us here this morning. And to get things kicked off before I ask you the real questions that we want to get into, I'm going to have each of you take just a minute to introduce yourself to the audience and Gil, how about we start with you?

GIL BAUMGARTEN: Sure. My name is Gil Baumgarten. I have been an independent RIA for 10 years

TONY: Great. Thanks, Gil. Carrie.

CARRIE: Hi, I'm Carrie Galloway. The firm that I founded with my business partners called YorkBridge Wealth Partners. They're in New York City. We're a fee-only registered investment advisory firm. We have eight employees now and I'm really excited to be here.

MILO HANKE: Hi, I'm Milo Hanke, Principal of Hanke and Company Wealth Management. We're in San Francisco's Financial District. I'm one of two certified financial planners. We also have a full-time operations manager. I entered the industry in 1984 and had been in the independent broker-dealer channels for all of that time until going RIA three years ago.

TONY: Gil, one of the things we talked about a couple of weeks ago was how many more clients you have at that upper end of the marketplace now, and, you know, why you think you were able to attract some of those clients now versus in your prior environment. Do you mind taking a second to dig into that a little bit further?

GIL: Well, it's… I think it gets down to the position of advocacy. It's much easier to advocate for the client's position when you don't have some marker that you have to meet. I always felt like I was compensated as though I was sort of a guide of a pinball game, where the ball would be rolling through the game and I'd have to push all my clients into each one of the bumpers. And I always felt like my job would be to get them through the game as smoothly as possible without touching anything. But I had to ring all the bells and flash all the lights in order to get compensated. And clients perceive that they're being pushed around a little bit. They tolerate that because they liked the advisor and they want to work with him, but that advisor ultimately lives in an ecosystem that requires him to hit certain markers in order to do certain things. And clients can sense that that's not an advocacy-type business, even though they'll put up with it.

TONY: You were kind enough to share a story with me, Gil, of a prospect that you came across late in your days of working in the wirehouse, who wouldn't give you the time that you were hoping that he would give you that became a client in your early days of being an RIA. Do you mind sharing that with us real quick?

GIL: Sure. I met the guy and liked him, and he seemed to like me as well, but he told me that he was not going to do business with me at a wirehouse because he had had bad experience with wirehouses. And if my situation ever changed, he'd be happy to re-engage with me. I just kind of kept his phone number and went ahead and did my transition and got through the first couple of months of the rough parts of getting it all taken care of, and I could relax and think, ‘Well, who are my prospects?' And, of course, this guy is the first one to come to mind. I called him up, just tell him what I've done. I promise you I'm not on one phone with him for five minutes, and I described what I was doing. And he said, ‘Okay, I'll give you $8 million.' And, ultimately, I've gotten a lot more money from that client. So that's the power of what we're talking about.

TONY: Fantastic. Appreciate that, Gil. Milo, let's turns you give us the audience a sense of what's changed for you, and your team, and your clients since coming out of the broker-dealer space and into the RIA model.

MILO: I am experiencing a career renaissance. At a personal level, it's a career renaissance. And it began, and it was marked by going RIA three years ago. And now I'm able to put a growing emphasis on planned giving, charitable, socially conscious investing, and life coaching. Metrics for the business? We've had an increase in recurrent revenue. And one of the reasons I had to… I felt increasingly uncomfortable in my prior situation was I didn't have the money available to expand staff, and also compensate people as their skillset grew and their contribution grew to the company. Oh, by the way, back in those days, I was working five days a week and often six days a week. Now, I stick to a four-day workweek. And mind you, this is a growing firm. And when I left the BD world, I definitely took this practice off of the plateau. We're on a growth trajectory.

TONY: Fantastic. Thanks, Milo. Carrie, how about you, what's changed in the years since you moved to the RIA model.

CARRIE: So I think the biggest… some of the biggest things that have changed for us is the… initially, one of the biggest changes was that we actually now have two offices. So we felt that there was a need and an opportunity to expand into two segments of the New York market, and by having our own firm, we were able to do that right away. I think the biggest thing, which I think my other two panelists are saying… sorry, are echo this, is just the ability to really put a client first and not have any other distractions has been really important. And I think that it's something that you don't even realize how the distractions of being at… having sort of this corporate entity over you really can distract from your day-to-day, and it ends up creating a lot more time.  Certainly, our revenue is up like everybody else. And the other thing with, for me, that's been really important, has been the ability to have more time to spend with my family. I mean, one of the biggest differences for me is that my kids now are four years older, but during this time I've had a lot more flexibility to be able to be with them when I needed to. Certainly in the last seven months during this pandemic… not at the beginning, but certainly the summer, I was able to really make my hours really very flexible to be able to do more things with them because it's time that I'll never get back. You know, they're only going to be their ages of 9 and 12 for a little bit longer when they actually want to spend some time, you know, with me. And so that really has been pretty fantastic. And it also… the ability to do that has been because we have a really great team, a support team and other advisors as part of the firm, and so we leverage off of each other. And it's a very collaborative environment, which I don't think you always find at, you know, some of the other offices within the wirehouse world.

TONY: Fantastic. Thanks, Carrie. Do you mind if I have you dig a little bit deeper on, on one of the things you just mentioned? When we connected a few weeks ago and I asked you to talk about, you know, what are the biggest reasons that led you to this transition, you went to family first. But you talked a little bit about what you thought was the expectation was, or maybe even an unfair expectation of what it was on you of being in the office in your former environment. Do you mind sharing a little bit more about that?

CARRIE: Sure. And I think that… so I think that with every… you know, every office, every firm is going to have different culture, right? So what Tony and I talked about was just that I felt within the office that I was in that there was a lot of pressure to have face time in the office. And so that was the ability now to not have to have that, you know, and really be the one… one of the people who's in control, and in control of how the office runs, but then also how we work with clients is really… has been really, I guess, liberating, and is great.

TONY: Great. Thanks, Carrie. Gil, when we spoke recently, I was spending some time digging through your current website for Segment, and you have a link to some artwork that you're very proud of. And I asked you to give me, you know, some sense of the significance of that artwork and why you would bring that forth to your clients in this capacity. And I loved where you went with that. Do you mind sharing that story with the audience as well? And if we get that slide back up, that would be great.

GIL: You know, it adds a personal element, but that allows people to connect with you on a different level than just professionally. And in 2005, you'll see in the top left-hand corner of that is a chair that I built in my woodshop. And in 2005, I had a pair of these in my office. So my branch manager comes in and says, ‘Hey, we just redecorated the office, and corporate says we can't have any furniture in the office that doesn't fit our corporate profile.' And I paused, and I began to build up this volcano inside of me. And just before I reached across the desk with some very bitter words, he recanted and said, ‘I don't think that's going to be necessary in this case.' But I could tell that there was this rigidity with the way they wanted to do things that I had to sit inside of their little box, and it really irritated the heck out of me.

TONY: I think you shared with me something along the lines of a conversation that asks you how much time you had spent.

GIL: Yeah, that… thank you. The other part of it is he asked me how much time I had spent working on these chairs. And I told him that I spend at least 300 hours on my chairs, which, frankly, at the time… it took me a year to build them. Most of that time was at 3 o'clock in the morning to around 6 o'clock in the morning when I would normally awaken and be unable to go back to sleep anyway. And so it was pretty crazy to me that the first words out of his mouth when I told him I'd spent 300 hours, he said, you know, ‘Imagine how much more money you would be making if you spent those 300 hours prospecting?' Well, mind you, there was 50 brokers in my branch at the time, and I was probably ranked in the top five for productivity. It wasn't as though I was some lowly producer that needed to be out there prospecting. But it just went to show me he wasn't really that interested in me. And, frankly, he wasn't interested in how much more money I could make. He was interested in how much more money he could make. And so that was another thing that just really irritated me.

TONY: Well, we spoke a lot about the importance of the concept of being an independent fiduciary, how important that is to you. And I have this feeling that those chairs and probably some of your other artwork represent that in, in your office when clients come in.

GIL: Well, thank you. Thank you.

TONY: I won't ask you to turn your camera to share them with everybody, but I know those chairs are sitting across the desk from you right now in a proud part of your office.

Maybe one more thing before we turn back to Carrie. One other thing that I know you feel has unlocked your ability to attract the types of clients that you want to, Gil, in this environment is how you're able to charge your clients, and the flexibility that comes with that. Do you mind taking a second to expand on that a little bit?

GIL: Yeah, so a couple of things. When you discount to make fees competitive, especially at the large end of the marketplace, I find sort of a base level that the firm would not allow me to go. And so they disproportionately penalized me for doing business so-called on the cheap. Well, their mathematical model doesn't lend itself to $20 million accounts or a $30 million accounts, or, frankly, the $100 account that we have. And so… I also find that clients, when you're talking to them about fees, and in what was the prevalent marketplace 10 years ago, you had to get them to do a managed account, you had to get them to buy mutual funds, and clients would be charged different fees. And when they would ask questions about what the costs were, you would just… I would describe it to them. But what I found is two or three years later, when I was talking to the client and we got to talking about fees again, whatever was the highest number that I had mentioned three years prior, was the number that they kept in their mind as to what it was they were being charged.

TONY: Fantastic. Thanks, Gil. Carrie let's come back to you, and if we get Carrie's slide up, as well, that would be great. You lit up in some of our past conversations when asked about, you know, what this has afforded you and kind of what the a-ha moment was after you went independent. You mentioned that this is how this has unlocked and allowed you and your partners to tell your true story. It was almost a story that you didn't know existed before you went independent. Do you mind expanding on that a little bit? I know you wrote a book recently that's a big part of that. And, you know, give the audience an example of what that story has turned into and how beneficial it's been to your business.

CARRIE: Sure. Yeah. So I think the biggest, and I think what Tony is alluding to, is just the ability to really be able to work with clients who we identify with. So, for me, it's especially a lot of women. And so the book that I wrote was about making sure that women have the tools and the information, the resources that they need to really have a retirement that they want, where they're not going to have to depend on somebody else. So over the time that I've spoken, you know, with clients, that's something that really is a theme that continually comes up.

We also have been able to, at the same time, really work with a lot of people who are similar to us—entrepreneurs, solopreneurs, and people who just have complex lives, so complex family situations and business situations. And that's where we're able to now really work with them as advocates and as partners. And we're not, as Gil, you know, was saying… I totally agree with so much of what he was saying in terms of how now we can charge clients, because we're really able to sit on the same side of the table with them and take, you know, this much longer view. There's never a question of is something, just a transaction. And I actually wrote in my notes that I… one of the stories I wanted to share was how we have a client who as soon as we went to him and said… because he was basically worked primarily on a commission-based beforehand… we said we wanted to charge him a flat fee. He… before I even finished saying that he jumped on it and said, ‘That makes total sense. Now I'm never going to worry about if you're calling for making a recommendation, because it's… you want to, you know, make a trade to get a commission. And it's been… that was really eye-opening, you know, to see that. I really think that there's lot of people out there and to… and we know… we know… you know, I know that there's a lot of people who are very, very confused by, you know… I think Gail has said it perfectly, sort of how it's so confusing, you can't necessarily always figure out to the client what the fees are. And now being able to have that be off the table has been just really refreshing as the advisor and just helpful.

One of the things that we've really been able to do, too, and this corresponds with my book, is that where you do a lot more education for clients. So we've been able to do a lot more events, webinars. As soon as the pandemic hit, we started doing, you know, virtual meetings and then even virtual webinars. And so just the fact of being able to educate clients and then prospective clients has really been a big part of what's then enabled us to grow. And I don't think that we would have been able to do that or really implemented as quickly if we hadn't been on our own.

TONY: Thanks, Carrie. You mentioned earlier, you were able to open a second office. And in our past discussions, you mentioned how you talk more with prospective clients now about merging their business and personal finances together. Can you talk about how those two things have intersected for you a little bit? I know your second office you didn't open just near your vacation home. It's a very strategic location for you.

CARRIE: Yeah, so we have… so our primary office… well, there are really two primary offices, but we originally were just based out of New York City. When we launched, we started both… we started both offices at the same time. So that's actually how we came up with our name, YorkBridge. So it's a combination of New York and Bridgehampton. And for people who are familiar with Bridgehampton, that is part of the Hamptons, which is the, you know, eastern most part of Long Island, which a lot of people think, okay, we want open that office probably to cater to people who are going from New York to their vacation home. And that actually wasn't the case. There really is a very large year-round community out there. And it is filled with small business owners. It's people who are working with a lot of the people who are there for vacations or second home, but there's a tremendous amount of… or need for really thoughtful financial planning and investment management for that community. And there's… it's… so that's something that has been a great opportunity for us in terms of growth. My business partner, Andy Stern, lives out there full time, and so he really caters and works that whole group of small business owners. And the fact that we're small business owners, I think it creates a different bond or a different opportunity to talk about things. You know, there's a different level of trust versus if you are at, you know, a big institution that's just known for maybe being in New York City, especially for that area. And I think that would be transferrable for other parts of the country. You know, I think that's really something that other… as a business owner, they… our clients can identify, you know, with us and, and I think there's a connection there.

TONY: Fantastic. Thanks, Carrie. Milo. We were talking recently, you started… you talked about the weight the amazing, almost negative weight that you felt your business card carried. Do you mind taking us a little further into that thinking,

MILO: Certainly. Yeah, what's notable about this… for me, what's notable about this card is what it does not include anymore. I had two lines of disclosure information that named my broker-dealer, and it listed an insurance license and so forth. I'll give you a specific example, and it's similar to Gil's story.

We… in the past year, we brought in a $16 million account that I would not have gotten had I still been with a broker-dealer. And here's the bottom line. The attorney who I had known for a couple of years was talking about a major client of his who had been systematically abused for decades at one of these large wirehouses that will go on named. Well, my being in independent channel was not enough of a difference. So once I went independent, we had the introduction. We have… we are clear and we are crisp in the fact that we are fiduciary. We are an advocate for the client pure and simple. And Schwab, that's where your money is held.

TONY: Next, I think I wanted to dive into transition experience and some key partners that helped you in transitioning, you know, in the moment of actually moving your business to the RIA model. And, Milo, I wanted to, to come to you first to share some of what your experience was.

MILO: Okay. I'd like to just say that however we came to the decision to transition and whatever was involved is all now a distant memory. Six months into being an RIA, we forgot about all the tedious preparation that went into it. But it was a phenomenally successful experience. And Schwab sees you calm. They know that you're nervous. They know that you have blind spots. It's all new. If you've been in the broker-dealer community, frankly, you're going to be unbundling a lot of services that you would had taken for granted. One of the things that helped us was attending the Schwab SOLUTIONS seminar, So you're able to meet face to face with all of the preferred vendors that Schwab has introduced us to.

TONY: Fantastic. Thanks. Thanks, Milo. Carrie, I wanted to give you a minute to share your experience, as well. I know that you felt that it went smoothly and quickly, but you also had a very key partner in your transition that I would love you to talk about to highlight, you know, kind of the depth and breadth of support that's available in the space these days,

CARRIE: Sure. So our firm is maybe a little bit different than the other two panelists, because we were three financial advisors who were going to be, you know, breaking away together, and there were some different businesses. And we had… so that made a different complexity, and we wanted… so we decided to work with Dynasty Financial Partners to be able to really help us with the transition, but, in addition to Schwab, but then also to be able to help us with some of the operational side of running the business, and even just even now, you know, all aspects of some of the operational and compliance and marketing efforts. So we… between the team at Dynasty, as well as then the people who were also in our office from Schwab, we really were able to transition all of our clients very quickly. It was similar to what Milo said.

And we chose Schwab, mostly, because of the technology, all the people who we had interacted with when we were doing our due diligence, and really, the commitment, too, to the RIA space. I think that was something that we, you know, really felt from the beginning. And it's really only continued. So we've been really thrilled.

TONY: A couple of questions that have come in around revenue during transition, and, you know, how did you approach that? Where does your revenue come from? How much, you know, you might have set aside in preparation for a transition? Milo, how about we have you weigh in on that first?

MILO: Yeah, well, it's going to take a while to get paid. But you're going to get paid. In the transition. So maybe I lost about two or three weeks revenue in that transition.

TONY: Carrie, you mind weighing in?

CARRIE: I think it has… you know, so I'm going to wear a financial planning hat a little bit. I think it's, you know, partly people's comfort levels, like, you know, in terms of how much cash one really needs on hand. And it also is complex because it depends on how you're launching. Are you going out and getting an office space where you're going to need to be paying rent, or are you starting where you're working outside of...  in your house? So I think those are all things that need to be really thought about. And, you know, also, what employees do you have? Do you have a staff that you are going to need to pay until revenue comes in? And so, for me, that's not an easy question to just say there's a number, because there's a lot of different factors that come into play.

TONY: I did want to give you all one more minute to kind of leave a parting shot, if you will, some parting thoughts with our audience this morning, and, in essence, share what was the one thing that you didn't expect to have happened to after moving to the RIA model that we haven't talked about and that you don't think our audience would expect either? And how about, Milo, we'll keep you rolling, and I go to you first.

MILO: It was a breath of fresh air. I didn't realize how… it's a little bit like asking a goldfish to define water, if that's all they've been in. I really feel like a new guy in this business. I'm experiencing a career Renaissance. And the enthusiasm is translating to attracting more and better business.

TONY: Fantastic. Carrie?

CARRIE: I think that the… you know, what I didn't expect and now, in hindsight, what I realized and I mentioned it a little bit before, was just the fact that I didn't realize how much of a mental… like, mentally, I was being pulled in multiple directions. So, for instance, just having to show your face every once in a while at a branch meeting, you know, to hear about some closed-end fund that was being sold that I had no interest in putting clients in, you know, or investing in. But you still, every once in a while, you would be asked to go and show up to those things. And that really is now, in hindsight, I realized like that was just energy that got wasted that you now can use much more effectively and efficiently, or in the time… you're in control of your time and what's happening for clients. And that's really fantastic.

TONY: Thanks, Carrie. Gil, one last thought?

GIL: My wife says that she's married a new man. You know, I felt like I've had created this fiduciary sort of business on that brokerage platform, but I always felt inhibited by the way they wanted to take my round business and fit it into their square hole. And that created a little bit of an attitude torque in me that I took home every night. And I come home now and I feel like, you know, I've found my way. And so my wife would say she's the cheerleader for doing this because she doesn't sense that torque in me anymore. And I'm happier, she's happier, and we're happier.

TONY: Fantastic. Well, this is the time that I would normally ask everybody in our audience to join me in a warm round of applause for our panelists. But since we're not in person together, I can't do that. So I'll just say thank you to each of you directly myself for the time, and sharing your insights and your personal stories, as well.

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Presentation as of October 29, 2020.

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