How a retainer fee model helps drive growth and “phantom referrals,” with Abby Spaulding
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Will McKenna: Hello, and welcome to the PracticeLab podcast, where we talk to top advisors about what makes them successful, so that you can apply those lessons in your own business.
I'm your host, Will McKenna, and our guest today is Abby Spalding, one of Nashville's rising stars who won the Nashville Business Journal's Power Leaders in Finance award in 2017. Abby started her career as a financial planner about 12 years ago. And in 2015, she founded Continuum Planner Partners, an elite, comprehensive financial planning firm.
Abby's practice is unique in two ways: The first is that she offers planning for an annual retainer fee, as opposed to managing investments for an asset-based fee. Second, she has a process for attracting ideal clients — in her case, that's business owners and entrepreneurs — through what she calls "phantom referrals."
In today's episode, you're going to learn how Abby positions and prices her service, and we'll break down her phantom referral process. You don't want to miss it. So, go ahead and grab a cup of coffee, and let's head into the PracticeLab.
Will McKenna: Abby Spalding, welcome to the PracticeLab podcast.
Abby Spaulding: Thank you so much for having me. I'm excited to be here.
Will McKenna: Great to have you — so much for us to get into — really looking forward to this conversation. We're going to get into a lot of things. But I thought it would make sense just to start with a snapshot of your current practice, if you could paint a picture of your business as it stands today.
Abby Spaulding: Sure, thing. So, I am based out of Nashville, Tennessee. I have a feebased, comprehensive planning practice. What that means is all of our clients pay us an annual fee to be their financial planner. It is separate from assets under management and it is exclusively to just do a financial plan with and for them.
We felt that the market was moving towards this. When we would say, "Yeah, our clients just pay us a fee to give advice," you would hear people perk up and say, "Really? I'm interested in that." And so, to switch to this model meant that we were kind of going out on a limb and doing something that was unique. There weren't a ton of people in the marketplace that were doing it. You're seeing more actually now. In a year like 2020, people get into fee-based planning. And honestly, I really just think it's because the market is so desperate for it. They don't want everything to be attached to assets under management.
Will McKenna: That's great. And what I love is that you describe your process this way on your website, I'm going to quote you back to yourself: "Our process is based on providing objective advice, with a financial planning fee,” so very much upfront about that, “which allows us to work alongside your current plan and make necessary adjustments to help accomplish your goals and fill in any gaps that you may have." And so, is it fair to say you work alongside the existing advisors on those accounts? And I'm just curious, how does that work? What are the dynamics of that?
Abby Spaulding: I thought, initially, that if we charged fees for clients and said, “For you to work with me, it’s going to cost X, and it will be a retainer model,” that we would get pushback. I'd say we very rarely hear that. I think people want to pay for valued advice.
The best way I've described it to clients is to say, "Look, you are hiring us to be your architect. You need a plan. Right now, you have advisors, but you don't have a plan. And we need to take a couple steps back and say, ‘What's your one-year, three-year and 30-year goals? And how are we building plans to get there?’” Now, we at our firm also have a contracting license, if you want us to manage the money. If you want us to implement on insurance, we can. We don't have to. If you have a contractor that you've worked with for years, she's doing a good job, or I always like to joke if you have a contractor who's your brother, they're getting the business, we can work with them. We do not have to fire anyone's advisors. And quite frankly, we don't come from that place.
But we do come from a place that our clients are typically building a home without plans, and somebody needs to come in and think about this much more holistically. So, we do a lot around goal planning. We do a lot around cash flow models. In my opinion, cash flow runs the show. I don't care if you have a high net worth or a low net worth. Everybody's pretty much just worried about what their cash flow is and how they can afford their lifestyle. And so, building models around their cash flow and projections around that cash flow. We do a lot in debt reduction, a lot in risk management — whether it's health insurance, identity theft protection, advising clients to freeze their credit — those things that most advisors would probably step around, but it's really impactful and likely, given our current climate. And we do a lot around investment in analysis, retirement planning, financial independence, education and college planning.
We spend a lot of time on estate planning, whether it's reviewing or just putting in front of our clients who is listed on their estate documents. I had a case last week where we showed someone who their executor is and who their powers of attorney are. And they're no longer speaking to those two individuals. They’re like, “You're kidding. They're still on here?” They were, yeah, we got to get these updated. I mean, it happens a lot. So, it's our job to look at this holistic view and say, “OK, where are you going?” You know?
Will McKenna: I thought it was interesting. You're describing this as planning, not a plan, and rather than a one-and-done document that somebody puts in a drawer and, to your earlier point, forget who the executor or the beneficiaries are. And this is making me want to go back and dust off my plan, which is somewhere in a drawer. But the idea that you have an annual arrangement, can you share with the audience how you set that up? How you handle the pricing? How is your model set up?
Abby Spaulding: You're absolutely right. We believe that planning and finances are a living and breathing thing. You never really get to say, “I did it. It's done. I finished it.” But because of that, we like to say to our clients, there's very rarely a time that we get to go to our clients and say, “Yeah, you're finished. You don't have to worry about this anymore.” People get raises, people get bonuses, people want to pay off debt, people want to buy new houses, people's kids get older, fill in the blank. People are getting closer and closer to retirement. Global pandemics happen, and people's job security gets tested. And we are at the dance to help them navigate that.
Because of that, our business model is to get paid on an annual basis to do the planning. And we set it up that way from the beginning. How our firm has it structured is that we charge an upfront annual fee. And then we quote the second-year fee right off the bat. So the client knows what they're getting into. A big complaint of our industry is, “I never know how much my advisor makes. There's a lot of fees in these accounts. And I don't know exactly what my advisor makes.” And we wanted to clean that up. So, we put a proposal together That proposal outlines the scope of our work and what the fee is, both on our first year and on an annual and ongoing basis, so that clients know what they're getting into and know how to structure it.
How we have decided to structure our fees is on a retainer model. Sometimes that means, in busy years, we're working more than we're getting paid. I'll use 2020 as an excellent example of that. We're at the dance to field questions, be proactive, trying to make sure that people aren't worried. Figure out how the CARES Act and the PPP loans work, figure out how forgiveness works, figure out what to do when people are furloughed. Figure out there are some industries that are doing very well in this pandemic, figure out how to handle that. And again, growth comes with problems as well. And so, you know, in some years, we're a little underpaid, because we're being overworked. And then in other years (hopefully next year), things settle out a little bit. We go OK, we set some things up on rails. We're doing some check-ins, and things are a little bit more comfortable, and we don't work as many hours. But in our opinion, it kind of works out in the wash, because we are looking for lifetime clients, not one- or two-time transactional events.
Will McKenna: We've been talking a lot about where you are today. You're obviously very successful and very experienced and doing very well. But I think the thing that's interesting for our audience to hear are the challenges that weren't always so easy to get over. And can you take us back and help us understand, you know, what were some of those milestones, forks in the road, big challenges, and how did you get through them?
Abby Spaulding: When I first started, I was really out on my own, and trying to call on people and convince them to hire me as their financial advisor and was getting very little traction. I just kept smiling and dialing and beating my head against the wall until, finally, a team kind of put me underneath their wing. And I was able to say, “Well, I'll get the meeting. You do the talking.” (laughs) I'll set it up, and I can bring an expert with me. I learned way early on in my career the benefit of having someone who was a little bit more seasoned with me and finding that mentor. Because without it, I was flailing.
And I had a couple of clients, or I should say prospects, that really walked all over me, didn't value my time. I'd go to their offices, they'd have me sit in the waiting room for 45 minutes, give me five minutes of the meeting, and then kick me out for a different call. And that taught me very early and quickly that I also needed to value my time.
And at the same time, I also had a client who I was helping, who we did a really good job for. And quite frankly, I undercharged them, because I was a little less confident in our ability. And what we did for them and the feedback we got from that client of just how much we helped them was incongruent to getting my time wasted. And I had what I called an epiphany. I still think about it all the time, when I realized that my advice was worth more than what my clients had to give me, and that we provided a service that really helped people. I wasn't a sleazy salesperson. I wasn't trying to be a sleazy salesperson, and therefore, didn't need everyone as a client. I needed to find people who just wanted to work with us as much as we wanted to work with them. And it dropped so much noise from my practice to say, "I'm not going to get walked on anymore." If they don't want to work with me, I'm not desperate to work with them. Have to move on.
There’s enough people for me to work with and provide excellent service to that I don't have to beg people
to work with me.
And all of that kind of opened quite a bit of doors of, “Yeah, let's work with people we just want to work with.” And then the cards kind of started the fall. They tend to give you referrals to people that are like them, and you look out and go, “God, I actually like these people. And I want to take their calls.” Having that epiphany that my time is worth it. Which only happened because people didn't value my time. All things are good lessons. All failures are good learning opportunities.
Will McKenna: That epiphany led Abby and her team to define the ideal clients they wanted to work with. So now we're going to shift gears and talk about Abby's ideal clients, who are business owners and entrepreneurs. And Abby reveals some surprising techniques she uses to win new business, including charging more than other advisors. So, let's jump back in and hear why she targets business owners in the first place.
Abby Spaulding: Typically, entrepreneurs tend to be good decision-makers. We like that they can worry about the short and the long, you know? We can present them with: “OK, you’ve got a short-term need here, but don't hurt your long-term vision with it.”
They also tend not to have an advisor. I usually like to say my businessowner clients kind of have three characteristics: They have great cash flow. (Their businesses are making money and they can provide whatever lifestyle they're trying to create.) They tend to have a high net worth. (You know, they own the real estate, they own the business. They like to buy personal real estate, they like to invest in other businesses. They tend to have a strong net worth.) But they have no money. They are not sitting on a big brokerage account. And so they can get overlooked by other advisors, because there's nothing really to do, if my only revenue source is managing their money and they don't have any money for me to manage. I just have to wait until they liquidate.
Will McKenna: I see. So, it's basically like they have this latent wealth that hasn't been turned into a liquid asset yet, because they're sitting on a business and real estate and so on. Yeah, that was a funny quote, when you said they have no money. I didn't know what you meant. But that's a great way to put it.
Abby Spaulding: Yeah, they usually have a lot of cash (laughs), but they just don't have a large investment block.
Will McKenna: So, in other words, before the sale of the business, you're making your fee on the planning, which is this annual engagement, without having to worry about the size of the brokerage account to charge a 1% fee on. It also sounds like there's probably, you know, a fair amount of complexity in some of these cases that I get the sense you'd like to sink your teeth into. It'd be great to hear you bring this to life with an example of a of a case or two that you've worked on that you're particularly proud of.
Abby Spaulding: Yeah, I will say that complexity does excite us. We like a puzzle. And most of the time, we describe it as it's a knot. I can't just pull on one string to untie it. If I pull on one string, it's going to create a tighter knot somewhere else. And so how do we untie this thing so that the person can make decisions?
I can actually give you an example of a client with a very complicated case. We had a married couple, second marriage for them both, children from other marriages for them both. Both of them owned very successful businesses. So about a $75 million household net worth. She was selling her business and saw the writing on the wall. She was going to sell it in about 18 months. And she … they were interviewing advisors, and we were one of the advisors. And obviously, we've won the case, because she's a client now.
After the fact, I was able to ask her, what made you choose us versus somebody else? She shared with us that of the other four advisors, two of them said, “I'm not going to charge you anything. When you sell it, I get to manage some of the money.” And she went, “I have 18 months of work in front of us.” And they really did. It was a mess. They were not on a similar cash flow. They really had individualized personal financial statements. There was no cohesive way for them to look at everything they had. Things needed to be retitled. They had adult children who were not very good with money that we needed to set up trust work to make sure that: A) we did some estate tax planning. But B) there was estate planning needed to equalize the family members. But fair is not equal and equal’s not fair. And so how did we make it so that people had access to money, but it wasn’t detrimental to them? And then how do we offset some of the sale of this business with taxes? I mean, there was a lot of work that needed to be done.
And two people said, “We won't charge you. We’ll just manage the money when you sell it.” And another person came in, a third person said, “Oh we'll [charge] you a consulting fee. For 18 months of work, it is $1,500.” And she went, “$1,500? I’m not gonna pay your annual light bill with that. That seems really light.” It seems like a bait and switch, is what she told us.
And we came to the dance and said, for this particular case, we segmented it and said, “I need to do an audit of everything you have. That's going to be $10,000.” Once we know what we're dealing with, and what is red light (meaning we’ve got to fix it, hard), yellow light (it's a concern but maybe, with some explanation, we can not have to worry about it), and green light (meaning it looks great we can put this on the shelf).
But then, phase two, you're going to pay us for the red-light items. We're going to come back with recommendations on how to fix all this. And then you're going to pay us an ongoing annual fee. And all of that totals out to be somewhere in the $30,000 to $40,000 range. And they hired us.
And again, we were able to think about the case much more holistically and say, “OK, we need to protect your adult children from themselves. How do we, how do we set up trust work? And what needs to be that feels right in that case to be able to do that?” And they're very charitably inclined. How do we set up, potentially, donoradvised funds and a charitable remainder trust? And, again, I'm not an attorney. But we know enough about how to structure these things to then implement them to lower tax implications and business sales and all of those things. And so, the more tools in our belt that we can use, the more fun the case is for us, the more excited we get when we bump into them.
Will McKenna: When we were talking about your client base, you did mention referrals. But I'm sure our audience is curious. How do you get new clients, and maybe beyond referrals? Tell us what that process looks like.
Abby Spaulding: So, at this stage of our, of my, career, most of our clients come to us by way of referral. However, we have created a system where we get what we call "phantom referrals." And I'll explain what that means. It's a term that we made up. But it's that we get referrals without asking. And the way we do that is we have a very high-touch service model. We create touch points with our clients. We try to think about what is important to them.
So, for example, client has a baby, we're sending baby gifts to the house. Client pays off a student loan — student loan, in particular, clients tend to have a big occasion in their life when they pay off the student loans. We like to send them a bottle of champagne. And so we get involved in those components, and it creates an opportunity for them to talk about us. And then we get phantom referrals. So I'm not doing the "Who do you know?," They're coming to us and saying, "Hey, I gave your name to so-and-so." And I would say probably 70% of our clients come to us from referrals.
The other 30% is an active marketing on my part to either put myself in the same room as people that I want to work with or just straight calling on them. You know, when we got granular on who we wanted to work with, it got really easy to find them. You say, “Oh, man, they're all in these types of rooms.” They're in these charitable meetings. They're in these community meetings. And I'm interested in those things as well. And so, let's get in the room. And so that we can meet those people. Or, simply, I want to work with that person. They fall in all those categories that I mentioned. And I came across them, and I'm going to directly ask them for a meeting. I am a big believer in being persistent, and not a pest. I like to tell people that. I'm interested in you, I'd like to get to know you more, I'm going to be persistent in this pursuit. And I hope I don't cross the line into being a pest. But please tell me if I do. Otherwise, I'll follow up with you in six months and see if timing is better for us to meet then. But it is an active pursuit to try to meet those other 30%.
Will McKenna: I love that idea of phantom referrals. That's a great term, and just the fact that you get so many referrals by giving such good high-touch service. OK, great stuff. Well, listen, we're coming to the final question. And my last question for you is this: If you were going to give advice to a young financial planner, just getting into the business, what would you tell them?
Abby Spaulding: It's interesting, because, again, a big barrier of entry to a young planner is there's a lot of information around structuring debt, paying taxes, investments, retirement. And so, the biggest thing you need to convey to your clients is that you care. What we are helping our clients figure out is their livelihood. You know, money is a means to an end. And so, if you can convey to your clients that you care, more than anyone … I used to say all the time when I was getting started: I'm not the smartest person in the room, but no one will care more about your situation than I will. And no one will out-work me. And I knew that if people understood that I was going to do the best job I could, and work really hard, and know that what they cared about I cared about. And I would take it very sacred that they shared that information with me, that people would want to work with me.
And you don't have to have a ton of experience to do that. You don't have to have a ton of knowledge about the industry. But you will find them the answer and care about their situation and think about their meeting after you've had it. And trying to come up with better and smarter solutions for them can convey a lot, will get you a lot further, than just where you went to school, what all you know, and trying to regurgitate everything that you know in front of a client. You know, it's that old phrase: People don't care how much you know, until they know how much care. And so, I really think when we talk to clients about their livelihood, if you don't care about them, they're going to know it immediately.
Will McKenna: Wow, that is a great place to end. Abby Spaulding, what a delight! Thank you for joining us here on the PracticeLab podcast.
Abby Spaulding: Thank you so much for having me. It was a lot of fun.
Will McKenna: That was so much fun. Thank you to Abby Spalding for coming on the show. And thanks to my colleague, Chris Jenkins, for connecting me and Abby.
Let me summarize some of the lessons I learned in this episode: That people want to pay for valued advice. That planning is a living, breathing thing, not a one-time event. That you don't need to go after every prospect, especially those who waste your time. That being selective about working with ideal clients can actually lead to even more business. That phantom referrals come from providing high-touch service that inspires clients to talk about you. That you don't need a ton of experience if you show clients you care more than anyone else. And that people don't care how much you know, until they know how much you care.
Will McKenna: OK, so that wraps up this episode of the PracticeLab podcast. If you liked what you heard today, please hit the subscribe button and consider leaving a rating and review. PracticeLab is sponsored by Capital Group. You can find all our episodes and more resources by visiting us at practicelab.com. I hope you found this as valuable and useful as I did, and I look forward to joining you on the next episode of the PracticeLab podcast.
