Hi, I'm Scott Snider, founder of Mellen Money Management LLC, a fee-only financial planning practice that started in Columbus, OH and relocated to Jacksonville, FL. Welcome to my first ever blog post. Given the amount of content, I am breaking up my first topic into a 4-part series called, My Journey to Starting a Fee-only Financial Planning Firm, which focuses on how my career path brought me to start my own firm. Part I, A Road Less Traveled, tells more about why I started a fee-only firm, while the other sequels provide a deeper look into the 3 places I worked prior to Mellen Money Management and how those experiences shaped my company's mission. The purpose of this series is to give entrepreneurs a peek into how an idea can turn into a profitable company. My path is full of twists and turns, and I surely tripped many times along the way. More importantly, I hope my experience provides some teachable moments for anyone out there thinking about betting on themselves. If you have a plan, quite honestly it's the best decision you can make.
Part I: A Road Less Traveled
Being the procrastinator that I am with certain areas of my life, I am about 5 months behind schedule from when I intended to start posting content on my blog. Let's just say I am slow to try new things. A perfect example, I never ate seafood until my wife and I recently moved our family to Jacksonville, FL, where I was basically forced into liking it. How do you live by the ocean and not eat seafood? I didn't want to be "that guy" everyone had to plan dinner around because he didn't eat seafood. For about 33 years.... I was that guy! My wife is probably rolling her eyes as she reads that last sentence. The funny thing is I actually like seafood now. I draw a similar parallel to how I feel about writing. I was absolutely terrible at it until my mom forced me to take summer tutoring sessions going into my Freshman year of High School. Seriously, what young boy wants to spend his summers writing? Once again, being a semi-decent writer is something I have grown to appreciate as I get older. Thanks, Mom! I sincerely mean it.
So how does this all fit in with my career journey you ask? Well, if you told the 22-year-old version of me, you will be starting your own business by the time you are 32 years old, I would have looked at you crossed eyed. In other words, my journey to a fulfilling career was not the path I thought it would be. Similar to how I felt about seafood and writing, my career journey was at times very painful until I was able to arrive at a place where I now genuinely enjoy it.
Like many typical naive college grads, I thought I was going to be a big-shot stockbroker at Smith Barney (now Morgan Stanley) earning six-figures by the time I was 30. Why not? I interned there for two years and made a lot of great impressions. I was told I would be successful by all my mentors. Making a lot of money was my goal. Help clients? Of course, but I was really going to make it big. Hey, I had my priorities in order. Today I am 33 years old, nearly 7 months into launching a firm, and definitely not making six-figures, yet! Given the growth rate of my practice, I am confident I will be there soon enough.
But that kind of thinking is missing the point. The thing is I could easily be making that kind of money today. Unfortunately, that would have meant putting my heart and soul into something I was losing confidence in. After spending 6.5 years at a large regional bank I eventually realized, no amount of money is worth pursuing if it goes against your value system. More about that in Part 3 of my series. I'm sure we can all agree that having money is nice, but what I learned over the years is that making a lot of money is not THE priority. Pretty ironic coming from someone who gives money advice, right? Instead, doing work that I love and doing it for people I genuinely enjoy helping is, and will always be, my number one motivator when I wake up in the morning to go to work.
Starting a business is really tough, especially in an ultra-competitive field that is the world of financial planning. Where the average age of an advisor is 51 years old. Why would a 32-year old planner be crazy enough to try and build a company that has to compete with the likes of Merrill Lynch? And does so while accepting the fact they are going to be making less money for a couple of years! Ultimately, my overall fulfillment won out. My work happiness will always be more valuable than any amount of money I could have made selling investments. The key word is selling. Instead, I chose a different path. A road less traveled. One where the advisor is directly compensated based on their advice, and not 100% by how much money does the investor have, or which investment product I can steer them into to make more money.
To put this problem into perspective, I used to generate a 7.5% commission on annuities during my 6.5 years working for a large regional bank. With an A-share mutual fund, it was 5.5%. Now I charge a minimum monthly retainer fee of $150 for actual financial planning and that fee goes up at a rate of 0.75% of a clients net worth. Notice the emphasis of my fee is on the planning and not how much money my client has invested with me. That is because the real value an advisor brings is in the financial planning decisions which can help a client save hundreds of thousands over a lifetime.
The investments are a component of what an advisor does, however, the planning is the true value-add. Therefore, I felt it was in my client's best interests to charge for my services in a way that better aligned with their needs and value received. It is the very reason I charge a straightforward fee. Seems pretty obvious, doesn't it? Unfortunately, most banks, insurance companies, brokerage firms, and even some independents do not charge their fees in this manner. It's how we arrived at a DOL Fiduciary Rule for retirement accounts. Our government needed to put some controls in place to protect the consumer from the greed based incentive system that has been in place for too many years.
Quite frequently, a fee-based or commission advisor attaches an upfront fee to the product they sell you. For example, say you have a $500,000 401(k) that you rollover into an annuity IRA that pays the insurance agent 7.5%. That agent and the firm they represent just made a one-time commission of $37,500. Guess what? The agent typically doesn't make anything thereafter. Under that type of incentive structure do you really think the advisor is going to give you $37,500 worth of attention over the next 5 years? Actually, there is an unspoken incentive to push you into another annuity once a "better product" comes along. Allowing the agent to generate another large commission. Now, let's evaluate my firm's fee structure using the same example above and measure it over a 5-year period: $150 x 60 months = $9,000 and $500,000 x 0.75% x 5 years = $18,750. Added up together that is $27,750 paid for 5-years worth of high level service that emphasizes a continuous relationship and not a one-time transaction. At the end of the day, how your advisor gets paid matters. Every client deserves to know and understand what they are paying for. Period.
Mellen Money Management started because I saw an opportunity to offer financial services in a more honest and straightforward way than what the big name brands have been pushing upon investors for several decades. Do you have a financial problem that is gnawing away at you, but you are not sure you have enough investments saved to make it worthwhile? It doesn't matter, my firm will get to the bottom of it because our monthly subscription model for on-call financial planning creates a win-win scenario for both the client and advisor.
As a former banker, I can recall having to turn customers away when they stopped in asking for advice on their student loans. Student debt is a big problem in our country right now. So why did I turn them away? First of all, I didn't have the knowledge to answer their questions. Unfortunately, the financial services industry does nothing to teach advisors about the ins-and-outs of student loans.
In fact, I had to pay for a professional development course with my own money to learn what is considered to be a very specialized skill. Mind you this skillset can save borrowers thousands of dollars. Secondly, if a big financial institution can't package something into a widget and make money off of it, then it's not worth their time. It's all about high transaction volume and getting cheeks in the seat. At most big financial institutions, quality relationships are a thing of the past unless you fall within the top 20% of their clientele.
Rather than selling investment products my whole life, I decided I wanted a genuine relationship with my clients. Whereby I help families make the right decisions at key moments in their life when everything feels a little more stressful. You can't put a price tag on the thank you's and friendships I have developed from my business. That kind of value is worth taking the risk of following a road less traveled.
To get a peek into the beginning of my financial career, tune in for Part II of my series, titled, The Adventure Begins. Here you will learn more about my time as an intern at Smith Barney and my 2-years as an advisor with A.G. Edwards (now Wells Fargo Advisors).