Caution, Detour Ahead: My Journey to Starting a Fee-only Financial Planning Firm

This marks the last segment of my four part series, titled, My Journey to Starting a Fee-only Financial Planning Firm. Part IV, Caution, Detour Ahead examines how a chain of events at Frank Wealth Management Group (FWMG) put me on a collision course towards starting Mellen Money Management. Here you will learn more about what brought me to FWMG and the factors that forced me to pursue a world of even greater uncertainty than ever before – owning a business. Similar to previous installments in this series, I hope to impart my wisdom upon other advisors and young entrepreneurs interested in learning from my experience.  

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Part IV: Caution, Detour Ahead

Most of my readers probably never heard of the last firm I worked for, Frank Wealth Management Group (FWMG). Not because FWMG is unworthy of recognition, but because most people outside of the investment management and financial planning community pay no attention to independent financial practices. For those that don’t know, FWMG is a family-owned wealth management firm based in Powell, OH. FWMG cleared all its business through an independent-broker dealer (IBD) called Commonwealth Financial Network (CFN).  This type of arrangement meant CFN retained 10% of the company’s revenue in exchange for compliance oversight, custodying client assets, technology integration, and operational support.

Back up this story for a moment… My entire career prior to joining FWMG, I had worked for larger publicly traded companies. However, starting in the year 2015, while I was working for Huntington Bank, I began to notice that smaller independent firms were gaining traction in the advisory marketplace. Whenever I competed against an independent firm for a prospective client, I frequently lost the business. These were $500k - $1M clients that were choosing a “lesser-known brand.” Keep in mind my prospect-to-client conversion ratio was on the higher end, so it was a bit of a shock to me that I was losing these large dollar opportunities.

Often times when I recognize a pattern it provokes me to think, 'why?' Therefore, I went directly to the source and asked my former prospects why they chose the smaller independent firm over working with Huntington or me. Their responses were overwhelmingly consistent. “We like you Scott and your recommendations were very insightful, however, we want to work with someone who holds themselves out as a fee-only fiduciary.”

Interesting. It sounded like I did everything right; yet the client chose to work with someone else. I then thought, there must be something to this whole fiduciary thing... So I started doing my homework and looked up what it meant to be a fiduciary. The basic definition of a fiduciary is, an agent who acts in a way that puts the best interest of their clients ahead of his/her own. My initial reaction to this statement was, 'of course I put my client’s best interests before my own. That is just common sense! I would never intentionally put my own self-interests ahead of my client’s.'

However, upon a closer look I learned there are more layers to the definition of what it means to be a fiduciary than simply believing you are doing the right thing for your clients. Often times it is the ecosystem itself that creates the conflict between client and advisor. In order to REALLY be a fiduciary, an advisor’s compensation structure should be aligned in such a way that it does not muddy the waters. In other words the advisor’s compensation should be the same when deciding to go with Annuity A vs. Annuity J vs. Mutual Fund Z.  This is an example of a level fee structure, commonly referred to as fee-only. Unfortunately, my Registered Representative position at Huntington Bank did not meet the level fee criteria of the fiduciary definition. In fact, my compensation plan encouraged me to generate as much commission upfront as possible. What’s even worse is, as the advisor, I could choose Annuity A over Annuity J without the client knowing that Annuity A generated $10,000 more in commission for me. The moment I really understood the truth I was mentally checked-out of the commission-driven world at Huntington.

This inherent conflict within me coincided at a time when a financial advisor position at Frank Wealth Management Group (FWMG) came across my radar. Based on my long-term career aspirations, FWMG looked good “on paper” because the owner, Mr. Frank, was 5-10 years away from selling all or a portion of his business. So it was an opportunity for me to eventually become a partner at a successful wealth management practice with well over $100M in asset. More importantly, Mr. Frank and I shared a similar philosophy when it came to client transparency and level fees.

Specifically, Mr. Frank’s firm specialized in working with 401(k) retirement plans. The 401(k) focus of his business afforded me a chance to learn an entirely new skillset. So worst case, if the job didn’t work out I received a “free education” about corporate retirement plans. Even though there were a few red flags prior to joining, I came to the conclusion that there were enough positives to jump ship from Huntington to FWMG. The hardest part is that I decided to leave a relatively steady income for one that started off paying me 60% less. I am pretty sure my Dad thought I was a little crazy at the time, but he still supported me. I made it clear that I only wanted to work for a company that was either fee-based or fee-only. Unfortunately advisors interested in making a similar transition, the math works out very unfavorably the first couple of years. This is a consequence of a one-time commission at 7.5% on every dollar managed being significantly more (6 times higher) than 1.25% of every dollar earned on a fee-based account. Therefore, it is next to impossible to avoid taking a step back in pay.

So what happened? Why did I last only 1 year at FWMG? About 4 months in I soon recognized FWMG was not the opportunity I expected. In fact, leaving Huntington started to feel like a mistake (it wasn’t). However, unlike when I worked at A.G. Edwards, I was more prepared to handle a potential career setback. I learned my lesson from that experience to follow my instincts more swiftly in the future. Essentially a chain of events and a few too many bad arrangements motivated me to brainstorm my next career move before it was sprung upon me. So in the winter of 2016 I decided that I needed to hedge my bets due to the lack of stability I was feeling at FWMG.   

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Before my resignation from FWMG, there were two professional development avenues I used to protect myself. The first step was signing up to take the five courses I needed to eventually sit for the CFP® test. No matter what happened, it was important for me to have the CFP® designation before I either: A) went looking for another advisor job, or B) stayed on at FWMG. Honestly, I didn’t think I would be starting my own firm at this point. It was merely a dream and I certainly didn’t think it was something I could afford. My second action step was signing up to take Heather Jarvis’ Student Loan workshop. I came across her course while I was tuning in to XY Planning Network’s podcast, which I listened to during my daily commute.

I should note that my reason for taking Heather's course was prompted by one of my clients who came to me inquiring about his fiancé’s $196,000 debt load. I quickly understood the disruptive nature of student loans when I reviewed their problem. His fiancé was being charged an interest rate of 6.8%. Under a standard repayment plan she would have to pay this loan back in 10 years at a clip of $2,255 per month. That is higher than a lot of young family’s first mortgage payment. Also keep in mind she originally borrowed $160,000 and was making a modest income of $35,000 during her veterinary fellowship. Consequently her debt was snowballing in the wrong direction. Quite frankly, when I learned how our Federal student loan system actually worked it pissed me off.  And, I wasn’t even the one who held the debt. I simply could not believe our government and educators were so easily willing to bury a young person in debt for a majority of their adult life. As a result, I felt a compulsion to learn how to confidently advise my clients whenever they found themselves overwhelmed with the task of paying back their student debt.

After I took Heather's course I began strategizing a way to incorporate my student loan planning expertise into a corporate wellness program and leverage that as a way to grow 401(k) business for FWMG. However, my idea never really gained traction because my relationship with Mr. Frank quickly deteriorated for several reasons that are not worth airing out on a blog. Let me be clear, I don't blame Mr. Frank and I don't blame myself for the failed partnership. Sometimes that is just business. Relationships don’t always work out. The arrangement was a bad fit for both of us in terms of culture, personalities, and expectations. At the same time, I can sincerely say that I am a better advisor for having worked at FWMG and am thankful for the opportunity Mr. Frank provided.

The main rub was my lack of success in growing the 401(k) business. It wasn’t as though I was failing. Actually, by the end of my time at FWMG I brought in enough fee-based revenue from personal clients that it was generating $38,000/year for the company. Mind you I was able to accomplish this while I honored a 1-year non-solicit agreement from Huntington. Meaning there was an even better opportunity to bring in additional revenue right around when Mr. Frank and I decided to part ways. However, I saw no point in staying at FWMG once Mr. Frank decided to stop paying me a salary, and yet I was still required to share 30% - 50% of my client revenues with his firm. Our arrangement sure seemed like a one-sided affair. Bye Felicia!

Around the same time I was struggling to figure out my next career move, my wife, Emily, was entertaining a very enticing job offer. The catch, we would have to relocate from Columbus, OH to Jacksonville, FL. The obvious drawback for me was I had to figure out how I could help us pay the bills while running a new company. Fortunately, enough of my loyal clients were more than okay with me relocating. Therefore, I owe a great deal of thanks to every one of those clients who put their faith in a company no one had ever heard of. Like me, they took a risk. However, that was the most important lesson I learned during my journey. Personal relationships are everything. 

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Before I let my readers off the hook, there is something else worth mentioning – my grandma, Marybeth Mellen, passed away the same year I started my company. She was the last of my living grandparents. Actually my grandma and grandpa helped pay for my college education. The fact I was planning to incorporate student loan planning into my business inspired me to name my firm after them and honor their legacy. Right around Labor Day weekend, somehow through all the chaos in my life, everything began to converge in a way that I knew I had something. Then on October 17, 2016 my company, Mellen Money Management was born. It has proven to be one of my better decisions. I am excited about what Mellen Money Management can be. I am especially looking forward to someday growing this into an organization that is able to hire and develop the next generation of financial planners. I must give credit where credit is due. Without my experience at Frank Wealth Management Group, Mellen Money Management ceases to exist. In fact every step of my journey contributed to the values and mission of my company. I am happy to say that I offer the kind of financial planning that would make my grandparents (and parents) proud. And, as Frank Sinatra once sang, “I did it my way!”

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