My Journey to Starting a Fee-Only Financial Planning Firm (Part 4): Caution Detour Ahead

Updated: Jul 27, 2020

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 to other advisors and young entrepreneurs interested in learning from my experience.  

Part IV: Caution, Detour Ahead

The last stint I had as an employee before becoming a business owner is when I worked for Frank Wealth Management Group (FWMG). FWMG is a family-owned wealth management firm based in Powell, OH.

During the entirety of my career prior to joining FWMG, I had worked for larger publicly traded companies. However, while I was working for Huntington Bank for a few years, 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 lost the business more often than not. These were clients with a significant amount of assets ($1M+) that selected a “lesser-known brand.” Generally, my conversion rate from prospect-to-client was on the higher end, so I was bit taken aback when I took notice of my losing streak.

In recognizing this pattern it provoked me to think, 'why?' So naturally, I went directly to the source and asked several former prospective clients why they went with the advisor at the smaller independent firm rather than myself and Huntington. 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 sure sounded like I did everything right, yet the client chose to work with someone else because of one key phrase -- fee-only fiduciary. I then thought, there must be something to this whole fiduciary thing... So I did 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 the client 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 clients.'

However, the truth is I worked for a broker-dealer and therefore was required to put their interests ahead of my clients. If you read the tiny print in their disclosures you will come to learn this. Anyway, it finally sunk in that I was in the wrong place. I didn't want that kind of label following me professionally.

In order to REALLY be a fiduciary, an advisor’s compensation structure needs to be aligned in such a way that it does not muddy the waters. In other words, the advisor’s compensation needs to be equal when deciding between 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, as a Registered Representative at Huntington Bank, I did not meet the level fee criteria of the fiduciary definition. In fact, my compensation plan encouraged me to generate high commissions upfront, otherwise, I would risk falling short of my monthly goal, and if that happened enough I would get fired. What’s worse is I could choose Annuity A over Annuity J without the client knowing Annuity A paid me $10,000 more in commissions. Once I gave myself an honest reality check, I realized I needed to begin seeking advisory opportunities with a company that was focused on putting their client's interests first.

Coincidentally a financial advisor position at Frank Wealth Management Group (FWMG) came across my radar right around this time. FWMG looked like a good fit “on paper” because the owner, Mr. Frank, was 5-10 years away from selling 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 assets under management. 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 also afforded me a chance to learn a new skillset. Even though there were a handful of red flags prior to joining, I came to the conclusion that aligning myself with an organization that upheld the fiduciary standard was a must for the next step in my career. The hardest part is that I decided to leave a nice steady income for one that paid me 60% less. My parents thought I was a little crazy leaving a warm bed, but they supported my decision at the time nevertheless.

Unfortunately, it is very difficult for advisors in my position to make this type of transition because the math works out very unfavorably in the first couple of years. Instead of earning 7.5% commissions, I was getting 1.25% of every dollar earned on a fee-based account. Meaning I had to bring in 6 times more in assets to make the same amount of income.

So what happened during my time at Frank Wealth Management? Well, I only lasted 1 year before I had enough. About 4 months in I discovered that FWMG was not going to make good on the opportunities they presented prior to my joining. My departure from Huntington started to feel like a giant mistake (it wasn’t). I kept doubting myself and wondering why I left a great organization to be treated like hot garbage. And that's putting in nicely. I'll leave it at that.

Fortunately, unlike the time 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 and get out when you realize the organization you work for isn't the right fit. So September 24, 2016 I handed Mr. Frank my resignation and told him I was going to start my own independent RIA (Registered Investment Advisor) firm. To which he replied, "get the bleep out and give me your keys." To which I replied, "thank you for making my decision an easy one."

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.

Before my resignation from FWMG, there were two professional development avenues I used to advance my career regardless of where I ended up because I knew early enough that it probably wasn't going to work out. My first goal was obtaining my Certified Financial Planner (CFP®) credentials. No matter what happened, it was important for me to have the CFP® designation before I either: A) went looking for another financial advisor job, or B) start my own firm. The second big step I made towards my career development was signing up to take Heather Jarvis’ student loan planning workshop. As fate will have it, I tuned into an XY Planning Network’s podcast when I discovered that student loan planning is way more complicated than I originally understood it to be.

I should note that my primary inspiration for taking Heather's course was prompted by one of my clients who came to me inquiring about the best way to pay back her $196,000 in student debt. I quickly understood the disruptive nature of student loans when I reviewed her problem. My client had to pay $2,255/month on a $35,000/year fellowship salary.

It was around this type that I had my aha moment. Why aren't there more financial advisors out there helping college graduates come up with a plan to pay back their student debt? Maybe I should start a company that offers this type of service.

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. She accepted the opportunity in Jacksonville on the condition that I could start my own firm. And that is how I fell into the world of entrepreneurship.

The scariest part is that I had to figure out how I could help us pay the bills while running a new company. Fortunately, I had a number of loyal clients that were perfectly okay with me relocating. I owe a great deal of gratitude to every one of those clients because they put their faith in a brand new company. This was the most important lesson I learned from starting my company. Personal relationships are everything.

Before I conclude this 4 part series, 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. College planning and student loans are so central to our business model at Mellen Money Management that it inspired me to name my firm after my grandparents to honor their legacy.

On October 17, 2016, Mellen Money Management was born. It has proven to be one of my better decisions professionally. I am excited about what Mellen Money Management will grow into. I am especially looking forward to making this company 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 experiences at Frank Wealth Management Group, Huntington Investments, and AG Edwards, Mellen Money Management ceases to exist. Every step of my journey contributed to our mission and values as a company. I am happy to say that Mellen offers the kind of financial planning services that would make my grandparents proud.

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