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Podcast Transcript

Episode 13, Season 1

Real financial advisers and real human clients, with Carl Richards


Carl Richards: [00:00] First of all, if you’re thinking about getting in this industry, I would tell you, it’s an amazing industry. If you understand what your job is, your job’s incredible. You are a dream maker. Other than a medical probably, you can probably relieve, and I would say even including medical, you can relieve one of the most chronic pain people have. It’s just continual low level anxiety around money. It’s just something that we’ve come to accept. If you understand your job, you can actually relieve that, which is amazing, right?

Carl Richards: [00:32] In many cases, you can make dreams come true. But you got to understand that, and then understand too that you’ve got to understand, you are the release valve for other peoples’ anxieties, so just know that you’re signing up for that. People are gonna cry into your office, you’re gonna know their dreams and goals, and you’re gonna have to give them advice in the face of irreducible uncertainty.

Fraser Jack: [00:56] Hello, and welcome to The Goals Based Advice Podcast, where we have conversations with pioneers of the new world of financial advice. I’m your host, Fraser Jack, and I want to thank you for tuning in today. Also like to thank our supporting partner, Advice Intelligence, for powering this podcast.

Fraser Jack: [01:13] In this episode, we have a very, very special treat for you, my chat with a legend of advisor client communications. He’s the Sketch Guy who creates conversational grenades, the one and only, Carl Richards. I thoroughly enjoyed this interview as Carl has a great way of serving up ideas to help advisors translate the complexity so human clients remember what you said, and also the way it made them feel. There’s also a special treat at the end when we discuss the tips he has for advisors setting up a new business in this environment.

Fraser Jack: [01:50] I’m so pleased to bring you this episode. Let’s kick it off right now.

Fraser Jack: [01:59] Welcome to the show, Carl.

Carl Richards: [02:02] Thanks for having me. Really excited to chat today.

Fraser Jack: [02:04] Now tell me, where are you right now?

Carl Richards: [02:07] Where we live. We live in Nelson, New Zealand. Yeah, I’m at the office in Nelson, New Zealand.

Fraser Jack: [02:13] Perfect. You’re a bit location independent, I guess, with what you’re doing at the moment.

Carl Richards: [02:19] Yeah. Yeah, yeah, yeah. We can type on a computer anywhere in the world.

Fraser Jack: [02:23] Fantastic. Now do you want to just give the listeners a bit of an overview of yourself and what you’re doing at the moment?

Carl Richards: [02:28] Yeah. I, for a long time, ran my own independent financial advice firm and had a little side gig going on where I was writing for a newspaper back home, this weekly column I put on The New York Times. Then I wrote a book. That started taking more and more of my time, so I had to decide. I sold my financial planning firm and now my job really is just to talk to humans about how to be better with their money, and talk to advisors about how to deal better with humans.

Fraser Jack: [03:04] You’re assuming that advisors aren’t humans? Is that how we ...

Carl Richards: [03:07] No, we always struggle with that. But yeah, non-advisory sounds less fun than humans.

Fraser Jack: [03:13] Yeah, yeah. No, no. I think yeah, you’re absolutely right. Fantastic.

Fraser Jack: [03:17] We’re recording this at the moment, but you’re actually gonna be in Australia for the FPA Congress next week.

Carl Richards: [03:24] Yup, yup. Next week I’ll be there. It’s my third appearance at an FPA Australia Congress.

Fraser Jack: [03:29] Wow. You’re one of the locals now.

Carl Richards: [03:32] Yeah, yeah, yeah. Yeah.

Fraser Jack: [03:34] Do you want to maybe just ... [inaudible 00:03:36] go back to the beginning and have a chat about how you got into advice?

Carl Richards: [03:41] Yeah. It was quite by accident. I was an undergraduate. I was at university trying to figure out what in the world I wanted to study. Really had no clue. I was in the business building mainly just ‘cause that’s where my wife graduated from.

Carl Richards: [03:56] Then I went to apply for a job at one point, that I thought was a security guard job, ‘cause I thought it would be great. I could work at night and still go to school full-time. I got through the interview and realized the ad didn’t say “security”, it said “securities”. At the time I really didn’t know the difference.

Carl Richards: [04:21] Somehow I landed the job and got into the industry quite by accident. But within just a couple of months, I had an experience. For those of you, your listeners that will remember this, it was 1995, and it was when Netscape went public. That was really the first shot across bow of what was coming, and what we now refer to as the technology or the dot-com bubble.

Carl Richards: [04:49] That experience of seeing people behave the way they do with their money, once I got over the fact that I wasn’t a security guard, I thought it was a math job, like spreadsheets and calculators. Then I kept brushing up against ... not brushing, but colliding with it not being math, like it being about feelings, fear, and greed, and concern, and worry, and dreams, and hopes.

Carl Richards: [05:13] I got into the industry by accident, but I had stayed ever since because of that experience, that money really does equal feelings. It doesn’t equal spreadsheets and calculators. How we help people sort that out is a continual fascination for me.

Fraser Jack: [05:33] I think there’s a few things. The first thing is I think most people I speak to fell into the industry or fell into the profession in some way, an interesting way that different people get into the industry. But absolutely. This concept of consumers not feeling emotionally attached to a calculation is everywhere that we look. It’s everywhere. The difference between actually backing a raw emotion, or to actual goal, or those sorts of things, rather than just a number means so much to the clients.

Carl Richards: [06:05] Yeah, and what’s crazy, Fraser, is that’s not how we behave as an industry. I know you and I are both dancing around industry profession. Sometimes people give me grief for calling it an industry, but what real financial planners need to know, I consider myself one. I’ve got my CFP designated. What real financial planners need to know is nobody knows that there’s a profession inside the industry. Just like doctors are considered part of a medical industry, real financial planners are part of a financial services industry.

Carl Richards: [06:39] I know there’s a profession, I know that words matter, but I’ve just generally ... Sorry, I just want to get this out of the way so we don’t get any ... If you’re gonna send me an email about using the word “industry”, or an email about using the word “advisor”, just relax. I’ve got the email. [inaudible 00:06:55] mean the same thing.

Carl Richards: [06:55] But what’s interesting is even within the profession, we don’t behave that way, we don’t behave as if we know that money equals feelings. We behave as if we can plug a certain ... If you’ll just give us the right information, we’ll plug it into this Monte Carlo calculation, and we’ll tell you that we’re 93.785 ... We’ll carry it to four decimal places if you want. We’re 93.745% confident that you’re gonna meet your goals. That’s a false sense of precision that’s pervasive in the industry, and it’s actually doing us no good. It’s leading to things like selling financial plans and thinking those are valuable instead of understanding that the real value is the ongoing process of planning, and the relationship you have with the planner, and the course correction. It’s not the plan.

Carl Richards: [07:45] I think that early discover that it’s not about spreadsheets and calculators, unfortunately 20 years later it seems to be my job, to just run around convincing financial advisors this is not what you think it’s about. The job you think you have, there’s a much better one. The one you think you have is under pressure and it’s gonna be a race to the bottom. The much better one has never been more valuable.

Fraser Jack: [08:15] Yeah, you’re absolutely right. It’s about that long-term relationship. I’ve heard an analogy once that it’s a bit like catching a long-haul flight. You know the taking off is really important, the landing is very essential, and the rest of the time is just course correction.

Carl Richards: [08:31] Yeah. Those course corrections are incredibly important, right? You miss a course correction early on, and if you left for a flight from Los Angeles to Boston, you could end up in Florida if you miss the course correction early on.

Fraser Jack: [08:49] Absolutely. Absolutely. Now you skipped over the fact that you’re doing a small writing piece for a publication, which I actually think is quite a big piece. Tell us about how that started, and how that originated, and what you do there with The New York Times.

Carl Richards: [09:05] Yeah. I noticed early on in client meetings, and I’m sure all of your listeners can related to this, you think you’re doing a good job explaining something and you’re just getting blank stares back.

Carl Richards: [09:24] One day, out of an act of total desperation, there happened to be a white board behind me. I was getting blank stares back from some really smart clients. We got to keep in mind, it’s not the client’s fault. There are smart, successful people. It’s my fault that I wasn’t gonna be able to explain it. I thought it was a critical enough concept that I was like, “[inaudible 00:09:44].”

Carl Richards: [09:45] I stood up and said, “No, like this,” and I drew it on white board. I just drew some circles and squares with arrows between them or something. They were like, “Oh, I get it. I get it.” The whole mood changed. I became slightly addicted. Actually, not slightly, I became completely addicted to that experience of seeing the lights go on, and I wrote about it. Actually, I didn’t write about it. I did it a couple of times and then one time a client said, “Hey, that thing that you drew on the white board, could you draw it on a piece of paper, and scan it, and email it to me so I can show my spouse at home?” When I saw it go out into the ether, I thought, “Huh, I could share that with other people.” I emailed it to some other people. I kept getting little bits of tailwind.

Carl Richards: [10:40] I started a little website called Behavior Gap and I put it up on the website. I’m not shortcutting a lot, there was a bunch of really ... My mom and my sister were the only people reading it, and it turned out my sister was lying, so it was really just my mom. There was years of that, just crickets, and crickets, and crickets. But then things one by one, by one, influence started to scale. I think of it as compound interested, it’s really boring at the beginning. Then I got an email one day.

Carl Richards: [11:08] Actually what happened was an advisor sent an email to the editor of The New York Times and said, “You should check this out.” I didn’t really know that had happened, and I got an email back. For whatever reason it landed at the right time because now I know, I get hundreds of those emails. Now I know that my editor gets hundreds of those emails and ignores most of them.

Carl Richards: [11:32] For whatever reason the stars aligned and he sent a note saying, “I love this. Would you do it for us?” That happened to be The New York Times. I knew from my security guard background to say, “Yes,” and figure it out later. I said, “Of course. I’d love to.” That’s now, we’re now eight and a half years in. It had been weekly for eight years, and we had recently decided to go [inaudible 00:11:53] just because it was too much to keep up with. Yeah, New York Times. We named the column, the Sketch Guy. It’s been a blast.

Carl Richards: [12:02] But it’s put me in a really interesting position because I get to hear from advisors, and I get to hear from non-advisors who I guess we’ll just call humans. I know what your clients want, ‘cause I get hundreds of emails from them. I feel like I can be the Lorax for both sides. I can say, “Hey, I speak for the people.” Then to the people I can say, “Hey, I speak for the advisors.” That’s been a really, really fun opportunity.

Fraser Jack: [12:33] That column, you draw a picture, a very simple picture that explains a lot of information and then you write a column about what your thoughts are on that [inaudible 00:12:42].

Carl Richards: [12:43] Yeah, with as few words as possible. Sometimes that’s a lot of words, but we try to make it as few words as possible.

Fraser Jack: [12:49] Yeah. Often, once you’ve seen some of the pictures, you realize that there’s probably not a lot of words needed in a lot of them because they’re very nice and simple.

Fraser Jack: [12:59] Now could this idea of being able to provide some education, and information, and some common sense in a lot of ways to consumers, we call it financial literacy here, which I hate that term because it really implies that somebody is not literate in the first place, and backs up that idea that, “Hey, you don’t know something, so I’m gonna tell you.” But these drawings that you’ve created are very much just, “Oh, yeah. I know that it’s good to rethink it,” or, “Oh yeah, that makes sense,” in a very simplistic form.

Carl Richards: [13:30] Yeah. The goal ... I think there’s two things. One, my editor at The New York Times says that when I get it right, they are confrontational without being off-putting. There’s something about the amateur nature of the drawings that gives me permission to be a little bit more confrontational than I would normally be able to be. I can be a little bit more, I like to use the term like a drill Sargent, like a little bit more in somebody’s face because the drawings give you a casual way to enter. That’s one thing that we like.

Carl Richards: [14:07] Then the other piece that I think of the drawings as it is, if I get them right ... This is why advisors all over the world use them in their presentations and on their websites is, if I get them right, they’re a shortcut into a concept and they’re also a souvenir of the learning experience. I think of them as shortcuts and souvenirs, so that if you’re walking a client through what you mean by risk or diversification, you have that conversation that the image may help you get into the conversation a little quicker or the shortcut to understanding, but then also when you leave, you can leave with that little image as the icon in your mind, and you can think, “Oh yeah, that’s right. That’s right. That’s right.” That’s how I think of the images. If we do it right, they represent the simplicity on the other side of complexity. They’re not simplistic, I think of them as elegantly simple.

Carl Richards: [15:09] Now some people look at them and go, “I don’t get it.” If you don’t get the joke, that’s okay. They’re not for you. It’s totally fine. But those people who understand, understand they’re simplistic like, “Oh, my son could do that.” Cool, then have your son do it. No problem. They’re not for you. But elegantly simple resides on the other side. We consider the nuance, we looked every angle. In the end we said ...

Carl Richards: [15:33] This is what happens in my head. It gets really full. I’m like, “Ah,” and I get to this point where I’m like, “No this is what matters,” and I just try to get that. Yeah, sure, that may leave out 10% or 20% of something, but it captures what’s important. That’s the goal.

Fraser Jack: [15:49] Yeah. Then they can be very symbolic and they can also be ... I say it’s not necessarily what we say that matters, it’s what the clients remembers which matters, and what they can go to a barbecue and tell their friends about. To me, those drawings are exactly that. Within a few words or a very simple diagram, not simple, so elegantly simplistic.

Carl Richards: [16:12] That’s fine. You can use [inaudible 00:16:13]. Simplistic is the word I want you to avoid.

Fraser Jack: [16:15] Yeah, okay. Then they can actually remember what the conversation was about.

Carl Richards: [16:21] Yeah. I know you’re making a slightly different point but it just made me think of something I think is really important. It’s not even what a client hears us say that they’ll remember, it’s actually what they feel. I think when we start to understand that switch is that ...

Carl Richards: [16:41] I’ll tell you a quick story. I have this friend, his name is Matt. He’s one of the best financial advisors I know in the world. He has a really sound investment process. They built their whole business around this investment process that they’re really proud of, and it’s really sound, it’s academic-based, evidence-based investing, really proud of it. They thought that was their value. Everybody they talk to, that’s what they would tell.

Carl Richards: [17:08] They had this really big client. It was over $20 million, that they were going through the process to decide if they wanted to become clients, and the client called. It was a women. She called and said, “You know, Matt. We’ve decided to hire your firm, but I want you to know something. It’s not because of that investment process you’re so proud of. In fact, it’s almost in spite of that investment process that we’re so proud of. The reason we’re hiring you is because of the way you made us feel, and the way you made, more importantly, you made our adult children feel when they met with you.”

Carl Richards: [17:48] I think if we can start to understand what do you do with that, plug that into your little spreadsheet Mr. Financial Advisor. That’s what we need to understand is it’s about how we make people feel that they’ll remember.

Fraser Jack: [18:02] Very hard to do Monte Carlo simulations on how people feel.

Carl Richards: [18:05] Yeah, yeah. Totally. Completely.

Fraser Jack: [18:06] You also mentioned that putting these out there, and as your editor said, “Confrontational without being off-putting,” but certainly get some comments and remarks back from the readers.

Carl Richards: [18:22] Yeah, totally. For sure. We turned comments off on my column because it was becoming too distracting, both positive, good. Normally we get a lot of thoughtful, and I don’t care whether they’re positive or negative as long as they’re thoughtful. I pay zero attention to non-thoughtful comments or emails. But if it’s thoughtful and critical, it’s almost my favorite email to get, like thoughtful, critical email because it makes the work so much better. Thoughtful, good emails, nice. But yeah, we turned the comments off at The Times because I found myself writing in anticipation of the comments, which is a surefire way to make your writing really bad.

Carl Richards: [19:07] But yeah, tons of interaction. The average ... We often get 400, or 500, 600 emails every time a column goes up or every time a newsletter goes out. We, so far, keep up the claim that I read everyone of them and we try to respond to all of them too.

Fraser Jack: [19:27] Yeah, I remember Seth Godin’s book, Tribes, that mentioned that whenever someone remarks on your stuff, that makes it remarkable. I always try to keep that one in mind.

Fraser Jack: [19:37] Now you’ve interviewed Seth this week.

Carl Richards: [19:40] Yeah, yeah. Yesterday. Yesterday. [inaudible 00:19:43] was amazing. Seth’s been a personal friend for a while, so we’ve had lots of private conversations. But I had never done it in public. It was amazing. We had a couple hundred people on the call.

Carl Richards: [20:00] He was amazing ‘cause a lot of the work that I’m doing right now is really focused on taking people outside of our industry and the amazing work that they do. I could have interviewed Seth as a human, and had some really fun conversations about how to raise kids, or goals, or fear, or all that stuff and that would have been fun, but guess what, Tim Ferriss already did that, and so did ... Brian Koppelman’s interview with him on The Moment was amazing.

Carl Richards: [20:32] I was listening to those and doing the research, and I thought, “No, I don’t have anything to add to the conversation except this intersection between my work and his work.” Seth was all over it. When I sent him that email, he was like, “That’s exactly what you should do.” I think in his first time he opened his mouth, he used the word like, “We’re talking to financial advisors today.” That replay is available for free for anybody to watch it. If you’re an advisor or a planner, you should watch that interview ‘cause Seth goes really specific and really deep on how to do our work.

Fraser Jack: [21:06] Yeah, we’ll look to make sure we put that in the show notes too, so we can connect people with that interview ‘cause I actually got halfway through the interview and then boarded my flight, so I missed the second half. I’ve got to go back and watch the second half.

Carl Richards: [21:17] Yeah, it was really fun.

Fraser Jack: [21:20] Now what are you working on at the moment with regards to, for financial advisors?

Carl Richards: [21:25] A whole bunch. We built a training program called the Real Financial Advisor program. Next year there will be a book called Real Financial Advice is what the book will be called. We’re fine-tuning the training program a bit. All delivered online with lots of video. We made a real big effort to leave, and this is something Seth taught me, leave people no place to hide. There is specific word for word scripts on everything.

Carl Richards: [22:01] By the end, we can be really clear that if you don’t do this, it’s about fear. That’s fine, totally fine, ‘cause we can deal with fear as long as we know that’s what we’re talking about. The problem is, most of us hide behind all these other things like what should my logo be? Should I be on Twitter? What color should the font be? We hide around those other things, so we made it really clear in the training program there’s no place for you to hide, and now let’s talk about fear and how we overcome it.

Carl Richards: [22:33] Next year, I think, is gonna be a big ... This year we were doing a lot of really fun experimenting, learning a lot, getting lots of feedback from the community, and next year I think we’re really set up to ... Yeah, have a lot of fun. All of this stuff is found through ... it’s all through The Society of Real Financial Advisors. The website is realfinancialadvisors.com.

Carl Richards: [22:55] For years, I talked about The Society as The Secret Society of Real Financial Advisors. It was secret ‘cause no one knew where it was, no one believed we existed. Now we’re really making an effort to make it not so secret.

Fraser Jack: [23:12] It’s more real than secret these days.

Carl Richards: [23:14] Yeah, exactly. Exactly.

Fraser Jack: [23:17] Tell me what ... It’s a bit of a difficult medium, obviously, being a podcast. But what have been some of the most popular drawings?

Carl Richards: [23:25] Yeah, I’ll give you two ideas. One is general. There’s one that’s called Focus, and it’s a circle sketch, which is what I called Venn diagrams ‘cause the Venn diagram police get really mad at me, so I don’t call them Venn diagrams anymore. I didn’t know there were Venn diagram police, but I would get two-page long ... Seriously, two-page long emails telling me why the image was not a Venn diagram. I used to engage in those emails. I’d say, “Yes it is.” Then I realized the best answer. Now I have a canned response in Gmail that just says, “You’re right. It’s actually called a circle sketch.” I just don’t even engage in the debate anymore.

Carl Richards: [24:06] It’s a circle sketch. It’s got in one circle, it says, “Things that matter,” and the other circle says, “Things you can control,” and the overlap is labeled, “What you should focus on”. That one has been really popular just because of its broad application.

Carl Richards: [24:25] The point of it was really when you think of the work of a real financial advisor, I think if you had made a list of the things that matter, one of those circles, if you made a list of the top 10 things that matter in terms of a client’s lifetime success, I would submit to you that eight or nine of those things are also in the other circle, how they behave, the implication, the tax implications that are decisions, saving, sometimes when they retire.

Carl Richards: [24:58] For a large degree, there was one giant notable exception, and that’s the rate of return they earn. In other words, the market. We spend all of our time focused on the one exception rather than focused on the eight rules. That was the whole point was if we focus on the things that matter and the things we have control, our clients will be more successful and more importantly, they’ll be happier. That was one.

Carl Richards: [25:22] Then one that seems to be really popular with the advisors is just it’s ... I don’t know if it’s right to call it a bar graph, but if you just imagine a box in the middle of the page. There’s a box that takes up most of the page vertically. It splits the page in half. The box is labeled, “Your Advisor”. On the left-hand side of the box it says, “You”. On the right-hand side of the box it says, “The Big Mistake”. In other words, your advisor is between you and the big mistake.

Carl Richards: [25:56] Originally it was about me. Originally said, “Me”, “My Advisor”, and “Stupid”. That’s because I said, “We hired an advisor to be the thing between us and stupid.” Advisors love that one, so that one’s been really popular with the advisors.

Fraser Jack: [26:13] I’ve got to admit, I do love that one as well actually. When I first saw it, it felt like it was, yeah, the thing between you and making stupid decisions on [inaudible 00:26:22]. Then another time I looked at it, I thought, “That’s a door. That’s the doorway.” It’s like closing the door between ...

Carl Richards: [26:29] Yeah, yeah. I’m not that good artistically.

Fraser Jack: [26:31] Is the Focus one, is that the one that was on a T-shirt?

Carl Richards: [26:35] Yeah, yeah. We did do a T-shirt of that one. Yup. That was really funny. I didn’t really mean to, I just was like ... At one time I was going to give a talk. In fact, I remember it was in Arizona and it was an FPA event, Financial Planning Association event in Arizona. I thought, “You know, wouldn’t it be fun ... “

Carl Richards: [26:56] In the United States, they do this thing. I don’t know that I’ve seen it at a rugby match or anything. In the United States, at basketball games, during a timeout or at halftime, they’ll throw or shoot ... Yeah, the T-shirt canon. They’ll shoot T-shirts into the crowd. I thought, “Wouldn’t that be funny if I was in a really serious financial planner conference and just in the middle of my talk I decided timeout, and I started throwing T-shirts.”

Carl Richards: [27:25] I had 100 T-shirts printed up. I took them, and I did it, and it was really fun. I don’t know if it was a good idea, but I had fun. Then we had some left, so I put them up online. It was like, “Hey, we got these T-shirts,” and they were gone. Sold. They were 25 bucks, they weren’t necessarily cheap, but it sold. We sent them out and people recorded videos of them wearing them. I was like, “This is crazy.” We did it again. We’re talking about doing that again next year.

Fraser Jack: [27:53] Turns out all these advisors are actually humans after all.

Carl Richards: [27:56] Yeah. No, it’s true. True.

Fraser Jack: [27:58] The other one I really like of yours is the one that talks about the emotions of investing, and when markets are high or markets are low. That [inaudible 00:28:06].

Carl Richards: [28:07] Is it the Fear/Greed one?

Fraser Jack: [28:09] Yeah.

Carl Richards: [28:09] Yeah, yeah, yeah. Maybe I can just describe it. You’ve all seen this before, but if you were just to draw a wave, like the stock market goes up, the stock market goes down, and it goes up. The top of that first cycle, think January or February of 2007, the top of a cycle. Instead of sell, it’s labeled “Greed/Buy”, the opposite of what you should do, greed/buy, then it goes down and the bottom is labeled “Fear/Sell”, then over in the far corner it says, “Repeat until broke!” That’s a really good example of the confrontation without being off-putting advisors

Carl Richards: [29:03] We print up prints of these. They’re framed letter press prints, and advisors buy them and put them on their wall. That’s the one that we get the most comments on. We always get this comment, advisors will say, “I had a prospective client come in, they walked straight to that image. They chuckled and said, ‘Yeah, yeah, yeah. Help me avoid that.’”

Fraser Jack: [29:27] Yeah, [inaudible 00:29:28] right. Yeah. They needed help with those decisions when the emotion kicks in, when the way they’re feeling is not necessarily gonna work for them from an investment point of view.

Fraser Jack: [29:39] Now the other one I really like too is the, which [inaudible 00:29:42] in the past is [inaudible 00:29:45]. I keep wanting to say simplistic, but the income is equal to or greater than expenses one.

Carl Richards: [29:52] Yeah. That was actually ... It’s really funny ‘cause I get ... I would just encourage people who listen to this, please believe me. Every [inaudible 00:30:01] I’ll do this in Australia again, every time I talk to advisors I say [inaudible 00:30:06], “Please believe me. I promise you, the people want you to be simpler.” They’re telling me. I get emails like, “Please tell your advisor friends to stop talking that way. Please be simple.”

Carl Richards: [30:16] What happens is I get advisors are really scared. They’re like, “Oh, if I’m too simple, I may not be [inaudible 00:30:22].” For whatever reason, we’ve thought that being simple means out of a job. It’s just not true. I always get warned. I’ve been warned for over a decade now. Some well-intentioned person will come up to me and say, “Hey, this is too simple.” I’ve been warned about this land called too simple, and this was my first attempt to go try and find it. I was like, “You know what, monsters live there. It’s really scary. That sounds like a cool place to go,” so I bought guidebooks, I tried to find it, and this was an attempt.

Carl Richards: [30:59] One day, I wrote the column, I even remember what it was about. Anyway, I remember what it was about. It was about a country who was spending more than they should, and then applying that to our personal lives. I wrote the column. The column was good, I thought, but I couldn’t come up with an image. I was like, “You know what, all I got was this,” and I just put, I wrote, “Income ≥ Expenses” was the whole sketch. I sent it in and I fully expected my editor to be like, “Hey, Carl. This is great, but we’re done.” He didn’t, he put it up. The comments, this was back when he had comments on, people were like ... Honestly, people said, “Brilliant, where did you come up with this?”

Carl Richards: [31:37] I had the CFO of a publicly traded company in a talk I gave, a company you would all recognize came up to me afterwards and said, “I love your work.” This was at a dinner party actually. He said, “I love your work.” I was like, “I’m always hesitant when people say that.” I’m like, “Oh, well what do you like about me?” He said, “I love income must be greater.” I was like, “You’re the CFO of a publicly trade company?” He said, “Yeah, I’ve been saying it for 20 years, but now that I have it on my wall, everybody believes me.”

Fraser Jack: [32:06] Yeah, absolutely. As you said, the shortcut to the conversation.

Carl Richards: [32:13] For sure. We used to call them, I don’t like using the word anymore ‘cause I don’t know why, but conversation grenades, that you could throw them in a room and conversations would break out. That’s what we see happening.

Fraser Jack: [32:27] Through the Real Financial Advisors program, how do you see advisors using them in different ways? Are they, like you said, putting them on the wall? Putting them [inaudible 00:32:37]?

Carl Richards: [32:39] Yeah, totally. Once you own the license to them, which is really, you can buy the license to them. Once you own to it, you can use it any way you want. With so much importance, I think probably rightly so, so much importance being content marketing, and we all understand that visuals do a good job, so we’ve seen people use it those sorts of settings, like an email newsletter, we see tons of people use it on Instagram, Twitter, LinkedIn. Any of the social places, people use it.

Carl Richards: [33:12] But some of the more fun ones, like we’ve seen advisors print T-shirts. I’ve been to events and I’ve also heard stories of events I wasn’t at where they had them printed on the napkins that they used. They may have a client appreciation event and they’re on the napkins. Certainly up on the wall, posters, printers, coffee mugs, magnets. Then the craziest one was a billboard in Texas, which was really cool. Of course, it was in Texas, but a full billboard of one of the images. I was there at a speaking event and they drove me past it. We had to stop so I could take a picture. It was really cool. We’ve seen people use them for everything.

Fraser Jack: [33:52] Now I want to see advisors out there with your images on their T-shirt. I think that’ll be great. [inaudible 00:34:00] Financial Advisor program, join your program, pay your license, and then go and then just go put the images everywhere. That would be fantastic.

Carl Richards: [34:08] Yeah, yeah, yeah. Just to be clear, we’re not here to sell anything. But just so you know, ‘cause we get the question all the time, you go to behaviorgap.com, go to the store, you can buy the license for any individual image. You don’t have to join a program or anything like that. We’ve tried to make it as easy as possible on people, ‘cause I just want people like that to use the images to have the conversations that need to happen in the world. We’ve tried to make it as easy as possible.

Fraser Jack: [34:33] Yeah, great. Behavior Gap, you can get the images, or you can look at The Real Financial Advisor, which is you teaching ...

Carl Richards: [34:40] Yeah, sure. Yeah, yeah. Yup, yup.

Fraser Jack: [34:41] Very good. When is that coming out there, Real Financial Advisor course?

Carl Richards: [34:46] We’ve done all this pretty in secret. If you go to the website realfinancialadvisors.com, the only thing there is that you can sign up for updates, and we get a bunch of people every day signing up for updates. When you do that, you get informed of the next ti ...

Carl Richards: [35:08] I think we’ve done 20 ... I don’t know how many cohorts now. No, it’s not 20. We’ve taken a couple hundred people through the course. I think that’s 12 or 13 cohorts. We have one starting next week. The only way to join it is to get an invite through that email list. There’s no public place to go join it. We’re reworking it a bit, so there will be some new ... There’s new stuff coming next year. The best way ...

Carl Richards: [35:39] Gosh, the short end of the story is go get on the email list. We give tons of stuff away for free on the email list that should be valuable. Even if you never buy anything from me ever, this should be a valuable exchange because I want people like you doing the work that needs to be done, so I stop getting emails from all your potential clients saying that they need help.

Carl Richards: [36:01] That’s the reason we’re doing this is everywhere I go, I give talks publicly, and we write this stuff publicly. If I were to describe the way people are feeling about money, and it is particularly true in Australia right now. I think Australia and New Zealand, given that the housing markets particularly, the word that people use to describe their relationship with money is anxious. I view that as our profession’s job.

Carl Richards: [36:31] The fact that everybody is using the word means that we haven’t done our jobs yet. We haven’t gotten to them yet. If I can help in any small teeny little way, help an advisor get more clients to relieve more anxiety, that’s my goal.

Fraser Jack: [36:47] Yeah, fantastic. It’s certainly ... There is a bit of a problem we have here with regards to trying to bring what it is that we do as an advisor, and how that actually helps consumers, how that actually adds value in their lives. We’ve got a thing that we say here, two in ten people get advice, and to me it tends to be because they’re forced to get advice. They’re actually up against the wall. They come in for a major life, or they’re retiring, or they’re doing something and they get advice because of a trigger or something that’s pushed them, but that anxiety or those fears around their finances, the stress sits there for a long period of time before they even get advice.

Carl Richards: [37:32] Yeah, and let’s be clear, Fraser. The reason that happens is because they don’t know you exist. Two things have to happen simultaneously, and I’m very familiar with what’s going on in Australia right now in the industry. We could talk all day about whether that was good or bad, or right. But the reality is it’s happening, so it doesn’t matter how you feel about it.

Carl Richards: [37:52] But two things have to happen simultaneously. Somebody has to know that they’re sick and believe that you’re the doctor. If they just know that they’re sick and they don’t believe you’re the doctor, that doesn’t do us any good. If they believe you’re the doctor, but they don’t think they’re sick, that doesn’t do us any good. We can go about this a couple ways. We can run around scaring people into believe they’re sick, and that’s what a lot of the “industry” does, but that’s not how real professionals behave.

Carl Richards: [38:22] The other approach for us is to just quietly, one person by one person become relevant in somebody’s life. Like Seth says, it’s permission marketing, anticipated personal relevant messages to people who want them. I love this phrase. I do things like this for people like you. I think that’s what good marketing is.

Carl Richards: [38:54] Real advisors, let’s not ... I think we should stop compl ... Let the FPA, and it’s awesome that there are organizations like the FPA, let them fight the good fight on the regulatory front. Thank heavens they are doing it. That’s awesome.

Carl Richards: [39:08] For an individual advisor, support the FPA in that fight. Great. But now, let’s not sit around and complain that the regulatory body has ruined it for me, or the press is bad. Let’s instead give people a reason to believe you one by one. [inaudible 00:39:25]. Contact five people who have a problem that you can solve. Invite them to breakfast. Tell them about the solution and expect nothing in return. Do that again next week, do that again next week.

Carl Richards: [39:38] Of all the people in the world that should understand a small little action taken repeatedly over time will have a massive impact, our influence will compound. But it doesn’t compound if we all sit around complaining and whining about how unfair it is that whatever approach has been taken based on the news, or the [inaudible 00:39:59] whatever. Instead, just go find one person that you can change today. Then will you do me a favor and do it again tomorrow.

Fraser Jack: [40:08] Certainly comes back to your Focus drawing, doesn’t it?

Carl Richards: [40:11] Yeah. No, I agree. I get a little grumpy about it, but I think we all want, I do this too, the big heroic approach. But we never encourage clients to do that. If you had a client who you said, “Hey, I’m gonna take a huge bet and hope it works out for me,” then we would say, “Yeah, you could do that but what if you save 50 bucks a month starting when you were 10?” Whatever.

Carl Richards: [40:36] I just think if why don’t we start saving 50 bucks a month today. Then together, imagine if there was 20,000 of us in Australia and in New Zealand. That each had 100 clients, and each of those 100 clients were sharing our newsletter with 1,000 people. Now we’re making a big dent. To get there, you’ve got to go through boring. We all want to skip to the steep end of the curve, like the last double on the compound curve. We want to skip there like it’s fun.

Carl Richards: [41:10] I’m down there on that curve, like it’s really fun. I’m telling you, there’s no way to skip the short end. Anyway, hopefully that’s helpful.

Fraser Jack: [41:19] We need to apply the compound interest calculator [inaudible 00:41:23].

Carl Richards: [41:23] Our influence. I think of that as compound influence, and just scaling influence.

Fraser Jack: [41:30] Now how do you see the long-term? ‘Cause we’re obviously going through a pivot here. How do you see it in the long-term playing out [inaudible 00:41:38]?

Carl Richards: [41:39] I really think that there’s this amazing job. Seth said this yesterday, “The parts of your job that you think are hard, that’s a commodity.” If you are threatened by an automated investment service, I want to make it all the way through this, Fraser, without using a word that starts with [inaudible 00:42:01]. But if you are threatened by an automated investment service that is cheap, you’re in the wrong job because that’s not your job. I can go anywhere. That stuff is what many of us thought we were signing up to do in the industry, is spreadsheets and calculators.

Carl Richards: [42:23] That now, of course, we have to be able to do that. Seth even used this example yesterday. He’s like, “As a real advisor, I’m happy to log into your Vanguard account with you and help you.” Not threatened by that.

Carl Richards: [42:36] The dilemma we have is what’s left. What’s left to me is helping, and I know nobody comes into your office asking for this, but helping people clarify their goals, and then aligning their use of capital with what they said was important to them. That’s what’s helpful. No algorithm can do that. Then I think the third thing that’s helpful is then getting them to behave for decades. All three of those things need to be done by a human.

Carl Richards: [43:06] Now the problem is, and this is where I think the industry really needs to deal with this, and I don’t necessarily have a dog in this fight yet. I’m feeling like I’m getting close, but is we currently bill, most of us, like most of the good advisors don’t charge commissions anymore. I think we’ve moved past that debate. Most of the good advisors now charge an asset-based fee.

Carl Richards: [43:32] If you think about this, we currently bill for the thing that has become a commodity. We say to a client, “I know you paid that, but you’re really getting all this other stuff.” We link our billing to the thing that’s a commodity, and then we have to do that gymnastics. That’s fine. Some of us are really good at explaining that. As long as it’s transparent and the client knows it, we’re not talking about unethical here. It’s just quit a gymnastics dance to say, “I’m gonna bill you for this thing that’s a commodity and then I’m gonna give you the really valuable stuff for free.” I think we got to sort through that.

Carl Richards: [44:16] Again, I’m not saying I have a dog in this fight yet, but it’s really hard to debate with people like Alan Smith in the UK, and James Osborne in the US who are really banging the drum on retainer-based advice. I know in Australia, the fee for no service idea, it’s almost moving that way regulatory, that you’re not gonna be able to link your fees to that. I think we’ve got to get a handle around how do we bill for advice in a way that links the value that we add, to the advice we provide?

Fraser Jack: [44:55] Yeah, you’re absolutely right. The linking fee for value rather than necessarily the product-based, asset-based fees. Thank you for that.

Fraser Jack: [45:05] Now I’m just thinking that if there was a ... Well you do speak to humans all the time. When you’re speaking to humans, and they’re thinking about getting advice, what tips do you give them?

Carl Richards: [45:17] Yeah, yeah, yeah. This is one of my favorite conversations. It’s particularly my favorite conversation to talk to advisors about what I tell them because what I tell them ... I get asked often to make a checklist, “I need to hire an advisor. Could you give me a checklist?”

Carl Richards: [45:34] My editor and I both worked on that. We probably do it once every couple of years, we give it a real good shot. The first time we did it, it didn’t take more than a month for somebody to email us and go, “Hey, right. I used that checklist that you sent me and that person stole money from my Grandma.” There is no way to design a checklist that [inaudible 00:45:56] honest.

Carl Richards: [46:00] I’ve given up on that and I’ve started saying, “Look, you can get tell-take sign ... “ This is what I tell people, “You can get tell-take signs by the things they call themselves and the places they work.” There maybe hints about whether or not they have their certified financial planner designation. Or in the United States, we may say something like, “They are a completely independent firm.” That may be a hint. But I know real financial advisors who work at places that some financial planners may call the enemy. I know real financial advisors that work those places. It’s just a hint.

Carl Richards: [46:41] Your real sign is gonna be not in what they call themselves or where they work, it’s gonna be how they act and how they behave. The first insight into that is gonna be your interaction with them. You’ve either realized you’re the boss, when you go to interview an advisor, and it’s okay for you to ask questions like how do you get compensated for our relationship?

Carl Richards: [47:10] There’s two questions you want to ask. I tell them to ask this question. This is a question I wish I would have gotten asked more by prospective clients. I have no problem telling them to ask this question. Number one, how do I pay for your services? Number two, how are you compensated for the advice you give me? Those two answers don’t have to be the same thing.

Carl Richards: [47:32] Now the best answer to that is, “They are exactly the same thing. Your fee is my total full compensation.” But if there’s some other form of compensation, maybe I worked at a firm that gives me a bonus, or maybe there’s a based on number of clients or happiness satisfa ... But you just want to know what that is. It doesn’t disqualify somebody. But the point is, you have to know. You have to know.

Carl Richards: [48:01] What does disqualify ... What I tell people is, “If you start down this question and you get the sense that it’s uncomfortable, or they’re hiding and they don’t want to engage, or they haven’t thought about this, there’s enough real advisors. Just politely move on.” Because most real financial advisors will probably beat you to that discussion. Ideally they’ll be the ones to bring it up, “Hey, let’s talk about fees for a minute. Let me walk you through. ‘Cause it could be confusing in our industry Mr. or Mrs. Client. Let me walk you through how I get paid, how you pay, what you’re charged and how I get compensated. Would that be okay?” Most real advisors will beat you to that conversation.

Fraser Jack: [48:49] Yeah, that’s a really good point, not just the fees, but the actually compensation and separating the two to show what they are.

Carl Richards: [48:57] Yeah, yeah. The other piece I tell them is if they don’t take the time to fully diagnose before they start prescribing, just leave. If you walk in, and this happens in the first 20 minutes of most financial advisor meetings, product, product, product, product, “Here, take my risk tolerance questionnaire.” Out pops a portfolio, “Yay.” If that stuff happens and you don’t feel thoroughly diagnosed, why would you fill a prescription?

Carl Richards: [49:29] Would you ever do that with a doctor? You don’t feel thoroughly diagnosed, you better believe you’re gonna go home and get a second opinion and Google the medicine. But if you feel thoroughly diagnosed, you most often just go fill the prescription.

Fraser Jack: [49:43] Absolutely.

Carl Richards: [49:44] [inaudible 00:49:44] the same way.

Fraser Jack: [49:45] Yeah, the old saying that prescription before diagnoses equals malpractice.

Carl Richards: [49:51] Yeah. We do that not ... We’re like an industry full ... We’ve been walking around the street just throwing prescriptions at people.

Fraser Jack: [50:00] Now tell me, if you were giving some tips out to a new advisor or somebody looking to become an advisor, what do you say to them?

Carl Richards: [50:08] First of all, if you’re thinking about getting in this industry, I would tell you, it’s an amazing industry. If you understand what your job is, your job’s incredible. You are a dream maker. Other than a medical probably, you can probably relieve, and I would say even including medical, you can relieve one of the most chronic pain people have. It’s just continual low level anxiety around money. It’s just something that we’ve come to accept. If you understand your job, you can actually relieve that, which is amazing, right?

Carl Richards: [50:45] In many cases, you can make dreams come true. But you got to understand that, and then understand too that you’ve got to understand, you are the release valve for other peoples’ anxieties, so just know that you’re signing up for that. People are gonna cry into your office, you’re gonna know their dreams and goals, and you’re gonna have to give them advice in the face of irreducible uncertainty.

Carl Richards: [51:04] You’re gonna have to look them in the eyes and go, “Yeah, I don’t know for sure, but I think this is the best path forward.” Then when things get really stressful you’re gonna have to look them in the eyes and go, “I don’t know for sure, but I know right now is not the time to do that.” To sell, or to buy, or whatever.

Carl Richards: [51:22] Once you know that, and you decide to get in the industry, if I were starting a new firm right now, there is no doubt what I would do. I would take the time to find a really interesting problem that I want to solve. I can be more specific. We call it niche marketing in the industry, but I think I would find, again, Seth refers this as the minimum viable audience.

Carl Richards: [51:47] This is exactly how I would do it. I would say, “All right, how much money do I need to make?” Let’s just for round numbers, just to make this easy, let’s say I decided I needed to make $100,000 a year. Let’s just say that I thought I could run my business on 50% profit margins. I’m only doing this ‘cause I don’t have a calculator. I need to have $200,000 in revenue. ‘Cause after 200,000, and I pay my office, and blah, blah, blah, I’ll have 100,000 left over.

Carl Richards: [52:16] If I need to have 200,000 in revenue, then I would say, “All right, that’s how much I need in revenue.” Then I would say, “How many clients do I want to have to build the life I want?” It could be that you want 1,000 clients, or it could be, for me, it would be more like 50 to 100. Let’s just say 100.

Carl Richards: [52:38] It gets pretty easy at that point for me to say, “Great. I need 100 clients that would pay $2,000 a year for my services.” Then I would build a service offering that matches that number, because you could just as easily, and I know people who have done this. Let’s just make that number 2 million. I need 2 million in revenue. Great, I need 100 clients that pay $20,000 a year. Right? Isn’t that right? Is that math right? Without a calculator. I need 100 clients ...

Carl Richards: [53:07] I know people who have retainer businesses where the fee is more than that, but I definitely know people have $20,000 a year retainers, flat fee for clients. Then they would build a business that matches that. I could talk about both of those businesses. I could talk about the $2,000 a year business and I could talk about the $20,000 a year business in terms of what the offering would be. I know people who have done it, so don’t tell me you can’t do it. I know people who have done it.

Carl Richards: [53:36] I would say, “Okay, great. What kind of client would need that kind of service?” Then I would go research those clients. Let’s say, here’s an example where I would ... This is exactly what I would do right now. I would probably split the difference there and say, “Look, I want to find clients that pay between $7500 and $10,000 a year. I want to have 100 of them.”

Carl Richards: [54:02] I find entrepreneurs with a successful exit to be very interesting people. I have a lot of friends that way. I sold a business, so I consider myself a successful exit. I think that problem is really interesting to solve. You may say, “I love architects that have 10 or more employees, or doctors that work for hospitals.” Whatever it is.

Carl Richards: [54:24] Then you say, “What’s the problem? What are the problems?” ‘Cause remember this, Fraser. No one cares about your solutions, they care about their problems. I would say, “Okay, great. Entrepreneurs with a successful exit, what are their ... “ I’m using the word problem in an academic sense. I’m not saying problem. We could say challenge, opportunity, whatever. What’s unique about their situation?

Carl Richards: [54:49] I would go interview at least 10 financial entrepreneurs with a successful exit, and I would ask them a series of questions. I’d go interview their bankers, I’d go interview their accountants, I’d go interview their attorneys. After doing about 20 of those interviews, you would know more than any financial advisor in the world about that niche, because no financial advisors will do this. I stopped worrying about telling my competitors to do this ‘cause no one will do this, [inaudible 00:55:16]. Oh that sounds so hard. No, it’s so scary.

Carl Richards: [55:18] Then you will take what you learned from those interviews and you will write a simple white paper. The name of the white paper will be obvious after your third interview. You’ll hear people say it, “We did this for dentists,” and the paper was called Unchained From The Chair, ‘cause we kept hearing dentists say, “I just feel chained to the chair.”

Carl Richards: [55:37] We wrote the white paper, we took it dentists, dentists read it, and they looked up and they said, “How did you know this?” We said, “It’s crazy, we ask you.” That’s what I would do. I would build a highly specific targeted business solving a problem that I’m interested in because if I’m interested in it, it’ll keep me interested.

Carl Richards: [56:05] For the minimum number of people, I know ... Yeah, I can tell you story after story, after story of people who have done that.

Fraser Jack: [56:13] Wow. Yeah, that’s some really, really, really good advice there. Thank you for that.

Fraser Jack: [56:18] Tell me, with the benefit of hindsight, go back in time and give yourself some tips and advice. Where would you go and what would you say to yourself?

Carl Richards: [56:26] Yeah, I would worry less. I would realize that men and women make plans, and God laughs. All I mean by that is recognize that plans are guesses. I love the idea of have a strong opinion loosely held. Strong opinions loosely held, which essentially means be flexible.

Carl Richards: [56:53] In terms of building the business, I wish somebody had tell me what I just walked through, and have the guts to do it. I’ve got a friend who decided that his minimum was gonna be $20 million. He had never built a business. He was an accountant. He was in his 30s. Took him 18 months to get his first client. This was back when AUM was the only model. It’s still the predominant model, but took him 18 months to get his first client, and then he got to a billion dollars in seven months.

Carl Richards: [57:33] That’s a unique story, but I just wish somebody would tell me find a problem you’re interested in solving, become an expert on that problem, liberally and freely give the solution away, and let people raise their hands and say, “Hey, I’d like you to help me.”

Fraser Jack: [57:53] Fantastic. Thank you very much. Thank you for coming on the show, Carl. Tell me, so people can find you at the Real Financial Advisors website. Anywhere else?

Carl Richards: [58:01] Yeah, Behavior Gap. If you’re into Twitter, what else, I don’t spend any time there, but we broadcast everything we do there. There’s that. But I think the best way to follow is, in fact the best way, we put all of our energy into the email that we send out from Real Financial Advisors and my weekly letter.

Carl Richards: [58:21] If you’re a human as well, we call it The Weekly Letter at Behavior Gap. If you go to behaviorgap.com, and please understand it’s spelled incorrectly with no U, so just I-O-R, the American way, Behavior Gap, get the weekly letter. I think you’ll enjoy it. The material will be useful for you as a human, but I think it will also be useful for you in terms of ideas on how you can communicate with your clients.

Fraser Jack: [58:44] Fantastic. Thank you so much. Thank for coming on the show. I really appreciate it. I’ll see you next week at the FPA. By the time this hits the airwaves, it will be post-FPA Congress, but I will see you next week. Thank you so much for coming on the show.

Carl Richards: [58:58] My pleasure. It was really, really great. Thanks for taking the time [inaudible 00:59:02].

Fraser Jack: [59:01] Thank you.

Carl Richards: [59:03] Cool.

Fraser Jack: [59:04] If you haven’t already, I’d like you subscribe to the podcast on your podcast platform of choice. To continue the conversation, head over to our social media channels. We’ll catch you next time.



Disclaimer: This document is a transcription obtained through a third party. There is no claim to accuracy on the content provided in this document, and divergence from the audio file are to be expected. As a transcription, this is not a legal document in itself, and should not be considered binding to advice intelligence, but merely a convenience for reference.