Scott MacKillop, CEO of First Ascent Asset Management, never thought of himself as a disruptor in financial planning until he became one. As a career changer, Scott began working in the investment management space. Several years ago, he began to ask why investment managers charged a percentage of assets instead of a flat-fee, even though through technology the amount of work didn’t go up based on the fee. This question was what launched First Ascent. Rather than being intimidated by the challenges that come with a new business model, he pushed forward to disrupt the industry!

Scott is dedicated to building exceptional portfolios and revolutionizing the way his business is partnering with advisors through a flat-fee business model. He knew he wanted to found First Ascent using flat fees for portfolio building and management for two reasons:

  1. To provide the best service possible for advisors
  2. To pass along savings to clients so that they can keep more of the funds in their investment accounts.

In this episode, we explore the ways financial planners can manage investment assets: outsourcing vs. managing the investments in-house. Scott highlights that pros and cons of each method, including diving into the operational responsibilities like the research, monitoring, performance reporting, billing and more.

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[tweet_box design=”box_10″ url=”” float=”none” excerpt=”The industry has always charged for services on a percentage of assets under management. And a few years ago, I asked myself: Why do we do that? – @firstascentam on #YAFPNW e117″]The industry has always charged for services on a percentage of assets under management. And a few years ago, I asked myself: Why do we do that? – @firstascentam on #YAFPNW e117[/tweet_box]

What You’ll Learn:

  • Can roboadvisors be fiduciaries?
  • How do portfolio managers work?
  • How financial planners can manage investments, either through outsourcing or in-house
  • Why do investment advisors need portfolio managers, what benefits can they bring to your practice?
  • Is it possible to set an industry standard for roboadvisors in the profession?
  • How are investment portfolios set up, and how can advisors ensure that they’re providing the best investment advice to their clients?
  • How First Ascent has disrupted the financial planning profession
  • Why flat fee asset management makes sense


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Ep117 Transcript

Hannah: Well, thanks for joining us today, Scott.

Scott: It’s my pleasure. Thank you for having me, Hannah.

Hannah: Yes. Well, one thing I love having on this podcast is career changers, and you have a JD, so you’re a lawyer by training. Is that correct?

Scott: That’s correct, yeah. I definitely qualify as a career changer, yeah.

Hannah: Yeah. So how did you go from being an attorney to getting into financial services?

Scott: Well, I was working in the financial services world on the legal side of things and have been representing financial services firms for, I don’t know, 15 years or so? And then one of my clients asked if I wanted to join them in the asset management and penchant consulting world. And I took him up on it. It was something I’d been wanting to do for quite a long time, really, leave the legal profession, because my clients all looked like they were having more fun than I was. So it was great to have an opportunity to make the change.

Hannah: From a lawyer’s perspective, so those first 15 years of your career, what was your perception of the financial services industry or profession?

Scott: For me, I really saw myself as the technician in this world. There was the big Wall Street world, and that was the world that I was primarily involved with. I didn’t … Now, this is a long time ago, of course, when there weren’t quite so many independent advisors, and financial planning was a much smaller part of the financial services world. But that part of the world was really kind of a mystery to me, and I wasn’t quite as aware of it back in those days as I became later.

Hannah: So as a career changer, you didn’t jump into being a financial advisor or a financial planner. You jumped into the asset management space.

Scott: Yeah.

Hannah: Did you ever consider going the financial advisor or financial planner route?

Scott: No, I never did. Really, what happened was I came on board with an asset management firm, which also … primary business actually was penchant consulting. So we were working with a lot of large institutional clients, penchant plans and so forth, helping them with their asset allocation and manager selection and performance reporting and all of these kinds of things. And we were approached by some financial advisors from the West Cost who said, “Hey, all this stuff you’re doing for the institutional clients would be great in the planner world. We could use this with financial advisors, and they would have a great set of capabilities that they don’t really have today.”

We started working with them on developing a program which we launched, I guess, at the very, very beginning of 1990. I think it was the first managed account program for independent financial advisors in the mutual fund space. So we were building portfolios for financial advisors, and they were outsourcing their asset management to us. But that was really the first time that had ever been done.

Hannah: Were you the one actually managing the assets, or were you on the team that helped support them?

Scott: Yeah. I was on the investment committee, and I was initially … Of course, people saw me as a lawyer when I walked through the door, and so I was more involved in the legal side of things and structuring things and compliance issues and so forth. But as time went on, I became more and more involved in the actual investment management part of things as well.

Hannah: Yeah, that’s one of the things I find so fascinating. So many people assume that financial planner is really the only route into this profession, but there’s so many different avenues or career paths that people can take.

Scott: Yeah, absolutely. I think for me it was … And maybe other people will have the same experience. I found myself really enjoying the intellectual challenges of being a lawyer, but I just felt like I had a very narrow set of tools to work with, and I had a very narrow set of problems. I could see my clients were having a lot more impact in the world, and they were able to be much more creative in what they did.

I yearned for that, and maybe other people who are in different careers now would look at financial planning and see that same sort of opportunity. That’s how I look at it when I look at the planning world. I just think there’s so much of an opportunity to make a big impact in people’s lives and really do … There’s just a lot of open field. You can be creative and you can come up with solutions in a world where there are pretty wide boundaries for you to operate in.

Hannah: I say this often, but it’s almost like … It’s like the Wild West for entrepreneurs, in a way.

Scott: Yeah, absolutely. Yeah. It is, and it’s an area that you can get into without having to find 100 million dollars of venture capital money or something like that. The barriers to entry are relatively small compared to some other industries, which I think … It’s a great career for people who want to make a change from what they’re doing now.

Hannah: You have worked in the asset management space. Can you give us an overview of, as a financial planner, as a financial planning firm, what are the options for asset management?

Scott: Certainly. The first option is do it yourself. Some financial planning firms like to do the asset management themselves, keep that in-house. There are a lot of people who got into the financial services world just so they could do asset management, and that’s their love and their passion. Those people should just keep doing it themselves, assuming they’re good at it and producing good results for their clients.

But others … I think the research is showing more and more that for planners who want to spend more time with their clients, maybe spend more time working in the planning area per se, outsourcing asset management is a great option. There used to be … Back when we started, as I said, I think we were the only firm out there where you could outsource investment management to a firm that would build mutual fund portfolios for you.

Obviously, there are lots and lots of those firms out there now, so you’ve got way more options than you did before. So I think if people are interested in spending more time with their clients or focusing on other areas of financial planning, the investment management part of it is not your passion, then there are a lot of outsourcing options.

Another thing we’re finding is that people who’ve done asset management for a long time maybe get a little bit tired of doing it. Maybe it was their passion, but the mechanics of doing it over and over again and the operational aspects are not as exciting as they maybe once were.

Then you’ve got another group that’s thinking long term and saying, “Hey, if I want to institutionalize what I’m doing here at my firm …” Maybe I want to have a succession plan where I can transfer this firm to somebody, or maybe I want to sell the firm to one of the firms that’s out there buying advisory firms now. I need to institutionalize the asset management. If I’m the chief investment officer personally, I can’t really transfer the company very well. But outsourcing helps with that.

Hannah: Let’s go through some of these options and really talk about the pros and cons of each one of them. You talked about that do it yourself, DIY, keeping the investments in-house. What are the real advantages to firms doing that?

Scott: Well, certainly the number one is you don’t have to pay anybody to do the outsourced work. So there can be a cost benefit there, although that’s … You have to kind of step back and consider, if you give up the asset management to somebody else and let them take care of it, you definitely have to pay them a fee, but you gain that back, maybe, by building a bigger practice because you’re focused more on getting clients and so forth. So that’s a trade-off. You gotta look at the cost part of it.

Control is certainly a part of it. Most outsource firms, and ours is no exception, we have a certain way we manage money and a certain philosophy we manage money. We are pretty flexible in terms of working with advisors who have their own ideas. We’ve actually what I would say is co-created a number of series of portfolios for advisors who liked what we were doing but maybe wanted a little twist on it.

But control is another issue. If you’re doing it yourself, you obviously have complete control over what happens in the portfolios. If you outsource, the outsource firm will have … At some point, there’s some boundaries and some limitations around what they can do for you.

Hannah: For people in that DIY space, we’re talking from people who are actively trading individual stocks to people who have a passive mutual fund portfolio. It includes a lot that’s in that space.

Scott: Yeah, absolutely. Yeah. There are lots of options out there.

Hannah: So then we have this outsourcing, the investment management piece. That is where you put the money with a third-party manager.

Scott: Yep.

Hannah: Terms that I’ve heard thrown around, tamps, wrap accounts … Can you walk through, what is a TAMP and what are the different terminologies that planners are using?

Scott: Yeah. It’s gotten so confusing these days because people use these terms differently. A TAMP, a turnkey asset management program … That’s what TAMP stands for. This is a term that was coined, I think, back in the early ’90s. It really refers to any firm that you can outsource your portfolio management to, and they usually provide a basic suite of services that includes the asset management itself. They will also include billing services. That is, they’ll build a client. So you bring the client’s assets to the TAMP. The TAMP manages a custodial account, let’s say TD Ameritrade or Schwab or Fidelity, or wherever the account’s opened.

They have trading authority over that account, so they’ll manage the account. They’ll also do the billing for the advisor and for their own firm, so they’ll just pull the funds out of the account. And then they’ll do performance reporting, typically. And then there may be other services. Obviously, in the TAMP world, there’s a lot more competition now than there used to be, so they will try to provide additional services to the advisors. Some of those may be practice management, trainings. They could be any number of different activities.

But the main suite of services is trading the accounts, managing the accounts, billing, and performance reporting.

Hannah: I’ll add, when I started my firm, when I started my RAA, I used mostly TAMPs. When you talk about the billing, that’s a huge compliance and just administrative burden … I mean, that’s a really big deal. And so I know that that was a huge advantage for me for why I kept TAMPs at the beginning in my firm.

The second one is performance reporting. That’s a really big cost, especially for a new firm. I’m using Advyzon for my performance reporting, and it’s $6,000 a year. That’s the best value that you can find out there. You start looking at Orion or Black Diamond, and it’s per account. It adds up very quickly. So there’s a lot of value wrapped up into that TAMP.

Scott: Yeah. No, there is … I think this is the thing that, really, people miss, especially when they’re starting in the business, is that the asset management part of it itself is kind of the glory part of the business, but it comes along with a lot of other responsibilities. There’s a lot of research and monitoring, trading and lead balancing, billing, performance reporting.

All of these things are fairly significant operational responsibilities that could take a huge amount of time, and as you pointed out, the tools you need in order to do those properly can cost a lot of money. So just being able to kind of push that off on somebody else and outsource all of those things is a great capability if you find the right partner.

Hannah: So we have the TAMP. Are there other categories of third-party managers?

Scott: Yeah. You mentioned the term wrap fee, and so let’s talk about that for just a second. That typically is a TAMP where all of the services are combined in one fee. At our firm, for example, if you work with us, our fee is separate from the advisor’s fee, and the custodial fees are broken out separately. TD is our main custodian client working with us, would typically see our fee set forth, the advisor’s fee set forth, and the custodial fee set forth. So there you have complete transparency on what’s going on.

Wrap fees are different. They basically bundle all of those fees together so that the client really just sees one number. It’s a little hard for them to understand which part of the fee goes to the custodian and which part goes to the TAMP and sometimes to the advisor. So that’s just a matter of preference. There’s nothing inherently right or wrong about either one of those ways of doing business. It’s just those are two different models.

Hannah: It’s so interesting because I hear that term a lot, and that’s really just how it’s reported on the client’s statement. That’s not even really saying characteristic about the third-party manager.

Scott: Yeah. No, absolutely. The investment management part, the core part of what we do, is the same whatever label you want to put on it. This is true, for example, if you … You may hear the term “unified managed account” or “managed account” just by itself. Those terms all really refer to the same thing. Somewhere there’s an asset manager who is doing the investment management for you.

In a unified managed account world, it may be actually groups of asset managers. So you could use First Ascent, and you could use five other asset managers all kind of in a unified account. It would all be accounted for technologically under one umbrella. But, really, the core of the business hasn’t changed that much over the years. It’s the technology around it which has changed, and some of the terminology has gotten a little confused as a result of that.

Hannah: Another term, as we’re just going through these terms, SMA, separately managed-

Scott: Yeah.

Hannah: Can you walk … What is that?

Scott: Yeah, sure. That usually refers … It used to refer exclusively to the situation where you hired a manager who then banished a portfolio, individual stocks, or bonds. That was the separately managed account. And then that was contrasted with firms like ours, which manage portfolios of mutual funds or ETFs, for example.

Separately managed account, that term has gotten a little bit blurred. Now it sometimes refers to firms like ours because we are literally managing a separate account for each individual client, but really, separately managed account usually refers to a manager who’s managing individual stocks and bonds.

Hannah: You said “has an account that’s managed separately,” like for the client. What would be the alternative to that where it’s a pot of money that’s divvied out, or like a mutual fund?

Scott: Yeah. It would be like a mutual … Yeah, like a mutual fund. Yeah, exactly, or a collective trust fund or something like that where clients’ money was pooled together in one large account and managed collectively. Again, mutual funds get a tremendous amount of scale by just pooling everybody’s assets together. But, of course, that’s not always appropriate for our clients.

Sometimes they have individual needs that require some sort of customization or tax lost harvesting, or there are a lot of things you could do if you’re managing a separate account for one individual client rather than a big, collective pool of assets.

Hannah: Are there other categories or terms that you hear thrown around?

Scott: Yeah. There’s a new one, which is “model marketplace,” which is kind of a attempt to unbundle the TAMP space, if you will. Today, the biggest example of a TAMP is Envestnet, and they provide access to lots of different asset management firms like ours and others, hundreds of them, literally. They provide the trading and they provide the performance reporting and the billing and all of those things.

What the model marketplaces are trying to do, they’ve come along and … Orange is a good example of a model marketplace. I think Orion has developed model marketplace. TD has developed one now. What they’re doing is they’re taking the models from firms like ours, the so-called strategists, and they’re providing those to the financial advisors for a fee. Tends to be a lower fee than you pay if you went and got the whole bundled packaged.

Then the advisor can take that model. They could take a First Ascent model and they could implement it themselves. So they could do the trading. They could do the performance reporting and the billing. They could even make customizations to our models if they wanted to. Those are pretty brand-new programs called model marketplaces.

Really, the difference there is that the advisor isn’t paying for the whole package of services. They’re just getting the model, and then it’s up to them to implement that model in whatever way they want.

Hannah: I thought your comment was really interesting about, really, what’s changed is the technology. So we still have these just basic two camps: do it in-house or outsource it. And then it’s just, what is the technology wrapped around that?

Scott: Yeah, exactly. Well, this is what you’re … Certainly, the robo-advisors are the utmost obvious example of a development that really changed the world in recent times. Their deliverable, really, when you get right down to it, isn’t any different than any other TAMP, right? They’re managing a portfolio, and they will either do a good job or they’ll do a bad job of it.

But the technology around how you access that portfolio and how you interact with the firm that’s managing it for you is totally dramatically different than anything that had existed before the robos arrived. It made a huge difference in the pricing of this kind of service, and it made a huge impact on the industry, which is still being felt and probably will still be felt for years to come.

Hannah: So this idea of these robo- … I mean, because that’s … It was a really hot topic a couple years ago. Have you seen them take off like people anticipated they were going to take off?

Scott: I don’t think so. I think they made a big impact initially. I don’t think they’re going away. I think some of them are going away. Obviously, they’re being bought by other firms and some of the smaller ones have closed their doors. But I think the concept of robo-advisors will be around.

Historically, the way I see it is, back before robos were here, there was always a group which was basically a self-help group of investors, but they needed a little bit of guidance. They didn’t want to do it totally on their own, so they might go to Schwab or go to TD and get a little bit of advice from somebody in the custodian office and then build their own portfolio that way.

I think that’s a little bit the market that robos have now picked up. They’re taking people who really don’t want a full relationship with a financial advisor. They just want somebody to help them put their portfolio together, and I think that’s that part of the market that they’re being successful in. Now you’re starting to see, of course, firms like Betterment and Schwab are developing these so-called hybrid programs where you can actually access a real live financial advisor. And those seem to be proving pretty popular.

But really, the robos, I think the thing that’s missing there is they’re still missing some flexibility. So the flexibility that you could get by accessing a full-service outsourcer isn’t there, but certainly the most important thing is not … There is the relationship with the financial advisor, and that’s key and crucial to the success of many investors. They need that help, and I do some behavioral coaching from a financial advisor.

Hannah: With your background as a JD or as an attorney and where you are now, I see a position paper on your website of, Can a Robot Be a Fiduciary? This is a huge topic, especially among new planners. Let me just ask you, can a robot be a fiduciary?

Scott: My simple answer is no. Now, that’s not a position that the SEC agrees with right now. I think the SEC has given robos a little bit of a free path on the fiduciary topic just because their technology is interesting and the robos who are out there are basically good guys in the world. Betterment and Wealthfront and some of these other firms, these are firms who are really out there trying to do good things for the investors they work with.

But if you really do the analysis, what you have to know about a client and what you should know in order to provide the kind of service that is demanded from other fiduciaries, you can’t really do that by answering a six-question questionnaire online and choosing a portfolio. That would be unacceptable. If you in your practice … If a client came to your office and said, “Fill out this six-question questionnaire,” and they filled it out and you punched a button and said, “Okay, you’re in my balance portfolio,” and that’s all you’ve ever talked to them about or ever asked them about their financial situation and their goals and their life, whatever, that would be unacceptable. But yet, from the robo world, that’s perfectly acceptable, at least under the laws that exist today.

So yeah. I wrote a paper about it. I think, really, what needs to happen is the legal structure needs to recognize that there’s this new thing called a robo advisor, which is a good thing and can be a good thing, but it needs its separate category of regulation. It’s not providing the full range of fiduciary services that a human advisor provides.

Hannah: This all raises this interesting question of, how much information do you need to be a fiduciary? Is there ever a clear, bright white line, if you would, on what it means to be a fiduciary?

Scott: Yeah. I think the concept has … I mean, it’s never been written down. The interesting thing is all of us who are registered under the Investment Advisers Act of 1940, which includes pretty much all the RIAs and terms like ours, we’re all fiduciaries, and yet there’s no requirement in that statute written specifically that says that we are fiduciaries. That was bred into the law back in the early mid-’60s by the Supreme Court, and ever since then, this fiduciary statement has been clearly applicable to financial advisors and planners and those providing investment advice.

The details of it, the specifics of what that means exactly, have never been really written down. They’ve been determined by rulings that courts have made or the FCC has made. They’re not clear and they’re not bright-line kinds of requirements. So this has been the way we’ve always operated it, and it’s worked pretty well, actually. There are some basic general concepts that you must understand. You have a duty of loyalty and a duty of care.

To most people, it’s pretty clear what that means. As a financial advisor, you really have to stand in the shoes of your client and do for them what you would do for yourself. Pretend like your client is your mother or your little brother or something. How would you want to treat that person? How would you want to see that person dealt with?

But that test is pretty amorphous right now under the law. It’s very open to interpretation. We’ve seen this now with the DOL fiduciary rule and the new SEC rule. The new SEC rule doesn’t define what “best interest” means, so they’re imposing a new standard that, again, isn’t very well defined. So I think this is a topic where people have to really commit themselves to doing what’s right for clients and not trying to figure out where that line is. If you try to figure out where the line is and get real close to it, you’re probably not a very good fiduciary.

Hannah: Yep. I like that analogy. Will it be possible to define more what that fiduciary is to basically set this industry standard? Is that possible in our business?

Scott: I don’t think it’s possible to do it and to do it well. The problem is what happens, and this is, I think, what the brokerage industry has pushed for and it looks like they may even get it a little bit here if the SEC continues down the path they’re on, is they like to have some sort of bright-line requirements so that they can figure out where the line is and then move right up to it, the very thing I was saying you shouldn’t do. But that’s how they want to operate.

I think it’s actually a good thing that these things aren’t very well defined, but they’re concepts that are kind of living concepts that the SEC and the courts and others can interpret as the world changes. I think this is kind of a conundrum we have going back to the robo issue. It’s kind of the conundrum we have there. The robos didn’t exist when the fiduciary standards were first developed back in … hundreds and hundreds of years ago under English common law and so forth.

Now we’ve got this very strange creature called a robo advisor that doesn’t really fit within the normal concept of a financial advisor. And so the FCC is, I think, giving them a free pass, but I think rightly they’re giving them a free pass. They’re trying to let this new creature exist and operate in a way that hopefully will be beneficial to the investor population that’s out there.

Hannah: One of the reasons I was so excited to have you on the podcast was this idea of disruption. I know when I talk to young planners, they see these obvious holes, and it’s frustrating especially. But I really view First Ascent and what you guys are doing as a disruption to the asset management world, especially the outsourcing piece of it. Can you tell the listeners what is First Ascent, and how have you disrupted that market? And we can talk about this idea of disruption a little bit more.

Scott: As I said, at least going back to the early ’90s, firms like ours have been around, and I think I was part of … If it wasn’t the first, it was one of the first ones. The industry has always charged for its services on the percentage of assets-under-management base and continues to do that.

A few years ago, I asked the question, first to myself and then to a lot of other people, I said, “Why do we do that? Why, with the technology that we have available to us, why do we charge that way?” I didn’t get very good answers. I didn’t have a good answer. So we started a firm that charges a flat fee. So we charge $500 per portfolio per year, and it’s a flat fee. It doesn’t matter if it’s a $100,000 account or a million-dollar account. We charge the same because from our point of view and given the technology we have available to us, the amount of work and the amount of value that we’re providing is the same.

So we just decided to go at it a different way. We introduced the flat fee into our industry. And then we also … I won’t go into details here on the podcast because we don’t have enough time, but there are changes that we made in the way we managed portfolios that I think are different from the way they’re typically managed in the industry. We also tried to shun the typical wholesaler approach to distribution of our services. The advisors we work with, we interact with pretty much through our website, over the internet, emails. We do a lot of videos. We communicate with people electronically rather than trying to make appointments with them three weeks from now and get on an airplane and show up for a face-to-face meeting.

It’s a different way of doing business. I think it’s a more efficient way and probably fits in with the approach that more and more advisors are wanting to take.

Hannah: This idea of evaluating what you were … If you’re a fish, you only see water. Was this something that you had always noticed from the beginning? Or did you ever have … What was your “aha” moment on that?

Scott: No, it’s really … This is the thing that was really a little bit embarrassing to me, is that I was … I’ve been in financial services now 40-something years, a long time. I’ve got lots of gray hair. It wasn’t until, oh, maybe five years ago where I first started thinking about this problem. It really was just the result of seeing the technology develop in our industry to the point where, literally, you didn’t even know the difference between a $100,000 account and a four-million-dollar account, to use that example again. They were being managed in a very similar way.

So I started asking this question, first of partners at my old firm, and they didn’t have a very good answer to that question: “Why are we charging this way? Why don’t we try to do something that’s different and take a flat-fee approach?” Ultimately, I had to go start my own firm in order to do that because nobody really wanted to hear my flat-fee idea. Sometimes that’s what you have to do. If you want to do things differently, sometimes it just means scraping the old house off a lot and building something brand new. So that’s what we did.

Hannah: From an outside perspective, you are leaving a ton of money on the table with this new model.

Scott: Yeah, I think that’s the perception. Here’s a different way to look at it. I don’t want to compare us; we’re a dinky firm compared to Amazon, but if you look at Amazon and what Amazon has done, Amazon has found a way to use technology and use scale to reduce the prices of all kinds of products that they offer to their clients. That’s kind of what we’re doing.

We designed a firm that’s very efficient, uses technology in a very efficient way, and allows us as we reach scale to continue to produce the outcomes that we produce for thousands and thousands and thousands of accounts without having to increase, really, the headcount at our firm. It’s a way of looking at the business. Instead of looking at asset management like a bunch of cobblers at their workbench, it’s looking at more a business of scale where there’s an assembly … There is an assembly line, and that’s kind of a blue-collar mental picture, if you will.

But that’s really what portfolio management has become or can become if you build your firm a certain way. It doesn’t mean that the intellectual capital that’s there is any less valuable or of any less quality. It just means that once you’ve decided what your portfolios are going to look like, there are very efficient ways to implement that set of portfolios for large, large numbers of clients. So that’s what we’re trying to do.

It’s not that we’re trying to produce a big asset management giveaway here. What we’re trying to do is say, “Hey, advisors, there is an opportunity for you and your clients to save a lot of money. And if you all come to our firm and work with us, we’ll reach the scale we need to make a significant profit as well.” That’s the idea. We’re not a eleemosynary organization. We’re not trying to give it away. But we just looked at the business a different way and said, “Hey, you could build a business of scale here and do very well for yourself.”

Hannah: What is it like … I’m assuming you still go to trade shows and things of that … conferences and things like that.

Scott: Yeah.

Hannah: What is it like now being there as the disruptor instead of being … not too presumptuous, being the one who’s about to be disrupted?

Scott: Yeah. No, it’s fun, actually. When you finally give yourself in to it, when you … because there’s a moment. Whenever you do something like this, there is, at least for me and for the group that I work with, there’s this moment of questioning what you’re doing where you say, “Well, I’ve got this idea. This seems like a good thing to do,” and then you look around and you see everybody else doing it a different way. And you think, “There must be something wrong with my idea because if it was such a good idea, somebody else would have implemented it before.”

Then you get past that and you give yourself in to this notion that, no, you really have come up with something that is important and useful and good. You just throw yourself into it and let yourself embrace that idea and go with it. Just let all your passions take that idea as far as it can go. So that’s where we are right now. As a group, we’re just very excited and thrilled to be doing something that’s different. And from the perspective of the advisors and the clients we work with, it’s a great opportunity to get a deal, if you want to look at it that way, and still get excellent-quality portfolio management from our firm.

So it’s fun, and I know I’ve talked to a number of our competitors, large competitors, who I know pretty well. They’ve all shared their … both a little bit of their concern as to what we’re doing, but we’re still really too small to really be scary to the really big firms. But they’re cheering us on. They’ve shared with me the fact that they think what we’re doing really is the direction of the industry and really is good for clients and really is probably something they’re going to have to get around to doing themselves.

But that’s fun. These are people that are friends of mine and I respect a lot. So it’s very validating to hear that from them. So, yeah, it’s an exciting time to be us right now.

Hannah: Did you view yourself … I mean, you’ve had a long career. You were talking about, the last five years, you’ve really had this idea. Did you view yourself as a disruptor throughout your career?

Scott: No, not really. I think what I realized … And this I didn’t realize until I looked back and started thinking about how I got here. How is it I ended up starting a firm three … Three years ago is when we actually formed the firm. How did I end up doing this after all these years in the business and basically being an entrepreneur from the ground up and just starting from scratch? That’s not the typical profile for somebody of my age.

I thought a lot about why I did it, and looking back on my career, what would have led anybody to think I was going to do this? I think, really, the first inkling I got of this kind of approach to doing things was back when I was thinking about leaving the legal practice. I realized that there was this … I really believed that a lot of people, and certainly I do … A lot of us are driven forward by a creative energy that we have inside of us. It’s just a force that causes us to do all kinds of things: play music and paint pictures and, in some cases, build businesses.

I think the reason I wanted to leave the legal practice was because I felt like I needed a little bit more opportunity to be creative and to do things, just to get ideas and to think about new ways of approaching problems. I think this, at least for me, was kind of a gradual thing. I did it more and more and more and became more confident in doing it, and then got to the point where I had a handful of ideas. The flat fee was one of them, but had a handful of ideas about how this business could be done differently and just said, “Okay. I like this feeling of being able to use my creative energies to do things differently and hopefully better than they’ve been done before. Let us give it a shot.”

Hannah: I love that creativity angle.

Scott: Yeah. I think this is true … This is something that everybody should at least think about, is if you’re feeling some level of dissatisfaction with what you’re doing, maybe that’s part of it. You’re just not feeling that you have enough room to be creative and to be yourself and to pursue passions that you have. So, yeah, that’s a good … I think it’s part of the introspection process that everybody should go through a little bit as they’re charting their career path.

Hannah: What advice would you have to the new planner who’s coming in and they’re seeing so many places for disruption, and perhaps they’re frustrated in their firm right now because they aren’t getting that avenue to explore that? What would be your advice to them?

Scott: Well, I can just talk about the process that I went through. I think once you start to feel that, first of all, you should congratulate yourself for having ideas and for thinking critically about things. As I said, I think I went through a lot of my career without asking enough questions about why we did things the way we did.

So pat yourself on the back. Keep asking questions. Really continue to explore whether there are new ways to do things and whether there are better ways to do things. Also learn patience because not everybody around you is going to think that your idea is such a great thing. People are very afraid of change. Things that have worked in the past, people are very wedded to. There’s a huge amount of herd mentality that you will encounter as you try to promote new ideas.

So be patient and learn to be diplomatic, and maybe learn to ask for a mile and be satisfied with just a yard or two initially. Just get some leeway to try some of your ideas. Maybe experiment with them in limited contexts and see if they work. Let other people participate in the process. Certainly, the ideas I had initially and what we’ve actually ended up doing at First Ascent are in some cases very different, and it was because the team really got involved. There was a lot of building on … We built on each other’s ideas, and people think differently about different problems. So try to get a group of people who can help you build on your ideas.

But then, at the end of it, recognize that you may have to go start something of your own. You may have to start your own financial planning firm, or you may … I know some people who’ve been advisors and who’ve started technology firms because they got some ideas about how to do things better in the technology area, and they just got very focused on doing this and actually ended up as fintech entrepreneurs instead of advisors.

But just love that feeling that’s inside of you, when you experience it, of dissatisfaction about how things are. Love the ideas that you have that come up about how to fix it, and just see if you can take an organized and, as I say, patient and diplomatic approach to trying to work with those in the context of whatever organization you’re with. But be bold. If it doesn’t work in the context of the place that you are, go out and give it a try.

A lot of people are so afraid of failure that they take great ideas and they stuff them under the mattress and don’t do anything with them. I think this is certainly something I’ve learned over the course of my career, is that failure is just another form of learning experience. Don’t worry about it if people define something that happens to you as a failure. That’s great. Let them look at it that way. But you should look at it as a very valuable learning process.

Hannah: Such great advice for anybody, not even just the people who are really looking to be the disruptors.

Scott: Yeah. That’s what I told my kids when I was racing home. I said you can’t be afraid to fail, and you shouldn’t even use the word, probably, because it comes with such negative connotations. But, really, we all get down the road with lots of bumps and bruises on us, and nobody comes out with a perfect 10 record at anything we do. Let’s just accept the fact that that’s the way it’s going to be and get out there and do things. Make things happen.

Hannah: If you’re not finding people who are supportive of that, find new people.

Scott: Get some different friends. Yeah. That’s right. Yeah, exactly.

Hannah: Join us in the Facebook group.

Scott: Yeah. Exactly.

Hannah: Oh, good stuff. Well, is there anything else that you want to be sure our listeners know about?

Scott: No. I think, certainly, anybody that’s interested in flat-free asset management, we’d love to talk to you. But, really, I think it’s just, rather than focusing on what First Ascent does, I think it’s more important to just focus on whatever the listeners are doing in their own world. And just go with that creative energy that you feel. Don’t be afraid to fail. If people that you’re hanging around with don’t like that, find some new friends. Yeah. There we go.

Hannah: Great stuff. Well, thank you, Scott.

Scott: Thank you very much, Hannah. I appreciate you having me on here.