Monday, July 3, 2017

David Edwards of Heron Wealth: On Evolving with the Times and Building a Platform for Success

Working with top advisors like David Edwards, founder and president of Heron Wealth (, is a real joy. I spoke with David to uncover some of his secrets to success. David provides some great insights for fellow financial advisors. There are lots of great ideas and much to emulate here.

A transcript of the interview is posted below.

MARIE SWIFT: Hello and welcome back to Best Practices in the Financial Services Industry. This is your host today, Marie Swift, and I'm joined today by David Edwards, who is the founder of Heron Wealth a New York-based fiduciary investment advisor and wealth management firm. Today we are going to be talking about how Dave has intentionally built a wealth management business that is growing in leaps and bounds. I would say, Dave, that you are a shining light for all the advisors that will be listening to this audio. Welcome to the show.

DAVID EDWARDS: Good afternoon Marie.

SWIFT: Thank you so much for your time today. I was reading the white paper that recently came out, of which you were the main focal point. It was put out by eMoney, and it focused on your client service model and how you've grown as an independent wealth management firm since your inception. It focused particularly on the last three or four years. So let's talk a little bit about your hyper-productive team – I love that phrase – and how you are building such a successful and enduring company. So, what would you like to share about your strategy?

EDWARDS: So, let me divide the last twenty years into two phases. For fifteen years, I ran a solo practice, taking care of maybe 50-60 families with about $75 million in total assets. That suited my life while raising two children. Well, those children went to college in 2011 and I was facing the next 15 to 20 years of my career and thinking about what I wanted to accomplish with all that spare time. I decided to build my firm to a billion dollars in assets. If you think about moving from $75 million to a billion dollars, you can't do that as a solo practitioner.

I spent some time trying to understand the form of a well-run wealth advisory firm: the structure is a pyramid. Not a pyramid scheme, that would be bad, but it is a pyramid. At the bottom of the pyramid is your core foundation. It's technology, operations, cybersecurity and compliance. That has to be rock solid. On top of that, you build your service package. For us it's financial planning, investment advice and estate planning. That has to be rock solid, as well. On top of that you can build a marketing and business development process. And on top of that is management. If each of the lower layers is rock solid, management is not that big of a deal.

So, by understanding exactly the structure of my firm, I was able to hire very talented people to fill in the roles of compliance, training, portfolio management and financial planning. I was also able to hire outside vendors for compliance, cybersecurity, marketing, PR and technology. The transformation was that I no longer spent 80% of my time running the firm. I spent 80% of my time talking to clients and prospects, which is the fun part of my job. It's what I want to do every day.


Now, we've always been a very technology-driven firm and we had been using a paper-based financial planning process, which was slow and frustrating. It could take us up to 20 hours to get a good financial plan for a family. That's an expensive plan. That's a $10,000-dollar plan and that precluded us from working with a lot of clients that had less than a million dollars in assets.

At the same time, we had a situation where my 55-year-old clients might have a $1 million or $10 million in assets, but their 25-year-old children were just starting out with $10,000 or $50,000 or maybe even college loans. And if I said to those college children, "Hey Billy, Hey Jessie, I would love to work with you. Can you circle back to me when you have a million dollars?" I would never hear from those kids ever again.

As we do every four years, we were reviewing our technology and looking at pain points and trying to see how we can get past this paper-based financial planning process into something more modern and more streamlined. And that's when eMoney came into play. We started looking at eMoney in the fall of 2014, brought the platform on board in February 2015, and spent about four months getting up to speed. It is complicated, but we embraced it fully, moved all of our clients off of paper onto the platform and realized we could get to a good baseline in only two hours and not twenty hours.

So, we could go back to Billy and go back to Jessie, and say, “Hey we can bring you on board. It's going to be a digital-based platform; it's going to be on your PC; it's going to be on your phone.” Sure, they could call if they had questions, but we can now get them on board with pretty good service level, as far as they were concerned, and not kill ourselves on the cost side. Between the eMoney upgrade and all the other upgrades, we went from growing 5% a year in assets to growing 40% a year in assets. That took us from $75 million to $300 million in 5 years.

SWIFT: That's amazing! So, is that what you are calling the bionic advisor?


EDWARDS: Absolutely! We always laughed about Steve Austin, the $6-million-dollar man, back there in the 70s when I was a kid. That would be the $6-billion-dollar man today, but what Steve Austin had was both the smarts of a human and the strength of technology to help him look long distance, jump over cars and run 60 miles an hour. That's what we need to do as financial advisors just to win the game every day.

SWIFT: We’ve talked a little bit about how you've adopted a new pricing model to target younger clients and to provide an onramp for your digital services. Also we’ve talked a little bit about your technology and this bionic advisor idea. Talk a little bit about how you find the right clients.


EDWARDS: Sure. So, here’s the traditional advice for advisory firms like mine, let's say you start out with a $250,000 minimum. As time goes by, you raise that to $500,000, then eventually to $1 million or $2.5 million. Up until three years ago, our minimum was $1 million dollars and generally speaking we didn't go after clients with more than $10 million dollars, because above that is a different level of service we weren't willing to provide. Well, we still have a $1 million minimum for clients that are 50 years and older, but we have a scaled minimum for younger clients. It's as little as zero, if you are younger than 35 years old. It's $250,000, if you are 40. It's $500,000 if you are 45. And instead of charging on an AUM basis, which is the traditional way of getting paid 1% a year or 75 basis points a year, we charge a financial planning fee directly to a client's PayPal account. So that would be $25/month if you are younger than 30, it's $100/mo. if you are single between 30-40, and $200/month if you are a couple. And the financial planning subscription fee automatically transitions to an advisory fee, an AUM fee, when you have enough assets. So, for a couple, once they get over $300,000 in assets to us, we transition them to the AUM fee.

We believe this model works because we have a pretty good sense of how much time we need to spend with someone that is 25, versus 35, versus 45, versus 55, and what kind of cash flow we need to service them properly and still leave profit left for us. So, I would say today our bread and butter clients are Boomers between 50-65 years old, but the clients we are aggressively going after are Gen X clients between, let's say 45 and 35, and millennial clients younger than 35, because that's where the value will come over the next 15-20 years.

SWIFT: That's a very smart strategy, Dave, and none of us are getting any younger, right?

EDWARDS: When it comes time to sell a firm like mine, the old rule of thumb is, “Well, it's three times revenues or two times revenues,” which is a very naive analysis. If you have a client book of people between 75-85 years old, they are spending their money, giving their money away and they are going to die. If you've made no provision for transitioning those assets to the next generation and even the generation after that, you’ve got nothing. We are working with a family now, one of our dear clients passed away in January (she was 90 years old and had a wonderful life). We've been working with her adult children who are in their 50s and 60s for about a decade now. We've also been working with her grandchildren who are between 25 and 12 years old. Obviously, we don't spend a lot of time with the 12-year-old, but the 25-year-old already has a successful career. We want to make sure that she goes nowhere but to us when she needs good financial advice.

SWIFT: So how do you go about finding these new younger clients?


EDWARDS: There are multiple avenues of attraction. The traditional route is client referrals, of course. We seek those out the best we can. We don't get as many as we'd like. Another fruitful route for us is centers of influence. That could be a divorce attorney or a trust and estate attorney. We have a good relationship with advisors with much higher minimums than us – $10 million, $25 million dollars – and they'll call up, "Hey David, I have this wonderful family. They only have $5 million. Can you take care of them?" Totally! That is a sweet spot client for us. $5 million is perfect!

In networking, I'm out in an environment of places where I might meet clients all the time and that's not necessarily in a business networking group – that might be at a party, at a sailing regatta, at a polo match. I always have my ears open for a couple of phrases that tell me that someone needs help. I might meet a hundred people in a given month who could be my clients, but only five of them have the following characteristics: they are not able manage their money themselves successfully; they don't have an advisor already; and most importantly, they have a transitional life event such as a marriage, a divorce, the birth of a child, the birth of a grandchild, a promotion, a grant of stock options, a retirement, an inheritance. Something is making them think about their money and they need advice and help.

In the old days when I was much less disciplined about my marketing, I would pitch everybody I met. 100 people a month and I'd win 4 clients – it was pretty demoralizing. After I went through a process of defining my ideal clients and only going after those clients that clearly demonstrated they had a need to talk someone like me right now, all of a sudden for every five people I'd pitch, I'd win four. But now we've gotten even better, so every time I pitch a client, I win. Do you have any idea how much fun it is to go out and bat a thousand every week?

SWIFT: I do and I wish I was doing it more often.


EDWARDS: If you are in that groove, you can't wait to do sales. Most people hate sales and will do anything they can to avoid sales. If that was the only thing I did for the rest of my career, I'd be very happy.

SWIFT: So how did you get so good at this?

EDWARDS: Well, nothing ever happens by yourself anymore. Twenty to twenty-five years ago, I had all the time in the world for trial and error. I'd try this, I'd try that and make notes on what worked and didn't work. It was a much slower and easier time. I recently saw a display of the original online technology from Fidelity Investments. It was a kit that sat on your PC, and connected to Fidelity at 9,600 bot – super-slow. Wow, I remember that. Today, everything is moving super-fast. What worked a year ago might not work today. What worked four years ago definitely doesn't work today. So instead of trying to do it through trial and error, I sought out experts in as many different fields as I thought were appropriate.

So, we work with a strategy coach through Peak Alliance. That's Ron Carson's coaching business out in Omaha, Nebraska.

I also worked locally with a Sandler Training coach to improve my one-on-one marketing skills. Here's the thing, I've been doing sales for 20 years. Why would I need to do that? Well, do you remember the story of Tiger Woods? When Tiger Woods was a young tournament player he was having success, but he felt he'd peaked already. So, he took a year off from professional play, went back to the basics, rebuilt his stroke from the ground up and then went on to become a champion we know. I was feeling like I was running about a B, B- in my sales efforts. Sure, I was winning four out of five, but that’s still only an 80% success rate. I wanted to do better. I wanted to be an A, A-. So, I kept my eyes and ears open and eventually ran into a gentleman, David Fisher, who runs at local Sandler Sales Training franchise here in New York City. Mr. Sandler originally started his career selling chocolates in Philadelphia back in the 50s and 60s. Through some career reversals he ended up being a sales trainer and discovered he was far more powerful helping people be better salespeople than he ever was selling chocolates. The Sandler Approach says take all of the usual things you think about: got to make a pitch, got to get talking, got to do this, got to do that, all that stuff just throw it out. It's boring, the clients get defensive and they won't reveal what's really going on. Instead, just be yourself and be more conversational and listen more than talk. That's a challenge for me because I love talking! 

SWIFT: I know you David, and know that's true.


EDWARDS: So, Sandler Training taught me to listen for those phrases that tell me somebody needs help. The phrases that tell me somebody has pain. And then give them some open-ended questions rather than questions that have a yes or no answer. Open-ended questions get people talking. For sure once they start talking they are going to like you because everyone loves to hear the sound of their own voice. So, let's say I'm in a situation, I'm at a cocktail party, it's a trust and estate meeting and I'm talking to this one estate attorney and he says, "Hey David you know I got this funny situation. I've been working with an advisor at a traditional brokerage firm my whole life. He's the advisor my dad had but my dad died recently and all of a sudden I have money that I didn't have before and I'm talking to this guy he's still in the business but seems out of touch. He's never available, he's always off in the afternoons and I have a busy schedule and I'm a little frustrated. I'm like, “Well really, how do you think the relationship should be?” He says, “Well I'd like to have this report and I'd like to be able to do that, and understand what will happen in 10 years now.” And I say, "Okay, we have the ability to give you that information. What would you like to know?"

So now the guy is telling me exactly what he needs to become a client. I'm not forcing him to follow my plan. I'm letting him describe exactly what he wants in the relationship. I’m pretty good at making mental notes, but the second I get back to my office, I quickly write that down into a one-page report that gets entered into our client-relationship management system. So now we have a track of that opportunity and we have a reasonable sense of how quickly we should get back to that person – three days, five days, two weeks – and what kind of follow up questions we should have and where should it go. But the other important change we made as part of this escalation process or acceleration process was to break apart the presentation of the advisory agreement from the presentation of the account documents.

In the old days, I would spend two, five, ten, twenty hours working out the financial plan, working out the investment plan, getting the client to buy in. And then I'd present them with a fifteen-page advisory agreement and potentially two, five, twelve, roughly 32 packets of account documents. It could be weeks before the client got back to me. Because, if you are a successful businessman, a successful lawyer and someone gives you a stack of documents in 2-point font, that's danger! You are not going to sign anything until you've read it carefully. So, what we did was we looked at our pipeline process, which was averaging six months between the time the client first reached out to us and the time where their assets where completely on board, and looked at every single element of that process and tried to figure out what were the choke points. And we realized the moment of the advisory agreement and the account applications was a major choke point. Some clients disappeared at that point, really demoralizing.

Now, we will spend up to two hours creating a base-line financial plan that we will review with the client in their office or our office or wherever it seems to make sense, and if at the end of the 90-minute meeting, the client is nodding their head and saying, “I really like what you are talking about,” that's where we say, "Okay we'd like to pause now and take out our advisory agreement. You are not going to sign it right now, but what I want to do is show you this document and explain what's in it because we are creating rights and responsibilities and liabilities with this conversation and we need to know that you understand how serious this is. And if you decide you do want to move forward, great, understand that there's an automatic subscription of $100/month or $200/month depending. If you do transition your assets to us, we'll automatically switch over to an advisory agreement.” Then we spend the next ten minutes starting at the top of the page and going to the bottom of every single paragraph in that advisory agreement, which, by the way, is printed in 14-point font not 2-point font, and if there is anything the client wants to balk about, let them speak now when we are together and can explain.


Here's another value: a lot of times, clients are looking for free advice. They are very happy letting you spend ten or twenty hours preparing a beautiful financial plan, investment plan, until they get the answer they are looking for, at which point they “ghost” you. They got what they wanted for free, see ya! If someone is going to ghost me, let them ghost me after two hours when I invested $1,000 in the process, rather than after 20 hours when I invested $10,000.  But we haven’t had that experience yet. If somebody is going to be serious and signs that agreement for $200/month, we are going to get their assets a month later. So, the six-month sale cycle is now compressed to six weeks on average, which means I can pick that many more clients per year and keep up our 40% annual growth.


SWIFT: Fantastic! Speaking of rights and responsibilities, one of the things you're known for is your taking care of your clients, protecting their data with cybersecurity. In fact, you were put on the cover of Financial Planning magazine for your prowess on this. I was looking at your ADV on this and you've got a clause that protects your clients against elder abuse. Maybe you can talk about those two issues.

EDWARDS: Sure. So, the client-facing part of our business is financial planning, investment advice, and estate planning. But remember that foundation? That foundation is operations, technology, cybersecurity, and compliance. Five years ago, we were casual about cybersecurity because we had reasonable protections on our computers and we weren't hearing about any threats. But then our clients began getting attacked, not us, our clients. They would get attacked in the sense that their email password would get “sniffed” if they were using free wi-fi at Starbucks. Next thing we would get mysterious emails, asking to transfer money to places we'd never heard of before. I began to get concerned. This never happened to us, but other advisors have forged their client's signature to a wire transfer to send $10,000 or $50,000 to some place they shouldn't have and then THEY’RE on the hook for it personally, not their custodian, the advisor. I can't afford that.

So, we brought in a cybersecurity consulting team and I said, “I don't have unlimited time or unlimited budget. Tell me the ten things I need to worry about the most, help me rank order them and help me knock them off one after the other over the next year.”

Once people find out you have a top ten list on cybersecurity protection, you start getting phone calls from conferences and from journalists. I've spoken at a number of conferences and given many interviews about this topic of cybersecurity protection for the client, not as a technology expert, but as a stressed-out executive who just needs to protect his clients and just needs to protect his firm. As part of our annual compliance review, we bring in our cybersecurity team and have a meeting with our compliance consultants and talk about what are the threats for this year and what do we need to do to keep those threats under control. There is the old joke about the two guys in the woods and they come across the bear and the bear is going to eat one of them. The other guy laces up his sneakers and the guy says, “What are you doing?” The guy says, “Well, I don't have to run faster than the bear, I just have to run faster than you.” So that's how we are approaching cybersecurity. We are never going to be 100% perfect, but if we are at 99% and our peers are at 60%, they are going to get attacked ahead of us. Really, it's our goal to stay 18-months ahead of our peers in anything involving cybersecurity.

Now, when it comes to elder abuse, again we look to our clients and that's where the pain first arises. We had a situation a couple of years ago where a client learned his father had died, which was unfortunate, but the gentleman was 95 years old; therefore, expected. What was not expected was the realization three years later when there were brand new trusts, wills, powers of attorney naming the father's nurse as the sole beneficiary of a three-million-dollar estate. Here's the thing, those documents were 100% legal and there was nothing we could do about it. We engaged a private detective, we engaged a lawyer that specializes in elder abuse and they said “Yep this stuff happens all the time.” Who were those witnesses, right? Nobody ever heard of them before but they said, “Yeah Mr. K seemed fine when I talked to him.” They were lackeys of the law firm that pulled this together. By the time our client was able to even get to the family home, the locks had been changed, the safe deposit box had been emptied out and that's where all the stock certificates were. The family photos were gone, the family paintings were gone, the money was gone from the bank. We called up the bank and said “Why didn't you ever alert our client that this guy was changing the Power of Attorney?” And the bank said, “We've know Mr. K for 45 years and whatever Mr. K says goes.” No, that's not acceptable any more.

There is legislation kicking around the country right now both at the federal level, that's the State Seniors Act, and also at the state level. Now, given Congress is in chaos right now, we are not expecting this legislation to come through any time soon. But the jist of the legislation is if any advisor – could be an RIA (Registered Investment Advisor), a broker dealer, a bank teller – feels like a senior is being taken advantage of, they can not only suspend transfers of assets for up to 15 days, but they can also reach out to a trusted relative to say, “Hey, is this thing on the up and up?” We don't have to wait for these laws to go through, however, to take advantage. We did a major revision of our advisory agreement at the end of last year, last December beginning of January, and we literally wrote into the contract that if we are concerned about an outbound transfer, we can put a hold on it for up to 15 days with no liability. We also asked the clients to name their trusted estate attorney, their accountant and a couple of trusted relatives or friends who we are allowed to call on if we are concerned. And again, I feel like we are 18-months ahead of our peers in building these safeguards into our firm, but that's how we want it to be.


SWIFT: Yes, that's reassuring and thanks for your leadership on that. Let's switch back to the marketing and the digital presence that you've built. This will be my last question, and if you want to wrap up with any words of wisdom, I'm all ears. But one of the things that's amazing about you, Dave, in addition to everything you just shared with us, is how often you are quoted in industry publications and personal finance publications, whether it’s the Wall Street Journal or New York Times or Financial Planning magazine. And then you are also really active on social media. You just finished a whole website refresh and collateral marketing material. Talk a little bit about your logic and why you did that now at this junction in your company’s history?

EDWARDS: We feel marketing materials have to be refreshed from scratch every 4 years. Maybe it's 5 years for some firms, and 3 years for other firms. The way we do things today is not the same way we did things 5 years ago, 10 years ago, 15 years ago. And yet still people are relying on a website that was built 15 years ago and it looks boring and stale. Someone is going to land on your webpage from a phone and not be able to read anything and they are gone, right off the bat. So, we are one of the first firms to even have a website back in 1996. I think there were 7 other firms that had websites. The most recent iteration of our website that was launched in March was designed to look great on a smart phone, because we can tell that 75% of our first-time visitors are looking on their smart phone. At that same time, we changed our web domain to make it a little shorter, a bit punchier.

We redid our logo to make it look a little more modern, more current, and changed some typefaces around. I've always said that marketing doesn't solve your business problems. If you're not sure about your process, if you're not sure about your ideal client, if you don't have good operations in place, the best marketing in the world won't help you. However, if you do have a good process, a well-defined client definition/target, are clear about your value proposition, then the marketing is how you show the world what you have. Half the time, by the time my client even calls us, they are pre-sold. They've already been to our website, seen our technology, seen our media and they say, “Yeah, I need to talk to this firm.”

Now, talking about media for a moment. We've been doing media for a long time and very early on someone said to me, “Hey, David if you get a phone call from a journalist, return it immediately and answer their questions, because they are on deadline and whoever gets back first wins.” So, that's been a big plus. But the reason why we do media at all is for that critical third-party validation. So, if you jump on our website, you'll see I've done 200 press items since 2011. We actually counted when we were rebuilding the website: that's print, that's television, that's radio. You say, “That guy, that guy, that guy must know something because everybody keeps asking him questions.” That gives a general halo of goodness around your firm that just makes it that much easier to close.


SWIFT: Amen to that. So, any final words of wisdom as we wrap up today, Dave?

EDWARDS: You and I were joking the other day about a prospect that I connected with in London, of all places. I was in London visiting with some clients, and I had finished a meeting. I went to the bar and poured myself a long, cool vodka and I fell into a conversation with the guy next to me, because I have what's called the three-foot rule. If there is a person within three feet of you, you have to introduce yourself and have to talk to them a little bit. A lot of people are shy and I know it's hard to believe, even I'm shy at times, but if you oblige yourself to reach out and connect to anybody that is around you, you're going to get some serendipity.

So, this gentleman was a lawyer on business in London. He's based in North Carolina and I'm based in New York. So, the probability of my running into him in North Carolina was zero. He asked what I did and I kind of gave him the overview. And then he got back to me later on a call and said, “Remember that phone conversation we had in London,” and I said, “Yeah.” He said, “Well listen. I'm now the trustee of a $7 million foundation and I think you're just the guy to run that foundation for the investment side.” I'm like – “Done!” So, if I hadn't had the three-foot rule to prompt me to reach out and say, “Hi,” I wouldn't have made that connection for a $7 million foundation, which is about $35,000 a year in revenue to us. Not bad for three feet.

SWIFT: I'd say not bad at all. Well David, it's always a pleasure speaking with you. Thank you so much for all your generosity sharing your words of wisdom about how you've built such a great firm. Thanks, and I look forward to seeing you at the next conference.

EDWARDS: Thank you Marie!