Editor’s note: In this edition of What’s Working Now, an Advisor Radio feature in which Horsesmouth members tell us about recent successes, we hear from advisor Deborah Fox, whose research into a client question about college funding led to a whole new stream of business. You can hear the full interview by clicking the audio file below. The following article includes edited excerpts of Deborah’s comments.
Quick Overview
Advisor: Deborah Fox
San Diego, Calif.
Years in business: 30
Firms: Essential Planners and Fox College Funding
What’s working now: Gaining clients from wide exposure as a college planning expert.
I started in the financial business in 1987, and I have always been in business for myself. I started off selling insurance and mutual funds while I learned the basics of the business, and evolved from there. When I formed Essential Planners, we charged AUM fees and then went to AUM plus a retainer. Then last January we switched to flat fees. We evolved based on how we wanted to position ourselves in the industry. We provide holistic planning, wanting to be the single point of contact financially for our clients. We call it integrated planning—any planning in one area should be looked at from the standpoint of all other areas of their finances to make sure there aren’t any negative effects from decisions made.
Getting into college funding
Back in the late ’90s, I had two clients call within two weeks of each other who both had a junior in high school. They essentially said, “We’ve saved for college. We thought we were being diligent, but we could never have expected the cost of college to rise so much, so we’re underfunded. What do we do?” I had no idea what to tell them. I knew how to help them save for college, but beyond that I honestly did not know what to do when the time came to actually pay for college. To buy myself time, I told them I’d do some research and get back to them.
I knew a little bit about financial aid but not much about what higher-income families could do. I was part of a study group here in San Diego that had some quite powerful people, very smart people in it. I went to them and asked what they knew. Their answer was, “We don’t know either, but when you find out let us know.” That led me on a quest to see if I could find any information to pass on to my clients. It ended up being a whole project over a couple of years where I developed a process for what is known as late-stage college planning. We started offering that to our clients and got huge results.
I became the go-to person for the financial editor of the San Diego Union-Tribune for any information regarding college funding. Apparently she was syndicated, and I had articles that were published around the country. I got a call one day from someone who said he was from Newsweek and he wanted to interview me. I said, “It’s not nice to make a crank call like that.” But he really was from Newsweek! We started getting calls from different people wanting help for clients, and the news media.
It underlined for me the power of a niche, which I had heard about many times. I just accidently fell into it. Nearly 20 years later, we are nationally known for the work we do in college funding. It became so successful that I formed a separate company to provide those particular services, which is Fox College Funding. We work on a project basis, and a separate company made it easier to deal with clients that aren’t long-term.
Fox College Funding—our process
We work on a flat fee basis, and the service is geared for families who have a college-bound student and are ideally high middle income to higher income or high net worth families. They aren’t going to qualify for much, if any, need-based financial aid. There are a number of people out there who do financial aid planning, but that isn’t us. We consider five categories of planning strategies, and for the average family we reduce their college costs over four years by $20,000–$40,000.
The first category is financial aid, which for our families is usually merit aid, the term used for aid not based on the family’s finances. Then there are academic and admissions strategies. The third category is cash-flow planning. The fourth is tax reduction strategies where the IRS pays for some college expenses, and then a miscellaneous category that has a potpourri of different things. When we engage a client, we look for every strategy that pertains to their situation and create a layering effect. It’s really the combination that creates the result.
After working in this niche for a while I realized why this is so popular. It’s complex and it has huge emotional appeal. It’s not just to help get their child to college where it’s affordable, it’s getting them launched for the rest of their life. That’s what these decisions mean, what it subconsciously means to parents. This subject has some dynamics that other areas of planning don’t have.
A good reputation in the community
We do get referrals, which brings in many clients. I’m also quoted in the media a lot, which is great. It took a long time but now I’m quoted in the Wall Street Journal, which is a great source of credibility. Also, I volunteer in the community doing educational seminars. Counseling departments at four local high schools do most of my promotion. I also hold training seminars for counselors.
I’ve built a good reputation in the community, so schools bring me in to educate their parents. I don’t have to do any promoting, they do it for me. I wrote the presentation myself, a late-stage college funding how-to. It’s strictly educational and non-promoting. That’s a mistake I see a lot of advisors make in marketing. It’s all about proving your expertise, building a relationship with the audience, and giving away free information that they can implement.
The fall is the biggest time of year, especially for families with seniors. But ideally, parents want to be planning well before the senior year because there are things they can do while their son or daughter is in high school. That can even involve class schedules and extracurricular activities as they build a student profile. So when I do these educational sessions, we’re encouraging parents of younger students to attend so that there’s time to plan. Not that senior parents can’t benefit too, but earlier is better.
In the past I presented at the school on a weeknight. This year we’re going to do it online because parents are increasingly having a difficult time getting to the location with early evening traffic.
Moving to webinars
I’ve been doing online webinars for many years. Now we’re taking the college funding seminar online where people can get the information in the privacy of their own homes. I think it is critical for webinars to use video. Most advisors just push slides, but you can’t build the same type of relationship without showing your face. Your content has to be good too, but you’re missing out on the relationship side. Also, without video people have a tendency to multitask and then stop paying attention at some level. It has to be a succinct, engaging presentation. Late-stage college funding is great for this because there is a lot of complexity, a lot of decision-making involving a new vocabulary that parents have to learn. And it involves decisions about their children, which is the most emotional topic you can have.
I use Zoom so that people have an easy application to get into. The video is HD, which I think makes a difference. I do a 45-minute presentation and then I have a Q&A. When they register for the webinar, they get a summary of what’s going to be covered and then they also get copies of the presentation.
We did four presentations in 2017, all live, and we are switching to webinars in 2018. I will also be doing some live training events for financial advisors, and for a nonprofit organization.
From attendees to clients
It’s very simple for me to get business from my community work. I start by introducing myself and my background, the story of how I ended up in college planning, and that gives me credibility. When I’m on a high school campus the counselor introduces me, and some of them have known me for quite a while. As I transition to webinars I’m looking to have someone else introduce me as a speaker, because it’s better to have someone else do it.
After the presentation, I have a workshop evaluation form. There are three questions, with answers from 1 (strongly agree) to 5 (strongly disagree). There is also a section for individual comments or questions. Then three check boxes: “Yes, we would like you to contact us to discuss how we may be able to pay less for college,” “Yes, please send us your free monthly email newsletter [and a space for email address],” “Yes, I would like a family member or friend to be able to attend a future workshop you are holding [a space for contact information].” It’s very subtle and optional and works quite well. It’s important not to sell, but at the same time they realize it is my profession.
The next step is a 15-minute phone call where I do a prequalification. I ask them information about their children, income, assets, and any information that would be helpful for us to know. After 30 years in the business I have learned that just because you get a prospect doesn’t mean you should do business with them. We are quite selective as to who we invite to become a client because we want to make sure that we can get the cost-saving results. That’s why the pre-qual phone call is important, and we say that it is a way for us to make sure the process will be valuable for the prospect. And they appreciate being told if we don’t feel like we can give them results.
Our services are geared for higher-income families. If prospects don’t fall into that category, our planning fee is probably going to be too expensive, and they will rely more on financial aid, which isn’t really our model. We charge about a $3–$4,000 flat fee for our services. But compared to a $20,000–$40,000 savings, it’s a no-brainer. We will do some project work, for a family referred to us that’s not really ideal or coming very late. They’re desperate and need some help with a couple of items. So we might charge $350 to $500 just to help with forms or something, or $1–$2,000 for minor planning.
Once we determine that they qualify, we have an initial 45-minute meeting. I work with people all over the country, so most of the time I have video meetings. They provide us with financial documents, the student transcript, and a few other items like tax returns. We explain how our service works and how we believe we can help them. At the end I quote a fee and they decide whether or not to move forward. About 80% do move forward. These parents, especially the senior parents, feel a lot of pressure and they feel like you’re helping them immensely already.
The action plan
Once we engage them, we do more significant data gathering. It’s all done electronically through a shared folder. Then we write a full college funding plan. There is a digital version, but I create a physical binder because clients like to take notes. If they’re out of state, we mail the binder to them.
The plan is very robust and takes about 90 minutes to go through the highlights. There are a lot of different components for both the parents and the student. Some of it is stuff we’ve created, some of it we’ve acquired over the years. It’s meant to create raving fans. They expect us to come up with a plan but we go well beyond the financial side and they really appreciate that.
We give the family the action plan and the items needed to implement the plan. And, we tell them up front that we will hold them accountable to get things done. They also appreciate that.
Another benefit we provide is being a professional source in an area where there is a lot of misinformation. Parents get deluged from colleges, high schools, and other parents. They panic. But I tell them to call me so I can say, “No, you don’t have to worry about it. No, that’s incorrect. Here’s the real story.”
I email a newsletter, written by me, about once a month. I think the newsletter is really important because it can get passed around and that’s good just for general education about college planning. Giving good, free information and getting people to think keeps them up-to-date on things in the industry. I try to keep things succinct, usually two topics per newsletter for a total of 750–1000 words.
There really is no set amount of time between the first meeting and when we finish working with them. It depends on what grade the student is in, or if there are other children following behind. We have discounted fees for additional children. We work with families all the way through senior year.
Creating long-term clients
We have two lines of business, as I mentioned earlier. While doing the college planning, we definitely identify people who are great candidates for our holistic services. More importantly, the college planning process allows us to get to know the people and see if they are people we would like to bring on as a client. Sometimes a prospect looks financially like they would be a great fit for your business, but you get to know them and they show their true colors.
If someone isn’t great to work with, I don’t even care what their financials are. I once got a referral to a $30 million client that I turned down because I found out that he never implements. It was the hardest “No” that I ever gave, but every one since then has been easy.
Our target market is pretty much the same for the holistic side and the college funding side. So after we’ve worked with someone for a while, we might bring up to them that we have this other side. They typically know that already and we ask if they would be open to having a discussion. It’s pretty simple. Most people are willing to have the discussion and it goes from there.
Transitioning to flat fees
It has been a year since we switched to flat fees. It went extremely well, much more smoothly than we could have anticipated. I tend to be an early adopter and I try to keep my finger on the pulse of the industry. It was about three years ago that we started toying with the idea of switching. We felt that robo-advisors were putting pressures on fees. Also, we wanted to simplify everything. Between fee compression and the complexity of AUM fees clients don’t even know what to look for in their statements. And we wanted to be in a position to make ourselves as objective as possible for the new fiduciary rule. So we decided on flat fees.
We went through a lot of discussion about how and what to charge. We came up with our own formula based on complexity. We looked at what we do for each client and created a spreadsheet with three tiers within each planning area. We customize it for each client and look at which clients are similar, so that we’re charging the same for similar clients. We charge an annual fee that is billed quarterly.
It was tough for me to get on the phone and talk to clients because I had no idea how they would react. But we told them exactly why we were doing this and how we felt it was in their best interest—it will be easier for them to track, and we could tax-optimize the fee for business owners—and every single client was on board! Nobody balked at all.
We made a commitment to not raise fees for the first two years during transition. We just sent out our first-quarter billing for 2018, and I cannot tell you how much time that has saved us in reconciliation work. We use FreshBooks for invoices and it just pops them out, pretty much the same every quarter. We also manage our client accounts through this. The switch has also opened up opportunities with annuities and things like that, since we don’t get commissions but can advise.
We did prune some clients when we switched because we felt like they were legacy clients, and we found them another home. But we increased our revenues for the year.
Advice on getting started
Business planning is the first step in deciding to take on a college planning niche. How will it fit into the rest of your business? How will you leverage the business you acquire? Once you figure out how much time you can devote to this space and who your ideal clients will be, then you can determine how to get the education to go forward.