Transformative Power of Taking Bold Action: New Fee and Service Models

Listen To The Podcast:

We talked with Scott about:

Staying true to your passion and what you set out to be
Being adaptable and taking bold moves in your firm to meet your clients’ needs
Realizing that failure is a learning experience that will just make you better

About Scott MacKillop
Scott MacKillop is a visionary in the financial services realm who took the courageous leap of stepping outside the box to transform the industry after recognizing a gap in the market. Led by his passion to make a difference for independent financial advisors, Scott forged his own path and founded the first mutual fund TAMP. Up against much speculation, he also implemented his unconventional idea of flat fees. Through sheer grit and innovative thinking, Scott transformed his vision into reality, creating a groundbreaking service model. Today, many firms are shifting to embrace Scott’s revolutionary idea in an effort to better serve clients. His bravery and willingness to embrace risk not only made him successful but he also inspires others to follow their dreams and fearlessly pursue their passions. Scott is currently the award-winning CEO of First Ascent Asset Management. He has published over 100 articles and papers and participated in more than 100 speaking engagements. His achievements include a Wealthy Award and an Advisor Luminary Award, among many others. Scott’s journey serves as a testament to the transformative power of thinking differently and taking bold action to make a lasting impact.

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Full Audio Transcript

Lauren (00:02):
Scott, welcome and thank you for joining us.

Scott (00:04):
Well, thank you for having me, Lauren. I'm really looking forward to the conversation.

Lauren (00:07):
Yeah, I am as well. Like I was just sharing with you, it was so funny because I was bouncing around and I crossed your profile and was so impressed. I think, let's see, you've written over 160 papers—I don't know how updated that number is—and spoken at over 100 conferences, and your practice management is award-winning. I mean, a Wealthy Award, which is one of the most notable awards in this space and an Advisor Luminary Award. I mean, the list will go on but I'll let you do a brief introduction and we can link to your bio and all that good stuff below. But I'm excited to get into it and especially excited to hear more about this flat fee model and also just more practice management in general.

Scott (00:55):
Yeah, I'll just jump in. I'll just give you a little bit of background about my professional career. I actually started out life as a lawyer in Washington, D.C. I was a securities lawyer for about 15 years, and then went to work for one of my clients down in Atlanta. And that was a pension consulting firm, so consulting on investment matters to very large institutions. We were approached by some financial advisors who were interested in a lot of the things we were doing for the institutions, and they wondered if we could put something together that would address the needs of independent financial advisors. And so we had no idea really what the world of independent financial advisors looked like at that point. I mean, this was 30-something years ago.

And we ended up developing what was the first mutual fund TAMP. So that was the first ever; there were a couple TAMPs that were doing separate account work but we were the first mutual fund TAMP. So we grew that business. And then PMC, which is based here in Denver where I am now, bought our firm. And at PMC we built the first platform that had both separately managed accounts and mutual fund portfolios on it. And then PMC was sold to another firm. I culturally didn't really mesh as well with that firm so I left and formed my own consulting firm and did a lot of work with larger firms— Frank Russell, Nationwide Insurance, Schwab, JP Morgan Asset Management—and helped them develop investment programs for financial advisors.

And then I ended up going to work for one of my consulting clients in Houston, U.S. Fiduciary, and we built I think what was one of the first platforms for brokers who were leaving the wirehouse world and wanted to come out and have both a brokerage capability but also a TAMP, somebody who could help them manage their assets. So I did that for a while. And then I moved on to another TAMP that was run by some people I knew from my earlier career. And we grew that business to a couple billion dollars. And that's the kind of cool thing we did there, we started working with platforms like investment and so forth to bring investment capabilities to the platform world. And that was a good experience.

But at a certain point, I started developing these crazy ideas about flat fees. And my partners at that firm weren't as wild about my flat fee ideas as I was. And so I left that firm and started First Ascent Asset Management with some people, most of whom I knew from earlier days; I'd worked with them before. My son actually was one of the people who joined the firm. He and I had worked together before too. We took this idea about trying to deliver outsourced portfolio management services to financial advisors but for a flat fee so the fee didn't keep going up as the account size went up. The idea was pretty simple and straightforward, and it just dawned on me at one point that if somebody was going to do that, and if it wasn't me, then it was going to be somebody else. So we started down that path.

Lauren (04:26):
Can you share a little bit more? Did you feel like that's really been a differentiator for you in the market?

Scott (04:32):
Oh, yeah. Yeah. It's been huge. We're still the only TAMP in the marketplace that provides a full-service flat fee offering. And so it's been really a godsend for us just because it's so clear everybody understands what it is. It's a differentiator that is immediately understandable by anybody who hears about it. And the benefits are very obvious. You can do the math and you can see how the clients would benefit greatly from having a flat fee.

Lauren (05:06):
Can you share a little bit more about that? How did you get to that bottom line, for lack of a better expression? And I would love to hear about how you positioned that as well, you know?

Scott (05:20):
The thought process was pretty straightforward. So, as I mentioned, at my previous firm we were working through these platforms like Envestnet. So really what that business consisted of was we were developing portfolios and giving them to Envestnet. And Envestnet did all the work to do the trading and implement the portfolios. So there was no operational burden on us whatsoever, right? So it was like a piece of paper we'd send off to Envestnet and they would implement the portfolios. And then all the financial advisors who worked with Envestnet, which was thousands of financial advisors, could get access to our portfolios. So it was a pretty cool business model. But when you think about it, we weren't doing any more work for big accounts than we were for small accounts.

So the logic of the AUM-based fee in that environment just didn't make sense to me. And then the more I thought about it, given the technology we had in our industry today, we could manage portfolios—a hundred thousand dollar portfolio and a million dollar portfolio were basically the same thing. You know, the real custom work was being done by the advisors on the front line. They're kind of the battle weary troops out there, and we were sort of standing behind and just managing the portfolios. And so it really didn't matter to us if it was a hundred thousand dollar or a million dollar portfolio; the same amount of work was involved. So that logic took us to the flat fee. We said, well, let's try to find the flat fee that's both a good deal for clients and for the advisors but also makes economic sense for us.

Lauren (07:02):
Just from an economic planning side of things, is there anything in particular you had to do on the backend to tighten operations from a technology side or systems in place? Or how can you make sure that you can scale that model, right? How did that work?

Scott (07:19):
So this was a very important part of the plan. This is why we couldn't do it from an existing firm, because the existing firms are all built around the AUM model and their distribution model and their technology and everything. So we really had to start from scratch. We had to make a very efficient platform from a technology point of view so we could create what was essentially an assembly line for the management of portfolios. We also had to change the distribution model where most TAMPs in those days, and probably still to this day, send wholesalers on an airplane out to meet one-on-one with financial advisors, which again to me seemed like kind of an old idea. And now after the pandemic, everybody can see the logic of it.

But this was pre-pandemic. And I thought, well, geez, we've got all these things like Zoom and GoTo and so forth. We could just talk to advisors from our office and we wouldn't have to incur all the expenses of airplanes and hotels, right? That overhead. And we'd be a lot more efficient because we could talk to more people and we wouldn't bother advisors by saying, well, could we get some time on your calendar three weeks from now? And let's go to lunch and all that. An advisor could just call up and say, hey, I want to talk to you, and we would be there and available to talk. So that whole distribution model just seemed to make a lot of sense but it also made us more efficient; it reduced the overhead associated with what we were doing.

And so just all along the way we also needed this very skilled team. We needed people who knew what they were doing and had been in this business before, and pretty much everybody on our team was a highly experienced person in this kind of a business. And so by just getting people who were very knowledgeable and very productive and very dedicated to what we were trying to do, and using the technology that was available, we were able to scale this business up at a cost that most existing firms to this day still couldn't do. And I think that's why we're still the only flat feet TAMP out in the marketplace—none of the big firms could really retool them themselves to do what we're doing that quickly.

Lauren (09:30):
So you got the right people in the right seats, and it also sounds like people who had the industry knowledge, expertise, so you could be smarter, faster, all of that. How about from the concept of this model to actually opening doors? What did it take to get to that point? Did you have to build out your own or adjust a pre-existing technology? What did that whole route look like?

Scott (09:56):
Yeah, so this was a really important part of it, and it's kind of come full circle. We can get back to that in a minute. But one of the things we wanted to do to keep our costs low was we wanted to find a technology infrastructure that would allow us to charge on a per account basis, not an AUM-based fee but some technology provider who would say, I'll give you the technology you need and we'll just charge you a fixed dollar fee because it had to fit within our flat fee, right? And so Orion was the solution we came up with. And I knew Eric Clark from climbing mountains and hiking and so forth, and he understood really right from the very beginning what we were trying to do.

And so they to this day have been our technology infrastructure and have allowed us to grow our business. We've more recently been purchased by a firm called GeoWealth and GeoWealth has its own technology platform. So in the not too distant future we'll be converting from Orion onto the GeoWealth platform, and that'll give us an added benefit. Now we'll have the technology in-house and we'll be able to make changes and customize it and so forth at a level you can't really do working with Orion. So Orion's been a great partner but it's time to sort of change the model again.

Lauren (11:18):
Yeah, that makes sense. I mean to take you to a certain milestone, right? And other opportunities. So just to back up, so you've had all this experience, you saw an opportunity, a gap in the market, got the right people in the right places, started to build out the infrastructure and technology. Once you got there, how did you start to market this? This is my marketing hat. I can't help but ask that. What did you do? Were you tapping in your current network? How did you get the word out?

Scott (11:50):
This was the big challenge because we did something that I don't recommend to anybody else—we basically started an asset management firm with no assets under management and no track record. So whoever we talked to, no matter how much they like the flat fee, they said, whoa, that's great but how much do you guys have under management? Well, we had a little bit of our own money under management but it was not an impressive amount. So we were really selling the concept as opposed to the fact that we were some big firm with lots of clients and lots of assets under management. And so we appealed to the people who really cared about their clients.

You know, the people who really wanted to do something better for their clients, and also to advisors who had been doing the investment management stuff themselves but who were just really tired of doing it—they just didn't want to do all the back office work and all the work to research the building of portfolios. Or they realized at some point along the way they weren't really very good at it, you know? Or they wanted to focus on financial planning maybe instead. So there was this kind of movement within the advisor community of people who were looking for a better way to do this. And so then the challenge was just to get the word out and that involved a lot of writing.

A lot of those 160—it's actually now 170—papers and articles were designed to get the word out. And we talked to people we knew and wherever anybody would listen to our story. And then you start to pick up fans along the way, people who get what you're doing. The XY Planning Network was a great opportunity for us because a lot of those people talk to each other a lot. They have great communication among the group. And so we started there and built a lot of fans in that part of the world. And now probably 50 plus percent of our new business comes in from referrals. And so people like what we do. And as you said, we've won a lot of awards and that's helped raise our visibility.

I think we've been ranked as the number one TAMP four years in a row now in the Bob Joel Bruckenstein survey of advisors. That's not a pay to play thing or anything that's just advisors filling out their survey forms and four years in a row we've been ranked over one. So it's pretty exciting to see that. It's partially about the flat fee but a lot of it really is just the service level. As I said, the people at our firm are not only experienced but very dedicated to what they're doing. And we've kept it as a small group of people and almost all of them have been with us since the very beginning.

So it's more of a mission than a job. I think at this point, we have a very definite purpose in going out and trying to build a firm that would support advisors and give clients a good deal. We’re worried less about making a private equity firm rich because we didn't have a private equity firm behind us. We just wanted to go out there and do the best, build the best TAMP you could build. And that was the idea.

Lauren (15:23):
Yeah. Seeing a gap in the market, putting the right people in the right places, it sounds like, and just taking good care of people and making sure everyone who crossed paths or happened to do business was well taken care of. So fast forward to today, now that you've sort of settled, the dust has settled, right? Everything you kind of alluded to in the beginning, the kind of target that was sort of attracted to this offering is there and as you've grown the business you've brought on new clientele. Do you find that this model will fit a particular size firm? Or is it more of a value alignment, or is a little bit of both that could be the right fit for this kind of model?

Scott (16:10):
Yeah, it's a little bit of both. So we don't have any advisory firms over 200 million in assets under management. And what we've found is that's kind of a pretty hard dividing line once firms get beyond that. Most of them have started to build out the infrastructure and hire the people. They have their own investment department. It's not a one- or two-person shop anymore. It's a bigger organization. And so for better or worse, they decide to do that on their own. What's changed though, the thing that's really interesting from when we started seven years ago, is we more recently started getting requests from people who said, love that flat fee, love the service model but I'd like to stay more involved in the actual portfolio management process.

So they wanted to be either totally in charge or they wanted to share that responsibility with us. So we didn't really have a business model that worked in that environment. And so this more recent transaction with GeoWealth has really been the answer to that for us because their business was built for advisors who wanted to manage their own portfolios. So they have the technology platform that's outstanding for advisors who want to do their own portfolio management, and then they can offload the trading and the performance reporting and building and a lot of the back office work but they can stay involved in the portfolio management. So now we can serve those advisory firms that tend to be larger.

I think the GeoWealth market goes up to $4 or $5 billion firms that are looking for more of a technology solution than an investment management solution. So now together we've got this capability to supply the technology for somebody who wants us to supply the back office service. And if somebody wants the asset management, we can supply that too. We have an outstanding investment committee we developed at first ASIN and the Geo people actually have some really talented investment people too. So now we have a much broader spectrum. It's kind of almost too good to be true the way it all unfolded, because it was probably two years ago we started getting these requests for customization in fairly large numbers.

And we took a number of those relationships on; if they were large enough, we would try to do them but we had bandwidth issues because we didn't own our own technology and we weren't really staffed for it. There were only so many of those we could do. And now with the GeoWealth platform, we can take on an infinite number of those, which the technology will accommodate. So a much broader spectrum of requests.

Lauren (19:12):
Oh, that makes sense. So then you're able to then help those clients as they're growing, right? They're growing their firms, and then there's this layer on of the 2.0 as they're expanding.

Scott (19:22):
Yeah, yeah, exactly.

Lauren (19:23):
Is there a minimum of assets for a firm that would be a fit that you've noticed?

Scott (19:29):
No. I think GeoWealth has minimums because in order to invest in setting up the technology, it really makes sense. But for us, we have advisors who are relatively experienced but they left a firm, let's say and they couldn't bring their assets with them. So they said, I've been in the business 10 years, I have great confidence I can shoot the lights out and get a new book of business and if you'll work with me we'll both be happy two or three years down the road. So we took those advisors on and sure enough, we've been happy with their growth. I think it's been important from our side to just be what we set out to be, which was an organization that was there to help the advisors and not try to draw artificial lines about who's going to be a really profitable client for us and kind of exclude everybody else. There was an attitude of just, we'll figure out how to make this work. Come on board and we'll take care of you. And oh by the way, tell your friends if you like how it feels and we'll just grow our business together. And that's really how we did it.

Lauren (20:51):
Yeah. That's sort of championing the group versus sort of exclusivity. And it sounds like the model is also fitting because there's a balance, right? If it's not the right fit, you want someone to be set up for the right fit, but if not, if the model allows for that and you can take good care of them, then that's a win-win. So sort of like you were saying, you realize that threshold but now you're seeing an opportunity to now serve sort of at that next threshold with this technology.

Scott (21:16):
Yeah, exactly. It's allowed us to expand what we're doing and that's exciting. Because we hated saying no to people. But if it wasn't the right fit, if we couldn't do the level of customization they were looking for or really give them the control over the investment management process they were looking for, we had to just say goodbye and now we don't have to anymore. So that's great.

Lauren (21:45):
So, to back up a little bit, if someone were to be watching this and hearing this, they might see a gap in the market, right? A gap for an opportunity to either start a business or to be able to better improve an internal processes or what have you. What are some of your lessons learned or takeaways that you would repeat or wouldn't repeat even before getting this going? You had a good pulse, right? But did you do a competitive analysis? Was it talking with people? Was it just listening to what people were saying? What advice would you give to someone who is thinking about potentially taking on a new venture or their own?

Scott (22:29):
Well, the process I went through, which I would highly recommend, was I talked to everybody I could talk to about the ideas. The flat fee was one of the ideas I talked about as well as a little bit about the distribution model. There were a number of ideas. We had some ideas about the importance of educating clients to be better investors. And we had a lot of ideas about how to manage portfolios better. So I talked to everybody I knew about those, especially people in our industry, people who were leaders of some of the larger TAMPs that were going to be competitors. They were all really very helpful. Alex Potts, who was at Lauren Ward, and Eric Clark obviously knew what we were up to and people like that were very supportive. They said, hey, what you're doing is really cool and I hope you don't take all our business. And that was probably validating.

Scott (23:29):
There's plenty of room for everybody. But I talked to people who knew a lot from the TAMP world, and I talked to people who were in the advisor community. Would this make sense for you? And I talked to a lot of people I had worked with over the years and just really tried to test the idea. And I did that probably for eight or eight months or so.

Lauren (23:54):
So it was getting the pulse of the market, a little bit of a market analysis.

Scott (23:57):
Yeah. As much as I could. Now you have to be careful when you do that because everybody you talk to is going to have a different opinion about things. So if you've got a great idea, don't be dissuaded just because some of the people you talk to don't see it maybe, or kind of see the world a different way, are kind of stuck in maybe in the old ways of doing things. But appreciate the fact that just because somebody hasn't thought of something yet doesn't mean it's not a good idea. We tend to be herd animals in a lot of ways, and we continue to do the things that have always been done. And so it takes a little bit of boldness to step out of that and say, no, I think I see a different, better way to do it.

I guess what I'm saying is believe in yourself, but also trust but verify. Go out there and let people bang on your idea; you know how our idea was going to unfold changed once we got out into the marketplace. The flat fee we came out with initially wasn't the flat fee we ended up with a year later. And it changed over time. As we got more information, we were able to modify what we were doing to adapt to what the market was telling us. And that was the most important thing. A lot of the firms I've been at in the past have really smart people who think they know the right answer to everything, or at least some things. And they just build the thing they like and they want. First Ascent has been a real eye opener for me in the sense of just saying you don't have to know everything yourself. If you go out into the market, the market will tell you very quickly what you have. And what you got wrong. And you should be ready to adapt to that. And that's what we did that worked for us.

Lauren (26:01):
So smart. And such good insight. Just hearing your story and where you've taken it is impressive. And I think also just being able to feel the market and then you know where it's going, especially just being on the cutting edge of technology. There's a lot of that out there and it's changing very fast, right?

Scott (26:21):
Yeah, exactly. Well, that was the real evolution for us—we started out thinking we needed to outsource the technology to Orion. And that really worked for us. But things have come full circle and now we're seeing the benefits of being part of the GeoWealth organization, of having the technology in-house and being able to react to a broader set of requests from advisors. There are things we couldn't change about the technology and now we can change because it's under the same roof with us. And so it's just really worked out well for us.

Lauren (26:56):
Well, I know we're at the top of our time. I really appreciate you sharing. Are there any final thoughts you'd like to share or any words of wisdom?

Scott (27:08):
No, I would just encourage people who have ideas they believe in, ways they think they can make the world better. Maybe that's too big of a statement, but if you can find some way to do things in a different way that will improve the lot of the people you're serving, whether that's financial advisors or whoever it may be, don't just ignore it because it might be hard. It's gonna be really hard. However hard you think it's going to be, it's going to be way harder than that. But if you believe in something and you have the passion for it, just go for it. You know, failure has a bad name. Failure is just kind of a learning experience. It didn't quite go the way you wanted it. And so I think people who try things and get out there in the arena and try to make things happen, that's really very laudable and you should go for it.

Lauren (28:06):
Courageous. Absolutely. Well, appreciate your time. Thank you for sharing the journey and story to be able to get to this place. And then also thank you for sharing your knowledge about this model and practice management and all those sorts of things with this community. So it takes a village and I appreciate you taking the time.

Scott (28:28):
It's been my pleasure. Thank you very much for having me.

Lauren (28:31):
Yes, absolutely. Okay. We look forward to following along, and we'll make sure in the writeup to include all the links and such as we've discussed.

Scott (28:39):
Great. Thanks a lot, Lauren.

Lauren (28:40):
Thank you.