SaaS Interviews with CEOs, Startups, Founders
904 5 Revenue Streams of Financial Services Business Makes Founder $7.5m Annually
14 Jan 2018
Chapter 1: What are the revenue streams of a successful financial services business?
This is the Top Entrepreneurs Podcast, where founders share how they started their companies and got filthy rich or crash and burn. Each episode features revenue numbers, customer counts, and other insider information that creates business news headlines. We went from a couple hundred thousand dollars to 2.7 million. I had no money when I started the company.
It was $160 million, which is the size of many IPOs. We're a bit strapped. We have like 22,000 customers. With over 5 million downloads in a very short amount of time, major outlets like Inc. are calling us the fastest growing business show on iTunes. I'm your host, Nathan Latka, and here's today's episode.
Chapter 2: How did David Miller transition from traditional finance to entrepreneurship?
Hello, everybody. My guest today is David Miller. He's a progressive thought leader in the financial services industry where he's been an integral connector in helping the industry bridge the disconnect between millennials and older generations.
He's the author of Wealth Kryptonite and founder and CEO of Peach Capital, a conglomerate of financial tax and accounting companies, including a broker-dealer, registered investment advisor, CPA from an asset management company. He holds a series 27, 24, 7, and 66 licenses and has held compliance, financial operations, and
sales and supervisory principal roles both with a fortune 50 company and in the small business space david are you ready to take us to the top let's do it that bio sounds so official for a guy with this kind of background thanks for having me so uh i i know i i was commenting earlier before the show you've got what are these like are these comic characters on the background here are you an artist as well those are our avatars i love that so tell me about the blue one that is the perfectionist his superpower
His systems and his or her kryptonite is rigidity. I love that. What's the green one over your left shoulder? That's the connector. It's my wife's avatar. His superpower is trust and kryptonite is waste. I love that. Okay, so tell me, there was a lot in that introduction. Tell me the number one thing you're focused on right now. What's your business?
Yeah, I'll revert to the Simon Sinek philosophy from his book, Start With Why. So what is the why of Peach Cap? It's contribute to a greater cause by changing the industry. How are we going to do that?
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Chapter 3: What innovative tools does Peach Capital provide to financial advisors?
It's by positively impacting money. So what do we actually do? It's scaling high end wealth services used by the uber rich to provide that to Main Street financial advisors through an intuitive. an interactive advisor client technology portal. So can you name one of your clients or give me a real tactical example?
So our clients are wealth management firms, financial advisors, or wealth management organizations. Okay. I mean, should we think like Charles Schwab, that kind of space? Let's say a good parallel could be John Doe Financial Planning in Denver, Colorado, that's had a practice for you know, 10, 15 years and has a book of, you know, 100, 150 clients. And what does John Doe pay you guys?
We have a lot of different business lines and service models. Our revenue is broken down through trading, through advisory and brokerage, through tax services and private equity structured funds. What do you, so obviously we don't have time to get into all of those, but like which one is your most meaningful revenue stream? And let's just talk about that one.
Well, we provide the tools for them to operate efficiently, and every financial advisor's practice is different. So whether they're using our ā we'll use our avatar technology ā or whether they're more focused on private equity funds or the tax piece. That's a big piece that FAs aren't allowed to use right now. Which piece?
Chapter 4: How does David Miller define success in the financial services industry?
The private equity? The tax. The tax stuff. So that's one of our three main tools. That's one of the main ones that we're solving big problems in the marketplace. So what does it actually look like? John Doe signs up. What is he getting from you? Is it a site login and there's you in videos on the back end of a membership site? What is it actually? So we brand the office as Peach Cap.
Um, and we are essentially a back office on crack. So they get access to our systems, our processes, and the, the average Nathan, the average financial advisory practice in the space is a two to 10 man woman shop. And it's run like a fiefdom because of lack of operating systems, like a technology that's changed the environment.
And, um, we help slide and it's not because of intellect, it's because of, they don't have the capacity. So We come in and provide those systems so they can actually focus on their clients versus trying to run a business. What is the system? Is it a manual you've designed and put together? You hand them and train them for a one-day coaching session? Is it a backend they're logging into?
What is the actual product? So we have a secure portal that has three main tools. One, we have a FinTax tool. Two, we have an emotional intelligence tool. And three, we have a financial intelligence tool. And they use those to interact with their clients and deliver services to them. Okay. And then give me a sense of size of the business.
So like, are these people paying you like a monthly recurring retainer kind of model or they're paying a SaaS model for the tech? How are they paying you? What's the model? Yeah. So we're still testing the pricing for the technology, for the usage of the avatar technology. But again, it's based on the service lines and their clients that they have. Some may be more focused in asset management.
Some may have a bigger focus in tax. Some may be more in private equity. So If you want to look at it from our perspective, our current average ARPU is $1,900 for the end client, the end retail client, not the advisor.
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Chapter 5: What strategies does David use to grow his client base?
And when our service model is implemented more efficiently and we bring on more wealth management firms, our ARPU is going to be about $5,100 per end retail client. Got it. You've listened to the show. Once or twice. All right, that's helpful to understand. And then can you give us a sense of kind of growth? So what year did you launch this company in?
And then like, what was revenue like last year? Sure, I can give you a quick background. So I graduated early from the University of Tennessee, lived in Brazil for a short stint in the favelas. And then I started my FA practice in 2003. So I built a book of clients there in corporate America, got into leadership, trained advisors, built books of business for them.
The company spun off, I got fired from corporate America. And in September 2008, the heart of the financial crisis, I became an independent FAA, built another book. And after I had done that for a couple of years in 2013, to answer your question, I started buying companies. We bought approximately 10 companies. which consisted of a broker dealer, tax firm, uh, investment advisory.
Why do you buy those? What's the asset you're buying there? Um, it's the client data and the client assets and the revenue streams. Why not just go recruit the one person that owns the Rolodex at that company? Why do you have to buy the whole company to get, to get the relationships? Well, we wanted to, uh, we were building a system.
You saw there were, we have a lot of different operating entities under our main rollup company that we have now. Um, so we, We needed to buy a broker dealer so we could have the autonomy to operate in the space. We needed to have a registered investment advisory firm so we could access fee-based business.
And obviously, we needed to do the CPA and the tax side so we could have the legitimacy there. Interesting. Okay.
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Chapter 6: How does the private equity model work in David's business?
So you're essentially acquiring licenses and you're acquiring, I hate to say it like this, but you're acquiring paperwork. You're acquiring checkmarks the government requires for you to get into lines of business. Yep. God, that's such a shitty thing to acquire. That would pain me to go through that. Yes.
Right now we have, like I said, one roll-up firm, three partners, 35 employees, 10 wealth advisory practices in Atlanta and D.C. Uh-huh. We launched our brand in Q2. Our roadshow begins the beginning of 2018, where we're bringing our value prop to the marketplace with our technology platform. So we're psyched about it. That's great.
And then what did you guys grow revenue to like in 2016 across the whole company? I don't recall a specific percentage off the top of my head. We were number 122 on the Inc. 5000. how many thousands of percents that was. We'll end the year this year at 7.5 million. Okay, that's great. So that 7.5 million break, can you break that revenue down for me in terms of your different lines of business?
Sure. Trading is about 2 million. Those are institutional clients have about 40 basis points yield there on a half a billion dollars. Advisory and brokerage revenue just under $200 million, around 100 basis points or 1%. So that equals 2 million there. What is that? Hold on. I don't understand that one.
So when you say 100 million advisory services, you're taking one basis point or 100 basis points there. What is the 100 million number? So there's 200 million yielding about 100 basis points or 1%, I'm sorry. And so that gets us the 2 million in revenue. We have about 700 total trading and investment clients there.
Well, that 200 million number though, is that like what they, what you advise them to move around or like, what is that? No, it is that. Okay. Yep. Yep. Got it.
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Chapter 7: What insights does David share about the challenges in the financial advisory industry?
Okay. So trading there, 2 million there is what you make on your 7.5 this year. That's four, that's 4% on about half a billion. You have your advisory, which is, you know, 200 million going around yielding about 1%. There's another 2 million there. We've got 3.5 left. Where that, where's that come from? Yep. So the tax, we have about 2,300 clients at 2.1 million.
So average about 1K per client there. And then private equity funds and some private structured offerings we have, which is another one and a half million. Got it. How does the private equity stuff actually work? How do you make money in that? We find boutique local deals and offer them to financial advisors. And we raise, essentially, they raise equity via their clients. And
We put them in the private placement. Okay, Top Tribe, many of you ask me all the time, how did I get my website up so fast, so quickly, and why is it doing so well? The answer is simple. I use HostGator.com to keep the thing cranking along. They've got a 45-day money-back guarantee, which is great. I used their free website builder to get the site up because it's ideal for WordPress.
It's just what I use. They've got 4,500 templates and a free e-commerce plugin as well. And 24 seven support, which we love, right? We love that. I bug the hell out of them. They always get back to me. So I've got you 30% off along with a hundred dollars and free AdWords credit to grab it. Just go to hostgator.com forward slash Nathan, but you got to do it now.
Again, hostgator.com forward slash Nathan. Do you play, like, I'm obviously super familiar with kind of private equity and M&A and like B2B SaaS specifically. That's kind of my world.
But general private equity, I mean, are you just, are you finding good, you're finding good businesses to buy and then help telling your clients, hey, you should buy this company and then helping your clients also go raise the capital to do the deal and you're taking a cut? Yes. Okay. Okay, so it's not, your clients aren't the ones typically bringing the money to the table.
You're going and finding investors to put behind your client. Your client buys it, manages the company and grows it. Well, yeah, so that's, We have the offering out there and educate the financial advisors on the offering. They, in turn, take a piece of their clients' portfolios where it's appropriate and allocated to the investment. I see. Got it. I see. Interesting. Okay, good.
So that's pretty healthy. $7.5 million this year. And where are you growing from? What was 2016 total? Yeah. Uh, 2016 was, uh, 5.7 million. 5.7. Okay. And so where is most of your growth coming from of those three or four different revenue streams you just outlined? It's, uh, our, our biggest growth is in the, um, the advisor, the advisory services and, uh, in the private equity. Got it.
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Chapter 8: What lessons does David Miller want to impart to aspiring entrepreneurs?
Now, now you're having a lot of success here. Then you go out and say, you know, I'm going to write a book, wealth kryptonite. Why on earth would you go write a book when you're just killing it? I mean, that just wastes time. And I mean, I was horrible at English in high school. How'd you do, why'd you do that? Yeah.
So I, I, um, the problem that we have in our industry, um, and the reason that, that I wrote the book, um, I've spoken with a lot of industry influencers and, um, with all the change that's going on with the robo-advisor. So the two main problems in our industry is financial advisors lack the tools and they lack the training to provide value to clients. That's why robos are so successful.
You're talking Betterment, Wealthfront. Yep, exactly. So to give you a quick story to provide some context behind that, training advisors, when I started, consisted of giving them a list of names to call and tell them to go get clients or fail. It was an every man fence for himself type environment, which is why I became a leader to train advisors.
So in the old environment, it's the hardest worker who was good at sales versus the hardest worker who was great at financial planning. And unfortunately, a better salesman won most of the time. And it was introverted people like myself that rarely survived. You don't strike me as introverted. You have comic characters popping up around your head.
You're a financial advisor, but you're wearing this beautiful purple shirt with your avatar on it. You're like not the mold. You can't forget the Vans. And the Vans, right? And the Vans. I'm not an FA anymore, but I certainly started that way, and I certainly know how they think.
That do-or-die type environment, what we have now because of that is the average age of a financial advisor is 61 years old. And even more importantly, 10% of those advisors are under the age of 35. When you don't have training and you don't have the tools, now you have awesome firms led by John Stein, like you said, Betterment, who's killing it.
They throw a value prop out there, which is essentially great technology in the beginning, and they're gaining. He has about $10 billion in assets now under management. And Wealthfront's at about $5 billion. Yeah, and I spoke to someone at Betterment a couple weeks ago, and the person that's training their FAs, they hire about 15 people. I think it was Q2 of this year.
And they're they they embrace that. A lot of people don't aren't aware of this. The strong robos, they embrace the human advisor. They embrace the human element. They realize whenever the market turns, you know, turn south, which we you know, we haven't had a recession since June of 2009. Turn south. It doesn't matter whether you have ten thousand dollars or ten million dollars.
It's just as important, the money that's lost for both of those clients. And it's because people are emotional with their money. So real quick, because we're running out of time. The book, how many copies have you sold since launch? About 400. About 400. And did you self-publish or did you get a publisher? Self-publish. Self-publish. And you basically just use that as a business card? Yep.
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