Episode 5: Kevin Baeur ... Has a real working system that generates consistent business from CPA firms. Discusses mistakes and success in detail.

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Todd Taskey: Kevin Bauer, glad to have you with us today. I want to jump right in and I'm hoping that we can start with just a little bit of background on you, and the name of the firm, what you do for your clients, and give us a sense of what your production has been in your practice you know, for the last couple of years if you would please.

Kevin Bauer: Sure, it's good taking the time to give back to the industry with you Todd. Listen, our firm is we go under the name Bauer Captain and Johnson and we have three partners that's me, Steve Captain, and Mark Johnson. And we're located in three different areas; we have actually three different offices. One's in Scottsdale, Scottsdale, Arizona the other one's in Salt Lake City, Utah and then we have one in Boise, Idaho and each one of the partners basically handles one of those offices and then we have below that five different, actually six now junior partners. And, so they kind of work with us in those different cities and which I'll go over kind of a little bit what they do for us and why they're and what they're trying to accomplish and what we're trying to accomplish with them.

And then we have our main staff is in Scottsdale but we have staff in Idaho and in Utah as well, but the majority of our administration is handled there. You know, the last few years we've done we've kind of bumped up as we've developed our practice, our firm. And I've taken on, first I was alone and then I took on my partner who was actually my paraplanner from back twenty years ago, and he's been with my all that time and I made him a full partner, and his name is Steve Captain. And then a few years ago we added the Boise office because of an account we have up in Idaho that we needed. And so we brought him as a full partner and so that's how we came up with the Bauer Captain and Johnson.

We still act in a even though we act as a partnership the BCJ that's Bauer Captain Johnson I'll just refer to BCJ is our registered investment advisory firm and that's really the firm is really for you know, it's a flow through if you will Todd on expenses and so forth, and also for of course the advisory firm for the Dbase side of the house and we all stand on ourselves and others. Our production is basically you know my production personal in '04 was like one million eighty and last year was about one million two seventy-five and this year I'm targeted for about one and a half million. And then the other partners they have they're between five and six hundred thousand. Totally as the three of us we did just under two and a half million last year and we're shooting for three million this year. And that's. That's just. Go ahead.

Todd Taskey: I was going to say that is just a phenomenal job in terms of production and I know that you've been in the business for a little while, or actually a long while, maybe you can I know you came into the business through the life insurance side but you've grown into really a premier kind of a full service financial planning and investment planning shop. Can you just take us through quickly kind of your history and how you got to where you are now?

Kevin Bauer: Sure. I mean you know currently like you said you know we're at a position you know where we're fee based financial planning and portfolio firm and but we all started you know in the life insurance business back twenty one twenty two years ago. Actually Mark started twenty seven years ago, and but we started you know right out of school, right out of college. We were just you know, twenty two, twenty three year old guys that really didn't have you know we were looking for a career we could you know be our own boss and have the unlimited income. Basically all the things that everyone wants.

But you know we, Steve and I we both moved from Utah because we knew each other in Utah, we played ball together. We moved down to San Diego, California to start our careers with the money group and although we had in our expectations were to be financial planners. You're not really going to be a financial planner right out of school and didn't have any credentials really other than just you know our normal schooling and so we started out just really peddling insurance. And because we moved to San Diego, both of us, and neither of us had any family there, or friends basically we had no natural market, which is usually a no-no starting in the business. But we took it as an advantage that basically saying "Hey, everybody down here's a client, a prospective client." So and we didn't have really any great marketing skills but we had good communication skills, both of us. So we kind of set out and tried to just you know work through you know we started a normal approach doing telephone calling and that didn't really work too well for us.

So we went to more of a face-to-face type you know approach where we actually went door to door. Steve and I both went both to door our first year, two years in the business and we had a market. And the market we found down in San Diego was a targeted market in the military. And so we would go where there was a concentration of military personnel and we'd go door to door knocking and at night time and evenings at night and we actually put together what's called a military retirement program and we got a thing sponsored by the military so we kind-of had an in, and we just went in door to door and introduced what we did and had a little presentation on purchasing additional life insurance and you know do a little savings, IRA kind of things like that. So we started just you know that way.

Incidentally just last week, or two weeks ago I was in Washington, DC and I was working on a client there that we put a SERP plan together which is about a hundred just under two hundred thousand dollar annual premium and I was writing up the application and getting all this paperwork done while I was there. And we had the attorney in the CPA there and one of the clients said who has been a client of mine for twenty years said "You've come a long way Kevin since the day you knocked on my door." And the reason for that is twenty one years ago I knocked on his door and sold him and his wife life insurance for him and his little baby and we kind kept, I serviced him all these years. When he got out of the military he started his own business and he's very successful and he's flew me out to DC to take care of him. And so there's you know that's kind of how you if you stay in the business long enough I guess you can survive.

Todd Taskey: Yeah and I guess a lot of it really is that you know just kind-of putting one foot in front of the other and surviving, and growing as a service provider. Let me ask you, in your practice now Kevin, you know what do you in terms of appointments that you have every day you know and your activity I want to get into you know a little bit a couple specific things. I want to talk about that Boise account and I want to talk about the work that you do with CPAs. But just to give people a sense of you know of what the practice is like what is your activity like because I know that's something you've always focused on, correct?

Kevin Bauer: Yeah, I mean you've got to have the activity to have the results so you focus on the front-end and the back-end usually comes out. So you know, my goal always from the very beginning was to have you know a minimum of eight appointments a week and most of the time it was between eight and twelve. And you know, at first a lot of those you know most of those ten to twelve of those appointments were selling appointments or new prospects and so in the beginning it was probably you know in the first five years you know, eighty percent prospects and twenty percent service. And now we're a little bit different. Our service now is around sixty percent and new prospects around forty. And that's even probably even changing now because we're doing more and more service because our clients were fee based clients and asset management clients so really you know, we're always getting income from them and so our service is bumped way up and we don't have as much time for the prospects as we used to but early on they were mostly that but we still keep around, I still keep about a ten appointment a week schedule. Never on Saturdays and Sundays, I keep it five days a week or four days a week and you know, that's kind-of how you know if we keep the firm running and the back end usually works out.

Todd Taskey: Sure and give me a rough break down of what you know where revenues are coming from. You know how much of it is fees for service, how much is asset management, how much of it is you know first year commission, and those types of things.

Kevin Bauer: Right. Financial planning fees are between twenty and twenty-five percent of my income. The asset management or portfolio management is around thirty-five percent. Insurance products are around thirty percent. And about fifteen percent other. That would be renewals and things like that that come from you know old insurance stuff.

Todd Taskey: And what do you think overhead percentage is for you, Kevin?

Kevin Bauer: My expense ratio is right around thirty, thirty-two percent so about thirty-two cents of everything that I bring in goes to overhead , you know expenses. We have right now one thing that has been nice that we've built a firm were my re-occurring revenue right now is about five hundred and sixty thousand so I can plan on like every year well next year when I do my planning I know that around five hundred and sixty is going to come just from re-occurring that's for my fees, asset management, and renewals.

So if my goal now is one and a half million this year I know that I've got to be looking at for about nine hundred and forty thousand elsewhere in new money. And so that's nice where you know that most of my overhead is covered by my re-occurring revenue now, in fact all of it is. So my revenue covers my overhead plus a little salary to me and so all the new business is really all profit.

Todd Taskey: That's great that's a nice feeling in January I'm sure. What when you look and begin you know, to build your business you made a transition to go into something that would be of more of a fee based or re-occurring revenue model. Are there particular products or managers or platforms that you drive most of your business to, that you like the best?

Kevin Bauer: Yeah. We have our agreement with,even though I'm with a large company, a broker dealer we have an agreement with the broker dealer that I can use Fidelity advisers for fee-based asset management. And so our products that we use in that asset management line are all of course either no loads or we do you know loaded funds at NAV. We use ETF's, you know, individual securities, separate account managers, just about everything, and then of course the insurance fee is separate but for asset management we use basically everything. We lean our larger accounts now and our new accounts that are usually over a million dollars apiece, our new accounts are usually over a million now. And so we use a lot of account managers, separate account managers as opposed to funds. But up until just the last couple years we've mainly used ETFs and funds and.

Todd Taskey: And do you use a plat, I'm sorry Kevin, do you use a platform like a Brinker or a Lockwood, or do you do the selection yourself and build the portfolios yourself?

Kevin Bauer: Yeah. We don't do a rap, and we've consciously decided that a few years ago that we you know, when you add on the additional expenses on the rap fees and that we were charging. We felt like that was a short lived deal for our clients because ultimately expenses become an issue on performance and we really learned that you know around in 2000 when the market went down and then it's been sideways since, up until this last you know, little bit. And so expenses you know when you have a one two, two and half percent expense at the top of the return or minus from the return your clients aren't too happy with that and we consciously decided we would develop our own raps if you will.

And so our fee, our advisory fee is on top so our separate account managers, you know, their expense ratios are between fifty and seventy five basis points and so when we add our one percent onto it we're a lot you know, we're under the wire under the average in the market place and so we don't lose clients due because of fees so that was something we decided early on.

Todd Taskey: And you know a lot of people, Kevin, always talk about you know things that they use to differentiate themselves in the marketplace. Do you play up that aspect a great deal in terms of you know, we're going to get into how you work with CPAs here in just a minute. But do you play up that aspect a lot when you're talking with clients or when you're talking with other advisers who you want to become revenue source for you, or a referral source for you?

Kevin Bauer: Oh absolutely, you know I mean the expenses especially when you start to split Todd, if you're splitting with some CPA firms that have licensing, and you know. And when you start doing that split and there is less and less going around you know, that's a big issue to where if there is so much expense on the you know, from the rap or whatever you know, you start hurting the client. And so when we go onto CPA firms they're very you know, conscious about cost and a lot of our clients are. And when you're dealing with other advisers that we do a lot of split business with, they are and so by us being able to create our own platform, we're able to give out you know share in the revenue. And having you know it sufficient enough to make everyone happy as opposed to you know having other CPs trying to do it themselves. Now I have to say that one of the reasons why we're able to do this kind of a platform is because we've taken a firm approach on it. You know where we have partners where we all have our own, we each have different duties as far as selection process and monitoring process and so by being together as a partnership and we have a bigger staff. It allows us to be able to you know avoid doing the raps because we could select our own funds our own separate account managers and even to a degree our own separate securities if we need to.

Todd Taskey: And I know Kevin that a lot of guys I think have made a conscious choice that they would prefer to be asset gatherers because that's where their strength lies. And I know you must have taken a hard look at that, you know, actually building the portfolios and monitoring them and the selection versus using a you know kind of a turnkey program. What was it that drove you to want to take that on yourself, was it more of the performance or was it more the fees, or you know what kind of got you there?

Kevin Bauer: Well quite frankly Todd it was because it was really a lack of rap fees available. I mean now today there are a lot of different resources for the advisers to go to. But back when we started this you know ten plus years ago, I mean there was a handful of accounts you could even use that are you know basic rap accounts. And so we didn't have a lot of choices out there, and so we had, we basically had, we built it because it wasn't there. Nowadays I think of advisers coming in and they're alone they'll say they don't have a big firm to work with. There's a lot of choices out there that can make it work doing exactly what we're doing but you know not have to go through all the headache and the additional costs to do it.

Todd Taskey: Right. Now I want to spend, if we can shift gears just a little bit because your reference to the relationship with CPA and you've got a wonderfully effective model in working with CPAs and I know it's responsible for a lot of your success now.

Two part question for you, A) can you describe the way that you're working with CPAs now? And then can you take us back in the second question, can you take us back to when you made a conscientious effort that you were going to get into that marketplace? Because you know a lot of us have heard and we are all envious of those that have a good you know referral relationship or business relationship with CPAs. And I think a lot of people mess around in that field and would like to get referrals from CPAs but you've really made it an integral part of your business and based on your production numbers it's obviously been a good decision for you. Can you answer those couple questions to give us a real picture for where you are and then if somebody listening wanted to duplicate that success what are the key elements to doing that?

Kevin Bauer: Sure, I mean I'll start with where we are now and then go back how we started and really some of the mistakes we made.

Todd Taskey: That'd be great.

Kevin Bauer: Where we are now is because we have three offices in Salt Lake City, in Arizona, and Idaho. We have two major firms, CPA firms in each city that really we work with, and when I mean we work with it's not just, what we try to do, it's not just a referral base but we actually we actually take an office inside their office. And we actually house a junior partner in one of those offices. So that junior partner is there every single day in that firm. And what we've tried to accomplish with that is we want to be, we want to always be in their face and helping them as clients call as clients come in so that they, so that when the issues come up we're ready to handle them. And the junior partner basically looks at the situation and then decides whether they're going to handle the case if it's small enough, and it just needs to be, they can take care of it. Or if it is a larger account and needs more expertise they bring in one of the senior partners.

So having a junior partner in every one of those firms, that's why we have five almost six juniors and they sit in there and they basically you know work with the CPA firms and coordinate things with them. Even when we have a big client that junior is still working in there and coordinating the effort, picking up applications, making sure the correspondence and the communication is going and following through on all the underwrite, if it's insurance, or the asset management stuff. And so the junior plays a real important role in that and.

Todd Taskey: Kevin let me hit the pause button. Let me pause you for just one second. Two quick questions, number one do you pay the CPA firm for that office space that you take? And secondly with the junior partner, who is this person in terms of their credentials? And how do you share the revenue with the junior partner and then the CPA firm? If you could touch on those before we move forward that would be great.

Kevin Bauer: OK. As far as in the offices, some of the, about half of the firms they bill us for their space and the other half they don't. It kind of depends on the operation and what you're doing. Now, we split the business with the CPA and with the junior. Depending on how much the business if the senior partner comes in the senior partner takes you know usually forty percent of the case, and the junior takes ten percent, and the CPA firm takes the other fifty percent. Now if we're paying for the space, to be in there, then the CPA firm gets forty percent and the senior gets fifty percent, and the junior gets ten. However, if the junior is handling it all by themselves and they don't need the senior to come in the CPA firm still gets their same split but the junior gets a bigger split and the senior gets a smaller one.

So for example the senior if we're not even on the case we always get between ten and twenty percent depending on the size of the case. And so that's how that works with each firm and you really have to kind of with the firm and what they feel comfortable about and how much work they're going to put forth to do, you know to bring clients to you and sit with the client. So it's kind of a per-case situation but that's pretty much how it works. And so we're pretty much set-up like that and that's working, that's doing pretty, working real well for us, I mean there's always things that we're learning and always things that we're doing but you know we kind of we grew to that.

I mean at first you know, we had a couple CPA firms that gave us referrals. And referrals came you know sporadically and that was good but you know it wasn't really a business for them and they just kind of did it because they had to do it because the client needed it. And so you know in the old days working with CPAs it was just a referral it wasn't really anything we could give back to the CPA other than sometimes we'd rent space from them and kind of maybe compensate them a little that way by renting some of their space. But that didn't really work too well and you know we eventually kind of got someone licensed in the f

Todd Taskey: And so who's the guy you have in the firm when you say it's a junior, I mean how much experience does the person have and what kind of revenue or income are they getting from their you know ten or twenty or thirty percent split?
ome are they getting from their you know ten or twenty or thirty percent split?

Kevin Bauer: Yeah, well we like for example our Salt Lake City person Jared you know he did just under two hundred thousand last year and he's about nine years in the business. He's been with us four years, or maybe five now, four years I think. And his credentials, he's working on his CFB, he doesn't have it, he has his security licensing and so forth but he's working on his CFB.

We have another Jared that's been with us four years and he's been up in the Idaho office working with CPA firms up there and he's working on his CFB he has his seven and so forth. And so you know, they're younger guys that are trying to learn. He, I think he's you know because he's younger he made like sixty grand last year. And then we have Rick Jones who's a more experienced agent kind of more of a seasoned guy in Arizona. And he sits in the one in Lake Havasu and he handles that case. And I think he did like about ninety last year, but he's more

Todd Taskey: Gotcha, and so obviously these CPA firms are generating a lot of revenue and I want to touch on that in one second. I think my you know, my first question that I would ask is you know you're giving fifty percent of the revenue to the CPA firm and I guess all business people would ask, do you need to give them that much to get their attention? You know it sounds like you're giving them forty or fifty percent. I think I remember you explained to me once before that you've got a couple of different tiers based on their level of participation. And since you've got so much experience here could you just comment a little bit on you know wanting to keep as much as you can for yourself but needing to get the you know the CPAs attention and you know get them really committed to it?
g to get the you know the CPAs attention and you know get them really committed to it?

Kevin Bauer: Sure. If a CPA just gives us a name and hands us off a client and says you need to call him and we handle everything from there they only get twenty five percent. But if they're going to be actively involved in putting a case together and working with us and in the meeting then we give them forty to fifty percent depending on whether we're doing you know a cost share on the expenses and so forth. So that's how it works and it you know, most of the time they just pass it on, they don't really sit with us. So most of the time they get a twenty five percent split, but those that they really want to work with us they get their forty or fifty.

You've got to be able to make it financially rewarding for CPAs, not only are they providing a service which most of them like what they're doing by bringing us in, and having us a part of their firm and they introduce us as part of their firm. But also it needs to be able to you know, when they go to a partners meeting they need to be able to show that this is a revenue generating program, and not j

Todd Taskey: And how, tell me about you made the comment that they introduce you as part of their firm. Why is that important and how did you accomplish that?
y introduce you as part of their firm. Why is that important and how did you accomplish that?

Kevin Bauer: Well it's important because they so that the client feel like they're not just passing us on. That they're, that the CPA firm is still going to stay involved and you have to disclose that the CPA firm is going to get compensated and so for that they need to be able to see that hey we're working in tandem. Now, half of the firms we actually are introduced and we have cards with their name on it. The other half are just, we come in as BCJ and we have a, you know a relationship you know, with them, and we've been working with them. And that's so, kind of like I said it really goes to each individual firm and how they want to pursue it.

Announcer 2: Is your mind running? Imagine having CPAs introduce you to their clients as a part of their firm. Do you think that would help you grow your business? In the second part of Kevin's interview he's going to discuss how to get CPAs to buy into you and your process, how to train CPAs to find opportunities for you, and you'll learn out how Kevin is doing financial planning for corporate executives because he's endorsed by their employer. Don't miss the second half of Kevin's Big Producer interview.

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