Brent Owens, President: cfd Investments podcast transcript

Brent Owens podcast transcript

SPEAKERS

Hank Multala, Founder, Adviser First Partners

Brent Owens, President, CFD Investments

Hank Multala  00:01

Well, welcome to the podcast. There's a chat with Hank. And I'm Hank Multala. I'm fortunate that I have an opportunity to have conversations with industry leading professionals that really provide a distinctive advantage and a differentiating character compared to their peers in the industry. And today's chat is no exception. Some years ago, I was invited to visit a firm in Kokomo, Indiana. And I recognized instantly that the focus of the firm was to be a true partner with the advisors that have elected to call this firm a home. And daily, this firm lives by their mission of being advisor focused a leader in technology and are driven by their strong character and unwavering value. So today, I'm joined by Brent Owens, he's the president of CFD investments at creative financial design. So, Brent, thanks for taking some time out of your schedule today and agreeing to chat with me.

Brent Owens  00:56

Well, I really appreciate it, Hank, and I'm looking forward to the opportunity to reach out to your listening base, appreciate it.

Hank Multala  01:06

Well, they're looking forward to hearing. So obviously, the benefit of podcast is that it really delivers a clearer understanding about a firm one that, typically, someone's not going to get from the pros and verbs of a website, as you can only put so much content. So I'm really looking forward to sharing your message with our listeners.

Brent Owens  01:25

Well again, I'm really looking forward to it as well. And let's get started.

Hank Multala  01:30

So on the history of CFD, how and why did it become to be and what drove you to follow the footsteps of your father, when he founded the firm that was in 1984?

Brent Owens  01:42

Actually, creative financial designs, our RIA was founded in 1982. But you know, going back even further, my dad just had his 50th year in the business in 2019. He started in the business in 1969. That was the year I was born. And as a young person, I saw my dad in action. I went out with him., he was a general agent for a life insurance company, and I went with him while he spoke to agents. So from a historical standpoint, designs has been around since 1982 and CFD investments has been around since 1990. But my dad goes all the way back to 1969. So that that's all I've known my entire life.

Hank Multala  02:27

Wow! So 50 years. That's, fantastic. That's incredible. So I know, we'll touch on all these areas during discussion, but just so we're all on the common page, just provide the audience a brief description of CFD investments, creative financial designs as well as CFD insurance.

Brent Owens  02:45

So CFD investments is our broker dealer, we're registered with FINRA, we are in all fifty states, we have about 150 producing financial advisors, a total of about 190 to 200 advisors when you count our registered assistants. Creative financial designs is a registered investment advisory firm registered with the SEC. We are nationwide, we have about two billion of assets under management through the RIA about two billion of other assets that are through the BD for a total of about four billion. And then CFD insurance planners is where we do all our fixed insurance business. What we tried to create here is a one stop shop for people in the Indiana area. But then we tried to roll that one stop shop concept out to our 150 advisors as well.

Hank Multala  03:39

Oh, that's fantastic. So everyone, obviously, I mean, has been impacted over the past year as a relates to COVID. Some firms developed what I would call a contingency plan because most were formulated after 9-11. How was CFD prepared for the recent challenges? What challenges did you face if any and how do you think it's impacted the future of your business model as well as the firm?

Brent Owens  04:06

Well, thankfully, we were very prepared. We've always been, I believe ahead on the technology curve. And we had started rolling out straight through processing back in 2016. We really refined it between 2016 and 2020. In fact, we have not accepted a paper application now for over two and a half years. Every single piece of business that our financial advisors have submitted to us has been through straight through processing. So we were so thankful that we had that in place because obviously during COVID, many of our advisors started utilizing zoom meetings. And during the zoom meetings, you could meet with the client online and once the client agreed to o implement the financial plan, then basically you could go through the straight through processing with that client and then the client could electronically sign on the computer. So the adviser was able to have client meetings virtually and the client was able to do business with our advisors virtually. So I felt like we were very prepared. And in fact, in 2020, during COVID, creative financial designs, our RIA had a record year, and CFD investments in the thirty plus year history of our firm had the third best year ever. So we really did not take any steps backwards at all in 2020.

Hank Multala  05:43

Well, congrats on those on the results from last year, it doesn't seem like you missed the blip at all. And I kind of still find it surprising that there's some firms still don't do straight through processing. So what, but I don't know why the technology's there. And it's just, it's just the best thing for advisors as well as their clients and make it efficient also for the staff at the home office. So one area that you and I spoke about before the podcast was the discussions, you have with all prospective advisors that are considering CFD and, and that there's a commonality, I guess, in three specific topics that everyone seems to dive into as they're doing their due diligence. So we agreed it was it was a good place to begin our conversation. So I'm going to let you do a lot of talking here, Brent. Can you provide an overview of each of these three subjects that you had mentioned that you get questions about most often from candidates?

Brent Owens  06:40

Yes, sure. The topic that always comes up is obviously payout. Advisors want to know what they're going to get paid. Another topic that always comes up is technology, what technology can you provide for me? And then the third topic that pops up is what's it going to cost for me to be registered with you? What are the total expenses? So from a payout standpoint, we have three different grids, we have the broker dealer grid, we have the RIA grid, and we have the fixed insurance grid. The nice thing about our grids, we will combine all three of those pieces of business into one gross dealer concession number so that our financial advisors can maximize their payout grid on the broker dealer side. So I'm going to start with, I'm going to go backwards, I'm going to start with fixed insurance first We pay 90% out of the national account level. And what that means is, or what is important for advisors to understand is, 90% of national can equal more than 100% of street. So let me give you two examples. If we had an advisor doing a fixed index annuity in the street level was 6%. And they did that away with us away from us as an outside business activity. It's $100,000 investment, they simply got paid $6,000 by that insurance company to do that fixed indexed annuity. If they ran it through us our national account levels at 7%. We pay our advisors 90% of 7%, which would be 6.3%. So in that scenario, they would have $7,000 counted towards gross dealer concessions, and they got paid $6300 versus if they would have done it direct, they got paid $6000. So not only did they get $300 more in their pocket, but they had $7000 counted towards their gross dealer concession.

Hank Multala  08:34

Right. You do it directly, that doesn't count for their override.

Brent Owens  08:40

Right, if they would do that as an outside business activity that would not count towards their overall production. So what we really tried to create was a win win situation for the advisor where one they get more dollars in their pocket by running it through our national level and two, they get that gross dealer concession to count towards their broker dealer production, even if it's a fixed piece of business. So that's the payout grid on the fixed side. On the RIA side we have two different payout levels ,we have a 90% payout level or 100% payout level. So let me explain. So we have selling agreements with about 303 third party asset managers or TAMPS. If an advisor chooses to use one of those TAMPS whatever we received, they received 90%. Another area that advisors manage money is they want to be the portfolio manager themselves. So we call that AMA, advisor managed accounts. And if an advisor does all the work and manages his own accounts, he also gets paid 90%. But we have a large group of advisors that they don't want to be in front of a computer. They don't want to be worrying about doing quarterly billing. They don't want to worry about doing all the due diligence on seeking the stocks, bonds, ETFs, or mutual funds and so they ask creative financial designs to do it. And as I mentioned before, we have about two billion of assets under management. We've been managing money since the nineties. We have many different strategies. And if they run that through us, we charge them money management fee, but then we pay them 100% of what's left over. So let me give an apples-to-apples comparison. Let's just utilize, we have several money managers, SEI, BTS, etc. Let's say that their money management fee is thirty-three basis points and creative financial designs money management fees thirty-three basis points. Let's say the advisor chooses to charge the client 1.33% all in. If they did that, with either BTS or SEI, they kept that thirty-three bips, they then pay us the 1%. And we would turn around and pay 90% of the 1% to the advisor. However, if they had creative financial designs manage it and one of our seventeen strategies, we would charge the same thirty-three bips, there's 1% left, and then we pay 100% of that 1% to the advisor. So just like in the fixed business, where they can get more dollars in their pocket by utilizing our national accounts. On the fee-based business, our advisors can get more dollars in their pockets when it's an apples-to-apples comparison. They can get more dollars in their pocket by utilizing our money management team. We have three CFAs on staff. And as I mentioned, we have seventeen different strategies. We have track records in many of our strategies that go back more than 25 years. The third area, payout wise is the broker dealer. So we have a 75 to 92% payout on security business. And as I mentioned, you can roll your fee-based business and your fixed business in there. So let's use an example. Let's say we had an advisor that was doing $40,000 of up just keep it simple $40,000 of commission-based security business, $40,000 a fee-based business and $40,000, a fixed based business, we would treat that advisor as $120,000. If he were standing alone and only doing the $40,000 through us, he would have been at a 75% payout because zero to fifty is 75%. Advisors doing between $50k and $100k are at an 80% payout, advisors doing $100k- $150k are at an 85% payout. So since I mentioned that, in that example, that advisor was doing 40,40 and 40, we treat him as $120,000 advisor, he would get an 85% payout on the broker dealer schedule. To finish out the schedule $150kto $250k is 88%, $250,000 to $500,000 is 90%. Anything above $500,000, we pay at 91%. And anything over a million we pay at 92%. Then the only thing I'll add to that is for new advisors, we will look at their previous 1099. And if an advisor comes to us and they did $300,000 at the previous firm, we're not going to start them at the 75% level and work them up. We will start them right at the 90% level. So the next area where you'd mentioned payout, then did you want to go over a technology? Yes, so then the next area people always ask about is technology. And I do want to tell a quick story. We’ve had over the years advisors join us from large firms. And one advisor joined us about 18 years ago from LPL. And as I was going through kind of what we had to offer, I felt myself being apologetic to that advisor. Long story short, that advisor ended up joining us and something stuck with me that he said that I'll never forget. And he said, Brent, he's like, I know you think that you don't have the same type of technologies that LPL has, but he's like your technologies are just as good if not better, and they're at a more reasonable price. And with you, I'm not a number, I'm a relationship. So he said never apologize about your technology. And I feel good about that. So we do we've had a Technology package at $250 a month now since 2008. We have not budged our technology costs since 2008. Part of that technology, they get a CRM system, we utilize Redtail. They get wealth reporting reports for their clients, we use a system called Albridge that will consolidate all their brokerage accounts, their direct way business etc. We have straight through processing, we use utilize a system called Docupace, not only can Docupace do your straight through processing, but Docupace is basically  your virtual file cabinet as well. So everything that you get submitted through Docupace there's a virtual file cabinet on that. So those are the three main areas of the technology. But then there's other things like we have a variable annuity intelligence report. We have quick forms that takes your database CRM and starts auto populating the actual investment forms and there's much, much more. Then the third area is total expenses. And I've always was always said, we had three expenses, I do have to update my message, we now have four expenses, and I'll explain, and it'll make sense. But the four areas that we have expenses are one our  technology fees, $250 a month. The second area we have expenses in is our E&O, we charge $2400 a year for E&O but we also require what's called DRIP. DRIP is a deductible reduction insurance program where it takes the E&O deductible from $50,000 down to $0,  and that is $600 a year. So all in on E&O, it's $3000. Like, as I mentioned, technology's $250 a month all in per year, that's $3000 so we're at $6000. The third fee was a renewal fee. So at the first of November, we always do a renewal fee based on what an advisors production is. Renewal fee runs from zero to $700. So any advisor doing over $500,000 in production, we take care of the renewal fee, they just take care of their non-resident states. And then I mentioned there's a fourth fee that now came into play at the beginning of 2020. And I'm so thankful that we did bring this into play. We now have cybersecurity technology through and trade and cybersecurity insurance policy, and that is $75 a month or $900 a year. So all in when you look at all those things, $3000 year for technology $3300. So all in $3,000 for technology $3,000 for E&O $900 a year for cyber security. So there weren't $6900 and then your renewal fees zero to $700. So all in what our advisors could expect us between $6900-$7600. Now again, we've shopped that out compared to other broker dealers, I feel like we're in the ballpark, when you tap into the fact that most of our advisors are getting our average payouts about 86%. I feel it's an extraordinarily strong package. So those are the three areas of payout technology and total expenses.

Hank Multala  17:53

Well, thanks for that, that overview. And, you know, I just want to ask a quick question on technology, you gave us some  detail on the stack. How do you go about selecting the most appropriate solutions as you move forward, that's going to best benefit the advisors practice and help their clients?

Brent Owens  18:08

Well, that's a great question. And I'm thankful, again, that we just we know some good people in the industry. There is a gentleman named Chip Kispert. He has Beacon Strategies and Chip has always been an assistance to us. Plus, we attend the Financial Services Institute meetings, there's technology vendors that attend those conferences, we've been longtime attenders of the Financial Planning Association meetings and so forth. So we just being in this business, we just have good relationships with our vendors, Faulkner Media Group, FMG suites as who do most of our financial advisor, websites, Greg Woodbury, and his team, they come out to our conference consistently. In fact, when we have our fall conference, it's not just product sponsors that are there, like variable annuity mutual fund companies, we also have RedTail Albridge is there. I mentioned FMG suites is there. So we have our technology vendors involved with us during our conferences, which makes it nice.

Hank Multala  19:18

Oh, that is nice. So well, thanks for that  little sidebar there. So outside of the payouts of technology and expenses, there's another driver and decision making process that often ensures a very long term relationship between the advisor and the firm versus some three to five year you know, reunion for convenience So, and what I've really seen probably now for five, seven years is that when financial professionals whether their individuals or multi-partner practices are taking a really remarkably closer look at the culture of a firm and how does their  personal character, match up to the culture of the firm.

I know what the culture of CFD is like. Can you give us a descriptor of the culture of CFD and how do you ensure that this culture continues?

Brent Owens  20:14

Sure, that's a great question. And I'm not trying to be controversial at all, but we are incredibly unique broker dealer. One of the things that when I talk to prospective advisors, I never lead with what our culture is. But anytime it gets brought up, I'm also not ashamed of what our culture is, we're, we're proud of our culture, and we think we have a unique culture. So part of our mission statement is, is that we want to serve advisors in a Christ like manner. And, again, not every advisor that is associated with our firm must be a Christian. But what we want our advisors to know is that we're going to operate with Kingdom values, and we're going to try to serve them in a Christ like manner. I don't see how anybody can look at that negatively. I look at it as a golden rule that we're going to treat you in the same manner that you would want to be treated, that you'd want to treat others, or that you treat yourself. So from a culture standpoint is unique. It is interesting how God has brought not only financial advisors from all fifty states into our mix, but a great back of back-office team, we have about 46 Home Office employees. And the culture really is more like a family situation. And obviously it started as a family business. But as it's grown, as we've gone from two or three employees to forty-six employees that we as we've grown from twenty, financial advisors to two hundred, financial advisors, counting registered assistance, we've really been able to keep that culture. One of the things that's unique, and again, these are just words, it's easy to say the words, I think where people are going to realize it is after they have been with us for three to five years, then they do realize, hey, these people are who they say they are. And there's something unique about them. And they realize that our actions do match up with our words. But you know, at our conferences, we usually start the conference with prayer. We finished the conference with prayer. We have on our news and production report, we have a prayer request. So we have financial advisors that, you know, if they're suffering, or family members suffering and they want other believers to lift them up in prayer, then we have that prayer request. So we have a unique culture. And I will show you how those ties into it from the business aspect. There's a lot of Christian financial advisors that want to be able to integrate their faith into their business. And one of the things that we do is BRI,  biblically responsible investing. Another thing that we do is we do financial planning, where we're making recommendations that people tithe to their Bible believing church of their choice. So it really allows them to integrate their faith with their business. And so that is kind of what sets us apart.

Hank Multala  23:12

Yes, it's not a marketing ploy. You walk the walk; you talk to talk.

Brent Owens  23:18

I appreciate that, Hank, but like I said, for the listeners that don't know us, it’s one of those situations where, you know, words just can't justify it. What will justify it when you said, when you've had a relationship, like you and I have, for the last several years, you'll see that the words match up with a walk.

Hank Multala  23:37

Yes, that's true. So thank  you for that and it is  a wonderful culture. I recognize that years ago when you and I first began to get to know each other professionally. So, one area  that is unique about CFD in the broker dealer space is banking services. Can you fill the listeners in on the CFD banking services, why you decided this was essential and how does it benefit clients and integrate into the advisors practices?

Brent Owens  24:08

So CFD banking services is an affinity agreement with the Bancorp bank. The Bancorp trades on the NASDAQ. So it is FDIC insured. We picked this up at one of the Financial Planning Association meetings that we attended, and we thought, we want to be a one stop shop for financial advisors, and sometimes, not all the times, but sometimes our advisors are in competition against the banks that are being tasked, you know, financial advisors in them and so here's a way where we can basically do all services for the client, including banking services, such as checking accounts, savings accounts, money markets,  advisors can even do loans through CFD banking services. And it's a way where through this affinity agreement, it's not that much, but it's a way where the advisor can be compensated for setting these accounts up. I will say this with interest rates being as low as they are, the luster of that is not the same as it was when the spread and interest rates are was a lot higher when money market accounts were in that two to 4% range and so forth, we were consistently a better place to be than, say, a brick and mortar bank, but the margin,  with the Fed having interest rates as zero, the spreads just are the same as what they used to be. But I'll end it with this just saying it's a unique situation, where we truly can be a one stop shop for financial advisors and our financial advisors could be a one stop shop for their clients

Hank Multala  25:53

Sure makes it easy for the clients that that's for sure. So one thing that is very unique, from my perspective,  knowing you is, you're the president at CFD, but you also serve an existing client base. What do you think are the benefits of being the president and having an existing client base...What's the benefits, you think, to the firm and overall to the business model?

Brent Owens  26:24

I've had many advisors, talk to me about this several times. And they're happy that as the president, that I've walked in their shoes, so I do have about two hundred clients, that are personal clients, I have $55 million of AUM under management with my clients. And I think the unique aspect that it brings, is that when I'm doing straight through processing, when I'm utilizing our technology, when I'm serving my client, I see how all those services, and so forth, interact when serving a client. That gives me a great perspective of seeing what our financial advisors see. And I do say this a lot, my staff gets tired of me saying it, but there's times when I say, hey, if the president is having trouble with a certain aspect of the technology, then I can assure you one of our financial advisors are also having those same types of troubles. And so it allows us to focus in on certain areas where it might be a weakness, and then we can turn it into a strength. So our financial advisors really appreciate the fact that I've been in their shoes, I've served clients and to have a president that has been in their shoes. I just, it brings a unique aspect to the, to the firm.

Hank Multala  27:51

I think it's nice that you utilize the tools and resources you create for your advisors, because the one of the worst things is, is to find out about a problem, three or four or five weeks or months down the road, when you can see it yourself as you deal with the tools and resources daily. So based on your role at the firm, you know, kind of a final question for you. I always like to ask this, what's the biggest challenges that you see that our industry faces? You don't need to put a timeframe in five or 10 years, but what's the challenges you see and how are you positioned to take advantage of that shift?

Brent Owens  28:28

Well, I think what I'm seeing in the industry is there's definitely a lot of mergers and acquisitions, you go back to the turn of 2000. And there were over seven thousand broker dealers. And now we have about 3600 broker dealers. So the number of broker dealers has been cut in half in the last twenty plus years, I think consolidation and mergers will continue. So that's something that CFD focuses on all the time. What do we need to do to be one of the broker dealers that is standing five to 10 years from now? So I think, challenges in the industry, the reason there is mergers and acquisitions is quite frankly it's regulation. Regulation is different from it used to be. There was an SEC, mutual fund shares sweep for with the SEC, where that affected a lot of RIA's and it just seems like in the old days, when you would go through an audit, you would get a letter of caution, and they would tell you, hey, this is areas that you need to improve. And now it seems like you know, when you go through something like that, instead of it being a LOC (Letter of Caution), they want to slap you on the risk a little bit harder. And so I mean, regulation is an area of challenge. So we always must surround ourselves with top notch people in the compliance area to make sure that we always are dotting our I's and crossing our T's but amid that, the last challenge that I see for our industry is the demographics, not just for CFD investments, but for the industry in general. The financial advisor is aging, and we've got to figure out a way as an industry, to encourage younger financial advisors to come in, create succession plans for older advisors so that they can continue to serve their client, but amid either retiring or having a health issue or unfortunately passing away, that there's a plan that their business can move on with a junior financial advisor. So that's kind of what I see in the industry, and we are constantly trying to stay at the forefront of those areas, so that we will be here for the long haul.

Hank Multala  30:45

I know, you're very proactive on it in terms of addressing the challenges, and I've no doubt that as this probably this industry gets cut in half again, in the next 20 years, and you're going to list 1800 firms, or that one of them will be CFD. Well Brent, thanks for your time, and providing  more detail and educating the audience on what sets  know creative financial designs and CFD investments apart from others in our industry. For those wanting to find out more, you can visit them at CFDinvestments.com You'll find a great deal of content that they build out to further educate clients, as well as numerous advisor testimonials on what inspired them to not only select CFD as their home, but what has kept them committed to the CFD family for years. Please don't forget to subscribe to our podcast A Chat with Hank, on Stitcher, Google podcasts, Spotify, or wherever you may listen to your program. Brent, thanks again for your time today. I know we've been trying to get to do this. I'm glad we got to share this time and I appreciate you sharing your thoughts and insights and a wonderful overview of the firm.

Brent Owens  31:52

Well Hank, I really appreciate you allowing me the opportunity to reach out to your listeners and I will close with this. Also have your listeners check out joincfd.com. On the joincfd.com,  we have our prospective financial advisor kit and a lot of the topics that we talked about today when it came to payout, technology, and expenses. A lot can be found on the joincfd.com website. I appreciate you allowing me this opportunity, Hank

Hank Multala  32:21

No problem. Brent. Thanks for your time. Take care.