20: Gain 100 Points of Clarity with Chad Willardson

04
Mar

Chad Willardson is the founder and CEO of Pacific Capital, a fiduciary wealth management firm, the co-founder of The Draft Sports Complex, and twice-elected City Treasurer of Corona, California. He recently published Stress-Free Money: Overcome These Seven Obstacles to Find Financial Freedom, which already accumulated 89 five-star reviews on Amazon.  

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Gain 100 Points of Clarity with Chad Willardson

Our guest is here Chad Willardson, who is the CEO and founder of Pacific Capital, which is a fiduciary wealth management firm. Chad is also the co-founder of the Draft Sports Complex. He is the twice elected treasurer of the city of Corona in California. And most recently, he is the author of the book, Special Money, that recently came out and has 89 five-star reviews on Amazon. So welcome to the show, Chad.

Thank you. I’m very happy to be here. I appreciate it.

I’m excited to have you. So you seem to have your hand in a lot of different parts. So tell us a little bit about your journey. How did you become an entrepreneur?

I became an entrepreneur a little bit by accident. I’m not one of those people who was a kid that started all kinds of businesses. That wasn’t really me. But I was at Merrill Lynch. I’d been there nine years in the wealth management investment department, if you will, and I just felt like it wasn’t everything that clients wanted and it wasn’t everything that I wanted. It just wasn’t ideal.

After the financial crisis of 2008, a lot of things changed with the big banks and it very impersonal and bureaucratic and slow. And it just felt like this is not where I’m gonna spend the next 30 years of my life. And so on 11. 11. 11, I started Pacific Capital, an independent advisory firm. And it was a big risk to leave that corporate Wall Street environment.

There were a lot of security, even just the having a nice big income there and security of that, everything disappeared as I became an entrepreneur for the first time. But looking back, it’s the greatest move I could have made. So since then, we work with entrepreneurs as our clients, and I’ve been able to come across other opportunities to be a part of, like the Sports Complex business in South California here.

That’s been great. So that’s kind of how my journey came out of discomfort and dissatisfaction that led me to become an entrepreneur. And I think that’s probably a lot of the stories of your audience that and your clients that really just felt like there has to be a better way. And so they decided to create that way.

That definitely happens. There are people, they either get tired of being in a big bureaucratic organization or they feel like they create more value than they get paid for. And they think they can do it for themselves. Or sometimes they get laid off and then they pick up a franchise and they do it. So there’s many, many different ways. Very few people do it the way that maybe most people think entrepreneurs are born, which is they want to be an entrepreneur all their lives and they do it from the get-go. So where are you with Pacific Capital right now? What was the journey? It’s been nine years.

Yeah.

You have a bunch of employees now.

It’s been nine years, so we’ve grown. Thankfully, we’ve grown each of those nine years. So every year has been a record year. We started from scratch, obviously, but we’ve grown significantly. In all my responsibilities, I’m now in charge of about $620 million. So it’s a lot of money for me to be essentially have stewardship over. And I’ve got, luckily I’ve got a great support team. So we have specialists in many different areas on our team at Pacific Capital, but we’ve got really seven full-time employees and then some part-time and some interns and things like that, and some more independent contractor types outside of that. But our core seven really do the bulk of the work here on the team.

And how did you build this company? Was it just by trial and error or did you use some management frameworks? I mean, I teach EOS, the entrepreneurial operating system, but there are many other management frameworks where you don’t just do a trial by error, but you actually have a system and you implement that system. Did you use any of these kinds of…

I can’t point to one system necessarily, Steve, but I definitely spent a lot of time reading and learning from other entrepreneurs and successful mentors and coaches. And I’m a member of the 10X program with Strategic Coach, and so Dan Sullivan’s been my…

I was a member.

Yeah, his program, so I’ve definitely learned a lot from him. And some of it were some of the things that I learned in practice management in our industry while I was at Merrill Lynch. There were a lot of great resources that we were exposed to from the Wall Street firms. But yeah, I’d say I’m still learning. I’m more of a learn-it-all, less of a know-it-all, I guess.

That’s pretty cool. I saw that you were featured in the Who Knows How book, which just came out from Dan Sullivan.

Yeah, that’s right.

So, what is your story? I haven’t read the book yet. I put it to my desk, but it’s a great book

The story was regarding the it’s in the section on freedom of relationships and so Dan Sullivan’s talking about how the more successful you become the more you can pick and choose who you want to spend time with and who you want to work With and so he he interviewed me and captured a story of this two years ago, where we got a client referral that was over $100 million.

The more successful you become, the more you can pick and choose who you want to spend time with and who you want to work with. Click To Tweet

And it would have been the biggest referral, it was the biggest referral I’d ever received or ever even really heard of amongst my peers. And the potential client, just to sum it up, was kind of a jerk and was going to be a very difficult and challenging and demanding person to work with. And the way he treated my staff, even in the preliminary interviews, basically left me with a dilemma of, do I just take this client because it’s the biggest client ever and we just have to tell everyone to put up with him?

Or do I somehow turn him away and hold true to the loyalty of my team and our values and what our principles are. And ultimately I decided to turn him away, which shocked him and made him pretty upset. He wasn’t used to rejection. And so that’s the story that Dan tells in that book of at some point you are able to decide, these are the people I’m gonna spend time with and these are the people I’m not gonna spend time with. And so he used me as an example of that, which is kind of cool.

That’s a huge one for entrepreneurs to be able to choose with who you work with. And that’s awesome. So tell me, Chad, how is Pacific Capital different from other wealth management firms?

So Pacific Capital is different in a couple ways. Number one, we are a an independent fiduciary, which puts us in a category of five to 6% of the financial advisors in the country. Most advisors or financial advice givers are really brokers or salespeople, and that’s fine, but it’s important that the clients and consumers know that, that there are more conflicts of interest in commissions and things like that.

But there are a lot of fiduciaries out there that are great, so that we still have to differentiate from those. And one way that we’ve done that is I created and trademarked a process called the financial life inspection. And so this financial life inspection, which was what got me featured in the Wall Street Journal a few years ago, organically, it is really a clear diagnostic on your entire financial life.

Similar to maybe a detailed home appraisal or a car diagnostic or a health diagnostic, this is a hundred checkpoint analysis where we give you a score of green, yellow or red. And we dig into everything, not just investments, not just insurance, but even maybe even like, you know, we look at Social Security, we’ll look at your homeowners insurance, we’ll look at your auto policy, we will look at your cash flow, your tax returns, everything that touches your money, we include in that report.

And so the financial life inspection process is something that really has differentiated us and really separated, you know, the clients that want to engage in planning who are good fits for us versus the clients who are looking for hot stock tips or get rich quick schemes and that those people are not really a good fit for us.

That’s really interesting. So, you do this, this like complete financial health check? Yes. So how do you address this? There’s a hundred different things. Let’s say someone has 30 of the hundred boxes ticked. They still have 70, which is not ideal. Then how long does it take to fix up someone like that?

Yes, that’s a good question. So on average, the scores on average, we get between 42 and 48 greens, which means we’ve got 50 or so yellows and reds. So essentially part of that process is we’re giving you specific recommendations to convert each yellow and each red into a green. And so some of those, a lot of those recommendations you’re going to need to implement on your own or with your existing network, or we can refer you to somebody. Some of those yellows and reds we can flip to greens internally in-house, like something that we do.

For example, we can help you with your actual investment accounts, provided it’s a fit to work together. But our goal is to give you the recommendations and the handhold with you and help you convert to 100 greens as quickly as possible. So for some people who are very motivated and they’re very action oriented, it may only take a couple months to really make those wholesale changes and get your habits in place. And others, it might take a year. It might take six months. It might take eight months. It kind of depends on how motivated you are and how serious you are about making the progress in your financial life.

That’s very cool. I’m excited about it. I guess it’s available from your website?

It is, yeah. So on the website, on PacificCapital.com, it’s a very easy website to navigate through. It’s literally just one page and throughout the website the only call to action is to schedule your goals conversation which is your 30-minute free consultation to really see if there’s a fit to work together and to let us to show you how we help clients in your situation and really discuss if you’re a fit, if worth it and if it makes sense to even continue talking about it.

So, what are the major pitfalls that people fall into in terms of their financial lives?

So, in the book, and I’ll just hold it up here for the video here, but stress-free money, we talk about overcoming the seven obstacles to find financial freedom. And the first obstacle, which I find is common in most entrepreneurs with their personal financial life at least, is they don’t have clear goals. And so imagine deciding to go on a vacation, and you get your suitcase out, and you go to your closet, and you’re going to start packing. But there’s a problem. You don’t know where you’re going on vacation.

You don’t know when you’re going to leave. And you don’t know how long you’re going to be there and what you’re going to do when you get there. It’d be pretty difficult to know what to pack in the suitcase. Right. And so that’s, unfortunately, that’s how most people approach their financial life. We don’t have clear goals and a destination, a lifestyle or an endpoint that we’re aiming towards.

And so how do we even know what decisions to make? What’s the context of how we make financial decisions? You know, you’d never start a business and have no business plan, but people make financial decisions all the time with absolutely no financial plan. So it’s something that we really feel strongly about that everyone needs to get in order is starting with the end in mind and having some goals, having some clarity.

But in order for them to know what their financial needs are, they would actually have to figure out their whole lives, right? What they want to do with their lives, what they need to get to.

Yes.

And what it would take to get there. And there’s a lot to figure out. It’s not like, OK, I need five billion dollars to retire.

You’re right. You’re right, Steve. And that’s that’s part of the exercise in the process of working with a fiduciary like Pacific Capital is, you know, we’ve done this a thousand times, so we can we can talk through these conversations and help guide you and get get those ideas clarified out of you maybe easier than you would on your own. But you’re right, it does take some reflection and some thought. It’s not a quick transaction. This is like doing things the hard way but the right way, basically.

So it’s kind of a life coaching process as well?

I would say so, yes, absolutely.

So give me an example of a client that walked in and they didn’t really know what they wanted to do, an entrepreneur, someone, a business owner, did they have the clarity and where were they when they first came to your office and where did you manage to guide them to what kind of clarity did they achieve at the end?

I have so many examples. We’ve got an entrepreneur who runs a logistics business that’s significantly grown over the last three to five years. I mean, this is a bigger business, but they’ve probably gone from 50 to 60 million a year up to upwards of 500 million a year. Many, many complexities with the business and growing and running the business. But with that, you know, the business owners have really been so focused on the business that they haven’t been able to give their personal financial life as much attention.

So, going through the financial life inspection process, we essentially clarified and organized everything in their financial life, integrated accounts, set up plans, started working with their tax professional to help coordinate their decisions throughout the year to reduce their taxes, really look at their cashflow when money comes in, when money comes out, what money can be invested and the outcome, in fact, he’s one of the, this client is one of the people who gave the endorsement blurb on the back of my book.

And he says, “Chad Willardson and his team at Pacific Capital have given me the support I need, I needed to maximize the benefit of a major liquidity event while still focusing on managing my core business.” The strategies he recommended and helped me implement have removed the burden of managing generational wealth while still allowing me to run a rapidly growing and dynamic business. So this is a, he’s, he’s a very dynamic entrepreneur.

He was, he was awarded the Ernst and Young Entrepreneur of the Year for the state of Utah. And it’s you know, it’s, it’s clients like that who you would think they make so much money and they’re so sophisticated and smart that they have everything personally organized and they don’t. You know, they actually really benefit from a financial life inspection and having someone to delegate all this stuff to. So that’s an example of someone who we really just went through every single category in the 100 checkpoints and made improvements until he was basically almost all green. So he’s not worried about that anymore. We’re handling everything for him.

I think I was browsing through your book and there was this story about the guy on the golf course. And one is asking the other one, you know, what do you do? How do you figure out what to do in this tumultuous time for investments? And he says, I’ve got it all covered. My financial advisor does that. So I wonder for people here that you coordinate all those advisors, consultants, tax, estate, estate transfer advisors, insurance attorneys. So what is the size of the portfolio that justifies all those experts? And do you have good question or clients? Do you have more cookie cutter approaches?

So I would say the two services that we offer Pacific Capital, one of them is the financial life inspection. That’s the fiduciary plan and the process. That is something that everyone qualifies for. That’s needed by, I believe, everyone. I’ve done that for someone who’s worth $150 million, and I’ve done that for someone who’s worth $40,000 total, total net worth, you know, straight out of college, someone in medical school, getting their financial life in order, wanting to set themselves up for a future, they’re more of like a goals type person.

The investment advisory services, which is like managing the full-time investments and working with, like continuously working with CPAs and attorneys and doing all this extra work, to us, that’s a million dollar minimum portfolio value. And oftentimes, someone will come to us with far less than a million and they’ll do the financial life inspection and then they’ll ask us, can you manage the investments for us? We just want you guys to handle it. And I will frankly tell them, you don’t need to pay an advisor to do this.

I don’t think it’s complex enough to justify that. So why don’t we help you set it up? And maybe we’ll set it up at Vanguard or Schwab or Fidelity, wherever they’re currently working or they want to work, and we’ll build a portfolio and we’ll set it up and really let it coast without paying the fees to have a full-time advisor. So in my opinion, if you have over a million, you have enough there to really justify it. But if not, then maybe just a financial game plan is sufficient.

So what does it look like? What are the different categories? Because you have these people who just want to put their money in a money market fund or whatever, a discount broker, maybe a well-diversified fund or index-linked fund. And then you have people who will have different stock portfolios, bonds and stocks. Then you have people who are in the emerging markets, different markets. And then you have people who put money in private equity and then art and the race cars, whatever. So what are the different levels of diversification? Are there categories that, you know, it’s 1 million, 5 million, 100 million, a billion, 100 billion, you know, Warren Buffett, he has to buy a railway if he wants to diversify. So how would you describe these different levels?

I would describe them as, I think what’s more important than the levels and the diversification categories is the mix of what you own. So the asset class, each asset class investment category has its own risk profile, its upside and downside. And so when we, when we look at a client’s goals, we’re trying to help them achieve their goals without taking on too much risk. You know, we don’t, we want them to have confidence and security and to reach their goals, get to their destination safely.

So perhaps the more money you have, the more you can afford to take higher risk or have more private type investments where there’s less transparency or less liquidity. Most people aren’t at that level. Most people aren’t investing in art or things that are very obscure or hard to value. But all of our clients have investment participation and unique categories. So every single client will have some money in non-US real estate investments, in US real estate investments, in emerging market companies, in tech and growth sector companies.

The difference between the clients is going to be how much they own in those categories. So we’re not going to offer something super unique and crazy to some clients and not offer it to others. But really, it’s going to be, here’s the diversified mix of investments that we believe in. And the question is, what’s your risk comfort level? What’s your need for liquidity and when do you think you’re going to start taking income from this portfolio and let’s really divide it and let you participate in that growth that other clients are participating in.

This may be a different percentage. And most of our clients own a business and they own real estate and it’s not like we’re managing their real estate. That’s totally outside of us. So we like to see multiple sources of cash flow and income for our clients and we’re going to help them by managing those investments to complement whatever they already have outside of their market financial investments.

So how big should I be? How wealthy do I need to be in order for me to be worth looking at private equity type investments? Maybe just invest in a fund or have even a family office myself or do other kind of, put money in gold or I don’t know, put money in venture capital? What kind of wealth? What kind of wealth can you justify that?

I don’t know that there’s a specific net worth that says, okay, you have the green light to do that kind of stuff, but I think that money that’s in extremely private and non-liquid investments should be money that you are not going to be affected by if it goes to zero because those investments are definitely higher risk and of course they have higher potential return because they’re definitely much higher risk. So if you’re going to invest in a hedge fund or a private equity or some kind of extremely non-liquid high net worth investment, that needs to be money that you don’t need for at least probably 10 years or more and that if you lost it, it wouldn’t damage or impact your actual lifestyle.

Invest only what you can afford to lose. Click To Tweet

The risk I see is people sometimes take too much risk because they want to make up for years of not saving enough or they want to shortcut the process to financial freedom and say, well, why don’t I put all my retirement funds into this very high risk, because this person told me that I could potentially get 15 to 20% a year, and it seems like a slam dunk, so I’m gonna put all my money into this private business or this venture in hopes that it kind of bails me out of my lack of preparation. And I think that’s the biggest risk that most people face, because those investments are not for most people.

What I want to ask you about is currently we are in a very super low interest environment. How does that impact an investor’s outlook? Does it influence my decision whether to go more bonds or more stock or what kind of stock and is there a risk that because we are in such a low interest environment, at some point, you’re going to enter a very long bear market as interest rates maybe come up. And it’s basically for 15, 20 years, it’s not going to be profitable to be in stocks.

So interest rates and stocks, you can’t directly explain the correlation in a way that you cannot assume that if interest rates go up, stocks go down. That’s not necessarily true. I have many, many, our analyst team has many stats that show to the contrary. However, back to the first question, interest rates and investors, interest rates being basically zero right now, and they have been low, but they’re basically zero. And so it’s not good for savers. It’s not good for fixed income spenders, people who are just living off of fixed income investments.

It’s okay for investors though. It’s incentivizing risk. Like you can’t leave your money in the bank anymore and feel comfortable because in 10 years, you’re going to lose over half your value. Inflation is going to keep going up with all the money that’s being borrowed and spent by the government. So there’s no way that we can feel like earning 0% is safe and smart. So interest rates staying low, it incentivizes borrowing and it incentivizes investing in more growth-focused assets. So that’s real estate and stocks. I mean, that’s really where people see the growth in their net worth during these kinds of times.

Bonds become more risky because as interest rates go up, existing bond values go down. And so we’ve had 25 years of interest rates going down. Now they’re basically at zero. So does it make sense to hold and own a massive portfolio of bonds when they’re really at a peak price and they’ve got nowhere else to go but down? I mean, that’s a challenge that people should be definitely looking into with their advisors.

Very interesting. So, what when people are looking for a financial advisor, what is it that the advisors don’t want them to know? What are some of the things that they should be checking out other than the fiduciary part that you already know?

Other than being a fiduciary, I think I would honestly say the biggest thing that shocks me is, you know, if I was going to a personal trainer at the gym, I would not go to someone and hire them if they were very out of shape and had unhealthy habits and ate junk food every day. Right? If I’m going to someone for parenting advice, and by the way, I have five kids myself, I’m not gonna go talk to someone who’s never had kids. Like I want someone who speaks from their own experience.

And so I think there’s probably a lot of advisors out there who don’t have financial success of their own to speak of and who are not entrepreneurs. And so if you’re an entrepreneur and you’re looking for a fiduciary advisor, wouldn’t you want to go to someone who’s also an entrepreneur and can understand and really speak from experience to you giving advice to you in the trenches of starting or running or maintaining a growing business?

And so I feel like some people I’ve known, though they’re great people, these people living off of credit cards and buried in debt and have no investment savings themselves, yet they’re giving financial advice out there to people, which I think they don’t want. And that’s the answer to your question. They would not want their clients or potential clients to know that they really are financially struggling themselves. So to some extent, I’d say seek out fiduciary advisors who are already practicing the things and can demonstrate some financial success to you that you feel confident taking their advice. I think that’s something that we should be more aware of.

That’s a good point. So who have been your mentors? Who did you learn from the most as an entrepreneur?

I’d say Dan Sullivan would be my number one mentor. I would also say many clients have been my mentors in their own way, maybe indirectly as I’ve counseled with them and worked with them and learned from them. I’ve just understood more about how to run a business and grow a business because of them. You know, I started investing in real estate back in 2010 during the recession because one of my clients was investing in real estate. And so I really learned from him the ropes and said, wow, this is a great way for me to diversify my own investments and start buying properties at a discount and renting them out and hiring property managers. And then from books, I read a lot. I read a lot of non-fiction books. I feel like I’ve learned a lot from the mentors, each of those authors. And when your book comes out, I’ll read it as well.

Okay, I can send you a copy, what you call a galley copy, which is already out.

There you go. Thank you.

So what’s your favorite business book that you would recommend for me?

I don’t really have a favorite. I’ve got a running list. I aim to read two to three books a week, and so I’m always keeping track of when I finish a book. Some of the recent ones that I’ve loved, Dan Sullivan, Who Not How, is definitely on my list. Essentialism by Greg McKeown. Greg McKeown actually was the top endorser blurb of my book, which is kind of cool. He’s a big, big influential author. Vivid Vision, I like that book. Deep Work, I like that book. Goals and No Excuses, I think those are both Brian Tracy’s books.

I grew up on Brian Tracy as well. The early 2000s when I found him.

That’s awesome.

He wrote the sales book, Advanced Sales Strategies. It’s probably the best sales book I’ve ever read, even though I’m 20 years old. He also is great on time management. I don’t know if you read Eat That Frog. He’s got some audio cassettes. Well, it’s no longer audio, but audio cassettes and time management. It’s great stuff.

Those are great books. I love listening to his stuff. Yeah. And also the compound effect. I think that was one of the great books as an entrepreneur that helped me understand the importance of small daily decisions and measuring progress.

So that’s right. That’s right. Well, Chad, very good information. So you already talked about your can you repeat the name of your trademark?

Yeah. The Financial Life Inspection.

Financial Life Inspection. Got it. So that’s available through your website, which is on Pacific Capital.

PacificCapital.com.

Pacific Capital, okay. And your book, Stress-Free Money, it’s on Amazon. And in low-interest environment, it’s very affordable on Kindle, so it doesn’t cost an arm and a leg.And it’s definitely-

But Kindle is 99 cents this week, ironically, because I think there was some kind of promotion from the publisher, so.

Yeah, I definitely took advantage of that. It’s good, it’s a really good one. It’s what I like about your book is that one can read the whole thing or you can just read. There are some boxes in the text with the most important quotes and ideas. And then you have the main takeaway. So it only takes 30 to 45 minutes just to read the main ideas. And that’s what I did. Maybe I should read the whole thing. Anything else, any other resources that you would recommend to our listeners or where they can reach you?

Yeah, the only other place would be LinkedIn. You know, I have 30 plus thousand followers there and connections and I’m active there. So that’s a great place to engage. And if you’re interested in content that I’m sharing, I’m sharing there every morning.

So awesome. OK, well, thanks a lot for coming to the show

 

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