Participants:

Steve Wershing
Julie Littlechild
Danilo Kawasaki

Steve:
Welcome to Becoming Referable, the podcast that shows you how to become the kind of advisor people can’t stop talking about. I’m Steve Wershing. On this episode, we talk with Danilo Kawasaki, cofounder, Vice-President and Chief Operating Officer of Gerber Kawasaki, a wealth management firm in Santa Monica, California. Born of Brazilian and Japanese parents, Danilo came to the US at age 17, shortly before enrolling in college. After graduating, he joined SunAmerica Securities in 2002, rising to branch manager by age 24.

In 2010, he formed Gerber Kawasaki with partner Ross Gerber. The firm now has 14 advisors working with over 6,000 families and managing over $650 million in assets. In 2018, Danilo was named to the Investment News 40 Under 40 list of young, top advisors. Gerber Kawasaki is really focused on getting referrals, and our conversation is dense with strategies and tactics. In our study of referrals, Julie and I found that firms with a formal referral marketing system were associated with higher levels of referrals, and Gerber Kawasaki is a great example. When I asked about it, Danilo could access referrals by week with a few mouse clicks, giving him the ability to report an average of over 120 referrals across their 14 advisors per week.

We’ll talk about their willingness to take promising prospects without much in assets to manage, even though they use an assets under management revenue model. Stay tuned till the end, where Kawasaki tells us that one of their firm’s differentiators is that clients get an advisor who actually works. There’s a lot we cover in our conversation. I hope you enjoy our conversation with Danilo Kawasaki.

Danilo Kawasaki, welcome to the Becoming Referable podcast. We’re so happy to have you.

Danilo:
Thanks for having me.

Steve:
I just want to jump into this. You and I were speaking a while ago and we were talking a little bit about the referrals that your firm gets. I wanted to lead with this. I asked you about how many referrals the company gets, and you popped right up there with a number of 120 a week. Two things really impressed me about that. First, it’s a really big number, and the other thing is that you had it so easily accessible. Let’s start there. Your firm, Gerber Kawasaki, gets about 120 referrals a week. Give us a little background on where that comes from and how that happens.

Danilo:
Yeah, sure. I think it’s important to highlight we have 14 full-time advisors, so that number is the efforts of the 14 advisors we have who are seeing clients all week long. Part of my job as the Chief Operating Officer is to track our numbers and make sure that we have always a full pipeline of referrals. I have a system that I’ve used for years to track referrals, also to track what happens to those referrals. Of the calls that they make, how many of those referrals turn into appointments, how many of those appointments ultimately turn into clients.

It’s basically 16 years of data to reach the numbers that we have. Referrals have evolved since I started in this business 16 years ago in many ways, and we can talk about that too. To answer your question, about 120 referrals on average, 14 advisors seeing clients full time. That’s kind of an average week.

Julie:
That’s-

Steve:
And that’s … Go ahead Julie.

Julie:
No, I was just going to say, I mean, it’s a huge number, so I’m so keen to understand how you do that, but I was also wondering if, you mentioned the size of your team. Could you also just give us a little perspective on the business as a whole, what it looks like, what you provide to clients, who you work with, just to give us a little context?

Danilo:
Absolutely. We are an RIA firm, hybrid firm. 90% of our business is through our RIA. About 10% of our business is through our broker dealer, which is LPL Financial. We do comprehensive financial planning, wealth management and we have mainly two programs. We have a wealth-building program that caters to young individuals and young families getting started, and we have a traditional wealth management program. The bulk of the volume does come from a wealth-building program as we have no investment minimums for that program.

Our criteria is simply someone who we want to work with for the next 10, 20 years. A lot of the referrals we get do come in that space. It’s a lot easier to get referrals to everyday people. If you ask around if you know anybody who’s got $50 million to invest, you’re not going to get a lot of referrals. We play the numbers game and we want to help as many people as possible. Through the help of technology we now can service a lot more clients and still provide great service, which is obviously the backbone of our structure here. Through technology in terms of client management software, financial planning software, trading software, we can automize a lot of the process and consequently free up more time for the advisors to do what they do best.

Julie:
Those 120, how are you defining that referral? Is it a name that you get with an expression of interest in learning more?

Danilo:
They’re what we call warm leads. Part of our process, especially when we’re dealing with wealth-building clients is … The reason why a lot of firms don’t work with wealth-building clients, people who are starting out, is because they claim it’s not profitable. There’s a few ways that you can go about to make it profitable, but also keeping an eye on the long term is key for this whole thing to work. When we sit down with wealth-building clients, we go through our process and we tell them that we work on a referral basis. We grow organically through the referrals we receive from our clients. It’s always an exchange for value. Referrals, the old school way of thinking was referral is a form of payment, but you got to think of referral as an exchange for value.

If I provide value to you, if you see how much you are able to improve your situation by working with me, why not introduce me to other people you know who can also benefit from this service? That exchange for value is the key in not just getting referrals, but getting good referrals. We don’t necessarily push for referrals in the first meeting. We want to show value. We want to show that obviously we care, and then the referrals kind of come almost organically. I don’t know if I answered your question directly, but that’s basically the system that we apply here.

Julie:
Yeah.

Steve:
Danilo, when you do that, do your advisors … I’m assuming that some of the enthusiasm behind those referrals is that no minimum amount, that if you’re going to be a good client 10 years from now, we’d like to talk with you, which is … I’d like to dig into that a little bit more too. But first, when you set up the scenario for getting referrals, do your advisors help the clients with language on how to introduce you to folks, or is it just their enthusiasm for what you could do for their friends that drives those referrals?

Danilo:
It’s a great question. I think part of the answer is, there’s no right way of doing this, or another way to say it is, you kind of have to customize this to whoever you’re talking to. Some clients, as you know, are very personable. They’re the COIs. They have no problem talking about you to everyone they know. Other clients are more reserved. They don’t feel comfortable just giving out a name and a phone number. They want to make a proper introduction. You really have to be good at identifying the situation that you’re in, and then tailoring your approach, your referral approach, to that situation.

It might be best for someone who’s more reserved that you ask them to lunch and ask them to take some of their coworkers with you. That’s a way that you can get to know three, four coworkers. Someone who, again, is more personable, maybe works in marketing, understands the power of referrals, that person can basically write a bunch of names and phone numbers for you. We give them a template of an email that they can send to these people. We’re basically introducing ourselves and letting them know that if it’s okay, we’ll be calling them to see how we can help them. I think part of our success is in this customization approach, because there’s no one size fits all when it comes to referrals.

Steve:
When you suggest that your client invite a few friends to lunch, what’s the … How do they set that … What do they tell their friends they’re inviting them to?

Danilo:
One of the referral techniques, I guess you can call it that, that we use is when our clients’ birthdays are approaching, maybe a week before, we reach out to them and say, “Hey, we want to take you to lunch,” not on the day of their birthday, because they’re busy doing other things, but it may be a week before. “We want you to invite a few of your close friends or coworkers to come join us for lunch.” It’s a great way to just get to meet people.

Then again, it’s all based on your client personality and their level of comfort. There’s some clients that I wouldn’t even try that strategy because I know it’s not going to work, so you got to know what works for what type of people. That’s really the key to this whole system.

Steve:
Some other ones that you were suggesting, you have a template for an email that your client can send to their friend, but it sounds like you’re getting the contact information because if I heard you right, it sounded like the email says that you will be reaching out to that prospect. Is that right?

Danilo:
Correct. We always want to have the ball in our court, right? If I go to a networking event and I’m just giving out my business cards, the ball is not in my court, right? Who knows if they’re going to call me or not call me, but if I get people’s business cards, then at least I have the power, the control, of making that call and trying to reach out to people and assess the situation from there.

When it comes to referrals, we kind of think the same way. We want to have a name, we want to have a phone number and an email, so we can contact these people, but at the same time, if the client can make that introduction even warmer, then all the better. It makes that call a lot more comfortable and sometimes even easier. A lot of times our clients are, I mean, our clients are our biggest proponents, right? If they do a good job for us and the referral is interested, a lot of times when we call, it’s just basically a formality to set an appointment. That’s a dream come true for any advisor, when you make a call and the client is ready to go.

Steve:
Sure.

Danilo:
So yes.

Julie:
You mentioned having tracked a lot of the data, so I’m interested … There might be two parts to this question, but you’ve talked about a number of different strategies. You also mentioned that you had a lot of, many years’ data understanding the number of leads in and the conversion rates. First of all, I would love to learn more about what those conversions are if you’re willing to share that, just to give people some perspective on the volume of leads that actually result in a client, and then I’m also interested if you are tracking that data by these different tactics to be able to assess which are having the greatest impact.

Danilo:
Sure. I can kind of summarize it for you. I don’t want to go into too many details about our secret sauce here, but I’m looking at some numbers here too, so I can share with you. The first half of this year, 2018, first semester, we got 3,571 referrals. That’s an average of about 137 referrals a week. Typically, half of those referrals won’t pan out. We can’t get ahold of, they don’t want to be called, so basically you can eliminate half right off the bat.

Out of the other half that’s remaining, typically we can get ahold of about half of that, so 25% of the total, right? Out of the 25% of the total, we actually get ahold of and talk to, mostly 75% of them come for an appointment, 25% for whatever reason, didn’t come for an appointment. Then when it’s all said and done, our success ratio is about 10%. 10% of the grand total of those referrals ultimately become clients and then hopefully give you more referrals so you can always, again, keep the pipeline full.

Julie:
Sorry, was that 10% of the total pipeline or 10% of the 75% of the 25%?

Danilo:
10% of the total.

Julie:
Of the total. Thank you. Okay.

Danilo:
Of the total, yeah. We do have-

Julie:
So you’re converting a lot of the ones that actually get through the door, obviously.

Danilo:
Yes. Yes. If you’re doing the math, we do get a lot of clients. Our firm right now has over 6,000 households as clients.
Steve: That’s with 14 advisors.

Julie:
Wow.

Danilo:
That’s with 14 advisors plus myself and Ross. We both see clients as well. We’re not getting that many referrals per week though, Ross and I.

Steve:
Okay. That brings up another question, and this is … You’re saying so much with so much good information. I know Julie and I are both having questions pop in our heads. This is another one that I have two questions about. One is you talked about your fee model being largely AUM based, but that you’re not trying to, you’re willing to bring in people that don’t have a lot of money to manage now because they’re going to be good clients later, like the old Gretzky admonition of, be where the puck is going. Tell us a little bit about the workability of that. There are a lot of advisors out there that we’ve spoken to who avoid that kind of client because they are afraid that that’s just unprofitable. We can’t make any money if they don’t have money to manage, but obviously you’ve seen beyond that. Tell us a little bit about your perspective on that.

Danilo:
Yeah, sure. We set a complimentary meeting, first meeting, complimentary, and we call it a discovery meeting, which gives us and the client an opportunity to get to know each other and make sure that there’s a good fit. From our point of view, we want to work with someone who has a bright future. Usually they’re college educated, they already have a decent job. Fortunately for us, live in Santa Monica, LA, just to afford living here, you got to be making a decent income. Most of the prospects we talk to are kind of already prequalified because if you’re living on this side of California, west side here, you kind of have to have some means already.

That’s really helpful. Then from there, the wealth-building program, the way it works is we charge a one-time $250 implementation setup fee, and then we charge an asset-based fee of 1% to 1.5% depending on their level of assets. The $250 one-time setup fee kind of helps me with the upfront cost of client services, setting up the accounts, doing all the paperwork and all that good stuff. Then over time, the management fee is hopefully increasing because that client is saving money on a monthly basis, adding money to their accounts on a regular basis, and that’s really where the referrals come in to complement this full circle. By doing a great job and getting referrals from these clients, it allows us to keep the ball rolling. That’s why it’s so important for us to get the referrals so we can continue to see clients.

Obviously, out of those 3,500 referrals we got, some of them are really, really good. That’s kind of the name of the game.

Steve:
That brings up the other part of that question, which is if you’ve got, I mean, based on the numbers you gave us a little bit ago, you’re servicing around 400 clients per advisor.

Danilo:
That sounds about right, yeah.

Steve:
Tell us a little bit about the advice model. How do you work that? How do you keep the service level up when you’ve got that many people to service that are constantly bringing that amount of new folks in?

Danilo:
Yeah, sure. We have a services team that’s eight people. They’re great. They’re really the key to this success. We segment our clients. We set the right expectations from the beginning. There’s no need for you to have quarterly conversations with your wealth-building client who just got started investing and saving money. There’s not much to talk about. Those clients are perfectly happy talking to you maybe once every six months. We actually let them choose how often they want to be communicated, especially in the beginning, because it’s just creating that comfort level. Sometimes we make exceptions and we’ll talk to clients every quarter. Then they kind of see for themselves that there’s not much that has changed. We’re not traders. We’re not trying to pick the hot stock of the day. Their situation doesn’t change that often in the span of three months.

So we’re just setting the right expectations. Then with the right client services team, and with technology, so what we do here that’s really effective is we use social media to communicate our views on a daily basis. If our clients want to know what we’re thinking about the markets, about what’s happening with tariffs or whatever the topic is, we’re on Twitter, we’re on Facebook, we’re on LinkedIn. We write our own content. We send out weekly market commentary. We send out monthly newsletters. That’s the other piece of this puzzle, just communication. Every week we have a wrap-up email that we send to all of our clients with all of our commentary.

My partner, Ross Gerber, has become kind of a permanent financial expert on financial media, CNBC and Fox and CNN and all the different financial channels. That has been great for us because it’s a way for us to disseminate our content through mediums like CNBC and CNN to our clients. Then they get to see it and they can click if they want to know more about why we like Apple or why we like Tesla or whatever the case may be.

Julie:
Those leads I assume are included in when we’re talking about those 120 to 137 per week. It includes those as well, right? From any source.

Danilo:
Actually that number I gave you does not include marketing leads that we generate from different means. The number I gave you is the traditional referral that we have a name, we have contact information. That’s what those numbers are for.

Julie:
Okay. How important is that social media side in terms of driving the overall growth of the firm, would you say?

Danilo:
It’s huge. It’s huge. I was part of a pilot program for FINRA back in 2008, and that kind of opened our eyes to social media for financial advisors. If you go back 10 years ago, Facebook, Twitter, I don’t think Twitter existed, but mainly Facebook was brand new. Most advisors had no idea what that was. Because of this pilot program study, we became engaged with the idea of using social media to disseminate information to our clients and prospects, and use that as a marketing opportunity to compete with maybe better known financial firms or bigger financial firms. Especially after the financial crisis, that has become a significant advantage, I think, that firms like mine have over traditional firms.

You try to tweet or say something on Facebook if you work for a wirehouse, you know? They chop your head off. They cut your fingers. They don’t want you tweeting and sharing your opinion. They have to be approved and this and that. We do it too, but we do it a lot faster. We have obviously rules that we have to follow, but the marketing side, social media has been huge for us.
Steve: Yeah, and you’re doing that within a FINRA organization, which is interesting. A lot of people feel constrained. They see that as an opportunity on the RIA side, but you’re operating still within the FINRA guidelines. What would you say is-

Danilo:
Yes, we’re a hybrid firm, and LPL has been a great partner in understanding that that’s a pivotal part of our marketing strategy. With that being said, some of our advisors do operate under the RIA only.

Steve:
Okay.

Danilo:
So just to make it clear.

Steve:
What would you say the mix is of outbound messaging between social media, email marketing, client communications like newsletter type things? How big a role do each of those play in the overall mix?

Danilo:
The way we see it is kind of a three-pronged approach. We have traditional media, TV, newspaper, magazines, and we’re usually quoted or have an opportunity for an appearance at least on a weekly basis. That is traditional media. Then we have social media, where we have two dedicated marketing social media people here at our office. Their job is to translate our thoughts into posts, into videos, into social media commentary. Then our advisors’ job is to share that content with their groups or friends or whatever the case may be.

At the company level, we send out weekly emails with a summary of everything that we were quoted on and participated in for the week. We do a monthly newsletter called Viewpoint, in which we write our own original content, so no white paper stuff. We write what we think is relevant and what we think our clients want to learn about and hear about. Usually four to five articles per month go in our newsletter. My business partner, Ross, is very, very active on Twitter, sometimes too active. It’s a way for us to share our thoughts and share what we’re thinking. It’s maybe not for everyone, but the strategy has definitely worked and paid off for us.

Steve:
Let me go back to that service model for a little bit. Given that you’re doing this for so many different people, what does a typical engagement look like? What kind of planning process do you take people through and what does a typical review meeting look like?

Danilo:
Sure. For our wealth-building clients, I start talking about the discovery meeting and very comprehensive. We help them with their budget. We help with their balance sheet. We help them with projections. We do preliminary projections on retirement planning, college education, buying a home. Those three goals are typically their main goals. Then using technology through financial planning softwares and client management softwares, we put them in the system and we know client A wants to be called every three months or every six months for a review meeting.

We basically let the computer be our bosses. Three months from now, the computer will remind us that we have to meet with client A. We have an online scheduling system that the client can go in and set the appointment at a time that’s convenient to them. They can see our calendar and see what’s available. All those little things save us so much time and allow us to service more clients. One thing that’s kind of my pet peeve in the industry is the stereotypical financial advisor who, 20 or 30 years in the business and all they want to do now is play golf and travel. I just don’t get that. That’s not my goal. My goal is not to free up my time so I can play golf. I love golf. I’d love to play more golf, but I’m here for my clients.

We’re busy. I’m not going to lie. It’s not easy work. We’re busy. We’re in the office every day seeing clients, review meetings. We do our own investment management, so we don’t farm. We don’t use third-party money managers. We have a research team. We have an investment committee. We discuss and follow and track investments very closely. We’re busy. I’m not here to tell you that my motto is put everything on autopilot so I can go take a three-month-long trip to Europe. I’ve never done that in my life.

Steve:
Sure. You’ve been out there, you’ve said in public, or at least you said it to me, one of your differentiators is that your clients get an advisor who actually works. I could see that raising a few eyebrows in the business.

Danilo:
All you got to do is go to one of those industry conferences and you see every other advisor wearing a golf shirt and they’re talking about how they’re going to go play golf after the meeting or during the meeting. It’s not what we’re here to do. I’m sorry, but I’m here to service my clients. I love what I do. I think if I work eight hours a day effectively, that’s plenty. I don’t need to kill myself, work 14, 16 hours a day. I’ve done that in the past, in the beginning of my career. I don’t need to do that now, but I’m definitely here for my clients.

We have our core values, Gerber Kawasaki core values. We have seven core values and one of our core values is we’re going to respond to every client’s request on the same day. Even if it’s to say, “I can’t get to it. Can you wait until tomorrow?” But we’ll let you know that we acknowledge that we received your email or your call or your message. We’ll get to it hopefully within 24 hours, but no matter what, within the same day, we’ll have an answer back to our clients.

Julie:
I was just going to pick up on that, because you’ve talked about so many different things where you clearly define standards and a service plan. Are all of those standards of the entire firm and therefore executed consistently by every advisor, or do advisors have different ways?

Danilo:
Yeah.

Julie:
So you really set that at a firm level.

Danilo:
Absolutely. A lot of it is centralized. A lot of it is training. One of the things that I think is pretty cool too about our firm is all advisors, all 14 advisors were hired and trained by me and Ross from the beginning. We didn’t hire anyone from another firm with experience. A lot of them were brand new to the business. Our team has been together now for a long time. That kind of creates a unique situation for us too because it’s become more than just a place to work for. A lot of us are friends outside work. I married my business partner. I was the minister for his wedding. That’s the type of relationship that we have here.

Julie:
You know, when you said, “I married my business partner,” it sounded like something different.

Steve:
That’s what I was thinking.

Danilo:
I mean-

Julie:
It’s not a strategy we’re necessarily suggesting, but whatever works.

Danilo:
No, no. We’re good friends. In a way we are married to each other because I probably see him more than my wife.

Steve:
Sure. Well, it works for, it works for Norm and … Anyway. One of the things you’ve dwelt on a couple times is the advantage you get through technology. What CRM system do you use?

Danilo:
We have proprietary systems that we’ve created. That was another thing that we, I don’t know if learned or if it was just the way it was supposed to be for us, but we hired very early in our firm life a chief technology officer to work on our properties, website, app, systems. We’ve tried to use third-party vendors but there’s always some customization that you lack because everything has to be standardized. Some of the stuff that we use comes through our broker dealer because of integration with the systems that we have. Some of the stuff that we have we created ourselves.

Steve:
Okay. You built the CRM from the ground up or did you build it on another chassis?

Danilo:
It’s mostly based off Microsoft Outlook, but yes, a system that we have.

Steve:
Interesting. Given that you’re a young practitioner, a young firm and leverage these technologies, what do you think is going to be the biggest game changer in the next 10 years?

Danilo:
I mean, it’s definitely technology. It’s definitely using technology to our advantage. You can see that, for example, with the robo advisors. Three years ago, people were afraid that the robo advisors was going to take their jobs, was going to replace human beings. Maybe not all, but most of these robo advisor firms have shifted their business model to include humans, to include human advisors. The technology of managing a portfolio automatically is a great technology, but you still need a person to talk to clients, to hear about their problems and understand the emotions behind their decisions. That’s not going to change. Creating efficiency through technology is I think the key to the next 10 years, so firms can take on more clients.

I guess the standard is, oh, 100 clients, 100 million and I’m done. If that’s your goal, that’s great. I don’t think it’s a hard goal to achieve if you work hard at it and you put in your time. You can create a very successful practice doing that. Gerber Kawasaki, we want more. We want to be a prominent firm in the financial industry by having a wealth-building program, by having a wealth management program. We’re now working on a ultra-high net worth program. Some cool things that we’re working on. I can’t say much about it yet, but the goal is to have those three divisions so we can really cater to everyone and have dedicated teams specializing working with each group of people.

Steve:
Interesting. That sounds like a great place to wrap up. It’s been really fascinating. There’s been so much that you’ve mentioned in here, Danilo, that I think is really going to be helpful for the listeners. Thank you so much for joining us on the podcast today.

Julie:
Yeah, thank you.

Danilo:
Yes, absolutely. You guys got me excited talking about my firm.

Julie:
That’s a good thing.

Steve:
Excellent. Good. I’m glad you got a benefit too. Danilo Kawasaki, thanks so much for joining us.

Danilo:
Thanks for having me.

Julie:
Hi, it’s Julie again. It was great to have you with us on Becoming Referable. If you like what you’ve been hearing, please do us a favor and rate us on iTunes. It really does help. You can get all the links, show notes and other tidbits from these episodes at becomingreferable.com. You can also get our free report, Three Referral Myths That Limit Your Growth, and connect with our blogs and other resources. Thanks so much for joining us.