EP 58 | Gary Zimmerman on Looking Out for Your Client’s Financial Interest

David DeCelle  09:31

I think it's understanding that why, but in addition to that, making sure that your why has both that professional portion to it, as well as the personal portion, so that everything that you're doing actually matters as opposed to feeling like you're on this ever-going wheel that you can't get off, but providing for clients that you're serving, the family that you have or going to have, helps you get through those tough, long, unshowered days.

 

Gary Zimmerman  09:58

Yeah, and I mean, it was a very sort of calculated analysis and you give up a lot, right? Spending your early and mid and late 20s in an office almost all the time. There's certainly a lot that you miss out on. And the sort of personal… that I made was, I'm young, I don't have any kids now; if I work really hard right now, I'll have more flexibility later. And it was sort of this classic exercise in delayed gratification; sort of the marshmallow test that they give kids when they're applying for preschool. Will Johnny take one marshmallow now? Or will he forego one marshmallow now to get two marshmallows later? And that marshmallow now is really tempting. And there were definitely — I mean, I missed friends’ weddings, I missed all sorts of important events. And there are certainly some regrets looking back on that. But overall, the learning opportunity and the people I met, that's something I wouldn't trade.

 

David DeCelle  10:50

There's a podcast that I listened to recently, that really helped change my perspective, from similar to you, whether it's missing certain events or a night out, or whatever it may be. I always used to view that as a sacrifice. And I think that one thing I try to be really, really good at is be cognizant of the words that I'm using in my head or saying out loud, making sure that they have a positive connotation, as opposed to a negative connotation. And I listened to a podcast recently by Andy Frisella, who I listened to a lot of his stuff, and he had just put it into good perspective where rather than thinking about the fact that you're sacrificing — because it's, I don't think that that's sustainable, you're going to lose that battle over time — to shift your perspective to no, I'm investing in whatever it is that I'm pursuing. So just that small shift from sacrificing to investment can help you go much longer, knowing that it's all for something as opposed to all for naught.

 

Gary Zimmerman  11:49

Yeah, absolutely. And you know, the interesting thing about the early years as an investment banker is that it's really an apprenticeship. It's an apprenticeship model, and the value of what you're being taught and the experience you're obtaining far exceeds anything they could pay you. And I found that the people who sort of entered that field because they were interested in their remunerative aspects of it washed out pretty quickly. Because there's no amount of money that can justify those personal sacrifices, if you think of them as sacrifices. If you think of it instead as a continuation of my education, then you want to show up to work; in the same way you want to show up to class, you're there for a reason. So yeah, I think you're totally right, David, it's really a function of perspective. And a lot of those sort of early habits or ways of thinking then carry through the rest of your career.

 

David DeCelle  12:37

I agree. And I've said this multiple times on other episodes, as well, which is you're either green and growing, or you're ripe and rotting. I’ve got to remember who I got that from, so I can give them credit moving forward. But I think, both learning within your profession, learning outside your profession, being interested in other folks, as opposed to trying to always be the person who's interesting; all those things combined together, I think helps keep you alive, and be more and more willing to make that investment in your career and your personal life, because you always get that sense of progression and accomplishment, every step that you take along the way. So you had transitioned from a typical sort of W2 and incentive sort of role; you then made the entrepreneurial leap. I'm sure what didn't happen, and correct me if I'm wrong, is you had an idea, and then you jumped ship the next day. So I'm sure that there's been, or there had been, a lot of thought and decision making and calculation and going about it the appropriate way to where it was a calculated move, as opposed to just jumping off a cliff. Help me understand a little bit about that transition. So before we get into the problem that you're in the midst of solving, how did that transition look? Because that's a big change.

 

Gary Zimmerman  13:50

You know, I always joke that the difference between bankers and traders is that traders love risks, and bankers are naturally very conservative and don't like risk. So this was not a sort of overnight, oh, I think I'm going to go start a company. I actually really had no interest in starting a company. What happened was, if we go back a bunch of years in the middle of the financial crisis, the bank where I worked was really on the precipice of failing; and it struck me that my cash that was sitting in that bank might not be safe, because the FDIC only insures you up to a certain limit. And above that, you're basically an unsecured creditor of the bank. And so at that moment in time, I was looking for a better way to manage cash. And the bank was pitching a sort of brokered deposit solution, which is basically what a lot of broker dealers use to try to convince clients to keep all of their assets with them. And I studied it in detail, and I noticed that it was actually inherently risky. So this thing that was being pitched as risk-free, actually wasn't perfectly risk-free, and it also had some significant liquidity risks associated with it. And I said, Gosh, the reason I hold cash is for safety and liquidity. This broker deposit solution doesn't really satisfy me on either front, and so I was looking for a better way to manage cash. And I came up with something much simpler in concept, which is just, I'm going to keep all my cash in my own bank accounts, but I'm going to spread it across multiple banks so that I know that even if one bank were to fail, I'll eventually get my money back. But in the meantime, I have liquidity at other banks as well. And so I opened up a whole bunch of bank accounts; at the time, I opened up online savings accounts, because I happened to be in Japan, and so I couldn't just walk around the corner to Chase or Wells Fargo and open up more accounts. And then what I found is that these online banks — there were two characteristics of the online banks. I mean, they were FDIC insured, just like any other bank, but they offered higher interest rates than the brick-and-mortar banks, because they had lower operating costs. Sort of think Amazon 1.0, right; I can sell a textbook at a lower price, because I don't have physical stores. But the other thing I noticed is that the online banks were changing their rates all the time. And I said, well, gosh, an online savings account, and any savings account, as long as it's FDIC insured, is really a commodity, because the underlying risk is really just the risk of the federal government. And so I began actively managing these bank accounts to sort of maximize yield while keeping everything FDIC insured and fully liquid titled in my own name and my own accounts. So that was kind of my strategy. I don't think I was the only one doing that; there's nothing terribly innovative about managing cash that way. But fast forward a bunch of years, and I realized that this was taking up an awful lot of my time, checking interest rates, moving funds around, waiting for them to clear, moving them again. And I started thinking about whether I could automate this process, because I realized that in the last couple of years of actively managing cash, I made an extra $40,000 or so of incremental risk-free return that was really just found money. And I said, Well, you know, this is sort of in finance, you'd call that alpha — incremental return without incremental risk. And in finance, you're taught to look for these sorts of opportunities, and they're rare and elusive. And typically, the only sort of pure opportunities are available to institutional investors, but this one was available only to individual investors. And so the key to making it all work was to create technology that took this process that I've been doing manually and make it really easy and let computers assist; and that in turn, would make it secure and scalable. So I spent a bunch of months in sort of my free time, evenings and weekends, researching this market, and I was really curious. I said, How can it be that this market — that at the time was $13 trillion in size, today it’s $16 trillion in size — how could this market for cash be so inefficient. And what I found was that it was inefficient because it was in the best interest of the large banks and broker dealers for it to be inefficient. The fact that you'd open an account at Wells Fargo and put half a million dollars there and earn one basis point in return and not ever question it, or the fact that if you go to any of the major broker dealers, their cash sweep accounts pay one basis point — that's 1/100 of 1%. And the deeper I dug, the more that I found that the broker dealers actually make the majority of their profit based on earnings spread on client cash. So the whole dealing in stocks and bonds was almost a red herring, that it was just an excuse to gather client cash, and that's actually where they made the bulk of their profit. And so I said, Gosh, this is really interesting. How can it be that here's this multi-trillion-dollar market where individual investors might be losing 50, 100, $150 billion a year of interest income, which could be rightfully theirs if they just paid a little more attention to it. And so anyway, the more I sort of dug into this, the more fascinated I became by this industry and the massive opportunity. And what was sort of burning at me was, can this inefficiency be solved? And so I really wasn't looking to start a company. I was just curious, A. why does this inefficiency exist and B. can it be solved. And so MaxMyInterest, which is the company we ultimately built, was really an outcropping of this single desire to figure out and to prove that we could take a very large multi-trillion-dollar inefficient market and make it more efficient for the benefit of individual investors.

 

David DeCelle  19:03

Cool. So that's a nice pivot, and kind of what I heard from you throughout that was, you were in the midst of doing your best to solve your problem, you figured out a way to solve it, then you wanted to make it more efficient. And then you probably thought to yourself, Well, I'm not the only person that may need this, so how do we build a larger solution? So out of your own curiosity and problem solving, realized that something could be done for the masses. So I think you did a good job through that explanation, Gary, to discuss the problem that you're trying to solve for the consumer, which basically is the interest rate as well as the amount that's insured in case a bank goes bust. So what I want to get some understanding on before we talk about the solution itself, how is this a problem for financial advisors? So if I'm a financial advisor, why is this relevant to me? Outside of me as a consumer, of course.

 

Gary Zimmerman  19:58

So when we begin, the classic first-time founder mistakes, right? So we had looked at the market, initially we looked at sort of what I defined as the bottom 98% of the top 1%. That was our initial target market: bankers, lawyers, traders, consultants, business owners. And so the idea was really simple, which is that small group of people, that slightly less than 1% of the population, was sitting on about a trillion and a half of cash and cash equivalents. And that seemed like a big enough market to start. So we built the solution, filed for patents, made it public, didn't do any advertising, just sort of quietly released it. And what we found is that people were coming to the website, and we had added a little button on the website that said, ‘tell your financial advisor about Max.’ So people were clicking on the button, and they were typing their advisor’s name and sending information to their client and, or to their advisor, and nothing was happening. And we said, well, gee, this is really curious. We have all these interested people, they reach out to their advisors, and nothing happens: why? And so we spent some time with David Laibson who is a behavioral economist at Harvard. And we were trying to dig into, what is the gap? And what we realized is that the client was reaching out to the advisor, and they were saying, hey, David, what do you think about using Max for my cash? And the advisor said, I don't know, I've never heard of it. And that was the end of the conversation. So we realized we made a colossal mistake, that we were reaching individuals before educating the advisors. So what we decided to do was, we started going to financial advisor conferences. Now, we didn't have a product for advisors, we weren't there to sell anything to advisors. To this day, we don't sell anything to advisors. We just wanted to meet with financial advisors and get their reaction to this product that we built and see what they thought about it. So the first conference we went to was a NAPFA conference. And NAPFA is great, because it's all registered investment advisors, they’re fiduciaries,  they care about their clients, they just want to do what's best for them. And we set up the most pathetic looking booth you've ever seen. Because we weren't there to sell anything, we just wanted to meet advisors. And one of the founders of NAPFA came by the booth, and she said, Oh, who are you? I’ve never seen this company before. And we explained what we did, and she said, That's the single best idea I've heard in 30 years. And she grabbed a bunch of our little brochures, and she ran around the conference, handing them out. So next thing we knew we were five people deep at our booth, the entire rest of the conference. And so we took the opportunity to talk to advisors and show them, Look, here's what we built, what do you think, and we got two reactions to Max. The first was, as a fiduciary, now that I'm aware of this, I can't not use it. So that made us feel really good. We're like, okay, we think we're onto something. But the second reaction was all the more telling. They said, this makes all the sense in the world, but my average client portfolio is only 3% in cash. So why do I care? And that was the big aha moment for the company. Because all of our research, if you look at like the Capgemini World Wealth Report, show that the average high-net-worth household was keeping about 23% of their assets in cash. So that begs the question, where's the other 20%? And of course, the answer is, clients don't keep it in their brokerage account. They know whatever they bring to the brokerage account, the advisor is going to deploy. But people are risk averse, so they squirrel away hundreds of thousands to millions of dollars in cash in typically large bank accounts, where they earn nothing, and they're not fully insured. And so what we realized is that if we could build a solution for advisors, where they could introduce Max to the client, and then the client could grant the advisor visibility over the balances, now the advisor would see all of that held away cash. And it might still be held away, but once the advisor had visibility, that would then prompt broader discussions around risk tolerance and financial planning. And, why are you holding so much in cash? Is there an event you're saving up for? Are you concerned that I'm being too aggressive in your portfolio? And often, we found that advisors were then able to help clients bring some of that held away cash into the portfolio and deploy it into other higher beta strategies that would accomplish what the client was looking to accomplish. So it turned out that Max inadvertently ended up as an AUM growth tool for advisors and enable them to give better, more holistic advice and just deepen the relationship with the client. And frankly, show the client how they could deliver value in a way that no one else had for them before. We get a lot of advisors reaching out to us who are breaking away from the existing wire houses. Maybe they were an advisor at Morgan Stanley or Merrill Lynch or UBS, and now they are putting out their own shingle and setting up shop on their own. And the big challenge for an advisor — there are a lot of challenges for an advisor in making that transition, there's a whole tech stack they need to figure out, and getting expert advice along the way to figure out all of those elements is really important for making a smooth transition. But after you've done all that planning work, now comes the hard part where you have to pick up the phone and call your clients and explain why you've just left the large firm that they've heard of, and who sponsors the golf tournament, and why you're going out on your own. And what we've heard from a lot of advisors is that the single best way to explain that to a client is by using cash as an example; and you say look, all of these years that I was your broker at such and such brokerage firm, you were stuck with the firm's captive cash solution because that's where they made all their money. Now going out on my own as an RIA, as a fiduciary, I'll be able to deliver the best cash solution to you in the market. In fact, with MaxMyInterest, our top rates are better than the best rates in the market. And then from there, they can extrapolate and say, Look, if I can do this for you with cash, imagine what I can do for you having this open architecture platform as an RIA. And so it's just a really easy, tangible example for a client to understand, gee, you're creating alpha, you're creating newfound value for me. So that's sort of how the whole advisor element of what we do emerged.

 

David DeCelle

So do you find that the majority of your business now comes through advisors to their clients, or it's still coming from the consumers, and the consumers are bringing this to the advisor? I guess, where do you see the majority of your business coming from?

 

Gary Zimmerman 

Yeah, it's hard to know with certainty, because we don't have perfect information. But best estimate is that about half of our business now comes through financial advisors. And we've got advisors from about 1200 wealth management firms across the country who have registered to use Max with their clients. So yeah, we think that's about half the business. We actually don't advertise, so the other half of the business tends to come from word of mouth or the Journal and the Economist and places like that. But a large, very large part of the business does come from financial advisors. And the interesting thing about that is that we don't pay for distribution. We really wanted to create a platform where there were no conflicts of interest, which is why it's resonated so well with RIAs. So we know that RIAs are bringing this to the client solely because they believe that it will be better for their clients. And the nice sort of side effect of that is that by gaining greater visibility in the client assets, they can provide more holistic advice and grow AUM along the way.

 

David DeCelle

Awesome.

 

Patrick Brewer  26:50

Hey, Model FAs, I know you're enjoying this conversation. But I wanted to take a quick break to talk to you about the Model FA Accelerator. This is a unique collaboration between us and you, where we help you build a financial advising practice that you can be proud of. We focus on the foundational concepts around how to pick a niche or a specialization, how to price your services, how to construct an offer that people are going to buy, and then how to market it and sell it in a way that will get people to sign on the dotted line and become clients of your firm; all while giving you the information to scale, and set up workflows and operational processes that will allow you to reclaim your time and build a practice that doesn't run you. So if you'd like to hear more about that, go to www.ModelFA.com/accelerator or www.ModelFA.com. Hover over Work With Us and click on Accelerator. Hope to see in the program.

 

David DeCelle  27:40

I don't know if you track this data or not, or have some sort of gut feel per se. But let's say I'm an advisor, and I'm managing $100 million. Would you just use that 20% rule and say that there's probably another $20 million out there in cash? Is that kind of how you determine it?

 

Gary Zimmerman  27:58

That's right. And you know, we've seen this sort of uniformly, top to bottom across firms. So everywhere from the individual RIA managing 100 million out of his or her garage, all the way up to firms that are managing 80 or 100 billion in either client AUM, and they all sort of come up with the same estimates. What's interesting about it, though, is that every advisor wants to believe that they see all of their clients’ assets, right? You really want to believe that because you work really hard on developing relationships with clients, and they share all sorts of intimate details about their lives with you, and they trust you with managing their assets. But almost uniformly, we found that in as much as the advisor thinks they've seen everything, magically, when they start using Max with the clients, more money appears out of the woodwork. And it's interesting. I mean, the idea of aggregation has been around for more than 20 years. I remember when I started my career at Merrill Lynch, they rolled out Yodlee as an aggregation tool. But the problem with aggregation is that the dynamic was always the adviser going to the client saying, Hey, would you do me a favor and link your external accounts? And the clients are skeptical. They're like, why am I doing that for you? What are you going to do with the data? Are you going to start billing me on these assets? And even for the clients who did go through the effort of entering in all their logins and passwords with some third party and sharing that data, a lot of the aggregation technology is still pretty bad, and so the links break. Now you just have stale data and it sort of falls out of favor. It's sort of like setting up a CRM system that you then don't use; if you don't use it, it's not really worth anything. So what we did is we took a very different approach. We sort of turn the tables 180 degrees and said, rather than advisors reach out and ask their clients to do them a favor, why don't you as an advisor do a favor for your client. Say, look, I'm going to help you earn more on your held away cash, the stuff that I don't even manage; it's just purely a favor for you. And in the process, with client consent, the client can share that data back to the advisor, which the advisor can then flow into planning. So we recently did an integration with Envestnet MoneyGuide so that Max balance data can flow directly into financial plans. Really simple. And we integrate into Onion and Morningstar and other platforms. But what we found was that that dynamic advisor doing favor for client was much better than the dynamic of advisor asking the client to do them a favor. And so what you end up with is aggregation without the aggravation, because in the Max system, with all the new savings accounts that you open directly in your own name, there are no logins and passwords. We have direct, API connectivity into the banks, so things don't break, and it becomes a much more stable, simple solution for the client.

 

David DeCelle  30:37

So tell me a little bit more about that. So you're saying, and maybe I'm misunderstanding, but are you saying that they don't have a separate login and a separate portal through Max; it's actually linked up to their bank? Am I understanding that correctly? So they just log into their normal bank account, and then they see something there?

 

Gary Zimmerman  30:53

Yeah. So the way that Max works is we often describe it as sort of a hub and spoke system. So if you think about a bicycle wheel, the hub is the center, and then the spokes are sort of radiating out from the center. So the way that Max works is that a client starts with their existing brick and mortar checking account; maybe it's at Chase, or Wells Fargo, or B of A, or Schwab Fidelity. And our thought is that that's inherently a very sticky relationship. No one wants to switch banks. But what they are willing to do is supplement their existing banking relationship. They could say, Look, I'm a Chase customer, but I realized that these online banks offer higher yield on savings, and so I'll mix and match a little bit. So they keep their core relationship with Chase. We help them open up these higher yielding online savings accounts. And we built something called the Max Common Application that was modeled after how students apply to college. So the idea is you can fill out a single form, or through our red tail integration, the advisor can actually just click a button in their CRM and fill it out for you. But you basically fill out a single form, check the boxes next to all the banks where you'd like to open new accounts, and in 60 seconds, now you have a whole bunch of new bank accounts. And they're all open directly in your own name. So you can go to those bank websites, set up your own login and password, and login and interact with that bank directly if you want to. But what the Max platform does is help you manage all of those accounts in a single place. And you simply tell our software how much money you want to keep in that Chase checking account, and then all of the excess funds are able to flow to your higher yielding online savings accounts. And what Max will do is it will propose allocating them in an optimal manner. So FDIC limit is $250,000. So your first 250k would go to the highest yielding bank. If you have more cash than that, the next 250k would go to the next highest yielding bank, and so on and so forth. And then what we do is we monitor interest rates daily. And as those banks change their rates, we help you reallocate your funds from bank to bank so that you're always earning the highest yield while keeping everything insured. So to answer your question, fundamentally, these are all your own bank accounts; you have direct access to them; you can transact them directly. But Max is sort of like a communications layer that sits atop those accounts and helps you coordinate the optimal allocation of your cash on an ongoing basis.

 

David DeCelle  32:59

Understood. Now, do you have any data or insight as a relates to, again, someone has $100 million that they manage on behalf of their clients; there's 20 million in cash that's sitting out there. Do you have any idea or intuition around how much of that 20 million ends up actually getting invested, so we can get an understanding of what their lift is, in terms of AUM?

 

Gary Zimmerman  33:23

We don't have great data on this. But I remember early on an advisor would say to us, okay, I've got a million-dollar client, and I think they've got $100,000 in cash outside of the portfolio. And so they would invite them to use Max, and next thing you know, the client, it turns out has $600,000 in cash. Okay, well, that's kind of a nice surprise. And then the adviser would say, Okay, well, now that I've discovered these assets, I actually think some of that cash could be better deployed. So we're going to move 400,000 of that into the portfolio. And the advisor would say to us, aren't you upset that we've just, we've just taken $400,000 away from you? And our answer is no, we're not upset because, net, we're still up 200k.

 

David DeCelle  34:06

I was gonna ask that, because that conflict of interest potentially.

 

Gary Zimmerman  34:09

Regardless, we don't really care. The market for cash is so large, all we really want is what's best for the client. And we purposely structured our platform that way so that there aren't any conflicts of interest. So we don't accept advertising, we don't accept pay-per-click, we don't accept payment per dollar of deposit. We really wanted to create a platform that was entirely consistent with the fiduciary standard. And our mission in all of this — remember, I didn't start this company because I wanted to start a company. I started it because I was curious as to whether we could solve this inefficiency in the market. And so for us, the more people who are using Max, and the more that they're optimizing through the system, and the more we're able to begin to create a more competitive marketplace among these banks and reduce cost for the banks and drive rates up further, the better it is, and that's how we measure success. So we never promote, oh, you should hold more cash. We're not advocates for cash is an asset class. Cash is actually generally a pretty bad asset class, right? I mean, it rarely keeps pace with inflation. Warren Buffett likes it a lot, because it's inherent option value, and there are good arguments to be made there. But no one's ever going to retire on the growth of their cash. But all else being equal, if you have a choice between earning 60 basis points on cash or earning six basis points on cash, when you rather earn 10 times more? It's literally found money. So that's the way that a lot of advisors think about it is to say, look, it's an asset discovery tool, it's going to boost yield, it'll give my clients greater safety, they still have full same-day liquidity because it's all just sitting in their own bank accounts. And I look like a good guy because I've done what's best for my client.

 

David DeCelle  35:44

What I like about it, too, is that — so one of the things that we teach over at Model FA and coach or consult on, whatever you want to call it, is what we call the exponential relationship system. And the whole idea behind it is rather than going out and being a salesperson, how about you do your best to get the prospect to buy? And in order to do that it's all about intentionally, strategically, thoughtfully advancing the relationship. And once they become a client, it's okay, how do I get them from a new client to a good working relationship to a loyal client all the way to a raving fan. And it's our belief that in order to do that, it's advancing the relationship in a professional manner, on the personal side of things as well. And I feel like this could be used as, quite frankly, an excuse to have another touch point with the client that's value driven, as opposed to just a check in with no substance. You're actually bringing something that's new and innovative and different and something that they haven't come across before. And if they happen to be in a competitive scenario, and they've discovered this before the other advisor had, it’s a good differentiator as well, in a prospect scenario.

 

Gary Zimmerman  36:53

Absolutely. I mean, I think an RIA should be able to win against a broker dealer 100 times out of 100, with this one solution as an example of the difference between an RIA versus a broker dealer. I mean, this is as clear and plain as day. Other things are harder to compare. Which funds do you have access to? Which planning tools? But when you can say to a client, you understand cash, right? That's really simple. And if you stay at the broker dealer, you're earning one basis point. And working with an RIA, we can find you better than the best rates in the market through newer solutions and solutions that aren't rife with conflicts of interest. If that's not enough to persuade a client that the RIA model is better for them, then I'm not sure what it is.

 

David DeCelle  37:35

Now help me understand. Are people in the broker dealer space not able to use this because you kind of lean more into the RIA space? So help me understand that a little bit?

 

Gary Zimmerman  37:43

Yeah, when we first started, we actually thought that broker dealers would be a very logical place. And we quickly learned that and they were quite frank with us, they basically said, Look, we make all of our money based on spread on cash. So if we were to roll this out across our broker dealer, we would lose a lot of money. And I was actually in one meeting, I won't name the broker dealer, but one of the people in the room turned to the other person in room and they said, at such and such firm, what do we care most about? And I'm sitting here in the room, so I'm expecting they're going to say the client, right? And they said, making money. Now look, they're for profit businesses, I'm not shaming them over that. But the reality is that if you're not looking out for your clients’ best interests, it's hard to see how you can be a good business long term. So, we quickly sort of figured out that the broker dealers were only going to do this when there was competitive pressure that they felt they had to do this, but they were going to try to hold on to that spread on cash as long as possible. And so that's when we began working with RIA, and there we found a very welcoming home. But it's interesting, even the RIA custodians have been quite welcoming. And you would think that they wouldn't be because they also earn spread on cash. But they realized that this is such an important asset growth tool. And it's so differentiated that they benefit in other ways. So it's been really eye opening to learn about the industry and the differences in firms. We do have advisors from broker dealers who use Max with their clients, and maybe they do it a little bit quietly. We would argue it's not selling away, because it's just cash. It's not security, and clients hold cash outside anyway. And so we've seen some advisors or broker dealers use this to great effect. But the vast, vast majority of firms or advisors using Max are from registered investment advisors rather than broker dealers.

 

David DeCelle  39:22

Cool. Well, I appreciate the overview of that. I think that if I boil it down from the advisor’s, or for the advisor’s perspective, essentially, you have a tool that, based on the various benefits that we've already gone through, gives the advisor more transparency of the client assets to, quite frankly, do a better job planning and through that planning, obviously, increase their revenue because they're bringing more AUM in, assuming that they're able to get the client, it's in their best interest to reallocate some of those funds to actually being invested. So I think it's a cool tool. I think it's something that helps develop additional business with both new clients and existing clients. So I appreciate you spending some time going through that. Shifting slightly — and by slightly, I mean shifting a lot — so as mentioned on our call, and for everyone who's listened to our episode so far this year, it's important for me personally to promote learning in our industry. We had used a saying earlier in this episode about you're either green and growing, or you're ripe and rotting. And so one thing that I'm doing is asking all of our guests what their favorite book is, or at least one of their favorite books. So Gary, you had mentioned that a book by Michael Lewis, Liar’s Poker. I actually haven't consumed that one, but will add it to my list. Tell me a little bit about what that book is about and why it's had an impact on you, or how it's had an impact on you.

 

Gary Zimmerman  40:42

Sure. So Michael Lewis, I think, is one of the best writers out there, at least within the realm of nonfiction, and he's written a number of books. You might be familiar with The Blindside, Moneyball.

 

David DeCelle  40:55

I've watched the movies. I haven't read the books, but I'll have to get into it.

 

Gary Zimmerman  40:58

Yeah, so the movies are great. And I actually, I read Liar’s Poker for the first time in college, and it was a real sort of eye opener. And it was around the time that I was thinking about going to Wall Street, and it's just so artfully written. But it basically tells the story of the emergence of the mortgage bond market in the 1980s. And how John, good friend who ran Salomon Brothers, which was the most profitable Wall Street firm of its time, and how sort of Lewis Ranieri basically invented the market for mortgage-backed securities and the impact that that had on the market. And it's a fascinating story. And it's interesting, because now I've been reading a bunch of the Michael Lewis books to my son. We read Flash Boys, and The Big Short, and then I read him Liar’s Poker, so I'm sort of reading them in reverse chronological order. And he's 12, but he's just soaking it up. I mean, he's just fascinated by this. And so then last weekend, we watched the movie version of The Big Short, which is pretty good. Not — you know, nothing's ever as good as the book. But what sort of struck me is how everything old is new again. The same issues that were sort of impacting the bond market in the ‘80s, when the mortgage bond market first emerged, reoccurred again during the financial crisis, which is what The Big Short is about. And you even see a lot of those themes now recurring, as well, as these new asset classes are emerging. There's this sort of great quote in the book where they talk about how in a period of constant innovation, the young people assume power, because they become the experts; something new emerges. And older people, to your point, are you constantly trying to learn new things? Or are you just sort of leaning on the past? So crypto is actually a perfect example. We were talking about that the beginning of the conversation where the young people are the experts and the old people are struggling to catch up. And the same thing happened in the ‘80s in the emergence of the mortgage bond market. And there's this great quote in the book from Warren Buffett that says, “if you don't know who the fool is, you're the fool.” And I was thinking about that a lot during the whole GameStop frenzy earlier this year. And so a lot of these patterns, I guess Mark Twain said history doesn't repeat itself, but it rhymes. There are a lot of these patterns that you see over and over again. The more market cycles you live through, the more you can see them recur. And that's why I think one of the most important aspects of a financial advisor is one who's lived through several market cycles, because they understand the visceral feeling. What does it feel like to be in a market where every day there's a new top of the market, which is sort of where we are now? What does it feel like to be in a market beset with fear? Which is where we were in March of 2020, as COVID was spreading, and the market dropped to 25 30%. And understanding those human emotions and being able to hold the hands of a client and keep them steady through those emotional swings is a key, key feature of a good advisor. So anyway, the main thing as I think about this book is, back to that theme of everything old is new again, and there's a lot that we can learn from history. And it's a fascinating read. It's got lots of sort of great, funny stories of people throwing phones and books and dumping garbage on each other's dust and all the crazy shenanigans that go on within a bank. But fundamentally, it's a book about human nature.

 

David DeCelle  44:04

Love it. I'll have to check that out. And once I do, I'll let you know my thoughts, but I appreciate you riffing on that for a little bit. So Gary, before we close out and head to the after-hours portion — so MaxMyInterest, obviously they can just Google that, they'll be brought to the website. They want to connect with you personally, what platforms are you utilizing, and how can they find you?

 

Gary Zimmerman  44:23

Yeah, I mean, we've got a really active customer service department. So if anyone's on the website, there are ways for advisors to interact with us. If you go to the main MaxMyInterest website, there's a tab at the top for financial advisors; they can click through and reach out to us that way. Our customer support is [email protected]. They'll get right back to you; we’ve got an amazing team there. And then we're less active on social media; we've got Twitter is just @maxmyinterest is the best way to find us. But we love to engage people; we love to engage with our customers and advisors because we're constantly learning from them. And if I look back on all the things that we built for advisors — the advisor dashboard and all of our integrations and the new red tail integration with the CRM and a sixty-second enrollment — all of that stuff has been built based on suggestions that came from advisors. And that's what we try to do. We just try to listen, see what people need, and then we build it.

 

David DeCelle  45:15

Love it. Well, Gary, I appreciate you coming on the show. And for everyone who has listened to this episode, hopefully you've gotten some value out of it. Hopefully you can start to see how this can impact your business through impacting your clients. We do have to ask for everyone who's listened to the show. So number one is share this with the community. Obviously, this is a big opportunity to be able to gain some transparency with the clients that you serve, and further invest their dollars if it makes sense to do so once you have access to the other funds that they have outside of what you're currently managing. So feel free to share this episode. Number two is it would really help us from a visibility standpoint if you left a review on iTunes, hopefully something positive. And with that being said, if you take a screenshot of that review, and shoot me a text with that at 978-228-2338. Again, that's 978-228-2338; what will happen is you'll get an automatic response to a link where you just enter in your first and last name. That way it gets added to my contacts. And then do me a favor, and with that screenshot, just also type in MaxMyInterest so know which episode is in reference to, and as a thank you for doing so what I'll do is there's a couple of videos within our course that are super valuable from our managing partner, Dan Allison, where it's a comfortable approach to gaining referrals from your clients. He's been speaking for the last 18 years throughout the independent space, and that methodology is fantastic. So as a thank you for leaving a review, I'll go ahead and send you a link that will give you access to that. And we'd love to hear your thoughts on that. So with that we're gonna head into the after-hours portion; and Gary, so far, appreciate you spending some time and looking to get to know you a little bit more both in the after-hours as well as beyond. I’m sure there's some stuff that we can do together.

 

Gary Zimmerman 

Great. It's been a pleasure to be on the show.

 

David DeCelle

Awesome.

 

 

 

 

After-Hours

 

David DeCelle

That was great. I appreciate it. I want to go back to the investment banking days, I was gonna ask and I was like, no, this is kind of good for the after-hours portion. How many times did you go unshowered as an investment banker?

 

Gary Zimmerman  47:23

So my longest stretch in the office was three consecutive days, which was kind of crazy. We were representing a buyer of a company. And it was just sort of like the days leading up to the board meeting. And I worked for a VP who was very meticulous, and I learned a ton from him. But, he was so demanding of perfection that even after the board meeting, and even after the deal had been approved, and after we've made it through three straight all-nighters, and we're just exhausted. And we're just sort of still waiting in the office waiting to hear how the board meeting went, he called back from the board meeting with more changes to make to the book just for posterity. And I mean, that's the sort of level of dedication. Now he's the CFO at large, publicly traded company. So that was probably the longest stretch. There was another stretch, probably my longest week — that wasn't actually my longest week, if you can believe that — my longest week was pre-financial crisis, one of the big automakers had retained us to analyze their business. And as we were building the models, we determined that if there were to be a recession, they would go bankrupt, which was kind of crazy. You're sitting there in the office, and you're checking all your numbers, and you're like, is this correct? Like, wait a minute, if we have a recession, this massive company worth tens of billions of dollars goes under with hundreds of thousands of jobs. So we then sort of quickly scrambled and came up with a plan to sell assets and raise a bunch of capital. And that turned out to position that company really well going into the financial crisis, when other companies weren't as well positioned.

 

David DeCelle

Predicting the future.

 

Gary Zimmerman 

So it was one of those great success stories where all the hard work really pays off, and you can feel really good about all the jobs that were saved, but the hours are long. And, I don't know, one would think that it would have improved with technology, but I don't think so. I think the hours are still just as long. And in fact, what I'm hearing from some friends who are still in banking is during this period during COVID, where people have been working from home, it's even longer, because now you've taken up commuting time. There's like just an extra hour a day that work can be done. But I mean, it's for a certain type of person. Some people absolutely hate it and are miserable. Other people, presumably the ones who stick with it, really enjoy. Because people talk about the hours, but it's kind of a lot of fun, like you have no idea what your day is going to look like when it starts. So there's that sort of unpredictability of it, which is, I think, kind of fun. And every day, you're learning about a new company and a new industry and you get to provide advice at the C-suite level and board level and really influence the direction these companies and industries. And there are a lot of other professions that do that as well; consultants also have a big impact, lawyers have a big impact. But for someone who is sort of more numerically inclined and likes to work with numbers rather than words, I always found it a lot of fun.

 

David DeCelle  50:03

Love it. Next question. So as an investment banker, I mean, I know a number of advisors that call on investment bankers. How many cold calls would you say that you got from financial advisors during your career in investment banking?

 

Gary Zimmerman  50:19

I think none. No, I did use to — I mean, you got a lot of calls from like the insurance salespeople. But no, I mean, the neat thing about bankers is they're pretty below the radar, right? No one, no one knows their names.

 

David DeCelle  50:32

I guess back when you started, there wasn't a LinkedIn or anything like that, to where you could find them easily.

 

Gary Zimmerman  50:37

Yeah, I'm sure nowadays, it's different. But I mean, that's sort of the other interesting thing about the job is you're on the private side. So all of the information you're privy to pretty much all of that is nonpublic information. And there's that big dichotomy versus someone who's on the buy side, on the investing side. If they’re dealing with public companies, they can't be privy to nonpublic information. So there tends to be a pretty good divide between the two. But I do remember one time, we we're working on a deal for a company and the company had two classes of shares. Often you see Class A shares and Class B shares. And sometimes the relationship between the two is pretty simple, like Berkshire Hathaway, you know, the A share and the B share, they're basically the same thing. It's just there are 1500 B shares for every A share, and I think the B shares don't vote. And I think they're convertible in one direction, but not the other. But generally, their economic interest is the same or at least proportional. But this company, the B shares had this super complicated structure. And you'd only really understand how it worked if you had spent hours digging into the financial documents to understand exactly the relationship between the A shares and B shares. Because we were working on the deal, we knew that relationship and had modeled it. Well, a day or two before the deal announced, there was a leak. Someone leaked the deal and said, Company A is about to acquire Company B for $24 a share, let's say; and we looked and we ran over to the Bloomberg terminal. And there you saw the A shares and the B shares trading, but the B shares had traded up above the rumored valid price of the deal, because people in the market didn't understand the relationship between the A shares and the B shares. So sitting there as a banker, you're looking at this and you're saying there's a pure arbitrage opportunity right there; I could short the B shares, and I would be guaranteed to make money because either the deal will fall apart entirely, in which point I'll make tons of money or the deal will happen. But I'll still make some money, because I know that the B shares aren't worth as much as the market subscribing to them. And by being in the middle of the deal, I know there's no other competing bidder as well. So it was as close to a risk-free arb, but of course, there's nothing you can do about it, because you're privy to nonpublic information. So there were occasional moments like that, where you would see these obvious arbitrages that would appear in the market. And there was a difference between the person who just knew every detail and just the traders in the market who were guessing.

 

David DeCelle  52:49

Right. I'm sure there are a lot of opportunities where you may have felt tempted in the past, but obviously, you can't do that type of stuff. But seeing the possibilities.

 

Gary Zimmerman  52:59

Yeah, I never felt tempted; I, frankly, never had the capital that would have made it big enough difference anyway. But there are stories of people who are caught insider trading by leaving copies of their brokerage statement accidentally on the photocopier.

 

David DeCelle  53:14

If you're gonna do it, at least, cover your bases.

 

Gary Zimmerman  53:18

That's sort of the crazy thing I remember at Wharton, one of the classes was on the laws around insider trading. And it's actually kind of interesting, because the insider trading laws are not actually that strong. There's a lot that people can do that doesn't fall within what's covered by the law. But most of the cases where people have been caught, it's sloppiness. We did as bankers, though, we would get calls from the SEC after a deal would announce and they would list off twenty names. Do you know any of the following twenty people? Because they're trying to figure out what — they see suspicious trading activity in the stock. And they want to know, is this someone who was on the deal team? Or is this someone who worked for the company? So occasionally, we’d get calls like that. But the craziest, the craziest thing that ever happened that I ever saw in that context is we were on a plane on the way to a meeting. And we were traveling to a city where this certain industry has a big presence in this one city. And the plane was basically all bankers; I mean, you could just sort of tell by the way they dressed. And we're on the plane, and I'm sitting here and my boss is sitting here, and another one of our colleagues is sitting over there, and we take off. This is not a very big plane, maybe like two and two; and we take off and I look over and I see a guy of row behind sitting there reading our pitch book. So I turn to my boss, I'm like, Who is that guy? Is he also with the firm? Sometimes other people would show up from other departments. And he's like, No, I don't recognize that person. I guess we had BlackBerrys and we were texting over to my colleague; we’re like, Who's the guy behind you who's reading the book? And he's like, I don't know. And we turn around, and it turns out, the guy was from a different bank. And he had stolen the book out of my colleague’s bag and was reading it. And so then my boss kind of went nuts on him and he turned to him and he was like, You're in possession of inside information; I need to know your name and the firm you work for. And the guy instantly turned white, he was so scared. And he was like, he wouldn't tell. So finally, my boss picked up the phone call the secretary. And he said, I want you to call the SEC, we're on American Airlines Flight such and such, the guy sitting in row D, seat A is in possession of — and it was just crazy, just this wanton theft of information. And he clearly knew what he was doing. I don't know whatever happened with it, but that was sort of the most extreme example I'd ever seen of just wanton theft of information.

 

David DeCelle  55:33

Well, that and like, I don't know, take it to the bathroom and read it. What are you doing?

 

Gary Zimmerman  55:41

It was just so blatant; it was right out in the open. He didn’t, of course — I don't know why he did this. But he probably assume that it belonged to the guy, he didn't realize that there were colleagues. You can never be too careful. And I remember, you tried to get worked on flights, but you could never do anything with any sensitive information; because even the fact that you were on that flight going to that location, or the fact you're reading about a certain company, that's material information. I mean, we even used to know which groups at which bank sat on which floor. So if you were doing a deal, and you want to know whether Goldman might be bidding on that, might be representing a client bidding on the same asset — if you knew who sat in which office, and you saw their lights on at three in the morning on a Saturday — you could kind of, like there were little things where you could sort of try to deduce what might be happening in the market. You never really knew for sure. But it's sort of like that scene in Wall Street where they write down the tail number of the airplane, and they're trying to figure out where's it going? That's all real stuff. We had one other deal, I’ll tell you one other little story, we had one other deal where we were at an industry conference, and halfway through the conference, a deal, like picked up, and we had to leave and fly over to meet with the company. But it would have been very conspicuous for us to pick up and leave in the middle of this industry conference. And we didn't want to be seen at the airport flying to that other city, or someone might guess what was happening. So I convinced my boss that what we needed to do was rent a car and drive two hours to an entirely different airport and fly out of there so that no one would see us leaving the conference flying to that destination. So sometimes you do sort of take some extreme measures to try to keep deals private.

 

David DeCelle  57:18

It's wild. I appreciate you sharing, pun fully intended, the insider information, quote, unquote, in terms of how to cover your bases and some of the theft that goes on in there. I feel like it's a wild industry to be in.

 

Gary Zimmerman  57:30

Well, fortunately, I think it's few and far between. But you know, those moments really stand out in your mind as just sort of shocking.

 

David DeCelle  57:39

Love it. Well, Gary, I appreciate the time spent today. I'm glad that we were connected. I'm sure we'll be seeing a lot of each other moving forward considering that we're running in similar circles. For those of you who stuck around for the after-hours portion, hopefully you got a chuckle or two or some eyebrows raised with some of the stories that were shared. But Gary, really appreciate the time and looking forward to chatting again.

 

Gary Zimmerman 

Great. Thanks, Dave, you too.

 

David DeCelle

Take care.