The Importance of a Sound Financial Strategy in Your Wealth Management

Welcome back to CFO Weekly, where we're talking with financial leaders about how to build efficiency in their teams, create time for strategy, and ultimately get results with your host, Megan Weis. Let's jump right in today.

Megan - 00:00:31: My guest is Ellio Kallen. Elliot is a leader who brings over 30 years of passion and robust entrepreneurial business ownership experience to his elite financial planning and advising practice. He has built international organizations, been the CEO of two other companies before forming Prosperity Financial Group, Inc. And is a frequent keynote speaker to charities, podcasts, and radio shows on motivation, leadership, charitable work, marketing, and various financial subjects. Elliot holds a BA degree in both accounting and economics from Rutgers University in New Jersey and has served on various boards as an active member and or president, including the Boys and Girls Club of the Diablo Valley. The American Cancer Society of Contra Costa County and Congregation B'nai Shalom, where he has been actively involved in raising millions of dollars for these organizations. As president of Prosperity Financial Group, a top-tier financial advisory firm and partner in Prosperity Wealth Management, he has led his organizations to be actively involved with many charities, as this has been a lifelong theme. Elliot is also president of a Brighter Day charity, which he began following after the suicide of his youngest son, Jake, in 2015. This charity unites stress and depression resources with teens and their parents, with the goal of stopping teen suicide. The resources of A Brighter Day have touched thousands of families and are having a major impact on the lives of our teens and parents. Elliot, thank you very much for being my guest on today's episode of CFO Weekly.

Elliot - 00:02:08: Thank you for being here, Megan. I love it.

Megan - 00:02:10: Yes. Today we're going to be talking about wealth management and the importance of having a sound financial strategy so that you don't have to compromise on your financial dreams. I'm looking forward to learning from you myself. So let's get started.

Elliot - 00:02:24: Super. I'm ready for you, Megan.

Megan - 00:02:26: All right, so first and as always, let's start with you and your story and how it is that you got to where you are today.

Elliot - 00:02:33: Oh, thank you for having me on again. I've been doing this now for 30 years out here in California. I'm originally from the New York market. We kind of missed that whole speed of New York and what happens there. I consider myself an entrepreneur. This is the third major company that I've started out here packaging, environmental, and now this. So for me, starting companies and eventually selling them, it's just what I do. And when I looked for a niche in the market back in the early nineties, I saw that there would be a great opportunity in fee-based financial advice that was really unheard of in those days. Fee-based it was all about commission, but fee-based financial advice encompassed much more of the needs of business owners and people with high net worth means who get problems that are not so simple, and they need complex answers and complex solutions to what they're doing. And that's how we started this. With that in mind. And we've grown out of about a 400 million-dollar entity. I have another company here at the National Company that's about the same size at this point. And then I'm CEO of a charity. So we've done a lot of really good things to grow and bring clients in and solve their needs.

Megan - 00:03:41: So just tell me, who is your ideal client? What does that look like?

Elliot - 00:03:46: So 40% of our clients own companies or did own companies. They're entrepreneurs as well. They're small business owners, with up to about 200 employees. And then the 60% other than that are people that are referrals from them or people that have found us. So they're higher net worth people. They're not ultra-high-net-worth people. They're clients of mine. That is from $500,000 to $15 million of investable assets. They own a house or other real estate. They're family-oriented, they're charitable-oriented. Not always, but mostly. But mostly they want money to go to the next generation, and they will understand the value of money.

Megan - 00:04:24: And what's the difference between fee-based and commission based?

Elliot - 00:04:28: Well, forever. Every time you sold a stock in the old days or a bond, you paid a commission for that transaction. Basically, it's a transaction fee. Lawyers don't do that. It's a transaction fee. Mutual funds were once 8.5% commission, and they went all the way down to 1%. But a fee-based says it doesn't matter how many times we're selling something, buying something, or what the product is. It's just a flat annual fee, which may be charged quarterly. So the most popular fee in the United States for fee-based advisors is 1%. You divide that by four, it's a quarter of a percent. Quarter, which is not a big number. It's a quarter of a percent. A quarter to use 100% of our services?

Megan - 00:05:07: Yeah. Seems like a small investment for what is probably a pretty big return.

Elliot - 00:05:13: Yeah, it could be a big dollar. It'd be $10 million. A quarter of a percent of that is a big number. Per year or per quarter. But if you think about it, if you've got a certain risk tolerance about yourself or your family, and you want to be listened to, you want to be your portfolio to reflect your values, your needs, and your risk, not just the standard Force 500. And that's a mistake everybody needs. They compare everything to the S&P 500. And that's not realistic for most people.

Megan - 00:05:40: So as the owner of Prosperity Financial Group, can you tell us about your journey in the financial industry and how it is that you became passionate about helping entrepreneurs with their financial planning?

Elliot - 00:05:52: Absolutely. We started back in 1993 when I came out to California. I hooked up with Lincoln Financial Services, which is a multibillion-dollar organization. It was right here in San Ramon, California. I like the people that ran it. Sadly, the chairman died since then, but I like the people that ran it. And their attitude was, you know, Megan, we don't really do business with entrepreneurs and CEOs and CFOs. We're a kitchen table company. We sell life insurance and investments at somebody's kitchen table. And that's not your background. You're a B2B person with some consumers in there. Why don't you head up a whole division that does just that? And that was music to my ears because I was looking to do something like that. And so we started that. Eventually, we had to part ways because they merged with another company and they just were going in a different direction. But for the longest time, they just said, go do what you need to do for business owners. And that's what we went after from day one. And we built a team around that.

Megan - 00:06:47: And can you walk us through the services that Prosperity Financial Group offers to its clients?

Elliot - 00:06:53: Absolutely. So think, Megan, you're an individual. You've got estate planning needs, which are not just taxes anymore because that's really a big number, but you want to transfer your state to your children or to charity. So those are two brand new needs that you didn't have. If you're getting older, you need your money to last the rest of your life. If you're worried about that, you're dying too young or living too long, you could have healthcare issues that could consume your entire net worth. You don't want to want to be like my father that worked his whole life to end up with almost nothing because long-term care cost took all of it for my mother. So you've got that. Then you're raising a family, you've got college costs. As a business owner, you've got so many needs because you are the caretaker for all of your employees. You've got to get the business to come in and then you've got to pay people to work for you and then you've got to make sure you don't get sued, that you're doing it right. You've got to put retirement in place, employee benefits in place. There are so many needs that people have that it's just not one product. It's, what can we do to put our arms around you and make sure that financially you are being well taken care of?

Megan - 00:07:58: So, in your opinion, what sets Prosperity Financial Group apart from its competitors?

Elliot - 00:08:05: Well, the weakness in the marketplace is most people, when times are good and everybody's making money or portfolios, we build original portfolios. When everybody's making money, it's great feeling good. Laughter go to the opera, go to a ball game, whatever you like to do. When times get tough, like we just had during COVID 2008 or 2001, the majority of people in our industry, sadly, are like ostriches. They put their head in the sand and they've stopped communication of all types. And so we decided we would be totally different than that, 100% transparent to our clients, and we would be active money managers, in everything we did. So we're not passive. We don't answer to a sales manager in New York City or Chicago. We do everything original at our office here in Northern California, and in Wayne Gretzky hockey terms, we invest clients to where the puck is going. So that means it could have nothing to do with where it's been or where it's going. So we're constantly evaluating where money is going to be made in the next three months, six months, nine months, twelve months on there. And then for our clients, we're communicating with them in writing twice a month, and with phone calls four or five times a year.

Megan - 00:09:18: And you have seen lots of hard times. As you mentioned, in 2001, and 2008, COVID has the economy as it stands today. Who knows where it's heading? But what have you learned along the way? How have those hard times helped you improve your services?

Elliot - 00:09:34: Well, the first thing you learn, Megan, is that people are still people. They have feelings, and they get upset. We have a trademark to phrase here that we use all the time, which says if it's money, it's personal, and it really is. Nobody likes to lose money. Now, everybody likes to make money, but nobody likes to lose it. But some people understand that I can't take a risk without losing it if the market goes down. But as long as I'm being smart with it, it'll come back. And that's who you want as your ideal client. So what I've learned is the hardest part of our business is the behavioral finance part of the business, which is managing clients' expectations and always doing the right thing for the client. The client always comes before you. The client always comes first. We don't like to lose the client. Nobody likes to lose a client. But we take this very personally. We don't brush it off. Oh, well, they left us. It's very personal. I take it home. I wake up at two in the morning, am I doing the right thing for my clients? Am I making money? Am I following their needs? Am I asking them about financial goals in retirement? And when they enter retirement, am I assisting them to not sit there and watch TV, but actually do something with their lives and make the money work for them?

Megan - 00:10:47: And what are the most common mistakes you see your clients make emotionally based?

Elliot - 00:10:51: That when the market goes down, you sell. That's an endemic problem across the country with everybody. That when the market's going up, everybody wants to buy. When the market goes down, everybody wants to sell. I'm using the term everybody quotes because we've gotten our clients over the years to just watch what we're doing rather than sell. And so you get an element of fear, and you have to manage this fear. The challenge for today, Megan, is that we live in a 24-hour news cycle and everybody sees everything in their face all the time, and so they're scared. So this year I put more treasury bills in clients' portfolios in 2023 than I put in the other 29 years of my career combined. That's because of fear.

Megan - 00:11:38: So how do you help relieve some of the fears? What is it that you do to calm your clients' nerves in bad times?

Elliot - 00:11:48: The key here is great communication. I want them to know that I'm listening to them. I'm watching the markets. I'm reading the economic reports. I get about 125 of them a day. You can't possibly read them. So you pick your favorites and you read those that I'm trying to see where the market's going, that I'm always looking out to protect them first within the reason of their risk tolerance. And I'm making sure that whatever we're saying that we're doing, we are doing. So they walk away saying, I know I'm not making money, but I know I will. Now, that puts me in a position sometimes where I become the best-looking horse in a glue factory. That's not a good place to be either, because we don't want to blow up like what happened in 2008. We want to not blow up. So we want to make sure we're doing the right thing. And so that's all about communication and actively managing portfolios where the market's going, not where it's been. And I'll give you an example of that right now. You would hate to be buying technology because it did so poorly last year, and in 2001, 2002, and 2001 it did so well. So if we weren't watching what was going on, we'd be sitting in 50% technology today as a sector, but we're not. We're in the low teens. But when the markets change and a recession hits later on, if it does hit later on this year, we're going to be buying in because that's the opportunity in technology to take advantage of this.

Megan - 00:13:16: And it seems like, well, times are super tumultuous. How in these tumultuous times can you predict where the market is heading? Is it art? Is it science? Is it a mix of both? It seems very difficult these days to predict anything.

Elliot - 00:13:32: It is all of those things and including it's an element of luck. Don't kid yourself. Being at the right time at the right place, it's an element of luck. We made the call when COVID hit. We put a lot of money into marketing in our company. We had created an entire marketing department before COVID hit, but we made a decision when COVID hit that we would get heavily involved with technology because we felt the technology would lead us out. And our pharmaceuticals, they would lead us out of the pandemic and we were 100% right about that. We think those are great places to be coming out of the recession and hard places to be going into it. So that's just experience telling me 30 years of experience and reading the reports and seeing what's out there and paying attention.

Megan - 00:14:13: And can you share some success stories of clients that your team has helped achieve their financial goals?

Elliot - 00:14:19: Sure. The biggest success that we've had, if you want to go to recent times, was or is that we invested heavily into technology and biotech and bio in 2000, right when COVID hit, right when the world went down, by 30%, 35%, we were buyers. We weren't sellers. We were buyers. And obviously, those clients earned almost 60 40% to 60% in 2021. We got out of the banking business a year and a half ago. Right now, you can see we're in a regional banking crisis. We're not sitting on any banks at all on there. We got out of China five years ago. So during the Trump administration, when China basically fell apart and messed up their companies and did what they did to Alibaba, kind of ruined them, we were not sitting in any of those companies. So we've just kind of looked at what's going on in sectors of the market and then within companies within those sectors and seeing if those places are places we want to be, but sectors first and companies second.

Megan - 00:15:17: And do you offer your clients help in selling their businesses when it comes time to do that?

Elliot - 00:15:24: We give them advice. We don't have a separate charge or fee for that. We're not business brokers. We're not finding buyers. But we know who to bring in. We know how to get to bring in an evaluation company. We know how they have to redo their finances, because the finances of how you run your company and how you sell your company are not necessarily the same. We know that you have to get a little bit leaner. So because I've sold two companies, I'm very aware of the process of selling your companies. But here's a big little dirty secret on selling your company, and that is most people want to cash out in some form. This is their baby down, and they want to cash out, but then they've got family members that want their business. So here you've been running your business, make it for 20 years. It's profitable. You're taking trips around the world. You're feeling really good about it, and you've got a child that wants to take over your business, but they don't want your business from 20 years ago. They want your business from today and what it's worth today. And we've had this discussion about whether would you rather give your next generation, your children, the proceeds of your business, or do they really want the business? Because you used to go in every Saturday, and Sunday, clean garbage cans, make sure the bathroom worked and check on manufacturing. You'll stay up at night, not take vacations like you're taking now, but maybe do a weekend at best, and maybe that was just a local weekend, but stay on vacation, and now you're getting to go away. The next generation wants all the glory and not necessarily any of the guts, and that's what we give advice on.

Megan - 00:16:53: So when do you advise selling versus passing down to the next generation?

Elliot - 00:16:57: When we realize that the client realizes that your children want the proceeds of your company but not the work. Yeah, it's a hard reality check, but if the child wants the next generation really wants the proceeds but then gets the company, they're either going to have to get out or they're going to have a tendency to root it because they don't have the skills to do what parents just did. And you want to give your children the best opportunity for success, but you also want to give your baby the company, the future that it deserves and they're not necessarily the same thing.

Megan - 00:17:30: Yeah. So what's next for Prosperity Financial Group and how do you plan to continue to grow and evolve as a company in the next few years?

Elliot - 00:17:40: Well, those are questions that we have with our team every week in our office. So here's where we are as a company. We have just putting together and getting ready to launch our high net worth division. So we are going to go after what the industry calls the mass affluent. Not the ultra-affluent, the mass affluent. Those are clients. Ten to $50 million of investable assets. That's what we're going after. We just literally just gotten that off the ground recently. And those products that we offer them are slightly different than clients with one to 2 to $3 million. They really could be to offer them at about $5 million of investable assets so that's we're evolving into a higher net worth group. For me, I have given out on my team. I have five other advisors and I own the company. I've given them 80 of my 200 clients now to manage directly and I've stayed with 120 of them. And then we can continue to give away and work with higher and higher net worth clients that have a personality that I enjoy, that we get along with. I'm at that stage of my career. That personality matters to me, credibility matters and ethics matters to me. So that's who I work with, those kind of people. And the companies continue to get bigger and bigger. We've got a five-year plan to get this company to about a billion, billion and a half dollars. And then I can't tell you what we're going to do in five years because we're not quite there to even tell you what we're going to do. But I imagine at some point some major entity is going to come in and swoop us up and love what we do. And I'll ride off into the sunset, mostly because I'm really passionate about what I do. I love what I do. I wake up and I go to work in a great mood. Do I like the market going down and being yelled at? No. That's the retail side of our business. Nobody likes that. And that can be unpleasant enough that I told my children, don't ever think about going into business with me. I don't want you doing this.

Megan - 00:19:28: As you said, money is very personal, and when people start losing it, I imagine tempers flare.

Elliot - 00:19:37: Absolutely, they do. I want to make sure that you're well taken care of as my client. I want to make sure your children know who I am, your spouse knows who I am, or your significant other, if there is one. I want to make sure that all the parties that are important know who I am and that I'm here listening to their needs. We have an interesting generational change going on. The generation that's dying out, the baby boomer, the World War II generation, the Korean War generation, even Vietnam War generation, the early side, they really value advice a lot. The next generation still values advice, but the generation after that, they've got an attitude that if it's not on their cell phone, then that advice isn't really important. And so there is going to be a change in the marketplace with AI and with the graying of our industry, that in the next five years, there will probably be a third fewer advisors than there are today. I like that because that's helping me. But that's an interesting dilemma that the industry is going to go through.

Megan - 00:20:35: Yeah, that is interesting. I wonder if AI on some level will start replacing the need for advisors. Hard to imagine not needing people.

Elliot - 00:20:45: We use AI right now to help market the clients and to help communicate with them. So here's a good example, Megan, of how we use AI. You and I sit down for the first time and you tell me, I love golf, or I love to travel, and particularly I always want to do this. I love great wine and great food, and that's how I want to live my life. And the older I get, the more money I make, the more I want to enjoy those things. And they're all separate from what I just said. They're not connected well. AI will tell me that because of who you are and what we've just identified that is important to you, we now can put you in touch with high-net-worth travel people if that's what you like to do. We're playing golf courses around the world, around the United States, things that appeal to your avocations while you're still working your vocation. And that's really an interesting idea because if I can get you Megan, let me give you an example. You say to me, give me an example for you what you would like, just off the top of your head. If you had time and money, what would it be?

Megan - 00:21:44: Oh, traveling, without a doubt.

Elliot - 00:21:46: Great. So you say to me, I'd like to travel, and we'd have a conversation. What does traveling look like to you? Does it mean economy, economy plus, or first class? Does it mean Europe? Does it mean all the national parks in the US? Does it mean all the islands in the Far East? Does it mean all of it? Then you begin to realize, okay, if you're somebody that wants to travel economy plus, it's first-class and you want to go to these places, let's get you in touch with the information, the magazines, the fun things for you to look at, to give you great ideas. If you said to me, hey, I have been making a lot of money in my life, and I don't want to travel like everybody else. I know first class is nice, but I want to travel via a Gulf Stream and I want to do this. And I want to make sure the hotels I'm going to in Croatia are the ones that other people don't go to. That's a different situation, and we want to make sure we're able to address those needs as well.

Megan - 00:22:34: Well, that's really cool. You can help with their lifestyle in addition to managing their money.

Elliot - 00:22:39: Exactly. And no two people are alike.

Megan - 00:22:42: So how do you think resilience plays a role in the success of an entrepreneur? And what are some of the strategies that you've used to overcome adversity in your own business ventures?

Elliot - 00:22:52: That's a great question. And I've got a book coming out I just wrote on that's coming out in the next four weeks called Driven, and that talks about entrepreneurship, and it's a book for entrepreneurs and leadership. So if you're an entrepreneur, Megan, there are some fortunate people in this world who've had a relatively straight line in their life of success. Their family is good, their business is good, their money's been good. They come from the right stock where they made it on their own, and they've done well on that. God bless them. That's terrific. I'm not that person. I don't come for money. My dad was a hard-working, blue-collar kind of guy, and everything for him was about family. And they had constant talks about how to do better in the next generation, and that was very important to them. And they put every asset and time commitment into helping their children succeed. It worked. So for me, it's never been a straight line. I'm even amazed sometimes at how crooked my line has become. If you're a business owner, you're going to end up at some point with receivable issues, payable issues, cash flow issues, employee issues, equal employment opportunity issues, regulation issues, and maybe your technology is going to be put out of business issues. In today's world, that's changing so fast. Those are issues that present anything but a straight line. If you're in the investment world. We already know that you go up and down and up and down and got to work your way through that. So what I try to counsel people on because I've experienced that myself, is that life is sometimes understanding the setbacks and that they're temporary and they're only permanent until you accept them as being permanent. So there's a phrase that entrepreneurs use, and that goes, entrepreneurs never fail, they just have to learn lessons. And that's not my phrase. I didn't create that. But there's a lot of truth to that because I've had my own issues of up and down. Not really in this business, but except when the markets have been painful. But in life, including six years ago, seven years ago, I had my youngest son take his own life at the University of Montana. And I can't think of a bigger setback to a proud father and a business owner than having your child die. And somehow we made it through that. So that is the greatest setback that I think, as a human, you could have. But I'm sure that there are other points of view on that.

Megan - 00:25:04: Yeah. I personally cannot imagine what that must have been like, but I do know that failures in life are important learning lessons. I feel like we learn a lot more from our failures than we do from our successes.

Elliot - 00:25:18: You are 100% correct. This is a mistake that we've been doing to the next generation for a long time. And that is that it's all about not just winning, but it's about participating.

Megan - 00:25:29: Yeah, we sheltered them.

Elliot - 00:25:31: We have. And I'm guilty of it as a parent, too. I, too, trying to do the right thing. But you're right, if you can talk about what's gone wrong and grow with it, that presents an enormous opportunity in life and business and money and sports, whatever you're talking about. Growth comes from adversity, it doesn't come from success.

Megan - 00:25:53: So your book Driven is your first book?

Elliot - 00:25:56: My second book.

Megan - 00:25:57: Okay. And where can listeners find the book? Is it going to be on Amazon?

Elliot - 00:26:02: It will be. It'll be coming out in about four weeks. It'll hit Amazon in about four weeks. It'll be Driven by Elliot Kallen very exciting. If they want to get a feel for who I am, I've got about 55 podcasts out right now called Meet the Expert by Elliot Kallen. And I'm all over all the places that have podcasts that you can think of. So we'll be speaking publicly on that. It's exciting times. And if you talk about where mine is going to be in five years, if you tell me that my business is on autopilot and all I'm doing is boarding airplanes and speaking to crowds of 200 people about leadership and entrepreneurship, you'd probably make me a very happy person.

Megan - 00:26:38: Yeah. Sounds like an awesome goal. Sounds like you're not too far away from achieving it again.

Elliot - 00:26:44: When you love what you. Do, and you really enjoy getting up every day, and you can be passionate about that. You can achieve some good things. I've got a good team around me. I've got very good people that work for me. I've always developed teams my whole life, so I've never been the advisor, sitting at a small office, doing it by himself or the entrepreneur. I think that great entrepreneurs surround themselves with people sometimes smarter than them or talented in a niche that they're not very good at, and they accept the fact that, okay, I'm really good with marketing, but I'm not good with finance. I'm really good at finance, but I need help with marketing. They get it, they understand it. And you grow from hiring good people and getting good ideas and then reevaluating on a regular basis what works, what doesn't, and where's the market going.

Megan - 00:27:29: So, last question, you might have just answered this, but as a finance leader and entrepreneur, what is it that keeps you motivated? What gets you out of bed every morning as you look toward a new day?

Elliot - 00:27:41: So I spend 70% of my time, Megan, in front of clients or prospects. 30% of my time I'm being a wonk, doing research reports and working on portfolios. Especially in this market. I consistently fine-tune them, and I enjoy that part of it, too. You can't really get passionate about reading an economic report unless I don't know who gets passionate about that. Some sure people do. But when you're meeting with clients, what makes this really a nice industry to be in is if you like people and you enjoy people and you enjoy the differences of people. And that has always been my life. My mother always used to talk about the differences between people and why you should like people for who they are, not what they are. It's not the title that defines you. Your best friend could be the janitor in the building because he's the right person versus the CEO of the company. I like people a lot, and whatever I do will be a people-based outcome. So waking up and talking to more people, that's not work. That's enjoyable.

Megan - 00:28:39: Yeah, that's awesome. And it definitely sounds like you found your passion in life, which is amazing.

Elliot - 00:28:46: Thank you. I said I love what I do. I love talking to people. I love getting better tomorrow than I was yesterday and consistently improving. And I think self-improvement is a big part of it.

Megan - 00:28:56: So important in life.

Elliot - 00:28:58: Years ago, I did the Anthony Robbins walk on hot coals. I think it's called some type of destiny program. I did that, and he talked about this Japanese Can I program, which is continuing and never-ending improvement. And so I'm a big fan of continuing and never-ending improvement.

Megan - 00:29:13: Well, Elliot, thank you so much for being my guest today.

Elliot - 00:29:16: Thank you. I really appreciate your time. And call me anytime. Happy to take this to part two anytime.

Megan - 00:29:22: Yeah. I really enjoyed speaking with you and thank you for finding the time to be here with us today to share your experience and knowledge. And I wish you and Prosperity Financial Group all the best. Good luck with your new book and to all of our listeners. Please tune in next week, and until then, take care.

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