Episode #488: Blake Street – Financial Advisor to Content Creators: From Tik Tok to E-Sports & OnlyFans

Episode #488: Blake Street – Financial Advisor to New Media: From Tik Tok to E-Sports & OnlyFans

Profile photo of Blake Street, CFA, CFP®

 

Guest: Blake Street is a Founding Partner and Chief Investment Officer of Warren Street Wealth Advisors. Blake graduated from California State University, Fullerton in 2009 with a Bachelor of Arts in Finance, and he is a certified financial planner (CFP) and a Chartered Financial Analyst (CFA).

Date Recorded: 6/7/2023     |     Run-Time: 50:37

Summary: In today’s episode, Blake shares how he wound up building a firm focused on content creators, which includes people who make a living from Tik Tok, e-sports, pickleball, and even OnlyFans! He explains the uniqueness of working within this niche, how he finds creators to work with, and his advice for other advisors who are looking to find their own niche. He also shares his firms’ tech stack, best practices for building out the infrastructure for an RIA, and his take on the future of financial advice.

Comments or suggestions? Interested in sponsoring an episode? Email us Feedback@TheMebFaberShow.com

Links from the Episode:

  • 0:39 – Intro
  • 1:30 – Welcome to our guest, Blake Street
  • 4:06 – Blake’s personal and professional background
  • 5:41 – Exploring EOS: A system for managing businesses
  • 7:08 – Advising eSports clients
  • 16:52 – Gaining new clients through referrals, not content marketing
  • 19:29 – Scaling through lead advisors, emphasizing organic growth
  • 22:03 – Modern wealth management tools and services
  • 26:53 – Utilizing software such as Point.me and Loom
  • 29:41 – Luck trumps skill in investing
  • 31:47 – Global allocation and value investing demands patience; Global Asset Allocation – Meb Faber
  • 32:55 – Persisting with investment strategies during underperformance
  • 40:11 – Will large RIAs may launch their own ETFs in the future
  • 47:07 – Blake’s most memorable investment
  • 49:24 – Learn more about Blake; Twitter: @bmcstreet; Website: Warren Street; Pickleball: Los Cab Sports Village
  • Episode #393: Duncan Kelm, Arrow Point Tax – Strategic Tax Planning & Tax Mitigation Strategies

 

Transcript:

Welcome Message:

Welcome to the Meb Faber Show, where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing and uncover new and profitable ideas, all to help you grow wealthier and wiser. Better investing starts here.

Disclaimer:

Meb Faber is the co-founder and chief investment officer at Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria’s funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information, visit cambriainvestments.com.

Meb:

What is up everybody? We’ve got a really fun episode today. Our guest is Blake Street, founder and chief investing officer of Warren Street Wealth Advisors, a $320 million RIA out here in California. Today’s episode, Blake shares how he wound up building a firm focused on content creators, which includes people who make a living from TikTok, eSports, pickleball, or even OnlyFans. He explains the uniqueness of working with these entrepreneurs, how he finds creators to work with and his advice for other advisors who are looking to find their own niche. He also shares his firm’s tech stack, best practices for building out the infrastructure for an RIA and his take on the future of financial advice. If you’re a new listener to this show, go subscribe to the show on your favorite platform so you don’t miss any of our fantastic shows coming up this summer. And of course, leave us a review. Please enjoy this episode with my buddy, Blake Street. Blake, welcome to the show.

Blake:

Meb, thanks for having me, bud.

Meb:

My friend, where do we find you today?

Blake:

So this is a big moment for me.

Meb:

Good. Well, it’s just two dudes sitting in their bedrooms chatting. Where are you?

Blake:

Sounds about right. About 10 minutes south of Disneyland in Tustin, California.

Meb:

I’ve known you for a long time and despite that, I don’t feel like I’ve really known you because last time we hung out I got to learn all sorts of cool things about you, which we’ll get into today. But the first, which is a more recent development, you’re a big pickleballer, right? What’s your rating these days? What are you up to?

Blake:

I actually just checked a moment ago. I’m a 4.98 duper, which is a few decimal point shy of a 5.0, which is kind of like the highest rating in amateur land. So I’ve got to convince some friends of mine to throw a couple matches and hit 5.0 status here shortly.

Meb:

And then where does it go after five? Is it sort of like the various pro levels?

Blake:

I think most pros, yeah, most pros spend their time 6, 6.5 and north. I’m not kidding myself, no aspirations on that front, but 5.0 will be some nice hometown bragging rights.

Meb:

Listeners, I have an older brother who last summer we were in Colorado and he says, “Meb, do you want to play in a pickleball tournament?” And I said sure, whatever. And it was up in the mountains in a little town. It wasn’t Pagosa Springs, where was it?

Anyway, so I say, okay, well, he’s like, there’s various divisions. I’m like, are we going to be in age groups? Is it beginners? How are we going to do it? He’s like no, there’s these various levels. And I’m like, okay, what level are we doing? And he said, I can’t remember what it was, three five or something. But seemingly sounded really low. And I said, are we going to be playing a bunch of 80 year olds because this is going to be really weird and I feel like this is going to be super awkward. It’s actually going to be awkward either way because we’re either going to destroy these 80 year olds or they’re going to destroy us. But we ended up taking home silver in a overtime game. So I was very proud of myself. I got a medal. I don’t think I’ve played since, but.

Blake:

My origin story in pickleball sounded similar except for the 80-year-old part was real. And I got just absolutely sent home and humbled and seethed about it for a couple of days and decided I’m going to figure this game out. And it’s about a year and a half ago. And in that time, I have now decided that we’re developing about a half-acre on our property. We’re adding some pickleball courts on site, just bought into a major league pickleball franchise. All of my friends are pickleball heads. So I’m that typical friend at the party telling everyone that pickleball is the fastest growing sport in North America.

Meb:

All right, well, I’m ready to get on the court with you. I need advice for a racket.

Blake:

I would love to have you, man. We’ve got to make that happen.

Meb:

One of the cool things that we talked about that informs kind of what you’re up to now is a little bit of your origin story, which is a little less traditional. You want to give us the background?

Blake:

I feel like I was raised in the business a little bit. My stepdad’s actually an LPL advisor still in the business. Married to my high school sweetheart, two adoring kids, Reese and Rowan, a four-year-old daughter, two-year-old son. As you can tell, a pickleball junkie, washed up gamer, a Lakers addict. I was lucky enough to do most of my CFPs curriculum study during my undergraduate degree at Cal State Fullerton. So I think if I recall correctly, I was one of the youngest CFPs in US History. Came out and kind of graduated right in the teeth of the recession and went to work for my stepdad. He and I were like oil and water. So I struck off on my own around 2012, had no clients, nobody to talk to. Figured out pretty quickly that what I wanted to do on my own, which was basically white label portfolio construction and asset allocation for other independent advisors, wasn’t going to work.

It was kind of a crowded playing field with other tamps and third party money managers. So one of the advisors that had hired me to do his white label work, we just decided, hey, we don’t need an independent broker dealer. We don’t need series sevens. Let’s just launch an RIA. It’s about seven plus years ago now. And I mean, it feels like the Spider-Man meme. When we first launched Warren Street as an RIA, it’s like pointing at each other. You’re an advisor. No, you’re an advisor. What the hell are we doing here? Who’s doing compliance? Who’s raising assets? And about 2017, we implemented an operating system called EOS. Have you ever heard of EOS, Meb? So it stands for Entrepreneurial Operating System. I call it like the poor man’s MBA. So it was the first time we ever thought about the business as a business.

So identifying your core values, putting together an org chart, setting goals, measurables, how to hold a meeting, how to clear issues and roadblocks. And basically since that time, I’d say the traction in the business for us has only compounded. So fast-forward to today, same playing field. Warren Street’s an independent RIA. We manage probably just shy of 320 million in assets, about 370, 375 clients. Client base is relatively bifurcated, traditional baby boomers and business owners. And then the other half of clients, which is really what I’ve been responsible for cultivating. We kind of encapsulate it in this new media title, but it’s basically content creators from Instagram, TikTok, Twitch, YouTube, OnlyFans, basically your solopreneurs that need kind of a high touch service model. And then some offshoots from that ecosystem is we work with recruiting companies, big tech employees and executives, any of the supporting infrastructure for those different businesses because there’s a lot of needs out there.

Meb:

So there’s a lot of different ways we could go, but I figure we’ll start where you tapped out on your potential as a gamer. So as we think about the timing of this, what percent of the people that are doing this full-time do you think are doing viable big money, not even big money, but career sort of revenue to where they can quit their job, whether it’s OnlyFans, whether it’s the gaming world. I mean, is this the situation where it’s just the 1% type of?

Blake:

Yeah, I mean, it probably follows the math on how many kids compete and Pop Warner and middle school sports, high school sports on collegiate. And then professional. To be clear, when I competed, I lost money. And especially in terms of opportunity costs and time, there wasn’t any money in the ecosystem. Nowadays, eSports, if you’re in the right title, you can make good money. Counterstrike, League of Legends, Valoran, you’re not surprised to see the player base making 200, 300, 400K a year. Some of the big talent making maybe a mill two, maybe three mil tops. But again, that’s the top 001% of competitive athletes within eSports. More of the stable money, in my opinion, is when folks say, “I’m no longer going to be obsessed about the competitive format. I’m going to be a content creator and I’m going to grow my reach and grow my audience by being not just really, really good at a game, but also being gregarious and engaging and building an audience and having them subscribe to my Twitch channel or to my YouTube channel and having a merch line and having sponsorships and brand activations.”

If you asked me in 2015, 2016, I forget when Twitch was bought by Amazon, but I thought this thing had no legs and was going to be relatively short-lived. I’ve got creators that started 100K, 150K a year, and now we’re clearing 4, 5, 6 mil a year with no signs of slowing down. Those are the anomalies. I mean, there’s certainly a lot of folks out there that are making nowhere near that, but yeah, it’s a shocking ecosystem. But if you think about it, look at kids on the street, out in the cities and restaurants, what are they watching? They’re watching YouTube, they’re watching Twitch, and that’s where the brands are spending their money.

Meb:

So if you think Blake came around in 2023, would you have been able to monetize the streaming and the content?

Blake:

Yeah, I hope so. But who knows? It’s also a slog. I mean, the burnout is very real. If you’re a Twitch streamer and you’re doing 8, 10, 12, 14 hours a day on camera, they make good money. They don’t have a lot of privacy. Sometimes they don’t have a great life balance, and I probably would’ve burned out sooner than some of these others.

Meb:

So let’s talk about some of the unique aspects because listeners, I’m sure you can apply this to your own world as you think about what you’re up to as well, but it creates some unique challenges when it comes to planning as well as just life implementation. So I’m guessing this certainly skews younger. It skews probably, if I had to guess, less… I don’t know about this one. I was going to say less financially illiterate, but I don’t know if that would be true because a lot of people, they’re clearly good with money or making money. I don’t know. Talk to me a little bit, well, what are some of the unique challenges and sort of ways you deal with a lot of these types of clients?

Blake:

Sure thing. So I don’t think your assumptions are wrong, but definitely skews younger without a doubt. In some cases less financially literate. But I think that really manifests more in just less socially connected. So if you come up through traditional sports, you’re used to being preyed upon and followed by agency and management and all of these different kind of infrastructure and personalities that aim to serve. In eSports and in content, it’s just much more immature. And so a lot of times these folks, they don’t have an accountant, they don’t have a money manager, they don’t have agency. And if they do, it usually came from just an informal introduction or a stroke of luck. So yeah, I mean, a lot of times it starts at the most basic. I don’t know if you want me to explain a case study?

Meb:

Go for it, man. Yeah, we can dig in.

Blake:

All right. If you think about a real life example of a creator that has come on and kind of the scope of need and service that we’ll deliver, it starts with this creator I have in mind was doing 4 million plus in top line revenue, no separation of church and state in terms of personal and business banking. So everything’s going through a personal banking account. They’re paying vendors and editors and family through PayPal. They’re not taking any tax deductions, they’re not keeping books, they don’t have a legal entity, they’re not making any type of estimated tax payments, they don’t have health insurance. And I think the thing that probably motivates a lot of folks to reach out to us is they have some privacy concerns around their whereabouts being known to the public, them being doxed or swatted or having kind of unscrupulous fans pay them a visit at their home or place of residence.

So we always start at the bottom, which is can we separate church and state? Can we set up a business banking account, all income going into this account, all expenses coming out of the account? Can we then set up a bookkeeping service of sorts to make sure that we have an accurate picture of the P and L? If the numbers are big enough, is a legal entity required? Usually it’s an LLC with an S selection to make sure we can kind of play the payroll tax game working with their accountant. If they don’t have one, introducing an accountant to make sure that they kind of satisfy reasonable wage standards. Setting up tax shelters, so solo 401k set, IRA, potentially even cash balance or pension plans. Getting them health insurance. A lot of times it’s just going through Affordable Care Act exchanges and making sure that they have at minimum catastrophic coverage, especially if it’s not during an open enrollment season.

And then where we really differentiate ourselves is going back to my earlier point about the Swiss Army knife of finance, our willingness to get into the weeds of real estate acquisition, mortgage sourcing, privacy trust planning. For this particular client actually had a couple of fans visit their house and actually some issues of violence surrounding that. And so when they were buying a home, they wanted to know how can we protect this from public record. So it’s finding a lender that will record in an LLC or a trust. It is helping them form said privacy trust. It’s getting a third party trustee appointed on that so the client doesn’t have any connectedness to it on public record and just handholding them through that process because this is something that they’ve never been through, probably will never go through again. We’ll even go as far, and I’ve done this for a few folks, where I will get the property under contract for them with an assignment clause, I’ll sign it over to the LLC as we move through escrow.

So then you get to the fun stuff after, because a lot of times it’s a sense of urgency of you have a content creator who gets a tax notice or is buying a house and needs something done immediately. Then you onboard them and then you get to the fun stuff, which is saving them tax dollars, putting money to work, cash management, diversifying their assets, asset location, educating them on time horizons and risk and what a prudent portfolio will look like for them. So in some ways it’s a scope of any type of normal client, but a lot of times because of how busy and in demand and stretched their attention spans are, they want to delegate as much as possible onto you and you need to be set up in a way that you can meet every particular need that they might send your way.

Meb:

That’s a lot. So part of it feels modern and unfamiliar, but a lot of it seems kind of pretty traditional as far as planning and wealth management specific to this world. How do you find most of the clients here? Is it word of mouth? Are you hanging out on Twitch and dropping some Dave Ramsey, ask personal finance knowledge as people are talking in the comments? How do you interact with and grow this biz?

Blake:

Funny enough, one of our biggest creators years and years ago was landed through hanging out on their stream and commenting and trying to get a conversation started. And we were originally shot down and then extended an olive branch. And that is definitely the exception.

Meb:

That gaming chair looks nice. Did you expense that?

Blake:

I can’t remember the exact in, but I mean, it was something to the sort of, do you got a money guy or have you had someone look at your personal finances or what have you? And so it was a pretty soft outreach, but mostly if you go back to 2015, 2016, we sponsored some events, some conventions, some gaming related conventions and it felt like a giant waste of money because nothing immediately came from that. But what did come from that was a couple of friendships and relationships with eSports org owners, talent managers, agency folks, and so really the gatekeepers of the ecosystem.

And so just by maintaining and fostering those relationships and helping convey the value proposition to them, they’re usually the ones kind of landing you the meetings and getting you in front of the end client. Once you’ve done enough of that, these creators tend to run in relatively small circles and so then they do the business building for you. So I honestly don’t have the easy answer of how to break in, but you got to start with one, you got to wow, you got to deliver and then you got to figure out who are going to be my centers of influence within the scene and who can I lean on to help me build my business?

Meb:

Do you do any sort of content marketing around this at this point or is it something that you, as far as thinking of writing up toward a case studies or whatnot for this very specific personal financing needs? Because over the years you talk about you see a lot of planning firms that specifically target Boeing retirees or hey, we’re going to focus on school teachers or hey, we’re going to focus on entrepreneurs. Presumably this is a niche that is going to start searching for a lot of help, at some point.

Blake:

The answer is we probably should be doing it.

Meb:

I like sponsoring the conferences, man. That’s a better idea. Sponsoring some pickleball teams. You’re going to turn into the modern version of Endeavor. I was just listening to, listeners, great podcast on Freakonomics with Ari Emanuel was talking about some of this stuff.

Blake:

I love it. And you know the racket from having to buy a booth at a conference. There’s an ROI calc on everything. And so for me, I’ve really been head down on building the business, building the ensemble structure, putting the right pieces in place and being able to deliver value once the client comes. So it’s kind of like if you build it, they will come mantra. I tend to be pretty forward when I get an opportunity to get in front of a creator in the sense that if I’ve got a referrer vouching for our value and I have an opportunity to make our case, I don’t waste that one bit.

I do feel like I know FinTwit and the Twitter sphere and there’s a ton of advisors out there putting out a ton of content. To me it feels somewhat like not an echo chamber. It almost makes my brain hurt to see how many different voices are out there kind of competing for eyeballs and for ears. So I’ve been kind of a little bit more old school and elbow to elbow, winding and dining. Last year in Vegas I had a couple of creators that were going to be in Vegas at the same time, put together a dinner, invited them and asked them to bring some other creators that might benefit from what it is our team does. And next thing you know, 10, 12, 15 people at the dinner. Obviously we’re covering dinner and we’re not talking about business a whole lot.

Meb:

Caesar’s Buffet, man, that’s expensive.

Blake:

This is Wolfgang Puck CUT, which I think my brother was the general manager at the time, so I might have got a good discount. I can’t remember. But yeah, so no major content. I think that will change in the future as I free up and get a little bit out of the weeds of the business and bring in some other talent and horsepower to do some lift on that front. But for the time being it’s just been hard to make the space for it.

Meb:

So as you guys start to really scale, I think you said 300 something million, right? How many clients do you have?

Blake:

Roughly 375, last I looked.

Meb:

Yeah. So I mean, traditionally does that number kind of fit the traditional sort of kind of rule of thumb on the financial advisory side as far as the number of clients you kind of can handle or does sort of the modern EOS system help you guys to be a little more efficient in scale? What I’m getting to is as you look out to the horizon, the future for you guys, what’s it look like?

Blake:

I think the role we grow the widest in is lead advisor. If we build right, we like to think every lead advisor on our team can support upwards of 300 households or 300 relationships. Probably somewhat shy of that. But on the administrative side, that number’s probably for a client service administrator, 400 to 600 households. On the portfolio analyst trading kind of CIO world, you want to build a mousetrap that can support a lot more advisors than you need heads. So lead advisors will be where we grow the biggest, going back to that whole if you build it, if they will come kind of mantra, I won’t be shocked in time if we’re starting to acquire aging advisors or providing continuity for aging advisors. It’s not been something front of mind for me because I just wanted to build and kind of grow organically. And so it’s nice not having to need that and having to compete with all of the liquidity cannons and rollups out there that are spending ridiculous multiples buying up practices.

Meb:

What are those multiples these days? Do you know? I don’t track too much the current status of the financial planner.

Blake:

I mean I’ve heard some crazy stuff, Meb. And obviously every business is different and sometimes people are going off top line and sometimes it’s EBITDA. I’ve heard, this is going to sound wild, 12, 15, 18 times EBITDA for an advisory practice. I’ve heard four to six times top line gross revenue. Historically you’ve always heard that two to two and a half multiple. Now things are obviously cooling down dramatically, but towards the tail end of 2021, I had an advisor that I was talking to for years about providing continuity and when he told me he was getting over 12 times EBITDA for his roll up and it was going to be mostly a cash transaction, I don’t really have a great interest in trying to compete in that world just now. Not right now.

Meb:

So Blake, you’re a modern version of a wealth manager, Uncle Meb by the way, who’s like an old school Dean Witter guy. The way they did things a long time ago is a lot different than now. We wrote a white paper, we can put in the show note links, called the Investing Pyramid on just how much stuff’s changed the last 50 years. But also nothing has changed probably more than just how a modern advisor deals with clients like the tech stack of all the different things you use on a daily basis. I mean, you’ve already referenced about four things today that I’m sure that most advisors, planners don’t use whatsoever. So words like Discord and Twitch and even Slack perhaps. But what are some of the main tools or software or services you guys use that are value add to the various clients and internally as well?

Blake:

Yeah, so I would say the two most important internally are Salesforce and Slack. So backing up a step though, I don’t care what your technology stack is, what matters most is implementation. So I’ve seen countless advisors firsthand that might be Salesforce users, they might be Red Tail users, but if you don’t actually implement it and go deep with customization and how you’re going to use it and get something out of it, it’s kind of all for naught. So Salesforce for us, we don’t function without it. Every process that we do as a firm starts and originates within Salesforce. So just as an example, if you went on my website right now and you scheduled a meeting as a prospect or as a business partner, it will fire off something in the background automatically within Salesforce. So we use a third party app called OnceHub for the scheduling aspect of that.

It has an automatic kind of API hook into Salesforce. So if you’re a prospect and you schedule your first meeting on our team or with our team, it fires what’s called our established business process, which prompts the system to confirm their meeting, prompts me to capture the established notes after the meeting, to send their proposals out, to indicate if they’re moving forward, to decide who the lead advisor is and then so on and so forth. If the client says yes, let’s move forward there’s an onboarding BP and the general idea is every team member has a role or a seat within Salesforce, and as those processes are playing out for the client, the underlying tasks are then distributed to each team member based on some type of specified interval. Our most used business process within Salesforce is cashiering. So as you can imagine, we’re kind of the proverbial ATM for clients.

If they need money out for X, Y or Z, client calls in, I need five grand, it’s from an IRA, we’ve got the withholding data captured, we go into Salesforce, we say money out, ACH, this custodian, here’s the gross amount, here’s the withholdings, here’s the financial account number. Salesforce is connected directly to Orion, which is our back office performance reporting and technology suite, which is where the trading software is and all that kind of stuff. So it’s connected, it’s integrated, and basically we know where every single client request and onboarded new account is at any given time and if it’s stuck, where it’s stuck. So Salesforce, we are a huge power user. That kind of goes back to the EOS conversation we had earlier, which is one of the core tenets of EOS, is processes that are documented and shared by all.

Everyone should be doing everything the same exact way and if something is broken or inefficient, iterate and improve upon it. We also had this recent feature where basically certain types of inbound or tasks or alerts from the custodian or from Salesforce fire into Slack. So we all live and breathe on Slack. We’ve got the mobile app, we’ve got the desktop app. It’s where our team members are communicating on the chat tool every day. So for example, if a new account has a NIGO or a not in good order alert, or if an account has an insufficient funds alert, that is automatically firing into Slack with a bunch of different visibility on it in terms of the different team service members. So Slack and Salesforce are kind of the crux. Orion certainly can’t be lived without, it’s what we use to trade ETFs and funds and even do some individual custom indexing optimizations. We use RingCentral for voice over IP, Money Guide Pro for financial planning, Riskalyze for investment policy statements and risk tolerance.

Meb:

Not called Riskalyze anymore, they got a new name.

Blake:

Oh yeah, yeah. Nitrogen. And I kind of prioritize based on what I think is most mission-critical for us and you obviously have to have a financial planning software. I think you should have a risk tolerance or an investment policy statement software. I’m not saying it’s got to be those ones, but for us, Salesforce has been the answer. Orion has been the answer.

Meb:

The biggest takeaway to me of all this is it’s great to be in the software business, the SaaS business. I think we would agree with that. We pay a lot of money to all these. Since our producer Colby’s on the call, I’ll tell you a client facing one, listeners, if you haven’t used it yet, but we talk a lot about one of the benefits of our angel investing journey is we come across a lot of ideas that we implement both through work and also personally. And my team is always tired of me putting into Slack where I say, “Hey, have you guys tried this new idea service?” We may have mentioned it on the podcast, but there’s essentially the Google Flights frequent flyer and reward points called Point.me and this service we’ve used multiple times now where I’ve had buddies that have saved thousands of dollars booking.

Because what it’ll say is normally the way you go about it, you go like, I’ve got to go search American, then Chase, then Amex, then Hertz, or whatever, Marriott, all these different things to try to book a trip. And this one’s like, hey, if you’re flying to Paris and you want to go first class, can you get there for miles? And it’s like, yeah, use your chase miles but transfer them to British Airways where you can then take this flight for 50,000. Anyway, listeners, check it out. It’s a cool offering, not quite exactly what we’re talking about, but something that you guys may find useful as well.

Blake:

Have you ever used Loom?

Meb:

This is the recording, you record stuff?

Blake:

Yeah, we found it to be pretty effective.

Meb:

My problem is what am I doing that I’m ever recording, is my hard part. There’s nothing that I ever do on my computer that anyone needs to see. I’m trying to think if there’s any use case for that other than just recording me doing video. I don’t know.

Blake:

For the advisor’s perspective, if you’re trying to convey a topic or planning idea and you want to give verbal cues and visual cues and put it in a form that a client can watch and then refer back to once they’ve forgotten or call back to it at a later date, give them an instructional video on how to do something during onboard, troubleshoot something that might be broken for them in terms of having to connect the dots on call times and scheduling and all this different stuff. We ask people, how would you feel if we record a video going over your proposal so that you can watch it five times over until it clicks?

Meb:

That’s cool.

Blake:

It has worked very, very well.

Meb:

But then also you can say, hey client, a year from now, you remember when I was telling you to buy emerging markets and you were pitching a fit about it because you wanted to buy Nvidia? Go watch the recording. We’ll see if we can remind you to behave next time.

Blake:

Make sure I get that one deleted real quick.

Meb:

Yeah, that’s funny. This can apply to either investing side, it can apply to the planning side or whatnot, but we talk a lot about investing beliefs and things that we believe that most people that are our peers don’t believe. So I’m going to kind of hand this baton of a question off to you, but with a slight twist, which is, doesn’t have to be investment related. It could be regarding financial planning, it could be regarding how you deal with and interact with your clients, et cetera. But what’s something that you think pretty differently about than the vast majority of the other RIAs and planners and wealth managers out there?

Blake:

Yeah, I would say luck outweighs skill is a belief that I hold close, I guess in life, but specifically also in investing. So I always try and be careful in terms of how I assign credit and blame for what goes right, what goes wrong. In investing you can be the smartest person in the room, but just secular shifts or macro shifts, you’re just humbled for periods of time, whether it be years or decades. I find myself even in pickleball, constantly hitting a shot that I had no business hitting and it’s better to be lucky than good. So you can have all the skill in the world to build the Noah’s arc of an investment philosophy or a fund, but markets just move differently in the short term and you can lose the favor of your client in the short term because you’re just not right in the short term.

So different than a lot of firms out there, we do not lead with investments, we do not lead with performance. We kind of follow, keep it simple, stupid investment philosophy of broad diversification, prudent asset location, tax efficiency, cost efficiency and not trying to oversell our capability to time and get in and out of the market. And when things are going really, really well and you could see it in written form, I will chalk it up to luck all the time just because when the tide turns the other way, I don’t want to wear 100% of the blame because the markets are like the seas and they will humble the hell out of you.

Meb:

Well, I’m ready for some, as I know a fellow global investor, I’m ready for some foreign and emerging luck to return to the scene. Although I think we may be seeing that now. Q4, I’m convinced Q4 last year when we look back we’re going to mark the turning point on US first foreign, but we’ll see.

Blake:

Damn it, Meb. I sure hope so.

Meb:

Luck would be nice too.

Blake:

Believe it or not, I was thinking about how I first got into your podcast. I mean, I’ve been a fan of yours for greater than a decade now, and I was trying to find the timestamp. I downloaded a free copy of Global Asset Allocation on Reddit. Do you know what year you wrote that?

Meb:

2014.

Blake:

  1. So I think it was right around that time and as an allocator I’ve always had a willingness to be a little bit different and avoid home country bias and lean international and lean value and those have been some very painful places to be and you know tend to fatigue on apologizing and justifying. So the humility is probably shaped from lived experience of sometimes these things are going to work, but at the same time you got to have a plan because when it’s broken, you got to be able to stick to it.

Meb:

Let’s put that just exactly into context. So we did a Twitter thread of this the other day because I was like, I want to quantify, it’s just how painful financial planners that do global asset allocations lives have been the past decade. And so we actually walked forward all the portfolios in the book and we’ll eventually publish in the updates at some point. I was joking with our friend Corey Hoffstein, I said, “Corey, my son, who’s now six,” I said, “I claimed to have written five books, edited a few others.” I said, “Do you know how many books I wrote before and then after my son was born?” And he said, “How many?” I said, “All of them. I’ve written zero since he was born.” Now that’s a good trade and I’m happy about it. But the point being is I keep saying I’m going to update this book and it’s almost been 10 years now.

So anyway, but the interesting takeaway is that so many people who originally read the book says, “Ooh, I want to find the best portfolio, which of these is the best? Is it risk parity? Is it endowment, is it permanent?” And the takeaway from the book was like, they’re actually all fine or they’re all good or great as long as you include most of the main ingredients. Personally, I think they’re suboptimal if you exclude an entire category. So if you own no stocks or no real assets or no bonds, but if you looked at the best performing portfolio in the book, which over the period would’ve been early seventies to 2014, it was the endowment style Al-Arian book. And son of a bitch, guess what? Since publication of that book, it is underperformed the S and P I think up till last year for 12 years in a row, which is an astonishing amount.

And so then we took all the portfolios back 100 years. So the book only went to the seventies. You’ve got to make a few assumptions when you start to do some of the asset classes like REITs and we’ll publish this later, but in the past 100 years, this period has been pretty much the worst for a global asset allocator relative to the S and P in both terms of number of years that it’s underperformed, but also the magnitude of underperformance. Now I think that’s probably changed, but we got a little bit of shenanigans going on with all these AI stocks and chip makers right now and it’s like five, everyone’s talking about it all day. So it’s well known. But going back to what you’re talking about, it’s like every time you’re meeting with someone, having to have that conversation is weird. I mean, that’s a lifetime for many people. 10 years.

Blake:

Yeah, no, it’s been probably the most difficult aspect of my career. But I think in your writings and certainly a number of others, you look at all the different kind of approaches to asset allocation and how in different rolling return periods, if you draw them out long enough, they end up in a very similar place assuming that they don’t have any major critical flaws. The more important thing is that you’re not constantly darting from one to the next based on underperformance. So in that example you just gave for Al-Arian’s philosophy, imagine reading that publication and saying, “You know what? Screw it. I’m finally giving up on my philosophy and I’m migrating over to this and I’m shifting my entire client base and cue the underperformance.”

So there’s also something to be said for knowing when you’re wrong and making rational and informed changes and position sizing and things like that. But there’s also something for the conviction and strength to be able to hold the line when your philosophy’s not winning because that’s probably when the green shoots are about to start showing. So hopefully this little bit of international strength that we’ve seen lately is here to stay for not one, not three, but five years plus.

Meb:

Well, I think part of this seduction, and one of the reasons it’s so tempting to chase these various allocations is the average spread between the best and the worst performing on any given year, it’s like 30%. So there’s something always doing great, it looks on a shorter timeframe like it’s easy to switch between them, but in reality it’s not so much. And we had a fun stat the other day where we said if you had perfect foresight and you could pick one choice each year, stocks or bonds, you had perfect foresight for the next year, what is that return? And it’s like 20% a year, 18% a year, which is pretty amazing, but not maybe as high as I would’ve thought it was. On the flip side, but what if you got it exactly wrong? And the amazing thing about that is it’s like zero. It’s not like minus 20.

It’s like even if you picked absolutely impossibly wrong each year, you can almost not lose money. I thought was a fun takeaway from being invested, but a lot of people still manage to do it for sure, with all our zero day options and everything else going on in this world. Once the clients have bought into what y’all are doing, do they tend to kind of behave or is it something on a consistent basis you kind of have to re-steer them back towards the plan and process? Or do you allow them a little 10%, I can’t say Robin Hood, but a play account or something? How do you approach the, hey, let’s keep you on track with your plan, but also trying to deal with their interests as well?

Blake:

I’d say 99% of the money that we oversee is fully at our discretion. We do have the non-discretionary kind of play accounts for the folks that want them. That phenomena was a lot more prevalent during the COVID era boom and all the tech darlings and crypto hysteria. So we dabbled in it enough, we were kind of order takers and helping folks at least filter through some of these ideas a bit more and add rationally position size them. But for the most part, folks that are hiring us are wanting to delegate this stuff and not have to go through their day thinking about the decisions of what to buy and what to sell and what to trim and what to harvest. And that’s not a fit for everybody. But at the end of the day, a lot of our clients have felt like they’ve freed themselves from having to worry about almost all things personal finance and that’s the goal for us.

Meb:

As we look out, what else are you excited about? Anything in particular we didn’t cover today as we look out on the horizon for the summer, for the rest of the year? Business? Personal?

Blake:

Yeah, business. I am excited just to continue doing what we’re doing and I’ve got a couple of events coming up where I’m marrying a little bit of business and personal and sponsoring some pickleball stuff and starting to break into the content creator scene even within pickleball and even helping some of my kind of eSports and content org centric clients crack into pickleball as well. So I feel like I’m merging two of my worlds. Personal level, hopefully playing a couple of pickleball tournaments, got my four-year old’s birthday. Her fourth birthday coming up here at the end of June. Longer term in the business, and I’d love to chop this up with you another time or even here today, but I had lunch with Collin Roche a couple of days ago and we were talking all things business and I made the statement that fast-forward five to 10 years, I think a lot of RIAs of a similar size, 500 million plus, are going to have their own ETFs. I’ll be surprised if they don’t. Is that shortsighted? What do you think?

Meb:

I made this use case a long time ago. I think there’s a lot of opportunities for simplification and using platforms. For the people that do totally bespoke, maybe not so much, but a lot of our RIA friends, if they manage 300 million, 500 million, a billion. And you’ve seen use cases like the risk parity guys, R par and others. I mean we did this 10 years ago essentially where, you hear a lot about these mutual fund and hedge fund conversions now. Well, we didn’t technically directly convert them, but we took separate accounts and said, “Hey, do you want a more tax efficient version of this exchange traded?” Pretty much everyone said yes and then we just took them and moved them over into the ETF, so act like a seating vehicle. But also we had a couple private funds where we did the same thing.

Again, it wasn’t a direct conversion like some of these are doing to preserve sort of the fidelity of the track record and what’s happening. I think that’s an obvious idea. It simplifies people’s lives. Now there’s some pluses and minuses. There’s a giant plus, which is to the extent other people might be interested in your investment idea, sky’s the limit. To the extent your clients think you’re an idiot and want to get rid of you without calling you. They can sell on e-trade or anywhere. And so it tends to be a little more volatile in the flows. But I think our allocation strategies, which is what most advisors tend to do, some are different, but they tend to be a little more stable if they have the personal connection.

So I think it’s a great use case. I think the biggest risk or thing a lot of people don’t think about is they don’t really sketch out the sort of timeline and path if either things don’t work out or a lot of people don’t see them with probably enough. Say, “I’m just going to watch this ETF. It’s going to be a pot of gold at the end of the rainbow. People are going to think I’m brilliant and all this money’s going to flow in.” That’s probably the hardest way to do it. And if you are, you’ve got to say, “Look man, I’m willing to give this five, 10 years minimum.” And I don’t think people really, it’s like every entrepreneur is a naive optimist. I do a lot in the angel world where despite the fact going into it knowing that 90% of these companies are going to not really fail but not have a meaningful type of VC outcome, everyone still believes it’s going to be them.

But I fully support the idea. I’m surprised other on other use cases, I’m surprised more charities haven’t launched fund. I’m surprised more big institutions haven’t done fund variants. And maybe we’ll see it. We’re certainly seeing a giant tidal wave of conversions on the mutual funds and hedge funds and I didn’t foresee that kind of happening as much as it is. So absolutely, you should do it.

Blake:

Can you give me the simpleton explanation of how you take an SMA client and exchange existing holdings into an ETF basket? Is it a partial taxable event? Is there something I’m not aware of? Do they have to be kind?

Meb:

The answer is you pull up your email browser and you email Wes Gray at Alpha Architect or Mike Venuto a Tidal and you talk to them for an hour and they can get much deeper with you about it than I can, but there’s a number of different ways to do it. And there’s even some ways that are starting to press sort of the borders of I think what people had understood what’s possible, which makes it even more interesting. If you look at a lot of the traditional business owners have a large wealth in a stock or exchange funds, which is a very time honored sort of wirehouse offering. The problem with a lot of the traditional exchange funds, they tend to be pretty expensive and they also don’t have the tax efficiency of an ETF. They may have the diversification benefits of moving from one concentrated position to many, but I think you can see more of that in the ETF world, which is actually a really cool development, but it’s not something we have nearly as much experiences as those other guys do.

Blake:

Looking forward, I would see it, if we were to go down that path, it would be as a complimentary piece. I don’t see us in large scale transitioning a bunch of existing clients over to it unless the tax case is just so compelling in order to do so. But I think about in terms of business building, if I were an advisor and I had more of those employer centered niches where I’m ingratiated to Salesforce or to Facebook or what have you, where each participant in a 401k plan has a brokerage link window or a PCRA window or through Charles Schwab or something where they can hire an advisor and grant discretion, but the advisor cannot get paid through the account, well, why not take your strategy, your global asset allocation strategy, which is a fund to fund structure and split it up in an ETF and have that person allocating their payroll withholdings, their match, to your ETF.

It’s growing with every check that comes through. And then what is the value associated or the additional value proposition exchange. It’s like by doing this, you also get a CFP and you can become a client and you can go through our financial planning process. And it’s a way for us to get paid in the meantime because folks are still, in my experience anyway, gun shy when it comes to paying subscription based models or engagement models for ongoing financial planning, especially if the majority of their net worth is encapsulated within a qualified retirement plan in the equity of their home. So that’s one idea that I have for the future, is how do I give my advisors another weapon, an ETF fund to fund structure focused on the employer markets with kind of really focused marketing, content marketing based around those employer markets to grow the ETF.

Meb:

Yeah, I was just thinking as you were talking about this. I was like, Blake, you have all these resources of the one top 1% or 0.1% of content creators. When are we going to get a Blake Street TikTok show? It seems like you streaming some hot financial content would be an obvious way to move.

Blake:

I know, but I like to tell the truth, man. All the viral stuff is out there talking about the Augusta rule and accelerated depreciation and cost segregation studies and oh, you’ve got to have your whole life in a holding corp and these six trusts and just likes to overcomplicate the matter for folks. So I don’t know if people are going to be as interested in what I had to say.

Meb:

What’s been your most memorable investment? And you could take this two ways. You could take it with the investment or you could take it with your most memorable experience dealing with kind of building your business and hanging out with all these famous creators and streamers.

Blake:

I’ll go with personal. Most memorable investment for me, company called Barrier Therapeutics. Bought them my junior year of college, 2008. They’re a biopharmaceutical, they made a foot fungus cream and in 45 days doubled my money. They were acquired in an all cash offer and this is before I knew honestly really a whole lot about investments, my methodology for arriving.

Meb:

You knew a lot about foot fungus, so you’re like the old, “Not only was I a client, I’m now a shareholder,” so.

Blake:

Yeah, exactly. I mean, buy what you know. Right? Buy what you live. I arrived on Barrier Therapeutics by going on Morningstar and looking at their stock rating system and I think I was looking for four or five star rated stocks, but then looking at the dumpster dwellers in terms of six month, 12 performance and then some type of low volume type screen of just who’s getting no attention and no bid. And I found this company, I was like, all right, cool. I’m going to take a little flyer on it. And that was an example of going where nobody else is, kind of counter trend, and it worked out really, really well. Superstar contrast to my first investments, which was during the tech bubble with my pittance of an allowance that I was investing in like JDS Uniphase and LSI and chasing the herd and watching all of those investments basically evaporate and become almost complete losses.

So really early on, those two examples of before I’m even out of school and managing any real money just kind of taught me of like, don’t necessarily chase trend, don’t follow the herd, don’t be afraid to be a little bit different. Also, kind of goes back to my whole better be lucky than good phenomena of, I think there was a lot of luck involved there. I had no idea that Barrier Therapeutics was going to be purchased. So it just goes to show you a lot can happen in the markets that is well beyond your control and just a little bit of daringness to be different.

Meb:

Yeah. What’s the best place, if people want to come hit some shots with you, if they want to chat wealth management?`

Blake:

Twitter.com/bmcstreet. Warrenstreet.com. I think my calendar’s live and available to folks. Hopefully I don’t regret that, but usually pretty open and available to even young practitioners trying to get in the business and figure this whole thing out. On the pickleball court, I’m a member at Los Cab Sports Village here in Southern California. You can usually find me there a couple of days a week. And outside of that, just in dad mode.

Meb:

Oh, Blake, thanks for joining us today.

Blake:

Meb, thank you for having me.

Welcome Message:

Listeners, if you enjoyed this episode, check out the link in the show notes for episode 393 with tax expert Duncan Kelm on how he incorporates tax planning within his firm. Podcast listeners, we’ll post show notes to today’s conversation@mebfaber.com/podcast. If you love the show, if you hate it, shoot us feedback at themebfabershow.com. We love to read the reviews. Please review us on iTunes and subscribe the show anywhere good podcasts are found. Thanks for listening, friends, and good investing.

 

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