Annual Letter to Stakeholders
Welcome to 2023! With each passing year, it seems time speeds up just a little more. Sometimes we need to slow down and appreciate all the wonderful blessings in our lives. Thus, as is customary this time of year, we are taking a moment to reflect on the happenings at PDS and share with you our vision for what is to come.
Consistent with what one would expect from a growing organization, last year brought several changes to PDS, almost all of which we view in a positive light. Of utmost importance for any organization are continuity and succession. Bob Hamilton knew it was incumbent upon himself to create a lasting organization and as a result, Bob Cochran (retired), Rita, Kurt, and myself have had the privilege of being shareholders at PDS.
With great enthusiasm, we welcomed Jimmy Rogers to the same role effective January 1, 2022. We each respect the awesome responsibility of making sure PDS continues for our entire team and, more importantly, our clients and their families. Helping clients attain their goals is very rewarding work and making sure the firm is in a position to do this beyond our personal timelines is something we take very seriously. Next time you’re in, if you have not met Jimmy, please stop by and introduce yourself. We are confident you’ll quickly understand why we view him as instrumental to our success, and succession.
As we moved into 2022, we knew our team would need to expand to meet the demands of our growing client base. Unfortunately, two great employees of PDS opted to step away and pursue other professional goals last year. Dean Schuler and Mitchell Niese left PDS and though we did not want to see them leave, we consider them great friends and are happy for their continued success. In addition to expanding our talented team as we planned, we now face some replacement requirements as well.
At PDS we have always been very guarded when adding people to the organization. At times, this has caused us to take what seems like too much time to hire. However, our culture is extremely important to us, so we will always be protective of who joins our group. While we still have some hiring requirements facing us early in 2023, we, fortunately, were able to farm our personal networks to find two incredible additions to the firm in Kevin Doll and Jillian Wendling. Both bring in-depth experience to PDS and have proven themselves to be exactly what we hoped for – individuals focused on client service and solutions in the best interests of our clients. If you would have been at our December holiday party, you would have quickly recognized the positive contributions they and their spouses have made to the PDS family.
Speaking of family….Katie (Warga) was popped a big question while on vacation in Italy so she and Christian are now excitedly planning their wedding. Alyssa (Anderson) and her (now) husband Brent traveled to Hawaii for their destination wedding and looking at the pictures, it could not have been more perfect. Jill (Olding) and her husband Jim became grandparents this summer! For anyone who has been to a PDS social event and has been impressed, it’s because Jill put it together. She loves trying to find ways to spoil our clients and us. Being her grandchild is going to be a good life!
We are also thrilled to mention Drew (Potosky) and his wife Liz welcomed a baby boy, Declan Ellis on September 20th. Not to be outdone, just a few days later on October 2nd Beth (McCampbell) and her husband A.J. brought Grayson “Gray” Harris into the world. It would be an understatement to say the entire PDS family is thrilled about these newest additions. We picked up a fiancé, a husband, a couple of children, and a grandchild. Not a bad year! One must wonder what exciting news awaits us in 2023.
Sadly, several friends passed away in 2022. Yes, they could be called clients, but in a business that is so personal in nature, it is more appropriate to honor them as friends. Every day at PDS, we laugh, cry, and have serious conversations with clients. Those moments transcend a business transaction and each time we lose someone, it hurts. However, we celebrate their life and remember all the wonderful lessons they taught us along the way. They will be missed, but not forgotten.
The 3 C’s
At the heart of any organization is its biggest investment – people. In a professional services business, this is probably even truer. You know this as they make your experience here one we hope you find rewarding and integral to helping you achieve financial freedom. Always in service to our clients, they embrace putting your interests first, finding solutions that work, and delivering them with efficiency and empathy. Given the talented team we have assembled, our focus is making sure they have the ability to reach their goals. We internally summarize this through the 3 C’s: Career, Control, and Compensation.
We want everyone who works at PDS to see a career path for their future. They should be able to see upward growth for themselves. We never want someone to find a ceiling and feel they’ve gone as far as they can with PDS. To that end, we have expanded our financial planning teams and continued to create new positions over the last several years as the firm has grown. Given our recent and projected growth, this shows no signs of slowing.
No one wants to be micromanaged. And the best path for growth sometimes is to Just Do It, if we may steal a line from Nike for a moment. We want employees to feel empowered to make decisions when they are comfortable doing so, to feel like they have a high degree of autonomy over their role and even just their day. Need to run out for a personal appointment, or work from home to meet someone doing work on your house? Just Do It. Make decisions, and trust your training. Admittedly, COVID has created some seismic shifts in how work-from-home days are now more common in all forms of business. We continue to work on this so our staff feels in control, but without sacrificing customer service, or our team dynamic here at the office.
Annually, we evaluate our compensation and benefits package against our industry peers and are confident we are at or above the market in many cases – but that’s not enough. We know how important compensation is so we have tried to continually evolve how we manage this critically important topic. Historically, everyone at PDS has been compensated with a Base Salary and Performance Bonus. Coming off 2020, a year of historic disruption, PDS experienced record growth (up to that point). That wasn’t the effort of just a few, it was a team result and our goal was to thank the group and build upon the 3rd C at PDS. For 2021 we rolled out a company-wide Incentive Program which now is heading into its third year. These are team-based goals with a focus on positive client and company outcomes.
It is our belief that if we give people Career opportunities, Control over their roles, and Compensation as good or better than anywhere else, they will want a long-term future at PDS. Never wanting to lose good people is a key challenge for our shareholder group to always monitor.
For us, being able to articulate the 3 Cs has been valuable when talking with prospective additions to the firm. Also, having a Personnel Chart complete with job descriptions, expectations for each role, and the necessary skills one needs to master has shown those who we have interviewed that we take their career aspirations very seriously. Coupled with the people they meet during the interview process (our entire team!), our client-first level of transparency through our fee structure, and our defined roles within the organization, we have often been afforded the opportunity to pick who joins PDS, rather than settle for someone simply to fill a need. Again, protecting our culture and your client experience drives our decisions. Closing the office at noon every Friday helps us convince folks this is a good place to work as well.
An evolving industry
Our industry continually faces rapid evolution. Consider this, relative to the legal and accounting professions which date back hundreds of years and are far more anchored in their business models, our industry (defined as financial planning, not just investment management) was really in its infancy in the early 1980s. With the advancement of the CERTIFIED FINANCIAL PLANNER™ designation, it has been striving to put itself on equal footing with these other professions by leading with strategic planning. PDS founder Bob Hamilton embraced this from day 1.
Today, the entire team is fully committed to the idea that we are a comprehensive financial planning firm. Not all firms live that each day. In fact, most financial advisors are focused on gathering investment assets from clients because this is how they drive revenue, by charging a percentage-based asset fee. Our flat-fee structure, quoted in dollars and not a seemingly marginal percentage of assets is disruptive to our industry and in our opinion, is one of the key differentiators from our peers.
Imagine you have someone come to your house to give you a quote to mow your lawn for the summer. They look at your yard, talk to you about how great of a job they will do, show you some pictures of other lawns they mow, discuss the leading-edge equipment they use (in convincingly hard-to-understand terms), and show you a review or two from a happy customer. You feel good about this person and ask how much they will charge. What would you think of their response is to look at your home value on Zillow, so they can apply a percentage of your home value to arrive at a price? Also, if you put on an addition to your home and the market value increases, so too will the cost to mow your lawn. Ridiculous, right?
That’s our industry and several years ago PDS made a commitment to discontinue this type of pricing for our clients. We want to be an industry pioneer, not merely a passenger following the same path every other firm takes. We believe a client’s fee should be a function of our time, resources, and value-added to their financial outcomes, and not a function of how much they have to invest. As a client of ours, this may seem completely logical. Clients of most firms, however, don’t even realize our model exists. Why? Because there are very few advisors who run their business in a manner similar to PDS. In fact, we know of no other firm of our size (15 people), our history (38 years), and our scale (over $1 billion dollars under management) that embrace flat-fee pricing.
We are confident this not only differentiates PDS, but we know it creates long-term compound value for our clients. And over the past few years, we’ve come to realize other firms recognize this is likely the future of the profession. At conferences when we speak with peer firms, they are astounded we have found a way to run our business this way. To us, it’s the only way. We are far ahead of our peers in this regard. At some point, consumers will realize the only thing they pay for in this world with “percentages” is their advisor fee – and they’ll want to engage with firms that operate like PDS.
PDS, like each of your households, has not been immune to the effects of inflation. We recently looked at our expenses in three key areas from 2018-2022: Technology, Cybersecurity, and Personnel. As one would expect, the increases we have faced in those areas have been material, double-digit percentage increases on an average annual basis. And it’s not just the inflation factor, we have continued to make substantive investments in these areas. A recent example, we are continually implementing safeguards against cyber threats, whose attacks will only continue to grow. Make no mistake, these are faceless criminals nestled in the dark recesses of the internet attempting to defraud each one of us. PDS takes this responsibility very seriously and we continue to invest in warding off these threats. Because this is such a new frontier for insurance companies, proper levels of protection come at a significant cost, but this is something we view as an investment in our clients.
From its inception inside Pritchett Dlusky & Saxe (the P-D-S in PDS) in 1985, to Bob Hamilton and Bob Cochran’s stewardship, PDS continues to thrive as we enter our 38th year. Yes, the world seems to have its fair share of problems, but we look around at our team, the wonderful families they are part of, and of course, our clients, and we cannot help but be optimistic. Phil Jackson, iconic NBA coach of the Chicago Bulls and Los Angeles Lakers said, “the strength of the team is each individual member, and the strength of each member is the team.” Without a doubt, this idea is embodied in the walls of PDS.
We come to work each day in the service of our clients and we could not be more proud of who we are, who we serve, and where we venture next. On behalf of the shareholders and entire staff at PDS and with the utmost humility, we say Thank You for allowing us to be on this journey with each of you.
Jamie Menges, CFP®, CPA, Shareholder
Rita Itsell, President, Shareholder
Kurt Brown, CFA, Shareholder
Jimmy Rogers, CFP®, Shareholder