Listen to your customers and build what they need

George Kurtz is the CEO, president and co-founder of America’s hottest software company right now, CrowdStrike, which focuses on cybersecurity.

The stock rallied 50% in the first half of the year and became the seventh best performer in the Nasdaq 100 and the 14th best stock in the S&P 500 - it was the best software stock in either index and has recently gained S&P 500 index inclusion.

George told me a story about how his corporate and government customers were asking him to send data to a third party firm for something called SIEM or Security Information and Event Management. If you’ve ever heard of a company called “Splunk” that’s what they do - Cisco acquired Splunk in March. Anyway, George’s company is generating about 80% of the data Splunk needs for their SIEM service they sell. CrowdStrike decides that there’s no reason they can’t provide this service and cut that whole step out.

According to George, this led to a triple benefit for the customers - first, the fidelity of the data is higher because the data itself doesn’t have to leave CrowdStrike’s platform. Second, they’ve been able to save customers a ton of money on this sort of work. Third, one of the most important things to CTOs and IT managers these days is subtracting vendors and consolidating - having CrowdStrike do more things is a win.

RWM Tax

This got me thinking about what we have been doing for clients on the tax side.

Three years ago we began our tax prep and filing service for wealth management customers after an overwhelming amount of them told us they would be interested in our providing that service. A lot of the data being generated for an individual’s tax return is probably coming from the investment side anyway - a similar idea to what prompted CrowdStrike to take the SIEM project in-house. Our tax preparers and CPAs have a better understanding of our clients’ tax situations than anyone else as a result of the work we are already doing for them on the planning and asset management side. Why wouldn’t we use what we know to deepen and broaden our service?

I didn’t know what to expect at first as I authorized the project. Bill Sweet, our firm’s CFO and a CFP himself, set my expectations at a fairly modest level. I let Bill and Bill Artzerounian, our lead Tax Manager, build it out (collectively, we refer to them as the Bills). Two years ago year we did taxes for 336 wealth management clients. Last year 478 families. These aren’t 30 minute meetings - every household is a full-year engagement that begins the day after tax filing and spans the entirety of the calendar until the next one, with discovery, consultation, document production and review on a recurring basis. It’s a tremendous amount of work and responsibility. We’d be working with more clients but there’s a capacity constraint - almost everyone says yes when we offer this service to them.

This blew my mind. I couldn’t believe how many wealthy, successful people were either apathetic or unsatisfied with their existing CPA. My assumption was that multi-million dollar households were thrilled with their accountants and were fully entrenched with them. This just wasn’t the case and I had no idea. We work closely with our clients’ existing accountants when they are satisfied, but there are so many clients ready to switch to us that we now have a waiting list before we can commit to taking on more work.

I don’t know if you know this but there is a nationwide shortage of accountants in this country, something that is unlikely to change anytime soon. If you’re not sure what your kid should be studying, tax and bookkeeping is probably a good place to go.

From “The Accounting Profession is in Crisis” at CPA Journal:

The thing is that accountants have skills that are transferrable into any (every) industry under the sun. They can go anywhere and immediately be of service - Fortune 500 companies, venture-backed startups and everywhere in between. With an opportunity set that varied, grinding out individual tax returns at a traditional accounting firm just isn’t as attractive these days.

Some of the reasons cited for the crisis:

• The 150-hour requirement is seen as a barrier to entry.

• Accounting is perceived as boring.

• Compensation is lower than for other majors such as finance and technology.

• A lack of diversity seems apparent.

• The accounting major is perceived as too specialized.

• The cost of education is too high.

• Enrollments in higher education are declining.

I’m sure there are other factors at play - suffice it to say, many wealthy investors aren’t enamored with their current accountants but aren’t sure where else to find someone they can trust and rely upon.

The accountants joining us see the potential in working with wealthy families on the investing side and being on board a rocket ship, so we definitely have the opportunity to add talent. But we’re not in a rush and quality control is more important than scale for us, same as it is on the financial planning side of the firm. This is why we’re not making dozens of acquisitions and bringing on hundreds of employees at a time. Our clients are counting on us not to do that.

We’re building physical office space in the Philadelphia suburbs and we’re currently interviewing CPAs and bookkeepers. As the RWM Tax subsidiary passes 500 customers and grows in capacity, I’ll have more to say about the strategic necessity to listen to our clients and add the services they’re asking us for. We’re not going to be painting their houses or booking their vacations, but financial planning, investment management and tax go together like vanilla, chocolate and strawberry. Practicing all three at once - at a high level - is the mission.

Filling in for Professor Scott Galloway

This was one of the coolest things I got to do this year…

I got the SOS from Professor Scott Galloway and his team last week - he’s stuck on a super yacht somewhere in the Greek Islands and needs me to pinch hit on the podcast this week. His co-host, the gallant Ed Elson is standing by. I will be in the Scott role - weighing in on the headlines of the week and bringing some edge to the show. Okay, I can make it. Let’s go.

The show is available on the Prof G podcast feed everywhere or you can watch it below:

The Most Bullish Thing That Can Happen

Last night Michael and I went on a rampage of charts and data for the all new What Are Your Thoughts session.

One of the things I brought to the table was this ratio chart of High Beta vs Low Volatility stocks. This thing is breaking out to the upside and two of my favorite technicians are writing about it simultaneously:

Ari Wald (Oppenheimer):

JC Parets (All Star Charts):

Our version of the same idea (thanks Sean Russo):

Michael and I explain why this relationship so important to understand right now.

You can listen to the show here or watch it below:

Okay, that’s it from me. Hope you have an awesome week, talk soon! - Josh