Charles Zhang on Efficiency, Community, and Caring for Animals

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This is Greg Bartellis for Barron's The Way Forward. My guest today is Charles Zhang, founder and president of Zhang Financial. Charles was recently named by Barron's as the top advisor in Michigan for a 10th straight year. Charles, welcome.

Thank you.

Thank you so much for joining us. So we have a lot to cover today, but you've— your firm has grown quite well to have what, close to $5 billion in assets under management? And you've done this basically organically. Tell me what's the secret in terms of operating efficiencies. What can you tell me about how you did that so successfully?

I think it just, yeah, operation efficiency is very important to our firm and, you know, how you operate and make sure is everything efficient and streamlined and maximize the efficiency in helping our clients, you know, all aspects, you know, financial planning, So that's what we focus on. And actually, I learned a lot from my MBA program from Northwestern University Kellogg School of Management. And one of the cases actually in Northwestern right now, Kellogg is still using our study, you know, Zen Financial, at the time called Zen Associates. So one of the textbooks actually using our case and how to teach people be more operation efficiency. And last time I heard it, like University of Michigan too, the EMBA program still using our case as well.

And what are some areas where you tend to see inefficiencies?

I think operation efficiency for advisory firm is very important. You have advisor and specialized, you know, we have a different specialty too, right? No one knows everything. So we have one thing we did is we have 7 CPAs help our advisors on the tax planning side, estate planning side, and portfolio management, make sure more tax efficient for our clients. So that's one area. Another thing is every client service manager, we have 1 or 2, sometimes even 3 supporting staff helping them. And we have a senior client service associate, and we also have juniors, you know, service clients associate as well. So they help them paperwork. And so the client service manager don't have to worry about paperwork and prep work and all the things. Their job is just meet clients and deliver the advice and continue improve themselves.

And what's a common sign where you say, oh, this clearly is not running efficiently? Are there any key things that you tend to see?

As your client service advisor, we call client service manager, on average you have relationship is anywhere between $200 million to a $600 million relationship. Think about it, right? And with 2, 3 supporting staff. Of course, the difference is that we do have a CPA support, we have investment team support, and 3 CFAs as well. So, but our client service manager is very efficient, you know, and our client satisfaction results are great too. We have very high client satisfaction result, and our current retention ratio is 99.5%, over 99.5% actually.

Exceptionally high. Yeah. And your name is quite well known and distinctive, and tell me about the brand. I think that's something that you are a big believer in, the importance of having the brand.

Thank you. Yeah, Zen Financial, we try to strive, achieve, become the number one fee-only advisory firm in Michigan. That is no question, but we manage close to $5 billion. And we want to make sure people know our firm is a fee-only, objective, cost-efficient, and comprehensive approach, and also community commitment. You know, that's another thing we do. We donate roughly around 20% of our profit every year to our community and other place too. So we involve a lot of community involvement. So like, Zan Portage Senior Center, community senior center, which is just finished, should be this year in May. And we have Zan Lexi Center, Charles Ling Zan Lexi Center. We have a career center for university and we set up professorship, you know, and all those things. And also we are animal lovers. My wife and I, we have a dog, Sparky, and 13 and a half years old. So we involved with like an animal center too. We help in the community, have a Kalamazoo Humane Society, build an animal center. So all those things make us a pretty unique firm. You know, we care about our clients, we care about community, and we also want to become the best fee-only advisory firm in Michigan and hopefully in the nation too.

It's noble and also very interesting that you give so much back to the state because the business is often more a local business, right, in general. And yet there are a lot of advisors who are focused on advertising on Twitter or all over the world. And really it's often better to start in your own backyard, right, where you have roots in the community and they see you and it's a reciprocal— it just seems to make a lot more sense. But some— I don't know if it's vanity or whatever, but some people just love to put their name everywhere, but it's almost not necessarily so smart for business.

Right. Community involvement is the key. Yeah. So we've been doing this, of course, I mean, in the business over 30 years. So we've been doing this for 30+ years too.

And what are some things that you've— are there any hard and almost hard and fast lessons that you would say after succeeding in a business for such a long time that you would tell people? And granted, there's no easy formula, right? It's hard work, it's dedication, et cetera. But any bits of wisdom that you would share?

Continue to improve yourself. I think education is important, get your CFP done, maybe have graduate degree. And I have my CHFC as well, Chartered Financial Consultant. I got my MBA from Northwestern Kellogg. I have an MA degree in economics as well. So all those things, I think education is very important. And delegation, I think delegate. You don't want to be, micromanagement, you know, and you want to make sure is be a leader, you know, I think it's important, not a manager, you know, try to manage everything. So that's one thing we do is we, you know, leave a client service manager alone and let them do the work. And we do client satisfaction survey every year. So we, from clients, we know how well they done. For the clients. So I think it is important, be a leader and be a supporter. One thing I also learned is treat everyone same, equal too. I don't like think because I'm an owner, I'm the founder and above any person. And I think our environment in our office is very friendly. Our client service associate talk with our senior VP or VP and they're very comfortable and like a friend. Like a family.

I think that humility is something that's, you know, you don't always find it in the business, right? I mean, certain people at a certain point may feel a little, and I think it's not necessarily the nice, and it's also not good business. I mean, everyone just wants to be treated as an equal, right? So actually, if I may go back from what you mentioned, that you're animal lovers, has this been something that's been always there or something that's changed over the years and what's kind of the root of that, if at all?

We have our dog, Shih Tzu, now 13 and a half years old. And so through him, and I mean, just like our third child, you know, we have two children and we think the third one, the youngest one, Sparky, and actually we love him as equal as our sons, maybe even more.

Hope they're not listening.

So we love our— I love our dog and we just become animal lovers. We involve a lot of Canine Humane Society and other things as well. I think it's important, the dog and the cats, it's just our family member. So we glad, I truly, I think it's worth the money to spending on this. And we found out recently our dog is sick and we went to emergency room and see how expensive the cost is. And we find out is some of the people of course don't have the money, can't afford it. You know, and to treat the animal. So the Canine Humane Society will be able to help those people, and we're so grateful and we're so happy we'll be able to help them.

That's great. That's definitely very noble, and I can relate. I grew up with a dog, and then 4 years ago we got a dog, and it's a bit of a cliché, but it's true. It's like part of the family, and the bond is just hard to describe and really, really profound. So let's talk about on the client side, how do you distinguish yourself from other firms? What's something special that your firm does?

Our firm is, as earlier I mentioned, comprehensive approach, fee-only advisory firm, and we don't take any kickback and any money from any firm, any investment firm. So we want to give objective advice and overall low cost. Helping our clients. But comprehensive financial planning approach, one thing we did pretty well compared with other firms, because my wife also, she's my partner, her background is PricewaterhouseCoopers CPA and the CFP as well. So we have very strong tax team, you know, 7 of us CPAs. And so almost every client's service, every client actually have a CPA service too. I mean, while I mean services, CPA service is not like do a tax return. We do have a few people we do tax return for them, but majority of people truly tax planning year round and year-end tax planning, tax loss harvesting. So make sure your portfolio is more tax efficient, you know, toward the end, by the end is people looking for is overall net return, which is after tax, after cost, right? So we want to make sure they receive the best results possible and achieve their financial goals.

And has there been an increased interest to this tax sensitivity with the portfolio wealth management? I mean, we have lower rates. It's harder to squeeze out return and whatnot.

Yes. Yeah, it's become more and more important now.

Yeah. In terms of investing, are there any particular areas, be it assets where you see particular value or anything you were trying to avoid just in broad strokes?

Well, investment vehicle, we're using Vanguard Dimension Fund. And different type of ETF like BlackRock, iShares, all those things. And so we're using a lot of different type of products. In the meantime, we also have our portfolio manager pick the individual security as well. As I already mentioned, tax efficiency is very important, but we are value buyers too. We're value investing. We believe small cap and value cap overweighted on that area. And also we're looking for different sectors. You know, for example, if an emerging market right now, reasonable price, and we're buying it. Actually, today I had one of the person, advisor, told me, he said, hey, Charles, I remember a couple years ago, actually one or two years ago, you mentioned, you know, buy some gold. You know, looks like right now is right, you know. And yeah, we do invest in gold commodity as well. So just diversify our portfolio. Fully for our clients, but looking for the opportunity for the market as well.

And when you invest in like gold or commodities, do you like buy GLD or the miners or physical, or how do you get exposure there?

Yeah, I use GLD and GLDM.

Yeah.

And those investment gold ETF, that's normally we do. And we also invest some, like recently, some Vanguard commodity fund, you know, and BFA. So, But this is just one of the small portions of the diversification, you know, the overall diversification, yes.

And tell me about diversity efforts at the firm and what your thoughts are.

We focus on— we think diversity is very important and of course I'm Asian American and first generation immigrant and I definitely think it's very important. Very lucky to become number one independent advisor in the United States based on the Barron's ranking. And this last year, 2021. And but overall, Asian American for the top advisor, I think is still a small percentage, very small percentage. And so I'm glad. And we do have a lot of minority in our group. And Hispanic, you know, and Asian as well. Another thing is that we focus on, we think are very important, have a gender balance, have more female advisors. I think is actually this business is wonderful for female advisors because we can be more flexible and they can take care of the family as well as clients. So I think it's a wonderful business for a female involved. And we see more and more and we have a great, you know, our CEO actually, I'm the founder, but CEO, my wife Lynn, and she is very big on this. She's a great leader and she's a university, our local Western Michigan University Board of Trustees chairman, and she is advocate for diversity big time. And other things, of course, LGBT and all those things, I think is important because the more diversity are, and the better for our community and for everyone.

Okay. And to wrap up, I'd remiss if I didn't ask you, you've been in business 31 years. Tell me about your succession plan. What might be in store?

My succession plan is, you know, of course, it's a lot of merger acquisition right now, and our firm is a $5 billion firm, you know, and definitely target, you know, either we buying someone smaller, which we haven't done anything because we believe organic growth, or if someone want to buy us. You know, I did receive some offers last year and this year as well. I'm sure a lot of outside registered investment advisory firms all receive those offers. And we determined, we decided we're going to stick with it, and I'm going to continue work and continue growing our firm. And I see the next 4 or 5 years, our assets will become over $10 billion firm. And I have 2 children and 2 sons, and one of them planning coming back, work for our firm. And so he's pursuing his CFA right now and law school as well. So I think our succession plan is overall our firm will continue growing, become the best fee-only advisory firm in the United States. And I see myself continue working the next 10 to 20 years or more, I hope. And, uh, for our clients.

Excellent. Well, thank you so much for sharing all that and for joining us today.

Thank you so much.

My pleasure. Um, my guest has been Charles Zhang. For more advisor-specific podcasts, please check out barons.com/podcast. For The Way Forward, I'm Greg Bartolis.

This podcast was brought to you by Wells Fargo Advisors. Looking for a firm your clients can't outgrow? Wells Fargo Advisors offers financial advisors full balance sheet solutions with wealth planning, investment products, banking, and lending that meet the needs of affluent to ultra-high net worth clients. Build your practice your way and on your schedule with independent and employee model options designed to meet your needs today and tomorrow. Learn more at joinwfadvisors.com.