Using Mergers & Integrations As A Path To Talent Acquisition

Author: Michael Kitces

Team Kitces

Michael Kitces is Head of Planning Strategy at Buckingham Strategic Wealth, a turnkey wealth management services provider supporting thousands of independent financial advisors.

In addition, he is a co-founder of the XY Planning Network, AdvicePay, fpPathfinder, and New Planner Recruiting, the former Practitioner Editor of the Journal of Financial Planning, the host of the Financial Advisor Success podcast, and the publisher of the popular financial planning industry blog Nerd’s Eye View through his website Kitces.com, dedicated to advancing knowledge in financial planning. In 2010, Michael was recognized with one of the FPA’s “Heart of Financial Planning” awards for his dedication and work in advancing the profession.

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Full Transcript:

Michael: Welcome, Seth Streeter, to the “Financial Advisor Success” podcast.

Seth: Hey, Michael. Thank you so much for having me.

Michael: I really appreciate you coming on the podcast and joining us today, and the opportunity to talk about some of the, I guess, the dynamics and challenge that come up when your advisory firm grows. For so many of us in the advisor world, it just, the challenge is growth, is managing to achieve growth, is getting growth going, is sustaining growth, is expanding growth. As you add more advisors who need to help with the growth process, there’s a lot to it, and find for so many firms, we sort of put on this pedestal, anybody who seems to figure out a formula for growth that attracts clients and gets them going is like, oh, they got it…they got it made because they’ve got clients coming in and the business is growing.

And if I don’t always appreciate sort of the twin challenge that goes with that, which at the end of the day, we are very much a service business, and growing a business when you’re a service business means growing people cause you need people to do the service, right, to have relationships with clients and provide them the advice. And that even if you start doing pretty well on the growth end, it doesn’t work if you can’t figure out the people end and what it takes to attract talent and retain talent and build a good culture that makes the talent want to be part of the firm. And I know you guys have had an amazing growth story over the past 20 plus years of growing all the way up to almost 5 billion under management and many, many dozens of people.

And so, I’m sure we’re going to spend some time today just talking about growth and how that happens, and where that comes from. But I’m particularly interested today to talk about the team and human dynamics that go with that of when you do get the growth going, how do you get the advisors that you actually need to do good work for all those clients and make sure they’re actually served well and retain…clients retain and team retains so that you can build this scalable service business.

Seth: A hundred percent. Yeah, it’s amazing. With technology, we can get tremendous scale with marketing initiatives and different partnerships we’ve developed. You can get tremendous scale, but you’re right, at the end of the day, we are a service business and clients to be able to speak to and be eyeball to eyeball in this stage, sometimes virtual with their advisor. And that takes very capable, competent, growth-minded advisors who can actually have those conversations and provide that level of planning. And so, that has been something we’ve thought about a lot, as well as, what type of culture will really attract those types of advisors and other critical roles outside the advice space and how do you retain them? How do you make them really feel supported and create that lifeblood that is culture that is so critical for that growth to be sustainable?

Michael:  It’s a funny thing to me that the… I feel like these days in the industry spending a lot of time talking about technology and all the cool stuff that technology can do. And look, I love me some great technology as well and the benefits and the efficiencies and the cool stuff that you can do with technology. But, just at the end of the day, if you look at most advisory firms, the technology on our P&L is probably somewhere between about 2% and 5% of our expenses and the people is usually somewhere between about 70% and 80% of the expenses.

Seth: Exactly.

Michael: And just, we spend an inordinate amount of time talking about what we’re doing with the 5% on technology and remarkably little in what we…and talking about what we’re doing to make like the 70 plus percent that we spend on building and developing teams to be successful as a business.

Seth: Right. I completely agree. And then, the training that’s really required to keep those team members thriving in supporting their personal career development, as well as the firm’s ultimate growth goals.

Scaling Talent And Teams By Leveraging ‘Mergers And Integrations’ Over Acquisitions [06:51]

Michael: So, I think to start, why don’t you tell us a little bit more just about the advisory firm itself. Just paint a picture overall of the firm. How big is the firm? What do you do? Who do you serve? What does the team structure look like? Help us understand the firm as it exists today.

Seth: Sure. Well, the firm started 22 years ago in Santa Barbara, California, and Brad Stark and I co-founded it together. And we started it inside an accounting firm actually, which we can kind of get into that backstory about why we went down that path. Today, we have 83 professionals on the team. We serve just over 2000 families, and we have just under 5 billion in assets under management, and we do provide comprehensive financial planning, which is live financial planning for every client, every year. We have a strategy team where we go in and have an in-house CPA, in-house estate planning attorneys. We use the Angie Herbers’ Diamond Models as far as how we structure our advice teams, which are these kind of teams of four lead advisors, two client advisors, and an associate advisor. That’s been really great for kind of scaling our advice teams. And then, we also have dedicated departments. We have a dedicated IT department, marketing, operations, compliance, strategy.

And so, we have kind of the infrastructure designed to really thrive. And I’d say a key differentiator that we have is we’ve decided we didn’t want to be private-equity fueled, as a lot of these larger firms are today. So, we’re needing to compete against these well-backed firms that are also really growing like us, but still do it in a way that’s going to put culture as the top priority. And so, that is what we feel is kind of our Goldilocks. We’re not going to be as big as them, but we are going to be able to compete. But we also are going to be able to be practitioners first, put clients first, put team and culture first, and then hopefully grow in that intentional way where we’re focused not just on the bottom line, but really on the impact and care that we can provide for clients and for our fellow teammates.

Michael: So, in describing the team structure, help me understand a little bit more of just of 83 team members, how many actually sit on the advisor side of the business. What’s advisory team versus operation support staff and all the other departments that you were describing?

Seth: It’s almost 50-50. So, we have about 45 advisors today and 40 different departmental team members. And we are growing by these diamond teams today. We have 12 diamond teams, and we expect to grow by 1 to 2 diamond teams per year in targeted geographies. And then, of course, within each diamond team, our career ladders that are very clearly spelled out. So, an associate advisor who comes in, who’s essentially the paraplanner there to support the other three advisors. They sit down in meetings, they help populate the financial planning software. It’s a great training ground while they get their CFP. And then, once they have their CFP, they can become a client advisor. And for those client advisors that show an interest and ability in business development, they can then evolve to become a lead advisor. So, we’re always branching people off on this career ladder into new roles if they’re suited for them. And that’s how we’re kind of sparking new advice teams.

So, we’re growing by diamond teams a year. That’s kind of our target. And up till five years ago, we were doing this all internally, all organically. And just in the last five years, we’ve started to get into the kind of ‘acquihire’ and now actual M&A space. We’ve done five transactions. Three of whom were just individual advisors, two of which were firms, but smaller firms, three to four people. And so, we see that M&A aspect as being a key part of adding to our advice teams and other key roles in the firm. We actually call it M&I, mergers and integrations because of the human capital focus versus M&A, mergers and acquisitions, which oftentimes is just about grabbing assets. So, that’s kind of the way we’re growing now is we’re still hiring internally, but we’re also looking to find key partnerships that can also boost the human capital of the firm.

Michael: So, I’m fascinated with that framing, and I love the term acquihire, which I know I always think of that as coming from the tech world, although I know it’s showing up more in the advisor world as well. It’s the idea that you do an acquisition, not necessarily because you want to acquire the firm or the business or the client, the assets, or the technology and IP if you’re in the tech world. But maybe they bring some of that with them and that’s great, but the primary reason you do the acquisition is literally, it’s if you buy the firm, you get the people. And you can bring the people in your firm and have them do things in your firm that you want them to do in your firm, whether that’s be leaders or be advisors or be client service folks. Sometimes, you even get to acquihire other specialized roles, someone that has an operations expertise or a compliance expertise or an investment expertise.

I like that framing or just from the business end of we’re not trying to acquire are assets. We’re trying to integrate more people and we’ll do an acquisition and acquire the firm just for an opportunity to get a good person onto the team.

Seth: Exactly. And we have four core values to the firm, and two of them have to do with kind of being adaptable and innovative and having a growth mindset. So, when we are talking to firms to partner with, we’re actually looking for entrepreneurs, people who have a strong vision, maybe a market niche that they serve, definite skills cause they’ve started this thing on their own. And so, we say, “Look, that’s not going to go away. We want to amplify it. We want to take your niche and move it national. We want to take your insight and maybe we can embrace it.”

So, if a firm always has that beginner’s mindset, then we can constantly keep growing by their intellectual contributions as well as their assets and day jobs that they perform well. So, we love continually evolving. We want to never be fixed-minded and say, we’ve got it figured out. So, our last two folks that have come on board, they’ve had really key practices on the service side that we thought, this is wonderful. We’re going to now adopt this across all 12 diamond teams. So, we’re always kind of open and we want to kind of be thinking about how can we be nimble to keep evolving with this fast-changing industry so we can stay relevant.

Michael: So I’m curious there, you mentioned this framing of wanting to find entrepreneurial advisors and advisors who maybe even already have niches that they got started on their own and got going. So, I guess, I have two questions for that. The first, I guess, maybe I’m overgeneralizing or stereotyping a little, but sort of the classic view is entrepreneurs don’t make good employees. That’s often why they went out and launched their own firm in the first place. So, I guess, just talk to us more about the dynamics of trying to acquire a solo entrepreneur into a large firm environment. How does that go? And what’s the pitch to make that a killing for an entrepreneur that’s already getting it done well on their own. You like them because they’re doing well, but they may be happy on their own because they’re doing well. So, what drives that conversation?

Seth: Sure. Well, I think there’s a lot of momentum that’s happening in our industry that’s creating more awareness for those solo advisors or small firms. And some of it is around service expansion. They’re seeing a lot of these largest firms, many of which are PE-backed that are adding in these in-house trust departments, in-house tax, robust alternative investments, robust ESG screening, estate planning services, charitable and philanthropic services, the life coaching services that we’re doing a lot of. And they start to think, gosh, how can they compete against that? I’m just having a hard enough time keeping my tech stack going, keeping up with clients, and handling a few referrals a year. And I’m seeing where this industry’s going so how can I compete with that trend? So, some of it is just industry trending and them wondering how the heck am I going to stay relevant for the same 1% or less that clients are typically paying.

If someone can offer five times the services those clients, as they become more aware, might say, “Well, gee, I love you, advisor, but I sure wish you offered some of these other services that I could get across the street.” So, some of it is that. Some of it comes with pain points, right? They’re thinking about their own succession. They have clients who are bringing up, what is your succession plan? What happens if you get hit by a bus? Or they have G2 and maybe their G2 is starting to knock on the door and saying I want more growth. I want opportunities to become a partner. So, they feel the pain of their G2, maybe wanting more. They think themselves, gosh, my clients are kind of wanting a backup plan.

They say I’m spending a lot of my time doing work I don’t love. I don’t love compliance. I don’t love doing all my own trading and rebalancing. I don’t love figuring out the latest tech solution. I want to serve clients. And I’ve got some clients that aren’t great fits, but they’re legacy clients. So, I just kind of hang on to them. So, when a firm like ours can come in and say, “Look, we’re here to help take away a lot of those pains. We have dedicated departments that do a great job at the investing, at the trading, at the compliance, at the marketing, at the operation. So, you can do what you’re truly best at and what you’re passionate about, which is working with clients. And by the way, we can bring you more ideal fit clients, put you into this diamond team structure, give you an associate who’s going to really help give you more scale to not have to do some of the work that you’re not ideally suited to do.

And by the way, we have a great culture. Talk to anyone on our team, come to our retreats, learn about our affinity teams. Look at these ways that we really do put culture first, and we will embrace your entrepreneurial spirit. So it’s not for everyone. Autonomy is really king for a lot of these folks that have more lifestyle practices, but we will let them understand, we prioritize your life balance. If you coach your kid’s soccer team at 2:00 on Tuesdays and Thursdays, you need to go do that. So, when you show them that we care about the whole person, that they can keep a lot of their autonomy that they enjoy today but have a lot of their pains and struggles that they’re tired of dealing with go away and stay relevant in this fast-changing industry.

They then go, gosh, from these three key hats that I have, the hat as a practitioner that I’m going to be able to do more of the work I love and have a stronger bench. That’s going to be fun and be able to collaborate with other peers. My hat as what’s best for clients. Well, my clients are getting more services by people who have expertise in those services, so it’s a win for my clients. And then, as an owner, let me look at my own equity and how is my own equity growing, versus if I were to do an equity swap with a firm like ours, they go, gosh, they’re growing more than me. It’s more diversified. I can have future liquidity. So, from that three perspectives of practitioner, what’s best for clients and what’s best for them as an owner, oftentimes they see it’s a compelling opportunity to consider further.

Michael: And the other thing I was struck by as you were talking about the advisors that you look at as M&I opportunities was that you said you like firms that have a market niche. And I know just one of the fears that a lot of advisors who think about niching have is, well, if I pick a niche, does that mean I can only ever like merge with or get bought out by other firms that are in my niche? Cause if there aren’t a lot of other firms in my niche, then I might be limiting my opportunity set in the future to sell my business. So, I’m struck that you would express you have a preference for nichey firms. So, can you talk about that a little bit more?

Seth: Sure. Well, I would say, most of the advisors I’ve met who say that they have a niche is maybe 20%, 30% of their business, right? So they have it, they market around it, but they still will happily take that retiree who’s got a $5 million account, and they just want to go into the sunset, enjoy retirement. And maybe they’re not an ophthalmologist or a dentist or whatever their focus area is, right. There are some who do solely that, right? And so, for those, they can really lean in there, and we can help get kind of amplified exposure for what they’re doing across our digital marketing and our different partnerships that we have. But most of those advisors that come to us, the bread and butter are still everyday clients.

So, I would say, it’s great to have it, especially when you’re on your own and you’re trying to find a way to market and bring in clients and differentiate yourself. But at the end of the day, if we could bring two to four ideal fit referrals a week to you, and they’re all different types of clients and you’re going to grow your book more in a year or two than you have in the last 15, you’re probably going to be open to working with different types of clients, as long as they’re kind, respectful, and decent human beings. So, I would kind of to share, we aren’t looking just for firms with market niches, but if someone has them, we’re happy to take those and try to really give them more exposure with what they love doing.

How Mission Wealth Structures Merger And Integrations (M&I) Deals [19:06]

Michael: And then, how do deals actually work when you, when you do transactions like this? Cause I think for are a lot of the discussion these days out there like mergers and acquisitions, the M&A side is usually basically a discussion of here’s the valuation I got, which is sort of implicitly. Like here’s the size of the check that I got. And I got my dollars, I’ve retired successfully, and I tried to find a good firm that will take care of my clients thereafter. But I’m presuming if this is a mergers and integrations context for you, you are acquiring firms where you want them to stay, not take a check and leave. So, how do acquisition deals work? Is there cash? Is it all stock for stock? How do you structure transactions like this?

Seth: Sure. Well, it’s a very long relationship cycle. And we’re intentional about that because we’ve had people that have been with us for 15 years and they’ve become partner after working with us 15 years, and partner is a big deal at Mission Wealth. People really want to be able to become a partner. Today, we actually have 19 partners. And if someone is going to come in and upon the close of a transaction, become a partner within the first six months of knowing them, then that’s a big statement and a big vote of confidence in them. So, there’s a lot that goes into really getting to know them, their firm, their team, their spouse partners. They come out, they meet our partner group. We spend time, right? So we really spend time getting to know them to make sure they’re a great fit.

Once all that has been achieved, we spend a lot of time on the integration space. We have a dedicated integration team that will look at the data migration, look at the tech stack overlay, look at the portfolios, look at the brass tacks of how will this firm integrate because we are a true integration firm. We’re not looking for them to just go rogue and carry the Mission Wealth banner. They can have flexibility on portfolio management and certain areas, but we do want to have some commonalities there.

So, assuming all that is in line, the way that we structure the deals is a percentage in cash and a percentage in stock. And we have them be individually valued, just like we’re independently valued as well. And then we say, great, this is going to be a 50-50 deal, 50% cash. Maybe they will want that over the first year, first two years, first three years, depending on what’s best for them. And then, the portion that’s coming in equity day one, they have the exact same shares that I have as a founder, same voting rights, same distributions. A 100%, one class of stock. So, it’s usually a 50-50 deal, cash. And if there’s someone who, let’s say, want succession, that cash helps with that. But then, for the key gen two or the other partners, they’re really motivated to have equity to participate in the growth that we expect.

So, it’s a combination, cash and stock, and it’s something that is structured in a way that they usually feel really good about it. We feel good about it. And then, we’ve done five of these so far and in each case, they’ve worked out really well as far as delivering what was promised as far as growth, team support, culture, etc. So, we always say, “Hey, talk to our last person who did it, talk to the firm who did it before them.” And luckily, now that we have five under our belt there’s some history there, so they can understand what they’re getting themselves into.

Michael: So, in this environment where it just seems there’s so much mergers and acquisitions activity going on. I’m going to guess, if a firm is talking to you cause they are interested and willing to sell. If they want to talk to some others, they’re not going to lack for other people that are willing to have that acquisition conversation as well. And maybe some of them just outright are talking to you and others are shopping themselves to understand what the opportunities are. So, do you get into competitive situations? And if so, how do you position yourselves as to why do I pick Mission and not the other firm that’s offering a deal or different dollars or different valuation or bringing different stuff to the table? Why Mission as my M&I partner?

Seth: Well, competition is a 100% there. This last year has been just the breaking records across the board almost quarter by quarter with a level of activity, and the largest firm, the top 20, they have huge M&A teams, and they are really pushing it out there. So, as we talk to advisors, they’ve all had multiple calls at this point for the most part. And if you haven’t had multiple calls, then maybe there’s something wrong with your business. I don’t know. But pretty much everyone we’ve spoken to already has been approached. And so, we are here to not try to convince them to go a path that isn’t aligned for them.

And usually, they love the fact that, number one, we don’t have private equity, right. So right off the bat, that’s a key delineation. We are not going to be forced to flip this thing in five years and have a private equity partner tell us what we can and can’t do. I was talking to someone recently who joined a firm that had private equity exposure, and he said, “Yeah, they don’t want us to do holiday cards anymore. We’re not doing some of these events.” And we just always are going to put the clients first. And so, when they talk to our 19 partners, all of whom are practitioners, they get to know us, they look us eye to eye, and they understand that we walk the walk as far as really doing what’s right for clients, doing what’s right for the team, putting culture first. That usually is a big differentiator.

And then, when they see our growth and they say, wow. Last year we grew by over a billion dollars in organic growth, and they go, “Man, I can tap into this engine with really nice people who do work the right way.” And we have some key differentiators. So, we have the inspired living services, which are these coaching services. So, some people that are interested in how can I kind of move up the value chain of advice and offer deeper conversations with clients, that might be an attractor. If they really like the fact we have a strategy team that can do the in-house tax and in-house estate planning and bring resources in that way, that might be a differentiator for them. But at the end of the day, the top firms all have those resources. Not in the coaching side but as far as tax, estate planning, trust solutions, alternatives, ESG. So, it comes down to a feeling, right? They have to really feel that alignment and culture is something you can talk about, but you have to actually kind of walk in it to understand it.

So, we always say, “We want you to come to one of our retreats. We want you to come meet our partner. We want to get to know you and your spouse. We want to get to know what you’re about and the types of clients you like to work with, and tell us about your service approach.” And as they kind of speak to us and they can tell that we really live and breathe this, hopefully, it’s going to help have those folks that are truly aligned self-select in our direction. And valuations kind of are what they are at this point. There’s some firms that might just throw kind of silly money, but they don’t offer integration. They don’t offer culture. They offer very little above a check. So most firms are looking for, yes, we do care about culture. We do care about our clients. We want to know there’s going to be a great home for our clients. So, for those firms that are looking for culture, looking to have at least their gen 2 stay on for 5, 10 years plus. We are oftentimes very competitive in those situations.

Michael: Well, and I’m struck as you talk about this as well, just this aspect of it’s not a cash-out deal. I guess this kind of dynamic of if you’ve got 10 or 20 years left until you’re going to retire and you’re looking at the growth in your equity to power that. Do you want to have all of that on your shoulders? Or do you want to be tied into a firm where you can be part of that growth, but there’s also 19 other partners who are powering that growth in a pretty good track record of making that growth happen. And so, you can participate in that growth engine without feeling like it’s all on your shoulders, and hey, it might even grow faster than what you were doing on your own anyways, since it’s got a pretty good established track record.

Seth: Right. And we’re very transparent, so we will share our story. And we started in 2000 and we had 59 million, and then, 10 years later, we hit 500 million and that was a big mark, and we really celebrated it. And then, four years after that, we hit a billion. So, it took us 14 years to hit our first billion in 2014, that felt like quite the milestone. And then, it was 5 years from there that we hit 2.6 billion. So, 5 years from there, we grew another 1.5. And then, just in the last two years, we’ve grown another 2 billion. So we’re growing at a billion a year pace. So, they can actually look at it and go, wow, this is really happening.

And they talk to those advisors who joined us one year ago, two years ago, three years ago. And they see how they’ve been able to become scaled as we bring in the diamond components, as they have the departmental leverage of someone else handling trading, someone else doing marketing, someone else doing operations, compliance. And they can go, gosh, I can grow a lot more than I’ve been growing on my own. I can do the work that I love less of what I don’t love. I can collaborate and have a peer group, so I feel like I’m not so isolated. And from a equity standpoint, I’m going to have far more upside than what I’m going to have on my own. So, they typically can kind of look at our past growth projections and past growth is no guaranteed predictor of future growth. Just like we’re used to saying.

Michael: I read that somewhere. Yeah.

Seth: Exactly. But they understand that we have…the engine is in place. And it’s very clear that this growth is going to continue based on rinsing and repeating, what’s already been working extremely well. And they see that, and they see, and they feel that we’re differentiated. They can tell that we truly care and they see a lot of the work we’re doing in the communities. We have a volunteer time off policy. We have these affinity teams, which are so women’s on a mission group, book clubs, exercise groups, cooking clubs, gardening clubs,. They see we do a lot of fun stuff as a team. So, they’re like, “Wow, this is a fun group. They seem like great advisors and professionals. They’re growing like crazy.” And I can just keep doing it on my own, but then they go back and think about, gosh, I hate trying to figure out my technology. And now it’s time to do my surge meetings to get all my trades done. And it’d be nice if someone else did my trades. And so, they usually will start to really think about that. Yes, they give up some autonomy, but now you’re an equity owner in a national firm, which can also be really exciting for that type of entrepreneur who has a growth mindset.

Utilizing Custodial Referrals And Partnerships To Grow Organically [28:52]

Michael: So, out of curiosity, just, how do you think about this world where you grew as much in the past year as the first 14?

Seth: It’s kind of mind-numbing. When we go back to our origin stories and I think about when I was trying to do seminars and I was hand addressing 4,000 envelopes, putting the first-class stamp on it to try to get a 100 people to a seminar, making slides the night before to maybe get 15 people fill out a response card to have only 8 of them show up, and then maybe get 4 clients. So, you go from 5,000 to 4 clients, like putting it on the credit card, hoping it pays off. If I go back to those days where we spent so much time marketing and so little time actually doing the planning, it’s amazing, right?

It’s amazing to be able to see kind of what this opportunity set is in our industry. And I always say to our team, “We have such an opportunity. Let’s not waste it.” And it’s not just about the growth ahead of us. Think about all these families that we can impact, and not just on their balance sheets, but beyond their balance sheets. So, it’s exciting to feel like we’re building a cathedral. We’re not just laying bricks as a team, and we have that kind of growth mindset and that caring as our core values. So, it’s a fun place to be. And it’s fun to see that we’re expanding the country serving more families.

Michael: So, then talk to us a little bit more about just where does all of this growth come from? Just adding a billion dollars organically in a year, as you’d said, there’s a growth engine in place now. So, you’re rinsing, repeating what’s working so well. But what is it you are doing that’s working so well that’s making that volume of new clientele come in?

Seth: Right. It’s a combination of factors, but the biggest driver for us and kind of a theme that I’ve seen through my career is the power of partnerships. The first partnership we had was with the accounting firm, that was a great experience. But after nine years, it was best for us to get out of that and kind of focus on having more entrepreneurial liberty versus having eight second and third generation CPA partners looking at our net income every year saying, “Well, how are we going to boost net income?” And we’re like, we thought we’d open another office. We thought we would actually invest in the future.

So, in 2010 is when we joined a custodial referral platform, and it’s with a national partner. And that national partner was dealing with a lot of clients across the nation who were 401k clients. And when those clients were coming in with their rollovers saying, “Okay, I’ll move my IRA rollover to you.” And those clients had more sophisticated planning needs. So, I’ve got concentrated stock. I don’t want to sell. I’ve got a son with special needs. I’ve got these real estate properties I need to make a decision with. I have a family business. I have these tax issues. The young representatives in the branch of the custodian couldn’t provide that type of more comp…sophisticated guidance.

And so, they were losing those types of clients out the door and they said, “Gosh, we need to create a way to retain those assets.” So let’s create this custodial partnership where firms like Mission Wealth can get vetted, come in, and when that sophisticated engineer with the concentrated stock and the son was special needs or whatever unique preferences, they can get referred to a CFP at Mission Wealth, that advisor will come in and provide the very comprehensive planning that we’re known for with a proactive service approach and retain those assets.

And then, we, in turn, give a percentage of our normal fee back to the custodian for that referral. So, now we have 200 offices across the country with multiple financial consultants in them that are essentially our paid sales team, right. They refer us clients that they can’t put into one of their turnkey solutions readily. And now, they are knocking on the door saying, “Can you get someone in Carolina? Can you get us someone in Florida? We’d love to have someone in Atlanta.” It’s just, it’s gold rush, right? There’s so much opportunity to serve these types of clients that aren’t able to get that type of more comprehensive financial planning. So, that’s been about 50% to 65% of our growth have been the custodial referral channels. That’s been the biggest difference-maker.

And then, the other pieces are just doing the other organic measures well, so the client referrals, the Centers of Influence, sharing case studies and success stories with those Centers of Influence like the attorneys and the accountants to identify ideal fit clients. It’s our digital marketing. It’s how we’re able to differentiate ourselves in the type of work we do for people that are going through life transitions, right, divorce, sale of a company, loss of a spouse, sale, concentrated stock. So, we have particular kind of driving channels of growth that are all pumping right now. And none of them are going to slow down. They’re all actually growing even more. So, that’s how we’re able to achieve the 1 billion plus that we did last year, and are very confident it’ll only continue.

Michael: So, I know one of the challenges that some advisors have when they look at these custodial programs is just the cost of the referral is not trivial. The sort of buzzes firms may pay anything from 15% to 25% of revenue ongoing for a referral from a custodial platform. So, how do you think about the cost of custodial referrals?

Seth: Right. Well, there is, on average, it’s 16 to 18 basis points for us. So, it is a chunk of revenue for sure that goes to them, but it also affords the volume that we’re talking about. So, if you think about how much you spend on marketing and other means and what type of volume you get for it, we have found that economics really work well if you really dedicate to it and you have people that know how to learn how to kind of wholesale, if you will, these different custodial branches to then have an opportunity to work with one of their prospects, and then have success at converting their prospects into a client. And then, you build goodwill within the branch and it grows from there.

So the cost, we just, we look at it. We track our revenue, our expenses, our gross profit, our net income. We’re very clear on how…what it takes to make these economics work. And it really gets back to having dedicated effort that can get the volume and then having decent conversion rates, because nothing is better than a client referral, right? The conversion rates on a client referral are usually like 70%, 80%. Centers of influence, it takes a long time, but if you get that attorney or that CPA who loves you, those typically have a really high conversion rate. Even if you’re successful in the custodial referral channel, you’re looking at a 30% to maybe 38%, 40% conversion at best. And a lot of firms do much less on that, but let’s just say it’s a third. So, you do have to really spend time going through training these FCs, who your ideal fit clients are, who aren’t, and hopefully boost up the types of referrals you get so those conversion rates can go higher.

But even if out of every three referrals, you’re closing one, and even if you’re paying 17 basis points to them, imagine if you have…we had 1800 leads come in last year. So you take out a third of them, you’re still having a nice chunk of over a thousand qualified leads that you’re able to then work on and convert. So, it works if you dedicate yourself to it. If you think it’s just going to be a haphazard, “Hey, I’ll get some referrals and we’ll kind of do it partially.” Then I would say that typically doesn’t work. And by the way, those firms are usually invited out of these custodial referral channels. So, we’ve been a top 10 partner. We really look at it as a partnership, and we try to contribute to them, and we try to help support their initiatives, and they have been great partners to us. So, it’s a winning win partnership. And one that can be very economically viable if you kind of understand how to leverage it to your advantage.

Michael: Well, to me, there’s an interesting point that you make but that just at the end of the day, that the sheer scalability of the channel, right, there’s not a lot of things we can do as advisors that generate a thousand plus leads in a year. And yes, it adds up to a lot of dollars when you calculate the revenue that ultimately does get paid to the custodian for the leads. Firms have to have marketing expenses somewhere. That’s where your marketing expense hits. But when you think about where can we deploy marketing expenses to get a thousand plus leads in a billion dollars in new assets in a year? And that’s the size and scale that you think about, all of a sudden, 17 BPS maybe doesn’t seem so bad for that level of growth opportunity.

Seth: Right? Exactly. It kind of depends on who you want to be when you grow up. And we were very clear, my co-founder and I, in 2008, decided we wanted an internal succession strategy. So, we said we want internal succession. And so, we named a couple of our key advisors as partners initially, and every year, we continue to widen the ownership group, both to advisors as well as to non-advisors. So, our chief investment officer, our head of technology, our head of marketing, they’re all partners as well. And we realized that to have a successful internal succession strategy, you have to have growth. Without growth, you’re not going to be successful at providing the future growth and the future liquidity that’s going to be needed. And so, we knew that growth was a key driving contributor to our internal succession desire.

And so, those two we see going hand in hand, and now we see the M&I as being a key part of it, because that’s another way how you get growth. This is where we started the conversation, Michael, is you have to have capable people. So, how do you attract advisors who are really successful? They’re not just sitting around looking for jobs, most of them, right? They have their own firms. They’re doing well. So, that’s where you have to come in for this M&I approach to say, look, let’s make one plus one equal three together. You’re doing a great job, but let’s do a fantastic job as partners.

Michael: So, coming back for just a moment more into the custodial referral world, cause I know there are a lot of very big national firms now that are involved with those platforms. How do you differentiate to get your share of the referrals from the local branches in the first place? To get them to pay attention to you amongst everybody else who’s probably also trying to call on them and get their attention and differentiate.

Seth: Right. Well, we had to learn. It didn’t happen overnight. So, it’s something we’ve honed over the past 10, 11 years. It really starts with being able to say, “Look, we do the comprehensive planning.” So, each of these custodial partners will have kind of certain types of RIA firms to meet certain client requests. So, there’s the sleeve providers, right? If someone wants to just have a cover call strategy or a particular alt strategy or real estate fund, they can go to those firms. For a Mission Wealth referral, they know that we really do planning. We do the comprehensive financial planning at some of their clients’ needs. So that’s one. Two is we have the opportunity to meet with them in the branches and do presentations. And we will walk through case studies where we will talk about how we solve for very common client challenges.

So, it’s a founder who’s thinking about selling and how do you provide kind of liquidity planning and succession planning for their business around concentrated stock holdings. Maybe it’s divorce specialization. What can we do specifically with case studies to help any of your clients going through a divorce? Let’s talk about discretionary management so we can actually work one-on-one with the client-approved trades until they get comfortable and then move to a nondiscretionary. So, we have the ability to kind of show that we will do the detailed work in planning in service care that they know they can’t provide themselves. Each of these FCs, by the way, typically have about 500 households they’re trying to service per advisor. They can barely know their names, and our advisors cap out at usually around 80, maybe 90 families max, and that’s with an associate providing support.

So, they understand that we can go deeper and wider and provide guidance to some of these clients that in their own book, they just don’t have the capacity to provide that type of comprehensive planning. So, those are typically the referrals we get. Or sometimes the clients, they don’t want to deal with themselves cause they have too many needs and too many complications and that’s where we can come in and kind of take those problems off their plate and do a great job for those clients, bring in outside assets, and make those financial consultants really happy and that, of course, brings additional referrals.

Michael: And do you do this with just one custodian or have you tried to get into all the custodial programs? I know…

Seth: We’re currently in the top two custodial referral programs.

Michael: Okay. So, the world of Schwab and Fidelity, cause it’s kind of what we’re now…

Seth: Exactly. Yep. Schwab and Fidelity. Okay.

How Mission Wealth Offers And Structures Partnerships [41:06]

Michael: So, help us understand a little bit more the dynamics of ownership and partnership for you guys at the firm. You had said earlier that you’ve got 19 partners in the firm, including both advisors and non-advisors in key leadership positions. So, just how does ownership and partnership work in a firm like yours?

Seth: Right. Well, we use EOS Traction as our leadership structure. So, we have a leadership team and that team consists of all the department heads and we run all of our meetings in the L10 fashion. For those of you who know EOS, I know you had a gentleman who spoke about that on one of your prior podcasts. And so, the partners in the firm have different roles, either they’re on different diamonds as advisors, or they are department heads typically. And we get together as a partner group quarterly, and we have voting and we have all of the rights within our partnership that they have full transparency to the financials. We approve key hires. So, those governance structures are in place, and they can definitely put in their vote and have their contribution.

Aside from that, they just are kind of part of the team. And so, we expect partners to, yes, be very strong at their particular roles in the company. So, maybe that’s bringing on new business, maybe that’s servicing a large book of clients. Maybe that’s being a key leader in a department, but we also want them to strongly represent our values and be a leader in that way. So, we have a mentor program. Most of them are mentors to our younger advisors or younger personnel. And we also would love for them to contribute above and beyond their job.

So, what are the ways that you’re adding value to the firm beyond just being a great advisor? How are you helping us think through the next level of training? How are you helping us with some of these M&I conversations? How are you doing something to enhance culture to deal with a challenge that we’re dealing with? How are you being a problem solver? How are you stepping up and helping us just become a better firm overall? So, those are kind of some of the requirements that we ask of our partners, and it’s a esteemed role to get to. So, they are willing to do that. And the right type of people would do that anyway. And we’re very clear that we’re going to just keep widening this ownership group. So, they understand that this is not just a fixed group. Every year, we’re adding two to three typically. And with M and I, you’re adding in maybe more. If a couple firms join us in a year, that might be another two to four partners.

So, we anticipate continually widening the ownership group and still keeping culture front and center and being able to provide internal succession. So, since there’s such a high demand and for our shares, the way that we’ve done it so far is my co-founder, Brad and I have agreed to sell a certain number of shares every year. And so, we sell our shares every year. Those are sold at a nice discount to current market. They have a dividend. So, for those buyers that have to finance it, the dividend can typically cover the financing interest expense, and now they are a full-fledged partner. And so, they’re able to see everything underneath the hood, be a strong contributor in that way. And they’re excited about our growth trajectory. We expect to be a $30 billion firm by the end of the decade, and they are super excited to now have shares in a company that they bought at a discount that are only looking to grow significantly.

Michael: So, how do you figure out the valuation and the discount of what’s appropriate or what’s “fair?”

Seth: Well, we’ve worked with, top firms in this space. We’re currently working with a firm called DeVoe, and they do a valuation every year, and we’ve just decided that we’re offering a 25% discount on that valuation.

Michael: Okay. So, you got a third-party valuation, and then it’s just 25% off of that.

Seth: Right. And then, they buy-in in kind of two tranches. So, they also have the benefit of buying-in over a number of months. So, there’s usually even growth by the time their second tranche has gone in. And they’ve seen past years and they’ve seen just what the growth looks like. So, by the time it’s valued on 12/31 of any given year, they already know that it’s already worth more, like the day after the transaction plus the 25%. So, they’re happily standing in line to be buyers.

And we don’t have any sellers aside from Brad and myself currently, but when we bring on a firm that gets diluted across all the owners. So, that’s not Seth and Brad selling shares to these partnering firms, that’s everyone diluting down to bring on this new 2% partner, 3% partner. And so, that’s why they really want to meet these new partners to be, make sure they’re a good fit. And then, they’re super supportive once you’re on board, because they know that’s a success strategy for us to keep with our national push to go from 5 billion today to 30 billion in the next 8 years.

Michael: So, where did 25% come from? Just why 25? How do you get to 25?

Seth: In speaking to the experts in this field, that’s really what they said. We were offering a discount prior that was actually a little bit more, cause we did a two-year average and then did a discount upon that. But when we kind of updated everything with DeVoe, they said, “Look, here’s the industry range, it’s zero for some firms.” They just say, “Hey, you pay full market.” Others might be 30%, 40%, but 25 is a very generous, fair number that’s going to be very enticing to buyers. And so Brad and I have always been about the team, and about the long-term success of the firm, and this internal succession path. So, we said, let’s just kind of continue on with what we feel is a very generous, very fair number. And based on kind of DeVoe’s guidance, we selected that 25% number.

Michael: So, I guess I’m just wondering, how do you think about that in your head? Is that a 25% discount because they’re getting a minority stake and don’t control it. Is that a discount because the shares aren’t really marketable? Is that a discount because they were a part of the growth to make this happen so we’re going to discount a form going back? Is that a discount simply because you want to create it as a pathway for a retention strategy, so it’s basically like indirect compensation? How do you think about the purpose of that discount, the function of that discount?

Seth: The function is to make it very enticing, and to also make it very reasonable for them to become partners. And by the way, the valuations, if you talk about what we could sell Mission Wealth for on the open market versus what a DeVoe valuation comes in, usually our valuation is a little bit lower than the likely multiple we would have based on our growth premium in the marketplace. So, they’re getting a great deal, and the way that Brad and I look at it is we really care about our team. We care about culture and we walk that walk. So, there’s going to be more than enough. We’re not going to go hungry. And my love language is impact, right? I love bringing in young people that are motivated in growing that can serve more families and help the communities in which we work.

And so, for me, a larger team is very fulfilling, and a team that’s motivated with that ownership mentality, with that entrepreneurial drive and spirit is exciting to see cause everyone’s just pulling the oars in the boat with the band in, right? Cause we’re excited about where we’re going. So, it’s not really about the money. It’s about the team, the culture, the vision. We’re building something really special. We actually kind of like being this underdog in this world of private-equity-backed firms, which are more and more and more, and here we are saying, no, we’re going to stay independent, but yet we’re still going to scale. We’re still going to grow, and we’re going to put clients first, and we’re going to put our team first. And you know what? Nice guys do win in the end. So, we are building something that we feel really proud of and excited about.

And so, if that means that we sell our shares at a discount to really ensure that sustainable growth, then we’re happy to do it. And we know our team members so well, it’s really exciting to see them having more wealth creation and to see their families being able to experience things with their career success and with their wealth growth. So, it’s a very great feeling to build something that now is… It’s much smaller than the biggest firms, but we’ve got 83 team members, and we’re taking care of 2000 families, and the flywheel is moving. So, we’re going to only keep growing and building something special, and hopefully, prove that this firm of permanence can really be there without having to sell to the private equity.

Michael: And then, how do you decide just how many shares are on the table to be sold as opportunities for other advisors to buy in? Is there a set like you and Brad each do 2% a year or 1% a year or 0.5% a year, some number like that? Or is there a different formula approach? How do you decide the amount of equity that’s on the table to buy in?

Seth: Yeah. Brad and I set up a formula working with our CEO Matt Adams, and actually just said, let’s kind of map this out. So, we came up with a 10-year glide path of selling 2% to 3% per year each. And it doesn’t mean it all has to be sold if there’s not a demand for it, but there has been every single year. And so, that’s kind of the percentage number, but of course, as valuations go up, people will be buying fractional shares. It doesn’t have to be a percentage that they buy. It’s kind of a number that feels significant for them. And so, we’re able to have more and more buyers as valuations go up based on still that 3% allotment each.

Michael: And how do you decide who gets to buy the shares? I’m just I’m presuming or it sounds like the level of demand is there that you may actually have more people that want to buy shares than there are shares that are available to sold in a particular year. So, how do you decide who gets the shares? How are they allocated?

Seth: Yes, that is an issue. We always have far more buyers than we have shares to sell. So, as a partner group, that’s something that we go through and really discuss, even debate. And we go through kind of these different pillars and say, okay, why do we feel they’re qualified? And we have some objective metrics that make someone qualified to become a partner. If it’s internal that we want them to have been with us for 3 years. If they’re an advisor, a client advisor, we want them to have a book of at least a million dollars of revenue and prove that they’ve been able to bring on 500,000 of revenue as a lead advisor or in sales. If they’re focused as a sales advisor, we call a lead advisor, we want them to have brought in a million of revenue, but still have the service capacity to have held down and maintained a book of $500,000. Right?

So we have some of these metrics that says, okay, you’re qualified. But then, the soft skills, the EQ, the contributions above and beyond their roles are discussed and that’s discussed in sometimes very heated ways across the partner group, cause, no, this person deserves it more. No, she deserves it more. So, we have to work that out and we have to come… It’s a partnership. There’s 19 of us now. So, we have to come to an agreement to determine who we feel are really moving the firm forward the most, and their contributions hopefully will stand out. Their character and kind of cultural alignment will hopefully have stood out to make that debate not too challenging.

Hopefully, we have so many capable people who are qualified that that’s a good problem to have when you have to really narrow down who deserves it most, but that’s how we go through it. It’s a very lively conversation, usually over multiple meetings to narrow down the list. And it’s something that Brad and I don’t just choose. It’s based on, even though we are selling our shares, it’s the partnerships’ vote that determines who new partners will be.

Michael: And so, are there other partnership criteria? Cause I was fascinated by that, like must have been on for three years and some other, must be managing a million of revenue and have brought on 500,000 or be a growthier team member where you’re managing only 500,000 but have brought on at least a million that, I guess, that went to other advisors. So, are there other criteria of what it takes to be eligible for or considered for partnership?

Seth: Yes. Well, it’s also are they a key leader of a department, so, and have they demonstrated leadership there? That’s another kind of key role. So, we’re always looking at who are the folks outside the advice teams, cause our industry’s largely been unfair and always put such a premium on advisors and a discount, if you will, on all the other key operational roles. And we understand that our head of technology, our head of marketing, they’re doing amazing jobs. They have really catapulted us ahead. They deserve to be equity partners. So, key roles are rewarded, and it’s really back down to what are we looking for.

So, we’re now on our fourth generation of partner at Mission Wealth. G1 was Brad and myself. And we’re in our young 50s. I’m 52 Brad’s just turned 52. Our G2 are kind of in their 40s and 50s. They are just a little bit younger than us, like five years behind us. And these were key people that we hired early on that have kind of grown with us and demonstrated their value. Our current CEO Matt Adams was our chief investment officer before. He’s worn a lot of different hats. Our G3, average age is 38. So, they’re in their 30s, young 40s, and they are kind of the new shining stars that we want to reward. They’re going to carry the firm to the next level. And then, our G4s are these folks that we’ve done these M&Is with, they’re usually in their 40s and 50s, right? So, they’ve started to think about succession.

So, we’re now under our fourth generation of partner at Mission Wealth. And it’s exciting to see kind of the difference that happens when someone now can kind of say they’re a partner of a firm they’re really proud to be a partner of. There’s just a little extra pep in their step. They have a little more ownership mentality, and you don’t want that to be an ego thing that pushes them in the wrong direction, but typically we see it to be a pride thing. And you see that level of kind of contribution usually go up a little bit.

Michael: So, is it always just new partners coming to the table that buy shares? Or is there a world where existing partners get opportunities to buy more as well if they want to…if they want?

Seth: Yes. Existing partners have the ability to buy more. And that’s what happened in this last round that we went through in December is we had some of those gen three partners that already were partners, but they are truly doing extraordinary work and their key contributors to the firm, and everyone, by the way, wants more, right? So, these are key contributors that are hungry and the same kind of character qualities that allow them to be thriving in their roles are the same character qualities that usually have them want to be competitive and grow. And so, they see the upside, they know how much they’re pulling the oar on the firm’s growth. And so, yes, it’s a combination of new partners, as well as existing partners who are key contributors. And then, we have to balance out the allotment based on all of that demand. But again, anyone that comes in on a partnership realm on M&I, all of our shares get diluted. So, that portion isn’t impacted by that.

Michael: And ultimately, this allotment is group-determined. I’m just trying to literally visualize, like there are 19 people in the room and 7 of them want more equity, and collectively, they want to buy more shares than there are. Just how do you mechanically get down to which of these get how much of the 6% of equity that’s on the table?

Seth: Well, we start with those advisors that we’re kind of promised to become partners, and they did what they were supposed to do. Right? So, back to those initial requirements, we’re like, “Hey, these two clearly deserve it. We’ve talked to them about it. Here it is, three and half years later, they’ve achieved everything. They’re contributing to the firm in these ways. So, you know what, and based on what they can and want to do financially, that 6% allotment now is down to 4.5%. So, of this 4.5% now, we could take on this other person who’s eligible but maybe not as much of a shining star, but that would be a new partner. Or these seven internal that are demanding it that was just using the number you just referenced, let’s kind of weigh out what the demand is there and how we can self-evaluate their contribution levels.

And that’s where I said, it can be kind of heated, right? Because people who are key contributors all fill their weight in gold. So, you have to have open dialogue. And it’s a great strength test of the partnership each and every year to be able to have those conversations very openly and transparently and to arrive at a consensus. Partnership can be bumpy, but ultimately, we’ve done a great job of agreeing. When someone’s a stellar performer, it’s kind of undeniable. So, usually, it’ll be like, okay, well, these two of those seven clearly have done great. How much do they want? Okay. They want this much. Okay. So we’re really down, if we want to honor what they want, we’re down to 2% or 2.5%. Now, let’s talk about that amongst the other five that have a demand, but maybe they just haven’t been as observable of key contributors. They’re still great. They still very valuable to the firm, but not to the level that those first two were.

Michael: I know for a lot of advisors, they sometimes struggle with giving equity or selling equity or expanding ownership, just like you’re owning less of the pie and you have to hope that the pie gets bigger to make up for that.

That you guys seem to have gotten to the other end or the other journey of that path, which is the firm is growing well, so you know the pie is expanding. The goal is to share the equity with the people who are doing the most to make that pie expand. And that’s part of the incentive for them to do the growth. They help the firm grow cause they want the equity. Then they get the equity, which is growing because they did that. And when everybody plays the game in the system, the same way, the pie continuously grows and you keep adding equity partners who grow the firm

Seth: A 100%, yeah, 100%. And they can see that trajectory. And they also, oftentimes, again, they’re usually mentoring others. They have people on their teams that they’re supporting. So as much as they might go, gosh, I’d like to get more. They also go, gosh, Julie, over here has been such an amazing contributor and I’ve been kind of grooming her. They start advocating for others, right? So, that more you give, the more you get kind of mentality when you have a service-oriented culture. And we do so much to keep framing the ‘we’, the ‘we’ of the firm. Everything we do is around we that you can hopefully… There’s not many bad players, right. They all really know that everyone is contributing, and they want everyone to be happy. And if they do their part, they’re going to be rewarded bountifully as well.

Michael: And then, how does this work from just a financing end? Just, what are the terms in financing to actually buy into these shares? Cause I’m cognizant, you’re talking about numbers like a few percent every year that gets sold and it’s divvied up amongst a number of people, but given the sheer size of being a multibillion-dollar firm, that’s a lot of equity, that’s a lot of dollars that require some kind of financing I’m presuming to make it affordable. So, how do the actual buy-in deals work? How do you structure the financing and the payment and the terms?

Seth: Right. Well, some have paid cash they’ve or they’ve taken out lines against their home equity lines, that type of a thing. We also have a relationship with the bank that is willing to finance partners, and it’s structured where they pay 90% initially then they pay a 10% true-up five months later. And the financing, they will work with the bank and say, okay, I can do… let’s say they’re getting a…they’re paying 75,000. I can do 25, but I need to finance 50. Okay. And then, the bank sets up terms. Typically, I think they’re five to seven year notes at competitive interest rates. And they then are able to pay their financing fees based on the profit distribution that they get now as an owner. So, it self funds if they are willing to take out some debt if they don’t have the capital themselves.

Michael: And is there typically a down payment requirement for them to do this, can they finance the whole thing?

Seth: We’ve had people who finance the bulk of it. We haven’t had anyone who financed the entire thing, but the bank will finance the bulk of it. So, it hasn’t been an issue.

Michael: And is that ultimately something that you arranged to find the bank and bring back to the table?

Seth: Yeah. We wanted a… We had a local bank… This is the challenge when you scale in a community of a hundred thousand people, we kept kind of bumping against the challenges of living in coastal California. Cost of living is expensive. You have great local relationships, but as you start to scale those relations…the capacity of those relationships get tested, right? Not from a relational standpoint, but from just ability standpoint. So, we had this great local bank that we’ve loved, we’ve worked with for 20 years. And it just got to the point where they can’t do what we need them to do anymore. So, we partnered with a main player in this space that works with other firms. They’ve structured a lot of these deals. We’ve known them for many years. I just spoke on a panel in Austin, Texas with DFA, with one of them… We know them super well. And so, they believe in Mission Wealth, they believe in our succession strategy, and they’re happy to be financiers for any partners that we deem to be eligible.

Michael: And can I ask just who is the bank? Who is it that you’ve been happy to work with to get this done?

Seth: It’s Oak Street.

Michael: Okay. And so, they finance it over five to seven years, which is sort of enough of a stretch out that when you’ve got a healthy dividend and you bought it at a, a discount, which kind of takes sort of takes the purchase price down off the top, you get to the point that the dividends basically cover the payments.

Seth: Exactly. Yep. That’s it.

Michael: So, I guess I got to ask them from your end, does it feel strange to sell shares at a point where they finance themselves? I know for a number of advisors, they kind of feel like, if I’m going to be selling shares, it shouldn’t finance itself. The person should have to have more skin in the game.

Seth: Yeah. Well, these people already have skin in the game or they wouldn’t have been offered shares. So, it’s kind of just a vote of confidence that we put in them. We want to make it reasonable for them to get on board and to have them have true skin in the game themselves. But we’ve just chose to be generous about this. And it’s worked really well for us. If you try to be too greedy maybe you make a little bit more in the short term, but are you going to really have a scalable, sustainable firm with a happy team?

So, we’ve just kind of aired on making it reasonable as far as valuation, making it palatable as far as financing, supporting them. We’ve had people who’ve had to wait a little bit. Hey, we’ll still give you the shares, but if you can’t pay us all right away, you can pay us two months later. Brad and I have been accommodating there. So, it’s worked out well. We have a great group of people and we’re going to just keep doing what seems to be working well. So, no need to kind of get greedy at this point. We’ve been proving that altruism wins in the end.

Michael: Well, and I guess, again, when you have such criteria upfront about what it takes to be a partner, just, I mean, I know the fear for some firms is just how invested can they be into the firm if the thing basically finances itself, and they don’t have a lot of dollar skin in the game, but it looks different when you say, well, basically the advisors who are getting partnership with you are responsible for $1.5 million of revenue that they’re either managing or brought to the firm and had to bring at least a third of that. Just that’s how your math works out. They’re already pretty deep in at that point.

Seth: Exactly.

Michael: And they got that far in because they knew if they do that and go that far, they will have an opportunity to buy equity at a favorable price where all these terms work very favorably to them. That, just to me, like that’s the reward incentive to get them to make the commitment to support growth of the firm in the first place. So if that worked, you don’t really need to get the skin in the game on the back end. You got them invested in the first place.

Seth: Correct.

Developing An ‘Inspired Living’ Framework To Provide Truly Holistic Wealth Management [1:04:38]

Michael: So, shifting tracks a little bit, I did want to come back to some of what you were talking about earlier in other ways that you differentiate the firm in what you do. And you had talked about this. I think you had said like inspired living coaching. Can you talk to us a little bit more about just what that is? What are you doing?

Seth: Sure. Well, from a personal standpoint, this was really kind of fueled by my own evolution. I had worked with hundreds of families over the decades and have seen that great wealth doesn’t necessarily always correlate to happiness. And on the other end of the spectrum, I’ve done service trips with my kids in different parts of the world and seeing people who literally have almost nothing and yet they seem pretty fulfilled. And so, it kind of hit me, what is happiness? What is fulfillment? What are the drivers of that? And so, on my own journey of kind of evaluating this, I started to think about wealth more holistically. And so, we look at wealth across 11 dimensions with finance being only one of the 11 dimensions.

And so, it’s the level of impact you feel you’re having in your community. It’s the quality of your family connections. It’s your emotional well-being. It’s your social capital. It’s how your body looks, feels, and functions physically. It’s your intellectual growth. It’s having an aligned career. It’s feeling a sense of place with where you live. It’s having a framework from a spiritual standpoint beyond yourself. So, there’s all these other dimensions, right? And during the pandemic, a lot of people were scared about money, but yet they had more time with family. They had time to listen to podcasts, hopefully, yours. They were taking walks outside. So, they actually were wealthier with their family connections, their social connections, their physical health, their intellectual growth, and so they could kind of frame their life and go, gosh, in some ways, I’m actually richer with this pandemic. I’m not commuting so much. I’m not sitting in my four walls and fighting traffic each day. I have more balance.

So, it’s a framework that we came up with, and now we have a number of programs that are really designed to help people as they go through these key life transitions. So, don’t get me wrong. We’re a wealth management company. People come to us typically cause they have a pain point with finances, right? They want to retire in two years. They want to a higher return, enough income to live off of. They have a concentrated stock to deal with, but at some point in time, we all have these life events, right? We have something that happens where we start to go, wow, my life, I’m empty nesting. I just retired, and I can only play golf so many days a week. I kind of lost myself. I lost my sense of who I am and my purpose.

So, we have three key programs that are part of inspired living that provide value to clients and to advisors, frankly. The first are inspired talks. So, we bring together key thought leaders on different subjects across these 11 dimensions. And they put together…we do an hour talk for our clients, and it’s kind of like a mini TED talk. And these would be people like Dan Buettner, who’s a friend of mine who wrote the book, “The Blue Zones.” He talks about health and longevity. What are key secrets to having health and longevity like these 6 parts around the world that have high percentage of population that live to be over age 100. We had Dr. Elizabeth Lombardo, who’s a well-known psychologist. She talks about how to improve relationships and have more emotional resiliency. We’ve had someone who’s talked about decluttering your home. We had someone who talked about education reform.

So, I just find amazing speakers who can share a new perspective with clients, right? So that’s an inspired talk and clients love them cause they just get to have access to these types of speakers.

Michael: And are these in-person events, virtual events, client-only, anybody in the community, just how do these inspired talks work?

Seth: They’ve been virtual so far because we’ve been doing these for the last two years since the pandemic and their clients. And we have had some prospects, so clients or key family members or key friends of clients and then advisors. So, it’s just within our own internal community. We have had some Centers of Influence as well and they love the fact that we’re talking to clients about these things. So the divorce attorney’s like, oh my gosh, I’m dealing with a client right now and she’s trying to reframe. And so, I had Chip Conley come and talk about purpose in the second half of life. And he’s this amazing communicator and he’s special… He started the world’s first midlife wisdom school. He’s done written five selling books, three TED talks. So, we get true A players that share these compelling talks, and then we do a private Q and A with them. And so, that’s been kind of the easiest first access to this subject.

The second program is called wisdom shares, and these have probably been our most effective. This is where we invite up to 90 clients and advisors to a virtual meeting, but we can start doing them in person. And over a 90-minute session, we will have them go through and brainstorm on these 11 dimensions. And how can you have more abundance in the physical dimension of life? What’s worked for you to have abundance in the physical dimension of life? What’s worked for you to still feel like you’re growing and being stimulated intellectually. So, we break apart this group of clients and advisors into teams across the 11 dimensions who have strength and kind of confidence in those areas. And then, they give a mini masterclass over about six minutes about that dimension.

And then, we also crowdsource other ideas. So by the end of it, we create an infographic into a blogpost that says, “Here is the wisdom that was shared today across these 11 dimensions.” And there’s like amazing insights people share, and advisors get to know their clients better, clients get to see other peer clients. It’s a very positive experience talking about all these different dimensions of life that matter to everyone, right? Everyone wants to have good family relationships. Everyone wants to have health. Everyone wants to feel a sense of place with where they live or have more fun. So, those are the wisdom shares.

And then, the third piece are called conversation circles. And so, the conversation circles are a deeper dive across a particular with 12 to 15 total clients and advisors. So it’s a more intimate setting. We go deeper into it. So, we talked about health and longevity after the Dan Buettner talk, and we had questions like, “If you were to live 10 years longer, how would this not only affect your financial plans but what would you do differently in your life?” And maybe we do the converse question. If you found out you only had 5 to 10 years to live, what would you want to do that you’re not doing today? Who would you like to become that you haven’t yet expressed? So, it’s just these deeper conversations and that’s the first entry point to inspired living.

And now, we’re also doing programs. So I lead retreats and have groups of 20 to 30 people go into a deeper dive program where we help them think about their life 3.0 vision. So, that’s a different framework that we talk about life in three phases. 1.0 is when you get your sense of identity when you’re younger. Are you an athlete? Are you an introvert? Are you an academic, a musician. 2.0 is when you pick your field to study, you put your head down, you start your career. You maybe started your business. You get married, you have kids, you get a mortgage. That’s a phase of responsibility, 3.0 is a phase of freedom, right? Your kids are now maybe on their own. You’ve achieved a lot of what you wanted to, professionally. And you’re starting to think about what’s next?

That bucket list trip to Bali, writing the book, learning to play guitar, rekindling a relationship with your child that you’ve grown apart from, building friendships. And the issue is a lot of retirees get caught at 2.8 or 2.9. They know that 3.0 is ahead of them. But so much of their identity is caught up in the work they’ve done, the being a parent, and they don’t know how to kind of leap over that threshold into 3.0. So, we have a curriculum and program to help people kind of design and ignite that third phase of life and make it an epic phase of life.

Michael: And so, is this a service you charge for? Is this just part of being a client and a perk? Just how does this fit in from the business perspective?

Seth: Right. It’s included, but different layers are included at different service levels. So, we have four different tiers of clients. We have our emerging wealth clients at under a million. We have our integrated wealth clients, 1 to 5 million. We have our private clients, 5 million to 20 million. And then we have family office clients, 20 million-plus, and we have all the tangible breakdowns of what’s being proactively delivered to each of those tiers of clients. Right. And it’s totally tracked on Salesforce. We know if there’s any delays. And so, every client across the country we know is getting these different services, and we’re doing a lot of training and different resource sharing to help our advisors be empowered to have these conversations, first, in the tangible ways, the wealth management reviews. The different projections that we do, the holistic plan tax reviews, looking at social security maximization, estate planning, charitable giving.

So, we have these breakdown of services, the inspired living piece for the lower two tiers, they only get access to the inspired talks. You can come to a talk. If you want to dive deeper into a wisdom share, then you have to have a certain minimum level of assets. And if you want to go deeper into private coaching, one-on-one coaching, then you have to have even more assets. If you want to come to a retreat, you have to have more assets. So, we did a retreat for just private clients and did a women’s-only retreat for them. We’ve had family office clients come to a multi-day retreat. So, it’s kind of tiered up based on revenue and kind of importance to the firm. But everyone has access to something, again, if they’re interested in it, right? So, not everyone is interested in this.

They just, some people just want, “Hey, give me a financial plan, manage my money, and I’m happy.” But others, especially when they go through these life events go, gosh, I could use some guidance. And by the way, it’s uniquely human, right? So, on the value stack of advice that’s becoming more and more commoditized, basic investment management can be done with a robo platform, 20, 30 BPS.

Now, you start to have robo platforms that I can even do. ESG investing, work around concentrated stock, but we say, hey, we differentiate because we do planning, right? So planning moves up even higher above customized investing on the value stack. But planning to some degree is starting to be available through a CFP with Vanguard or some of these other even robo platforms that can do pretty impressive financial planning. And now, eMoney and money guide pro have some self-driven financial planning modules that can be used.

So, what is at the top of the kind of hierarchy of needs? If you go back to Maslow, self-actualization is what Maslow talked about, but we feel that the most unique human element that’s not going to be replaced by machines anytime is the EQ, are these coaching conversations where you can really help clients feel heard, understood, and help them identify what’s the need beneath the need that they maybe haven’t addressed in their life. It’s not just about a 6% or 8% rate of return. There’s something deeper there. And that’s where we can be a tremendous resource in their life and truly differentiate ourselves from other firms.

The Surprises Seth Encountered On His Journey [1:15:15]

Michael: So, what surprised you the most on this journey of building a $5 billion advisory firm?

Seth: Oh, man. Quite the question, I think what has surprised me is the critical element of people. You have to have the right players on the right seats and you have to create an environment for them to thrive. If you don’t take care of people, the economic incentive alone will not last. It’s not going to be enough of a driver. So, really focusing on culture and diving into what’s going to create that real fertile environment for them to thrive and feel supported and have a shared vision that they buy into, that’s really the piece that has probably surprised me, how critical that is. It’s not just bring on clients, throw them onto the boat, bring on another client, throw them onto the boat. You have to really have a people culture if you want to scale.

Michael: And were there any turning points for you in how you figured out or found or set your culture?

Seth: I think there’ve been a number of turning points as we started bring on…hire more. So, in the last 2.5 years, we’ve hired 40 people. So we have 83 people. We’ve literally hired half of our team in the last say three years. So and that was during a pandemic by the way. So how do you maintain culture remotely when everyone’s in different zip codes is not a simple thing. But we have put a lot of thought into that. And I think our strategy is really working in that regard. We also are mindful of DEI, right? And the fact that out of 92,000 CFPs, close to half of them are going to retire in the next 10 years. And so, we all need to be part of building the funnel of talent that’s going to be coming in.

And that funnel is going to look very different than advisors you see at a typical conference, right? It’s going to be more female, more people of color, just more diverse across the board to be able to attract diverse clients and have the benefit of innovation that diversity brings. So, we are always thinking about people, how to attract quality people, how to retain them, how to create an environment where they can thrive. And that’s the part that I started in finance, I’ve been doing finance for 30 years. I didn’t study people. I didn’t study people strategy, how to recruit, how to manage, how to train. So, job descriptions really evolve over the years. And so, now a lot of my life is around people. I’m in charge of culture. I’m involved with recruiting, not just on the M&I side, but talent, hires. And so putting as much effort into that as you do into the numbers game is critical if you want to build a firm of permanence, that’s going to scale.

Michael: And out of curiosity, because you said job descriptions that really evolved over the years, what’s changed? What do you do with job descriptions now compared to what you were doing years ago?

Seth: Well, we do personality assessments of all people that come on, which is different. We want to understand their strengths, the strength finder. We want to understand their communication styles. We have multiple people interviewing them or before, I would make a lot of decisions or Brad or Matt, we would just kind of make decisions. Yeah, we like him, let’s hire him. But now we know that you got to put the team in there because you have different perspectives and different needs and prioritizations.

So, I would say the team approach and then understanding kind of how they handle themselves under stress. What are their interests and past experiences outside of finance? If we want to be a firm that’s continually evolving and innovating, I don’t want to have just people with only finance experience, right? You want people with broad experiences because that’s going to help us navigate these future times. And we don’t want to be a homogenous firm where everyone looks alike and thinks alike. We need people that are willing to step outside the box to create a culture that can stay dynamic and continue to thrive.

Michael: And then, how do you manage that sort of culture and growth environment when you go through a world of hiring 40 people in 2 years in a pandemic where they’re virtual? What are you doing to get that many new people acclimated to culture and maintain a culture when you’re forced virtual?

Seth: Right. Well, when the pandemic kicked in, we initially said, what are people doing on their own now? And that’s where we came up with this affinity team concept, where we said, gosh, people are gardening, people are working out, people are cooking, people are making themselves drinks on Fridays, people are reading. So we started these affinity teams. And so, people across the country could connect if they’re into a book club, or if they’re into this women on a mission group. If they’re into gardening, they could connect on areas of passion that they have that are completely outside the business of what we do day-to-day.

So, we then did hikes, we organized a cooking class, a virtual cooking class. We brought in a magician, comedian. So we just invest in connectivity. These retreats that we host twice a year, we do volunteering together as a team, the whole company, and again, volunteering is a big part of who we are. So by rolling up your sleeves and having fun, laughing, cooking, volunteering together, you build kind of a glue and a cohesiveness. And even if it’s only every three to six months that you see these people in person, that carries forward during these months in between that are predominantly virtual.

The Low Points Seth Experienced On His Journey [1:20:12]

Michael: So, what was the low point for you on this journey?

Seth: I only get one?

Michael: You can go with more than one. What were the low points on this journey?

Seth: Well, for me, it dovetailed at a really tough time. I went through a divorce in 2006. I had a health issue in 2007, and then we had the financial crisis in 2008. So, that was both a personal and professional time that was super challenging. We were looking to transition out from the accounting firm as well. So, that was kind of a divorce in its own form. We parted as friends, and they did really well by the exit, but it was still a big shakeup. So, I think that two-year period was super humbling and challenging, but the blessing disguise is that’s also when I kind of dove into my own personal growth. And when I started to kind of gain this broader perspective of success and wealth which has then opened up many new doors, not just for me, but for the firm. A lot of our M&I are firms that are interested in this coaching aspect. So, had we not had those dark times, I think some of the growth and innovation that came from that and resiliency that grew from that wouldn’t have us be where we are today.

The Advice Seth Would Give His Former Self [1:21:19]

Michael: So, what do now that you wish you could go back and tell you from 10, 15 years ago, as you were thinking about this, like separating from the accounting firm, going out on your own?

Seth: I felt like I had to be this buttoned-up financial professional. I was CEO for almost 20 years and I kind of didn’t fully show my authentic colors for many of those years cause I was playing a role, kind of a scripted path of success that I thought I was supposed to be wearing and playing. And if I look back, I wish I would’ve broken out and been uniquely me and then the fullest expression of me sooner, because kindness, vulnerability, those are strengths. Being uniquely who you are, people can feel that, people understand that. So, I would just encourage people to work with the type of clients you really connect with most in an area you want to be. Don’t try to be everything to everyone. It’s okay to have people not choose you.

And that’s going to have kind of a resonance that’s going to attract the types of talent that you want on your team and the types of clients you want to be working with. And I just kind of have realized that we are in such a privileged seat as advisors, right? Clients are opening up to us and sharing their family issues and their warts and their wrinkles and their life. And if we just stay in a two-dimensional world and just talk about the balance sheet and okay, what’s your home worth and what’s a mortgage versus going into some of the deeper layers, which using your iceberg analogy you started with, estate planning is 20% above the surface is about assets, taxes and controls and distributions. The 80% below the surface are your stories, getting through your toughest times, your values, your core beliefs, lessons learned, that’s your legacy. So, helping advisors to really have these multidimensional conversations and be uniquely who they are and share their own vulnerabilities with clients so clients will in turn share them back, I would’ve invited myself and others to do that much sooner.

The Advice Seth Would Give To Newer, Younger Advisors [1:23:11]

Michael: So, any other advice you would give for the younger, newer advisors just trying to get going, figure out their own path?

Seth: I would really encourage them to think about partnerships. Partnerships have been a game-changer for us. There’s been multiple partnerships that we’ve made over the years. So, instead of just trying to do it on your own, think about who you can partner with and it might be the traditional partners, like I’ve partnered with the state attorneys. We’ve partnered with accountants, we’ve partnered with property and casualty insurance firms. We’ve partnered with mortgage bankers. We’ve partnered with bill payers, bookkeepers. Those are traditional partners in our industry, but what are other passions that you have and how could you partner there?

So maybe it’s life coaches, maybe it’s fitness trainers, maybe it’s a larger national group on something you’re into. Into birding or you’re into sailing. But think about partnerships because through partnerships you get the power of distribution, right, you get the law of numbers that you can tap into. And if it’s a natural passion of yours, then that connectivity is going to be easy to make. So, I would just be thinking about partnerships. That’s been a game-changer for us. We’ve had lots of partnerships over the years and I would just encourage folks to think outside the box as to who you could partner with to really have fun together and support each other on your respective businesses.

Michael: This is partnerships in the context of referral partnerships, business generation partnerships, as opposed to find another advisor to be a partner with and to advisor for.

Seth: Correct, correct.

Seth’s Plans For The Future [1:24:39]

Michael: Okay. So, what comes next for you? What comes next for you guys from here?

Seth: Well, we definitely have clear plans as far as where the firm is going. And we’re excited about those plans, which include a lot of areas of impact. So we want to be kind of thought leaders in these areas of impact with more values-based planning, values-based investing, doing community work. We do a lot of community-building programs, so not just donating to charities but actually community-building programs where we bring groups together. We’re excited about scholarships that we’re doing through the CFP board. We have 16 scholarships going to help pay for their CFP education to help kind of groom future talent in our industry and more diverse talent in our industry. And so, it’s an exciting field to be in. We’re really excited about the growth. We’re excited about our team.

And for me, personally, I love doing more of these retreats and these deeper conversations. So I’m excited to have… I have a couple international retreats coming up. I want to write a book on this as soon as I find some time. My kids kind of launch off to college, and I find a little more time. I’m looking forward to being able to kind of go deeper into that realm of inspired living.

What Success Means To Seth [1:25:42]

Michael: So, as we wrap up, this is a podcast about success and just one of the themes that always comes up is just the word success means different things to different people, sometimes different things to us as we go through our own stages of life in business. So, as someone that’s built, objectively, incredibly successful many multi-billion-dollar firm, how do you define success for yourself at this point?

Seth: For me, success is about impact. So, if I feel like I can make a difference in someone’s life in a deep, meaningful way, that, to me, is my primary measure of success. So, I’m always looking for ways to create impact, and that’s in my community work I do with nonprofits and other organizations, that’s in how we can keep improving our culture and being a leader there.

So I just, for me, impact, I said, is my love language, right? And listening is the highest form of loving. So, I try to be a great listener, a great connector, and then a great cheerleader to help people kind of shine where they naturally shine. So, if I can help…if I can continue to do that and make a difference in people’s lives and have fun along the way, having great experiences, to me, that’s success. The tangible metrics are there, and they’ll keep being there. But if you just focus on the person, whether it’s that one client you’re connecting with, and you’re really caring for them, and you’re helping them get a new job, you’re coaching them through a tough time. Maybe it has nothing to do with their portfolio or their financial plan, but that feels really rewarding. And so I would just say, ultimately, success for me is moving more from my head and into my heart.

Michael: I love it. I love it. Well, thank you so much, Seth, for joining us on the “Financial Advisor Success” podcast.

Seth: Thank you so much, Michael. It’s been great having a conversation with you. Appreciate everything that you’re doing for our industry.

Michael: Likewise, likewise. Thank you.