The Evolution From Broker-Dealer To RIA Platform Leadership

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.

Resources Featured In This Episode:

Looking for sample client service calendars, marketing plans, and more? Check out our FAS resource page!

Full Transcript:

Michael: Welcome, Carolyn Armitage, to the “Financial Advisor Success” podcast.

Carolyn: Thank you, Michael. I’m delighted to be here.

Michael: I really appreciate you joining us today and looking forward to the discussion around what to me is just a really interesting evolution underway in the industry at large. We’ve been talking for years about this kind of rotation from broker-dealer to RIA or this shift from broker-dealers to hybrids and dual registrants that are wearing broker-dealer and RIA hats together. And the RIA side of the industry likes to talk about this as an avalanche and a sea change if you actually look at, literally, the number of advisors that move channels in any particular year. It’s really only 1% or 2% of advisors a year. But after 10, 20+ years of this trend, it’s been a really significant shift in how advisors affiliate and structure their business. And I know you’ve lived a particular version of this journey, having started out in the broker-dealer world, but having spent most of your time in leadership positions, having now done the journey from leadership position in broker-dealer platforms to leadership position in an RIA platform. And so, I’m really excited and kind of curious for your view of, from the leadership and as someone that has run a lot of these platforms, how do you look at this whole industry rotation from the broker-dealer world to the RIA world?

Carolyn’s Journey Into The Financial Services Industry [05:01]

Carolyn: Yeah, thank you. It’s a fabulous question to open with. And I lived it first as a financial advisor. I started in the industry on straight commissions. I got licensed while I was still in school, in college, at the University of Minnesota. Actually, borrowed the money from my parents to get licensed, and they, as well as all my friends, thought I was crazy. Like, “What are you doing?”

Michael: So, what even led you there out of the gate? Not to overgeneralize the industry, but “young woman in her early 20s graduating from college” is not the quintessential “I’m going to join a broker-dealer” in the 1980s.

Carolyn: Right, right, right, that’s very fair. Well, it was the ’80s, the end of the ’80s, and that was very much a go-go decade, right? All transparency, my sister was dating a gentleman at the time. My sister’s a lot older than me. I’m from a very large family. And he paid more in taxes than my parents made that year.

Michael: And was he a financial advisor?

Carolyn: He was actually dealing in junk bonds.

Michael: Oh, well, that would be a very 1980s thing to do. Okay.

Carolyn: Right? So, not the best reason for getting in the industry.

Michael: That sounds great when you’re coming out of college. Sure.

Carolyn: Well, and there were other elements in that where I love problem-solving. I really love helping people. I have a servant’s heart. And I love math. I’ve been great at math ever since I was a little kid. So, I started as a financial advisor, straight commission. I had a great manager/mentor, taught me what was going on, and I listened, and I followed directions. And I am pretty good with people, and so clients liked me. And I had a lot of really good success. And that thrill of the sale, right? Is a little intoxicating.

Michael: So, where did clients come from when you’re a young woman in her 20s selling brokerage products into the marketplace?

Carolyn: Right? Yeah. So, this was old school. I’m pretty old now. And this was back before the internet, and it was the old friend, families, and referrals approach. So, the firm had you start off, list everybody that you’d know, and/or if it were your friends, their parents, start calling to see if they would set up a meeting with you. If you were going to see a client, so this was back, old school, kitchen table financial planning, so to speak, without the actual financial planning part, and if you were going to see a client, you would also look up other people in their neighborhood through a reverse directory, called a “Coles directory,” that you would reach out and say, “Oh, I’m going to see one of your neighbors on Wednesday. I was wondering if you had any interest in…” things like that. So, you would set appointments in the same neighborhood when you could. And I was just fearless.

Michael: And essentially, at that point, you’re…

Carolyn: Oh, cold calling, absolutely.

Michael: You’re cold calling. Literally, it’s cold calling, “Hey, I’m going to be in your neighborhood. Can I stop by and tell you about financial services?”

Carolyn: Exactly. And you could call it fearless. It really wasn’t fearless. I’ve lived within uncomfortability my entire life. I just overcome it, and it was great. I absolutely loved working with clients. It was fabulous. The only reason I stopped doing that…so I actually had a lot of success early on. Then they gave me house accounts once I proved my own success. And then I ended up managing the branch office, where I would be recruiting financial advisors, as well as training them, while also continuing with my own book at the time.

Michael: So, they were a system of producing managers, so keep a client base and then also recruit other advisors?

Carolyn: Yep, absolutely. Producing OSJ manager.

Michael: Okay.

Carolyn: So that worked well for a couple of years. And then my husband at the time got a job change down into Dallas. And so, I wanted to be a good supportive spouse, and so we moved down to Dallas. And I tried to service my clients remotely, and this was pre-internet, mind you. This was when a phone call was expensive. A long-distance phone call was expensive. So, it just didn’t work.

So, I ended up creating a succession plan with somebody else to take over that book of business. I was pregnant with my second child at the time, ended up finding a firm that I thought, “I’ll just work here until my pregnancy is done, and then I’ll go out and find something more appropriate again,” if you will. In full transparency, I thought all this would be a temporary thing for seven months, and it ended up being seven years. And that’s because I found a great spot with H.D. Vest, which is now Avantax.

Michael: Okay. So, they were one of the early players, along with 1st Global, bringing the financial advisory business in the broker-dealer channel into the CPA community and working with accountants, right?

Carolyn: Yes. And just for historical purposes, 1st Global grew out of a departure from H.D. Vest, the startup, 1st Global. I was there when it happened. So, I have all kinds of war stories out there. And so, I took a corporate position, and it was a great growing firm, lots of really talented people that are sprinkled throughout the industry that worked there during the era, and learned a lot. And because of my experience, I quickly rose to the ranks and was reporting to the CEO in very short order.

Michael: So, what were you doing? You’re in corporate, so this is not advisor, manager, or trainer at this point, I’m presuming.

Carolyn: No. So, it was, gosh, a variety of things. So, I came on and did a little bit of recruiting. I did some senior, what we called, sales desk work, where I would work with advisors, and they would call in with their situation, and I would explain a couple of paths that you could do and provide a recommendation. Lots of training out in the field. And when we did advisor education, we would also do a recruiting seminar right before or right after it. So, I trained on everything, from estate planning, insurance products, modern portfolio theory way back in the day, all the different types of mutual funds and asset allocation, and sales techniques. It was fabulous. And I ran a bank marketing program for a while there until all the banks kept getting bought out when we’d put contracts in place. And when the banking component kind of fell apart, I was asked to move to the dark side, what I literally called the dark side back then. Because remember, I kind of grew up in the commission side, and I would sell against advisory, which wasn’t really around very much then, as to, “Gosh, it’s cost so much more over time, it’s not really worth it.”

Michael: Right. Why would you pay 1%, or probably more like 1.5% a year back then ongoing, with…?

Carolyn: Back then, 2.25% or more, yeah.

Michael: Yeah. You just pay me once, 5.25% upfront, for this A-share mutual fund. It’s so much less expensive for you. You recover it in just a couple of years.

Carolyn: So, Michael, you actually flatter me. I actually entered the industry at 8.5% commission and 9% contractual plans.

Michael: All right, all right. So, yes, I’ve dated myself. We’ve come down a little bit. The ’90s put a lot of pressure on those mutual fund commissions.

Carolyn: Absolutely. Yep, rightly so. And so, yeah, when I got the opportunity to do some advisory work, I took a look and analyzed it further. And full disclosure, I hadn’t really done full analysis before. I was staying, my tunnel vision, narrow in my lane.

Michael: Right.

Carolyn: And as I analyzed it more and understand how it’s a better service and experience for the client, the financial advisors’ environment is better in that they have some predictable revenues or consistent, at least, revenues coming in, and also, whoever they’re working with, aligned with, with their broker-dealer/RIA, it’s a better relationship and deal for them too, because they have that smoothing of cash flows instead of the unexpected of what’s going on from the commission-based side. And so, I really analyzed it, learned it, embraced it, imbibed it, and then taught it. And I have…

Michael: So, this was…we’re still in the 1990s at H.D. Vest, talking about starting to add in advisory.

Carolyn: Yeah, this would have been ’90, ’91, maybe ’94 at the latest, I would say.

Michael: So, I guess, help us understand more. You made some relatively strong statements there of analyzing it and decided that it was better service and better experience for the client on the advisory side than the brokerage side. That’s still a debated thing today, to some extent. That would have been a really contentious thing to put forth. And when you were looking at this, so I guess just talk to us more. What was striking you that was such a difference in what would happen in the advisory side compared to the brokerage side as you were analyzing it as someone trying to decide what path to manage towards?

Carolyn: When you take a look at where incentives are and compensation programs, people will figure out how to utilize and sometimes exploit them, right? So, in the commission-based environment, it is stressful for the advisors, or if you’re selling a car or life insurance, or whatever it is you’re selling, the commission side can be quite stressful because if the week goes by and you didn’t make a sale, ooh, that doesn’t feel very good.

Michael: Yup.

And so, with the compensation system, where do you spend your effort? Not on servicing your current clients. It’s on getting more. And so, when you take a look at the end of the day, where’s the value being placed? Is it in the sale? Is it in the servicing? Is it in building the relationship or having a transaction? And so, as a generalization, clients need their behaviors modified. They need that behavioral coach, if you will, to keep them in the market during turbulent times. Versus, if a financial advisor made a sale, and the market goes down, and the client panics, and they sell out, the financial advisor doesn’t lose anything except, perhaps, a trail, nowadays.

So, I really do feel for the vast majority of wealth management assets. Using an advisory approach is probably most prudent. Now, I’m a huge proponent of financial planning, and one of the foundational elements of financial planning is risk management. And from my CFP education, the client really does need that risk management before they need the money management. So, it’s not that I’m all about fee-based only. I’m about a balanced approach. I understand some advisors like to offer and be positioned as fee-only. It’s way easier to market. And if you have one set of regulators to work with instead of two, yeah, that’s a lot easier, right?

Michael: So, the challenge that you were seeing on the commission-based side was just that phenomenon of…this sounds like you’re paid to hunt. You’re always paid to hunt. It’s really not a lot of incentive for servicing clients beyond keeping enough of a relationship to get another transaction with them at some point in the future if they need to do business again. So, the advisory side for you is just, “Therefore, it’s not that, so this should be a better fit.”?

Carolyn: Yeah. And looking at the long run, right? So, I’m a big picture thinker, and when you look down the road, it’s such a better lifestyle for the financial advisor, better long-term client service where the financial advisor’s paid for keeping the advisor in the market and continuing to work with them. And then, whoever they’re partnering with, it’s a better financial and business model for them to be in in the long term, because they have that continual…

Michael: The partner, meaning, the BD or the RIA platform, or whatever it is.

Carolyn: Yep, exactly.

Michael: Because their revenue is more stable in the same manner.

Carolyn: Yes. And the clients are stickier, therefore, you can spend more time servicing the clients, as opposed to having to go out to get new clients.

Michael: I’ll admit, this was something that had struck me fairly early in my career as well, because I started on the life insurance side of the industry. And just watching a lot of these advisors that just would work their tail off all year long, and some made a really good income, they’re really good at what they did, but then, January 1st rolls around, and income resets back to zero. And every year, it reset. And this was old-school life insurance days. There was literally a whiteboard where they would put the names of all the people and score them as they went up. And frankly, even every month, the whiteboard got wiped clean, and then the rankings and the scoring would begin over again.

And I remember the first time that I got to an RIA advisory firm, and I don’t even understand back then what the differences really were. But I showed up at this firm, and they had a few hundred clients, a few hundred million dollars under management. And it was just…there was all the staff and all these people and all this stuff happening for clients, and there were still some partners who are out, hunting, as it were, for new clients. I could see, the balance was so different, and it took me a couple of months before I could really realize why did it feel so different, which is, “Oh, because at this firm, on January 1st, they already had a couple of million dollars of revenue.” All they had to do was not screw it up and not piss off any clients and give them good service and have them stick around. And this business just keeps growing and compounding. And that was, literally, when they created my job at the time, because I was in a role to expand all the financial planning we were doing for clients to deepen those relationships further. And it was just, “Oh, this is really different.” Like just seemed from the advisor side, “this feels different.”

Carolyn: Yeah, exactly.

Michael: So, you come to this realization, as you’re building with H.D. Vest, of, “Hey, the advisory side of the business just seems to have some better alignment from client to advisor to platform that supports them.” And so, what did that mean for you? Are you now trying to build an advisory platform at H.D. Vest?

Carolyn: Yes. So, we had a small, growing platform, and my entree into that came about when the number one producer at the time and the internal employee left to go start 1st Global, and half of our assets left at the same time. So, we had, I believe it was 60 million, and we were down to 30 million. And so, it was my job to grow that and make that a viable business.

Michael: Because you had a very small advisory platform internally already, but this advisor left and took half the base with them. So now, it sounds like, “Okay, Carolyn, we have an advisory platform. It’s half the size of what it was. You got to figure out how to recover this thing and get it growing.”

Carolyn: Yes. And this was, again, early ’90s where this was bleeding edge for independent industry to take the institutional advisory services and bring it down to a main street mom-and-pop, right? And I love being on cutting edge of things. I like doing things that are difficult. Personal challenges have never scared me. So, I was very willing to take this on. And as I analyzed and learned more about it and interviewed some clients and financial advisors, we created/built it. And I taught advisors how to make that transition, how to have the conversations with their clients to transition from commission to fee, and it’s a huge mind shift, obviously, in the advisor’s mind. They have to learn new habits, new language, new protocol, it’s not easy, until they get it. And when that lightbulb goes off and they get it…I’ve seen thousands of advisors make the transition very successfully.

How And Why Carolyn Helped Broker-Dealer Platforms Transition From Commission-Based To Advisory Models [22:27]

Michael: So, I’m wondering, what did that mindset shift conversation look like then? I sort of get it now. RIAs in the advisory business who have been out there a lot longer, a lot more widely, along with the majority of advisors at the large broker-dealers, already are predominantly dually registered in the first place. But I would venture to say, if you’re going back to the ’90s, almost no one knows what an RIA and advisory are and hasn’t really heard of that, the only thing we’ve ever known is the various iterations to the commission-based model that we’re in. So, how do you explain to someone who’s been doing commission-based work since the ’70s or ’60s at that point that, “Hey, it’s the ’90s, there’s a new thing, you got to check this out?” I guess, what does that look like?

Carolyn: Yeah. And I think what’s fair to call out and the starting of my career, it wasn’t with the purest of heart of solely helping people and doing what’s best, necessarily. It was that it was the ’80s, and financial services was hot and a great place to have a career and make money. Financial advisors back then were pretty much of that same mindset with very bright individuals being opportunists, understanding, “Hey, there’s a new niche that’s growing in the marketplace.” And once they see how they can serve clients better, it becomes pretty enlightening for them.

And so, the conversations with clients, first, you’d want to profile your book and see who is appropriate to move over, because it’s not right for everybody, because you want to be in compliance, of course. And then, depending on how your relationship came to be with that client, really, there would be three different approaches that the advisors could take that I would suggest to them. And one of them is just the fair, honest, transparent approach of, “You know what, the industry is changing. Since, when we invested your money 10 years ago, commission-based was the only opportunity we had.”

So, whether it was the industry or it was the firm, maybe the firm just got these advisory services program up and running, or depending on when they were making the transition, maybe the firm had had the offering for a while, yet they didn’t want the clients to be guinea pigs and start off in it. The advisor wanted to wait and see if this was a fad or a trend and not put their client in something or make changes that were inappropriate. And so, really just having an honest conversation with clients of, “It’s shaping up in the industry that this is a more appropriate model for certain clients in the industry, and I think you may be one of them. So, I wanted to present you with the option. If you wanted to stay in the path we’re on today, we can do that. If you’d like to make this move to the new model, here’s what that would mean for our relationship.” And explain the fees, the expenses, and the servicing that they would get for that.

Michael: How do you get the advisor comfortable, or was the reality just it was so new and so different if you went out to talk about this new opportunity, some subset of advisors who, themselves, were willing to do new things and try something different would just be attracted to it and come to you, and that was more than enough to grow at the time?

Carolyn: Mm-hmm, yeah. It was really a numbers game. You do group educational sessions, and there’ll be some that are early adopters and some that want to go in the middle of the pack to feel more secure, and those that still haven’t transitioned today.

Michael: Right. So, what did an advisory platform look like then? What do you offer? What do you do?

Carolyn: So, it was really largely focused around the quarterly report of performance reporting. Financial planning, most, really goal setting and how to achieve that goal, was thrown in as a free offering, with meeting with the advisor four times a year, in person.

Michael: Okay.

Carolyn: So, not too far off the mark with what today’s environment looks like, albeit today, oftentimes, has a little broader concierge services, much more robust financial planning. Thank goodness for all the tremendous tools that have come along to help instead of using HP 12C and a yellow pad to do that work. We now have fabulous software that can do all kinds of simulation and provide clients a better insight as to what their future could look like. And we’ve definitely learned that portfolio acumen, portfolio performance, is not something that you can hold your hat on. Past performance is nonindicative of future performance.

So, I think our industry has come a long way in learning. I kind of use the term the original founders of the independent industry were those early adopters, whether they left a wirehouse, left an insurance company, or if they were so bold to start off in that independent space, initially. And they were really the pioneers before we had the software, before it was a norm to be in the independent space.

Michael: And what did the platform offering look like from H.D. Vest? What do you do as a platform? You’re not giving access to all this financial planning and other software tools, because there weren’t as many then. What was the offering from the platform end?

Carolyn: Yeah. So, from the platform, we really have three different offerings. The original one was institutional money management, where we had a CFA on the team that would manage the money. The advisors would still be the “salesperson.” They would be the relationship manager, if you will, offering that out to clients. And instead of using mutual funds, we would manage the assets internally in-house. So SMA account, if you will.

Michael: I was going to say, so kind of, functionally, an in-house house model account using individual stocks.

Carolyn: Correct.

Michael: Not what we would have called it then, functionally.

Carolyn: Right.

Michael: Okay.

Carolyn: Yep. Yep, exactly. So, that was the original model. We then added in something that was more turnkey as opposed to customized, and I think we called it VestFlex, if I’m remembering right. And this was a series of model portfolios that had a select group of mutual funds that were used, doing a full range of asset allocation and modern portfolio theory so that the advisors could select the appropriate portfolio based on the client profile and the IPS that they put together. And it was automatically rebalanced. Really turnkey and easy for the advisor.

Michael: Interesting. So early days of model-based portfolios, and back then, we would mostly use mutual funds, not ETFs that we do today.

Carolyn: Yeah, they weren’t created yet. And then, thirdly, came even more flexibility with…I think it was VestAdvisor. It was essentially rep as PM, where here’s the open platform, put in individual securities, mutual funds, no load variable annuities, whatever was appropriate for the client, and you, Mr. Advisor or Ms. Advisor, could manage that rebalance as appropriate and service a client so that it was a stripped-down offering so that the advisor would essentially get that management fee, as well as the relationship fee.

Michael: Okay.

Carolyn: And so, it was a nice variety of choice, and then the rest of the platform was more service-oriented where we would have that senior sales desk where people could respond to tricky questions or help with cost basis issues and what to do for some of the larger portfolios, and then, also, retirement accounts and estate planning professionals to help with the more advanced cases.

Michael: Interesting. Interesting. So, the advisory platform starts getting underway. What comes next for you?

Carolyn: So, I was reporting to the CEO fairly early on, and I was still very young in my career. And quite frankly, growing up in Minneapolis, living in Dallas, I ended up getting divorced in Dallas. It just wasn’t the right place for me to be, long-term. I knew I wanted more for my career. And an industry colleague referred me to somebody that was looking to hire a head of what back then was called advisory services out in California. And this was a group that had a billion dollars in assets, which, back then, a billion dollars was a huge deal.

Michael: Well, you were taking over H.D. Vest Wealth Advisory because they were at [$]30 million.

Carolyn: Right, right. Right? Yeah.

Michael: Had gone from 60 to 30 [million dollars]. Frankly, it’s like, a billion [dollars] in assets is a really big number.

Carolyn: Yeah. Yeah. Back then, it was. And I knew what they needed to do because I had done some of that work at H.D. Vest. So, I moved out to California to do this turnaround play and worked with the advisors for what they were looking for, assess what they had, and ended up insourcing the portfolio reporting and accounting that was being outsourced, added in all kinds of features and bells and whistles, and revamped the quarterly report and made it a really robust viable program that ended up being the number one profit group for the organization. And at the time, that was Financial Network, who’s, today, Cetera Networks, and Financial Network was owned by Aetna Financial Services, who then sold to ING. And ING formed a holding company. And the year after I got there and I’ve put this in place, they formed this holding company and tapped me to run this for all nine of the firms that they had. One of them they sold, so it was really only eight firms. Two of them didn’t have RIAs, so I put that in place. Assimilated all the programs for the naming conventions, selling agreements we had with firms, the products, security list, the reporting, the billing, all of that. It was really a phenomenal time.

Michael: So, I guess, just curious, if they were already at a billion dollars of assets, which is this enormous number at the time, what made them a turnaround play? What was going on that they needed to be turned around if they’re sitting on this huge number?

Carolyn: Yeah, that business was done by just less than two dozen advisors, and they were ready to leave. They gave the firm an ultimatum, “You either fix this, or we’re out of here.” So, I was the fixer.

Michael: Okay.

Carolyn: It was that shabby of a platform. Even though this was still fairly early on in advisory days, they could have had more than what they had.

Michael: Okay. So, I guess, help us understand how advisory is starting to evolve at this point, because now, we’re in the 2000s, there’s some movement getting going with the independent RIA channel, like Schwab, Fidelity, TD Ameritrade are on that doing their thing. But you’re within a sizable broker-dealer that’s building this as an advisory channel within the broker-dealer, which I know had its own dynamics around, can you do advisory accounts separately? We had the Merrill Lynch rule for a while. That got big in 2007. So just help us understand, what does advisory look like in a broker-dealer environment, building advisory in a broker-dealer environment while independent RIA is also starting to gain momentum as an alternative?

Carolyn: Yeah, that’s a great question. So, the independent RIA space did come into play a little bit, and quite frankly, we kind of sold against it, that you don’t want to do that, it’s too risky. This was back when all you needed was $25 million to open a nationwide RIA.

Michael: Right. SEC registration threshold only went from $25 million to $100 million more recently.

Carolyn: Right, right. So, this was back in the $25-million days. From a seamless perspective, being able to offer the broker-dealer products, as well as advisory, we had that all-in-one for them. And at the time, firms didn’t want to partner with anyone that had an independent RIA for the most part. They wanted to only use the corporate RIA because that was more control and more revenue for them.

Michael: What made the revenue difference for them, for those who just aren’t familiar with how the sausage gets made?

Carolyn: Yeah. So, when you are the broker-dealer/RIA and you build the platform, you need to recoup those costs. So, that’s the technology and the people and the business acumen to put all of that together, with the legal and compliance constructs. And for that, you would charge an admin fee. And so, an independent RIA could do all of that on their own. They usually didn’t have scale, because the size of books of business were much, much smaller then. So, it did make sense for the vast majority of advisors to say within that corporate RIA environment.

Michael: And what did that look like at the time, just sort of this admin fee structure? Was that bps? Was that still a percentage of revenue payout kind of the BD? Was that a flat platform fee? Just how did that work at the time?

Carolyn: It was an admin fee based on each account, and I think we had break points on volume for that advisor. But it was a pretty handsome return for the firm. As I had mentioned, it was really the most profitable segment that was just phenomenal for the organization.

Michael: Because at its core, you could do all these things for advisors when, at the time, pretty sizable books of business were $10 million, $20 million, $30 million, which means you just don’t have the revenue to really build much the infrastructure on your own. And it’s the 2000s, we don’t have the leverage of internet, virtual, remote, and all the things we do today. So, it sounds like there was just, essentially, a significant kind of scale arbitrage effect of, “It’s going to be really expensive for you to stand up your firm on your own. We can do this for an admin fee at scale, and it’s so much cheaper for us to do at scale that, even though the admin fee is cheaper for you, it’s still really profitable for us.”

Carolyn: Mm-hmm, exactly. And today, you could fast forward that and just add on a zero. And while a $200-million shop today can be their own RIA, man, that’s really tough to do from insuring that you’re in compliance with all of the regulatory changes and that your internet and sites and partners are cyber secure and just the pure bandwidth of “How do you want to spend your time?” It takes a lot of effort to do all of that. And life gets pretty short, and time gets crunched. And how do you really want to spend your time? Does it make sense to do all of that yourself? I’m a big fan in outsourcing where it’s appropriate.

Michael: Yeah, it’s an interesting phenomenon to me that, back then, it was just so costly and challenging to stand up a firm that the economics of that kind of affiliation were very compelling. It’s gotten a lot easier to stand up a firm with just the technology and tools and platform that’s out there today. I think back even before when I was starting 20 years ago and just there were a lot of firms that, $30 million, you needed 2 to 3 staff members to handle the reporting, the trading, the billing, setting the meetings, prepping the meetings, and all that. Now, it’s like, “Yeah, it’s me and my laptop.” It’s like, “We got it…”

Carolyn: The other big difference is that 20 years ago or even 10 years ago, there weren’t as many consultants helping people do this either, right? So, it was early internet days. And today, there’s dozens. Whether it’s a legal field, IT field, consulting field, there’s a lot of folks that can help people set up their firm today and encourage them. You just didn’t have that back then.

Michael: Yeah. But now, where, as the saying goes, “Abundances create the next scarcity,” we made it a lot easier to launch it and start it. So now, you don’t hit the wall as you’re trying to get going. You hit the wall when you get 200 million or 300 million [dollars] under management and 2+ million [dollars] of revenue. And now, there’s 8 to 10 people, and you have to hire 10 more in the next couple of years. And all of a sudden, the job is really different than it was. You’re not scaling yourself up now. You have to actually just do business-y things that are really different. We actually see that in our research on advisor well-being. We actually find the unhappiest advisors are primarily at firms with $200 million to $300 million.

Carolyn: Yeah. And I would actually even double that. So, when I was at ECHELON Partners for about five years, Dan Seivert coined the term “Valley of Doom,” because we would see this in their business cycle that they would get to about $500 million to $600 million in assets, and after that, it just really sucked, because they had to invest so much time and effort in people and technology to get from that half-a-billion-dollar mark to the billion-dollar mark. It took a great deal of resources, their margin drops down like a stone in the lake, and it’s no fun anymore. And I spent a great deal of consulting time, and sometimes we would sell firms where it gets to that unhappy point.

You think about one of the most difficult aspects is kind of the business I was building back in Minneapolis of being a supervisory… Office of Supervisory Jurisdiction principal, that branch manager who has their own production, and because you’re good at it, you would track all these other advisors that want to work with you. And now you have to manage them and deal with all of their concerns. So, you’re dealing with their concerns, your own clients, and running the business, and you may have a significant other and some kids or whatever to deal with as well. It’s overwhelming, and it burns out a lot of people. And so, you need to kind of pick your lane that you want to be in and to go passionately, wholeheartedly down that lane to have the most fulfilling path and lifestyle.

Why Carolyn Decided To Lead Thrivent Advisor Network [41:48]

Michael: So, what came next? You’re obviously not still at Financial Network.

Carolyn: Yeah, no. Through the financial crisis back in ’08, ’09, I remember when AIG imploded. I was at the ING headquarters out in Connecticut, and we’re like, “Uh-oh, if that happened to AIG, we could be next.” And our stock plunged down to 3 bucks a share from about 50 or 80, or something like that. It was just ridiculous, free fall, right? So, with that, they had to borrow, I forgot the number, some $10 billion or something from the Netherlands government to stay afloat. And as a part of that deal, they agreed to jettison the noncore businesses, and broker-dealer/RIA business was a mere rounding point for the overall global ING, which, at the time, was a top 15 global company. And so, with that, we had consolidated the eight firms I was working with down to four, one of them branded ING, the other three we packaged together and sold off to Lightyear Capital.

And so, with that, I ended up staying with the branded firm until the time came they wanted me to move to Connecticut or Iowa. And I had been out in California. That’s where I moved for Financial Network. And loved it here, and my kids are well rooted in their schools. And so, I took a package and kind of set out of the industry for a little bit. And it was a really nice sabbatical, quite frankly. So, after that, I thought, “Instead of a global humungous company, let me try something different.”

Michael: Been there, done that, uh-huh.

Carolyn: Yeah. And so, I’ve found a nice small family-grown shop called Western International Securities out in Pasadena that had about 200 advisors, needed a lot of infrastructure built. So, I worked with them for two years, building that advisory infrastructure, estate planning, strategic partner, conferences. They had never held conferences before. It was a really nice offering. It just wasn’t quite big enough for me. And so, LPL approached with an opportunity. They had amassed several firms that were doing quite well in their system. So, this was MSC and Pac Life broker-dealer. These groups were in groups of financial advisors, and they would recruit/retain advisors way better than LPL was doing on their own. So, they said, “We’d like you to lead a deep dive strategic planning initiative for these folks and help them be better.”

So, we would work on their strategic initiative, their industry positioning, and how they recruit and how they retain advisors, their human capital element of how they attract and retain employees, the compensation systems. We’d go through a full financial analysis, which most of them didn’t even have an income statement at that time. Some of them didn’t have RIAs. We would help them put those in place. It was this whole package, including continuity and succession planning. And it was phenomenal, and the offices had to qualify to be a part of this program. Oh, and we even did lien services, efficiency, so taking a process through soup-to-nuts and helping with the communication and automation of systems. Just a phenomenal offering.

And it worked so well that Mark Casady promised three years, maybe five years minimum, and at three years, they cut it off. Because I was working with 42 offices, and that was worth 27% of the revenue of the firm. And as these offices get big enough, they can ask for more. Right? So, they did. And then when you sharpen your pencil, you take a look and say, “Wow, these offices are doing really well. They’re doing so well, we have much less margin on them than we do on some of these other shops, so we’re going to tip the scales a little bit.” And they de-emphasized from a recruiting perspective, saying, “If the recruiters share a lead with an OSJ, they don’t get paid any commission or any bonus.” They only get paid that if they’d put it through LPL directly instead of an OSJ.

So, I kind of saw the writing on the wall with that, and sure enough, a couple of months later, they disbanded our group. So, for a little while, I did some independent consulting, and I actually met with a bunch of consultants across the industry to see what I wanted to do next. And I knew I didn’t want to do my own independent consulting, because I feel people do better with diversity of thought and opinion, experience, somebody more than just one person to answer the phone and do all the work.

So, I did want to partner with somebody, and I found that ECHELON Partners was the really perfect partner situation for me. It just so happens they were also close to me, half an hour away from where I live. Dan Seivert and I had a very similar mindset of quality levels that we wanted to attain and the types of folks that we wanted to work with. And so, I did that for about five years, primarily, on the consulting side, but also with the investment banking engagements, whether it was a buy-side, a sell-side, and mergers. I particularly loved mergers because it’s not about the financial transaction. It’s about enduring firms and getting through to the other side together collectively. And so, if it was two firms, three firms, four firms, I would encourage them to hire us collectively so that I could create the best outcome for all of them, not just one side of the transaction. And that was super fulfilling for me.

And so, in the consulting side, I did the strategic planning work for firms, the human capital, compensation plans, equity sharing plans, continuity and succession plans for firms, and valuation work. And so that was really delightful. I loved working with the firms. It was very transactional in nature, and some of my clients would come back year over year for other needs that they had. But then there was an opportunity that presented itself, and that was to come to TAN or Thrivent Advisor Network.

And several of the offices at TAN were clients of mine. I had met them a couple of years prior and worked with some of them. And they’re just phenomenal people. I literally used the words, “I love your advisors,” the TAN folks. And what needed to be done is something I had done before, and I just thought this was a tremendous opportunity to make more than impact than simply doing transactional work and that I definitely have the stamina and endurance to do another build. So, I think what makes this really different is that we’re in this for the long game. It’s not a financial transaction, and our whole mantra is about living generously. And so, we’re looking to attract those advisors that share our joy of generosity. And, wow, what other firms in our industry do you hear talk about that?

There’s a couple of other firms talking about values-based or purpose-based, and that definitely is something we laid with as well. But not this generosity element. It’s really the founding of our firm was to take care of our fellow brother. And obviously, brother is a little bit of a dated term nowadays, but it really means your fellow human.

Michael: So, help us understand then, what was TAN looking to do or build that you got brought in to create?

Carolyn: Yeah. So, Thrivent is a 120-year-old company, foundation was life insurance, and they decided to build a couple of years ago an independent RIA. So, think of a traditional life insurance company, very successful, kind of the quiet giant in the industry. They’re not very showy. They decided they wanted to participate in the wealth management space in order to help their clients. And so, they stood up an RIA and allowed some of the career advisors in the life insurance side move over into this independent RIA and attracted a couple of offices from the outside. And with that launch, they wanted to figure out how they could grow that organization.

So, that’s where I came in, to come in and assess what was built, kind of put some permanency in place for some things that were built or if something was done temporarily to put a permanent fix in place and to really round out and build out the platform. So, with that, I came in and assessed all that we had and the team members and built the right team for us to go and build this for the next 100 years. And that’s part of my joy, is I get to build this out, not to sell it in four or five years, but to build this out for lasting legacies, with a spirit of taking care of your fellow human and that joy of generosity.

How Thrivent Advisor Network Structures Their Partner And Affiliate Models [51:32]

Michael: So, help us understand just what the platform is or how this is structured. I guess just at the end of the day, it’s an independent RIA, so advisors who affiliate are IARs of a corporate RIA. Are these folks all dually registered over to a broker-dealer side of the business as well, or are these all stand-alone RIA folks?

Carolyn: So, it could be either or both, essentially. So, we have the affiliate model where the advisor is an IAR of our RIA, whether they’re fee-only or if they have their FINRA licenses, they can hold those with an unaffiliated broker-dealer and do all of that broker-dealer business. We custody with Schwab and Fidelity, and we’re about to add Pershing on as a custodian as well. And then we also newly, since I got there, have added in a partner model whereby TAN can be the succession plan for advisors in the industry. So, we will buy businesses, and those advisors that they want to sell and stay, they can become employees and have their clients be served by them.

And what’s unique about Thrivent and TAN is that we’re one of the few firms in the industry that will still train financial advisors, whether they’re right out of college or a CFP program or they’re a second career person that’s looking to get into financial services. We have a four-year training program for them. And then, as they go through that, they can then select if they want to be a career advisor and work in one of those offices. We also have a virtual team for folks that come in through the internet or through a phone number, that they could be on that team. And then, as they grow and develop, we also have a larger group or larger services for larger advisors, and we will take the appropriate folks to move over into TAN to be the successor advisor for the firms that we buy.

So, we have this built-in career path, which helps us attract folks right out of college and those CFP graduates, and then we have the built-in advisors to take over all of these businesses that will be succeeding here over the next decade and beyond. And so, instead of buying this to package it up and resell it to somebody else or to go IPO, we’re building this out because we understand the lifetime value of a client, and we want to serve them for all their generations to come, not just today, not just for the next 5, 10 years. And that’s pretty exciting to build something like that.

Michael: Yeah. It’s a striking environment, just the dynamic of what it looks like for a lot of broker-dealers that are either publicly traded and have to deal with the Wall Street dynamic or PE-owned and are trying to maximize value over a three-to-five-year time period before they have to do the transition to, usually, the next PE firm that’s going to do their five-year cycle to be doing this in an insurance company that’s been around for more than 100 years that thinks in 100-year time horizons, which is just different.

Carolyn: Right? Yeah.

Michael: That’s a really different kind of environment.

Carolyn: Yeah, it really is. And going back from our foundational roots, Thrivent really is an industry leader. We’re just quiet about it. They created the insurance platform because of somebody that died accidentally, and what the spouse received was a bag of flour for her husband that was killed at the mill. “Yeah, a bag of flour is great, but that’s not going to help me pay the rent and take care of the kids.” And so, they built this fraternal organization to insure people, and that was really the grounding roots of our insurance company. We actually created a Thrivent online community before Facebook was around for advisors to be able to share out with each other and connect with each other. We’ve actually really been innovators, just very quietly.

Michael: So, at TAN, you’ve got an option of you can be an IAR under the corporate RIA as an affiliate, and if you’ve got a BD relationship as well, you can still have an outside BD relationship. I guess, just, I’m looking at it relative to even a lot of the other insurance companies out there where they tend to already have their own insurance broker-dealer or they may have an RIA structure as well, but the expectation is, “Well, that’s because you’d be dually registered with our insurance BD and then our corporate RIA offering that ties along with it.” And you guys are a little bit different in that regard. Am I understanding that dynamic?

Carolyn: Sort of. We don’t have open “you could use any broker-dealer in the industry” environment. We do have one designated broker-dealer that you would affiliate with. And to get to the point you were making, Thrivent does have their own broker-dealer. It’s called Thrivent Investment Management Incorporated. TAN has chosen to not use that, only simply to keep the program separate from the career side versus the independent side. And for the variety of securities lists, and offerings, and all of the platform, that’s available on both sides. So, they do have an RIA that the career folks can use, as well as a broker-dealer. On the independent side, we chose differently.

Michael: So, who is your sort of BD relationship with then, or who do you send them to?

Carolyn: Yeah. So, it’s with PKS.

Michael: Okay. Okay. Which I know is well known for being a BD that’s fine with “We’ll only house your BD business. It’s okay for you to have your own RIA relationship outside.”

Carolyn: Yes, exactly.

Michael: Okay. So, advisors that want to come that maybe have an existing BD relationship, they are expected to be transitioning away from where they are and over to you guys. But if they say, “Hey, I want to go mostly RIA, but I don’t really want to let all of my BD business go because there’s some trails there, some things that I can’t put into advisory offering,” they can affiliate with TAN on the RIA side. You can help set them up at PKS to house the broker-dealer business, and then they can move on in what I guess is probably primarily RIA offering at that point.

Carolyn: Yeah. Well, and the mix of business is their choice, whatever the mix is between broker-dealer and RIA side, including financial planning, of course.

Michael: So, help me understand, I guess, just how ownership structures work if someone comes in in an affiliate option. I get in the partner model and that, if they’re literally selling their business, the corporate RIA and then living kind of a sell and stay environment, then, by definition, you don’t own your equity at that point. If you sold your equity, you’re going to continue as an employee. But how does it work in the affiliate context?

Carolyn: So, the affiliate context is that the advisors come over, as any independent advisor in the industry, they own their client base, and their IAR agreement explicitly states that they have the right to solicit the clients. If they ever decide TAN is not the right place and they want to leave, they can solicit their clients and take them with them.

Michael: Interesting. So, you’re… in an industry where there’s so many rises, so many nonsolicited agreements. You essentially have a solicit agreement that you will be able to continue to solicit your clients if you leave. We’re putting it in print.

Carolyn: Yes. Yes. Independent advisors like their freedom. They like having their own brand. When they come to TAN, they can use their own DBA, their own LLC brand, if they’d like. They’re welcome to use TAN, if they want to use that, and get that brand lift from Thrivent and TAN. Either one is a great option. And as with other firms, we will help support them with their growth of their business. We’ll help them with their acquisitions. We do have capital that we provide for our advisors to do acquisitions, whether it’s somebody’s internal succession plan or it’s buying somebody else’s book or business. We provide that at very favorable terms compared to the market and help them every step along the way. We’re very aligned with our interests and have a really unique community of passionate financial advisors.

When you consider…the vast majority of the financial advisors are out in their communities where their brand is super important. In the financial services industry, your reputation is paramount, and you want to do everything to protect that. And so, most advisors really struggle to find a way to connect with their clients beyond just money. And so, our financial advisors bake that into who they are. And so, through their organizations, whether it’s a church group, whether it’s a nonprofit or Habitat for Humanity, or Boys & Girls Clubs, or one that they created on their own, they work with their communities to help improve their communities.

And they’re fully supported by Thrivent as well, where we have a phenomenal matching program, and we have programs to help build up communities. And each year, we donate millions of dollars, I think, last year, it was well over $200 million, as well as volunteer time, that advisors and their offices, as well as the home office personnel, put into helping improve communities. And that’s part of that joy of generosity.

So, not just looking at the current clients’ financial future, but what about their values? How do you pass on your values, not just your valuables? How do you share the wealth of all that you’ve built, not just in terms of money? Because money only goes so far. It’s a tool. It’s not a goal. It’s not who we are as people. It’s really just a tool.

How TAN Attracts Advisors And Differentiates Themselves From Other Advisory Platforms [1:02:06]

Michael: So, in an environment where there’s just so many advisor platforms these days, right from the broker-dealer end, from the RIA end, as you noted, you kind of were there for the rise of the LPL’s super OSJ environment. So, you’ve seen the landscape as much as anyone. How do you position or differentiate TAN in the marketplace today? How do you think about the difference of what you’re offering to all the other platforms out there that have relationships with Schwab and Fidelity and can help give you centralized support services and fund your acquisitions? How do you think about differentiation in such a crowded environment?

Carolyn: So, I think it’s a little bit different for each model, right?

Michael: Okay.

Carolyn: So, in the partner model for acquisitions, we differentiate ourselves from those that are private equity backed. So, there’s a couple dozen heavily backed private equity firms that are doing the vast bulk of the purchases or when you take a look at volume of assets. And you kind of know what the outcome of that looks like, right?

Michael: Right.

Carolyn: So, we have a completely opposite end of the spectrum. We’re not building this out for a three-to-five-year experience. We’re building this out for the next 100 years. And so, when an advisor looks to sell their business, the financial aspect is not their main concern. Maybe in 1 out of 10 advisors at most. When I was doing the investment banking side, I would get numerous calls every week, and by and large, the vast majority of advisors are most concerned with taking care of their clients. The best ones also want to take care of their employees. And oftentimes, the advisors comes in third from a financial perspective.

So, we have lots of reserve of capital that we can deploy. That is not an issue for us. So, we can compete and still provide tremendous value, because after all, we are a platform already of $6.5 billion in assets under management, and we’re just listed as number 80 in ranking by financial advisor, which is the first time we’ve really got on the list.

Michael: Ranking for size?

Carolyn: Yes, for RIAs.

Michael: Okay.

Carolyn: And so, we have scale. We have the platform. What’s most unique is really our positioning in the marketplace and who we are as people, our values, our transparency, throughout TAN. We have a core service fee for the platform that we offer. We don’t provide any markup in our technology cost, not even in our E&O costs. This last year, our E&O cost was under $1,000 for each advisor, versus in the industry, it’s generally $3,000 or more. So, we’re not marking up ticket charges. We’re not marking up E&O or technology. Full transparency.

Michael: So, what’s the core service fee then? How does it work?

Carolyn: The core service fee works on volume, just like most folks have a grid, and it goes all the way down to two basis points, starting off at 17 at the highest.

Michael: Okay. And that’s for the affiliate model or that’s from a partner side?

Carolyn: That’s for the affiliate model.

Michael: Okay. And so, what do I get for 17 bps? Just help me understand. Well, obviously, 17, scaling down the size. But what does that core service fee get me as an advisor on the affiliate platform?

Carolyn: So, we have a curated offering where the advisors can choose. So, they can have Black Diamond or Orion. They can have Redtail or Salesforce. We have a front-end to Salesforce to make it easier called Salentica. We’ve got SMArtX for the model portfolio infrastructure, if you want to use that with hundreds of offerings on there. And full turnkey support for the operations using, presently today, Schwab and Fidelity, and soon to add on Pershing. In addition, we’ve got practice management folks that will help you grow your business. We have lots of community events to help you as you have growing pains throughout your business, to learn from your peers, to learn new technical concepts and applications, in-person meetings, as well as all the community event components that we support our advisors in.

Michael: Out of curiosity, as you had mentioned, support for operations with Schwab, Fidelity, soon to be, Pershing, is that because you’ve got standardized systems and protocols in how you work with them or, literally, centralized traders and operations folks. So, I literally don’t have to hire some of my staff because I use your staff?

Carolyn: Yeah. Depending on how the advisor runs their business, they may be able to rely on our team. Depending on the sophistication in the office, they may want their own operations staff.

Michael: Okay.

Carolyn: So, I would say, there’s been a trend that I’ve seen over the last five to seven years where more and more advisors are choosing to outsource their money management component. So, this was true all throughout my career at ECHELON Partners and consulting with offices across the country, that advisors are understanding they’re not really adding a lot of value by doing money management in-house, it costs a lot of time and money, and that, if they outsource it, life gets a lot easier. And so, when advisors do that, the operational element becomes much easier for them.

Michael: And so, who chooses to work with you? Because I get Black Diamond, Orion, Redtail, Salesforce, and SMArtX, I can do some of those vendors out in the marketplace directly as well. Maybe your pricing get more compelling, because I know you certainly get some discounts with size and scale. But how do you think about differentiation or positioning in the marketplace? Who chooses TAN, and why do they choose you at the end of the day?

Carolyn: Yes. So, kind of a two-pronged answer, so I was going down a path of what our values are, and I think that’s important. So, transparency is one. Our high ethics is super important to us and the advisors that choose to work with us. Thrivent has been named for 11 years running among one of the most ethical companies globally, and we take that very seriously in the day-to-day workings, that we want to do things appropriately in the best interest of our clients. And then the third element would be that joy of generosity. So, those are differentiators.

On the partnership model, it is that we’re not backed by private equity. On the affiliation model, we have the technology package, and while advisors could get each one of those on their own, we’ve pulled them all together in a single sign-on environment so that they can relate and talk to each other, with a data warehouse that is all cyber secure. They don’t have to worry about any of that. We take care of it all, including email archiving, the compliance texting element. It’s just a nice, easy process, including a secure environment for clients as well.

Michael: So, I’ve got to ask, the industry, I find, particularly on the RIA side, a lot of the RIA channel has, better label, a bit of a chip on their shoulder around insurance companies, in general, for a few firms that have non-ideal practices, some of which advisors worked at many decades ago and left that side of the industry. So, I guess I’m just wondering, do you find issues or challenges or have to answer for this dynamic of being an RIA network under an insurance company when a lot of the RIA growth has been moving away from insurance and broker-dealer into the RIA channel? Does that come up? Is that an issue for you, or is that just a segment of the RIA channel that has a chip on their shoulder about insurance?

Carolyn: You know, I think it kind of goes back to when there were bad sales practices and some bad actors that make all the headlines and can give insurance salespeople kind of the white shoe or bad image. And there’s rogue brokers, and there’s bad RIAs too, right, out there. It’s more that, if you take a look at what the dynamics are in the industry, people need life insurance as they’re accumulating wealth, as they have children, and for estate planning purposes. And there’s kind of no getting around that. You can self-insure. If you’re fully independently wealthy, you may not need life insurance. But really, communities, clients, our society needs this self-insurance mechanism of life insurance. And so, somebody needs to provide that.

No, not everybody needs life insurance, or they buy it once, and that’s enough. So, this is a way to diversify as well as continue to evolve and really work with clients throughout their entire lifecycle and meet them where they are. And so, our clients at Thrivent are usually very passionate about Thrivent and really value the brand and support and the community investments that we make. And so, they usually are with us for life. And as they go through that lifecycle, they may have come into us and been introduced to us through life insurance. Well, at some point, they’re going to have enough money that needs to be managed, and you don’t necessarily want to do that on a commission basis, right? So, you need the higher-end wealth management offering that we have today, and so this just helps round out our company.

Another good example is one of the firms that we bought was Newman, which is the leader in long-term care insurance. That’s a great growing field, and we’re kind of the new kids on the block with that and leading the industry with that. And we have numerous other insurance programs or variable programs that are quite attractive, we just don’t have an open architecture where we sell them out through the rest of the industry because of our fraternal structure of our organization. We do need to make sure we work within those confines.

Michael: So, I guess one other question in that context, I don’t know it well, but I know some of Thrivent’s roots were a particular focus on Thrivent for Lutherans and working with Lutherans. I believe, about 10 years ago, the company, at large, had broadened from Lutherans to a wider range of Christian denominations. Is that a part of who chooses to affiliate with TAN, or are the religious roots for Thrivent separate from what happens with TAN?

Carolyn: Yeah, great question. So, the Lutheran roots go back to our founding 120 years ago. And Thrivent today is a collection of two Lutheran insurance companies that came together, AAL or Aid Association for Lutherans and Lutheran Brotherhood. And when I was in Minneapolis, I was a financial advisor and branch manager, I would bump into these folks all the time. It was in…I think it was 2013 that the two companies came together and rebranded as Thrivent to be one organization.

So, Thrivent is a 501(c)(8) organization, which is a nonprofit, and it’s a fraternal nonprofit organization. So, what that means is, in order to meet the IRS definition, there needs to be some common bond. Well, that was super easy because they were both Lutheran religious affiliation. As we’re taking a look in wanting to be more inclusive in society, we made the broad decision to broaden that definition from being a Lutheran to being Christian, and that was put out to a member vote. We needed to have majority to have the change of our charter, which we did three or four years ago. And we do need to work within the confines of that IRS regulation to enable that nonprofit component, of which, that’s where the proceeds come from that we give back into our communities all the time.

So, the other element that comes into play is that there’s a common bond that needs to be attested to to make sure we live into that for the IRS purposes, but that only comes into play when life insurance products are being sold. So, it doesn’t matter from a TAN perspective and any of the wealth management assets or financial planning component or if an advisor doesn’t sell any Thrivent product, that common bond never comes into play. And so, that’s where, a few years ago, they took the cross out of the logo, and it’s a heart, simply a heart, as opposed to a heart with a cross, and changed the mantra to “Living generously,” so that we can be more inclusive and yet still comply with the IRS requirements for being a fraternal organization.

So, for TAN, no, and actually, this is a question I asked, because I actually had that bias and question when I was discussing this opportunity, and you don’t need to be a Lutheran. You don’t even need to be Christian. We would want you and hope you would have the joy of generosity and want to leave the world a better place than what you found it. And that’s the type of individuals that we’re looking to align ourselves with.

Michael: Well, in general, those are the kinds of folks that say, “Exiting my firm to someone that’s been here for 100 years and wants to be here for 100 more is different than selling to a PE firm that may change hands in 5 years.”

Carolyn: Exactly.

Michael: You can make some dollars for that, some good money to be made.

Carolyn: And you can with us, too.

Michael: We all wear our priorities accordingly, but different priorities.

Carolyn: Yeah, exactly. And you can with us, too. We’re very competitive in what we will offer for firms. It’s just a different experience in that, when you’re handing off your clients, you know who you’re handing them off to, and that doesn’t change.

Michael: Right.

Carolyn: The brand will be the same, the name’s the same, the people will be the same, other than the additional successors that we bring in. And so, I think that’s a super compelling message, and those that we’ve already test marketed with throughout the conference circuit over the last six months have really embraced it. They’re like, “Yeah, I like that.”

Carolyn’s Perspective On What Advisors Overlook When Building An Advisory Business [1:16:55]

Michael: So, for all you’ve seen in advisory businesses over a wonderful arc of your career, as you look back on it, what do most advisors just not understand about building advisory businesses?

Carolyn: That’s a great question. I think they understand it. I think some get tunnel vision in that they work in the business as opposed to on the business. They don’t necessarily have intentionality. We have such a large culture throughout our industry of lifestyle practices that are super comfy, where you build a certain set of clients, with the ongoing fees, you service the heck out of them, keep them happy, you get some referrals, and you don’t necessarily need to be aggressive or grow the business in order to have a comfortable lifestyle. There’s a lot of intrinsic rewards, as well as financial rewards. And so, there’s a lot of those folks, and then, given that we are an industry with a lot of type As, there’s a lot of folks that want to build empires.

So, I have seen, I think, every type of business model that could be built and every different way to do business, and the great news is you can be successful at any of them. I’ve been amazed at some of the things that I’ve seen that really work because of dynamic personalities and the leadership that they have, the vision, and they get people to come along with them, and they make it work whatever their model is. And so, I do think folks can make some things work. I will say that those that struggle with and oftentimes get buried under their own success, that’s where they need to take a step back and say, “What am I really doing here?”

I’ve unfortunately been a party to many advisors that didn’t have a continuity plan in place, and they passed away over a weekend. And the business is left struggling, the spouse doesn’t know what to do, the clients are left in the lurch. It’s really disconcerting to see that from an industry that’s supposed to be doing financial retirement and estate planning. And so, one of my mantras is that every employee that we have has a career path that our advisors have a plan, have that continuity, as well as a succession plan, so the unplanned as well as the planned retirement, and that clients have their financial plan, their retirement plan, their estate plan, their legacy in place. And that’s something that we can wrap altogether.

So, I would love advisors to take a step back and think of what they’re doing, as opposed to just going ahead and doing it and being more intentional, kind of take a clean sheet of paper, if you will. And if you were to build your firm over from scratch today, what would you do differently? And then, do you have the courage to do that and kind of that strength to be able to make those changes necessary? Some advisors don’t. They just don’t want to go through that pain of change, and they will allow the future successor to kind of evolve their business for them.

So, I’ve seen too many advisors that just don’t enjoy what they’re doing, and they just get entrenched in this drudgery of doing too much and not getting to do what they go into the business to do, which is to work with clients. Most of the business owners that I’ve worked with throughout my career love doing new business development and getting the client onboarded and then having the rest of the team take care of everything else, servicing them, taking them out for dinner, playing golf, helping them, and being there through all of the joys and turbulent times in clients’ lives. They don’t enjoy managing people, all the regulatory filings that you have to do, all of the operational issues, the technology issues. That’s not why they got into it. And so, if they can step back and, ideally, sunset their career doing what they love to do, as opposed to doing everything, those have been the most joyful advisors.

As I was at ECHELON, I would get calls just about every week from someone who was very seemingly successful on the outside world, kind of that above-the-water iceberg tip. Everything looks great. Man, they must be living a good life. But underneath, or inside, they’re just kind of hating life, because there’s no fun anymore. When you’ve lost your joy, you’ve lost your passion, you got to get out of that funk. I think COVID has kind of reset the bar that life’s too short to not really be enjoying every day and what you’re doing. There’s so many other ways you can do business still very successfully but make it much more fun.

The Low Point Carolyn Encountered On Her Journey And The Advice She Would Give Her Past Self [1:21:47]

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

Carolyn: Oh, gosh. I think the low point on the journey for me would have been the last financial crisis, with seeing the ING brand fall. So, it was a phenomenal firm. We were in so many countries, I forgot how many countries we were in, top 15 global company. And to see all of that kind of fall away and needing to break apart the infrastructure of all the firms that we had built simply because of financial reasons was really heartbreaking. It was definitely a low point.

Michael: So, what do you know now you wish you could go back and tell you kind of thinking 30 years ago, as you’re getting going in H.D. Vest, about the building and growth and trajectory of the advisory business?

Carolyn: Yeah. The advisory wasn’t really an opportunity as I got out of college. Otherwise, I would really say that I would embrace the advisory element even sooner than I did. I do think it’s an amazing way to work with clients on an ongoing basis, to be that relationship manager and financial guide, as opposed to being viewed as a salesperson. Aligning all those interests, I think, changes the dynamic of the relationship, and you can offer more and better services.

And in all actuality, I got to say, I would love it if I could have short-cutted my experience and gone from growing up in Minnesota to living in California. I did a lot of fabulous work. I met some wonderful friends and had fabulous co-workers down in Dallas, so it wasn’t a bad experience. I do love the weather here in California after growing up for so many years in Minnesota, with the harsh winters and the tornadoes in the summer.

Michael: So good journey, lots of opportunity in advisory but get to California faster.

Carolyn: Well, it’s not for everybody. I’m a big boating gal and love the ocean, as well as the desert is phenomenal. I’m one who does like to embrace change, and one of my mantras that I’ve instilled in my children is to never stop learning. So, that, I think, helps to keep us young, helps keep us invigorated and passionate. So, there’s not a lot I really regret along my journey. I do take every disappointment or failure as a learning opportunity and, okay, won’t do that again. And I actually instill the same beliefs with my team and let them know it’s okay to make a mistake. In fact, if you’re not making a mistake, you’re probably not pushing the envelope far enough. Now, all within the ethical and compliant confines, of course, but I want our team to know they’re in a psychologically safe space and that we do want to experiment as we grow. And mistakes will happen, right? So, it’s pretty exciting times.

The Advice That Carolyn Would Give Younger, Newer Advisors [1:24:54]

Michael: So, what advice would you give younger, newer advisors looking to start in the industry today?

Carolyn: I would say that people matter. So, who they have on their team will make all the difference in the world. My management style, while I do love our advisors, I think they’re amazing people, our employees are my first line client in that employees are only going to treat our clients, the advisors, as good as they’re being treated. So, really take care of them. Build a culture that’s very positive. That’s where I’ve been very blessed to have folks come that I’ve worked with in the past and others throughout the industry come over to work with me and help build this over the last year. It’s super humbling to see that happen. I would encourage people to fully understand that relationships matter way more than a few basis points. It really contributes to the fulfillment far greater than money ever would.

Work is work. Operations is operations wherever you do it. It’s, who are you interacting with on a daily basis? Do you like them? Do you respect them? Do you appreciate who they are as a person? And do you trust them? And so, I know, throughout my career, those that I’ve worked with that are really of great character, that I could trust, that are intellectually curious, have been fabulous people to work with. And when folks are in it just for the money’s sake, something will go awry at some point in time, and it’s just not as enjoyable of a journey when you’re in it just for the money’s sake, which most of the financial advisors in our industry are not. They are in it to serve clients, and I think that is such a beautiful existence.

What Success Means To Carolyn [1:26:52]

Michael: So, as we wrap up, this is a podcast about success, and one of the themes that comes up is just the word success means very different things to different people. And so, you’ve had this incredible path of success through the industry and building multiple businesses. As you look forward from here, how do you define success for yourself at this point?

Carolyn: Yeah. So, one of my greatest joys is helping people realize that they are much more capable than they even realize, so kind of seeing people blossom, helping them grow, helping them learn and advance. And I do that with my own team today. I’ve done that with thousands of advisors. And you just know that, exponentially, that will radiate out through our society and through all the communities. And to me, that intrinsic reward is far more rewarding than the fabulous financial rewards that we get in this industry. So, while I am very goal-oriented, my true long-term objective, I kind of stated it earlier, although, it might have been masked, was to ensure that all clients have a financial retirement and estate plan, that our employees have that career path, and that our financial advisors have a continuity plan and a succession plan.

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

Carolyn: Yeah. Thank you, Michael. You’ve been so inspiring for our industry. And love that you have been such a leader and influencer. I also would like to congratulate and thank the advisors who have stayed all the way through this podcast and continued their journey of learning. I think that’s where we can really sharpen our saw together. And I thank you for leading all these efforts, Michael. It’s been phenomenal.

Michael: Amen. Thank you. I appreciate that, Carolyn.

Carolyn: My pleasure. Thank you.