Episode Transcript
Matt Sonnen [00:00:24]Thank you, Luke! Welcome everyone to Episode 10 of the COO Roundtable. We started this podcast in January of this year, and so far, we’ve been publishing one episode per month, so here we are 10 months in, and this experiment has exceeded all of our expectations here at PFI Advisors. We have had some incredible guests, sharing some deep insights into how they run their firms and how they think about professional management in general. I have been telling a lot of people lately that I think we are probably still 4 years early, but at some point, the RIA industry collectively will transition from thinking of themselves simply as advisors who take care of their clients, to owners of businesses that serve both clients and employees. In the meantime, we will just keep putting out content, through our blog posts, white papers, and of course, this podcast, to better deliver on our mission, which is “To further evolve the RIA industry from a collection of ‘practices’ to ‘business,’ and to be a continued voice in validating the industry as a legitimate landing spot for billion-dollar teams and their clients.” One of the many missions of this podcast is to help RIAs think through processes, procedures, and strategies in running a business, not simply a lifestyle practice. I recently moderated a panel with Stacey McKinnon of Morton Capital, she was also a guest on Episode 4 of the podcast…and Stacey very nonchalantly mentioned from the stage that it takes an employee 72 steps to open a custodial account, confirm the assets have transitioned from the former firm, and notify the client that that account transfer was complete. The entire audience’s collective mouth dropped, not by the fact that there are 72 steps, but by the fact that Stacey had actually taken the time to document each of the steps and build out a workflow around the entire process. I know I’m nerding out right now, but I want to point out that it takes that level of commitment, and that level of detail to run an efficient enterprise. Many of our listeners have met and/or seen Stacey speak at various events – so you all know that she is completely obsessed with the client experience, and with the employee experience as well. She wants her employees working as efficiently as possible, and everyone at the firm wants assets transferring as quickly as possible, and the client obviously benefits from that level of detail as well. With that realization around the 72 steps, and thinking about the tremendous work that all COOs perform on a day to day basis in our industry, and with us reaching a nice round number of 10 episodes under our belt, I thought it would be fun to do a recap episode of our podcast, and highlight some of the practice management gems that our guests have brought to our podcast this year. So here we go. The podcast was actually born on the heels of our COO white paper that we put out last October, which rightfully earned a lot of attention and led us here at PFI Advisors to declare 2019 to be “The Year of the COO.” In the white paper, we conducted interviews with 5 COOs and/or professional managers of their businesses, who were collectively managing about $20 billion of AUM. I had so much fun conducting those interviews, I turned to my team at one point as we hung up with one of the interviewees and I said, “My God! I wish I could do this for a living!” and they immediately said in unison, “LET’S DO A PODCAST!”As with everything that’s been a success here at PFI Advisors, me and my infinite wisdom, I was skeptical at first and thought, “No one wants to listen to a bunch of nerdy ops folks talking about workflows.” But I slowly came around, and as we got closer and closer to launching, I realized that one of the missions of the podcast needed to be highlighting the human side of the COO role….I think too many people in our industry assume that the COO job is purely a tech position, and they should go hire a programmer or technology expert for the position. I truly believe that 75% of the COO’s core responsibility is tied up in HR and the psychology associated with change management across the organization. In our white paper, we identified 3 core responsibilities for Chief Operating Officers: the day-to-day administration of the firm, where you execute the company’s business plan and uphold the firm’s culture, driving workflow improvements by managing vendor relationships and overseeing the firm’s technology stack, human resources where you recruit, develop, and retain employees and staff as the firm looks to provide high-touch service to an ever-expanding client base. It was with those three core responsibilities in mind that we recorded our first few episodes with those same COOs that we had interviewed for the white paper profiles. Episode 1 featured Jeff Fuhrman of Coastal Bridge Advisors, and Tony Craun of Sand Hill Global Advisors. Tony had some great insights around how RIAs can compete for talent, especially when they are being compared to the big name-brand wirehouses.
Tony Craun [00:05:15]And so, we as independent RIAs, offer wonderful career opportunities for young people especially because it’s a chance to try something, to take on something. There’s things that are laying around untouched. You want to try that. Go for it no one else has time for it. And so my sales pitch, if you call it that, to folks working at wirehouses. I was going to lose on compensation to be frank. Silicon Valley and Sand Hill Road is it’s quite a behemoth in terms of compensation for people in this industry. But I had opportunity and I had career growth and I started by bringing people who saw a career path here and opportunities to touch things that were untouched and went from there.
Matt Sonnen [00:06:02]And Jeff offered up a strategy that I actually had never heard of before. Take a listen:
Jeff Fuhrman [00:06:07]What we’ve done is spend a significant amount of time drafting highly detailed descriptions of every single role in the organization. Laying out functional responsibilities and expectations. And to make sure that they’re fresh, if you will. The employee and their manager review them every 90 days to ensure consistency and in that agreement between those two people – beyond performance management. This this helps us with training and development, career pathing and even resource allocation. So, it’s a key element of our human resources strategy.
Matt Sonnen [00:06:47]Jeff also had an amazing summary of his role as the professional manager of the organization:
Jeff Fuhrman [00:06:52]I mean I think it’s about – a build it and they will come type strategy. My role, or at least the way I see my role, is to build a suite of services to support our advisors build, sustain, and grow their business. And the concept there is true for existing advisors but also for those will bring on. So, we think we’ve built an attractive engine and we continually need to evolve. But that engine offers tremendous value to those currently inside and could potentially to prospective outsiders. So are our M&A strategy as a firm is really built around that. I mean we’ve got to keep our house in order and as long as our house is in order so too, we’ll find opportunities for those to come in.”
Matt Sonnen [00:07:45]I really love that! And with Episode 2, we continued with COOs that were profiled in our white paper…we were joined by Gary Bonner of Avalon Advisors and Mike Lee of LourdMurray. They both offered up a ton of gems, but I especially liked their take on one of my favorites debates that I often pose during these interviews. And that’s, “How should an RIA, or any business, for that matter, juggle the seemingly contradictory concepts of Profit vs. Growth. Mike had this to say.
Mike Lee [00:08:15]I mean we have to focus on both. I would add the little detail that I think growth we helped more in an indirect capacity – in the form of enablement and the servicing infrastructure that we oversee to support the growth. And then from a profit standpoint it’s of a more direct responsibility. So, it’s always both and you know you can’t keep people happy and developing because at the end of the day we’re human capital business and you can’t help people develop in their own careers and team members develop without growing because costs are going to go up. Whether you decide to go or not, right.
Matt Sonnen [00:08:58]And Gary provided his thoughts on the debate by saying:
Gary Bonner [00:09:01]Yeah, it’s growth but in a profitable way. As one of my partners likes to say, “we can’t pay out quarterly distributions to investors unless we have profits and we don’t have profits unless we’re growing the assets in a profitable way.” So, going out and just adding assets where there’s no reasonable expectation of revenue is not the way to grow. It would be better to grow from the investor perspective that you know the next dollar actually is generating a profit versus just showing up on an AUM report when there was no revenue associated with it. So, growth but in a profitable way.
Matt Sonnen [00:09:43]I also loved Gary’s take on his job as the COO of Avalon.
Gary Bonner [00:09:49]basically we oversee as a COO, you know, I think that my role is essentially to kind of be the grease in the gears that keeps everything running smoothly. So, of the three things that you’ve highlighted I think all of them are important and I agree with Mike that we have to be very broad and all the things that we’re good at. We may have certain things that we’re really deep and knowledgeable on, but we have to have a good general sense of everything across the firm. You know from the H.R. perspective all the way through technology through customer service through just to the day to day admin. When you and I are talking about, you know, during the white paper when you’re writing in the white paper, you know I said one of the things I’ve done actually was in our previous office space is hung about 95 different pictures and maps and flags on the wall. Just because somebody had to do it.
Matt Sonnen [00:10:46]I love how he keeps all three constituents in mind: clients, employees, and the firm itself. Episode 3 was a deep dive into technology and how it can be used to enhance the client experience. For this discussion, we turned to Trevor Chuna and Shaun Kapusinski, both of Sequoia Financial Group. Trevor was highlighted in our white paper, and Shaun is a huge hero to COOs throughout our industry. He has done much more for the COO role than we here at PFI Advisros ever will…Shaun founded an organization called HIFON (H-I-F-O-N, which stands for High Impact Financial Operations Network). In 2010, Shaun was Director of Operations at Sequoia, and he thought, “I should reach out to other operations professionals and ask them how they handle their job and juggle the many responsibilities thrown at Ops folks in our industry.” He went looking for a community of like-minded professionals that he could share best practices with, but it didn’t exist…so he built it himself! At the time of our recording in February 2019, HIFON had over 200 members and has become a tremendous resource for the RIA space. At this year’s Bob Veres Insider’s Forum Conference, Shaun became the youngest ever recipient of the Iconoclast Award for his work with Operations Professionals throughout the RIA industry. During our interview, I asked Shaun to discuss a book he had recently written with Greg Friedman of Private Ocean and Junxure fame, called The Financial Advisor M&A Guidebook, which does a tremendous job of detailing the operational aspects involved in a merger of two RIAs. I have read and underlined and notated all throughout the book…I think it is a real gift. This is what Shaun had to say about how the book came about:
Shaun Kapusinski [00:12:35]So, Greg and I both have a passion for technology and as we met and started having conversations we also started just kind of comparing what our firms were doing and conversation about M&A just kept coming up and really he felt that the industry didn’t have a lot from the, kind of you mentioned, when firms decide to come together and then it’s time to execute on what’s been decided, you know, that’s where operations gets involved. And technology is a really big part of that. So, as we’ve been talking about a lot of technology here in this conversation today, you can really see that every aspect that your firm decides to do imagine, you know, marrying that up with somebody else and certainly there are a lot of firms that are probably going to listen to this that have gone through it and they know that it’s not a perfect science. There’s very much experience to learn as you go and experience that you get as you talked to other firms and as you experience it yourself. So, you know, the two of us really liked the idea of sharing things on a broader scale. Certainly, HIFON has that as a part of its kind of core foundation being able to share in a broad way. So, for us, for him I’d say it maybe it was the natural conclusion that we needed to put a book out on this topic that hit technology and how two firms can integrate.
Matt Sonnen [00:13:43]With a focus on technology throughout the interview, Trevor detailed how Sequoia leverages technology to offer high touch service to clients. Take a listen:
Trevor Chuna [00:13:51]And as you see more technology solutions coming out it’s starting to force us to change our mindset from, great client service, kind of white glove service, doing meaning that we do everything for the client. And it’s not that we do everything the client, that’s not great client service that’s not white glove service, it’s actually how do we empower the client to work with us the way that they want to work with us. So that’s where different technology tools, I think your client portal come into play. But then even internally, how do we do things like facilitate our client meetings? You know, are we printing off reports or are we delivering things digitally and providing them a copy of that afterword through their client portal or even attaching it to email if they prefer not to engage with us that way so they can continue to reference it and have it in a more secure location, you know, it’s us following up after those ongoing client meetings whether they’re in-person or digitally, you know, having an automated process behind that that says, you know, we met with the client, here are the things we identified, here the next best actions that we need to take, and here’s how we execute on it.
Matt Sonnen [00:14:59]With Episode 4, we stepped out from the COOs we highlighted in our white paper, and turned to Stacey McKinnon, who I mentioned earlier, and Tom Harms from Summit Trail Advisors. With Tom and Stacey, we covered a topic that is core to this podcast…and that is, How does the COO fit into the broader structure of the organization…what do they see as their primary role and responsibility to their firm. Tom put it this way:
Tom Harms [00:15:25]And so for me, and my managing partners know this, that my number one mission here is to build and help ensure that Summit Trail Advisors is built on a sound foundation and has individuals in place to last you know the next 10-20 years. I’m not going to be here forever and so the moment I got here I’ve been thinking about building this out as a legacy.
Matt Sonnen [00:15:48]And Stacey used a fantastic analogy to describe her role.
Stacey McKinnon [00:15:52]when you read Traction, it’s going to talk about how you have the CEO as a visionary and you have the COO is the integrator. And allowing the CEO, in my case I have two amazing co-CEOs, that really can set the vision for the firm and help us move forward and grow and they’re very inspirational and everyone can look to them for where we’re going as a company. But then in so many ways my role is to integrate that vision into what actually happens in the day to day. So, I talk about an analogy of our firm, our advisory firm kind of being like a play on the stage. You have your advisors or the actors, they’re not really acting, but they’re out on the stage and they’re with the clients, they’re defining their values, their goals or setting the strategy. But then equally important, you have sound and lighting and staging, and makeup and all of these things have to work together and cohesively in the best interests of the clients. So, while as a COO I’m not necessarily the writer and the designer of the play, in so many ways I’m the director of the play.
Matt Sonnen [00:16:53]I usually say that the COO is like an offensive lineman that is buried in the trenches and unless you are really paying attention and understand the sport, you miss all the hard work they are putting in play after play…but they make the quarterback, the running back, and the wide receivers look really good, so those three can wind up on SportsCenter every night. I like Stacey’s comparison to a director of a play, with the advisors being the actors on stage. I love that! With Episode 5, we were joined by Heather Fortner of SignatureFD in Atlanta, Georgia; and Lucas Winthrop of Winthrop Wealth Management in Boston, Massachusetts. Like Stacey, many of our listeners are familiar with Heather, as she has done a lot to promote the COO role as well…Heather speaks at many industry events, discussing the need for professional management at RIAs. With Heather and Lucas, we looked to tackle a big problem for most COOs, and that is time management. How do you get through a seemingly insurmountable To Do list every single day, considering the number of tasks that are handed to the COO on a regular basis. Heather had a great way of thinking about it:
Heather Fortner [00:17:57]So, I really try to focus on managing my energies and not my time. I mean my days are very regimented but that’s to manage home and my professional live as well. I’ve very clearly tried to set aside boundaries of what is acceptable for home and what is acceptable for work so that I can honor both of those well. So, just from a time blocking standpoint, my weeks and my days and my hours are very well intentionally blocked, and I schedule my calendar almost an entire year in advance just so that I can practice that intention. But I do really try to manage my energies more than I manage my time and be cognizant of the things that I am allowing to use my energy.
Matt Sonnen [00:18:54]And Lucas had this to say about his role as COO:
Lucas Winthrop [00:18:57]There’s never a dull moment as a COO whether it’s related to technology or human capital or client related. There’s always something interesting going on. And so, I think as our job as COOs is really to enhance the operation, work closely with the corporate planning, and to carry out the vision.
Matt Sonnen [00:19:19]Episode 6 was exciting for me, because for the first time, we included a CEO in the discussion, and we were able to ask Jeff Concepcion of Stratos Wealth Partners how he views the role of the COO and how adding professional management in both Lou Camacho as President and Nancy Andrefsky as COO and CFO have added to the organization. And I framed the question to Jeff by saying, “Don’t you think most business owners view the COO role as an expense line on the P&L, and because the COO typically does not bring in clients to the organization, the RIA owners don’t really see the value…”And Jeff had a perfect response, take a listen.
Jeff Concepcion [00:20:00] I’m going to politely challenge you Matt on semantics about most business owners because I’m going to argue with you that75 percent of the people in our industry are not business owners. They’re self-employed and they may think of themselves as business owners but they’re really self-employed. And I think that’s sort of that mental paradigm shift that you’re talking about. The difference between someone who’s self-employed, and someone who in fact, is a business owner is they think about reinvestment and they think about growth and they think about infrastructure and they think about the redeployment of capital to create the ability for them to actually grow and build a business which the self-employed advisor, that well-known term the lifestyle practice, they don’t think that way. They see clients, they generate revenue, and they end up with a paycheck at the end of the day. So, I think even just beginning mentally to accept the notion that I’m running a business if I was running any business I’d have a salary, I’d have some retained earnings, I’d have a business plan, I’d think about what that next strategic hire is. Be it a COO or someone to drive acquisitions or technology or HR.
Matt Sonnen [00:21:03]And then I asked Lou to tell us how their organization divides and conquers across their c-suite – this is what he had to say about how they determine who is going to run with which tasks, as everyone at the organization is running 100 miles an hour.
Lou Camacho [00:21:17]I think the way that we’ve approached it, and I alluded to it earlier, is really just taking a look at where could each of us have an impact. So, broadly right when we think about operations, right now I oversee the firm’s advisory operations and technology along with the firms M&A strategy. But part of that strategy is the operational infrastructure, the technology stack, and what we ultimately deliver to advisors… As far as you know Nancy goes, you think about kind of the CFO, HR, Marketing and she also oversees our Business Services Group and that’s essentially our practice management arm. And all those things are more to her skill set. Nancy is probably the best I have ever seen with the numbers and we trust her implicitly. When we’re sitting down and negotiating transactions and making sure that the economics work. There’s no one better than Nancy to oversee those things. But yet she’s diverse enough. A lot of times when you have the number crunchers, they don’t necessarily have the skill set to get involved in other aspects of the operations. But Nancy does she does an excellent job on the HR and the marketing and the business services side of things. So, I think at this stage of the firm’s evolution we’re still in a place where we all have to wear multiple hats. And I think we’re honest with each other we sit down around the table and we simply decide; hey look you know who’s best equipped to execute on this and who can take this the furthest.
Matt Sonnen [00:22:44]And Nancy, as CFO, gave possibly my favorite answer to my favorite question about Profit vs. Growth:
Nancy Andrefsky [00:22:52]That growth for growth sake without dropping to the bottom line, it just creates needless complexity and keeps you running on a hamster wheel. So, I think when you’re new and you’re young you kind of will chase any revenue because you’re just trying to grow. And that’s understandable. You know you’ll make exceptions and you’ll maybe go down a path you didn’t think and stick to your core but I’m just saying that in the very beginning we didn’t have really good metrics and insight into what was profitable. And I think it’s crucial, absolutely crucial to have a good understanding of the profitable business versus business that’s neutral or negative to the bottom line.
Matt Sonnen [00:23:29]I somehow made it to Episode 7 before dropping a Jerry Maguire reference…I’m sure there will be many more in future episodes! I sat down with Heather Goodman of True Capital Management and Mark DeLotto of Massey Quick Simon – I’ve known both Heather and Mark for several years, and I enjoyed this conversation a lot. We tackled one of my pet peeves, which is the fact that the term “multifamily office” is, in my mind, getting watered down in our industry because many people are using that term to simply say, “we provide high touch service.” I’ll drop another movie reference right here…from The Princess Bride – “You keep using that term, multifamily office, but I don’t think it means what you think it means…”But both Heather and Mark definitely do…both of their firms have been providing true family office services since before that term even existed! And here in Episode 7 we discussed the various services both firms provide their clients. And then I asked Heather to explain how these services above and beyond asset allocation and financial planning can create a stickier relationship with the client, and she had this to say:
Heather Goodman [00:24:33]I truly believe that when you are a full-service family office getting into the legal, the accounting, the tax, the business side of things you really do create an environment that’s very sticky. That centralizes you as the key relationship in these families and there isn’t a need for additional investment managers or other people in their lives because you’re so aligned on what’s happening in my life.
Matt Sonnen [00:24:58]Switching gears with Mark, we had him tackle another common topic on this podcast, which is, what is the COO’s role in the M&A process for firms looking to acquire? We believe that a successful Buyer will have a robust infrastructure to offer Sellers and get them excited about joining their organization…this is what Mark had to say:
Mark DeLotto [00:25:17]when I look and have conversations with selling advisors, a lot of their desire, to be a part of a larger organization, is that they’re looking to leverage that infrastructure scale. And because they’re doing all of those things like technology, expenses, people, they just don’t have the time for it anymore. And so when you look at an organization like ours, you can see that we have the resources and the capabilities to do all those things and do them so very well that it doesn’t make sense for you to allocate your time towards those.
Matt Sonnen [00:26:02]Episode 8 wound up being one of my favorite episodes so far. And again, being the genius that I am, this was the one episode I was most skeptical about heading into the interview. We had the opportunity to interview David Canter and Scott Slater from Fidelity, and that is obviously an opportunity you don’t pass up, but at the same time, I was very nervous because neither David nor Scott are COOs sitting inside an RIA, and this is obviously the COO Roundtable, so it felt a bit weird to me. But why it turned out to be such a valuable conversation was because, instead of having successful COOs on to talk about all the great things they are doing at their organizations, which is very valuable and I always thought that would provide a model or goal for our listeners…but where the conversation with David and Scott was so great was the fact that we were able to take a step back and say, “OK, where do things go wrong? When does the COO role not succeed at an RIA?” David Canter said during the interview, that he pegs the failure rate for COOs within the RIA industry at 50% or greater…and unfortunately, I think he’s right. Here’s David’s take on the struggles COOs face:
David Canter [00:27:09]And I’m going to identify at least three issues. Number one is a failure to really do a fulsome sort of 360 degree review of the team at the advisory firms by the prospective COO because as you noted, Matt, it’s not just about the principal, the CEO, whomever that may be or the founders and principals but it’s the whole team. And so really getting the perspectives of the entire organization I think is key. So, that’s number one, look beyond just the existing leadership but the folks who make the firm run day to day. And it’s really incumbent upon the prospective COO to do that due diligence because remember it’s sort of doing the job before you’re in the job. Second, it’s getting clarity in written form with the founder, the founders, the principals on what the role will entail. Third, it’s actually spending the first 90 to 180 days, and this is my view by the way this may not be the views of everyone, of really getting a great understanding of how the firm works and where the COO can make an impact. And I think that that’s critical you have to play for the long game not the short game and in many small businesses really aren’t set up or designed for that.
Matt Sonnen [00:28:37]And Scott framed the conversation really nicely, pointing out that COOs often don’t realize or appreciate the fact that the COO role is really a political position, and they need to really be strategic in how they approach their role…take a listen:
Scott Slater [00:28:52]A lot of those elements, and that’s pretty well known, but a lot of those elements are really about trying to gain momentum by David’s point get some incremental wins, celebrate those wins get people behind it. In that listening that you’re doing in the first 90 to 100 days, you’re looking for what are the problems that, not just the leadership struggle with, but what are others in the organization frustrated with? Is it something around why they’re not growing or is it certain bottlenecks? And can you help solve those and add value and create some wins that get political support behind you throughout the organization. And then build on that and get the flywheel moving and build on that. Those are the people who are going to be more successful at this because they’re really recognizing that their role as a change agent isn’t to come in and be a bull in a china shop and really shake things up. Because most organizations that’s not what they’re looking for.
Matt Sonnen [00:29:48]With Episode 9, we were able to tackle one of my biggest goals for this podcast…I know I’ve talked a lot about it today already, but I cannot hammer home enough the fact that the COO role is very much wrapped up in the culture of the organization. The advisors should be out of the office 90% of the time, meeting with clients and prospecting for more…the employees that are in the office day after day and are responsible for servicing those clients, they need someone physically in the office every day with them that they can turn to for guidance and to learn the ever-important message of “Who are we? What do we stand for as an organization? How do we do things here at XYZ RIA?” It’s the COO that provides that guidance. And so we were very lucky to have Susan Dickson and Suzanne Williamson from Private Ocean as our guests for Episode 9. Private Ocean was recently named, for the 9th time, a “Best Place to Work” – they take their culture very seriously. Susan, as COO, talked about the growth Private Ocean has experienced (when she joined the firm in 2005, they had $100 million in assets under management…today, they are at $2 billion), and how important it has been to take care of employees at all levels of the organization as they faced the normal challenges that come with that kind of growth.
Susan Dickson [00:31:00]You know, clients are both external and internal. And I think throughout the process of this growth that we’ve had; the most important thing has been to make sure that the people were taken care of as we went through a lot of challenges. Because it’s not just challenges for the leadership team, it’s challenge for everybody in the firm.
Matt Sonnen [00:31:23]And Suzanne is the Director of Client Service, and she talked about her team’s responsibility not only to clients, but to advisors as well.
Suzanne Williamson [00:31:31]The client service team is really, has two roles supporting clients and supporting our financial advisors. So, we meet weekly, religiously we meet every week. We talk about best practices. We talk about how we can improve processes. We talk about new learnings that anybody had on the team. It’s a way to bring the group together so that remote, you know the offices that aren’t in our main headquarters, so they feel included in the process. And we reach out to advisors. You know. We say “What can we take off your plates? What is time consuming for you advisor? How can we the client service group better support you to deliver that excellent service to the client.?”
Matt Sonnen [00:32:17]Again, the COO’s responsibility is to execute the founder’s vision through people and technology. And those people and technology tools need to service the clients, the employees, and the firm as a whole. COOs are integral to both organic growth and inorganic growth initiatives being tackled by RIAs every day throughout our industry. We will continue to highlight the importance of professional management, the strategies and tactics being used by successful managers, and the need for our industry to continue to evolve from lifestyle practices to true enterprises. I hope you’ve enjoyed this trip down memory lane…I hope it has inspired you to go back and listen to some of these full interviews, as they are loaded with valuable insights that you can use and apply at your firms. Thank you for listening, and we’ll talk to you soon!
