Episode Transcript
[00:00:01] Matt Sonnen: Welcome everyone to Episode 21 of the COO Roundtable. We have two great guests today that I’ve really enjoyed getting to know on both a professional and personal level. This is going to be a fun conversation. I say this as a compliment, but one of the reasons I like both of these gentlemen is the fact that they are both practice management nerds like myself. They both think deeply about organizational structure, client service, and most importantly, how professional management can serve their staff and co-workers to better grow their businesses. I’m very excited to talk to both of them today. Without further ado, I’d like to introduce Chris Keller, Executive Vice President and Director of Business Services at Benjamin F. Edwards & Company in St. Louis. He’s also a leader of Edwards Wealth Management, and we’re going to talk about both of those in his role, but Chris, thanks for being here.
[00:00:53] Chris Keller: Yes, Matt, thanks for having me.
[00:00:55] Matt Sonnen: Cool. Joining Chris is Doug Johnson, the newly appointed Chief Operating Officer at Parcion Private Wealth in Seattle. Prior to Parcion, I knew Doug from his days at Ensemble Practice working along Philip Palaveev. Doug, I’m excited to have you here today.
[00:01:12] Doug Johnson: Hey, Matt. Thank you, and I look forward to this conversation.
[00:01:18] Matt Sonnen: Chris, I’m going to go to you first. Why don’t you tell us about the firm, there’s a very long history there, and then the initiative that you’re heading up?
[00:01:27] Chris Keller: Yes, for sure. Our firm, we opened our doors in 2008 and started adding advisors in 2009, but the Edwards name goes back 130 plus years to A. G. Edwards. We are headquartered in St. Louis, but we have offices all over the country, and we’re focused primarily on three lines of business. We’ve got a full-service employee-based wealth management company. We also have an affiliation platform that offers core services to independently owned advisory businesses, and that’s the Edwards Wealth Management that you mentioned there in the beginning. Then we have a sell-side investment bank. In total, we have more than 600 employees and advisor affiliates, and we manage about $27 billion in assets.
[00:02:24] Matt Sonnen: Like I said, there’s a lot going on there, so we’ll unpack a lot of that. Doug, give us an overview of Parcion.
[00:02:34] Doug Johnson: Sure. Parcion does not have the beautiful history that Edwards has. We formed last October, October 2019, as a breakaway out of a wirehouse locally here in the Northwest. Terry Cook, our founder was in the wirehouse world since I think 1993 or so, so he’s got a long history in it. We are 16 employees strong at the moment with a couple of interns running around for a couple more weeks before they go back to school. We have about $1.2 billion under management in our focus. We focus on business owners, “first-generation wealth creators” is what we call them, typically prior to a wealth event before they sell their business.
[00:03:23] Matt Sonnen: Doug, this is not your first COO role in the RIA industry. I also mentioned you had a very successful run as an RIA consultant, so walk us through your background and how you wound up joining forces with Terry.
[00:03:36] Doug Johnson: Yes. As we were prepping for this call, I did mention I love this question because all of us on the operations side, as you always say, we didn’t wake up one day and say “I want to have that role”, as a kid. I actually am a Central California guy. I grew up down there in Central California, and I graduated from a school you’re familiar with Matt. I think it’s called UCLA.
[00:04:02] Matt Sonnen: [chuckles] Right on.
[00:04:03] Doug Johnson: [chuckles] Go Bruins. Then I moved to Seattle immediately after graduation but realized I needed more business background. I went back to school and got an MBA shortly after I moved to Seattle. Then after a number of different starts and stops in different industries, I was pulled into the advisory world in 1999, actually. We were going to have our first kid and I had been in consulting prior to that and traveling a lot, and so a friend of mine said, “Hey, come join our firm. We’ll buyout our founder,” or the founder of the firm, and I thought that was a great opportunity. I mapped out the business plan and the buyout and got over there, got licensed and about six or eight months into it, we made the proposal and the individual did not want to sell. That turned into an interesting situation as my friend left and started a new firm and then I followed him over there in, the timing was impeccable, March of 2000. I believe the peak was March 10, 2000. My son was born March 11, 2000. As you can imagine, there were some fun times there, but I just, through the market crash and what have you, I ended up running the operation side of the business. Small RIA, and we built it back up. I was there about 10 years and then started another RIA here in town with a couple of breakaway advisors. I did that for a couple of years and then became a consultant again with the Ensemble Practice. You mentioned Philip Palaveev who started the Ensemble Practice and wrote the book, The Ensemble Practice. I spent nearly six years there. Then Terry here at the Parcion Private Wealth had reached out a couple of years ago to me, he was talking about breaking away. We discussed it a bit, and then he ended up doing it finally last year. Once they launched, I think they realized in short order that they needed somebody that had some experience on the RIA side to help run the business operation side. They posted the position, and here I am today. That’s how I ended up here.
[00:06:17] Matt Sonnen: Every once in a while on these podcasts, I scream out, “Shameless plug. Shameless plug.”
[laughter]
[00:06:22] Matt Sonnen: You talked about your experience of you got in place at an RIA, had a great plan, and then the owner didn’t want to sell. I had to pull it up while you were talking. What’s the date on this? March 17, 2019, we wrote an article on our website, “Why Professional Management Fails for RIAs”, and that was one of the topics that we talked about. It’s more common than anyone wants to admit that that happens quite often. [chuckles]
[00:06:53] Doug Johnson: Yes.
[00:06:55] Matt Sonnen: Chris, when I first reached out to you and asked to be a guest on the podcast, you immediately said, “Well, I’d love to, but I’m not a Chief Operating Officer.” My response to you was, “Well, that’s true, but have you read your LinkedIn bio recently?” [chuckles]
[00:07:10] Chris Keller: Yes.
[00:07:10] Matt Sonnen: Your bio says, and I’m going to read it because it’s perfect, it’s exactly what we talk about on this podcast all the time. “As Director of Business Services, our team’s purpose is to serve our nearly 300 advisors and their clients and to make it easier for them to do business together. We are responsible for much of our shared back office and middle office, including client service, business operations, TAMP services, financial modeling, and technology.” Like I said, that’s perfect. That’s everything we discuss. Title or not, you are the perfect guest. Why don’t you walk us through your background and how you ended up in this role that’s so perfectly designed for our podcast? [chuckles]
[00:07:50] Chris Keller: Happy to hear that. That’s a lot of responsibility. I think I need to change my LinkedIn profile, but the journey has been fun, man. I’ve been here since ’09 at Edwards, and I initially started as a consultant here. My assignment then was to help round out the technology platform and the support strategy. The firm had some misstarts at the beginning, that was jeopardizing our/their ability to grow and the overall stability of the firm. I completed that assignment and one of my recommendations in that assignment was that they hire somebody to come in and professionally oversee, as an employee and as an executive, the technology and service for the organization. I went so far as to recommend who I thought was the ideal candidate, and it was not me. I recommended somebody else that I had worked with prior. When that didn’t work out, Tad Edwards, our founder, and CEO walked into my office, that they had lent me while I was there, and asked me if I would take the role. It was not an instant yes. It actually took me, and to a lesser degree I guess my family, a while to get comfortable with joining what was then the startup company in this incredibly competitive and complex industry, but I ultimately agreed to join. While this wasn’t on my career radar, what I tell people is that I ultimately decided to join because of FOMO, fear of missing out, and so that that drove me here. Since then, though, in the 10-plus years I’ve been here, the role has evolved to what you’ve just read there on my LinkedIn profile, and it’s really a commitment by our organization to shape the role with what’s happening in our industry. So as you said, I’m now accountable for most of the back and middle office, but that also includes Edwards Wealth Management which is our enterprise RIA
[00:10:00] Matt Sonnen: You’re going to get a barrage of so-and-so clicked on your profile, so and so click it because all of our listeners are going to go steal your bio.
[00:10:11] Chris Keller: Yes, bring it on. I’m sure I plagiarized it from somebody else so they’re welcome to plagiarize it from me.
[laughter]
[00:10:20] Matt Sonnen: As you’re both discussing that the firms that you’re at, there’s that long legacy and the newness components to both of them. Chris, you talk about the Benjamin Edwards brand being 130 years old, but there’s still a lot of newness to your affiliate platform, et cetera. The question I have for you is, has there been a lot of legacy thinking that you’ve had to battle through and overcome as you’ve looked to launch this new model inside the firm?
[00:10:50] Chris Keller: Has there been legacy thinking? Yes, without question I actually think it’s in our human nature to rely on what’s worked for us previously, this is in our personal lives or our professional lives. As a company, we had some awesome success when taking the best of the predecessor firm and implementing it here at this firm, but a lot’s changed in 10 plus years. We’re talking about a time before the iPhone existed or FINRA wasn’t a thing. We’ve evolved where it was important to do so and we’ve been willing to work to make sure that we stay aligned with the trends in the industry. At a high level, I think a firm like ours can choose to differentiate on one of three things or maybe all three things, but I’m not sure that’s possible. Products and investment solutions, or our tools and tech, or our service, the predecessor firm worked to differentiate on all three and we’ve chosen to focus on service as our differentiator and have chosen to outsource everything else where it makes sense to do so. As you’ve noted here, in 2019, we added this affiliation model called Edwards Wealth Management. It’s an enterprise RIA. Again, we’re offering the core services that we’ve built out in our 10 plus years. We’re bundling those and offering those to independent business owners, advisory business owners who want to focus as much of their time on their clients, and as little of their time as possible on operating a back or middle office. I can assure you, this is not at all what our original model looked like, but it’s where we see the puck going in our industry, so to speak, and we’ve been able to adapt. As a firm though, man, our core, we are a firm believer that how you treat people is really important and our values run deep and they guide us and that has not changed and that will not change.
[00:13:01] Matt Sonnen: That’s great. Doug, I have a similar question to you. Parcion launched less than a year ago, but at the same time, Terry Cook’s career dates back to the early ’90s inside the wirehouse world, so what challenges have you had? That’s your main job, bringing you in is moving this business into the RIA model, so what challenges has that brought up for you?
[00:13:27] Doug Johnson: Great question. I think that having a team that exits a wirehouse situation, there’s a lot of challenges that they face that they’re not aware of. Anything from technology to the compliance, to how do you set up payroll. One of the things that is ingrained in the wirehouse is it’s very advisor centric. You’ve got this pyramid essentially, underneath the lead advisor and he might build a team with other advisors, but everything runs through a single rep code to get a higher payout, or what have you. Here at Parcion, when I landed here in early May, one of the things that I’m working feverishly on is to break down that mentality of it’s all about the lead advisor. What we want to do is elevate the other advisors in the room so that they can go out and harvest new clients if you will, by themselves, without relying on our founder. Getting away from terms like “book of business” and “my clients”, and those sorts of things have been really challenging, but it is refreshing to see we’re starting to make that move, moving that boulder out of the way, if you will. That’s one of the big challenges and the other is really when they broke away, and you’ve talked about a lot in these podcasts is the amount of HR work that our role has to undertake. There’s a lot of stuff around that that I’m working on, benefits, plans, readjusting those realigning things into what’s happening in the real world, outside of the big wirehouse type thing, and so there’s a lot of those challenges that I’m working through at the moment.
[00:15:23] Matt Sonnen: One of the topics that I love bringing up on this podcast often is the need for professional management at RIAs and it’s a lot of what you just talked about. Dating back to your time at the Ensemble Practice, I know you’ve done work around pinpointing exactly when RIAs hit that inflection point, that they need to grow from a collection of advisors to sharing some back-office resources, to actually bringing someone in like yourself to handle the business side of things and think through the benefits packages and not just the tech stack, but roles and responsibilities, et cetera. Can you talk to that a little bit?
[00:16:01] Doug Johnson: Yes, and pinpointing is, you used the word pinpointing there in your question of when it’s time, and it’s not an exact science but when I was on the consulting side, we saw lots of firms that would hit a ceiling if you will, on their ability to grow and it’s really limited by these founding partners or advisors of these firms. They get up to, we all only have a certain number of hours in the day that we can manage our work life and still maintain a home life as well or a personal life. What we saw a lot of times was around passing it down to revenue or AUM. I would say revenue-wise, somewhere between $3 and $5 million in revenue, the founder or de facto CEO of the firm is out of bandwidth to handle a lot of the operational and compliance and HR stuff. At that point, they’re reaching maximum capacity, growth stalls out a little bit, and they need to hand off some of these many, many plates they’re trying to keep in the air. When they finally make that decision, it’s going to cost them a little bit in the first year or so, or maybe two years out of pocket, they’re giving up something, but what they’re gaining is hours in the day that they can then go out and create new relationships with new clients and bring in new assets. If we were to pinpoint it, I would say, it’s right in that range, maybe it’s $350, $400 million up to somewhere around $500 to $600, I’ve seen them add their first professional manager. It just depends on their partnership organization and structure and how they’ve divvied up the roles, but that’s really where they need to bring in that professional manager, is what we used to see and I’m sure they are very happy to have somebody like Chris or myself on their team.
[00:17:55] Matt Sonnen: You mentioned it is a moving target and it’s hard to, I did set you up unfairly that you “pinpoint” the exact moment, but when I get the question, a lot of times it’s asked “What AUM?”, a lot of times it’s asked “What revenue?”, a lot of other times it’s, “Well, how many clients should each advisor be servicing and at what time do we need to bring on another advisor and/or bring on someone to take other things off of the advisors’ plates?” It really just comes down to, well, if it ain’t broke, don’t fix it. If you’re surviving, [chuckles] but the other complexity with answering that question is what type of clients do you have? How complex are they? How often are they on the phone? Some advisors are going to max out at 47 clients and others are going to not max out until 200. It is a moving target and there’s a lot of nuance to it, but I think your numbers at a high level, not taking into consideration all these other nuances, I think those numbers are exactly right. Chris, you mentioned earlier the complexity of our business in this day and age. What do you see as the true value professional management brings to the wealth management space?
[00:19:12] Chris Keller: Yes, and I love the way Doug talked there about how to really measure it, and at what point do you go more professionally managed? I think we’ve all heard Mark Tibergien say an advisor can support roughly 80 client relationships. The Ensemble Practice addressed this head-on as well, but from go, we’ve been an enterprise designed to take on as much of the business operations “as possible.” We want to allow the advisor to scale better and to key on their clients. Personally, I feel like this is as important or critical as ever, or as complicated as ever. If you really think about it, you’re managing a client practice, you’re running an office, you’re handling HR, which is particularly hard in the COVID world, you’re supporting technology, you’re keeping pace with reg, you’re handling information security, you’re handling business continuity. There is a lot, and the list just seems to keep going and going and getting longer. This is a full-time job, many times over and if it’s not handled correctly, it takes away from the ability to serve clients. At the same time that’s happening, client expectations are on the rise. In many cases, advisors are now seen as the family CFO or the life coach. This is way too much for one person or a small team to focus on and do it well. I think you can do a few things really well, but if you have to do a bunch of things, you’re not going to do any of those things very well at all and so, we see where it’s really important that advisors can lean on a team or a back-office to help them carry this ever-growing load.
[00:21:06] Matt Sonnen: One piece we haven’t even talked about, I will say I’m guilty of it, not necessarily you guys, but you just think about the revenue number and if I take this off my plate, how many extra clients can I serve? There’s also just the enjoyment of your job. Take away a lot of the business administration from the advisor and they get to spend 100% of their time focused on clients and prospects and what they really got into the business for. They enjoy their job more, just that fact that they’re enjoying it more you would think is going to lead to business growth as well because they’re a lot more excited to get to the office every day.
[00:21:48] Chris Keller: Yes, that’s the vet, that’s the choice.
[00:21:53] Matt Sonnen: Yes, exactly. For both of you, a big piece in evolving your businesses and pushing them forward has been the design and the implementation of a state-of-the-art technology stack that can best serve your clients and the advisors. I know both of you have been instrumental in vendor due diligence and integrating these disparate systems into one unified platform. Doug, I’m going to go to you first, what hurdles have you encountered with regard to the technology stack?
[00:22:27] Doug Johnson: Great question, Matt. As I mentioned before, I’m relatively new here and when they broke out of the wirehouse, they didn’t have to worry about the tech stack. When you’re inside a wirehouse, it’s all provided for you, and a lot of it is customed to that particular firm. When they broke away, they had to go shopping and picked some CRM, a portfolio management tool, trading system, just even basic Office that we use in PCs, we use an Apple, that sort of thing and they went through the whole thing. I got here and I realized that as with most software vendors, they over promise and under deliver and so I’ve been going through each of the systems we have that we’re paying for and some I’m cutting out. Others, I’m getting re-engaged with them and doing more training because when they first broke away, the first three, four months was trying to transition clients, oversee of revenue coming in the door and the software vendors will give you, “Oh, we’re going to train you up for the first 90 days.” Well, nobody really had time to train up and so now we’ve re-engaged them and we’re doing a reset and we’re getting back up to speed and it’s really come around. To be honest, I have eliminated a couple of things and a couple of our systems because I felt like we weren’t utilizing it and didn’t really fit into what we’re trying to do with our service for our clients and so that’s been challenging. I probably should have taken a couple of contract law courses in college so I can understand these contracts a little better and how to get out of them. Yes, it’s been a challenge, but we are making progress and I’m excited for the future.
[00:24:10] Chris Keller: Don’t take contract a law, just higher PFI advisors.
[00:24:13] Matt Sonnen: What did you say Chris?
[00:24:16] Chris Keller: Don’t take contract law, just higher PFI.
[laughter]
[00:24:21] Matt Sonnen: I’ll start screaming again, shameless plug, shameless plug!
[laughter]
[00:24:27] Matt Sonnen: That is a very, very common problem. During transition whenever a team leaves a wirehouse or IBD, but as they’re establishing their firm, rightfully so that, well, 100% of their attention is “I just need to move the existing clients. Just everybody leave me alone. I don’t have time for training on the financial planning tool. I don’t have time for training on our client portal. I don’t have time for training.” They do need some training on the custodian because that is so integral to the transition of the assets, but a lot of the, “Hey, how do I run an RIA?” just gets pushed to the side. It’s usually about four months post-launch of the firm when everybody can take that collective breath and look up and say, “Okay, who knows how to work our systems?” Nobody can raise their hand at that point. We do see that a lot and it’s a big challenge to try to focus on client transition and learn the tech stack all at the same time. Chris, I know in terms of building out that tech stack, you have some battle wounds in this area. What advice do you have for our listeners when it comes to choosing vendors that are going to fill out that technology back office?
[00:25:46] Chris Keller: Yes, I love this topic. It’s so fun to work through this. We decided at the beginning that we were not a technology firm and therefore, it made sense to outsource licensed third party solutions that were going to be able to do it much better than we would, but I’ll tell you we were naive in our thinking because not being a firm that builds out a proprietary technology stack is not the same as saying we aren’t a technology firm. Just like everybody else, we’re caught up in an arms race. We have a heavy emphasis on delivering a great experience to our advisors and their clients. Our tech stack, I can just name some names, these are well-known providers, Salesforce for CRM, but also Salesforce as a platform, Orion, Blaze, MoneyGuidePro to name a few, and we have a decent sized team focused on adoption readiness and support of these solutions and we have another pretty decent sized team focused on customizing and integrating these solutions. You guys know this, the dirty truth is that out of the box is rarely good enough. A client or advisor does not want to view each of these as disparate interfaces. For example, they want to be able to enter information into a single place and so we’ve integrated Salesforce with Orion and our custodian. We’ve also built a custom solution on Salesforce where you can now open a new account digitally and have it flow right through to the custodian and that’s not available out of the box. Tying all of these solutions together has been a huge commitment for us and I frankly don’t see how we can approach it the way that we do and be open architecture to technology of all shapes and sizes and so we don’t claim or really have an interest at all in being “open architecture.” We have a standard stack that we’re investing in heavily and our advisors use this standard stack and we see this as a key part of our value prop.
[00:27:54] Matt Sonnen: You mentioned that the big word “adoption”, do you guys have any suggestions on, because this is another very common problem we’re spending all, the company, the RIAs as we’re spending a ton of money on technology and when I walk around the office and ask people, “When’s the last time you logged in?” [chuckles] You get a lot of blank stares. Any recommendations on how to drive adoption for these systems?
[00:28:20] Chris Keller: Well, I’ll share the only trick that we have, and the only thing that we’ve seen that’s worked is you bury certain capabilities in these different solutions that are mandated and so when you have to use it, you have 100% adoption.
[00:28:39] Matt Sonnen: Yes, right. I think that’s right.
[00:28:45] Chris Keller: How about you? Did you have any suggestions, any free advice for us?
[00:28:53] Matt Sonnen: Are you asking me or are you asking Doug, do you want to throw something out there, Doug? Then I can definitely throw out a few things.
[00:29:00] Doug Johnson: Well, I’m curious, offline, Chris, you and I need to talk because we have a lot of the similar systems and I’m having trouble getting them to talk to each other so I’m excited to hear how this works. [chuckles]
[00:29:11] Chris Keller: It’s expensive. It’s not out of the box, it is people and I know we’re having an offline. Doug, I’m happy to take this offline outside of the podcast and talk more about it.
[00:29:28] Doug Johnson: Yes, great.
[00:29:30] Matt Sonnen: What I would say for adoption, it’s very hard. You have to know your people intimately well and what drives them, but I think what you said is the quickest way is you make it 100% mandatory. One example I’ll give, is client calls in and says, I need $75,000 raised. The firm has started to say, “Hey, all trade requests need to be done through the CRM. You need to send a task to the trading team,” but that’s a new initiative at the firm. What normally happens when it’s a new initiative is either it’s still scribbled on a sticky and brought over to the trader or an email is sent. You just eventually say, “Well, yes, that trade never went in today because I’m checking Salesforce.” [chuckles] You do that one time and that advisor is not going to make that mistake a second time. You just have to say, “If you’re not using it, nothing’s getting done.” It’s harsh, but that’s the quickest way to get there, is you just make it 100% mandatory.
[00:30:39] Chris Keller: In the politest way possible.
[00:30:41] Matt Sonnen: Yes. Correct. Of course. Always. You mentioned people. If we think about the conversation we’re having and we think about it linearly in terms of building an RIA – we’ve just got the technology in place. Now, we need the people to leverage that technology to provide the service to the clients. I always say the goal of every RIA is to provide top-notch service to an ever-increasing client base. You want the number of clients to increase, but you’re going to need to use people and technology to ensure that revenue’s growing but there’s no drop in client service. Chris, you used
