Episode 80: Linda Bready

The COO Roundtable with Matt Sonnen Episode 80 – Linda Bready [00:00:00] Hi, I'm Luke Sonnen. Welcome to The COO Roundtable, powered by Coldstream Wealth Management. Here's your host, Matt Sonnen. [00:00:14] Matt Sonnen: Well, welcome everyone to Episode 80. I have a quick story to tell. If I think back to my days as a Chief Compliance officer, I always remember how lucky I was that we had just conducted our first mock SEC exam. [00:00:29] It was about three and a half weeks before the real SEC called and said, "Surprise! We're going to send you our document request later today. And then we'll be on site in ten days." And when I look back at that, I always think, I never could have survived the SEC exam or I couldn't have gotten through it as easily, I should say, had I not just gone through the mock exam. [00:00:49] The hardest part of an SEC audit in my mind is simply knowing where all of that data is and being able to pull everything that they're requesting in a timely fashion. So having just pulled all of that data for our mock examiner, it was right there at my fingertips for the real exam. And a routine SEC audit really is an open book test. They post the most recent data requests online for everyone to see. [00:01:11] So they're telling you what they're going to ask for; you just need to be in a position to produce all of that when they do come knocking. And in that vein, my guest today has written a book titled, "The Exit Equation: M&A Strategies, Tools, and Insights for Financial Advisors." And as I was chugging my way through the book, I thought, well, this just isn't, this isn't just a blueprint for selling advisors to clean themselves up before an M&A transaction. This is really a blueprint for any RIA to clean themselves up and to make themselves more efficient, more profitable, and just happier in their day to day. And this isn't just a book for sellers. If you're a buyer, I think this is a great blueprint for you on how to conduct your due diligence of a potential acquisition target. [00:01:55] The book walks you through how to evaluate the leadership team, how to evaluate the firm's operations and its ability to scale. It shows you how to identify retention risks within the client book, and a whole lot more that we're going to get into today. [00:02:08] As we've discussed on this podcast many times, COOs - we all have a job in this industry because financial advisors are not always the great business owners. We've talked about this a lot on this podcast. They need someone else to come in and show them how to run the business, and this book really lays out exactly how to go about doing that. So with all of that, let me introduce our guest, the author of this great book, someone I've known and relied on for all of my operations questions for over a decade now. [00:02:36] It's Linda Brady. So Linda, welcome to the podcast. [00:02:39] Linda Bready: Hi, Matt. Thanks. I am excited to be here and that's a great story, your compliance story, because the number of times that I hear from advisors when they get flatfooted by - the SEC just called... [00:02:52] Matt Sonnen: Yes, I got lucky in my experience, yes. So, and I'm not exaggerating when I say that I have used Linda as my phone a friend when I have had questions about performance reporting or billing or operational efficiency and scalability: just anything related to tech and ops. But I could go on and on about Linda's credentials. But Linda, why don't I let you tell our listeners about your career path and all the different ways that you've worked with advisors over the years. [00:03:18] Linda Bready: Sure, happy to. And you know this because you've known me for so long. [00:03:22] But it was an accident, how I came into the business. I actually was engaged on a consulting gig on the tech side for an advisor's office in Nashville, much longer ago than I will really admit to. And once we got them all set up for the reporting, I ended up joining the firm and then got my Series 7 so that I could help the advisors with trading when they were traveling and getting to know how advisors' offices really worked. From there, I went up to Boston and I worked with a really large New York Life agent. He was big in insurance, but he was also big with charitable giving. So I got to see that aspect of an RIA's business and how he worked with people who were really of a philanthropic bent and how that helped both the, well, the community: the advisor and the people who were doing the giving, which was great. [00:04:17] I finally moved back to Charlotte and I launched my own business, Be Ready, which was, as you know, back office ops, service, and consulting firm. And what was really interesting about that part of my life is how involved I got with the RIAs because I became their first call. They didn't call me just to take care of their billing and their reporting and rebalancing reporting. [00:04:40] I mean, that was the nature of what we provided for them. But they called me for growth strategy, M&A, hiring, you know, you name it, I was their first call. And normally, you know, if I couldn't help them, and a lot of times I couldn't, I could direct them to the right person, which was cool. And that actually helped me realize that operational structure of a firm leads to a really large piece of the business strategy itself, which was key for me. [00:05:12] Be Ready got acquired by Envestnet, and while I was there I worked with the RIA sales team. I did a lot of conversations with people about the nature of conversions and transitions of data and how that was good, bad, or indifferent, right? I was there for six years, loved it. Went to Folio Dynamics, who then of course got acquired by Envestnet. [00:05:35] So I said, you know, maybe I should just go back to consulting, which I did. And, in fact, as you know, while I was overseas, I kept up my consulting. My son was going to school overseas, so I did that while I was in the EU and the UK and it was great. So I've really lived both sides of M&A. Right now, I'm a fractional president for a fintech platform, CleverCX, and I founded as an arm of that firm earlier this year, CleverX Consulting, where I help firms strengthen operations, refine growth strategy, and get M&A-ready, which is how I ended up with "The Exit Equation." [00:06:12] Matt Sonnen: Yep. Yeah, that was going to be my next question: so the book - what inspired you to write this book? [00:06:16] Linda Bready: Yeah, so that's a really funny story. It's a book that was never supposed to be a book. That wasn't my plan. It started out as a webinar outline that got out of hand. I was - I literally was preparing for a webinar and jotting down notes and all of a sudden for like 30 minutes of content, don't get me wrong, right? [00:06:36] And I'm jotting down my notes and I was - wow, I have a lot to say, and I kept jotting and all of a sudden I had an outline, and five months later I went from outline to published book. Wow. And, and it came together so quickly. I mean, everybody says, wow, that was fast. But it was really an extension of all the work I've been doing over the years because I found that I couldn't just talk about ops processes and documentations without talking about client segmentation and without talking about compliance and risk, and talking about leadership, vision, and goals, which may not be the same as the goals of the firm. [00:07:16] Right? And so, all of that came together and I ended up with a book. [00:07:22] Matt Sonnen: Yeah. Well, I'll be honest, when you told me you were writing the book about M&A, I was excited to read it, but I thought, well, that's not going to be appropriate for the podcast because it's what we were, you know, focused on operations. [00:07:34] But as I said, once I started reading, I realized it's really an operational readiness book in my mind. And an early part of the book you write: "Many advisors assume M&A is only for those looking to retire. In reality, firms that keep operations tight, their client base engaged, and their financials in order aren't just increasing valuation. They're increasing strategic opportunities." And then you keep writing, "Take Jamie for example, a founder who wasn't looking to sell, but made a point of cleaning up internal operations after watching one of her peer's rocky exit. Within a year, she was able to bring on a lead advisor who added both clients and energy to her team. [00:08:14] That hire didn't just make the firm stronger. It gave Jamie breathing room. For the first time in years, she was able to take a real two-week vacation, confident that her clients were in good hands. She didn't sell her firm, she made it better. And that's the real value of being M&A-ready. A well-run firm isn't just easier to sell, it's easier to grow, scale, and live with." [00:08:34] And that: I absolutely love your last sentence: "a well-run firm isn't just easier to sell, it's easier to grow, scale, and live with." So, Linda, why do you think it's so hard for RIA owners to get this right? [00:08:48] Linda Bready: So, part of the challenge that I think they run into is what I am sure you have gone over in this podcast every time you've had a podcast, which is that advisors didn't set out to be entrepreneurs. [00:09:02] Matt Sonnen: Mm-hmm. [00:09:03] Linda Bready: Right? They started their practices to help family, friends, and that grew to helping other people. And in early years, like any startup, you just do what it takes to keep the doors open, right? I mean, when I was growing Be Ready, my first employee was my mom. I was horrifically lucky because she was terrific with details and numbers and it was exactly what I needed. [00:09:27] Right? But I know plenty of advisors who - in the beginning, they hired family members or friends and then couldn't see how to make changes later, even when the role didn't fit. I mean, it's really hard to come in with a cup of coffee and say, Hey, sis, love ya. You're fired. [00:09:43] Matt Sonnen: Yeah. [00:09:44] Linda Bready: Right? I mean, that's really difficult. [00:09:46] And that's not just RIAs, right? That's every entrepreneur, but RIAs, because they are so relationship driven, it makes it really hard for them to figure out how to get out from under that. On top of that, most entrepreneurs and especially the RIAs I've run into, undervalue their time in the beginning. [00:10:08] Right? So they get into the habit of doing everything for themselves, which is great. All of us start that way, but it makes it really hard to step back, delegate, and scale, which is all of things that buyers eventually are going to look for, and the staff, they end up in the wrong seats, the owner stays buried in the weeds, can't work on growing the business strategy. [00:10:30] Adding into that, that most founders - not all of them - but most founders, are the actual rainmakers for the firm. Right? So they thrive in the relationships and the client planning and not in the operational detail. You and I both know people who come in and say, Hey, sign a new client, and then they toss the information over the wall to their ops people who sigh heavily and start to get all the details, right? [00:10:53] Yep. But here's the funny thing for me about RIAs. They spend years telling their clients to plan, prepare, be diligent. Yet they put off their own planning. They don't do the same thing that they tell their clients. Right? It's do what I say, not what I do. [00:11:13] Matt Sonnen: Yep. Right. [00:11:14] Linda Bready: And that gap shows up later when for whatever reason you're trying to transition the business. [00:11:21] Scalability and structure needs to be in place. And I truly believe that's why so many firms struggle to get the operations right. What starts the practice frequently won't sustain it as a business. And buyers notice that. A firm can look great on the outside, but if it can't run without the owner, like Jamie, she couldn't take a vacation until she hired the extra hands who were talented and good at their job. [00:11:48] It's not scalable and that will always show up in the valuation and how you started makes it hard to scale. [00:11:56] Matt Sonnen: Absolutely, absolutely. Well, one thing you and I have joked about for years, Linda, because we've seen it over and over again, is the RIA owner who demands the most expensive reporting software, [00:12:07] they want the most expensive CRM, they want the most expensive financial planning tool because they think, well, if we spend the most money, then it guarantees our success. But then they make the mistake - they never spend time focused on integration. They never spend time on the implementation of those tools. [00:12:23] They never spend time on the adoption of those tools. So you have this amazing quote in your book, you write: "RIA owners often mistake ownership of technology as optimization of technology," and I absolutely love that because I've seen it over and over again. So talk to us about this mistake that way too many RIA owners make. [00:12:43] Linda Bready: Sure. That is actually, that's one of my favorite lines in the book, because ownership isn't the same as optimization and I've seen - and so have you - so many firms spend heavily on CRM reporting, financial planning software, and then they don't get any value out of them, or not the value that they should that means that it was a good purchase because they skip on the hard part. Integration, adoption, and training, and training is a huge one, right? The number of people who don't want to pay the extra cash for a concise training program. Yes, your team is talented. Yes, they can read the manuals and yes, they can learn it on their own, but that takes time and effort and money that isn't revenue facing. [00:13:31] Matt Sonnen: Yep. [00:13:32] Linda Bready: So, all of those decisions need to be made ahead of time. You know, while you were talking about this, that reminds me, you remember the movie, "Up"? One of my favorite movies from years and years ago and the dog Doug. Yep. "Squirrel!" Exactly. "Squirrel," right? Because, because suddenly all of this lovely new tech comes on and somebody who's really tech forward has invested in it. [00:13:56] And it hits the magic moment for them. It's exactly what they want. So the advisor over here on this side's like, Ooh, that works really well for him. And look how efficient he is. And, and I want to go spend money, and do that. Even if I don't want to spend money, I want that. [00:14:10] And, you know, It's not the solution. You know, so many advisors think, you know, I- if I buy the best, I'm going to be best in class, but you're not because if you're "trading up" - you can't see me air quoting - [00:14:24] Matt Sonnen: Yeah. [00:14:24] Linda Bready: When we're not doing visuals. But if you keep "trading up," you keep going through the same integration training, adoption sequence, that's going to fail over time. Plus it's going to drive your staff crazy because just about the time they're getting comfortable with something and beginning to find out that other areas of the software have other things they can use, "squirrel!" [00:14:49] Matt Sonnen: Yeah. Just when they're getting comfortable, right? Yep. [00:14:52] Linda Bready: Yep. So I'm not saying don't upgrade. [00:14:55] You know, if the systems are scattered or redundant or can't fully support your clients, then yes, the RIA needs to make a change. But it needs to be made with attention and I like to call that upgrading with purpose, right? Because you and I both know, the cold hard fact is the buyer doesn't care what logo is on your CRM. [00:15:13] What they care about is that your team can use it, that it supplies the firm the information that it needs, it provides the client the information that it needs, and that the team is adaptable and that makes them valuable to the buyer. [00:15:29] Yeah. Right? [00:15:30] And that, that makes them incredibly valuable to the firm. [00:15:33] I like to think of it as adaptability is much more valuable than a tech stack that nobody can use. [00:15:38] Matt Sonnen: Mm-hmm. [00:15:39] Linda Bready: Right? Technology only creates value if it's embedded in a way that gets used every day to the advantage of the advisor, the firm, the staff, and the client, and not in that order. [00:15:51] Right. It should be the client, the firm, the staff, and the advisor. [00:15:54] Matt Sonnen: Yep. [00:15:55] Linda Bready: But most firms don't need new tools. They need to fully leverage what they have. [00:16:00] Matt Sonnen: Yeah. I mean, you said they're skipping out on the hard part. I think they see the price tag. These tools are not cheap, and they assume that that price tag includes training and integration and everything else. It's software as a service and it's just a tool. It's just a software tool. Salesforce is not training your staff on how to use Salesforce. E-money is not training your staff on how to run financial plans. Addepar or Tamarac or whoever is not teaching your staff how to actually use the software. [00:16:29] It's just, here it is, good luck. And they just - they're assuming - and I can't blame them because the, the price tags are hefty, but they're assuming that that includes all that hard work. [00:16:38] Linda Bready: Yeah, I, you know, I waffle, I go back and forth because sometimes you think, you know what, if this point solution - I'm going to pick on reporting software because I, I know a lot of it, right? [00:16:48] If the software as a service, the subscription included - if I just upscale the price and include the training - underneath that, that's a lot more palatable to an RIA budget, except that from the sales of the software, you come and say, oh, but I'm charging X, including training. How do I make sure they understand how valuable that is for our software? [00:17:11] And my competitor over here is lower than me by five or ten grand, depending on whatever it is. And then how do I explain to them that adoption and training is worth that much money? Yeah. Which, hands down, it is. Yeah. You know, the number of times I've seen people buy something, install it, and there's a story in the book, I think - I think it made it to the book - you know, a firm that was going through the due diligence and they found out that the firm was billing on the, the 20th of the day or whatever, and there were, because there were three different billing processes in the office when one piece of software could have done it all. [00:17:49] Yeah. But nobody had the time to figure it out or took the time. It's, it's crazy to me. [00:17:53] Matt Sonnen: Yeah. Well, with your extensive experience working with advisors over the years, you have a ton of great stories. We've already mentioned a couple of them, but you have a ton of great stories in the book. [00:18:04] One of them you titled, "When a Strong Firm Isn't Enough," and so this is George, you write, "George had built a thriving RIA. His AUM had doubled over the last five years. Client satisfaction scores were off the charts. He had a solid brand in the market, minimal client attrition, and no major compliance issues. From the outside, everything looked ready for a great deal, but once buyers got under the hood, the picture shifted. The firm's operations were dated. Some client contracts hadn't been updated in years. Performance reports varied depending on which custodian the client used. And key procedures, billing, trade reconciliation, document retention: they were still handled manually by one long-time employee. George wasn't hiding anything. He just hadn't thought it mattered. One buyer expressed interest and then disappeared. Two more poked around during due diligence, but ultimately passed. The fourth buyer finally told George the truth. You've got a great business, but too much of it lives in your head or in spreadsheets. We'd have to rebuild the operations before we could scale anything. [00:19:07] And that's when it hit George. His firm had value, but he hadn't made it easy for buyers to see it or trust it, and by the time he realized it, the best opportunities had passed him by." So I love this story because I can hear a lot of our listeners nodding as they're listening to this, this, this describes a lot of firms I've seen: looks great on the outside. So again, whether listeners are getting ready to sell their businesses or not, I want today to be the wake up call for them. I want them to - today is the day they stop ignoring these manual processes and it's time to really focus on scalability and repeatability across their entire organization. [00:19:42] So Linda, my question to you: what do you think the first step should be for those firms that are looking to streamline their operations? [00:19:49] Linda Bready: So I love George's story for a number of reasons, because it's a wake up call, right? [00:19:54] Matt Sonnen: Yep. [00:19:54] Linda Bready: And from the outside, everything was wonderful. It looked fantastic. And as the story says, it was inconsistent and they walked away because he wasn't transparent with things. [00:20:07] And it - and actually I said that wrong - it's not that he wasn't transparent, it's that he didn't think that detail mattered. Yeah. [00:20:16] And if he had been approached by one of those big rollups or a firm that was going to wipe out his entire operations anyway and just pick up the client base and move them into a completely new platform, it wouldn't have been such a big deal. [00:20:31] Matt Sonnen: Yep. [00:20:32] Linda Bready: But George actually didn't want that. He cared about where his book was going, and so he wanted to have a say in the kind of service they were going to have. And that type of acquisition was not one that he was interested in. Right? So whether you're planning to sell or not, operational gaps are going to catch up with you. [00:20:53] Matt Sonnen: Yep. [00:20:54] Linda Bready: If somebody's going to buy your firm, you've got to be scalable. Repeatability gives you options: growing, hiring, merging, or selling on your own terms. And it doesn't matter; even if you don't ever want to sell your firm, if you ever want to take a real vacation, tribal knowledge is a bad thing. [00:21:13] Matt Sonnen: Yep. [00:21:14] Linda Bready: I probably will talk about that a little bit later, but the first step, I think - because when you start with this sort of stuff, it seems so overwhelming, right? But the first step is to just start. You don't overhaul everything at once and don't expect to be able to, right? That's why I built "The Exit Equation" the way I built it. I built it as a workbook, right? Where advisors could start where it made sense for them. I mean, even in the introduction I say, this is not a book to keep clean. It's a book to use. Mark it up, dog ear the pages, scribble in the margins. Heck, spill coffee on it. I - you know, it doesn't matter to me, but I want advisors to start where it makes sense for them. [00:22:00] If billing's a pain point, start there. If it's onboarding, start there. And as I say to all advisors, make a rough plan. If that plan doesn't quite work, make a better plan later. None of that matters. What matters is taking the first step, you know, and I mean, maybe they don't even start in operations, maybe they start in compliance or wherever. [00:22:23] But the thing is, once you improve one process, it's much easier to build momentum across the whole firm. The goal isn't perfection; it's progress. And that's why I laid out the book the way I did. It's a practical workbook. They can go in and out of any part of it that they want to. They can go at their own pace. And the more steadily you build resilience into the business, the stronger it is . And then when opportunity comes, you have options, not panic. [00:22:51] Matt Sonnen: Yeah. Yeah, I mean, the way you've laid out the book, each chapter, so you've got your recommendations and the way you think of it. But then there's a workbook at the end of every single chapter that is a bunch of questions and how can you start to use these concepts at your own firm? So those workbooks are incredible. [00:23:08] Linda Bready: Well, thank you. I mean, I think it's really important because two firms that are the same size; they don't operate the same. Yeah. They're as different as each founder or each leadership team. [00:23:21] Matt Sonnen: Yep. [00:23:21] Linda Bready: And so, I think the problem I've found with other business books in the past when they're trying to say, oh, you need to do this to build your firm, or you need to do that to scale your firm. It's good information, but it doesn't account for the fact that advisors are unique individuals. [00:23:39] Matt Sonnen: Yep. [00:23:40] Linda Bready: Right? And even when they have - even when three advisors all have very similar practices and they have similar client bases and the people they hire are all the same, right? All of that - they're still different and they're all going to think differently about how to do it. [00:23:54] Matt Sonnen: Yep. Well, you mentioned George had a specific buyer - type of buyer he was looking for and, and I know in the early part of the book, you help RIA owners determine what type of buyer would best fit their post-merger goals. And you write: price matters, but fit matters more. And I can't agree with that more. RIA owners - I think they get so hung up on the dollars and cents and they miss the most important thing, which is culture: that will ultimately determine the success of any transaction they do is the culture. [00:24:23] So, talk to us about the importance of culture and how and why it's so often overlooked. [00:24:29] Linda Bready: Yeah, I think it - I think it is because people think it's soft and squishy. [00:24:34] Matt Sonnen: Yeah. [00:24:34] Linda Bready: As opposed to hard and nuts and bolts and facts. And in point of fact, culture's not a revenue item, but culture determines whether or not revenue ever shows up. [00:24:47] Matt Sonnen: Hmm. [00:24:48] Linda Bready: Okay? You really have to start with the founder's why? Why is the founder or the leadership team; why are they going through this transaction now? Why do they want to? Where are they going? I mean, you saw in the book - I mentioned it in the first part of the book and it's actually pillar one, right? Is understanding the why, because those answers determine where you try and find a buyer, right? And if money is the founder's why? Awesome. That's great. But that's rarely the whole story. And in point of fact, I think about the fact that the reason my book talks about operations and the things other than money, right: the why, the compliance, the client segmentation, all of those things - is because the money has a whole army of people that watch it. [00:25:44] Right? You've got the buyer, the seller, the CFO, the consultant, the investment banker. Yeah. The numbers have an army of people who will make sure that it works out okay. We have all seen acquisitions and mergers that go horribly badly because the two firms can't figure out how to match cultures. Yeah, I'm dating myself, but does anybody remember AOL and Time Warner, right? [00:26:09] Matt Sonnen: Yeah. [00:26:10] Linda Bready: And how - not only how ugly the merger was for reporting on the first half, but how ugly it was to undo, right? [00:26:16] Matt Sonnen: Yep. [00:26:17] Linda Bready: I think founders care deeply about how their clients are treated and how their teams are led, and they want to leave a legacy. They want to know what the future's going to be like once they step back. [00:26:30] And that's culture. And that defines how you're going to sell your firm. I mentioned earlier when, you know, two guys get together and they sign the paper and they throw it over the wall for the [00:26:42] Matt Sonnen: Yeah. [00:26:42] Linda Bready: You know, well that happens in acquiring a firm too. You'll have two founders who say, oh, I like you, hey, I like you. Let's play golf and let's merge our companies because ooh, look, we can save all this money and life will be awesome. And yes, the paper looks good, but that's not - the P&L isn't the hard part. The hard part is getting the two firms to actually work together. Correct. In a way that is good for the clients. [00:27:07] Matt Sonnen: Mm-hmm. [00:27:07] Linda Bready: Because the fiduciary responsibility is to the client, not to the firm. [00:27:13] Matt Sonnen: Yep. [00:27:14] Linda Bready: And not to anybody's wallet, if you know, money is the only thing, but like I said, that's very rare and that's why I emphasize that fit matters more than price. Price is temporary, right? Culture is what determines whether or not the deal creates lasting value. [00:27:30] And it's no surprise that there are studies that show over 70% of all mergers, and I'm not just talking about RIAs here, but all mergers never deliver their expected outcomes. [00:27:41] Matt Sonnen: Yep. [00:27:42] Linda Bready: And culture's almost always the center of that. So at the end of the day, if clients and staff don't buy into the culture, no amount of math is going to save that deal. [00:27:51] Matt Sonnen: That's exactly right. Yep. Well, you were talking about incremental progress earlier, and I want to dig into that because it's a super important topic. So it's in pillar three of your book. You talk about leadership and team stability, and you have an amazing quote. You say: "It's okay if your team structure isn't perfect yet. The goal isn't overnight transformation, it's progress. Start with one role, One conversation, or one documented process. Small moves build trust - with your team today and with buyers later." So, let's step away from M&A for a second. Let's just talk change management. I know you've helped many advisors in many different contexts undergo serious change. [00:28:33] So, give our listeners advice on how to best lead their firms through change. [00:28:38] Linda Bready: Sure. Change is so fun. The first thing I'm gonna say is you can't be change averse yourself. Yeah. I was literally working with an advisor who came and engaged me because his firm wasn't growing. He was sure it was his personnel were all in the wrong places, in the wrong jobs. And I'm like, sure, I'll come and I'll look at it. And so while I was there, when I was in the office working with his team and it was going really well, he'd walk in, look at what we were working on, stand up and say: change is so bad, I hate change. And then he'd walk away. Needless to say, when I sat down to do the staff reviews with them one-on-ones, his was first. [00:29:17] So, [00:29:18] Matt Sonnen: yeah. [00:29:19] Linda Bready: you know, I mean, because you can't - I mean, if you're change averse yourself, you can't lead anybody through change. Yeah. And on the flip side though, I have worked with founders who leaned into small steady changes. And within a year their teams are stronger, they're more confident, and they, the staff, are driving the change themselves and starting to suggest, hey, if we did it this way, or if we did that the other way, which only makes the firm more cohesive and stronger. [00:29:50] You can't lead people through change if you're modeling resistance. But if you embrace it, your team will. So that's first. [00:29:57] Matt Sonnen: Yep. Starts at the top. Yep. [00:29:59] Linda Bready: It starts at the top. Second, you've got to recognize in your team that people process change very differently, right? You come into your team and you say, Hey, look, I can now talk to you about - we're looking at merging our firm with somebody else, and some of your staff is: the first thought they have is, I'm going to lose my job. And the person next to them, their first thought is: exciting new opportunity, career path, awesome. Right? And the third person is like: I have to learn a new tech stack. [00:30:32] Matt Sonnen: Yeah. [00:30:32] Linda Bready: Right? I mean, so all of those things are valid and real, but you have to communicate. Communication, transparency during the process. If you - you won't always be able to share everything during an acquisition, especially when it's in the, you know, very confidential stages. But the more open that you are about the opportunities of, you know - if I'm thinking in five years, I want to merge my firm or sell the firm, let's talk about how we make that better and how we make that happen. And give your team an opportunity to describe what they think about it. And I'm not saying no, your staff is going to keep you from a merger or an acquisition or anything like that. But the more you show your staff that you value their input and thoughts in how the firm is led, the stronger and more cohesive the team is, which means that when a buyer does come in, they see a really closely knit working team. [00:31:35] Matt Sonnen: Yeah. [00:31:35] Linda Bready: Which is what they want. [00:31:38] Matt Sonnen: Yep. [00:31:39] Linda Bready: And third is trust. Trust your team. I'm not, and I'm - yes, your team has to trust you. Yeah, but I'm talking about: trust your people to know their jobs. That's why you hired them, right? Give them the map, the task, what you need, and then get out of their way. Full stop. [00:32:00] Matt Sonnen: No micromanagers. [00:32:01] Linda Bready: If they come back to you and say, Hey, I need clarification, or I need help, or I can't do that, that's great. Then you can step in and mentor till your, to your heart's content, right? [00:32:11] Matt Sonnen: Yeah. [00:32:11] Linda Bready: But you hired them to do something so that you can focus on the relationships and growing your business, doing their job for them invalidates both of you, right? [00:32:21] And if you have somebody who you don't think they can execute, then the problem is not the acquisition or whether or not they can change, that's a personnel change you should have made a long time ago. [00:32:33] Matt Sonnen: Correct. [00:32:34] Linda Bready: Right? And that's why I emphasize what I do. Start small, right? You know, find a way to fix a role, fix a conversation. Incremental progress builds resiliency and ultimately it's what makes change sustainable. [00:32:50] Matt Sonnen: Perfect. Yep. I love it. Well, another mistake I see often is everyone getting hung up on multiples, and in addition to getting hung up on the multiples, they think that all AUM is created equal. So they think, well, if I'm a billion dollar firm and I see another billion dollar firm got whatever the multiple is, 12 times, 10 times, 15 times - whatever they think the multiple is in the headline, well, if that billion dollar firm got that multiple there, I'm a billion dollar firm, therefore, I'm going to get the exact same multiple. [00:33:19] So, you talk about it in the book a little bit. Talk to us about the different factors that make one AUM very different than another. This billion dollar firm could be very different than another billion dollar firm. [00:33:31] Linda Bready: Yeah, yeah. Because that all AUM being created equal is - I hear that a lot. [00:33:40] Matt Sonnen: Yeah. [00:33:40] Linda Bready: It's like, oh, you know, and it's kinda like my house next door sold for half a million dollars, so my house is automatically going to sell for half a million dollars, even though it's three times as old, has less square footage, and the space is cut up badly. [00:33:55] Matt Sonnen: Yep. [00:33:55] Linda Bready: You know, under the hood is where things matter and you might hear: a billion dollar firm got 12x, 15x, whatever. But you don't hear what went into that. Yeah. You know? How clean the firm is, how put together they are, how documented everything is, how clean their compliance is, all of that goes into it. [00:34:20] There are a lot of things. I'm going to start first with your clients because when people say a billion dollar AUM is created equal, that's great. But your client base may be completely different. [00:34:30] Matt Sonnen: Correct. [00:34:30] Linda Bready: You might have a client base that is 55 and up; maybe you always focused on retirees and pre-retirees and it's a great business model. Those are, people need that need help. It's awesome. But if everybody in your book is five years from starting to draw down or already drawing down their assets, [00:34:50] Matt Sonnen: yep, [00:34:51] Linda Bready: that's substantially less valuable to a buyer than a younger book who is still accumulating and still finding ways for the firm to increase wallet share, right? [00:35:05] So client age matters. [00:35:08] Matt Sonnen: Yep. [00:35:08] Linda Bready: Concentration matters. You know, if you've got 40 plus percent of your revenue tied up in three whale clients, that's an issue unless you're masquerading as a family office. Right? And if you're a pseudo family office, that's great. Target your sales effort as a firm to somebody who's going to appreciate that. [00:35:30] Matt Sonnen: Correct. [00:35:30] Linda Bready: But if it's not, that's a riskier business model than somebody who's got a broad, diversified base of clients. Revenue matters, revenue models matter. Right? Recurring fee revenue - far more valuable than one-off things. Yep. And you know, RIAs all say, you know, I'm fee-only. And that's great. So maybe your revenue model is set and you're - that's good. [00:35:57] But there are a lot of RIAs out there that are hybrid in some sort of nature. They might have some insurance business, they might have annuity business, they might have some other business that they charge a project plan for instead of an ongoing revenue. That all impacts valuation, right? Yep. If your buyer is looking for those types of clients, it's great, right? It works, but you just - you have to be aware of what your business is and what it is not, and who the buyers are and who they are not. Yep. Right? [00:36:35] Client type matters. If you are talking to somebody who's institutional heavy and you have a boutique business with really individualized, specialized households, that might not be a culture fit for your clients, and that is a flight risk, right, for revenue. So that's going to undervalue. In point of fact, I would expect in those sorts of discussions that those types of buyers will self-select themselves out when they realize that the client base is not something that's good for them, because they don't want to introduce complexity into their process that works for them, right? Yep. There's no purpose for that. [00:37:18] And finally, I think growth strategy matters, right? Buyers want to see how sustainable your firm is and how new clients are being added and will be added going forward, you know? If you're only using referrals, okay, but that's completely different methodology than having a clear acquisition engine in place. Yeah. Right? [00:37:43] So size matters. I happen to think composition matters more. [00:37:48] Matt Sonnen: Yeah. [00:37:48] Linda Bready: Two firms with the same AUM can have completely different valuations, as you know, depending on the quality and the stability and the growth potential of that revenue. And that doesn't even touch the other parts of the business, like I mentioned in the beginning, [00:38:00] right? Are the financials in good order, right? Or is there that business trip to Tahiti, was that really a business trip, right? Yep. Is the leadership ready for the time - what the acquisition means? I mean, sellers out there are as varied and diverse as the buyers. [00:38:23] Matt Sonnen: Mm-hmm. [00:38:23] Linda Bready: And so what really matters is making sure that you match the buyer to the seller in a way that makes sense. And it can't just be about AUM. [00:38:35] Matt Sonnen: Yeah. No, very well said. Well, another topic that we cover on this podcast a lot is the need to document processes. And the reason we talk about this so much is because for some reason, RIA owners absolutely hate the thoughts of an operations manual. And you point out in the book that almost - in almost every operations review that you've ever done, the founder has said to you, well, it's just faster if I do it myself, rather than write it down and have someone else do it. And you're quick to point out that that mindset does not scale and you go further on to write, "if your firm can't function without you or a key team member, buyers see risk, not value. And risk always affects price." So talk to us about the reluctance of RIA owners to document workflows and processes and how you've coached them over the years to get around this mental hangup that so many of them - they just - they can't get over. [00:39:32] Linda Bready: Well, you know what's fascinating to me is how I think about that because when I started Be Ready, while I was still learning how to best describe what I did for advisors to help them with their back office services, the first objection I would get - because we, you know, we ran Be Ready on top of portfolio center software. We'd do the download, we'd reconcile, we'd run reports, we'd run all of that stuff. The data was incredibly clean. I had a spectacular, spectacular team. And, I could tell when the conversations I was having with prospects would call and they would tell me how they were running their business and that they were just starting out and this and that, and I would tell them what we do and literally I had advisors say to me, well, it's just 10 minutes a day, I'll do it myself. [00:40:22] Yeah. Rather than pay us at that time something that was a really small fee. Yeah. For them, even though it cost, you know, it did cost money. And RIAs are known for being very budget conscious. [00:40:33] Matt Sonnen: Mm-hmm. [00:40:34] Linda Bready: To the day, they would call me six months later and say, okay, you're right. This is not a good use of my time. [00:40:40] Yeah. Because they need to experience it. And part of that is because I think a lot of entrepreneurs, not just RIAs, need to experience all parts of the business so that they truly understand what is not their area of expertise. Right? They think, oh, I manage the money so that I can download and I can post, and I'm going to get a report that says everything's reconciled and it's awesome until it isn't. [00:41:07] Matt Sonnen: Yep. [00:41:07] Linda Bready: Right? And so I start off with really simple questions when I talk to advisors now about their ops processes and what they know of their ops processes, because understanding what happens in the back office for an advisor is important. I don't need them to know how to open accounts. It's okay if they do. It's okay if they did it for themselves for a long time, but they have people now that take care of that so they can be forward facing and client revenue facing. Right? So I'll start with a simple - one simple question. Can you and your key staff take a real vacation? Not the long weekend where you check your email, and I'm not even talking about the week where you went to California to go to Disneyland with your kids, and you still managed to make four Zoom calls and answer eight email questions that were not urgent. I'm talking about: can you go to Italy for two weeks with the phone off, right? Yes, there's always an emergency, so yes, we want them to be able to reach you. But are you comfortable and confident that your team can run? And if they can't, then there's too much tribal knowledge in your head as a leader and probably in your ops team's heads, because that mental framework trickles down. Because if people don't see you documenting your processes at all, they're not going to do theirs. [00:42:38] You know, there's a story in the book. A firm that I was working with years ago had this great long-time ops person. She was amazing. She would get accounts opened, lickety split. Every time they brought in a new person in the office, though, she kept that process to herself because it was easy and fast and she had it all, and she knew what she was doing. [00:42:58] She literally got hit by a bus. [00:43:02] Matt Sonnen: Oh my God. [00:43:03] Linda Bready: Right. So you know this - the reason that's always funny to me is that's always my excuse. What happens if I get hit by a bus, right? Yeah. I mean, you've heard that from me for years. Yep. She was in her car. She got hit by a bus. She was out for eight weeks on medical leave. Mm-hmm. Account opening ground to a halt. Nobody else knew how to do it. Nobody knew what, where the most recent forms were. Nobody knew all of the data that they needed to gather to be able to do it. So literally they took - it was a big collective heavy: oh crap, now what do we do? Right? And one of the people in the office literally spent a day and a half on the phone with custodians and compliance and all of that, documented the entire process. [00:43:45] By the time she came back, the process was completely documented and it was 30% faster. Yeah. Because they had found new ways to do things that she had not been aware of because it was faster if she did it herself. [00:43:59] Matt Sonnen: Yep. [00:44:00] Linda Bready: Tribal knowledge is a killer for everybody. When Be Ready was being acquired, and I knew it was in process the first six months - while those conversations were going on, I literally had staff members who would follow me around because somebody would say something like, hey, was there a reason we couldn't do such and thus for advisor ABC's reporting? And I'd be like, oh yeah, because in this - whatever it was five years ago, it's locked his numbers and you can't re-run any numbers for any of those accounts. That wasn't documented. Yeah. It was in my head. Yeah. And it had to be triggered by a question. So the way to take care of that - we did - and that was alongside the fact that as I built the business, I would have team members take their client processes, and document them like they were explaining them to a 3-year-old. Step one: open the program. Step two: hit this button. Yeah. Step three: do this, right, and then read through it so that anybody could do it, right? And that's painful. And that takes time away from being client facing. And so that's hard for an RIA to justify in their office when it's faster for the ops team to just keep doing it the way they've done it. [00:45:17] Matt Sonnen: Yeah. [00:45:18] Linda Bready: But once - it was painful. But once we had that living playbook, every six months to a year, we'd rotate through the clients, make sure the processes were all the same, and by the time the acquisition happened, except for what was still stuck in my head, the day-to-day processes of the firm were easy. [00:45:38] Yeah. And it was an easy transition. So it's painful taking that time. It is not revenue facing as you necessarily think about it. But it is because it eventually frees up your teams to be more client-centric, and people forget that, right? Yeah. And a lot of time, the RIA - especially if the founder started out as a one-man shop and has slowly added staff, they think, ah, I just don't want to do all that. [00:46:10] And my next statement is, don't. That is not your job. Your job is the things that get triggered like mine were. It's the staff's job. Have them document it, because that's going to let them see how valuable they are to the firm. [00:46:28] Matt Sonnen: Yeah. [00:46:29] Linda Bready: You know, letting your staff help manage your business helps you figure out skill sets. And so that you know you have your people in the right places and that you know, these people are helping my team grow. You know what? Maybe they shouldn't be so ops-centric. Maybe I need to face them and I have an opportunity to bring them in as client facing in a way that helps grow revenue. Because even if you're a one-man advisor or a two-man, or even a three-man advisor, you can't always be there every time a client calls in. [00:47:02] Matt Sonnen: Yeah. Yep. So. Well, another area that our listeners know I'm obsessed with is client segmentation. And you tackle this: it's in the workbook for pillar five, and you dive into client segmentation and profitability. And in the book you write, "segmenting your clients and understanding true profitability also gives buyers what they're looking for: visibility, predictability, and a business that isn't dependent on exceptions. Internally, this clarity helps your staff reorient around delivering consistent service rather than reacting to the squeaky wheel," which I just, I love the way you write all this. So talk to us about the need for RIA owners to understand not only the revenue per client, but the cost to serve those clients, which then that ultimately allows them to calculate the profitability of each client. [00:47:51] Linda Bready: Sure. That actually - this mirrors back to one of our earlier questions that we talked about when I was talking about knowing your client base. [00:47:59] Matt Sonnen: Yeah. [00:47:59] Linda Bready: Right? Revenue is awesome. Revenue tells you the top line, but it doesn't tell you the whole story. [00:48:07] Matt Sonnen: Yep. [00:48:07] Linda Bready: I am very fond of saying not all revenue is good revenue. [00:48:10] Matt Sonnen: Mm-hmm. [00:48:11] Linda Bready: Okay? I've seen plenty of firms with big headline clients who are actually their least profitable once you factor in time, complexity, and the resources it takes to service that client. And that's why segmentation matters because that kind of clarity helps you in an acquisition, right? And as you said, it forces you not to just look at revenue per client, but the cost to serve. [00:48:36] Yep. When you do that analysis, two things happen. Right? First, you get clarity about which clients are truly driving your profitability and which ones might be draining it. And second, your team gets clarity too. Instead of always reacting to the squeaky wheel, they can reorient themselves and they can deliver the right service for the right client. [00:48:59] I mean, we've all had those days where a client calls and you feel guilty because you can't pick up the phone. Mm-hmm. Or they email you and you can't answer it right away. Well, if that email - all caps urgent - from the client is one of your C or D clients, it can wait 15 minutes while you finish handling the issue that a different client had. [00:49:24] And what's urgent for your client is not always urgent in the advisor's office. I think - I hadn't even thought about this when I was thinking about this type of question, but language is important and understanding how to explain to your clients when you bring them on what constitutes an emergency, right? You know, they're stuck in an airport and their wallet got stolen, so they have no ID and they can't get on a plane. That's an emergency. [00:49:55] Matt Sonnen: Yes. [00:49:56] Linda Bready: They're on a two-week trip to Italy and their card just got declined. That's an emergency. Yeah, right. The fact that they want to reset the date of your client meeting in three weeks is not. [00:50:11] Matt Sonnen: Correct. [00:50:11] Linda Bready: So it's all - so I realize that's kind of a little bit off topic what we were talking about, but I think it's really important to have a true understanding of who your clients are and who they aren't. Yep. I literally was working with an advisor once who fired a third of his clients. Afterward, the firm was more efficient, more profitable, and the staff was happy. Yeah. Right? They came to work and were like, woo hoo! You know? It's - I'm happy to be doing this today because these are people I like working with. So it's not the revenue; it's the emotional drain on - that the high touch and demanding clients - that's real. Right? Especially if your firm isn't built to service that. [00:50:55] Matt Sonnen: Yeah. [00:50:55] Linda Bready: Right? You know, move them along to somebody who - saying no is a complete sentence. [00:51:02] Matt Sonnen: Yeah. [00:51:03] Linda Bready: You know? And it doesn't require justification. Sometimes you'll explain and sometimes you won't, but you don't need to keep defending why you are making sure that your business is aligned with your strategy. [00:51:18] Matt Sonnen: Yeah. [00:51:19] Linda Bready: And that type of ownership is really, really strong. I mean, I've fired clients myself over the years when they no longer fit what I was doing. Heck, I fired clients because they were rude to my staff. Yep. I'm a big believer in making sure that the entire atmosphere works for everybody. Yeah. And that means staying focused on keeping your business aligned to your strategy, because then when a buyer comes by, you'll know if the buyer's right or not. [00:51:51] It'll be easier for you to make a decision from the buyer's perspective, right? Segmentation and profitability analysis: that's visible and that's predictable. And then they know whether or not that's going to fit into their firm the way they want it to. And it shows that the firm isn't dependent on one-off workarounds. It's a scalable, repeatable model. And that increases value. [00:52:16] Matt Sonnen: That's exactly right. Yep. Well, my last question - we've been focused on the book, but let's just talk about your consulting work today, what it looks like. How do you work with RIAs? What are some examples of the types of engagements that you're doing with advisors? [00:52:31] Linda Bready: So, I love working with advisors. They're great. It's different every day. I mean, you know, you can have two clients that talk to you about M&A and they, to our point earlier, they have the same type of firm, but it's a completely different experience because this one's problem is in operations and this problem is in their clients or wherever. [00:52:54] I am engaging with clients and advisors for any type of consulting. I just happen to love the M&A, and that's what the book was about, because I thought we did not have enough good information on the how-to side for advisors to really take advantage of that. I have some people who are on a retainer, you know, for - so that they can feel free to call me whenever they want to about whatever, you know, and I have people who engage me project by project. It just kind of depends on what works for them. Mm-hmm. I'm working on the outline for the next book, which is kind of exciting. I don't think this one will be as fast as the other one, but I'm looking forward to that. I am engaging with conferences to see about workshops that are possibilities. And so, yeah. [00:53:48] Matt Sonnen: Always busy. [00:53:50] Well, Linda, I learn something interesting every single time I talk to you and today we allowed our listeners to benefit from you and I going deep on all things operations and M&A today, of course, as well. So thank you so much for being here. [00:54:04] Linda Bready: Thanks so much. And, you know, enjoy the book. [00:54:08] Matt Sonnen: Perfect. Well, that is a wrap on Episode 80. Go buy Linda's book. We will have a link to - a link to the book in the episode notes along with a link to her consulting page. So we will talk to you all soon. © Coldstream. All rights reserved. May not be reproduced, republished, or distributed without prior written consent. Information drawn from third-party sources believed to be reliable but not guaranteed as to accuracy, timeliness, or completeness. None of the information provided constitutes an opinion or a recommendation or a solicitation of an offer to buy or sell any particular security. Coldstream analyses are not intended to provide, and should not be construed to constitute, complete accounting, insurance, legal, or tax advice. The investment strategies and securities shown may not be suitable to you. Past performance is no guarantee of future results.