EPISODE 16

Matt Sonnen [00:00:00] Welcome back everyone, this is episode 16 of The COO Roundtable. We’re going to name this one the “Stay at Home” episode as our two guests and myself are all recording this from our respective homes. The markets have been absolutely bonkers the past few weeks due to the coronavirus fears and its potential impact on the economy. Then I have to think the presidential election later in the year is going to create its own set of volatility as well, so everyone should buckle up for the long term, it seems like it’s going to be a bumpy ride for the foreseeable future. My son Luke, our announcer here on the podcast, he’s been home from elementary school for two weeks so far with another five weeks at home scheduled. They aren’t planning to go back here in California until May 5th. But there is talk that they may not even send the kids back to school at all, so there’s a possibility that the kids here in California could be home until September. So, we’ll see how that all plays out. I’ve always joked that throughout my career in financial services, I got into this business in 1997, in the middle of the Dot Com Bubble in the late 90s; and then we had the failure of Long-Term Capital Management was in 1998 when Russia devalued their currency; then obviously the Dot Com Crash of ’01; then we had the Housing Bubble and its subsequent crash in ’08 that everybody knows about. Every few years it seems like people say, “Boy, we’re never going to live through a moment like that again.” And I’ve always been kind of a jerk about it, and I usually say, “Oh, yes, we will. Don’t be a fool. There’s always cycles to the economy. There’s always bubbles. There are bursts, there’s bulls, there’s bears, etc.” — but this one’s weird. I have to say, growing up in the ’80s in Southern California, we’d have our recesses canceled from time to time because the smog was so bad. The teacher would literally say to us, “You can’t go outside and run around today, kids. It’s unhealthy to go breathe the air and we’ll just play Heads Up Seven Up during recess today.” And I’ve been guilty of it, I’ve said “Boy, we’re never going to go through a period like that again.” But here we are, they’re telling us, “Don’t go outside your house. It’s unhealthy to go outside.” So, these are truly remarkable times. But life goes on. We’re going to conquer this just like we’ve conquered other turbulent times before. That’s what’s so great about our country and that’s what’s so great about the human race in general, for that matter. And so, with that said, we want to continue with our normal content here on The COO Roundtable. We have two very accomplished guests today, we’ll talk a bit about what their respective firms are doing from a disaster recovery perspective, and we’ll talk about their specific roles and those business continuity plans for their organizations. But without further ado, I want to introduce David Aaron, formerly of EMM and now a partner at Cerity Partners. EMM sold to Cerity (Partners) in January of this year, we’ll talk to him a little bit about that. And joining David is Jim Atkinson of STA Wealth Management. Jim is COO and head of M&A. Jim is in charge of onboarding advisors to STA. And David has just gone through the M&A process from the other angle. He just onboarded his firm, EMM, into Cerity Partners, so we can talk a little bit about those two roles as well. So welcome, David and Jim.

David Aaron [00:03:09] Good morning.

Jim Atkinson [00:03:11] Thank you for having us on the show.

Matt Sonnen [00:03:13] Absolutely. David, I’m going to start with you, why don’t you give us a little background of your new firm, Cerity Partners?

David Aaron [00:03:23] Sure. This is new to us by just a couple of months, 30 partners started in 2009 and we now have about $26B in assets. We have 250 members of our team and 11 offices around the country. Our group came over in its entirety in January. EMM started in 1968 and we had 37 people on our New York team and about $3B in assets. For our group, our ideal client was somebody who has $25M or plus in liquid assets, it’s generally a pretty complex family. We’re working on trusts, we’re working on governance issues, and estate planning. We also have a tax team if they don’t have an outside accountant. And we love to work very closely with our advisors in terms of how that’s slotted in with 30 partners, all that is right up there with their core strengths. And in addition, we have two other significant parts of the practice, which is executive financial counseling, which is where we’re taking on an entire executive team of a large company. We do the same kind of planning and investing work that we would do for a client but it’s the company that starts out with the employment side. And we have an entire retirement services part of the business as well, that deals with retirement plans for companies. In terms of how we’ve historically grown the company, at EMM it was entirely organic going back five to ten years. I would say we were very private; we did no marketing. We used to joke around and say, “We wait for the phone to ring and maybe we’d pick up the call.” Five years ago we decided to really launch a marketing and business development program. We invested in people, we invested in activities, and we decided to actively participate in our community. We are involved in speaking events. We do a lot of writing. We host events for both clients and Centers of Influence. And we got pretty active over the last couple of years in social media. All of that is part of what Cerity Partners does. But a couple of other really nice things they do that we were able to become part of, they have a much more significantly dedicated marketing team. We have somebody who’s actively involved in developing joint ventures and other partnership relationships across the country. And then, as evidenced by us and recent news, there’s been a string of acquisitions. We’ve been tucking in other firms into the group. One thing I would say is really interesting, in terms of the long term growth, is this executive financial counseling area, because rather than doing the door-to-door combat of finding an individual client, the executive financial counseling is handling numerous potential long term prospects at any given time. So, we might onboard 20 to 50 executives who, if we do a great job, they could be clients for a very long time as they grow their wealth.

Matt Sonnen [00:07:15] That’s interesting, usually you get one client that’s on that executive team and you’re hoping, you’re saying, “If I give good service, maybe, hopefully they’re going to refer somebody else. And then I’ve got two.” But instead you do one swoop and you onboard all of them at the same time.

David Aaron [00:07:35] Yes, we bring knowledge scale by understanding the benefit program across the organization, understanding the bonus packages, the retirement packages, everything like that, so we can really deliver that to them. But then each one has their own individual needs and we may be lucky enough to work with them down the road after the company engagement finishes.

Matt Sonnen [00:08:01] That’s great. That’s very smart. I like it. So, Jim, give us an overview of STA Wealth Management.

Jim Atkinson [00:08:10] Yeah, well first thank you for having me on the show, I appreciate it. I apologize in advance if you hear dogs barking or teenagers harassing me, I think it’s a new normal. STA was previously Street Talk Advisors and that was a small team at a small broker dealer in Houston. We’re currently on the air, KPRC 950. That’s why they came up with the name, Street Talk Advisors. Street Talk started 2005 and was at that time about $150M in AUM. The change to STA was a result of an ownership change that occurred in 2013. We’ve had significant growth, the firm’s done well from that time until now, we’re currently at $2.1B depending on what the market is doing on any given day, probably between $2B and $2.1B right now. 44 employees. Our ideal client kind of depends on which team you’re talking to internally. We support multiple teams and they all have a little bit of a different focus. But for the most part, it’s going to fall into – we’re in Houston, so obviously energy executives, entrepreneurs, mass affluent, or ultra-high-net-worth. Most of the clients are individuals. Our focus and vision for the future has been organic growth through such things as radio show referrals, we do publish quite a number of articles and guides for our website visitors and monthly subscribers. We have a retirement survival guide. We recently republished our Layoff Survival Guide. I think it is kind of relevant with what’s going on right now. As far as vision goes, we’re looking to make more of a digital push going forward. We have more refined target personas that supply to both advisors and individual clients, and that will result in us developing more and more guides based on those target personas. The guides we used in Google Ads, LinkedIn, email. We’re trying to have a balanced approach between our organic and inorganic growth. As you guys know I’m head of M&A and we’ve done fairly well, we have a solid funnel. It’s a big focus for us and we’ve had a good deal of success in this area. And we intend to continue to balance really between the two, organic and inorganic. We’re not going to focus on just one area.

Matt Sonnen [00:10:28] That’s great, a balanced approach. That’s definitely the wisest way to go about it. And so, Jim, that’s the firm. Now, let’s talk about you personally. You and I have talked in the past about the fact you’re from Southern California, but you’ve been living in Texas for 25 years now. So, give us a little bit of your backstory and how you came about to be the COO and head of M&A at STA.

Jim Atkinson [00:10:52] Yep. You and I had a similar background, Southern California, I also played Heads Up Seven Up, I guess maybe that’s a national thing, but I was right there with you, waiting for the smog to go outside and you to stay inside. I’ve been here 25 years. I actually live in Austin. The office’s in Houston and I go between the two cities. I’ve been licensed for 27 years, held several positions in the industry, been a broker, in product sales, investment banking, custody sales at Fidelity– I was there for about 12 years. Did a short stint at Schwab around the same. Held an EVP role with another RIA in Houston, which was in effect the COO role, so very similar. I’ve known the founders of STA since around 2003. So, we’ve known each other for quite a while and always had mutual respect, get along great. Culture fit has always been there. And I guess about three years ago, we were sitting around having breakfast, kind of talking and we always kind of hinted towards doing something together and it just seemed like STA had grown large enough to support the role and it was really time to put it together. So we did. And every day we enjoy working together, we work hard as a team to deliver on our primary focus, which is client and advisor experience. And in a nutshell, that’s kind of it. 

Matt Sonnen [00:12:16] “Client and advisor experience”, that sort of sums up the COO role overall, perfectly. That’s great. And so, David, you’re the second CIO that we’ve had on the podcast. I know at EMM your title was Co-CEO and CIO, so you’re balancing both operational responsibilities as well as investment oversight. Tell us your professional background and how you’ve navigated 30 years in the business.

David Aaron [00:12:43] Sure. I came about this from the trading and risk management side, dating back to 1987. One of my early experiences was on the trading desk at Banker’s Trust during the stock market crash, I was in the derivatives trading group. Fast forward quite a few years and I joined a risk management startup that was providing software tools to the banking industry as part of the big tech boom of the late ’90s and I did that for quite a few years. That firm ultimately went on to raise venture capital and was acquired by one of the big software aggregators in the industry. I went on to start a small hedge fund, grew that modestly in numbers that would not seem that appealing today, but was pretty interesting at the time. And all that was really a perfect training ground for when I joined EMM in 2006. We had been building out our own investment research capabilities for quite some time and we decided to expand that area and have more dedicated resources. As part of that role, I had never really worked that much with clients, part of my responsibility was to start working with clients, which prepared me well for what was ultimately a management succession. We lost one of our founding partners in 2014 and myself and my partner Lloyd ended up becoming Co-CEOs. (And yes, those are sirens in the background.) So fast forward another five or six years and Lloyd and I do our planning, thinking about the strategic plan and what we wanted to accomplish for the next 50 years, led us to identifying Cerity Partners as a great fit for core opportunities for the clients, for our team, or for making sure that we could retain our clients and make sure we could grow our technology and keep up with the times. And so, we recently joined them and I am now a partner at Cerity Partners.

Matt Sonnen [00:15:02] Perfect. So, as I said in my opening remarks, given the fact that we’re all sitting at home recording this podcast and given the fact that both of you work at larger than average RIAs, it is no small feat to move operations of firms your size to remote locations. So, let’s start with Jim, how has STA implemented your business continuity plan during this coronavirus situation that we find ourselves in?

Jim Atkinson [00:15:30] I don’t think a few weeks ago any of us expected the entire country to be on lockdown, it is a bit surreal. I look at my neighbors– I’m afraid they’re all getting drunk, but I guess that’s OK. For us, it starts with great people at our firm and a well-planned process. We feel that we have a top tier tech stack; solid organic and inorganic growth has helped support that. So, with respect to the business, RIAs are required to have a business continuity plan. We’re based in Houston so this is something that you’ll actually need to implement every few years during hurricane season. It happens, so we’re not totally unfamiliar with the concept. Our compliance officer and business continuity leadership team got together a few weeks ago to discuss this possibility and we worked together to deploy a plan. We held meetings with the entire office to prep for the deployment of this plan and stayed in constant communication, this helps to ensure we’re supporting one another and maintaining our standard. We had another program we’d been using to communicate via video and conference calls. We switched to Zoom about a month ago, so I think it was timely. Turned out to be a great product. So, with respect to technology, again, we worked hard to assemble an excellent tech stack, all web-based, enables us to deliver the same high-quality standard that we hold. So, we rehearsed this a bit. We had the entire team go out, practice “work at home,” work out a few bugs, and we have an incredible collaborative staff and culture. So, it’s nice to have and very supportive at times like this, I think would be difficult if you didn’t have that. But everyone’s kind of pulled together. With respect of the market drop, we run balanced portfolios with a tactical tilt. So, when things start to drop, our investment team pivoted our portfolios and we weathered the storm quite well so far. We’ve only really seen a drop in billings, but maybe not to the degree you might expect. We onboarded a new advisor in Q1 and seen several large clients close. And as a result, we’re able to add new assets, keep the total AUM about the same. So, I think we feel pretty fortunate given circumstances, I know it’s been rough for a lot of folks out there, but at least we’re holding up fairly well.

Matt Sonnen [00:17:54] That’s great. You know, you mentioned that it is an SEC requirement that every RIA has a business continuity plan, but in my experience, I feel like a lot of firms focus on the plan, meaning the document. And they figure, you review it every year, it’s part of your compliance program, and you make sure the document is in good shape. But there’s a lot of firms out there that don’t do a great deal of testing of “Could everybody actually work from home?” You’ve got, like you said where you’re physically located, you have to test because of the hurricanes that you guys go through every once in a while. But there’s a lot of firms out there that say, “Hey our document is in tip top shape,” but they haven’t done a whole lot of testing. So I think some firms out there have struggled a bit and been caught flat-footed.

Jim Atkinson [00:18:43] Right, if the SEC walks in the door, you’ve got a document and you can produce it. But in Southern California how often do you have to actually dust it off and use it in right away? We’ve had to practice with that being the hurricane season and floods. It happens. Every couple of years we’re using it. So, there was not much dust on it.

Matt Sonnen [00:19:01] Good. So, David, talk to us about Cerity (Partners), a very large firm, how have you guys implemented your work from home policy?

David Aaron [00:19:10] Well, you know, it’s insane. You talk about testing the plan, usually part of a disaster recovery plan, when you have multiple offices, is to be able to use some of those other offices. And now with virtually everything shut down that takes away that option. We didn’t expect this kind of situation to come up so quickly after the merger. But it’s a perfect case study of what we were thinking about when we decided to merge. Lloyd and I really felt that we wanted to be spending more of our time with the clients. And throughout this turmoil, we have spent a tremendous amount of time, us and our entire team, talking to clients virtually nonstop. And one of the amazing things is that we really have not had to think about this plan. It’s just happened around us. It started out a few weeks ago, we were getting a few questions from our team, “Can I work at home?” And Lloyd said to me “You know, should we set up a policy?” And I said “Well, I think that’s why we sold the company. We don’t have to set up the policy.”  And so, there was an executive team and an ops team that was working around us developing that policy while we carried on. They gave us a lot of initial local discretion to protect our people, listen to specific needs and requests. But one of the real key things is there’s just been incredible communication, really frequent communication, daily updates, health check-ins. A couple of times a week there is a health survey that’s sent around and a survey on how well your work from home environment is doing and any suggestions and there were a number of requests. Quite a few of us at the office have dual monitor set ups. And so, there’s a little bit of loss of efficiency when you move to a single monitor and that’s come through in these surveys. This week the tech team is going to be helping us set up dual monitors for people who want to have that. The tech support team has been great, both internal and external, making sure that everybody’s work environment was operating smoothly. We had been using Zoom, which has turned out to be a terrific tool. A couple weeks ago, we had 180 people from the team on board. We’ve implemented Microsoft Teams that had been part of our tech stack and that’s worked really well for keeping in touch and for connecting into our offices, a VPN. One of the other things I would say is really important, this has been an opportunity to grow the culture. The MS Teams app has been fantastic, on there we’ve set up separate groups. There’s a physical fitness challenge. There’s a “My Home Office” space, we had somebody from our team do a company-wide yoga session that people were able to Zoom in to, and we’ve had these company-wide Zoom video sessions. We’ve had a casual Friday lunch that people from our team could join and gather and there have been lots of babies and dogs on there. So, it’s really been opportunity to keep connected with everybody using the technology. On the ops side, they have a daily meeting, our specific New York team. We also have a daily meeting. We review how is everybody on the team doing, how the clients are doing, any particular issues, how are we doing with operations and the operational issues, how is the technology working? And we have an update from the investment team, and we have an update from the tax team because so much has been going on in terms of delay on tax filings or whatnot. So, all in all, it’s working extremely well and we’re just glad to have the support of our ops and technology team at Cerity Partners.

Matt Sonnen [00:23:27] And you raised a couple of good points. One, I love what you said, “This really is a great opportunity to increase culture at firms right now”. While everyone is physically separated, it actually does bring everybody together. I think that’s a great point. And the other thing you said, which is very relevant, is if you have multiple offices, “Well we’ll just flip everything to that office. We’ll just forward the phone there and then they can answer the phones.” But this is an interesting situation. I think as people are reviewing their plans going forward. It’s okay, yes, unless we’re in a strange situation where none of the offices are available. So that’s definitely going to have to be an adjustment to people’s plans. And then one last thing I’ll say about what you said was I think, again, a lot of people just assume, “Yeah, we’ll just set people up with dual monitors at home.” But it’s like a 60 day delivery time right now for monitors. You can’t get them on Amazon. For myself, we were able to get a monitor stand ordered. But I actually had to run to the office and pull one of the monitors out of the office and then I just use the stand at home. But you can’t get monitors delivered right now, or keyboards because everybody’s setting up their home offices.

David Aaron [00:24:58] Two to three weeks ago, we started that process when we were ordering monitors and they were about a couple of days at that point in time.

Matt Sonnen [00:25:05] Yep. That’s good. A lot of things none of us thought about fully. Everybody’s planned for some downtime. But this is definitely one that not everybody was anticipating. So, let’s talk about M&A, as we discussed, David, I think you’re the first guest that we’ve had that’s gone through an acquisition from the seller’s perspective. Many years ago, I had to lead the integration of Luminous Capital going into First Republic and that had a slew of operational challenges. So, I’m sure you’ve had your hands full. Have you had any lessons learned that you could share with us in terms of moving into the larger firm?

David Aaron [00:25:52] Sure. I mean, overall, the results have been really excellent. We wouldn’t have wished for a significant test like this but, it’s played out really nicely. In terms of the overall lessons, this goes back to maybe about a year and a half to two years ago when we started thinking about this, and the first one is really, “Know your own people and their goals.” At the end of the day this isn’t about what I wanted to do personally, the business is really all about the team and the clients. [If] you don’t keep your team, you don’t keep your clients, you don’t have a business. So, we really did an assessment about what the team wanted to do going forward. And some of the conclusions we came to were that we just wanted a bigger platform. We want to grow. We are growing nice organically, but we didn’t think that that was a big enough opportunity. We wanted more colleagues around us. We wanted to have a deeper bench. We had a really broad bench, but not deep. We’d done a nice job with infrastructure but were starting to outgrow some of our technology tools and we wanted to be able to make significant investments into the future, which we thought was really expensive. We wanted to have a way of doing that. We thought we could be doing better on the HR side, we wanted to expand our benefits. Lloyd and I, in spending time with the clients, were taken away from running the business and we wanted a dedicated executive team, and we really wanted to grow through acquisition. That was just something that we’d never had the capacity for. We didn’t have the wherewithal, we knew it would take time, would take probably hiring people dedicated to do that. And we had a great investment research platform, but we felt it could be really used across a much larger client base. We wanted to apply that and that had no financial implications for us. But the reality is that we went out into the marketplace and Cerity Partners really gave us all of that. But it came down to first starting to think about what is it that your people want? Second thing I would say is, and you hear this all over the place, it’s all about the cultural fit, and it absolutely really is. If you’re contemplating doing this kind of merger with another firm, really get together with your new colleagues before you close, many times, and in many different settings. Speak to them about how the firm is operated and speak to them about the pain points, speak to them about what they like about it, talk to other groups that have been merged in, make sure you understand how it went for them. Ask lots of questions to many people across the firm and sort out the story. But it has to be a cultural fit. And that kind of leads into this last point which is you do your homework, so you don’t get surprised. There can be many surprises. So far, for us, it’s really been all pleasant surprises. One of the things that we’d heard about Cerity Partners is that they were really looking to build a firm of best practices. And a number of the groups inside of Cerity Partners had told us how, when they came on board, they were told that this area would be a best practice and it would be adopted. And it has been. We’re really pleased that so far, even inside of just three months, a number of our areas that we thought could be best practices have been identified by the firm and are being adopted across the entire firm. That’s really fantastic for us. It brings real pride of ownership to our team and it really makes for a much more palatable integration and working with the rest of the group.

Matt Sonnen [00:30:11] Fantastic, there’s a great list that you just rattled through, that was was great. Jim, as we said, STA has been active in acquiring and onboarding new advisors and that’s sort of your focus. What best practices can you share from an M&A perspective?

Jim Atkinson [00:30:30] I’ll try to keep it high level. For one, I think David did a great job, summing it up and some of this will probably overlap. There’s an entire podcast dedicated to the subject so it’s easy to get lost in the weeds and maybe we just cover some of the highlights. But I would say he mentioned it — it really does start with culture and fit. It comes first, if you don’t have that there is not much more to talk about. Initially it’s “Is the AUM there? Is the revenue? Do their assets sort of look similar?” And so, for the first two or three meetings we have, we hold in their office and we go through those types of things. If it appears there may be a fit, then pivot to lunches and dinners. And I think what David is saying is that, you need a lot of different settings and he’s right. You hold some at the office, you pivot to lunches and dinners, and eventually, for us, it ends up with a fishing trip. We’re in Houston, we have golf. We like to take folks out and have a good time and get to know them more on a personal level. So, we want to get to know them really well, much more than just their book. You’ve got to have detailed workflows and processes because there’s so much that can get messy. We really need to understand as much as possible about the advisor, the book, and I would say, stay away from exceptions. If you do business a certain way, stick to it and don’t make exceptions just for an advisor that you think is really attractive. You’ve got to be very careful. Our workflows are different based on multiple factors– protocol, non-protocol, what the employment agreements look like. For us, once it appears that the advisor may be a fit, we go and speak to our attorney. We involve counsel pretty quickly. These agreements can all look very different, you really need to understand it. Investments– what are they holding? Insurance products, loans? What types of funds? All structured products? And a lot of times that we find advisors, they may have legacy holdings and they’re not thinking about it or, it’s something that was purchased 20 years ago, and they don’t think about it. It’s not top of mind. In some places, if it’s non-protocol, you’re having a hard time getting any sort of accurate data. So, you got to be very careful and collect all of it. Be clear on the types of software that they’re used to using, how they create plans, how they measure data, how they calculate performance? Do they like to manage their clients’ investments? Do they want your investment team to do that for them? How are they billing? Do they discount their fees? And does it work in your world? It could be a problem. You need to have a process for gathering and scrubbing all this data. You don’t want to find out after the fact that the advisor’s holding SMAs, proprietary funds or something that you can’t hold. And what do you know, those kinds have large embedded gains. Big problem. You don’t want to end up there. I would recommend a good disclosure document. You need to spell out how your firm conducts business, what you’ll do, what you won’t do, what works for you, what doesn’t. And again, try to limit exceptions. I would also recommend excellent promotional materials. When an advisor comes onboard, he’s now selling your firm to his clients and to make that conversion, he needs to have good training and be comfortable telling the pitch. You don’t just say “Here’s your seat. Here’s some technology. Go for it.” He really needs to understand the story and put it in his words. A transition team, you’ve got have a great group of guys who understand how to make a transition, the legalities of each break and manages to the guidance of your counsel, you don’t want to make a mistake. So, when our new advisors walk in door, the transition team is ready and waiting for them, the desk is set up, computers configured, To Do List is waiting. We go as far as setting their Outlook calendar with preset internal meetings for the next two months to cover all the subjects we’ve laid out for them. We don’t want them to have to think about much. Sure, start reaching out to your clients, here’s materials you need and Outlook calendars preset. So, we want to make sure we’ve looked at it from every possible angle before they break. In every break that we do, we go back, we do a review of what occurred, how we could improve, and we’ll rework the workflows or whatever it is that we need to do. Transitions require about three months of heads down, late night work for really the entire team. So, our staff commits to that as well. After about six months, we consider the book pretty much transitioned, for the most part. There’s usually some stragglers. Then the advisor can pivot to conducting business as usual. There’s much more to transitions, but hopefully that helps.

Matt Sonnen [00:35:09] I think that timeframe is right, three months to six months is exactly right. And I love the point you made about stay away from exceptions. The buyer, you do business one way. And from a cultural perspective, it must match, from an investment perspective, it must match. I think a lot of firms get into trouble, they get so excited about a specific AUM number and they say “Well, for this one, let’s make exceptions. They don’t do business the way we do it. Culturally, they are not exactly aligned. Investment philosophy isn’t exactly aligned, but we’re going to make it work.” And it just gets so hard, it’s so hard to make it work anyway. I love that. Stay away from the exceptions, if possible. So, Jim outside of M&A, you and I have talked that your firm recently adopted strategies that were spelled out in the book Traction. And that book has been mentioned on this podcast several times and I keep running into it with some of our clients as well. So, talk to us about how you’re using the book’s framework to document “How we do things here.”

Jim Atkinson [00:36:25] It was about a year ago that Luke, our CEO, and I were sharing book ideas. I think we read probably 20 to 25 books a year on average, like most folks do. And at the time, we were looking for better ways to measure our firm’s performance. And we were kicking around books we’ve read and ideas, and there’s a lot of books that have anecdotes and stories which you can glean a lot of information, they’re very helpful. But what we thought is we really need a defined process with specific stats, a guidebook on how to do this. And so, I gave him Measure What Matters, which I had recently finished. And he said, “Yeah. But I’d like to recommend Traction.” And I’d already downloaded it, it was the third book in my queue. So, I said “Okay, I’ll just bump that up and I’ll read that next.” We got together about a week later and I was blown away, I said “This is exactly what we need.” And Luke said “Hey, you know what? I agree. Let’s do it.” So, we decided that’ll be our guide. And I think…there’s no book, that’s going to be perfect. And I think anybody who’s used Traction or read it would agree that it’s not 100 percent. It covers all industries. But we felt that maybe it’s 80 percent and that’s a pretty good start. We felt that would build a foundation and then the other 20 percent, we’d find our own way. So, it’s been useful. But you’ve got to fully implement it. And that’s not easy. And a lot of firms will tell you, “Man, I got to do it and read it over. It looks easy. It’s not.” You’ve really got to adapt it and put into place everything it recommends. It requires continual attention to really sink into the culture. We have monthly meetings where we assign chapters and projects for everybody in the leadership team as well as department heads. At this point in time, everyone at the firm has probably gotten a copy (and) has read part, just maybe not the whole thing. We’re just now starting to see the Traction process become ingrained throughout the entire firm. It’s not that we’re not following the process, but it’s just become sort of automatic. It’s like a golf swing or something where you just don’t even think, it just starts to happen now. It’s been a tremendous help to get us organized and pushes the firm forward in increments, you’re not trying to bite off too much. And between that and our leadership teams and tactical teams, we feel for the most part that gets us right now to about 100% of what we need. We would recommend it to anybody looking for a more efficient, effective way to run the business.

Matt Sonnen [00:39:01] Did you bring in anyone from, what are they called, Implementers? Did you bring it in an EOS implementer or just after reading it, you just figured it out internally?

Jim Atkinson [00:39:13] You know, we probably should have. And we’ve heard of folks did that, but we just thought we’re just going to bite the bullet and we’re going to read the book. Before Luke and I promoted it to the whole executive leadership team, I think he and I read it like four and five times and we had a lot of notes on our books, there were stickies and highlights. We felt, and we pushed the idea that we should be able to train other firms on how to do this. If you’re going to be that good at it, you probably need to know it inside and out. So, let’s just dive in. And that’s what we did.

Matt Sonnen [00:39:49] That’s great. So, David, maybe not necessarily framed around the specific book Traction, but let me ask you how you go about implementing process at your firm.

David Aaron [00:40:00] Sure. I was lucky enough a few years ago to meet the Traction folks as part of my Vistage CEO group. I was enchanted with the idea. I read the book in detail, brought it to the executive team and we played around with it. I’ll tell you, some of the super high-level ideas that we’ve taken away from it, it’s really helped with my management style. First of all, instead of being stuck in the day-to-day first and working towards a long-term plan, start with your vision. Start with your 5- or 10-year plan and then work backwards to small and smaller increments so that you can build it. Be sure that you’re building in the right direction. And the second thing is,  before Traction, we used to sit and brainstorm  ideas that we wanted to improve at the firm and improve different groups and different areas, and it was just so overwhelming the amount of projects that we felt that we wanted to get done in a given year. And mostly they didn’t get done. So, Traction really taught me to take a few key initiatives each quarter or each year that you think are going to move the needle and focus on implementing them. Lastly is it going back to your people, just to be sure that you communicate with them really well, what your strategy is, what your goals are, what these initiatives are. You think you can tell them your strategy one time and they’re going to absorb it. Not a chance. We’re a relatively small team, 37 people, you must repeat that message over and over again. And that’s what I’d say that Kurt, my new boss and the executive team do really well. They’ve managed to define a very simple, small set of goals that the entire team is working on and we’re all pulling together for them. And those goals and the progress to those goals is made apparent to not just the partners of the firm, but to everybody in the firm. Every single month. And I think that collectively means that everybody feels invested in that. Everybody is moving in the same direction.

Matt Sonnen [00:42:32] That’s great. So that discussion leads to another topic that I think is difficult for many COOs and RIA leaders. So, David, I’ll start with you, how do you drive change at your firm and actually get buy-in from the employees and your business partners?

David Aaron [00:42:49] Oh my God, well first of all, some people in a firm just naturally love change and they always want to improve and grow. And some people just hate it. And some of those people who hate it are really important to the organization. I remember when we moved our reporting system away from an Excel spreadsheet to a database system, we had one guy in the firm who was absolutely resisting it. And you know what, you have to find what is going to incentivize him to do it. And it doesn’t necessarily have to be monetary. In this particular case, it was the fact that we created within our database, not just that we’re storing the performance, but were actually storing the statement next to each line item. And for him, that meant that he could never be ticked off with saying that he had entered the wrong value, that the numbers were right there to support him all the time. And that made all the difference. But otherwise, at the end of the day, what I’ve come to believe is you really need to create incentives that drive behavior in the direction of the goals. For example, if you’re trying to grow your business organically and you’re trying to bring in new clients, make sure that the people who are doing that are going to be incentivized to bring in the business. Make sure that the people who are supporting them are also part of that program. Cerity Partners has an incentive equity program. So, it’s a great way for people to increase their ownership stake in the business by developing their business. For example, at EMM we’ve always had this gray line as to what it took to become a partner in the firm. Cerity Partners has done a terrific job of defining that partnership path and knowing exactly what it is. By communicating those ideas and giving them proper incentives, you can drive behavior. And as I said before, communicating those targets to the entire team, having the transparency, but then driving accountability. So, it’s not just that there is a goal out there, but what is your role in achieving the goal? And what’s the timeframe together so that people know that they have to get something done by a certain period of time.

Matt Sonnen [00:45:25] That’s great. It’s communication, communication, communication, and then accountability. I love it. Jim, what strategies do you have for driving change at STA?

Jim Atkinson [00:45:36] Well, much of the changes implemented in our leadership and tactical teams are not found in Traction. I think I mentioned before we implement this as it just seemed to make sense. So, ideas bubble up, rocks are assigned (rocks are a term in Traction for projects) and each leadership team has representation from the relevant groups around the firm. So, depending on the focus of a leadership team we’ll have appropriate stakeholder representation. We don’t want to have decisions made in a bubble. We want to make sure it always gets bubbled up to a leadership team and that they handle it. So that occurs before any significant decisions are made. We always consult teams to make sure that everyone’s voice is heard and that helps with getting adoption. We don’t want to run into a situation where decisions are made without enough thought and input. Now, a lot of times you just forget that the more voices you get in a room, people will see things from different angles, and they might point out things you’re missing or flawed. So, we encourage input and we encourage folks to challenge us. To give an example, we’ve got a technology leadership team that I chair, and it was the first one we created. We decided right after implementing Traction that we really need to overhaul our portfolio management software, just as David was mentioning. This was one that touches everybody, it’s complex and it’s going to be a very hard change and you can see the resistance on it. We knew it would be a major undertaking, six to nine months to convert. It took three months to evaluate all the options. The team consists of stakeholders from various departments, they all do their own research, reporting back to the team on a weekly basis. We were all over this one. Twice we felt, “We’re close to a vote,” but then realized “Nope, back to the drawing board, still have more questions,” more things came up. It was nice getting together in a group because groups would say, “Hey, I’m still struggling with this question.” And then other folks would chime in and either help push it forward or it would create more issues and we realized that there was much more to the question than we considered, that they had other dynamics that sort of overlapped. So, we continued the work. After two months, we had to take a final vote and we asked each member to rank the areas of importance and why it mattered before they voted. I think this is really important, by doing this you get together stakeholders, they’re listening, and they’re educated on the importance of some of the other votes. So, they realize, “Well I want to vote and get product. But geez, these guys, it’s very important that they get what they need, or they can’t do their job.” So, at the end of the day, they may not get what they voted for, but they’re OK with it. We follow this process with each product we evaluate. We’ve gotten an excellent response and acceptance and adoption. So far, no real hurdles. Once we come out with it those stakeholders we’ll go back to the team and say “Hey, the vote went in a different direction but it’s OK. Let me explain why we need to do this.” It’s always clear why the vote went one way or the other.

Matt Sonnen [00:48:44] That’s great. I can’t thank you both enough for taking the time today, in the middle of all this craziness, to talk to us. You’ve shared some great insights, business continuity, change management, a lot of topics that I know our listeners are going to learn a lot from. So, David and Jim. Thank you. Thank you both.

Jim Atkinson [00:49:05] I appreciate it.

David Aaron [00:49:07] I look forward to hearing other great advisers share their thoughts on these topics as well.

Matt Sonnen [00:49:18] Thank you. So that’s a wrap on Episode 16. Everyone, please, please go wash your hands. And more importantly, hug your family and FaceTime with your loved ones that aren’t living in your home with you at the time. We’ll be recording Episode 17 near the end of April. And it looks like just last night, President Trump extended the social distancing guidelines until April 30th. So most likely, Episode 17 is also going to be a Stay at Home episode and we’ll be sure to cover more business continuity topics in that one. Last week Michael Kitces was kind enough to ask us to write an article on his website about “How to Pivot Quickly to a Work from Home Model,” so check that out on his website or on our blog at pfiadvisors.com. There’s some very granular and specific recommendations in that article that will hopefully help a lot of firms. And then also last Friday, March 27, I published an article at WealthManagement.com titled “How Top RIA COOs are responding to COVID-19” and everyone I interviewed for that article has been on this podcast. They detailed what they’re doing to navigate this tricky situation, having their employees stuck at home, trying to balance the crazy markets and give great client service, but also all the family obligations that are going on as well. So, you can find that at WealthManagement.com or again at our website. We’re still publishing new content every week on our blog. So, feel free to subscribe to the blog and to this podcast. Thanks everyone and we will talk to you soon.