EPISODE 18

Matt Sonnen 00:26 Welcome back everyone to Episode 18 of The COO Roundtable. This is our third episode recorded from home. We obviously are going to be discussing the operational processes around a work from home environment and how this pandemic is actually creating a lot of opportunity for operations professionals in our industry. I’ve been saying for the past year and a half on this podcast, what we’re trying to do here is to shine a light on the tremendous work that COOs and other operations professionals do on a day-to-day basis, helping their firms run more efficiently and therefore run more profitably. But I’ve always said I have this chip on my shoulder because I feel that our industry (rightfully so), our industry is very advisor-centric. And the prevailing belief that I’ve run into across our industry over many, many years has always been, “Hey, if you don’t command a revenue generating role within our RIA, you are nothing more than a line item on the expense portion of our P&L statement and therefore you are completely expendable.” I think that the stress testing of our entire industry’s disaster recovery plans and forcing firms to work remotely during this pandemic has put COOs and their cohorts on a pedestal and we should strike while the iron is hot. This is our chance to shine people! And we have to take advantage of it. So we have two amazing guests today that can speak in detail about the role operations plays in an RIA’s profitability and how important it is for advisors to free themselves of the day-to-day administrative tasks involved with running a firm. Ironically, neither of our guests today hold the specific COO title, but that doesn’t mean they aren’t passionate about the topics we discuss on this podcast. And you’ll learn very quickly, both of them are more than qualified to tackle these subjects. So without further ado, let me welcome Steven Beals from EP Wealth Advisors. They’re right around the corner from PFI Advisors here in Southern California. Steven is the Chief Administrative Officer at EP Wealth and his role is described on their website as “Oversight of client relationship support, investment operations, partnership integration, and technology.” So, as I said, he’s a perfect guest for us here. So welcome, Steven.

 

Steven Beals 02:26 Thank you. It’s great to be here with you today… from home.

 

Matt Sonnen 02:29 Our other guest is Eric Hehman of Austin Asset, in all places, Austin, Texas. Funny how that works. Eric is the CEO of Austin Asset and as our listeners know many times I’ve said “These darn RIA CEOs just don’t appreciate their COO,” but we won’t have that problem with Eric because he actually was Austin Assets’ COO for seven years before he became the CEO in June of 2007. So he has a great perspective and he will share that with us. Thank you Eric, for being here.

 

Eric Hehman 03:00 Thanks Matt. Enjoy it and glad I’m here.

 

Matt Sonnen 03:03 Awesome. So I’m going to go with you first Eric, tell us a little bit about the firm, Austin Asset.

 

Eric Hehman 03:08 The firm was founded essentially by a bow tie wearing renegade back in 1987. And he operated the firm for about 10 years before I joined them in ‘97. And so when I got there in ‘97, the firm had about $25 million under management. Today we’re right around a billion, depending what day it is or what week it is, but we’ve been bouncing around that for the last year. 20 employees. We work mostly with the neighbor next door types. Our average client has about $3 million with us. A lot of intergenerational households and families that we work with. We’re primarily a financial planning firm, so we have 12 CFPs on the team, out of the 20 people, a number of CPAs that are included in that list, and TFAs as well, but primarily a financial planning firm that reluctantly started managing money for clients because we’re doing a lot of consulting with them and they wanted help with the investment side. We’ve essentially grown only organically. So that’s something that I think will be interesting between our stories, between Steven and mine, and that we’ve never paid for a new client— either through acquisition, or through merger, or through kind of through a solicitor or things like that. It’s been truly organic growth from the $25 million that we had ‘97 to the, well, not quite billion, billion one where we sit today. So hopefully that gives you a glimpse of what the size of the firm is and what it looks like today.

 

Matt Sonnen 04:23 That’s great. And we’ll have a lot to talk about, $25 million up to $1 billion, you’ve seen everything. So that’s great. Steven, tell us a little bit about EP Wealth.

 

Steven Beals 04:30 EP Wealth Advisors was established in 1999. Two cofounders had known each other since childhood. Assets under management today are around $6.5B at the end of last year. We represent about 150 employees across a dozen plus offices. In terms of our ideal client, it probably wouldn’t be too different from some of the things that Eric shared. We are looking for clients who appreciate the value of people and a commitment to service. As a fiduciary making sure that we put our client needs first so that small business owners, entrepreneurs, professionals, people who’ve worked really hard to save money for themselves and/or their family, and really appreciate an active partner to listen, to understand their financial dreams, or their financial goals. In terms of a very financial planning centric firm, similar to what Eric talks about with Austin, services that just go beyond simply investment management. What we hear from our clients is they want to have conversations about their overall financial wellbeing, social security, tax and estate, charitable giving, life transitions, because life happens, right? So let’s have a plan for life to the extent that we can. In terms of how the firm has grown, it has been a combination of organic and inorganic growth over the years. From an organic perspective, we’ve been very fortunate to have a solid growing client base. Many of our clients help tell our story in their local communities, to their friends and families. So if we do a great job, we really appreciate that they’re sharing that story for us. It has been very advantageous in the markets that we’re currently in. And then from an inorganic perspective in terms of acquisition, the firm has been active and looking at acquiring other firms as we see a culture fit. Over time we’ve continued to look out in the marketplace and as we find the right fit, looking to acquire business of other RIAs. Either those that are looking to create some type of succession plan, or the reality is those who are looking to become growth advisors, to be part of something larger, leverage the services, the people and the technology that we provide and, and really allow them to focus on taking care of their clients and growing their business and making sure that their employees have a career trajectory. So that’s a little bit about who we are, where we’ve been.

 

Matt Sonnen 06:50 That’s great. So you mentioned community and I mentioned you guys are right around the corner from our office. I forgot to tell you guys this, I meant to take a picture and send it to your office. Our son, Luke had a play date just before the little league season was canceled. Our son had a play date and his friend showed up, you know, the other parents said “Hey, we’re coming straight from baseball. His friend showed up in an EP Wealth Advisors baseball jersey. You guys are sponsoring his baseball team, small world!

 

Steven Beals 07:18 The next generation of client right there, man.

 

Matt Sonnen 07:22 Exactly, exactly.

 

Steven Beals 07:25 Yeah. We would say that the firm has been rooted in that community that you’re speaking about, for over two decades. So yeah, that’s great to hear.

 

Matt Sonnen 07:32 Yes, it was really funny when he walked in the door. So Eric, not only have you moved up from COO to CEO, but I think Austin Asset is the only firm you’ve ever worked at. So give us a little bit of your background and how you’ve moved up the ladder within the firm and how you found yourself running it the past decade or so.

 

Eric Hehman 07:52 Sure. That’s really interesting, I didn’t go seek the firm out necessarily on purpose as much as I’d done an internship at an accounting firm, my junior year of college at the University of Texas and liked about 5% of it. And so I realized I needed to find something different to do when I was going to graduate.  So I took a personal finance class, mainly just to fill an elective and really liked the class, talked to the professor who was a CFP, and I’m like, what’s this here? So she told me what it was and then gave me a list of people that were, that had the designation in Austin. So I started calling folks just to try and ask them questions about what do they do for a living. And one of those was John McDonald, the founder of our company.  And he took the time to talk to me. And I said, “Well, I’m going to come by your office one day just to see what it really looks like, what a real life CFP does.” And so I stopped by his office and essentially offered to work for free. And so what I did was I was an unpaid intern, if you would call it that, indentured servant for about five months while I was graduating from college and it came time to graduate. And I said, “Look, I need to tell my parents, I’m not going to keep waiting tables to pay the bills and work for you for free, with a college degree from the University of Texas. So can you afford to pay me something?” So they offered to pay me a little bit. And it was such a good job, and that was 23 years ago now.  And it’s the only real job I’ve ever had. It started off as an unpaid internship essentially for five months and then working for very little money. It was a way to prove out my value to him. And so this topic about operations is really close to home to me because I showed up as a 22-year-old that literally knew nothing about the industry, but I knew how to organize things. And so he essentially gave me a clipboard and said just to follow him around and make what he did better and make the business better. And so that was my job for a couple of years.

I don’t know if the audience or you guys are familiar with the show M*A*S*H, but there was a character on the show called Radar, who walked around with a clipboard essentially. Johnny was in the military, served in Vietnam and was a drill Sergeant actually. And so when I first started working with big data, they nickname me Radar, cause what I did was I essentially walked around like Radar O’Reilly did with a clipboard, writing down what we did and how we did it to make it repeatable. And then asking him questions so that we can grow the business. So it was interesting because I didn’t really know what I wanted to do professionally in this specific business in terms of, I really don’t have a draw to investments. We’re going to have a huge draw towards planning, even though I like those topics, but it was the business side of the business that actually made me want to stay. I think that’s really how I got to the position; I was able to come alongside him as essentially an operations person to support him as well as keep an eye on the business. He told me to look at the business as if it was my own. And so that meant that I asked him a lot of tough questions and I can certainly tell you some stories later, but the gist of it was he saw me as someone who stewarded the business well, and after I got my CFP, that decision was: Do you want to become a CFP that can charge $20 an hour (what we were charging for our planning back then because you weren’t really managing a lot of money yet) or what if I go work on this project, that’s worth $10,000 and I worked at the business. The focus became working on things that made the business better in terms of hiring,  or service model, or repeatability and things like that in a way that were way more magnified than me just being an advisor of my own. Although I work with clients that was never my focus, my primary focus was building the business out. I did that for a while and served in that role for about seven years. And then when it came time for us to start building a transition plan for him to retire, then I moved into the CEO role. I’ve been in that role, I guess now for almost 13 years. So, its interesting. Also we can talk more about that in terms of the shift from COO to CEO, I just really just followed him around and took notes and made myself as valuable as I could to the business, even though I wasn’t creating clients or necessarily serving a lot of clients.

 

Matt Sonnen 11:30 That is incredible. We’ve had a lot of incredible stories on this podcast, but from unpaid intern to CEO, that’s an incredible story. But then the other piece that you can unpack in there is you did it with your own career, but figuring out the value of your time and how to go towards the more valuable tasks is exactly what we talk about all the time that advisors need to do, advisors should be prospecting or serving clients. But they wind up doing these administrative tasks and that’s where we preach, “You need to be hiring a COO to come in here.” So you did it with your own career, but that’s incredible, there’s a lot in there. Fantastic story. Steven, you can’t say you’ve been at one firm your entire career, but you were at Schwab for 16 years, which is impressive in and of itself. And then I think you’ve had pretty long term stays with just a few firms. You haven’t jumped around much, either. Tell us a little bit of your background.

 

Steven Beals 12:20 Yeah, Steady Eddie is what they call me. I started my professional career in the Midwest working for a pretty large insurance company. I was always interested in accounting. I thought this would be a great place to start my career. The role I started in was a client service specialist role. Part of my job was almost like Eric with the clipboard. Primarily I was calling other financial institutions and following up on transfers of accounts. And at the time my family had just relocated from the Midwest. After the third winter, my mother said, “I need to get outta here. I need to go somewhere where it’s warm.” So they relocated to Arizona. So I happen to be, following up on a transfer. The custodian was Charles Schwab. I called in, and at the time they said, “We don’t have the paperwork.” That was pretty common. When I calling I was like, “This is an endless task. No one’s gotten the paperwork we’ve ever sent. Is this a real thing?” And they asked, “Hey, would you mind faxing the paperwork over?” I recognized the area code. I said, “By the way, are you in Phoenix?” And they said, “Yes.” And I said, “I didn’t realize you had a team in Arizona.” And they said, “We have a couple thousand people.” And I said, “You know, it’s funny, I’ve been trying to relocate out to Arizona.” I had never been, by the way. And they were like, “Well, if you pass your resume along, I sit next to the recruiting office and I’ll personally hand it over to them.” So literally, within hours, they’re calling my work phone.  I was still kind of nervous and new on the job.  So here’s the prospective employer calling me at my desk phone and all of my fellow employees are sitting around me and you can hear a pin drop and they’re like, “This is, so and so from Charles Schwab, I was passed your resume. I’d be interested in setting up a conversation.”  And this was probably December. And I remember thinking, “Wow, it’s 20 degrees here and it’s 75 there.” And like a lot of people, I just relocated to Arizona. I ended up starting there on a client service and operations team that serviced the largest RIAs in the marketplace. At the time they were called “The Core Six Accounting Firms” in the business. And then also some national firms, some firms that you would recognize today, who were in their infancy. I worked on that team for three years and ultimately became the service team manager. And after five years of Arizona, you can imagine, I’m thinking “I need to get to the coast.” I knew that there was a regional sales office in Southern California, beautiful weather all year round; really great people. So I made the move. I spent three years in the regional sales office and I was working with RIAs that were looking to join and bring custody assets. I was working on training, integrating firms into Schwab at the time. I really loved what I was doing. And I got a call about an offer in headquarters. And it was really a new role that was focused on what they called “Field Communication.” So a centralized support team dedicated to the sales and relationship management offices. I was in the headquarters office there for eight years. I did a lot of different things, sales enablement, employee communications, and business strategy for the head of sales and relationship management. I was there 16 years, but in reality, I had eight jobs in three different cities. So it kind of feels like to me, I had all these different opportunities. I got to see some of the largest and best run firms. And I was really close to a firm down in Southern California, engaged in conversations and took a job as the Director of Operations and really learned a lot. So taking what I’ve learned from a large business and bringing it to a smaller business, there’s a lot of value in that. You could see that the connection that you had with the growth of the business and the client. I was there for five years and, you know what they say, “You never know who you’re going to end up working for.” I got a call one day and it was from a former colleague at my old job. And he shared with me some of the things that EP Wealth was doing. I knew the firm, I knew the co-founders. I knew they had a really great reputation and I took a chance and I’ve been with the firm for a year. I’m really excited with where we’re at as a firm and where we’re going. And so that’s kind of my background, if you will. My story.

 

Matt Sonnen 16:03 Both of you have incredible, incredible stories. I know we’re going to talk a little bit about career paths in the operation side a little later, but both of you have such great backgrounds. So we have to talk about the topic of the day, the hour, which is this work from home environment that we find ourselves in. So Steven EP, you said 12 plus offices. So I’m sure you guys were used to communicating with one another over video, but that many offices, 150 employees, that had to be very daunting to coordinate that many people to start working from home. And then Eric is on the other end of the spectrum. You have one office location with about 20 employees that you needed to coordinate, so that in some ways was easier, probably, than what Steven dealt with, but at the same time, even more so (because) your employees were very much used to going to the office every day, working side by side and seeing each other, interacting with each other, et cetera. So I’m sure that had its own challenges. I’d love to hear from both of you how your firms have transitioned during this crisis. And also hear, if you have plans yet on how and when you’re going to return to the office. Steven I’ll throw it to you first just to walk us through how this has all worked out for you guys.

 

Steven Beals 17:09 Sure. Yeah. As Eric and I were talking, I know he can attest that as a business, we have a business continuity plan, right. We spent a lot of time talking about what that plan is and what would happen if you should have to implement that plan. And you feel like, “Hey, I think we thought of everything.” But at the end of the day, you know what you know. And, we had talked a lot about and what this may look like. It came together in a short period of time. It wasn’t like we had weeks or months to contemplate, “Okay, let’s go to business continuity plan.” We have a tremendous team of folks that were working to make us feel like we were prepared. The reality is, how we operate as a business has suddenly changed. Our technology infrastructure, our phone system, the business applications we use, how we communicate between offices, between employees, how we prospect and connect with our clients. That has changed. And we were fortunate that we had been investing over time in our technology stack. We were investing in various things from a compliance standpoint in terms of just oversight and monitoring of the service that we deliver to our clients. And the virtual environment has not skipped a beat. Our employees have the right equipment. Most of our advisors and financial planners already had laptops. They were accustomed to working away from the office, but it’s a lot of the back-office employees. The people that are likely listening to  this podcast. At the end of the day, they have not spent a lot of time working from home. They may not have had the right office set up, the right equipment. We kind of jumped into place and we made sure that employees either have the ability to come pick up their equipment. Or we like, in my case, my IT director sent me a set up. There’s a big difference between working hunched over on a laptop for 10 plus hours a day versus having a real setup. And so employees have adjusted, they become acclimated to working from home. The technology provides and allows us to do that on every front. And what we’ve seen is the business has thrived in other areas in terms of we have been able to connect with each other virtually. And we have new communication tools that were proven out. So we had an employee social blog in place. We were using Microsoft Teams for messaging. We are using video and conferencing calls and using all those tools for some time, but it really became that much more important. We really saw a huge uptick in all of these other ways that employees are communicating with each other and therefore communicating with our prospects and our clients. So not only is it going to change for us and our staff, but also for our clients. And, I’ve seen some really great things internally. There’s been some really creative people doing really fun Zoom meetings, funny hats and pets, and trying to make life as normal as it can be. As a result of this, we actually are looking at changing some of the applications that we leverage. Like, what we found is, you know, for example, elderly clients, it can be challenging to have a conference call number and a pin, doing this on a mobile phone or whatever. And so we’re looking at a solution where the conference call, it calls you. You enter your phone number, it calls you directly. So you just dial the phone number from your phone, and little things like that make a big difference. We’re doing what we can. We’re very focused on the mental health and creating a sense of community amongst our employees. And so you do have a lot of folks who are eager to get back at some point when we feel like it’s the right time and we have the right measures in place and they do want that interaction. But end of the day, I think, as Eric and I talked about before, it’s operating probably better than we anticipated given the circumstances.

 

Matt Sonnen 20:25 Yeah. That’s what I keep hearing. “Not perfect, but better than we would have thought.” I think that is what most RIAs are discovering. So Eric, how has this been for you guys?

 

Eric Hehman 20:35 This term may get used quite a bit, but it very much was a culture shock for us in that, while we have a lot of systems that Steven talked about and we’ve been using Teams and we went to all laptops across the firm, I guess a couple of years ago. We had the technology piece solved. It was very much just the change. We were doing probably 95% of our meetings actually in our office. We have about 10% of our clients out of state and we would do virtual meetings for those clients, but on a regular weekly basis, 90% of the meetings happen in our office. So it was wild the first couple of weeks to decompress, to go from this volume of meetings that occur in the office and in the conference rooms, you have your kind of safety blankets with you when you go in, cause you know how things work. And so it was very much a shift for the near term. The good thing, we had the technology in place, it was just changing behavior. It was just letting go of kind of the cultural aspects of having a central office that you go to and you hang out. Cause we were essentially like the big dysfunctional family of 20 people. So you have the fun moments that you have in an office where everyone’s together. Then you have the moments that are certainly challenging, but it was just what we knew as comfortable. And so after I’d say a few weeks, we found a really good rhythm. I think what your both sharing is that we found ourselves feeling more productive than we actually were in the office. Like the meetings became more efficient cause you’d have as much time or the setup for the meetings was diminished because you were essentially just doing it all remotely. You aren’t having to worry about conference rooms ready with the water or the drink that the client likes. So many things that you do when you’re being hospitable. And you’re hosting people when those things are gone, just the friction of that made it feel like we’re just more productive. And so we’re 10 weeks into this now in our office and the conversation the last few weeks has been, I mean, Texas has been fairly aggressive about opening things up and we’ve taken the approach of saying, “Let’s be mindful of our employees.” We surveyed all the employees a few weeks ago and kind of took their pulse on a few things. We have a few that are expanding their families this year. We have a few that have some health concerns. And so based on that, we’ve essentially said, let’s keep working the way we are. Cause it seems to be going really well. And we’re actually not missing out on anything with clients, but as clients start to ask for meetings in the office, again, let’s just be mindful of it. Let’s start just keeping track of that. Last week we had two clients ask essentially in a roundabout way, “When you guys are back in the office, we’d love to be able to come in for a meeting. But if not, we are fully fine having the video call for the next week or two.” So right now we’ve tried to handle this a lot like, (Jim) Collins talks about the Stockdale paradox, right? You’re not even so fixated on a date, but then have to move and then being disappointed by it. But by kind of setting expectations with the employees and clients that we are going to be back in the office eventually, but we have no desire to be the early adopter. We have no desire to be one of the first people to go in there and figure it out because whether it’s the masks, or whether it’s the cleaning the office, or whether it’s the sanitizing everything that gets used, right now it feels like more of a hassle for us and things are going well, we’re doing a rolling two week evaluation. We’ll do another evaluation of this week and kind of see how we’re feeling about what clients interest to meet in the office. But they’ve been super understanding of this as well. I’d say that the thing that’s been very helpful is the clients have been almost as concerned about us as they are about their portfolios. And so that gives us some comfort, knowing that they’re not putting any undue pressure on us to be back in the office cause they feel like they’re missing out on something that they’re paying for. I think that’s been a real positive for us.

 

Matt Sonnen 23:41 That’s great. I like the rolling two weeks – “Roll out two more weeks and we’ll assess then, and we’ll roll out two more…” I like that. That’s great. So, when all of this hit and they instituted widespread stay at home orders and then the market obviously dropped, I  immediately panicked and said, “Well, boy, this is going to be rough for PFI Advisors…no RIA has discretionary spending right now to be hiring a consultant.” But as this has played out and the market has stabilized a bit, I think in a roundabout way, RIAs are actually more inclined to think about the fundamentals of their business. And to think through the technology they’re using, as you guys were saying and the adoption of those technologies, and how the firm is measuring results, what the profit margins look like, et cetera.  An upward sloping market makes it pretty easy to mask any of the inefficiencies that have crept into your business. But when you get a shock to the system, I think it forces a lot of RIAs to confront some of these issues. So Eric, how do you think this experience will change the way RIA owners really think about their businesses and the role operations plays?

 

Eric Hehman 24:43 At a high level my hope is similar to yours in that the folks that have knowledge about how the firm operates either from a forecasting or budgeting or from a true day-to-day operations, they’re being included in more conversations (I hope) right now. Essentially their voice is hopefully larger than it was three months ago. And I think that’s the big positive of this for anyone that’s internally going, “Hey, I’ve been trying to get your attention for months or years about this.” And so this is that Newton’s law thing, right? Objects in motion can stay in motion until acted upon by an outside force. This is an outside force. It’s super positive for those that have ideas around improving the business, or efficiency, or productivity because now the leaders in that business are hopefully looking for those ways to bring more value and they don’t have as much money to spend. I think this is where the voice of someone who has an opinion about operations and productivity or practice management, I think you likely have as big of an audience as you want. I would encourage anyone listening that has an idea or two that they’ve been sitting on, or maybe they pitched it once or twice to the CEO  or maybe even the other leaders of the firm, to build a business case out even further. And because this is likely a time where you have a chance to impact the business in a bigger way than you could three months ago and when you’re able to implement whatever that idea is, you’ll probably be on a bigger platform than you were before. I think that’s the big positive for anyone that’s running a firm right now that’s maybe behind the scenes that felt like they weren’t in the business development office or they weren’t in the strategic office, but they were in the back looking for ways to make their firm run better. This is a wonderful chance. My hope is that the firms that maybe were exposed that weren’t prepared for this either technology wise or just culturally, but just how to handle things or communicate out that they’re asking for help from those that are in their teams that know more about the operations or practice management than they do. So I think this is a huge positive for folks that were like me, or maybe like Steven, that weren’t necessarily in the conference room, advising clients, but they were in other parts of the firm where they kept the trains running on time and now they’re really doing it. And so they, hopefully are getting some “attaboys” or affirmation for doing that.

 

Matt Sonnen 26:39 Yup. I hope so. I think you’re right. Steven — how has this pandemic, or has this pandemic forced you guys to rethink your business differently?

 

Steven Beals 26:47 Certainly a number of things that Eric brought up come to mind I would say from our perspective, this has really allowed us to stay focused on our core vision. We have a clear business strategy. It’s something that we have available for employees to view internally and it’s allowed us with minimal distraction to really focus on how to execute on that business plan. We think, fortunate, we’ve had some nice enhancements to our technology stack. We are working through a new CRM and a new reporting solution, management reporting tools. It really has given us some time to focus solely on those. As a firm that is active and looking at it partners to acquire, sometimes those conversations go quiet for a little while. And so a lot of firms are focused on taking care of their clients’ needs. If the market’s volatile then clients might have questions or advisers may want to be proactive and use that as a great opportunity to reach out to your client to say, “Hey, we were thinking about you. Is there something I can help you with?” From an operations perspective for me, it’s really allowed us to kind of look at what are the things that we want to accomplish in the next 12 to 18 plus months, and let’s rally the resources around those initiatives. And so with a number of offices, are looking at how we prospect, how we onboard new clients, what does the service experience look like? Those are conversations that we were having actively before the shelter at home. And then we continued to have while at home and we’ll continue to have when we get back to the office or whatever that looks like. It’s still important to continue to operate the business. And I think Eric brings up a good point. We operate in an environment where we want to have our employees be and feel empowered and that they can come to us at any time and say, “You know what? Something is not efficient.”  Or “We feel like we can streamline a process or processes” and we want to have an open door and actively listen to the ways that we can improve the operating efficiency of the business. Certainly there are conversations about things changing within the business. Maybe that’s, real estate footprint, maybe additional employee benefits, but at the end of the day, we still run a business, we’re in business for our clients. We still want to continue to do great things for our clients. So that means investing in the business.

 

Matt Sonnen 29:02 Yeah, that’s exactly right. You touched on it a little bit in terms of the operational aspect of being a professional buyer, being a landing spot for advisors. We, PFI (Advisors) has written a lot about that and talked a lot about the need for buyers to build that infrastructure and really focus on making themselves scalable in order to be successful in the M&A game. We dedicated Episode 14 of this podcast was just me pontificating the entire episode. We didn’t have any guests, just on that exact topic. And we’ve written several white papers on this subject. One of which we even highlighted EP Wealth as a successful buyer. With so many buyers fighting over a relatively small number of sellers, I think it really is up to the buyer to prove themselves as being a state of the art organization that can help the seller grow much faster as part of their organization, as opposed to just continuing to try to do it on their own. So, Steven, like I said, you talked a little bit about it there, but go into a little bit more detail on EP Wealth’s infrastructure and what you’ve done from an operational standpoint to make the firm an attractive landing spot for sellers.

 

Steven Beals 30:01 There is a lot of competitors in the marketplace. What we’re focused on is a commitment of having the right combination of three things: Services, Talent, and Technology. In terms of services, we want to be able to be the most trusted advisors in the communities that we service. And we want to be able to offer our clients the right combination of services that they think about us as a true financial partner, and that’s attractive to sellers who may not be able to invest back into the business, who may not be able to hire additional talent because of certain constraints. I think what’s important for us and a lot of who really appreciates this is having a really great firm culture. It starts from the top. It’s hiring really great people. I talked about empowering your employees. They are the core of the firm’s culture and talking to firms that are looking to join forces. They’re going to talk to a dozen plus people across all spectrums of departments. And they’re getting a good read, just like we are in terms of what does this firm look like inside? At the end of the day, a lot of firms offer a similar set of services in the toolkit, but who represents that company because at the end of the day, we collectively service our client. And so their clients are now serviced by people from across our firm. Some things are centralized, for the right reasons. I think they also want to know that they’re joining a firm that’s growing and that can help with upward mobility for their staff. Not everyone is looking to grow, we have a concept we call “Growth Advisor” and those are the sellers that say, “Hey, I can be part of the bigger sum. And I want to be able to do what I do at a local level and take that to a higher level and partner with a tremendous depth of a people, depth of resources, a great technology stack.” In some cases, the seller is looking for a succession plan for themselves. They want to take care of their employees. Many of the employees have been with the founding principals for many years, sometimes decades. And they want to make sure that their employees are taken care of, but above all, they want to make sure that their clients are taken care of. And that they know that if for some reason they were no longer part of the firm years down the road that their clients will be taken care of and they’re looked after like family. So I would say that, with a clear investment in technology, I talked a little bit about, it’s important to continue to invest in your technology stack, to look at the providers in the marketplace. There’s a few number of big firms that a lot of firms leverage for technology. And there’s also a lot of up and coming technology partners that you may have not heard of today. And that landscape is constantly changing. So, it’s  having the people and the time to be able to look out in the marketplace and say, “What are some of the up and coming technologies? What type of things can we do to create efficiency for the firms that we acquire?” Whether that’s compliance, outsourcing operations, centralization, at the end of the day, they’re looking for a good home long term, and that’s what we want as a partner. So I guess that probably speaks to some of the success that we’ve had.  I would say that we’ve been very thoughtful of the firms that we’ve acquired, and it’s very purposeful.

 

Matt Sonnen 32:56 You brought up succession planning. A lot of M&A transactions are driven by the need for a succession plan. And Eric has literally written the book on succession planning in our industry. Back in 2015, you partnered with Tim Kochis, he’s now at Devoe and Company, but he’s best known for founding Aspiriant and through his own succession plan, he handed the business over to Rob Francis. And then Jay Hummel, at the time of the book he was at Envestnet. He’s now running Wealth Advisor Growth Network. I know Jay pretty well. He’s authored a few different books in our industry. So the three of you came together and pooled your collective experiences to write a book called “Success and Succession – Unlocking Value, Power, and Potential in the Professional Services and Advisory Space.” And we’re going to link to that book in the notes for this so people can check it out. But Eric, tell us a little bit about the background of that book and how it came about.

 

Eric Hehman 33:48 Reluctantly. I say that really because none of us had a desire to do the book. So, I’ll give you a little background. I met Tim, I guess, 15, 16 years ago. I had a habit of seeking out people like Tim or Mark Tibergien or these other kind of luminaries of the industry, and either going and visiting their firms if they were like in Texas, or if I could visit them at our conference, or I would just pin them in a room at a conference and say, “Hey, I need your time for two hours” and just pick their brain. I made a real habit of doing this early on in the business, because again, my job was how to make our business better. It wasn’t about investments and it wasn’t about financial planning. And so when I was in a venue where someone who had built the business that I aspired to build, I want to take as many notes and understand from them what I could learn. And so that’s essentially how Tim and I became friends. And then Jay was introduced to me, I guess, 10, 11, 12 years ago by a mutual friend that knew that he just wanted to understand how these firms work, because he’d come into it from an unrelated profession as an outside consultant. And so Jay and I would have these conference calls once a quarter where he would just ask me questions and we kind of just have this group, essentially a therapy session where I would talk to him about what was going in my firm. He talked about his, we kind of try and solve them together, or if not, it was misery loves company.

And then Tim, I would just pick his brain as often as I could about what was going on at Kochis Fitz. And then the Aspiriant thing, when it came together. And so Jay and I were doing some presentations together and the way it worked out, essentially the short version of the story is Bob Veres was hosting a conference, Jay and I were doing a panel about what it’s like to be a successor. Tim was doing a panel of what it’s like to be a founder. And Bob came to us afterwards and said, “I wish I would’ve put the panel together and lets the successors and the founders to be on the same panel and kind of discuss the tension of those two different roles.” And so Jay and I talked about doing some more writing and things like that. And Tim was like, “What if I come alongside you guys and share what it’s like to be the founder and y’all can talk about what it’s like to be the successor, and we can make it kind of a holistic story.” And it evolved quite a bit from those first conversations, but the gist, the book became organizing the book around the operational challenges, the financial challenges, and then the emotional challenges, because most of what was written was mostly financial about what the deal structure is and valuations. And how do you finance it? Some was written about the operational side around, how do you just transition the duties of leadership to new people and next generation. But very little was written about the emotional things, like the founder syndrome or founder itis, or some of these other things that are more written about from a psychological standpoint, but really not in our industry. The goal was to highlight succession from an internal standpoint was kind of the primary focus. How do we weave in the emotional conversations that no one really knew about that were going on behind the scenes by interviewing 25 to 30 industry leaders that had never told those parts of their stories? And so we were able to interview all of, all of our friends, essentially that were leaders of firms or successors and ask them these really tough questions that were rooted in the emotional challenges of either letting go or taking over and how you’d handle the financial problems and opportunities you had as well as how did you handle the operational problems that you had? The idea was to do it together as a missional project. Like we just wanted to be able to let people see behind the curtain a little bit of what it was like to be me, if you will, or what it was like to be Tim in a venue that was hopefully very practical and very helpful to people. It’s not truly a handbook, but it’s as close to a handbook as we could make it in terms of really wanting people to be able to help people see if they’re stuck at this stage, here’s some next steps that they can take just to move the ball. Though, we had to write a sample chapter for the publishers and the one we picked was called “Breaking Inertia”. And we felt like that was one of the chapters in the emotional section. We felt like that was the chapter that really spoke to the core of the book, which was what we’re talking about in this session. A lot of these businesses were on a path and whether they were on a path on purpose or not was the question. Whether the markets were just good and they were just hiring because that’s what you did or became, they became more profitable just because they had more AUM really being purposeful about the direction you want to take is at the core of succession planning, it’s not going to happen by accident. And so the book was very much a, it was a super honoring thing to do because we had to talk to our friends and people that we admired, but we also got to do it together. The three of us became really close friends, if we weren’t already. And since then we’ve enjoyed doing little projects here and there to help the industry out and just speak to it. In 2007, there weren’t many 30-year olds that had taken over our firm. And so I could talk about that. And there weren’t many people in Tim’s position that had let go of a firm. And so it’s changed quite a bit as Steven mentioned in terms of the M&A activity, but internal succession still seems to be a driver for a lot of the firms that think they’ve got someone on their team they really want to benefit, or they got a group of people on their team that they want to take over. We want to be able to lend a voice to it.

 

Matt Sonnen 38:20 That’s great. Like I said, we will link to the book in the notes here. So as we look at to wrap up, we talked about both of your amazing backgrounds and the experiences you both have had in the industry. I’d love to ask each of you about the career path available to operations folk. Our industry does a great job, I think, of putting out content detailing the career path to become an advisor through the advisor track, so to speak. Another thing we’ll link to, The Center for Financial Planning put out a great report last year. It was in conjunction with Mark Tibergien at Pershing and Philip Palaveev at Ensemble Practice, they put out this 80 page report that detailed the steps to go from an Analyst, to an Associate Advisor, to a Service Advisor, then you go to a Lead Advisor, and then ultimately you are a Partner of an RIA firm. And as Eric has proven, there is a track – there can be a track — through the operations channel to become the CEO of an RIA, but it’s not well publicized in our industry. I’d love to get your thoughts. I’ll go to Steven first. What kind of background do you think a COO should have? Is there a defined career path for operations folks in our industry, Steven?

 

Steven Beals 39:38 As I hear you talking about that, Matt, I was thinking to myself, in my 20 plus years of experience, a lot of my colleagues from across firms of all sizes, the background does vary greatly. Certainly, you have situations that kind of resonate and how Eric came up. And then, I speak from my own situation where I was young, motivated, and thirsty for knowledge. And so, being mobile provided me an opportunity working for a large organization, to learn a lot in different aspects of the business. I was fortunate that I was able to take opportunities and take risks in my career, whether that’s to move or to take a job within another department that I had some interest in. And collectively those roles and the time working for a large organization where things are organized and things are defined typically black and white. That allowed me to be able to really take all that knowledge and apply it in a different setting. I would say that throughout my career, the companies that I’ve worked for have really prided themselves in the proof is in the pudding. Allowing associates at all levels to have conversations with the executive team and leaders of the organization, to allow for job sharing, to invest back into employee’s careers financially, whether that’s something like Eric pursuing a CFP or somebody wants to pursue a master’s degree. And so all the same benefits apply to a smaller organization. You don’t have to work for a company with tens of thousands of employees to have a career path and an opportunity to seek a job as somebody who oversees operations or a COO of an investment advisory firm. It may not be the path that you see for yourself, but at the end of the day, we have a lot of really hardworking, passionate people in our business. I think a lot of these smaller businesses that we represent are looking for really great people and they want to be able to invest in them and allow them to grow. I don’t see a lot of obstacles at the firms that I look outside my window and see. They really do value really great talent and invest in them. So I don’t know, Matt. That’s a great question. You can tackle it from all angles. Certainly a thirst for knowledge and, people who are innovative and looking to make positive change, enjoy communicating with people at all levels. Those are all important attributes of successful COOs in my experience.

 

Matt Sonnen 42:30 That’s great. And Eric, I’m going to give you the last word. Your career path started with just a clipboard and an unpaid internship. So what are your thoughts on the topic?

 

Eric Hehman 42:40 Well, if you gave me really just one word, I’d say it’s “Care”. So at the root of this, when I think of career path it’s, “Do you care a little bit, just a little bit more than someone else that’s already there about some topic?” I think that’s what’s the career path can, how it can start is this fact that for me and many people I know that have worked their way up through the smaller firms. Again, Steven’s firm is well accomplished, and we’re a little bitty 20 person operation, but yet we have an organizational chart that we aspire to in the next five or six years, we have a hiring plan, and we have career tracks for all the areas of the business. And so, yes, there’s a career track for the planners, and there’s a career track for the investment team, there’s a career track for ops, and there’s a career track for client service. It’s having…this is that weird chicken and the egg thing where we’re in this time right now, the operations team has probably the biggest voice we’ll ever have in terms of what’s going on right now in terms of make an impact. And so during this time, how do we flesh out what it is and operational career track could look like? So maybe this is a great time to build career tracks, get with your HR team and say, “Why don’t we build career tracks for the entire firm, as opposed to just the advisor?” And so that’s one thing that we did a number of years ago, just to highlight the fact that there is no one way to get there. And essentially all we’re trying to do is tell a story of—if you care just a little bit more about this thing then someone else does, then that could become a whole new avenue of the business that you can have an impact on. And I think that’s where I didn’t feel limited by, there was only one way to become an owner. There was only way, one way to have influence in terms of advising clients and creating clients and things like that. And so that was the part of, I just cared a little bit more about QuickBooks than the founder did.  I cared a little bit more about organizing the files and making sure we had agreements for all of our clients than he did. So it started at a very basic level and even a firm with 20 people, the conversations I have with our staff are around, “Look, if there’s an area of that business that you look at and go, ‘Yeah, I don’t know if that plant is being watered enough. I just don’t know if those weeds are being pulled out of that enough and I’m willing to do it.’ Then you’ve exhibited the first characteristic of, in my opinion of blossoming into having it oversight into areas of the business that no one is leading because you’ve identified what could be a problem or an opportunity. And you’re willing to care about it just a little bit more than even the people that might have the title.” Because in theory, I walked into a business where he owned all the business, had it for 10 years and he was impacted financially, emotionally, mentally more by the business than I was. But I took one little area of the business and cared a little bit more about it than he did. And all of a sudden that became how I made an impact to him in a positive way. And I think any of us would look at our employees, our staff, and go, “Hey, if you’re making a positive impact to the business in a way that didn’t exist before, I want to advance that and expand that as quickly as possible.” I think that’s where an operation a person can have a huge impact.  I’ve touched all the different areas of our firm because it was really small when I started, but across our firm, I love the fact that people might start in a client service role and then move to the planning team, or they might start in an operations role and then move to an investment role because that exposure to how the business comes together, those dots that are connected, I think are the most valuable part of a career path that you’re going to design for operations is just understand the impact of pulling this lever and the impact it makes to the other side of the firm. I wouldn’t say it’s one area where I’m an operations person could thrive. It could be just exposure to different…because essentially when I think of the COO role that I was in was, “How can I live above the noise that’s happening every day, but then also know how to reach into it and move things around to make it more efficient.” But if I don’t know how those things work, I really don’t know how to care more about those tomato plants than I do this peach tree.  I’ve got to know enough about them to know what I need to do when, and so I think that’s where anyone, and even in an entry level position in a firm can go to their supervisors or their leaders are there owners and say, “I care about this one little area. I’m not saying it’s being neglected and no one’s doing their job, but what if we put a little more water on that? And I’m willing to bring the bucket. I’m willing to bring the bucket and do it myself.” And I think that’s hugely valuable to our business. We’ve had a number of employees that do that. Our CFO started off as a paraplanner. They just said, “Hey, I want to help with this. I want to help with that. I wanna help with this.” And just kept raising their hand. We have people that are in positions that are dramatically different than what we hire them for. Because as the firm grew, the org chart grew as well, as the spots that we didn’t know what we’re going to fill. I think that’s the beauty of operations is that you might be able to live in a world where you see it, those dots connect before others. So I would encourage if you’re a founder listening to this, reach down into the team and get their feedback on areas of the business during this time right now, because it’s all new, all new to many of us. And so it’s a great place to ask the people on the front lines, “Hey, how are those wires going? What’s it like to data enter information from a virtual meeting?” I mean, just whatever these things are that we’re doing differently, because you could find some real gems in there from the team that can help the operations of the firm.

 

Matt Sonnen 47:22 That’s great. I am such a nerd with this stuff. I’ll tell you, the hair on the back of my neck literally stood while you were answering that. That was some great, great wisdom right there. So thank you. And thank you both. This has been a very lively discussion. I saw Michael Kitces tweeted the other day that, “The reality is the profit margin of a firm is its first line of defense against needing to downsize.” And I’m truly hoping that one of the positives that comes out of this economic environment that we find ourselves in, I really hope it forces firms to rethink their spending their efficiencies, their career paths, as we’ve talked about. And hopefully it furthers along this movement that we’ve been so passionate about since we launched PFI Advisors, which is this transformation of our industry from a collection of practices to true businesses.  You both are leading extremely successful businesses in your own right, so thank you two. Thank you to Eric and Steven for sharing your perspectives today. Thank you both guys.

 

Steven Beals 48:19 Yeah. Yeah. Thanks for having us, Matt.

 

Eric Hehman 48:21 Thanks for having us.  I think it’s a great venue.

 

Matt Sonnen 48:23 Awesome. And thank you everyone for listening to another episode of The COO Roundtable, and we will talk to everyone soon.