EPISODE 22

[00:00:11] Luke Sonnen: Hi, I’m Luke Sonnen. Welcome to The COO Roundtable, powered by PFI Advisors.

[00:00:20] Jonny Swift: Hello and welcome to the 13th webinar in our Insider’s Forum virtual event series live with Matt Sonnen founder and CEO of PFI Advisors, Kaylyn Melia of Socius Family Office, and Karen Denise of CAPTRUST hosted by Lisa Crafford of BNY Mellon Pershing. Before we get started with today’s content, just a few housekeeping notes. The Insider’s Forum Virtual Event series includes 20 plus webinars running through November. Don’t miss our next webinar in the series this Thursday, October 8 at 1:00 PM Pacific, 4:00 PM Eastern for a presentation on marketing for the modern advisor with Megan Carpenter of FiComm, earn one NAPFA CEU as you learn new ways to think about marketing your firm in today’s digital landscape. I’m Jonny Swift of Impact Communications, a full-service marketing communications and PR firm that’s been serving independent financial advisors and allied institutions since 1993. I’ll be serving as the technician for this webinar series. With that, I’d like to hand it over to Lisa.

[00:01:16] Lisa Crafford: Awesome, thanks, Jonny. Great to see the number of attendees climbing as we’re rolling into the top of the hour. For those of you who haven’t joined us before for Insider’s Forum, I have the great pleasure of working with Sean Kapusinski to help develop content for the COO track. At the end of every conference, we sit down and think about what’s important, what are folks thinking about, where are their challenges, where are their opportunities? We found that we kept going back to Matt’s podcast as a source of knowledge and inspiration for those topics. We had this grand idea of bringing Matt to Austin and having him record his podcast live from the mainstage. It was going to be lots of show lights and fireworks and all kinds of excitement. Unfortunately, we’re not in Austin, but we’re so glad you’re with us today here virtually. I’m really excited for this live with Matt as a one-off Insider’s Forum session as well and so proud and excited to see my friends, Kaylyn and Karen participating in this and super excited to hear what they have to say. If you haven’t listened to Matt’s other podcasts, I really suggest you subscribe, download, and go back and start at episode one, listen to all of them and enjoy the session today. Thanks, Matt, take it away.

[00:02:38] Matt Sonnen: All right. Thank you, Lisa, for the introduction, and thank you again for allowing us to do this live version of The COO Roundtable podcast. For those of you not familiar, we produce this podcast monthly, obviously called The COO Roundtable, I interview two or sometimes three operations professionals. They don’t always have the specific COO title but we discuss topics around this concept of professional management for RIAs. I believe there’s a big gap in our industry when it comes to the business side of our organizations, even RIAs that have reached that elusive one billion AUM mark many times at their core, they simply are four or five advisors under one common logo that are really going in four or five different directions. When advisors leave the wirehouses, or the IBD channels to start RIAs, I think they often struggle with making that mental shift of “I am a financial advisor” to “I am the owner of financial advisory business.” Even when you speak to RIAs that are 15 or 20 years old, oftentimes you get the sense that the owner really identifies as a financial advisor first, and a business owner second, and that’s fine. They really should be focused on their clients and prospects. That’s the best use of their time. In order to do that successfully, they need to commit to bringing on professional management. Whether that’s the COO title or whatever title they want to give that individual. Our podcast is dedicated to highlighting how executives are playing this role and are in charge of running the business rather than bringing in clients. As a former COO of multibillion-dollar RIA myself, I’m very sensitive to the common theme in our industry that if you aren’t bringing in clients, you are expendable, and therefore not very valuable to the organization. With this podcast, I try to highlight all the incredible work that these professional managers are doing on a day to day basis. Whether that’s designing a proper organizational chart that details everyone’s roles and responsibilities, or managing vendor relationships and tackling the difficult task of integrating various systems that make up the RIAs back office or just executing the strategy that the owner has laid out. It’s an incredibly important role and one that I believe and again, I’m totally biased but, I believe it’s vital to the growth of RIAs. Without further ado, I want to get started with this interview. We have two unbelievably impressive guests. We have Kaylyn Melia, she’s the Chief Operating Officer at Socius Family Office in Fort Lauderdale, and Karen Denise, the Senior Director in charge of Client Service at CAPTRUST in North Carolina. As you’ll see, both are extremely knowledgeable in all areas of professional management. We’re going to jump right in with our questions here. Kaylyn, I’m going to go to you first, why don’t you give us an overview of Socius Family Office?

[00:05:24] Kaylyn Melia: Sure. Thanks, Matt. I’m really happy to be a guest on the podcast today. I’ve always been a listener, and I’ve taken a lot away from your different episodes. I’m the Chief Operating Officer of Socius Family Office, we are a multi-family office. We manage around $550 million in assets under management. We serve about 100 different client families. We have two offices. I’m located in Fort Lauderdale, Florida, and we have a second office outside of Pittsburgh. We have 4 advisors and 10 employees total, and we are an employee-owned firm. I would say what’s unique about our firm is our client demographic are the founder of our firm and our president were both professional athletes in the NFL. Probably about two-thirds of our clients are young professional athletes in their 20s and 30s. I would say the remaining third of our client base are successful entrepreneurs that have built very valuable operating businesses and many of them have experienced a liquidity event that has introduced them into significant wealth. All of our clients share a couple of things. Complexity is one, their needs to extend beyond a lot of the traditional investment management needs that encompass financial planning, unique reporting, many of them need bill pay for their personal needs. They oversee and operate in many different legal entities, sometimes more than 20. They really need a lot of oversight and administration of their all financial life. Historically, our firm has grown 100% organically. Our operations team, in my opinion, does a lot. We do a lot of volume for the number of people that we have. In the future, we’re hoping to expand and build upon our technology strategy to help us scale as a business to help continue that organic growth and maybe attract additional advisory teams as well.

[00:07:32] Matt Sonnen: That’s great. Karen, CAPTRUST is a big name in the industry. Most viewers probably have at least heard of it but why don’t you give us a background of the firm?

[00:07:41] Karen Denise: Sure. Thank you for having us, Matt. I agree with Kaylyn that I’m a fan of your podcast. I really wish we’d been there in person to hear about these fireworks and other pyrotechnics that Lisa is promising. Unfortunately, we probably won’t be as exciting as that but we’ll try our best. CAPTRUST was founded in 1997 by Fielding Miller and his then partner David Perkins, who went on to create Hatteras Investment Partners. He had roughly 11 advisors that came from a group called Interstate Johnson Lane that formed the company. A large part of our business is focused on foundations and institutional retirement plans. We have a very large what we’ll call “Private Wealth Group”, which is the group that I’m a part of, and super excited about it. We have grown over the years quite a bit. We have around roughly $400 billion in assets under management. A good portion of that is on that institutional retirement plan side of things, but we have roughly around $18 billion in the individual wealth management RIA client-side. We have around 721 employees across 32 locations across the country. Our ideal client is someone in the $2 to $20 million range. Similar to Kaylyn, we have a large focus on financial planning. We have a lot of executives from the retirement plans that we work with. There have been such great fans of what our investment advisory services have been on that side. They have joined over and allowed us the opportunity to manage their individual wealth assets. We also work with a number of professional athlete clients, as well as inherited wealth clients. A lot of our growth has been due to acquisitions over the years.

[00:09:34] Matt Sonnen: Karen, you had– I tried looking at LinkedIn, you had five years at Wachovia before you joined CAPTRUST 16 years ago. You’ve had seven different positions there, so tell us a little bit about your background, and how you wound up in your current role as senior director of wealth client service.

[00:09:50] Karen Denise: Sure thing. I joined CAPTRUST as Matt said about 16 years ago after working for the artist formerly known as Wachovia Bank. Now, I believe it’s all part of Wells Fargo, but at the time I worked with Wachovia bank’s personal trust, and their investment management division, and learned a lot about personal trusts and estate settlement, and a lot of just the complex issues that come across clients lives in our financial journey. I started at CAPTRUST actually as a client service representative working with private wealth clients, and I was working with the clients of our CEO Fielding Miller, and we were much smaller back then. We were around 40 employees, which was great in a lot of ways. We were very nimble. You could get decisions pretty quickly by just standing up and asking someone for their opinion on things. It’s just been really awesome and a lot of fun just being a part of that growth over the years and Fielding was really great, even back then he always has this entrepreneurial mindset. What that means is he has given every employee in our firm and opportunity to say, “Okay, if there was a way that you could think of how to do things differently, propose that to me and we’ll see how it goes.” I did that and he was very kind and must’ve liked what he saw. I think back to the probably rudimentary PowerPoint presentation I put together probably about 14 years ago and would probably cringe if I saw how basic it was today. I was just really fortunate that he allowed me to move on from the client service role, having management opportunities in client service then in our operations side of the business, then we started to kind of ramp up a little bit more in having firms join us. As we started to do that, there was an individual that needed to kind of speak to the operations side and the client service side. I was lucky enough to wear that hat. As I mentioned, our growth has happened, especially in the past few years, we brought on a lot of new firms. As you can imagine, every time you bring on a new firm, you’re bringing on new wealth advisors as well as wealth service staff. We’re really unique I think in the way that we try to maintain as much of that contact with the client as people join us and so they’re not having a change in working with teams. As you can imagine, as every new firm brings on new client service individuals, the wealth client service group has grown exponentially. I was super lucky about a year ago to be asked to come head up the wealth client services group. Since my career started out on the service side, I’d love to think that I have a heart for service, and really, I think that that’s helped me out a lot along the way.

[00:12:39] Matt Sonnen: That’s great. We’re going to touch on the speaking up and explaining how I think we can do things differently, we’re going to touch on that in one second, but I want to go to Kaylyn first. Looking at LinkedIn for you, I saw you had several roles over seven and a half year stint at Pershing before you joined Socius. Give us a little bit of your background.

[00:12:59] Kaylyn Melia: Sure. I earned my undergraduate degree at Stetson. I have to give the Hatters a shout out. I did my undergraduate in Deland, Florida, and like many people, I think in our industry, I just kind of fell into financial services. It wasn’t necessarily intentional. 2009 was an interesting time to start a career in financial services, but that’s what happened. I started at Pershing on the custody side, the clearing side, and the mutual fund omnibus group in an operational role. I was reconciling mutual funds and calculating contention deferred sales charges. I was in that role for a couple of years. Then from there, I applied to what’s called the Corporate Training Program. It was a wonderful developmental training program that Pershing ran from probably the late ’80s up until about four years ago. Over the course of probably two and a half years, I just rotated through every part of Pershing’s business, learning about what they do, just a great overall learning experience for me, because I got exposure to so many people in so many areas of what Pershing did. At the end of that program, they allowed me to choose a role in a department that interested me. During the course of my rotations, I had gravitated toward the RIA side of the business, recognizing the trend toward that side of the business for advisors and the growth that had happened there. I took on a role as an account manager, encouraging advisor solutions. I was in that role for about three and a half years and Socius was one of my clients while I was an account manager. That’s how I learned that they were hiring for a chief operator. I had enjoyed the interactions that they had and then I knew they were– I love the team here and I knew they were growing firms. That’s how I ended up here. Here I am three years later.

[00:15:06] Matt Sonnen: That’s great. That’s always my favorite question to ask is just how everybody kind of zigged and zagged. On a previous podcast interview, Eric Hehman of Austin Asset told the story of how he went from, he was an unpaid intern, he became COO and now he’s CEO and that’s the position he holds today. It’s the only firm he’s ever worked at. Similarly, I just read recently Citywire did a profile of Adam Birenbaum at Buckingham. Adam told a similar story, over a 10 year period, he went from intern to CEO and in the article, he said, “I’ve had every operational role and responsibility you could possibly have. I’ve always said, I’ve had every job in this place except for being a wealth advisor.” Then just this morning– I didn’t have a chance to read this article, but I saw the headline go by this morning in Citywire, no, sorry, it was RIAIntel, the headline said, “Mercer Advisors’ Dave Welling was never an advisor. Does that make him the perfect RIA CEO?” They all have similar stories and very similar to what Karen said. What Eric said on our podcast is “You have to take it upon yourself to find something at the firm that you care about more than anyone else. You just have to have the guts to speak up and say, “I care about this,” whatever it is.” I think in his case, it was QuickBooks. He says, “I became the QuickBooks expert.” All of that prompted me to write a recent WealthManagement.com article that was titled “The Path to RIA Ownership Through the Operations Channel,” because typically in this industry, the ownership of an RIA is reserved only for advisors who are bringing in the clients, but as our industry is maturing and we’re seeing more and more importance being placed on professional management. We are seeing owners now who are holding operations positions and as an operations nerd, I’m very excited about all of this. You both have achieved leadership positions at very large RIAs through the operations channel. You’ve also done this obviously as women. That’s exciting in and of itself. I want to ask what is your secret and how have you pulled all of this off? Kaylyn, I’ll go to you first and just give a little bit of career advice, so to speak.

[00:17:16] Kaylyn Melia: I don’t know if I necessarily have a secret sauce, but I certainly have some things that I’ve tried to do along the way. The first is I just try to ask “Why?” a lot. Generally, I ask a lot of questions in general. I feel like there is a lot of tradition associated with our industry but sometimes it doesn’t hurt to ask why. Does reporting have to be quarterly? If so, why? Does a financial plan really need to be written? If so, why? Does that make sense anymore? Just constantly questioning the way that things are done. Is there a better way to do it? Another thing I try to remember is that small wins can add up. It doesn’t necessarily have to be a huge idea or a big change to your strategy because little things that you achieve along the way can make a difference. Just to give you a silly example, I try to think of the things that are not value-add, that people spend a lot of time working on in operations. I noticed all the time people on my team were spending shredding paper, putting paper in the shredder. I just said, “I can’t listen to the shredder one more day,” that’s just such a waste of time. Now we have the bins where they just throw the paper in there and they move about their day and they’ve gained 15 minutes of their day back. Just little things like that, that can add up, that can add value to your client, that allow you to spend more time interacting with the client. Another thing is I try not to let the answer be “No.” If the answer has to be no, have you really exhausted your resources? Have you tried to come up with a creative solution instead? I remember during my tenure at Pershing there was an email chain where I had replied to my manager and the people on my team with basically a complaint about the way we did something. My manager replied back to me and basically said, “That’s not a solution.” I was upset because I was very embarrassed in that moment that he had replied to everybody on my team with basically pointing out that I had voiced the complaint, but it was a good learning experience for me to not just raise a complaint but to come up with a solution to something that I see as problematic instead.

[00:19:38] Matt Sonnen: When I’ve had to say no, I tried to say, “I can’t give you what you want, but I can give you this, and that’s 80% of what you’re asking for,” or whatever. I try to acknowledge that, “I’m saying no, but–” I like that.

[00:19:50] Kaylyn Melia: Even just the effort that you’ve attempted to come up with a different solution, I think is transparent to people both internally and externally. Finally, I think try not to turn down opportunities, even if you don’t feel like you’re ready for it. I’ve witnessed a number of people who have turned down an opportunity for whatever reason, they didn’t feel ready, or they weren’t prepared for the challenge and it can be difficult to come back from saying no, because you may not get the opportunity again.

[00:20:19] Matt Sonnen: That’s great. I love all of that. Karen, I’ll throw it to you.

[00:20:24] Karen Denise: Right, yes. When I was at Wachovia, my last role was like a junior investment advisor, like an apprentice, and I enjoyed it, but I started to learn over time that sales probably wasn’t my forte. It’s so funny listening to Kaylyn speak because we didn’t compare notes but a lot of the things that I have in mind are similar things that she has, as well. Some advice I would give that I think has been fortunate and served me well is, don’t be afraid to dig in, similarly to what Kaylyn was saying. That means ask a lot of questions. Sometimes an advisor may spring a question on you and if you take it at surface value, then you may go get just the answer for that, but if you dig in a little bit more, sometimes you find out the true what of what’s going on. If a client may be asking a pretty straightforward question, but if you probe a few more questions through, you can find out, “Okay, this is really what their heart is with. This is where their concern is coming from.” I would agree wholeheartedly with Kaylyn, ask lots of questions. It’s going to benefit you in the long run, it’ll help you be able to come back with the most educated solution that you can. I think operations people naturally have a sense of curiosity. I think they love to solve problems. I think everyone can say that that’s what they want to do but I think operations people, in particular, they also probably like to solve puzzles. When you were talking about you are an operations geek, Matt, I can totally relate to you 100% because I think a lot of the stuff that when I’ve gone to conferences, and I’ve listened to materials, I’m like, “Oh, this is so fascinating.” It might not be the most appealing to a lot of the advisors but it’s still important because it ultimately affects the end client. Some other advice, I would say is, don’t limit your thinking to your current role. A lot of times people can answer a question, and it’s going to give a solution for one part of something but if you keep the big picture in mind, it’s going to help out so much more. A lot of times, it’ll be issues that come our way and it might be focused on solving for X, but if we solve for X that may cause issues with performance reporting, or billing, or something else that has a trickle-down effect for the client. I would say keep an open mind and think of a lot of different perspectives. Then finally, I would say, always keep the end client in mind. It’s something that I have benefited from actually working on the service side of things and the people I think that in our firm that work the best are the people that keep that in mind. Sometimes, if you get too focused on the Xs and Os and completing different requests for folks, you get away from that human element. A lot of times an advisor isn’t asking a question for the sake of asking the question, chances are the client has asked them something that’s spurred them to ask that question. As long as you keep that in the forefront, and you know that, “Hey, I’m trying to find the best solution for this client,” similar to what you and Kaylyn we’re saying, even if it isn’t exactly what you wanted. If you can keep all those things in mind, I think usually you can develop a reputation as someone that really is client-centric and can help solve issues for clients.

[00:23:50] Matt Sonnen: That’s great. We’ve talked about the size and complexity of your firms. I’m curious, what challenges your firm’s unique service offerings have brought to your specific roles. Kaylyn, I talked on many podcasts, I believe the term “family office” is massively overused in our industry today. There’s a lot of RIAs calling themselves family offices and when you push them a little bit and say, “Well, what family office services–? What does that mean to you? What does it mean that you’re a family office?” Literally, I’ve gotten the answer. “Well, I give my cell phone to my clients. They can reach me at all hours, they can reach me on the weekends. I’m very high touch that makes me a family office.” I say, “I think you’re confusing [laughs] great client service with family office [service],” but Socius Family Office is a true family office. Can you speak to some of the unique services– you talked a little bit at the top of the hour, but a little bit of the unique services that you offer and how that trickles into your role as COO?

Kaylyn Melia: Yes. Matt, I’m glad to hear that family office is synonymous with good service because I guess that’s the plus, and I also would not fully recommend handing your cell phone number out to all clients, that’s a slippery slope that’s very difficult to come back from once you do it. In any case, you’re correct. The widespread use of family office is not a term that is– there’s no compliance requirement on when you can use a family office and what the definition of that is. It makes it difficult for even astute consumers to understand what a family office actually does and whether or not they even need a family office. For me, the questions that come to mind are one, is the firm running on a true two-sided general ledger? That is typically something you would need to deliver the level of reporting for clients that desire family office services, and by that I mean, are you able to produce true financials in the form of a balance sheet and income statement, the statement of cash flows? That type of complexity and the ability to track liabilities and assets on the level that’s required really does need that piece of technology as part of your tech stack as a family office. Then the second question I usually ask is, are you a custody-based model? Custody for many firms is something RIAs don’t want to touch with a 10-foot pole, for a couple of reasons that introduces additional expense with insurance, and there’s additional risk associated with it, but for us, it’s very central to the service that we provide for our clients. We actually are set up as limited power of attorney on bank accounts for our clients and that allows us to take in their mail, and track their income, and pay their bills, and all of that data for us ends up on our general ledger system that allows us to generate that special reporting that they desire. For my role, some additional complexity that it introduces one for staffing. The breadth of what we do as a family office is wider than many RIA firms, because in addition to exposure to financial services, to portfolio accounting, you also need expertise with accounting and bookkeeping. That presents additional challenges and then the second would be the technology piece. Every RIA firm wants all of their technology to talk to each other. You want your portfolio accounting tech to talk to your CRM, to talk to your financial planning, maybe integrate with your third-party trading tool if you have one, and with the family office we have the added complexity of throwing a general ledger into the mix. We want all of that to talk to each other, and we want all of our data in a really [inaudible 00:27:53] because for many of our clients, their main desire is the administration and organization of all that information, and then for a readily easy to read report that helps them understand it all.

[00:28:08] Matt Sonnen: Great, and Karen, we’ve already talked about CAPTRUST’s massive inorganic growth strategy. You’re constantly onboarding new advisors. In your role heading up client service and operations, how do you integrate these advisors into the firm as quickly and as seamlessly as possible?

[00:28:26] Karen Denise: We’ve been partnering with firms, probably since I think more officially since probably like 2006. I wouldn’t say there hasn’t been anything that’s come across that we haven’t seen before, because there’s always some surprises, but for the most part, the main big rocks are things that we have seen before from different firms and we’re lucky that we’ve got a really excellent team that has the sole focus of helping new firms that join us get integrated into CAPTRUST as quickly as possible. These are people that have worn different hats at CAPTRUST previously. We have people that have experience with billing, we have people that worked in our trading department, we have people that worked in our advisor support side of things. Each one of these individuals brings a unique skill to the table, but what they have, they don’t have an easy task. What they have to do is they have to blend getting the technical and the personal together. The first I’d say three months probably are really focused on data and that might mean if there are clients that have accounts that a custodian that we have, how do we get those accounts moved over to the CAPTRUST umbrella? In the best-case scenario, it’s the consent process where the client can either positively or negative consent, and they either sign a form or by not signing the form that they negatively consent to moving over and we can work behind the scenes. The big focus is on trying to make it as little disruption as possible to the clients. Having a team that has done this time and time again, they can really focus on that, and then that allows for the advisors and the support staff to really focus on reaching out to the clients, explaining to them why they think this move is a good thing for not just them, but also in turn for their end clients. Some advice I would give on that if anyone is ever thinking about in the future partnering with someone is my number one bit of advice would be to get your data as tight as possible as soon as you can. We’ve had situations where it’s rare that the firms that join us have the exact same systems that we have meaning the same CRM system, same performance reporting, the same trading systems. That’s understandable. Luckily, our team has worked really well with different firms. We also have a pretty expanded application development team that does a lot of programming behind the scenes to make sure this all happens as well as working with all of our vendor partners. We’ve also had firms that don’t have a CRM system. Maybe they have an Excel spreadsheet, or maybe they don’t have anything. Trying to get that information, import it, export it out, import it in our systems, that takes just a lot of time. Then, when you throw performance reporting in the mix and trying to get historical data transferred over, it’s something that I think people just need to be aware of, it’s a process. We’re lucky that we’ve got people, they are pros at this and can help with it behind the scenes. As much as you can do ahead of time to make sure that data is really tight, it’s just going to make it easier for you and the people that you’re working with because what we’ve seen is that once firms are 6 to 12 months in, they’re on the other side of things. They can really start to see the traction and see a lot of the benefits to joining CAPTRUST but honestly, the first three months, you’re just focused on your clients, you just focus on the messaging you’re trying to give to them and make sure that they feel like this is the same as possible. Luckily, we’re able to do that. One thing I would just share with folks is that it’s very psychological for these principals of the firm that join us because if you think about it, they’ve built this. They’ve been successful on their own before joining CAPTRUST. I don’t say this in a negative way, there’s a lot of natural ego tied to that. You built up your business and you care about your clients, you care about their employees. There’s change with that. CAPTRUST really focuses on trying to find really good cultural matches to join us. That usually works out wonderfully, but even the best of us, change is difficult. If we can keep folks focused on, keep it focused on your clients, we minimize that disruption for them and you just focus on making sure that those clients are happy, we’ll take care of all the other items. It’s just natural, I have some trepidation with that.

[00:33:15] Matt Sonnen: Given the amount of M&A activity that’s taking place in our industry, I speak to operations folks all the time about how to position their firm as an effective buyer, and how to make themselves as attractive as possible to advisors that are– They have so many choices right now what to choose for a landing spot, and my conversations I get– I’m always talking with the operations folks. We don’t really get into the deal structure or the valuation. Obviously, that’s all very important, but I truly believe that to be a successful buyer, again I’m biased with this operations mindset, but I think you need to have a fully built out platform or an infrastructure that would excite advisors, and make them realize that they’re going to grow a lot faster with you than if they tried to slog along on their own. Karen, can you talk about your role in the M&A piece of CAPTRUST growth?

[00:34:08] Karen Denise: Sure. As I mentioned earlier, I’ve been really lucky, I’ve been able to wear a lot of hats at CAPTRUST over the years. Part of that has allowed me to be a part of conversations in making sure we centralize a lot of functions. That could mean human resources, that might mean compliance, that may mean marketing, investment research, filling others. With 720 employees, you can imagine, to be able to make that scalable, we can’t have every office doing their own thing because otherwise, it becomes this patchwork quilt and clients can be getting inconsistent experiences. We found that often that’s something that’s really attractive to these principals that join us. Think about it. As I mentioned earlier, they’ve been wearing all these different hats for many years. Not only are they oftentimes the rainmakers who are bringing in a good portion of their business or they’re coaching up junior advisors to do that, but they also have to be involved in a lot of decisions as far as HR, and finance, and marketing. They’ve got to be jack of all trades. There’s probably a time where they really enjoyed that. Often, when we’re talking to people, they’ve gotten to a place where they want to just get back to why they got into the business in the first place, focusing on their current clients, and bringing in new business, and bringing in new relationships. By taking that centralization and saying, “Okay, you’re going to be outsourcing internally into CAPTRUST, you don’t have to worry about those decisions. We’ve got the infrastructure, we’ve got the chassis, we’ve been doing this for many years, and we’ve been doing it for a lot of firms that have joined us.” By providing that, we often see that there’s a lot of relief for advisors. It’s going to take some change, and luckily, CAPTRUST is really awesome in that. We’re open to new ideas. We’ll say, “Hey, if you’ve got something that’s worked really well for your clients, we’re very collaborative firm, tell us what’s worked for your clients because chances are, that’s going to work for ours too.” The centralization is really important. We’ve taken it a little bit further in that we’ve centralized our new account opening, our account transfers, our portfolio accounting, as well as the execution of our trades. We’ve just had to do it for a number of reasons. Some of it was just that you’re starting to get all of these different people across the country and at different levels of experience. We would start to see early on probably back in 2008, is when we really started centralizing some functions. We started seeing, there were more trade errors, or there were more NIGOs because you just had, as I mentioned different varying levels of experience and strengths of people. By taking those certain functions that we could say, “All right, we’re going to have certain people that just become experts in this, and this is what they’re going to do all day long.” That’s going to free up the time for the client service folks, that typically wear a lot of these hats in these firms and have to juggle a lot of balls, it gives them more capacity and more time to focus on the end client. In turn, that gives the advisor more time and capacity to bring in new business. The more the client service folks can focus on existing clients, the advisors can go out there and really work on business development. Selfishly, by centralizing the new accounts, the account transfer side of things, not only does that allow us to be able to effectively manage the account sooner because we’ve got people that are doing this day in and day out, and they know where the pitfalls are, and they know how to work with the custodians to make sure those get opened, those accounts get open and funded as quickly as possible, but selfishly, we get paid a lot quicker. The sooner we can get those assets in, that’s when we can start billing. It’s from a business standpoint, being able to speed up that collection of revenue has been really helpful for us. One thing I’ll mention is that on some occasions, there may be some initial natural reluctance to adopt our centralized investment research. No surprise here. A lot of times advisors get into this business because they like to pick investment. They’ve done really well at it. We get that. Again, as we mentioned, we’ve really done a great job of bringing in awesome partners, some of them have stayed the financial advisor path, we’ve had some people that joined our investment management group because they were just so good at it and they could bring strengths to the table that we felt our clients could really benefit from. This could be potentially the toughest change for advisors. We recognize that. What we try to say is we understand that there may have been philosophy or a strategy that’s been really unique to your firm, and you’ve been sharing that with your client for many years because you felt like that was the best course of action. Like we said, we were open to talking about some of those strategies. When we do feel there’s some scale that can be created, and just the fact that we have over 30 dedicated investment analysts, that’s all they do all day long is they perform due diligence on separate account managers, or mutual fund managers, or equity and fixed income strategies, they’re doing that all day long. Chances are, they’re going to have some intel that’s probably going to be a little bit better than what you or I could provide. By having those advisors really turn those reins over time, it’s something where we feel that it can be a very profitable experience for the firm, as well as from just an opportunity cost. It gives the advisor so much more time that they’re not having to focus on that investment research. It’s something that we obviously don’t come in day one and say, “Okay, we’re going to blow up all your investments and everything that you’ve done so far we’re changing all of that.” It’s something we try to provide a flexibility within a framework. We have different strategies that we communicate to our advisors and our support staff. Where it makes sense, we would ask our advisors over time to start employing this strategy. Let’s say you’ve got a brand new client, that has never been on a previous strategy, that might be a great opportunity to start weaving in our strategies. Also, when there’s some tax advantage opportunities, when you’re not worrying about gains, so maybe you’ve got some time where you’ve had a lot of losses, that might be an opportunity to start slowly segueing into some of our research strategies. It’s definitely more art than science, but we’re really careful that we try not to push anything before the client or the advisor’s ready. We’ve got a great team that’s super sensitive to that, and they just really by keeping again that incline in mind, we’re able to find some success there. The one other thing I would add is that it’s not just about that investment research, it’s also about how do you deliver that investment research out to the field? As I mentioned, we’ve got a lot of advisors and so the challenge is, is okay, we’ve got all this really great institutional knowledge, how do we get that out to the universe so that they can give that out to their clients. We’ve got a fantastic marketing team that has built out a really wonderful platform of market thought videos, as well as webinars, and even podcasts. In the back in the old days, we would have a quarterly meeting where all of our advisors would fly in, and we would have all of our investment research team share the best and brightest news. Well, times have changed and so has CAPTRUST. We’ve actually recently built out a really awesome state of the art sound studio in our headquarters here in Raleigh, North Carolina, but prior to that, we were recording a lot of that information. Just being able to have that channel for the advisors to either send a market thought video to their clients, or they can sign up for essentially like an email distribution list, whenever our chief investment officer has some market thoughts on what’s going on with the election, we can distribute that out. There’s a lot of touches, where the advisors don’t have to stop and think to do something, but also, if I’m an advisor, and I’m on the road, I can listen to a podcast of some of these different things and that way I’m not having to dedicate time where I’m having to come fly in somewhere and listen to a lot of information. Our advisors have really loved those capabilities and we’re super excited to continue to build that out.

[00:42:37] Matt Sonnen: Again, I’m operationally minded so it’s easier said than done, but I think for there to be success culturally, the advisor that’s joining the larger organization really has to come into it with the mindset of, “Let me look at all the areas that are going to provide me growth,” not, “Let me look at all the areas–” just right off the bat, because all you’re looking for, “Let me look at all the areas that are going to change things for me. I want to join your team, but I don’t want any change. No change.” It is very difficult. That’s great. So Kaylyn, you’ve talked about historically, it’s always been organic growth for you guys. Do you have any visions in the near future that you’re going to flip a switch and look for inorganic growth?

[00:43:23] Kaylyn Melia: Yes, I certainly think we’d be interested in inorganic growth in the future. Karen mentioned some of the signs that start to crop up when you realize that you really have a need for centralizing and for changing the way that you do some of the things that you do. I think we’re definitely at that inflection point. Over the past year and a half, we’ve made some significant effort to retire some antiquated processes and try and centralize things, put a lot more consistency around how we serve a lot of our clients because a lot of them we’re getting different deliverables, which not only becomes really difficult to manage but why does one client have a report that doesn’t look the same as something somebody else has? I think we’d like to continue to build upon that to finish integrating all of the technology projects that we are working on and I think once we finish all of that we’re going to have, a compelling platform that advisors would be interested in joining, because like you said that everyone wants to know, “What’s in it for me?” To answer that and to convince them on why your firm is valuable, you need to be able to show them something compelling like that.

[00:44:34] Matt Sonnen: That’s great. There definitely has to be a lot of buyers out there, say, “Well, we’ll figure it out together, we’ll get here first and we’ll figure it out.” I just think it’s way too competitive right now. There’s got to be that platform and that infrastructure to introduce in the early phases, so that’s great. I want to switch gears a little bit. That was really inorganic growth we talked about, now I want to talk about organic growth. As I said at the top of the hour, most RIA owners are advisors who are really tasked with bringing in clients and growing the firm’s assets under management, that’s really their main task. I think those of us on the operation side, we all have jobs because while the advisors are thinking about top-line growth, someone needs to be thinking about bottom-line profitability. The operations folks need to be asking the question, how can we get the firm to service these clients in a profitable fashion? There’s always that natural friction that exists between the advisors who say, “Let’s bring in every single client,” and the operations folks that need to push back from time to time and say, “This is not a good client for us. We can’t serve this client or this business line in a profitable fashion.” Either this person or business line is requiring too many resources, or even maybe it’s they’re presenting too much risk for a costly trade error. This isn’t the type of trading that we do here at this firm. Karen, I’ll go to you first, how do you balance that friction between top-line revenue and bottom-line profitability?

[00:46:07] Karen Denise: Thanks, Matt. I think it’s a classic scenario. Oftentimes, advisors, they’ll be presented with a client, and you mentioned this, that maybe is a smaller client than the size that we would go for. Oftentimes, there’s really good reasons for sometimes it’s, “Okay, this client has additional assets elsewhere, and we’re trying to get our foot in the door.” Sometimes it’s just the pastor or the rabbi, or somebody that someone knows, and or a neighbor, and you’re just trying to do a favor. We recognize that that happens. We’ve got series of influences that perhaps their actual revenue isn’t going to produce a lot, but just that relationship is going to be able to produce dividends for us. When that becomes frequent from someone on the service side, and the operation side, oftentimes, the smaller clients require just as much, or more work sometimes behind the scenes, and then court clients that provide us a little bit more value. We, like a lot of folks, we’ve developed a payout structure that really incentivizes our advisors to focus on accounts where there’s a sweet spot for our profitability. We’ve seen that it gives some flexibility to what they can bring in, but it also does make them scrutinize things a little bit, meaning, they think long and hard about, “Okay, is this the right fit? Am I going to be able to deliver the CAPTRUST service for this level of client, based on all the other factors involved?” As we mentioned too smaller accounts are often the case that happens there. An additional solution that we have is we have a dedicated small account advisor, so to speak and so it’s one gentleman today, who’s awesome, he’s been with CAPTRUST for several years. He essentially focuses on the smaller relationships that the advisors or often time, it might be legacy advisors that have been with us for a while, but often it’s firms that join us, and they’re like, “Hey, listen, I’ve got all these small relationships, and they’re not as profitable as some of these larger ones. It’s not something where I want to spend a lot of my time on.” Having an advisor that’s focused solely on those small relationships is usually something really attractive. We get around, there’s the natural way of people probably thinking like, “Oh, you’re passing me on to somebody else.” What we typically do is we introduce that advisor as just another member of that advisor’s team and oftentimes, they’ll be on joint calls with that lead advisor for a while and on emails. Over time, the lead advisor will start to take a step away from that, but this small account advisor has built out a really excellent service model for accounts that will be able to serve those smaller relationships. It helps us to be a little bit more scalable in that we have specific investment models that we may use with less turnover. If you’ve got clients of a smaller size sometimes investing them as frequently as we have for larger accounts, actually, is pretty detrimental to the client. Having them work with specific things that are tailored toward a smaller account balance is really helpful. He also has scheduled service calls. If you’re a smaller client of a certain size, you get this number of service calls a year. If you’re on the smaller side, maybe the maintenance can be taken care of because a lot of times sometimes they’re very simple accounts. It might be something that is a 529 plan or something along those lines that just may not require as much heavy lifting as these larger relationships. We’ve had a lot of success with that and it’s something that we’re actually looking to see if we can have additional resources or if we can use some technology to be able to explore some self-service options there but it is something that’s always on our mind for sure.

[00:49:58] Matt Sonnen: Kaylyn, how do you approach this with this goal of bringing on new assets, but doing it in an efficient and scalable fashion?

[00:50:06] Kaylyn Melia: Yes, that’s a great question and I feel it’s something so many firms struggle with and it’s even more challenging for family office because of the breadth of what we do. We can get into a rabbit hole really quickly with the different things that our clients ask of us. Two phrases or questions I hear about family office are, “You’ve seen a family office, you’ve seen one family office” and then the other is “Do you walk dogs?” The reason I bring that up is because sometimes it’s easier for us to tell clients that part of what we don’t do because we do a lot and typically I find that it’s better received when you’re just clear about the things that you don’t support. For us, for example, we stopped short of concierge services. Things like booking travel and making reservations and things like that. We have partners we can introduce to clients or prospects that are interested in those kinds of services, but we make sure that they understand that it’s not something that we necessarily support in house but we can certainly make an introduction to somebody if that’s something that they feel they need. For us, I think ensuring that we scale our business means that we have to get our fees right. Like many firms, we charge an asset-based fee for investment management, but then for everything that we consider to be part of the family office offering, we have a retainer-based fee and that retainer-based fee can be very different depending on the demographic of a client. They could have 3 legal entities or they could have 25, and it’s not fair for those 2 individuals or households to have the same thing. We’ve learned sometimes the hard way that for many of these clients, sometimes we have to work for them for a couple of months before we can really determine the appropriate cost of the service is but we tell them that up front. We try and do as much investigation and data gathering as possible before we even engage them because we want to have as much information as we can so we know what type of work we’re going to have to do. For example, we have rebuilt books back to 2016 for one complex client that had no books. You can imagine how much investigation and data rebuilding that was for our team. Sometimes we have a client that has impeccable data records and they give us everything that we could possibly need to onboard them. The level of effort that we have to put is drastically different. I think providing clients with a range of fee and saying, we would like to work with you for a couple of months and then tell you what the final retainer fee would be has been helpful. It’s really the fairest way to present that to the client and really the most transparent. That has been something that we’ve discovered over the years to be really the best process for helping us determine the right fee for someone.

[00:53:13] Matt Sonnen: Perfect. The last question I’ll throw out there, it’s one I’ve received a lot from COOs and operations professionals is, where can I go to get further education? If you want to be a better investor, you can go pursue the CFA or on the alternative side, I know the CAIA. If you want to be a better advisor, there’s obviously the CFP or the CPWA designation, but if you want to learn how to operationally run a better RIA where can we go? I always turn people to Mark Tibergiens’ book. I love The Enduring Advisory Firm. I think that one’s fantastic, but I wanted to ask both of you, where do you turn to get your continuing education and Kaylyn, I’ll go to you first.

[00:53:55] Kaylyn Melia: I go to The COO podcast, obviously Matt.

[00:54:00] Matt Sonnen: [Laughter] Your check’s in the mail.

[00:54:03] Kaylyn Melia: Networking has been really important to me. Thankfully, I have a great network of wonderful people at Pershing that have been able to introduce me to various people. The HIFON Network has been a wealth of information for me. It’s connected me to a number of different RIAs across the country and I find everyone there is so helpful and willing to share information and then I like to do a lot of reading. It doesn’t even have to be industry-specific, for example, I recently read Radical Candor by Kim Scott. It was a great read, highly recommend for anyone that just wants general management information and some help there. Finally, just looking for opportunity to help others, which might sound a little counterintuitive, but I find that when you help others and are willing to give advice throughout your career, it’s karma, it always makes it’s way back to you. Those are the things I try and do.

[00:55:04] Matt Sonnen: I love it. Karen, what can you recommend in this area?

[00:55:08] Karen Denise: Similar to what Kaylyn said, I’d say number one, creating a network of people in similar roles so whether they’re at a conference and you find the name of an operations person, connect with them on LinkedIn. Also, the next leadership cohort that Lisa and Bill Dalton and others at Pershing have created, it’s been wonderful for me. It’s where I get to connect with contemporaries like Kaylyn and others in various roles at different RIAs, and we can share best practices and ideas, which is awesome. There’s not a competitive environment at all. It really is a spirit of, “Okay, I’ve come across this, how did you guys kind of handle it?” We’ve had one-off conversations about workflows, and how to build properly, and how do you bonus out, how do you provide a bonus structure for your firm? We’ve got a private LinkedIn page, but it’s also not uncommon for somebody in the group to just shoot an email to everybody and say, “Hey, this has come up.” Lisa’s wonderful in that she’ll usually help moderate those and say, “Hey, let’s get a call together for folks,” but it really has been awesome because there’s not a roadmap anywhere. I’ve just enjoyed that network quite a bit and just really thankful to meet those great individuals. A great book that Lisa actually recommended that I read recently was Traction: Get A Grip On Your Business by Gino Wickman. It talks a lot about creating an operating structure for your business and just how you determine those processes to create efficiency and profitability. Those are two unpaid plugs for Lisa but there really are. Those have been very valuable for me especially this year.

[00:56:45] Matt Sonnen: That’s great. That is probably the number one question I get is where else can we go, so thank you for sharing that. All right, we’re at the top of the hour or the bottom of the hour, I should say. This has been a fantastic discussion, Karen and Kaylyn, thank you so much. I know a lot of people have learned from your insights and your honest answers today so thank you both.

[00:57:05] Kaylyn Melia: Thanks for having us.

[00:57:07] Karen Denise: Thanks, Matt.

[00:57:09] Matt Sonnen: I wanted to thank Lisa again for inviting us to do this today and you guys mentioned Sean, Sean Kapusinski at HIFON also had a lot to do with giving us this opportunity, so Sean, thank you. Of course, Bob Veres, thank you for giving us a virtual stage. No fireworks today, but thank you for the virtual stage to speak from, and we’ll talk to all of you in podcast land. Thank you very much.

[00:57:29] Kaylyn Melia: Thank you.

[00:57:30] Karen Denise: Thanks, Matt.