EPISODE 28

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

[00:00:26] Matt Sonnen: Welcome back everyone to Episode 28 of The COO Roundtable. Last month we recorded live at the Mercer Capital Practice Management Insights conference. That was a lot of fun. We have another special episode today. We’re not talking with two RIA COOs this month, we’re talking with two extremely experienced consultants within Schwab’s Business Consulting division. We’re going to take a bird’s eye view of the COO role and how that role can help manage the complexities for RIA owners as they try to balance both managing client relationships and, at the same time, the need to manage the operations of the business. I think another way of saying that, which is discussed a lot in our industry, is working in the business versus working on the business.

I’m very excited to be joined by Nikolee Turner and Tony Parkin. I’ve known Tony for many years dating back to my days at Focus Financial, and I met Nikolee while preparing for this episode. She’s fantastic. We know this is going to be a great discussion. Nikolee and Tony, thank you so much for being here.

[00:01:21] Nikolee Turner: Thank you.

[00:01:21] Tony Parkin: Thanks, Matt. Happy to be here.

[00:01:23] Matt Sonnen: Awesome. Tony, as we were preparing for this –I have to tell the story, I’m sorry, but it’s just too funny. I have to tell the story that when PFI Advisors moved our offices to Hermosa Beach a few years ago, it was –I have to tell the story, Tony. [chuckles] It’s too funny.

[00:01:40] Tony Parkin: I get it. I get it.

[00:01:41] Matt Sonnen: [chuckles] We had just moved in. We were on Pacific Coast Highway. Tony was our very first visitor in the new office. I don’t even know if we had been there a week yet. When Tony arrived, I asked him, “Hey, were you able to find parking downstairs?” Because it was a little confusing. The parking garage was on the side street, underneath the building. We hadn’t even mapped it out yet, how to give people instructions on where to park.

Tony says, “Oh, no, I didn’t even park downstairs. There was parking right in front of your building. It was fantastic.” I said, “Oh great. This is going to be so great for other visitors. We’ll just tell them to park right in front.” Little did we know that at 3:01, every single day, the city of Hermosa Beach came and towed every street on the block to make room for the evening commuter traffic. They needed to clean the lane. Our meeting was at 2:00 PM. I think Tony walked to his car at like 3:06, and his rental car was long gone.

The funniest part of the story for me is Tony thought I was some big shot that couldn’t be bothered. He didn’t come back upstairs. He didn’t come up and say, “Hey, can you help me find my car?” Instead, he went and tracked his car down. He had to go find the tow yard. Tony, I think you couldn’t even get it out because you didn’t own the car, right? I think you were carless for several days while you were in town.

[00:02:55] Tony Parkin: Yes. For anybody listening to this that stumbles into the same sort of trouble that I did in the future and has your rental car towed, I’ll save you a lot of time and anguish. Don’t go try to extract it from the impound yard. They’re not going to give you your rental car. Just get on the phone with your rental car agency. First, get in an Uber and go wherever you need to go next. Then later, get on the phone with your rental car agency and negotiate for the best exit you possibly can. I learned something new about life in LA that day, Matt. Thanks for letting me relive it here this afternoon.

[00:03:33] Matt Sonnen: We’re full service here. The transition I was going to make from that story into what we’re talking about today is how resourceful you were. That’s one of the core traits of a good COO, right? We talk about it all the time. The COO is thrown these curveballs and is told, “Just go figure it out,” with a blank canvas. We don’t know how to do it. That’s my attempt at a transition to get us back on track here.

[00:03:55] Tony Parkin: Nicely done.

[00:03:56] Matt Sonnen: Thank you very much. I’m going to go to you, Tony, first. Why don’t you start us off by just telling us a little bit about Schwab’s Consulting services and how you engage with RIAs.

[00:04:06] Tony Parkin: Sure. Thanks, Matt. Thanks again for inviting us in this afternoon. I’m really excited for the conversation. At Schwab, we’ve been really focused for the last 15+ years on bringing an intense amount of support around consulting and practice management to the registered investment advisor community, obviously, specifically the firms that work on our platform.

We exist for the same reason that this podcast does, Matt, which is that historically, advisors have been amazing practitioners and great in their craft of financial planning and advice, and money management, but they haven’t necessarily come into the business trained as business operators. We saw that need many years ago to bring some more help and support to help grow some of them into that, and give them a little more help and guidance than they were getting at the time to run their businesses more efficiently, more profitably, et cetera.

More broadly, I share responsibility for our business consulting and education group within the Schwab Advisor Services business. I share that with my colleague, Lisa Salvi. Lisa and her team are responsible for building the infrastructure of the consulting programs and engagements that our teams deliver in the field. They are also responsible for a very broad platform that all of our clients can engage with, starting from our benchmarking in compensation studies, our virtual practice management platform, theories of thought leadership, white papers, our compliance reviews, et cetera. We have a lot of self-service resources for all advisors to interact with.

Then my responsibility, specifically, Matt, and another way that we interact with advisors is we have teams of consultants that are in the field every day working with existing registered investment advisors and with advisors looking to transition to independence as well. I think Nikolee will go a little bit deeper on some of this in just a minute. We have a long history, and the first team that we established more than 15 years ago is our technology and operations consulting team, who focus a lot on tech infrastructure process and cybersecurity with advisors. And then we added a business management consulting component about a dozen years ago.

Then, over the last few years, we decided that we wanted to stand up teams with those two disciplines that just focused on working with advisors looking to transition to independence firms who didn’t yet have a relationship with Schwab, or who still might be operating in the more captive environment. That’s gone really well. We paired that business management consulting focus, the technology consulting focus, with a project management focus around all the moving parts around setting up a new business and then transitioning the actual clients of the business over to this new structure as well. We’ve got a big combination of work we do over Zoom today, but it will be hand-to-hand across the table from advisors when we’re back in a more normal environment and a lot of self-service capabilities as well.

[00:07:08] Matt Sonnen: That’s great. A lot of stuff that you guys tackle is exactly what we talked about here. I know this is going to be a fantastic discussion. Nikolee, why don’t you tell us, add what you’d like, about how Schwab offers firms that are custodied with you these services?

[00:07:21] Nikolee Turner: Sure. Thank you, Matt, so much. As Tony mentioned, I get to lead a great team of business consultants, each with their own super impressive set of skills and backgrounds. Our team is geographically dispersed. We are joined by my counterpart, Adam Moseley, who leads the team of technology and operation consultants that Tony mentioned.

The really great thing is that we are united much in the same way that you are, in our passion for helping firms make significant and really lasting changes. We endeavor to do that by working side by side with them. We want to know and work on whatever their most important initiatives are. Sometimes, those are challenges, but other times, those are opportunities. The team works on topics like you would expect, growth, marketing, profitability, segmentation, client experience, those kinds of things. Then, we also dig into successions, and transitions, and all those things that go into that “human capital” bucket.

We’re organized around Five Guiding Principles for Advisory Firm Success, and that framework, or those Five Guiding Principles, helps us make sense for these firms how they can tackle the different initiatives that they might be thinking about. Just really quickly, those Five Guiding Principles are effective planning and execution through really strategic planning and how that’s such a great leading indicator of success for our advisory firm.

Our second one is value, defined through the client-side, not what we think it is, but it’s actually what the client say it is. Number three is operational excellence, which creates a greater capacity for clients. That’s an area that Adam Moseley and his team goes really deep in. The fourth one is your reputation as your brand. Then, the fifth, people are your most important asset.

Those guiding principles help provide a nice framework. Many of your listeners have probably worked with someone on one of our consulting teams before, but our way we work with firms is really to first understand where the need is and then break up the consulting, engagement, whatever the solutions are determined to be into smaller, more manageable pieces and steps, and that’s really worked well over the years.

[00:09:32] Matt Sonnen: Those Five Guiding Principles. That’s fantastic. A lot of what we talk about here is “What should the COO be focused on?” I think the COO touches on all five of those. Those are fantastic.

[00:09:41] Nikolee Turner: Absolutely. They’re going to look at those Five Guiding Principles through different lenses depending on the size and what sort of things are happening for that firm in that moment.

[00:09:52] Matt Sonnen: Exactly. One of the things I do and prep for this is I always stalk people on LinkedIn. Nikolee, I see on LinkedIn, you were a probation officer for three years. That is incredible. [chuckles] You’ve been in training and consulting for over 15 years, but I saw, going way back on your LinkedIn, you were a probation officer. Give us a little bit of your background if you don’t mind.

[00:10:12] Nikolee Turner: Oh, that’s funny. You dug that up.

[00:10:15] Matt Sonnen: Yes. [chuckles]

[00:10:18] Nikolee Turner: Yes, I spent actually quite a bit of time first as a probation officer, but then using that knowledge and information to create training and help folks. The thread really that you’ll find in my career is really this fascination around how people work and how people pursue their own excellence. I always say that I’m at Schwab because of Schwab’s benchmarking study. You may think that’s odd, but at the time I was working at a boutique consulting firm here in Phoenix, I was consulting with clients in many different industries. Although that firm had a large client base in financial services, so I was really pretty familiar with what was happening in financial services.

I was consulting on a lot of the typical topics that you would be thinking of, but our specialty in that firm was intellectual property around human capital. I was also training consultants around the world. It was a fun job, but I was ready for a change and became interested in the consulting organization at Schwab. I was interviewing and anyone who’s ever interviewed at Schwab knows that it can be somewhat of a lengthy process. I was probably on interview four or five and preparing for the next interview when I was sent this 50-page document and I thought, “What the heck is this?” I started digging and digging through it. It was really in that moment that I had this moment of clarity and everything really changed for me in the way that I thought about consulting.

I knew immediately how valuable and how I would be able to leverage that robust data to help a firm in a way that I couldn’t do without it. I was flying blind without it. I just could see immediately how it would speed up and add clarity to the delivery, to solutions that could be grounded in reality and best practices and that were supported by the numbers, by the data. It was such a clear, competitive advantage, really next-level consulting in my opinion. I knew that I had to join the Schwab team. [chuckles] I think that was about eight years ago. That is how I ended up at Schwab.

[00:12:34] Matt Sonnen: That’s awesome. Tony, you’ve been at Schwab for almost two decades. You had a break in between, but when you and I met, you were in charge of– I think you guys call it “strategic accounts”, I call it “national accounts”, but you were in charge of the Focus Financial relationship, and that’s how you and I got to know each other. Can you walk us through your background and how you’re now in the business consulting division?

[00:12:53] Tony Parkin: Yes. Absolutely. Thanks, Matt. First, maybe, I knew you were going to dig up that nugget with Nikolee, her history as a probation officer. I told many people over the last few years that the time that she spent in that role and the personalities that she had to work with, prepared her well for being part of my team.

[laughter]

[00:13:11] Tony Parkin: It’s worked out well. I’ll go back in the “way back machine” for a second just to give you and the listeners just a little bit more insight into who I am and why I’m in the seat that I’m been today. I consider myself a “lifer” in financial services. Luckily, just literally by being lucky, I found the RIA model when I was in college. I went to school at San Diego State. They were one of the first programs within their Business School of Finance Department to have an emphasis in financial services where if you did it right, and I didn’t do it right, but if you did it right, when you got done with that program, you had the educational requirements for the CFP out of the way.

Some of the professors that taught some of the courses, specifically the financial planning courses were CFPs and practicing advisors. I got introduced to what this business was all about then. As I tried to find out more about the industry, I got an internship actually with Merrill Lynch while I was in school as well. It was a really weird thing to happen to be taking these financial planning courses and being taught by CFPs who were fee-based financial planners and then a few days a week go in and work in a Merrill Lynch office where financial planning was treated as a product at that time. Back in the early to mid-’90s, stock picking was still how much of the industry was operating.

I got introduced to the industry through a couple of different lenses. Then, a year or so after graduating, I found myself in San Francisco and landed an entry-level job at Schwab. I liked what Schwab brought to the marketplace, understanding a little bit about how they were trying to help investors across the board, and just wanted to get into the industry, get licensed, and give myself a little bit of a foundation to pop my head up and look around. A year or so after coming to the company, I realized that Schwab actually had a business unit, what’s now called Schwab Advisory Services, focused on working with registered investment advisors.

Once I figured that out, I did everything I could to find myself an opportunity in that business. A year and change after coming to Schwab, which was in 1999, I found a role in the sales and relationship management group in San Francisco, representing the Schwab custody business and was on that team in various relationship management roles, working with advisors in and around the Bay area in Northern California. It was a really fun time to be in this space and meet a lot of amazing people. Some that are the luminaries of the industry at this point and get to know how the industry works.

I really fell in love with what the industry is about and the people that are in it. From that time on, Matt, I’ve been trying to find roles that would help me make a positive impact, not only on Schwab and the custody business at Schwab, but hopefully have an impact on the marketplace at large.

Fast forward, a number of years, you mentioned, I stepped away from Schwab for a few years into some businesses that were focused on the RIA marketplace as well. When I came back, I did go into what we called then our “strategic business development team”. Now we call that our “enterprise relationship management team”. I ran that team for six or seven years— fun to have a really front row seat to the most rapidly changing part of our marketplace at that time. You mentioned working with focus financial partners and the high towers and the dynasties of the world. That was a lot of fun. I think our team had positive influence on some of those firms finding the success that they did and the partnerships are really strong now.

Then, a few years ago, I got an opportunity to move into the business consulting and education group. We were investing a little bit more in the size and scale of the teams that we had out in the field and wanted to make a connection between the consultants and our salespeople and our relationship managers, to find more opportunities and maximize the investment of the consultant that we brought into our business. Again, for the greater good of the RIA marketplace and helping more firms find even greater success than they’d found on their own. That’s a little bit about me and where I am now.

[00:17:19] Matt Sonnen: That’s awesome. Very good. I want to talk about this fantastic white paper that Schwab produced. Nikolee sent it to me. It’s called Building an Effective Organizational Structure. Enabling Growth Through a Stronger Organization. The paper discusses a lot of the topics that we cover on this podcast. I just want to read the opening paragraph because I think it will resonate with a lot of our listeners.

The paper reads, “Every advisory firm faces decisions about how to plan for sustainable growth and position itself for success while also tackling business-related challenges such as managing more complex processes and overseeing an increasing number of employees. Often, firm leaders have to strike a difficult balance between spending the time needed to run their business, focusing on how to create scalable operations, and managing the firm’s talent all while building relationships with clients and pursuing additional growth.”

All of that comes down to the crux of what we discuss on pretty much every episode, which is the need for professional management at RIAs. I wanted to ask you both to just talk a little bit about the benefits of professional management and some of the findings in this paper. Tony, I’ll go to you first.

[00:18:21] Tony Parkin: Thanks, Matt, and thanks for the plug of the paper. Something that we’re proud of. One of the foundational things we talk about in the paper, we really start with this view of how different firms are organized and how they operate. We forced ourselves to distill it down into four primary models that advisors operate in; solo shop, solopreneur if you will, those that operate in silos, ensemble firms, and enterprise firms.

I really want to say first that there will always be solo firms, solopreneurs. There will always be firms that operate as silos in this industry. That’s fantastic. Really those firms are what created this industry and have been the lifeblood of the industry for so, so long. There are many that will enter in those models, entering the space in those models or continue to operate in those models, and that’s great, but if you want to operate as an ensemble or become an enterprise firm, the mindset really needs to change to one that’s open to bringing in professional management and really thinking differently about how they’re managing the firm day-to-day.

One of the things, Matt, that we tracked in our benchmarking study each year is we ask advisors to tell us the top strategic initiatives that they’re going to be focused on in their business in the coming year. You could probably guess how this breaks down. The top two initiatives every year that we ask this question are about growth. It’s acquire new clients through client referrals and acquire new clients through business referrals.

For us, sometimes it feels like there’s a little bit too much of an emphasis on growth. I think founding principals of firms, those folks that are still very much operating as an advisor and out representing the firm selling into the marketplace, that’s really what they’re overwhelmingly focused on and it’s tough for them to focus on some of those other initiatives that fall lower down the scale, like improving productivity with new technology, enhancing strategic planning, and recruiting staff to expand the firm’s skill set and capacity,  or to focus on satisfaction of existing clients.

I like to joke that it reminds me of this broad-based joke that a bunch of us heard in maybe our management 101 classes, somebody talking to a business owner, business owner says, “We lose $1 on every sale we make, but we’re going to make it up on volume.” That may be a little harsh, but that’s the mindset that we hear a lot. The question that we like to ask is, “Who do you have in the firm that’s going to focus on the rest of those priorities?” Priorities three through five, or three through six.

All too often, especially if a firm that’s younger in their tenure and going through the steeper part of the growth trajectory, there isn’t anybody to focus on those strategic initiatives. If you don’t have a person or multiple people dedicated to those strategic initiatives, you’re just going to keep hitting your head on the ceilings that exists on the growth curve.

[00:21:23] Matt Sonnen: That’s exactly right. Nikolee, can you share your thoughts on the need for RIAs to bring in professionals to run the business so that the advisors can just focus on the client referrals, and the business referrals, and where the next client is coming from et cetera?

[00:21:35] Nikolee: Yes, definitely. I think there’s some really great examples in that paper that you mentioned. There’s just such great examples of firms we highlight like StratWealth, which is an East Coast firm that grappled with this very topic, and we see it over and over again. It’s a very specific issue for your firm because that’s where you live and breathe every day. StratWealth saw the kinds of things that you talked about all the time, about grappling with this desire for growth but seeing that growth flatline as the complexity of the business, of just running the day-to-day business increases. For them, they decided to bring in a CEO.

We talk a lot about the different forms that this professional management comes out in whether it’s CEO, COO, or other flavors of that. In this case, when they were able to bring in somebody who is dedicated to that role, and dedicated to running the business, they were able to grow their AUM by almost half a billion dollars in three years. It just shows that having that kind of focus and dedication, what it can do for your business.

It’s not always necessarily bringing someone in from the outside. I think another great example in that paper is Lake Street Advisors, where they just restructured and got really clear that they needed to understand who is going to be focusing on these other things like technology, like that development, like operations. They ended up creating, within their firm, a seven-person leadership team. It was still led by one of the partners, but they carved it out in a very dedicated way. I think it’s definitely a struggle for firms and once they recognize where they want to go and what their objectives are, then they need to look at who is doing that day-to-day management of the business.

[00:23:35] Tony Parkin: Matt, maybe a nuance to your question too– I know the podcast title is The COO Roundtable and this is a lot about that role that we’re speaking of, but there are steps in between, obviously. As firms start to grow, and they have more work to do, more clients to serve, more reports to get out the door, they have a choice to make.

They can hire people into the firm to do the work, to just give them excess capacity, or they can seek out to bring people in, even younger people or people maybe not experienced in that space, not just to get the work done, but to be the type of people who are going to look at how the work is being done today, how it can be done differently, potentially moving forward to find additional scale or bring additional capabilities into this business. I know that’s come up with some of your guests in the past where they started early in the firm, not as the COO, but they brought that same sort of mindset to whatever role that they were in.

That’s something that all firms can do even early on as they’re bringing in additional staff, pay really close attention to the type of person that you’re bringing into the firm. Somebody that has a little background in project management or is going to bring that professional management mindset in, even if they’re not managing people, can get you a long way in the direction that we’re talking about here today.

[00:25:06] Matt Sonnen: Yes. We needed a title, so we’ve latched on to “COO”, but you’re absolutely right. It’s about professional management, it’s COO, CCO, CEO, or it’s just administrative assistant, it’s director of operations, it’s anybody that just isn’t focused solely on bringing in clients. I get pushback sometimes, “How can I afford that? I can’t have somebody that’s not going to be bringing in assets come into the firm.” I say, “You’re putting the value at the wrong spot. You’re trying to put the ‘cost’ at that person. You got to put the value on you. What’s your time worth? Let’s free you up so that you can focus on what you do best.”

Nikolee, you talked about the growth that you’ve seen when they bring in people that aren’t just dedicated to bringing in the clients but servicing the clients and figuring out how to service them profitably and efficiently, it’s transformative for sure. To that point, the next question, again, we’re going to use COO, but it can be anything, I’m asked all the time, “At what AUM level should I bring in a COO or should I bring in that professional management?”

I always say, “Well, there’s no magical number, it really just comes down to the complexity of the business, or the complexity of the client relationships, and what the growth goals of the firm are.” I’m sure Schwab is asked this question all the time. Nikolee, I’ll go to you first. How do you advise RIAs that are saying, “Do I need this professional management at my firm?”

[00:26:29] Nikolee: Yes. We get asked that same question too, at what number? Then, you hit on the answer, which is a good consultant answer, which is – it depends. It does depend on what are those other aspects of your business? What are your goals? What are you trying to accomplish? Anecdotally, I would say that we see this conversation and interest in that professional management will ramp up around $500 million. Definitely, as we’re getting into $750 and $1 billion. Many of those firms are implementing some kind of– I like to say dedicated management. There’s someone who is either their entire role or the good majority of their role is spent on that management.

We see it around that size. I can tell you specifically for the COO role, and as we mentioned before, it’s hard to say because people title it so many different things or think about it in different ways, we see at $500 to a billion dollars, we know that about 30% of firms that size will report that they actually have a COO. To me, it’s shockingly low, but I think it’s because there’s so many other flavors. Then when we get into a billion dollars, we’re definitely seeing the numbers spike up closer to around 45% of firms saying that they have that Chief Operating Officer role, but again, lots of different flavors in between there.

[00:27:57] Matt Sonnen: Yes. Tony, what do you think? Is there a bell that goes off letting the firm know, “Oh, time of professional management”?

[00:28:03] Tony Parkin: I don’t know if there’s a bell that goes off, Matt, but the way that I like to think about it, back to the models for firms that we talked about before solo, silo, ensemble, enterprise, if somebody wants to operate as a solo practice forever, even a lifestyle practice, that’s fantastic. That means that they don’t ever need to make that decision.

If they’re operating in that realm today, but they have made even just the mental decision, or they’ve started to tell people that they want to build an enduring firm, one that’s going to last forever with the same name, they’re not looking to build something to then join forces with somebody else. That’s the point in time that they need to start making a plan for how they’re going to weave dedicated professional management into the mix in their firm. To me, maybe the light bulb that goes off is the moment that somebody commits themselves to that long-term enduring component of their business.

You had a guest on in the last couple of months, you had Michael Kossman join from Aspiriant, somebody I’ve known for a long time. He mentioned he joined Aspiriant back in 2000 when they had, I think somewhere around $400, $450 million in assets under management. I don’t know that he joined with the COO title necessarily at that point in time, but that firm, which already had an amazing reputation in the industry, made that commitment to professional management at that level. I would say for firms that want to follow along that trajectory of success if you allow yourself to get much bigger than that without investing in that sort of a person or that sort of a role, you’re probably not going to live up to those growth goals.

[00:29:55] Nikolee Turner: Matt, if I can just add in here that I think one of the ways you know if you need the professional management is to ask employees and ask yourself, because you will see the indications of it with decisions that are bottlenecked. You will see it with inefficiency. You’ll see it in lack of adoption in your technology. You will see it existing, I should say, rearing its ugly head in the issues that pop up in your firm.

[00:30:24] Matt Sonnen: I think that’s right. If we’re going to go through these discussions, we’ve decided we need one. Two years ago this week we wrote an article that was titled “Why Professional Management Fails at RIAs?” It really struck a chord with a lot of people because I think a lot of firms do struggle. They make that decision and they try to bring in the first one, and they’re just not quite mentally ready, and there’s some things that they don’t do great to set that person up just for success.

Tony, in your experience consulting with RIAs, where do you see the challenges for firms when they’re bringing in professional management for the first time?

[00:30:58] Tony Parkin: You know, Matt, I’m going to mostly double-down on much of what you said in that article, frankly. I think what you said there were the things that resonated with me the most. There’s an element of giving up control that the founding principals that are hiring in professional management need to get comfortable with. That’s probably first and foremost. They have to create space for these new people that they’ve hired in or maybe existing employees that they’ve elevated the role, they need to create the space for those people to operate and not be looking over their shoulder on a day-to-day basis or creating an environment where employees are still going to come directly to them with their thoughts or concerns that are in the business. You mentioned too, that people can’t expect miracles. Change takes time especially if you’re stepping into an organization that might have had a lot of this formal infrastructure in the past. Patience, I think, is really important as well. Then if the firm has done a good job with establishing a vision, a purpose, some stated future goals, if they haven’t already— for a firm to go through as strategic planning exercise so that they have those things clearly outlined and they have all of their employees and impressively their clients understanding truly what they’re about. That gives that new professional manager something to fall back on. It’s not just them coming and trying to make change for the sake of change or doing things that they want to do.

The decision that they’re making, the way that they’re operating is in support of the purpose and in support of the long-term vision and the long-term goals that the founding leadership team has already established or established maybe in conjunction with these new professional managers. I think that’s critically important. Then if those founding principals are still acting as advisers, still the rain makers on behalf of the business and still working with clients actively, go back to doing that, and again leave that space for the new managers to operate.

[00:33:46] Matt Sonnen: Nikolee, where do you see firms struggling when they bring folks in to handle the business side of things? Again, they have good intentions. They say, “I want to focus on clients and prospects, bring somebody in.” Where do you see people struggle?

[00:33:58] Nikolee Turner: Definitely with first and foremost understanding the cultural fit and just making sure that there’s an alignment there. Part of the process that Tony was describing involves understanding the values of the firm. That really defines the culture and how you can understand whether or not this person would be a good cultural fit because that, of course, just like table stakes, has to happen.

Then one of those things that I think firms can do to help these folks succeed is to get really clear. This involves some thoughtfulness and some intentionality. To really get clear on some governance structures. We talk about the difference and similarities between ownership, leadership, and decision-making. It sounds simple, but for a lot of firms, that was one thing. That was all wrapped up into partner or founder.

As these firms have grown and they’ve become so much more sophisticated, they have created these other levels where there’s some ownership folks who aren’t taking on the leadership role or there’s some leadership folks who don’t have ownership. Then they really have to decide who and where are the decisions being made and who has that decision-making authority. If they can get clear on that and they can outline and define what that is for their firm because it looks a little bit different, quite frankly, for all the different firms, but if they can get clear on that, I think that is one of the pieces to success.

The other thing that I think about, and we talk a lot about this in our executive leadership program where we’re working with those leaders of firms, we talk about the different roles that leaders are going to play in a firm. We talk about the technician or the adviser role, the manager role and the entrepreneur role. This all comes from The E Myth if you’ve read that book.

Getting clarity on how much time is, say, a partner going to spend in that manager role. How much time do they want to spend on it? Once they realize that they’re going to shift the percentage of time that they spend in those different roles, then they’re giving space to those managers or professional managers to have the majority of their role be in that category. Whether it’s manager or whatever that might be in. Those are a couple of the ways that I think about it. Really, hopefully our solution to helping professional managers be successful in these RIAs.

[00:36:43] Matt Sonnen: I talk about The E Myth all the time. I love that book. It’s so perfect. We discussed your white paper about organizational structure. Specifically, to the COO or maybe it’s the CEO coming into an organization and trying to add some structure to the RIA, what should they look to first? How can they determine what structure is best for the firm that they’ve just joined? Nikolee, what do you think? I’ll go to you first on this one.

[00:37:10] Nikolee Turner: Sure. I think we like to back up and get really to strategy. Doing some of that work through a strategic planning but also understanding that it’s critically important that these firms understand who it is that they are trying to serve. Who are they trying to grow with? We call that their “ideal client persona”. Who are they trying to achieve? That’s one of the ways that I think that they can start this process, understanding that so that they can design the other pieces and parts of their business around that.

One of our most favorite benchmarking data points around the power of that ideal client persona and getting really clear on who you’re trying to serve is that firms that have a documented ideal client persona add 28% more clients annually, which represents 45% more assets. That’s an incredible figure, and that’s because these firms have documented who they’re trying to serve and what value they add. I think that’s one of the first elements that you can do.

Then you’re going to start looking at a situation analysis. You’re going to start looking at some of the other pieces and parts and structure of your firm. I think that that is critically important.

[00:38:21] Matt Sonnen: I’m going to quote that all the time. Let me make sure I got it right because it’s super important. If you’ve defined your ideal client — you’re saying firms that have defined they’re ideal client have grown clients by 28% more than those that have not. And they’ve grown assets by 45% more. Did I say it right?

[00:38:38] Nikolee Turner: Yes. That’s from our benchmarking study. The firms that participate in the benchmarking study, we’ve asked them and we’ve asked them a couple of times now to recreate this information about this data point. Firms that have documented it, yes, that’s correct. They added 28% more clients than the firms that didn’t have a documented ideal client. Those 28% more clients represented 45% more assets. It is really incredible, isn’t it?

[00:39:05] Matt Sonnen: I love it. We’ve written about it, but I’ve talked about it in engagements all the time. One of the first things is, “Hey, what tech stack should I use?” I say, “Well, let’s talk about who you’re trying to serve first. Let’s talk about who your ideal client is.” I get push back. They say, “Hey, that’s a marketing question. We have a marketing consultant that will talk about our ideal client and who we want in that person and everything.” And I say, “No, no, no. I need to know this, too. It’s very important. It’s important for me. It’s important for the COO. It’s important for the CEO, et cetera.” I’m going to use those numbers all the time. That’s fantastic. Thank you. Tony, what are your thoughts on this?

[00:39:36] Tony Parkin: I’m just going to pull on that same thread, Matt. Maybe you need to just have a whole another episode with Nikolee to go deeper on our thoughts around ideal client persona and what a client value proposition could look like. We go a step or two beyond where most people do with the concept of an ideal client. Just like what you said, for many of our other consulting engagements, whether they’re marketing related, strategic planning related, or some work we’re doing more recently around journey mapping where we’re working with firms to reimagine processes – we won’t get into the meat of that work with them unless they have that ideal client persona very clearly identified because what are you building to if you don’t know who you’re trying to serve? We think that that’s incredibly important.

One thing I want to come back to. We talked a lot about titles in this conversation so far. I think it’s fascinating the reluctance to use specific titles that we have as an industry, or the stigma that we have around specific titles. Maybe the title of “COO” in particular. I was sharing this story with Nikolee the other day. It hit me thinking about this conversation. You mentioned that I had a few years away from Schwab about a decade ago. Right before I came back to Schwab, I was talking to number of different firms about a variety of roles. Mostly, sales relationship management.

I got the question a lot from people, the classic interview question, “Where do you want to be in 10 years?” I would say at the time, I said, “I could see myself being a COO in the industry. Whether it’s for a sizeable RIA, or a firm that sells into the space, create services, products for the space, but it would be a very growth focus COO role in my mind.” People would look at me like I had three heads when I said it that way.

I had one person actually say, “Does that mean you think you’d be involved in the sales process as a COO?” I said, “Yes, of course. Why wouldn’t I?” I didn’t have the terminology to use. I couldn’t name it at that point in time, but it’s all about having people in your business that understand the strength of understanding who you seek to serve and building everything in your business, every part of your business around that ideal client, and making sure you’re wasting no time doing anything other than trying to perfect how you serve that person. 10 years later, I finally have a little clarity on why those conversation went sideways.

[00:42:10] Matt Sonnen: Right. Last question here. Again, around the concept of professional management, COO, CEO, whatever it may be. Where they struggle sometimes is their communication style with employees. We spend a lot of time talking about the client, but let’s talk about how they communicate with the employees. Making sure everyone is rowing in the same direction, understands the high-level vision and the mission of the firm. Many times, professional managers, they assume employees are in their heads, and they’re absorbing a lot of this through osmosis. That doesn’t happen even when we are in the office together, but especially over this past year where employees had been dispersed. I think a lot of professional managers have had to work on their communication style. Tony, I’ll go to you first. What advice can you give managers on how best to communicate their vision to the employees of the organization?

[00:42:56] Tony Parkin: I’ll go back to a little bit we talked about before, Matt, the importance of having a formal purpose statement and vision statement. We focus a lot of time on this at Schwab. Schwab’s purpose as a company is to “champion every client’s goals with passion and integrity”. Our vision is to “be the most trusted leader in investment services.” I do my best to try to bring that specific language into interactions with my team and other teams on regular basis. I think to have something that’s that explicit, and you have to say it, and say it again, and say it again because you can’t expect that people just get it.

The bigger the firm, the more important that is. It’s critical that everybody understands really clearly who you are as a firm. They might have their own separate language or words that they would use slightly different from your specific purpose statement or vision statement, but it needs to be really close. The more that your firm is bringing that into the hiring practices I think is really critical component for success. Everybody needs to know what they’re buying into, or who they’re buying, and that’s a really good way to level set.

[00:44:07] Matt Sonnen: I love it. That’s exactly right. Nikolee, what communication advice can you share with our listeners?

[00:44:12] Nikolee Turner: I’ll maybe add a little bit of a number to what Tony said there in terms of, I have to say it and say it again. Again, pulling from our executive leadership program, we talk about this concept of 10 to 1. For every message that you’re trying to get across to someone, you have to find a way to say it at least 10 times. If you think about it, it makes sense. We know this intuitively, but yet, we fall back on this idea that everyone knows what I know or thinks about it as much as I’m thinking about it.

I work all the time with CEO’s that say, “We rolled out our strategic plan last December. Yes, everyone knows what our vision is for the future.” That was the one time that they really explicitly said it. To Tony’s point there in terms of saying it again. I encourage people to think about, what are the 10 ways that you can communicate? Whether is your vision or something else that you’re trying to get across? I think that repetition is really important.

I also think just helping firms think about this in terms of change management exercise. When we talk about change management, we’re trying to get affirm to make that significant change that I mention. We are helping them go through specific steps like making sure that you’ve pulled together a guiding coalition, or a team of people who really in great detail understand what it is you’re trying to accomplish. That you’ve thought about the steps along the way. That you’re rewarding progress. There are specific steps that you can take to really help change become a part of your culture and become part of your firm.

I think following those kinds of steps and thinking about it from a change management perspective helps the communication, and it helps all employees really understand what they need to do around making that communication intentional because it’s not for a lack of people wanting. They want these messages to get out there. I think they just have assumptions around how easily people are able to absorb that into their everyday lives. Being more intentional around it, and taking that change management approach I think is helpful.

[00:46:49] Matt Sonnen: I think talking about the ideal client, everybody thinks, “That’s marketing.” From a marketing perspective, I think everybody understands, “For a prospect to hear my message, I’m going to have to say it 10 times,” but we do. We just assume, “They’re hanging around me. My employees are hanging around me. They’ll get it. I don’t have to say it 10 times.” It’s just as important. It’s just human nature it needs to hear it 10 times. Regardless of the message, regardless of who’s saying it. That’s really important.

[00:47:15] Nikolee Turner: Matt, if I can just add too. Hearing it is one thing, but then there’s also that next step of internalizing it. I worked with a firm that was trying to help get their vision, their long-term vision embedded within the firm. We took them through an exercise after talking about the vision and sharing the vision where we just broke into smaller groups, and I had them draw out on the big– The big post-it notes sticky papers. I had them draw in pictures what that vision meant to them.

That was an opportunity for people to take the words, and try to demonstrate through a picture what that meant to them. What it sounded like and looked like for them, and then they shared that back to the larger group so that they could get real clarity and alignment around that. That’s some great communication when you’ve talked about it, you’ve internalized it, you’ve aligned on it. That’s good communication.

[00:48:19] Matt Sonnen: Yes. This has been really insightful. I’m so glad we were able to highlight Schwab’s consulting services. You’re not only the largest custodian in the RIA space, but as the oldest custodian in the space, Schwab has seen that full evolution that we talk about all the time in this industry of going from practices to business. You’ve witnessed it all. Thank you, Nikolee and Tony, for being here today, and for sharing your insights with all of us.

[00:48:43] Tony Parkin: Our pleasure.

[00:48:44] Nikolee Turner: Thank you. Thank you for continuing this conversation. I love it. Thank you.

[00:48:48] Matt Sonnen: Thanks. That is a wrap on episode 28 everyone. Thank you for listening, and we will talk to everybody soon.