Ep 72: Why advisors are failing at organic growth featuring Joe Duran

Episode Summary

Joe Duran joins Adam Holt and Derek Notman on why organic growth has stalled across the profession, and his answer is that advisors stopped learning how to bring in new business. The hosts separate three kinds of growth first, distinguishing new client acquisition from market appreciation on existing assets and from buying another practice outright, which clarifies how much apparent growth is simply a rising market. Duran’s observation about second-generation leadership is the sharpest part of the episode. They excel at servicing and planning, are uncomfortable prospecting or even asking for referrals, and tend to regard organic growth as beneath a professional. He offers the example of a firm with thousands of clients and several billion in assets whose annual goal was twenty-five new relationships. His second point concerns how little real differentiation exists between firms.

What this episode covers

• Separating organic growth from market appreciation and from acquisition
• Why second-generation firm leadership is often uncomfortable prospecting
• The valuation consequence of having no organic growth to show a buyer
• Differentiation, and why so few firms tell a story anyone else could not tell
• What private equity roll-ups bring with them beyond the capital

Episode 72 of Rethink Financial Advice, co-hosted by Derek Notman, CFP® (Founder & CEO, Couplr AI) and H. Adam Holt, CFP® (Founder & CEO, Asset-Map). (39:40)

Episode 72 of Rethink Financial Advice, co-hosted by Derek Notman, CFP® (Founder & CEO, Couplr AI) and H. Adam Holt, CFP® (Founder & CEO, Asset-Map). Listen on Apple Podcasts, Spotify, YouTube, or Acast.

Full Transcript

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Machine-generated transcript of this episode.

Welcome to Rethink, the financial advisor podcast. My name is Adam Holtz. And this is Derek Notman. We are your hosts, both veteran advisors and FinTech CEOs who challenge the status quo, question everything and have fun doing it. Hear honest commentary on the challenges facing advisors today and be part of a community where we can all rethink the profession. Now on to our episode. Adam, why are advisors failing at organic growth? Wow, they’re failing at organic growth, Derek, because they forgot how to sell. Oh, that’s good. Okay. Tell me more. What do you mean forgot how to sell? Well, let’s let’s define organic growth because it’s a term that you and I are seeing and from a lot of our podcast guests.

There’s really three forms of growth in your practice that we’re seeing, right? Organic growth means I’m bringing in new business, brand new assets under management, premium, whatever it is, fees, whatever you do to charge and grow your business. Then there’s the market growth. My existing assets under management just grew. And I’m charging a fee on them. And then there’s the acquisition growth. I bought practice. Expanded very much like what you call peak. I bought a book of business. Yeah, right. Yeah. So that’s what I’m saying. I’m saying that our organic growth when we start out in the business started from an acquisition business, right? And we moved to a retention business.

So I just don’t think anybody knows how to sell anymore and nobody likes it. Yeah, you know, it’s funny. I don’t have any data to back this up, but I’m wondering if most advisors become advisors because obviously the business can be very profitable and you can have a nice lifestyle, but they enjoy working with money and working one-on-one with clients. Did they really see themselves signing up to be advisor, but also to be a marketer to be a salesperson? There’s almost like a negative connotation around that. I wonder if most advisors like, yeah, I became an advisor. I’m a CFP. I get to help people with retirement.

I love that. What I have to do this cold calling and I have to do seminars. And now they’re telling me I got to write blog posts and you can tell they’re not really interested in that bit of the business, but that’s the organic growth bit of the business. You know what? I just had this great vision of, you know, why people get married? They don’t want to deal with dating anymore. I think, look, naturally we don’t want to go sell ourselves constantly, right? We want to get into a comfortable relationship that ultimately loves us for who we are and is willing to compensate us for such.

And those relationships of going and trying to attract people all the time is tiring for most of you. Very, very tiring. And I think I would rather just cultivate existing relationships than going and getting new ones every week. And that’s a mindset. Some people are fantastic at it. It’s few and far between, but it’s the reason why most companies will pay salespeople exorbitantly because it’s a hard job. It’s a really hard job to be a great salesperson or even a halfway decent one. Well, I think this is a good segue into our guest today because he knows all about organic growth and is doing just that helping other firms.

So tell us a little bit more about our great guest today, Joe Durant. Well, Joe Durant has been in our industry for some time and he’s got a very interesting background. He actually is raised in Zimbabwe, as you know well, a South African neighbor and a lot of familiar and similarity there, grew up in the UK as well, has got all kinds of background and great education and MBAs and so forth. But I think he’s probably most recently known for growing the RIA United Capital, which really focused a lot on behavioral finance, was really ahead of its times creating scale and ultimately exiting and selling it to Goldman Sachs.

And of course, there’s been some machinations since then. I think Goldman Sachs has actually disbanded of that and allowed it to go back to its roots in many ways, to go back into the RIA world. But he takes an enormous amount of knowledge and because he was a thought leader for the past 10 years, he was writing in investment news. I kind of grew up on a lot of his thinking and it was really exciting, to spend time with him at Nitrogen’s Fearless Conference, where we interviewed him in person in between flights and speaking and running around the world. But I think it’s really interesting because I learned something from him very early on and he wrote something in 2014 that said that a human is always going to be relevant in financial advice when a decision has to be made that is a high cost of being wrong or is complex.

And you think about it yourself. So it was really fun to hear his strategy, what he’s doing with his all-star team at RIA’s growth. Well, let’s jump in and hear what he has to say. It was a really fun conversation. I think advisors are going to have a lot of great takeaways. So Joe, it’s great to actually meet you in person. I’ve been a big fan, obviously, since the early days of United Capital. And even to this day, I actually still quote you. In an article you wrote in investment news, it talks about the complexity and the cost of being wrong and financial decisions still very relevant today.

So thanks for all the work that you do and are in that area. Yeah, as many of you know, Derek and I are here at the Fearless Investing Summit, the place where we met many years ago and the stage and rated the podcast. So this is a special time for us. So thanks for being our guest. Great. Really, really happy to be here. Awesome. Brilliant. Given all the things that you’ve been working on, Oblige, what’s your unique perspective these days on financial services, Margo? Well, I have two. First of all, we’re in the consolidation phase of the industry. Everyone who wants to find a financial planner can find one.

And so we went from it being a disruptive idea, because none of the White Houses were doing it and the independents could offer financial planning to really a growth area where everybody stepped into it. And now the market is saturated with financial planners. And when that’s true, I don’t think most advisors have adjusted their view for the fact that organic growth will just be harder because the competition is greater. So my first overwhelming idea is, hey, look, you cannot operate in a consolidating market the same way you did in a growth market. Because now it’s about market share. And what wins in market share? Break brands.

And advisors really are still operating the way they did when they were just really good advisors with friends and colleagues that they could bring in. And we’re now in an institutional world. And so the first idea is that, hey, when you start having your biggest competition being mega RIAs, who operate like White Houses, the rules of engagement are different. The large custodians are not going to want to work with small independent firms for referrals. They’re going to want ever bigger partners. And so as I look and look at the center billion dollar RIAs that are out there today, there’s a consolidation race happening. And it’s not going to be good for everyone because a lot of the emerging high growth firms are going to be either forced to sell to a firm where their equity growth is not that high because they don’t have organic growth.

And so one of the things we see is, hey, from this environment, you need to have capital and you’re either the consolidator or the consolidating. And if you don’t have an organic strategy, you’re going to have trouble. So there are these two ideas that intersect, which is one, organic growth is harder. That requires having a great brand. Building great brands requires expense and dollars, which middle market RIAs that a billion, three billion, four billion, five billion don’t have because they’re either distributing the capital or investing heavily in their own business and they’re limited. They don’t know how to build a brand. They don’t know how to build a great platform.

And then the mega firms are basically operating like wirehouses with a G2 who are taking over are not salespeople because they didn’t build the business. You’re selling to be a dirty word. So to me, I think it’s a very interesting intersect in the business. You notice for the last few years, the biggest, the fastest growing firms are the biggest firms. And why is that? They have resources they can spend on advertising, they can spend on brand. They can spend on going to the custodial programs and being a part of them and actually institutionalizing the sales process. And so what you’re going to see is a haves and haves nots.

And we’re very interested in what that means for our industry. And it’s something that I’m always thinking about where we’re going to be in five years, not where we are today. And in five years, you’re going to have even more really large RIAs. Many of whom will be today at three or four billion, but in four, five, six years will be at 20, 30, 40 billion. By the way, when you think about it, those large 200, 300 billion RAs, they’re going to have to acquire 20 and 30 and 40 billion firms because this industry is going to be consolidating for decades. And so what you want to do is build high organic growth, great integrated brand with true abilities to serve clients in a unique way and a niche that everybody wants.

And if you’re there, you’re going to be an incredibly valuable firm to both private equity or one of the large strategic. So the reality is that most RIs have never run anything as big as they’ve run. And so they don’t know how to put all the pieces together, which is why we exist, why we’re doing what we’re doing. Really interesting perspective of what’s going on. So it sounds like you covered this as a missing opportunity. If we were to drill down a little bit more, if I’m a smaller firm, what is an opportunity or challenge that I am not aware of right now that I should?

Well, the first one’s really easy. What percentage of your day are you spending focusing on new clients? Because I will tell you, I asked, we’ve spoken to hundreds of RAs between a billion and $10 billion. The average is probably, if I did this non-scientific, I’d guess it’s five to 10%, maybe. Wow. Now, the reason is the G1, the founder of the firm, is semi-retired. G2 is all focused on serving existing clients. They’re very uncomfortable with prospecting, doing seminars, finding new clients. They’re even uncomfortable asking for referrals. They view themselves as professionals and professionals don’t focus on organic growth. We had a conversation with the firm with thousands of clients, seven billion in assets, and their goal is to bring in 25 new clients this year.

Really? Now, they’re regular $5 million clients. Other than, of course, the great help we’ve had from the market, eventually, you must have organic growth if you’re going to get great valuations. So there’s a total lack of appreciation. The second thing I’d say is, what are you doing that makes you different? Because the great advantage, if you’re an individual, smaller firm, is you can be original, and yet there’s so little originality in industry. Nobody’s using behavioral economics, even though United Capital was built on it. And yet, still, it’s just a sea of sadness, and it’s very hard to win when you’re competing and telling the same story as everyone else.

And so I find it amazing the total lack of originality when it comes to branding. And most everyone still serves everyone. They’re not specializing in a niche. They tell no unique story. We’ve been around for X amount of years. We love our clients, and we’re trustworthy. This is how we do things, right? So those are the table stakes, right? They’re really just taking advantage of the relationship current. The prior founders had clients that have stayed and sticky and trust. That’s not a growth moment, then. Yeah, for certain, they’re not going to retain you until the next gen. So what action do you would recommend for the advisors that are listening to this that they need to take today?

What are the next three things that you’d like to do? Well, look, first thing, Google wealth management in your neighborhood and see what you’re doing that’s any different than anyone else. And the reality is you’re going to see that, well, I’m not even findable. It’s amazing how few advisors even check to see what they look like. Then, in a neutral way, assess how you look or feel any different. Why would anyone feel compelled to come to you? Because, again, we all fall in love with our own story. We sure do. Good. Do a client survey. Find out why your clients love you. Like, absolutely, pick that up at the top of your list.

Because if you find out why they love you, you’ll be able to tell a story that’s honest and true, that is different. Because there is a set of skills you bring to the table that people love most about you. So tell that, find out what those words are. And then fourth, spend real time on sales. Spend 30% of your management time. What are we doing to get new clients? How many new clients have we met with this week? How many prospects do we have this week? Because at law firms and doctor’s offices, they are running things like a business. They totally are, yeah, right, yeah.

And we are, as an industry, as we become more professional, viewing it as a bad thing to concentrate on growth. If you really feel good about what you’re doing for clients, you should be really focused on how we help more clients. Again, I notice that that is the biggest gap that we have is training G2 on the sales aspects beyond the professional training. So I think most firms, this would be my last tip, take your G2 and teach them how to grow. Don’t just teach them on how to serve clients. Or find someone, maybe G1 just doesn’t know how. Like, we got them to where they are today.

I get them to the next growth level, right? So now find another firm, someone like even yourselves, right? Yeah. Here’s how we grow. This is how you grow. This is how you actually train people to expand and adjust your compensation model to reflect the fact that you’re going to make more money when you bring in new clients. So, 100%, 100%. So we like to always try to add a little bit of friendly controversy in if we can. So is there anything that you think the industry, I mean, you’ve already put a splash here in the pool, rid of what we’ve been talking about, but is there anything that you think we should, the industry needs to hear?

I do, there’s one. I think that the private equity taking control positions of all of these large firms has come at a price that very few people acknowledge. And that is that it is grow and acquire at all costs without actually building something great. I wrote an article called The Three Little Pigs. Another story there, right? The house of straw, the house of wood, the house of brick. What’s being done right now, and what we’ve seen with lots of $5 billion and $6 billion RAs that are consolidating firms is they think because they buy a firm and change its name to the parent company that you’ve built a house of brick, and that is not true.

If the underlying advisors are not getting any scale, are not getting any advantage of the brand, are not in fact, the clients are not better off and the advisors are not better off, are not growing quicker because they’re part of your brand, and the reality is you have a house of straw. And the underlying value of the businesses, if they’re not any better because they’ve joined you, then they’re not more valuable just because you’re bigger. You can’t take advantage of scale, you can’t take advantage of consistency, you can’t take advantage of brand if everybody does something different. And what I’m seeing built right now, which is frustrating to me because I thought United Capital was a great example of, we are one firm, we are one platform, we are one brand, which is what made us successful, which got us an exit that no one else yet has managed to succeed.

What made it work was we were a house of brick. We were the same team. We were the Navy. What’s being done now is, hey, change your name, you don’t need to change anything else. You keep doing everything you’re doing and this looks like a big warehouse. You go to these places and you go to one advisor, you get one set of services, you go to another advisor. They have a totally different investment portfolio. Yes, they have some planning. One uses MoneyGuide, one uses E-Money. Everyone’s telling a different story. So what is the value of collecting a hundred of these people if they’re all doing their own thing under one umbrella?

It almost seems to be worse. It’s also just, oh, there’s more controls, but there’s none of the advantages of size. Yeah, right. So what is happening? Well, a lot of private equity money is just, go buy, go buy, go buy, buy cash flow. At the end of the day, those roll-ups, why I hate the roll-ups, roll-ups don’t actually help the consumer or the advisor. They end up being a house of cards that are only for financial advantage to somebody. And why we are doing what we’re doing is we don’t want the firms we’re backing to sell their souls. We want them to do it the right way, build a great, beautiful firm that delights clients.

So that is my controversial view of the world. Build a house of brick. It’s harder work. It means being very careful about who you culturally align with, who you acquire, but it changes everything about the value of what you’re doing for consumers. And for me, the only reason I’m backing the business is I believe that the consumer deserves more than an amalgamation of advisors who are just doing things. You’re right. You’re right. 100%. Sounds like we’re approaching the next big short, right? We’re securitizing financial advice. That is what it feels like. Yeah, right. Thanks for joining us. Yeah, it’s a real pleasure. What a great conversation, huh, Adam?

Absolutely, Derek. I’ve been a big fan of Joe Duran for some time because he was really a bit of a rebel, a bit of a renegade in this space and building United Capital and RIA when it was relatively early and that very cool and then having such a massive roll up and then exit to Goldman Sachs only to find out that the organization went through exactly what he’s talking about. And I think that was really kind of cool to hear directly from the horse’s mouth. What did you think? What did you take away? Really neat story, too. And just to show like anything’s possible, you know, a little backstory with him.

He left Zimbabwe when he was 18 with $200. So if he can do it, anyone can do it, you know what I mean? Which is it’s just pretty cool. So that perspective of his and what’s possible to build because let’s face it, building an advisory practice is not easy. Building an RIA or being a life insurance agent, whatever, it’s not easy. So if he can do it from that backstory, I think that’s pretty awesome and just should be inspired. But I thought it was a great conversation. I love his perspective and where he’s looking at it. Obviously, one of the big things that we heard from him and others at the nitrogen fearless event was organic growth.

Very important topic. Comes up again and again and again. And I couldn’t help but thinking after how many times we talked about both investment capital, right, so this PEVC world and also how is a person looking at their practice from an investment perspective? This is a business I’m running that needs to exit eventually. I need to monetize this business or in fact, I can, how about that? And the idea that organic growth is such an important part of the valuation that a lot of advisors don’t really understand. What did you think about his thoughts about organic growth in this market? It is the sweet spot.

And it’s almost this full circle thing where we’ve come back to fundamentals. As you said, we’re in a consolidation phase. You’ve got rollups going on. And yeah, can you use that as a growth strategy? Yes, you can. But those rollups that you’re buying, how well are those actually growing? And that’s the organic growth component. What is that RIA doing to grow? Do they have a good marketing strategy? Do they have a niche? Do they have organic SEO? Are they bringing in clients through different channels, whether it’s referrals, marketing, paid advertising, all of these things? Because ultimately, at the end of the day, that’s what’s driving your organic growth, not buying another practice.

Another practice will help right off the bat, but what happens then? That’s splashing the pond. It’s so funny. I mean, these themes, they circle around and around and around. So as a person who is part of a practice that’s gotten to a relative size, it’s true. Gen 2 is now running our practice. Our founders, myself and my mentors, have effectively moved on to greener pastures and kind of different phase of life. We’re not growing those practices. Gen 2 is fantastic at servicing and supporting, but they don’t have natural organic growth other than market appreciation or referrals that just come in. They really are fantastic at the service side and they spend a lot of time on the planning, over delivering to clients, being really present.

But it just goes and show that the only way that those practices are going to grow is by buying smaller practices, just like these large roll-ups that have 100, 200 billion dollars eventually are going to have to buy practices because getting organic growth growing by 20% means bringing in another 20 billion dollars, 40 billion dollars, if you’ve got 200 billion under management. So the point of the story is that at any size, how are you actually achieving and showing that you’re going to continue to grow? Because that’s the multiplier of your valuation, not just how much recurring revenue you have, but how much is that recurring revenue growing by?

And that’s what I think a lot of people say. Yeah, not just through market appreciation. Actual net new assets coming in from organic activities. And I don’t know, would you lump paid advertising as an organic activity? I guess you could because, well, I always thought about it as paid as I’m putting fuel on a fire I already started. That’s a good question. They use that word organic. And I mean, that means organic. I believe that means that it’s not by acquisition, right? So you’re either acquiring a practice and you’re growing by acquisition or you’re organically growing because your plant grows on its own, right? It brings in new business.

It finds new space. It finds new, you know, expands in the soil per se. And I think that’s the reference that we’re organic. How you go about it, whether it’s advertising or referrals or whatever, you got to do something. It just all of that marketing, the stuff, the digital marketing you talk about so much. Advisors have never been trained up. They don’t even know where to start. No, you know, that just, that makes me think about it. So when you and I started, the organic growth strategies we were taught were cold calling, door knocking, seminars, right? Referral scripts. I just saw another article the other day that referrals are not what they used to be, but our firms teaching this next gen organic growth strategies of today.

I don’t have any data on it, but tell us what are organic growth strategies today? Let’s think them out. Let’s tell people. Are you being taught how to write a blog post that’s optimized for SEO? So let’s say that someone’s looking to buy a specific annuity product, for example, and they have questions and they Google that specific annuity product. We do this for my firm at Intrepid. We write reviews on all the top annuity products and we get organic growth in. And then we say, hey, maybe if this doesn’t do what you want it to do, contact us for a second opinion. That’s an organic growth strategy, right?

This is one of many. There’s email marketing, social media campaigns, paid and organic. What’s your niche? What’s your brand? I was even just talking to a producer group maybe two weeks ago, and one of them was like, I just want to spend 15 grand a month on paid ads. Okay, great, but you haven’t built the brand behind it or the persona you want to market to or any of these other things. So you’re probably going to end up wasting all of that money. Spending more money doesn’t solve the problem unless you’ve actually defined all these other organic components that are really important. Well, I think you’re right.

I mean, most advisors, when we saw this switch to asset retention versus asset acquisition, right? We went from a sales culture to a retention culture, right? And lifetime value really determines how valuable the client is. That means I just got to keep them on long-term and that means the monetization I create from this line of business is greater. The lack of sales, I love how we said it, right? People perceive themselves as professionals now, not salespeople, and professionals just serve the problem at hand, right? Let me just be the competent person. But you’re right, we did switch from an outbound marketing process, right? To an inbound one where people now search for someone who can help solve their problem and thought leadership is the single most important thing I think we can do because there’s a couple things that you and I have seen in our space.

Since the SEC allowed for testimonials and reviews, this changes the game because we should be, a financial advisor should be creating a public image. We’ve talked about this digital profile that supports that other people think we’re credible and that we can prove that we know the topic well enough to serve people who are seeking for a solution. That is critical. It’s critical. You know, I think about it, you’re looking for a new doctor, whether you just want to change the way that you’re getting your healthcare or you have a specific medical need that you need the best doctor in the world for, you’re gonna go Google that, you’re gonna find them, you’re gonna look at their website and other resources and do a lot of vetting.

And then if you feel good enough at that point, then maybe you schedule a call or you walk in. But if you’re not there, if they can’t find you, if you’re not ranking high for that specific area, then you don’t exist, which means you don’t have the organic growth that’s a byproduct of it. Totally. So when he said that he’s not, he’s surprised and maybe not surprised to see that advisors are spending as little as 5% of their total week on new business development, the question for most advisors is, well, what should I be doing for almost 30% of my time to actually be on high organic growth and a high valuation practice?

What specifically do I do? And the first thing they think is, oh my gosh, I gotta go and ask for referrals. Uncomfortable. Yep, right. I gotta run a seminar. Oh boy, I haven’t done that in a while. I’m not gonna cold call, so that’s off the table. So the reality is I think because there’s such a, I’m speaking for a lot of advisors that I know as friends, there is such a hesitancy to write it in the calendar that I’m actually gonna spend 30% because I don’t know what to do. And so the real question is, who do I need to talk to to find out what to do?

Right? And there’s so much content on this that it can be overwhelming. So one of the things that we found, there are groups like intentionally, there are certainly so many consultants out there that can help advisors start framing this and say, well, what are three things you could do? Maybe I can start writing a blog. Maybe I can start maybe creating some videos about credibility, right? So podcasts. Podcasts, there you go. Yeah, but remember they’re all longer term plays. And the advisor world I would argue is still an eat what you kill mentality more so than the long-term play. And that may ruffle some feathers, but I think overall that’s still the culture is what have you sold lately?

Yeah, that’s true. Well, because we’re all using the same measure, right? Which is how much assets under management did you bring in? Or how much premium did you place? Yeah, how much premium did you write? How much AUM do you have? And I think that that’s is in contradiction to organic growth as an overall idea. Well, that’s a leading and a lagging indicator, right? So the leading indicator is what did you do to invest in the brand and in its attractiveness? And obviously in the marketing side of it, the lagging indicator is the results we’re talking about. And I think one of the things that advisors miss all too often is that if they can’t create influence and brand leadership, let’s say in the social space, like I’m not gonna put a blog out.

I’m not gonna do a podcast, Eric. I’m not gonna buy ads, Adam. Maybe I’m gonna buy leads, okay? Or I’m gonna use Coupler as an example to kind of invest. We can also spend time investing in other influential relationships because remember not every piece of business. So perhaps I can talk to three attorneys about what I’m doing uniquely in my practice. That’s different. And I can make them informed. So the next time they’re talking to their clients, guess what they’re gonna remember. You remember Derek? Oh, gosh, I just had this conversation with Derek. He’s got an RIA. And because that influencer is now empowered, we have to go back to that basic, which is who are the most influential people?

If it’s not Google, maybe it’s my inner network. Yeah, most advisors don’t wanna be marketers. I didn’t for years and I finally kind of figured it out. Although I still even still get sometimes that like the cold call reluctance, picking up the phone for that first dial, you know, during the cold calling clinics, like there was some trepidation, man. Like you just didn’t really wanna do it. It does get easier. But yeah, if you’re not gonna do it yourself, you still need to do it. I think that’s the takeaway here is organic growth needs to happen whether you are doing it or somebody else. Hire a firm, have someone that you bring in to work within your firm.

Look at Joe’s, you know, Rise Growth Partners, something because that’s where it’s going to be. Maybe you love doing financial plans and you hate doing blogs and LinkedIn posts. Okay, fine. Lean into what you’re good at. But that doesn’t mean you can’t like ignore the organic growth component. Yeah. Well, this is the point of I think teaming and ultimately scaling a brand. What he’s making is basically, you don’t have to be expert at everything. You have to find the team or delegate it who can support this if you’re not willing to do it. But you have to start with recognizing that it’s important in the first place.

Talk to me about what you’re seeing on the PE side because this roll up argument was an interesting take from Joe. Well, as a PE firm and I am not a PE firm and I don’t really know anyone well at a PE firm. But if I’m looking at an RIA as a strategic investment, well, I mean, let’s face it. Once an IRA is built and built well, it’s a great cash flowing situation. And is from an investment perspective for my investors and to grow my own PE. Man, that seems like a great idea. But that as Joe alluded to comes with strings attached, especially when they take a majority stake ownership in the RIAs.

And now we’re focused more on let’s just keep buying more firms. And I think what’s happening is the organic growth components are being overlooked. What’s this by RIAs based simply on EBITDA? Okay, well, what’s the demographics of the firms? Do we have different types of clients we’re serving? Like what’s going on here? And then I think that becomes a weird monster. And then now you have this PE influence where eventually they wanna get out of the investment. So there’s pressure on that as well. And I would argue that that’s probably opposite at some level of what some of the advisors wanna actually do. Yeah, I think this is really interesting because as the nature of private equity companies is to raise a bunch of money and then the managers of that private equity have to go employ it.

And they’re constrained by what the market is and where the prices are and so forth. So I thought it was interesting to say how, and we’ve seen this a couple of times. We even talked to Abby Salome about it and the importance of choosing the right partner in this because I think many advisors look at the PE roll-up as an exit plan for themselves, not necessarily as a long-term what’s in the best interest of their clients. I think they say it’s good enough. My firm, my team is still here. They’ll take care of it. But it begs the question, what’s the next stage? Are there any additional synergies?

I thought it was interesting how he said if there’s no benefit to the end client, the advisors or other real value creation, it’s just a roll-up to repackage it and securitize it. And I’m saying PE firm is gonna basically just sell it as a multiple because it’s a big pool. Then look at it for what it is. It’s really just a liquidity play for an advisor to just take some cash off the table. But I think it does beg the question since as you said, this is a relationship currency business if the person with whom I have a relationship is no longer there, then do I really have brand loyalty?

I don’t know if the PE firm is gonna be able to just package and sell that thing off for a second exit if half the people are no longer there because they retired. And I think that this is gonna be a problem in the industry and it’s gonna bring down valuations actually. Well, Joe even talked about at the end of the day, this is a relationship business. Are we giving consumers what they want? Are we giving them the experience, the attention, all of that? And PE has its place. But I would argue that the goals of the PE are different than the goals of the firm and working with clients.

And how much are they combating each other? I don’t know. It’s a tough one. I’ve even recently just had valuation done on my own RIA. It’s an interesting experience. I think it is important because you do have to have an exit strategy. But I don’t know if maybe there are better ways to do that where you’ve got an organic exit strategy. I don’t know what that is yet, but we think that’s possible too, right? It’s a good question. So for everyone listening, there’s a lot of cool stuff here, but what are some nuggets you would say we should let our listeners walk away with so hopefully they can make a change or to help improve what they’re doing?

Well, thankfully Joe was really thoughtful about the question we asked him, which is what would you do, Joe? What would you tell advisors to do? And I thought his first comment was, start with just Googling wealth management in your neighborhood, right? And what do you show up? How are you different? Do you look like everybody else? How are they positioning? And we tend to not do competitive analysis because we don’t think we actually compete. We love our own process. We believe in it. We think we’re the best. We’re passionate about it. We build it. It’s like your own kid. My kid’s the best. Don’t tell me otherwise.

But let’s look at some other kids and see what they’re doing, right? They could be doing Ivy League kind of stuff and we don’t even know. So the reality is our customers, our prospects are seeing that. We gotta assess ourselves and ask ourselves why are people coming to us? I thought that was really important. What did you pick up? Definitely ask your clients, why did you pick us? It’s okay to ask them. You want that feedback. It’s only gonna make you better. It’s the whole story because once you find out why, then you can actually package that story and attract other people, which is pretty cool.

And it can be as simple as a short video on your website or a bold statement or an article or the about page is one of the most visited spots on an advisor’s website. What’s the story you’re sharing there? And the more you can share from actual clients, the better. No question about it. Another big takeaway, spend more time on sales or find someone who’s going to. I remember my early days, my time was best spent doing revenue producing activities. That’s it. Call calling, appointments, prepping for appointments, all of that stuff. And I very early on, I hired a part-time assistant to do all the stuff that needed to get done that I didn’t want to do.

And eventually you can hire marketing. Again, I’m not a big fan of marketing myself. I was uncomfortable doing it for years. I guess a lot of advisors are. That’s okay. If you’re not comfortable doing it, just find someone that helped you do it because it’s necessary. You might have the best cheeseburger in town, but if no one knows about you, some more sales activities. Get out there. Stop sitting in your cubicle running spreadsheets. The thing I think that most people, most advisors don’t realize there. So what, I mean, okay. Yeah, sure. I’ve got good cashflow. What’s in it for me to actually drive new sales other than, you know, obvious of bringing in more cashflow.

The difference between a practice being worth five times EBITDA versus 10 EBITDA is organic growth. That’s what take, that’s what doubles you from five to 10 in these marketplace. We’ve seen some practices go for as much as 17 times EBITDA being purchased. Why? Because not only do they have great retention of assets, they’re also growing at 30, 40% a year. Now, that’s a big difference, right? Bringing in that kind of new money. You know, you only have to do it a couple of years in a row to show a trend. That becomes really, really compelling. That’s what’s in it for you is that when you think about retiring, my practice is worth five million dollars versus 10 million.

With capital gain treatment, that’s a really interesting difference. We’re talking life changing money and I think that’s what’s in it for you long-term. So I think Derek is right. We need to teach Generation 2 or just whoever’s running the firm how to sell again. And maybe that means bringing in a sales consultant. Maybe it means bringing in a marketing team to say, hey, here’s some things you can do. Maybe it’s watching YouTube all weekend and saying, here’s some ideas. But put the intentional work behind revenue producing activity because it will serve you in the long run. Well, no question. Let’s not forget our clients. Some leave.

We have this thing called attrition. Some leave. Some die, right? I mean, transfer of wealth. Money is transferred to the next generation or the spouse, primarily female. They may not like the advisor or know the advisor. So what are you going to do to replace lost revenue? Totally. Organic growth is the spine. I think we interviewed four or five people at Fearless and every single one said organic growth independent of the others. They didn’t hear each other say it. So it is definitely top of mind. Absolutely. Very cool. I think that’s a great wrap up. I mean, we obviously learned a lot from Joe. He’s made a huge contribution to our industry.

We really appreciate everything he’s doing in this newest venture is helping other advisors by applying his own experience and that of his unbelievable team to, I think, where this business can go. So I’m really excited that he’s thinking five years down the line because a lot of advisors can learn from that. With that, I think, Derek, let’s wrap it up and let’s take us home. Yeah. Thank you, Joe, for joining us. Really appreciate it. Check out the show notes to learn more about what he’s up to and get in touch with him and make sure you leave us a five and a half star review if you can figure out how to do that and send us questions or tell us who you want us to interview.

We’re always here open dialogue. So hit us up on LinkedIn and it’s good seeing you, brother. Until next time. As always, my friend. Until the next time. Subscribe now and join the ongoing conversation. The information covered and posted represents the views and opinions of the guest and does not necessarily represent the views or opinions of AssetMap or Connector. The content has been made available for informational and educational purposes only.