Entrepreneurship, Hiring, and Incentives: Advisory Practice Tips | Next Gen

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We're in committed relationships with our clients, right? Like, that's how I really feel. We are in committed, long-term relationships. And sometimes a client will joke, you've outlasted my two spouses, you know.

Welcome to Barron's Advisor: The Way Forward, Next Generation, a special series spotlighting the emerging leaders shaping the future of financial advice. Twice a month, we'll be digging into the strategies, insights, and game-changing moves that will help you take your practice to the next level. I'm Allison Tucci, and I'm here today with Matt Somberg. Matt is the co-founder and principal of Gottfried and Somberg Wealth Management Firm. It's an independent advisory firm located in Connecticut. Today we're going to be talking about his entrepreneurial journey through founding the firm, as well as building it through collaboration. Welcome to the podcast.

Thank you so much for having me. I'm excited to be here.

So before we dive into it, I'd love listeners to learn a little bit more about your business. Can you talk to me about the clients, your assets under management, and the people that you work with?

Sure. My partner and I run an independent wealth management firm. We're based outside Hartford, Connecticut. We've grown this business, the two of us, over basically the last 25 years. The vast majority of the growth has come organically from people who live in our geographic area. We've been able to fold in another practice along the way, which was very exciting. Today we've got somewhere between $2 and $3 billion, depending upon the day, under management. And we have about 30 people in our firm depending on the day.

So depending on the market.

Absolutely. Depending upon the market.

So what differentiates your firm today?

So there's a few things. My partner, Josh Gottfried, and I, we've always been independent. We've never affiliated with a larger entity or a bank or anything along those lines. And we started together when we were 22. So in the late '90s or the early 2000s, if you were in your early 20s, you looked obviously very young. If you did not have a broader affiliation with a, with a larger entity or a larger bank, life was tough. And so what we sort of discovered is that a way for us to win business at that point in time was to differentiate and to try to over-service. And so the DNA in our firm has always been on the over-service side. It's always been on the differentiation side. Within the last 5 or 6 years, we constructed a 20,000-square-foot office building for our business. It's right on the, the main street of the town that we're in. And we brought into that office building two estate attorneys, an accounting firm, a mortgage firm as a way to differentiate ourselves, try to create like a one-stop shop for people who live in our geographic area. Clients don't have to use all of that, but we're constantly looking for different ways to differentiate ourselves.

So you own the real estate, is that correct?

Yes.

Wow. That's quite differentiating. Now let's just link back to your co-founder. I love a good origin story.

Yeah.

How did the two of you meet? Yeah. And when did you know that he was the one?

And so Josh Gottfried has been my business partner professionally for the last 25 years, and we actually met as interns. We were— it was in the mid-'90s. We were interns for an insurance-based broker-dealer that actually doesn't exist anymore. But I— neither of us really had any business background. Josh's father is a doctor. My parents are public school teachers. So I think we were both interested in business, probably studied business in college, but didn't have any practical business experience. So we sort of found each other as interns at this insurance-based broker-dealer. In hindsight, I really had no idea what what this, you know, organization was doing or trying to doing. But I could kind of see— both of us could see that there was an opportunity to help people. And with Josh's father's background as like a family doctor, with my parents' background as public school teachers, we both sort of had helping people in our DNA. This was sort of a different way to help people. So we had a mentor who sort of took us under his wing. We did some marketing with that mentor. And essentially after college, the two of us felt like, let's give it a shot, which would be nearly impossible to do today. But at that point in time, there were some opportunities for us to do it together.

Can you expand on those opportunities to do it together? What exactly do you mean by that?

Sure. For anyone that's sort of starting out, I would say there's kind of two paths that they could go. One, which is definitely the path that I would recommend, is to attach themselves to a mentor or to attach themselves to a team. When you're young, it's very difficult to be successful at this business unless you just come from a lot of family money, let's say. So attaching yourself to a mentor, attaching yourself to a team gives that person the chance to learn all aspects of this business without being forced to sort of go out there and sell something that they have no idea what they're, what they're doing. Josh and I went a different path. The other path from my perspective is to find a niche, learn everything about that niche and exploit that niche. And so with my parents being public school teachers, I sort of felt like that's an easy niche for young people to start on. If I stereotype public school teachers, they're not necessarily public school teachers because they're financially sophisticated. That's usually not the path that they go down. So what we did, and this is in the early 2000s, is we found this niche. We learned everything we could about everything we could learn about it, and we started doing retirement seminars when we were in our early 20s. For public school teachers that were close to retirement. And over time, you'd meet someone at a seminar that was married to a business owner. You'd meet someone at a seminar that was married to a physician, and it just sort of grew organically from there. So I would not recommend that path. I don't think we knew what we were doing, which is probably why we were successful at it. I would definitely recommend the find a mentor and stick with a mentor. That's a much easier path to go down.

Talking about the different types of decisions that an entrepreneur needs to make, I really classify them as soft and hard decisions. So I think of soft decisions really as what are the skills you look for, what is the style you're trying to generate with your team, the brand that you have. How do you think of the skill set of your early founding team and has it evolved since the last couple of decades?

It definitely has evolved. I think, you know, initially we're just looking for someone who has any expertise in anything to join our team, to expand it since, since we had no expertise of our own. I think we try to make hiring decisions through a few different lenses, one of which is how, how will this person connect or interact with our typical client? Where we live geographically, we have sort of a typical client and to bring someone in who can't communicate in a way that our clients can understand, maybe comes from a much more larger corporate environment where they're used to sort of working in a more corporate feel. That's not necessarily going to work in our 30-person intimate firm that does a lot of hand-holding for clients. So hiring and hiring the right people, I don't know if you would qualify that as soft or hard, but it's very important. It's also very hard to do. Especially as our firm is growing and every person that we bring in sort of needs to fit nicely with it within the team that we're constructing.

Okay, so wrapping up your brand in one word, you're an entrepreneur, so I'm putting you on the spot. What would be that one word?

Collaborative. I would say that's our one word, that we are not a cookie-cutter, you have to do it our way firm, that we meet the client where they are. We want them to be as involved as they want to be. And if at some point in time they just tell us we've got the keys and we're good to go, then we're good to go. But until then, we're going to continue to be collaborative.

When I speak to advisors, they're trying to branch out on their own. They might have the brand, they might even have their, their perfect co-founder, but then they stumble a little bit and they go, hey, what's the system? What's the structure? What's the technology stack? What's the strategy? So I'd like to dive into each of these with you. How did you determine the systems to use? Did you build your own technology stack? Did you— it sounds like you didn't affiliate.

Well, I would say a few things. So the, the firm that was willing to take my partner Josh and I on when we had no experience was an independent broker-dealer called Commonwealth Financial. And so Commonwealth made life very easy for us at the beginning because they sort of packaged everything for us since we had no idea what we were doing. So that was a great way to sort of get started and have some infrastructure built for us that is very important. Over time, as we've become more comprehensive, as our clients have become more comprehensive, we've needed to add on lots more technology for different aspects of, of what we do. I think a core part of the answer to your question is that advisors need to recognize what are their own personal limitations, what are their own personal strengths. Most advisors are where they are because they were good at communicating with prospective clients and were able to make them into clients. I mean, if you built your own book of business, that's sort of how it happened. I'm very willing to admit what my strengths and my weaknesses are and what I like to do and what I don't like to do, and then try to sort of hire around that to bring in people who, whose strengths are my weaknesses. So My partner Josh and I both feel that our strengths are still rainmaking and being in front of clients, and it's what we enjoy the most. And I would not hire myself to pick technology out for any firm because it would be a disaster. So I certainly don't want to be the one that's selecting technology and doing research on technology. That would be a terrible mistake for our firm. So you have to understand what your strengths and weaknesses are and hire away. And so sometimes as people are building their firms, there can be a hesitation to spend money on reinvesting in your own firm. I mean, you're basically taking money right out of your profit margin to reinvest in something that's not going to deliver immediate revenue for your firm. And I think for like smaller financial advisory firms, there's always been a hesitation to do that. That has not been our hesitation. You know, building out the C-suite is very important to us. Adding more people with more talent is very important to us. I don't want to be in a position where I have to make a decision about something if I'm not an expert. And so filling out the C-suite has been the way for us to do that.

You're listening to Barron's Advisor, The Way Forward: Next Generation. We're going to take a short break. Stay with us. Model portfolios have evolved from a one-size-fits-all solution. In a recent roundtable conversation, Jeffrey Safe of BlackRock and Alessio DeLongis of Invesco break down what's driving the next model moment, discussing how a deeper level of customization is producing a better alignment with investor goals and creating a practice differentiator for financial advisors. Welcome back to Barron's Advisor: The Way Forward, Next Generation. Let's get back into the conversation. I'm a big believer that incentive compensation really changes behaviors of advisors as well as the pricing can change behaviors of your clients. So how do you currently think through incentive compensation for your team?

So a couple of things on the pricing side in terms of client pricing, we sort of have emotional scars going back to our early days of starting where to win business we probably needed to be on the lower end.

Discounted?

Yeah, probably discounted just as a way to try to win. So I like to think where our pricing is still probably a little bit on the lower end, kind of compared to maybe more larger national firms. We're not trying to be necessarily less expensive, but I think that's still in sort of the DNA of what we do. I don't think we want to lose on price ever. So I think that's in the DNA there. In terms of, in terms of how we compensate people within the firm, this has evolved over time as well. As the firm has grown. None of our advisors would be thought of as brokers. None of our advisors came to us and brought a book of business from another place that we are now taking care of. All of the advisors that we have in our firm are there primarily to service the business that we have on the books and basically to be in a position where the majority of their time is spent servicing the clients, talking to their clients, If they rainmake, it's welcomed, but it's not a critical component of what they do. We have CFAs who manage the money and we have advisors who are in charge of the client relationships. So there's a delicate balance in terms of structuring compensation plans. You certainly want people to be motivated to keep business on the books. You want people to be motivated to try to bring in new assets when possible. You know, our client base maybe skews a little bit older towards retirees. And so when people are retired, they're more likely to be taking money out as opposed to putting money in. So there is a certain amount of money that kind of needs to come in each year just for us to break even on flows. So our advisors have a portion of their compensation that's tied to just a salary and a portion of their compensation that's tied to the revenue that is derived from the block of business that they're responsible for.

What I've been seeing in the market is a lot of firms going back and looking at strategies, how to increase their fees, how to reprice their back books, and then how to, you know, train their advisors to ask for and value their services with a higher regard. Have you thought about that in any sort of way? And if so, how?

It would just be really against the DNA of our firm. To across the entire block of business look to do a price increase. I mean, I think we are in probably something you don't hear a lot in a financial advisory type interview. We're in committed relationships with our clients, right? Like, that's how I really feel. We are in committed long-term relationships. We've been well compensated by these relationships over 10, 15, 20, 25 years. If we were looking to do some pricing changes, it would potentially be for sort of newer relationships going forward. I think if we needed to make some other adjustments, it would be on more of a case-by-case basis of, look, I just want you to know last year we spent X amount of hours of time on your particular relationship. Typically we spend Y amount of time on a typical relationship. So I just want you to be aware of this. If there's a reason for us to potentially increase or, you know, a fee, then we would be willing to do something along those lines or at least talk about it. But it would sort of be against our DNA to do something, you know, widespread like that.

Let's talk about your strategy for a second. You mentioned organic growth. Really, it sounds like from client referrals. We're going to touch on that, then we're going to touch on inorganic growth. So Let's first break down your approach to organic client acquisition.

Sure. So where we are located is a suburb of Hartford, Connecticut, and Hartford, Connecticut has a number of major employers, companies like the Travelers, UnitedHealthcare, Cigna, names like that. And there's sort of an unlimited supply of prospective clients in our geographic area. People who have worked for these types of companies for a long time. So, so finding new relationships has not been hard. We organically bring in 50 to 75 new relationships a year by just turning the lights on. And those relationships come through myself or my partner or the accountants or the attorneys that we work closely with. And this is just They think we do a good job. We communicate well. They know people who have worked with us previously, and that just organically happens and, and will continue to happen. We have a very good system there for that. We have 10 at the moment client-facing advisors. So when this person reaches out to us about meeting with us, we want to be thoughtful about which advisor is the right one to match up with them.

Well, they're in a committed relationship, so they have to be matched up.

That's right. That's exactly right. So which of our advisors maybe has the expertise that they're looking for or talks in the way that they're going to feel comfortable with, basically trying to play matchmaker to make sure that these are committed relationships. So we have a fair amount of diversity amongst our advisors, whether it's by age, by gender, by expertise. And we're basically just trying to put the prospective client across the table for someone that they're going to feel very comfortable with. So that train moves steadily down the track and there's nothing that we want to do to, you know, to disrupt that. In terms of inorganic, we had an acquisition a few years ago that went well and that we learned an awful lot from. And I know that on the next one, I would hope that it would go even better from the things that we learned from the first one. The depth or the number of advisors that we have was instrumental in doing the first acquisition because we literally went down the client list of the advisor's practice that we were acquiring and learned about the personality of each one of their clients to try to match them up with the right person on our team, like literally one by one by one. I don't know how a solo advisor or a very small practice could do that so successfully because they would really just be trying to match up every client personality with one or two advisors. And, and that's incredibly difficult to do. So I think that part of it was done successfully. I think the next opportunity, we want to make sure that the average client from the firm that we're acquiring matches up or is greater than ours. You want to make sure that the services that you deliver to your existing client base are going to be the exact same services that you're going to be delivering to the next client base. And so I think we will always be thoughtful and careful to make sure that whatever practice we acquire is very harmonious and very similar to, to the practice that we have.

In terms of looking back at your career and looking back at building the firm, is there anything, one thing that you would do differently?

If we had the capital, I would have built out the C-suite faster because my partner Josh and I, in addition to rainmaking and seeing clients, we're also doing performance reviews and HR-related stuff and technology due diligence. All things that are super important and have to happen. But in hindsight, I would have spent the capital faster to build out the C-suite so that people who are much better than we are could have done it. That's something that I would have done earlier. But neither of us worked anywhere else. We never worked for another company. We always worked for ourselves. So we never had the experience of working someplace else, learning from what that someplace else did right and did wrong. In borrowing those ideas to implement into our own practice. We just sort of figured it out as, as we've gone along. Sometimes figuring it out takes a little longer than it should have. That was the case for that one.

We talked a little bit about the past, and now I'd love to talk about the future. What sort of legacy do you want to leave?

Fresh on my mind of legacy is what I had mentioned earlier when a, when a client says, you know, thank you so much for 20 years or 25 years. I mean, having a real profound impact on the lives of our clients, like putting people in a position when they can spend their entire retirement and not really worry about money is, is a wonderful thing to be able to do. Much better than, you know, working someplace where there's no interaction with the client. So it's been incredibly rewarding. I think as my kids get older, as my partner Josh's kids get older, it'll be interesting to sort of see what evolves with the next generation, not only in our own families, but our next generation of employees. Like, this is a business that should and will last beyond myself and Josh practicing as financial advisors. Like, this is something that should be able to continue on, not just for the next generation of our employees and our advisors, but the next generation of the clients that we're helping. So it's, it's just nice to be able to build something that is bigger than one or two people and see it grow and see it expand and know that We're helping people every day and we're going to be able to help multiple generations of, of that family. So, you know, I don't think either of us is planning on going anywhere anytime soon, but it's nice to know that, that what we've done is so impactful and we're going to be leaving behind a pretty nice legacy.

Thank you so much for joining us today.

Thank you so much.

The production team for Barron's Advisor: The Way Forward: Next Generation is Ellie Ismailidou, Rebecca Bisdale, Paul LeBlanc, Kinga Rojak, Joseph Lesby, and Alexis Moore. Melissa Hagerty is the executive producer. Jenna Mathis is the director of programming for Barron's Advisor Programs. Greg Bartalus is the editor-in-chief of Barron's Wealth and Asset Management Group. We'll be back soon with another episode. Thanks for listening.

This podcast was brought to you by Wells Fargo Advisors. Looking for a firm your clients can't outgrow? Wells Fargo Advisors offers financial advisors full balance sheet solutions with wealth planning, investment products, banking, and lending that meet the needs of affluent to ultra-high net worth clients. Build your practice your way and on your schedule with independent and employee model options designed to meet your needs today and tomorrow. Learn more at joinwfadvisors.com.