Evolution, Beyond Technology

This podcast is 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.

Hi everyone, I'm Sterling Shea, back with another episode of The Way Forward. This week, our guest is Michael Nathanson, who's CEO and chair of The Colony Group, which is a multi-billion-dollar AUM RIA headquartered in Massachusetts. Michael's delivered exceptional client service throughout the bulk of his career, and that remains a passion point for him and his team at Colony Group. I've asked him to open up a little bit about how he's approaching that in the COVID era Michael, we're delighted to have you with us.

Thank you so much for having me, Sterling.

Michael, I want to start the discussion around client communication. Obviously, your process has changed when we all went into the virtual format, and I'm sure it's evolved a bit since then. Can you give us a sense of how you're approaching it with your team and what you're doing to continue to make sure that you're connecting with clients in as deep a way as possible?

Of course, that, that certainly is a great question to begin this conversation with. And I would say that first, most obviously, what's changed is the need for even greater frequency and depth of communications. We've always been big believers in constant communication, including in-person communication with our clients. Now, and certainly over the last several months, there's been a much greater need for that. But in addition to the most obvious point about the need for more communications, There's also been a change in the types of communications that our clients have required from us. And what I mean by that is that historically, virtually all communications come from the advisor specifically to the client. And of course, there are things like quarterly newsletters and occasional bulletins, etc. Now, however, We believe that clients increasingly demand to hear more from the specialists within our firm. They want to hear more from the firm itself. They're very interested in the health of the firm. And, and it's not just about the individual advisor anymore. So that's been a real change. And I'll say this, Sterling, one thing that worries me and that we're very focused on is the effect of using Zoom or other technologies to communicate with clients and having that be the only way that we can communicate with clients. I'm a big believer in the concept of social capital building. Social capital is what happens. It's the connection between people. It's what happens when people work together for a long time. And we constantly think about it in the context of our team members within a particular company. And by being together, by working together for many years, we build strong bonds of social capital, and that allows us to have better and stronger relationships. But now I'm thinking more and more about it vis-à-vis clients and our inability to be with clients in person. And now to have to do things virtually, I worry about that. And I just think that it highlights again, the need to continue to innovate and find ways to connect with clients so that we can build strong bonds with clients.

Well, you, you brought up a couple of interesting points with that answer, Michael. I love this notion of social capital and it being the glue between the advisor and the client. From a relationship standpoint. I completely agree with that. But you touched on this idea that clients want to hear from the firm, they want to hear from specialists. And to me, that, that begs a broader question about business models in general. You know, one thing you might be able to say about the COVID situation and the prevalence with which we're all leaning into technology is that it's a bit of an equalizer, right? And, and now clients can turn to a lot of different service options to get financial advice. They can do so easily and it's a streamlined experience for them. How does it make you think about the evolution of the business model and how you have to adjust the business model in general as an advisor to stay relevant to your client these days?

And evolution is the key word. So thank you for using that in your question. I think of COVID as a gigantic stimulus. Think of COVID as the, the big meteor that struck the earth hundreds of millions of years ago, and it was a catalyst for evolution. And those that could evolve are those that survived. And so it is for our businesses. There is a constant need for us to evolve. By the way, while COVID and the pandemic has accelerated that and has highlighted that need, it existed before there was any gigantic stimulus for evolution. We must evolve. And what does that mean? Well, I think about services, people, and company. We have to evolve our services. We have to continue to expand our services. And what that means for us is not just being asset managers. It means being wealth managers. But it also means for us being business managers now, which is a new line of business for us. It has also meant that we have needed to evolve our services to address not matters of an entirely financial nature, but also matters of just living better and richer lives generally, and having to expand our service offering to address needs for physical wellness and mental wellness and, uh, and security and enjoying life more, especially now when, uh, there are so many pressures on us to basically just stay inside. So we have been expanding our services to go far beyond asset management, far beyond wealth management, and into places where we believe clients want us to go. And I, We'll probably talk more about that as we, as we, we continue this discussion. So I'm going to leave that and just stay on your question. I mentioned people. We have to continue to evolve the types of people and the way we serve clients. And for me, that means specialization. I'm constantly hearing people say, well, we can't be everything to everybody. And that's true. And then I look at people who are advisors and will basically be an advisor for any type of client. As long as they've got a lot of money. Well, I don't think that works. I think we have to be specialized. So for us, it's really another form of segmentation. What we believe in is that we need to be specialized. So, for example, for us, we're focused on corporate executives and we're focused on business owners and we're focused on professionals and athletes and entertainers and private equity and VC partners and people in transition. We know what our focuses are and We stick with those and we develop specialization. There is a constant need not only for an evolution of services, but how we operate as people. And then finally, in terms of the company generally, the business model has to continue to evolve toward enterprise. So Sterling, the way I think about this is that most advisors are operating as practices. In a practice, you can think of a practice as as one person advising others, perhaps supported by some support people, but it's really all built around one person. Practices sometimes evolve into collaborations, and collaborations are practices that are working together, sharing some resources, but they're really still not operating as one business. And that's the next stage of evolution, business. Collaborations evolve into businesses with real processes and people who are now not involved in the advice channel, but rather just operating the organization. That's a business, and that's where most people think it ends. Isn't it great? We're a business now. But that's not true. It actually ends with being an enterprise. And when you're an enterprise, You have now reached a stage where you are still, of course, all about your people, but you've transcended your people. You've now created a sustainable organization that is built to last for generations. And I believe that the business model that we all need to be aiming for is enterprise. I think our clients expect it. Our clients want to know that we're going to be there for their children, for their grandchildren. The only way to achieve that is through enterprise.

Yeah, I, I, I think you, you You've hit the nail on the head and you say that really well. It's something that we've been trying to get at for a long time in our content at Barron's Advisor. You know, many of our listeners have been on that migration from working in the business to working on the business, but can you give a couple of just tactical examples of this notion of going beyond wealth management? You know, you said going beyond asset management into true wealth management, going beyond wealth management into life enrichment and business management. Can you give a few, examples of that, what that looks like, and just quick tactically, because there's a few other questions I want to get to as well.

Absolutely. So on the business management side, we have, through mergers and also through organic growth, have developed a practice built around athletes, entertainers, and other people that, in many cases, influencers that are well known.. And the services that these people typically involve, it's not just wealth management. What they need is, uh, is someone to pay their bills for them. It's someone to do all their taxes for them. It's someone to run their ancillary entities. In some cases, it means going on tour with them if they're, uh, if they're entertainers, for example, and doing their tour accounting. It means tracking royalties for them. It really means running their ancillary businesses and running their lives as a business for them so they don't have to do that. On the life enrichment side of things, we've created a platform called Curated by Colony. And what that is is a platform of people who are working for our clients in the areas of nutrition, fitness, Mindfulness, emotional wellness, concierge medicine, travel concierge services, education services, second career coaching, cybersecurity services. These are the types of services that we believe clients expect. And I say we believe we've surveyed our clients. We've asked them what they want from us. And these are the kinds of answers we're hearing from them that they want us to do more. Now, of course, We're not doing these things ourselves. As I said earlier, we're not trying to be everything to everybody. We know what we are. We're wealth managers and business managers. But whereas the typical advisor's out there building connections with accountants and lawyers and insurance professionals, why not expand that? Why not build a platform that brings in expertise from areas that truly can make a client's life richer?

Well, no, that's a, that's a great point. And it makes a lot of sense. Can you, just shifting gears a little bit, can you talk about differentiation? How can advisors differentiate themselves right now? And how does that relate to efforts for prospecting and growth in this kind of environment?

We've been talking about the kinds of life enrichment services that I just mentioned since, well, at least going back to 2017, when we did our last strategic plan. But I'm a real big fan of Fidelity's advice value stack. And have you seen that, Sterling?

Yeah, I'm familiar. Can you give a 1-minute or 30-second tour of what that looks like to the people in the audience?

So imagine a pyramid, and the pyramid has 4 different levels. At the base of the pyramid— I don't want to say bottom, but at the base of the pyramid is investment management services. And it's not to say that that's the least important. It's just the least differentiated. And we all like to talk about how we can offer differentiated investment management services, and we all believe that we do. But the reality is, is that clients don't necessarily perceive things that way. So that's got— you've got to be great at asset management, but that's the base of it. Now, as you move up the pyramid, it gets more differentiated. The next level up is what Fidelity called achieving goals, and that's what you and I might call financial planning or wealth management services. And that's more differentiated. But if you really want to get differentiated, now you've got to move yourself into the top two levels of the pyramid. And the next one is achieving peace of mind. And at the top, it's finding fulfillment. It's achieving fulfillment in our lives, building legacy, leaving, leaving the world a better place.. And those two things, finding peace of mind and building legacy, that's where we can find opportunities for true differentiation. You mentioned prospecting. And, um, and that brings up one more point that I'd like to make. Yes. As we, as we think about, about prospecting and as we think about differentiating, getting back to your question, including in the area of prospecting for new clients, What we've realized is that, is that many people in the industry think about what they do and then they sell what they do, as opposed to understanding that every client is different. We all say that we do, but what does that really mean? And what we've learned is, is the importance of discovery, of sitting with clients and asking them everything about their lives. Ask them not just about their financial circumstances, but about what's important to them, about their relationships, about what their non-financial goals are, what are their hobbies. And this has enabled us to build mind maps, which is something that we believe in doing. It's enabled us to truly go beyond the concept of just building financial plans for our clients. In building life plans for our clients. So as we think about this, we think about not just asset management and wealth management, we think about achieving peace of mind for clients and achieving fulfillment for them. And we think about how we can better differentiate ourselves by listening more to our clients and understanding them better.

Well, these are great points, and I wanted to encourage anyone in the audience who wants to learn look into that component, the Fidelity Advice Value Stack, you can simply Google that and it'll take you to the presentation that Fidelity has put together on that. It's a great piece of research and data for advisors, and I'd recommend that you spend a little time with it. But Michael, coming back, you know, another question I have for you is how are client expectations going to be different post-pandemic? There will be a time in the future where the whole COVID situation will be a strange distant memory. I can't wait for that time to get here. Me too. But it'll be there sooner or later. And, you know, how's the client mindset and expectation stack, if you will, going to be a little different, or will it be the same as it is now?

No, it won't be. And again, I believe that the evolution will continue with or without COVID. That's just the way we in the industry have to think about things going forward. If we do not continue to adapt to our environment, then as Charles Darwin might have said, we will be naturally selected for extinction. So we have to continue to evolve. And what I think that means is I think that while we all talk about holistic services, I think we will all be on a mission to provide truly holistic services. As I said earlier, I think that goes beyond just managing money for clients and doing financial planning and wealth management. For clients. Holistic has to mean holistic. That's what clients want. Clients are going to expect more technology. They're going to expect better technology. And with that technology, greater ease of use, greater accessibility. Technology will be important. Now remember, technology though, while important, I think technology is not the same as evolution. Evolution is different from technology. Technology makes us better. It makes us more efficient. Some of us like to think of technology as evolution, but real evolution requires meaningful change to our environment. And then the other thing that I think that is gonna continue to change going forward is a continued focus on sustainability, sustainability of our own companies, but also sustainability in the context of investing. This is continuing to be a top discussion for many of our clients, where increasingly people are focused as much on returns as they are on also making good social decisions and thinking from a social perspective from an ESG perspective, environmental social governance perspective and sustainability.

Well, yeah, key points. I mean, let me put it a different way. If you think about, you know, where we're going to be 5 years from now, what do you expect your business to look like? And what do you, how do you think the business in general will be, will be different at that point?

I think that we will be known nationally, not only for wealth management and business management, but also for life enrichment. I think that when people think about us in 5 years, they'll think not only about being stronger and more secure financially, but also, as we like to say at The Colony Group, experiencing meaning and joy in their lives. And advisors are going to have to get used to start talking about those kinds of concepts, meaning and joy, which, you know, you don't really learn in a CFP® course. And these are the kinds of things that we're going to have to start thinking about. Um, and yeah, but I think that also we're going to be larger. I think that's necessary to continue our evolution as an enterprise. I think we're going to have to be more national. I think we're going to also have to be more international. Again, this is all about our being sustainable. This is all about our being there for generations to come.

Can you narrow down what do you think will be the biggest challenge for your business to get where you want to be in 5 years from now?

I'm frequently asked that question, and I have an answer to it that I hope that this doesn't sound too corny to you. But I've been consistent over the last several years. Yeah, I think that the biggest potential obstacle to achieving what we seek to achieve is belief. If you read the book How Google Works, which I quote left and right, it's had a really important influence on my own thinking about the world. It's a great book. It's not about the search engine. It's about the company and how they've become so successful. The very beginning of the book, they talk about how we are all taught to live in a world where gravity holds us down. We are all taught about what can't be done and about the constraints that we face. However, if we believe that we can truly achieve something greater, something greater than ourselves, then I think we can achieve all of these things. And that's what holds us back. And then secondarily, I would say the other thing is getting everyone to understand that we will achieve these things if we can all work together and put others and the company in front of our own needs. Again, it sounds easy. It sounds like the right thing to say, but it's hard. It's human nature to look at ourselves and think about ourselves. If, however, We can work together, put our self-interests aside. We will do better for everybody. People talk about the fiduciary standard. We all talk about the fiduciary standard. Well, fiduciary to some extent means that we're putting our interests behind the interests of others. We ought to be able to do that not only with clients but also with each other.

Wow, great points. And I'm glad you recommended that book. I read it as well, and I found it tremendously relevant for wealth management today. One of the lessons I took away from it was this notion of early on, Google was competing against some of these other search engines like Yahoo, and all of the other competitors wanted to load all of this stuff around the engine, content, news, images, ads, all these other things because they thought that what the client wanted, what the user really wanted was ancillary, and Google just put that one box. This is exactly why you're here. This is what you want. I think that's a tremendous metaphor for the advice industry and a really great point.

Great point, Sterling.

You've given us a lot to chew on here, and I like these challenges that you're laying out. I think they are straightforward, but I think they're deeply meaningful for all of us and some great ideas on differentiation and growth. And I'm wondering if in the Barron's tradition, you can, you can send us out with an actionable idea or piece of advice for the advisors who are listening in today.

I can, and it's going to relate to some of the things that I've been talking about. And it's actually to survey your clients and your employees to understand objectively what they really want. Now, I want to just be clear what I mean by that. I don't mean sending out a survey to your employees and your clients saying, tell us about all the great ways that you work with us and about how much you like us. I actually mean put aside what you are doing, put aside what your capabilities are, and openly ask what your clients want, what your employees want. Many are afraid to do that because it opens you up to the possibility that you're not doing what your clients want and your employees want. But if we can remove our fears and listen openly and truly be objective, we will all be better advisors and better employers.

Michael, you've given us some great advice, some great ideas. I knew you would be thoughtful and provocative, and I deeply appreciate you sharing your insight with the audience.

Thanks so much for having me, Sterling.

And I want to thank all of you for listening in. We'll be back next week with another newsletter and another episode of The Way Forward.

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.