Gary Roth and Mike Capelle: Blueprint for RIA M&A Success

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Building a next-generation national RIA that combines cutting-edge technology, comprehensive client services, and a culture of innovation is no small feat. Today's guests have not only done it before but are doing it again in a big way. Hi everyone, I'm business coach Steve Sandusky for Barron's Advisor, The Way Forward Podcast. My guests today are Gary Roth and Mike Capelli. Gary and Mike are co-founders and co-CEOs of Modern Wealth Management. Both Gary and Mike bring decades of experience from their roles in founding and scaling United Capital into a $25 billion RIA that was sold to a publicly traded company for $750 million. In today's conversation, Gary and Mike share the vision behind Modern Wealth Management and why they believe the RIA industry is just starting to hit its stride. We dive into their approach to scaling through acquisitions, the importance of organic growth, and how they're investing in their team to create a company culture that prioritizes innovation, client success, and career development. Gary and Mike also reflect on the lessons they learned from their time at United Capital and how those experiences shape their vision for the future. With that, here's my conversation with Gary Roth and Mike Capelli. United Capital. That's where the three of us met when I was doing some work with United Capital and you guys were employed and partners of United Capital. So I wanna go back to those days and think about when the company was founded. Tell me about the vision of United Capital and with the benefit of hindsight now, what did you guys get right in terms of thinking about where the industry was going and how United Capital was built to capitalize on that? And upon reflection, what do you think you maybe missed or perhaps you could have done better?

The initial idea was to build a national RIA partially or heavily via acquisition, but that led with financial advice and not investments and was basically fee-based. And those things probably sound like pretty standard table stakes ideas today, but in 2004, 2005, they really weren't. Many people said you can't charge for ongoing financial advice. You can only charge for a one-time financial plan. We were very insistent on the idea that advice be a living part of the client relationship and constantly being refreshed. And really actually the primary point of the relationship and the investments being a means to an end, the end being what do you actually want your money to do for you? What kind of life do you want to live? So I think we were successful in doing that, in building, uh, a firm with a quasi-national footprint, not like a wirehouse, but we were in every corner of the country and we had a relatively consistent client experience across the offices. And as I said, we were an integrated acquirer, which at the time there were fewer acquirers, but there were diffused models in terms of there were people who said, we're going to buy firms and we're going to let them just stay the same. I think Focus was the sort of the leader in that space of let the entrepreneur be the entrepreneur was their mantra, which was also code for we're not integrating everything. We had a lot of different brands and I think it worked for them, but now they're becoming an integrated acquirer that's evolved. So I think we did that well and I think it showed in the results and we grew over about 15 years to about $25 billion in client assets under management. And we had a successful exit to a public company, which is a little bit rare in this space as well. And we learned a lot from that in terms of maybe what we didn't do then that are areas of focus now and maybe formed sort of the thesis for this business in part. One was the service set was too limited by the time we were done just having advice and we had a sort of a very experiential advice model and that's become a little bit commoditized too. And just having advice and investment management we felt was not enough. We felt like in the next iteration we needed to build a greater suite of services around the client that we could provide, including proactive tax planning, tax prep when wanted or needed, estate planning coordination, and other facets, obviously insurance. We have a 401(k) team, and there's just a lot of different areas of the client's lives to touch, and we're always looking for new touchpoints there. One of the other big ones is around organic growth. It wasn't initially a focus of United Capital. We learned over the years that we needed to build an organic growth model, as you may remember, Steve, but we came into this business sort of very clearly seeing that the industry, as is widely reported, doesn't really have very good organic growth metrics. Most of the growth is concentrated in a small number of firms, and that if you're gonna be making acquisitions, you're going to have a strategy for how you're going to be able to grow organically because the underlying firms you're going to find, they might have a history of growth, but they're probably not growing very much right now for a variety of reasons. Those are like a couple of big differences and there's some others.

I'll just add, I think one of the challenges, one of the things that we had to do early on at United Capital was convince the seller that this was a valid model, that there was actually going to be an outcome to their benefit at the end of United Capital, whatever that liquidity event was or whatever that looked like. The industry was still so immature around the M&A space. Yeah, there was a few different options available for them, but a lot of things had not played out, right? And I guess thankfully one of the things we don't have to spend a lot of time on these days is convincing them that this is actually a valid model, right? Acquiring them, having some portion of the proceeds roll into our equity, and there being a follow-on market that can create another like liquidity event for them. I'd say the industry these days is vastly different from what it looked like in 2004 and '05 and the kinds of conversations then where we have to focus our conversations is different, right? Yeah.

Clearly United Capital was a pioneer.

Yeah.

And you guys obviously learned a lot. So let's flash forward to today. So you've got Modern Wealth. So talk to me about why you guys wanted to do this again and from the very beginning of it, what did you say, hey, if this is gonna be successful, we've gotta have A, B, and C in this thing, or did you think of it in those terms? What was like non-negotiables? If we're gonna do this again, yeah, here's what we're gonna do. Is, was there anything like that as you guys were hatching up this new company?

Yeah. As far as why we're off doing this again, I can speak a, a bit more from my own perspective. The industry is, it is still in a phase of consolidation and maturation, right? There's a tremendous opportunity out there with consumers that are not receiving wealth management services that could benefit them. Huge opportunity within the consumer space. You still have a very disaggregated RIA market and the opportunity for the benefit ultimately of clients to be able to bring together larger firms that have more resources to bring to bear on the client relationship. And from my perspective, it's just an incredibly attractive industry and market. The characteristics of, of the industry as well. You talk about an industry with a service model where there's very little capital investment needed. Granted, the flip side of that is, is people, right? And that kind of model though, it has just really attractive characteristics to it. And I think we learned a lot over the time at United Capital about how to bring those firms together in a really beneficial way, not only for the firms and the advisors, but for obviously for the clients as well. As far as things that are really required for the business, I think we've touched on this a little bit, but The thing that we knew we needed to have was an organic growth engine for the firm. We knew we needed to bring that to the firm, be able to nurture leads and schedule appointments for these prospects with advisors around the country. That was a really key part of the business model. I think something else that we're really focused on is building an enterprise where all staff, advisors, and the teams that are working with clients all have career paths, right? They've got opportunities to grow their career as we grow the business. It is obviously very heavily dependent on people, and we want to make sure we've got a great place to work that attracts great people and retains those people. And so there is a, I think, a pretty big focus on that aspect within this business.

Your question about first, why at a business level, my You said most of what there is to say. I think at a personal level, when we sold the last company, even though it was 15 years in the making at the time we sold it, it was almost overnight that the sale actually happened. And we didn't really go into that process assuming we would be selling. Now, we weren't leaving the business, but we were integrating into a bigger firm. So it became a different sort of, completely different sort of animal. And when it was time to leave that, I mean, I just really missed the fun of the teamwork of building something, the camaraderie that we had, and we didn't really do a good job of pausing to enjoy it at The Last Company. In fact, we would talk about the fact that we were terrible at celebrating our successes and, uh, we're perpetually dissatisfied. So part of it was, uh, uh, kind of a determination to like, we'll see if we can build something new in a little bit of a different way and also try and enjoy it. A little bit more along the way. So that was part of the, a big part of the personal motivation. And also, but just in the sort of the feeling of it overnight going into a different phase. And the old company was like, we really were just getting started. Even though it had been 15 years, it felt like there was so much more to do. And the industry is really just starting to hit its stride. The RIA industry is really just starting to hit its stride. So I think those were things that really motivated, I think, all of us. I would say one other thing that we thought was essential and a way in which the industry had massively changed because we did decide, hey, we do want to make acquisitions. So what had changed was money. The volume of money that has flown into this space is staggering. And when we were building UC, people might think, oh yeah, it was really easy. People wanted to invest. They didn't. There was years of people being very skeptical. The investment community not really knowing what RIAs were, not really believing in the financial model. It's hard to believe now, but again, as you said, we were pioneers and there were others as well. There are other firms out there like the Focuses and the Hightowers and others who were probably having the same arrows in their back. So it wasn't that easy. It, it was, they were good outcomes, but it was hard along the way. I'm not saying it's easy now, but every other firm that you run into as a private equity-backed firm now, we, saw that very quickly as we were examining coming back into the space. And we said, forget about trying to bootstrap something. We can't like limp into a high stakes poker game with a small chip stack. And so we actually raised money first, and which was totally different. And it's contrary to what everyone says you should do if you're an entrepreneur, because it's like, oh, you don't want to give up control. You don't want to give up, you don't want to be diluted. We're just like, there's no way to build anything of any scale here. Without a capital partner. So we did that first, which was completely different. It's completely upside down.

Yeah.

And how much did you raise?

A $200 million equity commitment.

Okay. And was that like you had to give up X percent of the company to get that $200 million? Was it in the form of some debt financing, some mix?

What was it? No, it was all, it was all equity. And it's really, you give up most of it, but then you are earning it back through performance. We also invested alongside of the investors.. So it's really about the equity incentive for the management team is actually building a successful company. So it works. And there's a fallacy. This is the other thing we realized, and I was, we both had numerous roles at the last company.

You were CFO.

I was CFO for 10 years at United Capital.

Yeah. So you know the numbers.

And I was part of basically all the capital raises. And you start with the idea that like, oh, we're gonna keep everything and we don't wanna get diluted and we wanna raise a little bit of money at a, at a time. But the way I put it to other people is you basically have a business plan where your plan is to run out of money, and then you make an assumption that at the moment you need more money to continue executing your business plan, it will be available and it will be available on terms that you want. And that, guess what? That's not actually true. It might feel true right now to everyone who's out there who's raised capital in the last 4 or 5 years, but we went through a period in 2008, 2009 where we had a growth plan and global financial crisis hit and we had to recalibrate because money dried up and we had to go find a different investor. And we ultimately did, but it did derail a number of firms that were pursuing similar models at that time. We just said there's a fallacy of not getting diluted, but if you're gonna make acquisitions and you're gonna take other people's money, you will be diluted. So we just did it in reverse.

If I can add to that, I think as well, people don't recognize the distraction they have in going every couple years to go out and raise that capital, and especially when it is a tough time to go and raise it now, it isn't a simple process. It is a huge distraction for the entire leadership team because they all need to come together, right? To make the pitch, to demonstrate why this is a great investment and so on. And I think that just completely underestimated what the level of distraction you have there. And so it worked out well with the private equity firm that we ended up choosing in that they made a commitment, which then we could draw down as we needed to over, over time. So it was, in our mind, this was a win.

So two things about that. Number one is people don't give $200 million and have low expectations. So tell me a little bit about what is their thinking with you guys. You guys are obviously proven. You guys have done this before. You're successful. So they're betting on winners here, but what expectations have they placed on you to make sure that they get a nice return on that $200 million? And then also second question is, do you think you'll need more money at some other point in time? Is that part of the business plan or do you think this $200 million is going to carry you to really substantial cash flow positive and you can self-fund at some point?

Yeah. On your first question, I think it's helpful that the private equity firm Crestview, they've done this in other industries. So they've backed management teams to go and do a buildup of a firm. And benefit we saw, they've done this. They had a model for kind of how they approach it. As far as how that translates into expectations for us, we of course have, I think, pretty high expectations of ourselves. And we put together a business plan that was rooted in the reality of what we've done in our past. It was a bit aggressive in what our forecast was, but it was based off of some, I think, very valid tenets and we could explain how we could get there. Obviously it was all about the sequence of what needed to happen when in order for us to actually execute on this. And at the end of the day, of course, we have our own incentive package, right? We're co-investing alongside the private equity firm. We have our own incentive package around how the business does, and all of that motivates us to execute to what we had laid out as our original target for the business.

We may want more capital, really depends upon, we obviously, we're very active in the acquisition marketplace. Anyone who reads about us will see most of the news you'll see about us is about acquisitions. Of course, when you're running an RIA, and we now have what, 6,000, 7,000 clients. Of course, 99% of the activity in the firm is not acquisitions. It's just, it's newsworthy and people like reporting about it, and we're happy to be reported on, right? Because it, it creates interest in the firm. We have seen many acquisition cycles and we view it now as an active and propitious time, if that's the right word, to make acquisitions. And there may be times when it's not. So we don't know. Yeah, we may end up wanting more capital to make acquisitions at some point. We may not need more. It, it just depends how things roll, but we're good for now. We're very happy with the structure we have.

So far so good. When you acquire a firm, tell me a little bit about how those are structured. Is everyone a unique deal? Do you have a template that you typically use when you're acquiring a firm? Yeah. Is it dilutive to the existing shareholders?

How does that work? Is everyone a unique deal? We do start with a template. And we have a fundamental structure. There are components that are customized to each deal. Typically, the levers are things like the financial consideration. How much equity do people want? How much cash do people want? In what form? At what point in time? We have a band, a range of equity that we're comfortable with, but within that range, it's certainly different from deal to deal depending upon who the sellers are, maybe what stage they're at. Most of it is boilerplate. A handful of things get negotiated, but it's pretty standard. And I think it's probably pretty standard for most of the acquirers. I think most of the acquirers use one of probably half a dozen law firms that represent like everybody and all the docs probably look the same. And we know from the bankers we work with who see other people's deals that like, yeah, these are standard terms. Or if something comes backwards, this is really non-standard. Like it gets polished up over time. So they're pretty standard. It's dilutive from the standpoint that equity is issued, but it should be accretive from the standpoint that the profit, the cash flow, the EBITDA that we're acquiring should be worth more to us as a consolidating, integrating entity than it is on a standalone basis.

So you're acquiring them at a lower multiple than what you guys would be valued at.

That's, that's what every acquirer believes, right? Any acquirer, and if an acquirer doesn't believe that, they should not be doing it. So where it ends up.

Yeah. So talk to me about some of these multiples. So give me a sense for like range of multiples that either you guys are paying or you're seeing in the industry. And then what are some of the variables that are going to cause you to say we're going to pay at the lower end of that range or we're going to pay at the higher end of that range? Because I'm thinking about, yeah, the people that you're buying, they're saying to themselves, how can I get to the higher end of the range? So what are some of the things that And this may be going against your interest of trying to buy low, right?

Right. But one, it's not low, it's at market. You're, there used to be competitive market. There used to be an expression that people don't talk about money, sex, or politics. I think people talk about politics now, or they scream at each other. But asking about what multiples you pay is asking about the first two. Who'd you vote for?

Yeah.

Or the first three. So no seller that I know ever gets up and quotes the multiples that they actually pay. Well, we won't say the multiples that we actually pay.

Well, give me a range.

The bankers will, it just, it really depends. It depends on size. Right. On scale. I'm loath to say it just because you get hemmed in and, and there's a lot of interested parties, but I would say that smaller firms are certainly gonna be in the single digits and get into the higher single digits the bigger they are. And then medium to medium-sized firms are gonna be generally in probably in the low double digits. And of course we know what some of the firms that have transacted that are larger have, have gotten, well, maybe $10, $12 billion. These people are getting in the low $20 at a 22, 23 times in, in many cases these days. So you just assume if you go up the stack, it has to come down proportionally, or there's no economic logic in any of the higher multiples that are being paid. And maybe there is no, like some people would say there is no economic logic in those multiples, but you just can go down the stack from there. But it's certainly come up a lot. And when we were in the UC days for many years, we were paying in the mid-single digits. And that kind of held for a decade. And then until private equity came along, until, until, until private equity came along, which is interesting because of course they are economic creatures, of course. And they don't, of course, don't want to get over their skis in terms of what they, we, everyone's paying. Everyone's private equity backed basically who's making acquisitions. So you have a lot of the same prerogatives. But yeah, I think larger gets more, higher quality gets more, meaning stickier? Is there a succession that needs to happen that could maybe reduce value, or you might have to hold something back? Or is the team there that's driving it gonna be there for a long time? That's an adder of value. If they have growth that's above average, that's obviously gonna drive up the price. So there's a range. And I would also say that the one thing I would say when you hear about the multiples the devil is really in the details because there's a lot of different ways to present a number, right? So some of these multiples, and you'll talk to advisors who'll say, oh, my buddy got X, but they forget to tell you that in order to get X, we gotta hit this number and it's 5 years from now. Included an earnout with 10% compound annual growth for 3 years and other factors. And so you do have to be careful. When quoting multiples, but there's a market out there that's relatively efficient because the other thing that's happened is most of the deals that you're seeing announced, the sellers are generally represented by one of the bankers in the business who specializes in this space, and they're going to funnel everything to a pretty tight range and kick out the people who are well below the range generally, or let them know, hey, if you want to be competitive, You gotta come up here. And then hopefully if you're a seller, what you're getting is a relatively good curated list of potential buyers who are paying you market for your firm, but where you get to choose the best cultural fit. I hope no one chooses just the high bidder because it's not like selling your house where you're moving out, you're staying in the house. So if you're retiring, walkaway seller, that's one thing, but most transactions are not. We're always, we are very focused on cultural fit. I'm sure many firms are. I think sellers sometimes, look, they want to optimize their financial outcomes, which makes a ton of sense, but once you get it to a fairly narrow range, I think you really want to be like, what's the best place for me? What's the best place for my clients? What's the best place for my team? Usually it won't be in that order. It'll be clients, team, me in terms of what it should be. But yeah. Did I successfully dodge your question?

Yes.

Very good. When you say multiple, we're talking multiple of EBITDA?

Yeah. Even though deals sometimes are reset off of different things. Generally everyone's using a multiple of EBITDA to value the firm that they're buying. Okay. And by the way, EBITDA of course could mean different things to different people because you can move things in and out of EBITDA. So it's also, it's not just what was the multiple, but what was the EBITDA based on?

And to that point, what I always say to advisors is if you're trying to calculate what your EBITDA is, like when you think about what are you paying yourself as the founder of the company, You may be paying yourself above market or below market for tax reasons or what have you. So plug in like the fair market value to replace you. Yeah. And that's gonna be your pro forma when someone's gonna look at you and say, what's your EBITDA? What would I have to pay to hire someone to do what you do? That's a fair market value. Yeah. And that's, I think, a good way to look at it.

Yeah, definitely. Just to follow up on the last point, EBITDA is not a GAAP concept, right? It is almost all EBITDA is adjusted and it's adjusted in, in some way, right? You touched on one thing, what's really a normalized comp replacement, right? Compensation for the advisor. But just to add on a little bit, when you look at, at the transactions that are occurring and what are the attributes that drive that EBITDA multiple, as Gary mentioned, obviously size is one driver. How much EBITDA is there? How much organic growth is occurring? The quality of it, how much is recurring versus non-recurring? If there's a lot of non-recurring business that's less predictable, that would normally fetch a lower multiple. The one other though interesting element is the integration of the business. And I think what Focus kind of went through as a publicly traded company and kind of the path they're on right now points to that value aspect to the business and how a buyer looks at, are you just aggregating a collection of small businesses or are you actually building a large enterprise? And you can see that in the multiples that translates to a higher multiple everything else being kept equal.

Yeah. Focus is a really interesting case study because as they went private, now they're trying to get all of their many firms under what, 2 or 3 big flagship firms, Colony Group being one of them. And interestingly, I just had a conversation at lunch today with a person who works at a multi-billion dollar Focus firm, and they said, we kind of like being independent. We're not sure that we really want to come under one of these bigger outfits, but who knows what'll happen. But yeah, just that alone. Is creating new value. Yep. Yep.

By itself. And, and for us, it, it is an important part of our business model and there is a, a rationale behind it in how we want to face up to the market, right? So if we're out there and we're working with lead gen partners across the country and different lead gen strategies, we want to be presenting a single brand. We want to be making a, a brand promise around what the client is gonna be receiving. And we want to make sure that there is quality to executing to that once that prospect does become a client and the advisor is working with them. For us, it's about really the continuity of that client experience all the way from the initial, whatever they saw that attracted them to reach out to us or us to reach out to them. We want to make sure that is a promise that's fulfilled throughout that entire lifecycle with the client. It's pretty hard to do if you are trying to execute that with completely different brands, experiences, if everything is different.

Well, and I think that's a great point. And I think your job is doubly hard in that respect in terms of the client experience, because if you just have one company, just to create like a consistent client experience alone, that's a chore, that's a job. But now you're doing that, but then you're acquiring these other companies who have different client experiences, maybe not wildly different because you're probably not going to acquire them if there's not a fit, if they don't like the experience that you deliver. So they're going to be pre-selected, I would imagine. But talk to me about how you integrate the new firm, how you get them onboarded quickly, how you get them into your tech stack, how you get them into that client experience and delivering on the brand promise. And then what is the brand promise for Modern Wealth?

So this is where we have the benefit of, of doing this for a couple of decades. And having to really think about what are the key things that you need to integrate that are important to integrate day one versus other things that can be paced out. At the end of the day, there's so much that needs to happen to actually close an acquisition and transfer those client relationships. You want to be thoughtful about how you're sequencing things, right? I mean, we have our own playbook on how we approach this and there's certain things that we need to have happen day one for regulatory reasons or as a foundational step to as we look forward, what happens over the first quarter, the second quarter, third quarter.

So what are some of those foundational things in the first 30, 60, 90 days?

Initially transitioning their CRM over to our CRM, which is Salesforce.

Salesforce.

So yeah, so to go through our tech stack. Yeah. So Salesforce is our CRM and we want to make sure that we've got line of sight to all of the clients of Modern Wealth Management day one, right? These are clients that have signed agreements with us. They're coming on, they're clients of Modern Wealth Management. We have one ledger of all of our clients, and that's within Salesforce, right? So that's one of the things we take care of that starts prior to close and is, you know, a change that happens on closing. The other is simply the productivity tools, the email system, whatever. We were on Microsoft, so we, you know, they're going to be moved over to Microsoft 365. We're going to also move over their storage, wherever their online storage, we're going to have that happen then as well, if not soon after. But there's some kind of foundational things like that we take care of right up front. Some things that take longer to integrate, we use Orion for our portfolio accounting, portfolio management systems, and in most cases we do want continuity for the clients and we want to be able to have historical performance for those clients. And we'll go through a conversion process and that can take 3 months. It depends on what the system is and what we're converting, but that's something that is going to trail the closing date. They're going to continue to use the system that they're on for a period of time. Until that conversion is complete, and then they'll be good to move forward with Orion. That's also their access point to our menu of investment strategies and solutions. And so they're getting trained up on utilizing that as the go-forward for new clients. Again, we do want to be sensitive to client situations and not force changes that don't have to happen in their portfolio day one. So we're very careful about ensuring that there's continuity for legacy strategies that they've been using and how do we map those over and then put together a thoughtful transition for them over time into our national menu of solutions. And, and that's highly dependent on the individual client situation, right? That can be multi-quarter to a multi-year process to try and align their portfolios more with what we're doing and what we're seeing as opportunities within the investment space.

So talk to me about the team members of the firms that you acquire. So let's take investment management, for example. It sounds like you've got your own investment management platform and you want the firms you're acquiring to start using that. What if the firm you acquired had its own investment team? Do they get laid off? Do they get somehow absorbed into your organization? Do they get repositioned somehow?

So what we find is, is there's a mix. We find that there are some firms that find that they're a fit for us. They're really attracted in joining us because they've outsourced their investment management. Function already. And so for them, it's a fairly easy switch to be able to have our team come in and, and do that work for them. We have had cases though where we've used that as an opportunity to take an experienced investment professional in a location and have them basically join our centralized team. What isn't an ideal outcome is to have someone in a local office that what they bring to the table, their brainpower is only being used on a very small portion of clients and assets. When we could take that and utilize that on a much broader scale and have a much larger impact of the work they're doing. We have a, a great example of someone that had joined. They were the investment professional on the firm we acquired. They became part of our investment department, and it's great because they have experience working directly with clients. They understand that sitting across the table from a client and explaining investment solutions, understanding what their concerns are, having that be part of our centralized investment team is invaluable. And again, we just, we want to be able to take a resource like that and apply it across a much larger set of clients and assets.

Yeah, I would just add that having a clear model and approach is a sort of a filter in the sales process that goes both ways because we're very clear with people who are looking at joining what our model is and, and what we're looking for from the advisors and their teams and what we're not looking for. And if what we're articulating is a bad fit for the firm on the other side, they're just going to say, you know, we're not interested and vice versa. So it does become a little bit of a self— more than a little bit, it becomes a self-selecting process up to a point. And then you have to still figure out like, is this the right fit? So that's really critical. And of course, over the life cycle of a firm, firms that make acquisitions, if you change your strategy, if you're evolving it naturally and adding to it, that's one thing. If you have a complete change, like you referenced, from being like non-integrated to integrated, you're gonna have people who said, I joined for this, but now you're telling me it's that. And then they're gonna make a choice of whether they really wanna stick around or not. Obviously you don't know how your business is gonna evolve, but we're very clear and consistent with the people who are looking at joining us. So it, it helps then set up that transition and integration.

So talk to me about what you have centralized and what is decentralized. So it sounds like the investment piece is a centralized investment function. What are some of the other major functional areas of the business that you've centralized versus you still let be done at the local level?

Yeah, the things that are mostly, if not entirely centralized, and there's things that are always like partnership with the local level, but we have a central HR, human resources function. We have a central chief compliance officer. So we have a centralized compliance function. We have centralized trading. And what obviously can't be centralized is everything that is face-to-face, knee-to-knee, whatever, screen-to-screen with the clients. So what you want to do is put the advisors and their teams in a position to spend more time with clients and prospects and streamline and make more efficient the things you can centrally. But obviously most client-facing activities or all client-facing activities other than reaching out to prospects to schedule meetings with advisors are happening at the local office. We've centralized, I think we referred to earlier, the business development process. We call it our concierge hub or our organic growth hub, which is a team of people who call prospects to do some information intake, but hopefully schedule an appointment with an advisor. And that frees up a lot of time for the advisors and their teams.

I want to talk about the organic piece. So you just touched on it here. We touched on it a little bit earlier. What are you guys doing to help your offices grow faster organically?

What I just mentioned is probably one of the biggest things, which is people reach a certain size and they have— actually, all of what I just mentioned are probably the biggest things. They, they grow to a certain point and then the data shows most firms stop growing and they stop growing for a whole bunch of reasons. One of which is, could be capacity. The advisors are like, I'm full. And even if they have multiple advisors or a G2, okay, now you've gotta feed those people. Typically people build their books, however they build their books, and some affinity, some set of relationships, and then maybe they grow more via referrals. But after 20, 25 years, and the average advisor in the industry today is what, like 58? So they've all been in business for 25 years, 35 years. How many more referrals are there for your clients to make? Right? So like the pace is going to slow down and what that is going to mean versus your denominator of assets is going to be really small. Creating capacity by taking some necessary, but not, you know, critical for the advisor to handle functions off of their plate. Like many advisors in a small firm, they're also the chief compliance officer. They're the chief marketing officer. They may be the chief people officer, or they may have someone who does it, but they're really reporting to them. So giving them more bandwidth in those areas that are necessary to the business, but are not really why they got into business to begin with and are not really their highest and best use. So that's one. And I think a lot of it, most people who are acquiring firms today will say that's what they do. But the funneling, having a multichannel organic growth strategy, stacking up different types of leads and prospects, and then having a team whose dedicated function, which again, we decided to invest in that from day one. It's a big investment to make those calls because if the advisor's, their calendar is full with review meetings, making those calls to prospects is very disruptive. To their time, to their week. And some people are great at dedicating time to that and some people aren't. And then building in best practices and continuing sales training and reporting back what's working, what's not working, articulating the value proposition around all the client service offerings. All of those things go together.

And you talked about self-selecting earlier. Are you also self-selecting on the growth side, meaning you're specifically looking for advisory firms who say, I want to grow. But I need help and I look at you guys and I think you guys can help free up my time or you've got some other marketing playbooks that I can tap into. So I think if I work with you, I'm going to be able to grow faster. So are you self-selecting for those kinds of thinking advisors that have that mindset?

Yeah, we are. And they self-identify. You're rarely going to meet a firm that's going to say, we really have zero interest in growth and we really like having—

unless it's a succession plan, like I'm getting out in a year or two.

Yeah. So most people will say we've plateaued because most of them have.

Afraid.

But we meet a lot of advisors who, who very honestly, and we think sincerely, they're like, we've plateaued, but it's really frustrating because we miss growing and we want to work with someone who can help us go back and unlock what will help us grow now at this stage of our business. And those are probably some of our most successful partnerships really.

And I know it's early in terms of your company, but do you have any success stories yet of someone just like that who said, I want to grow, but I plateaued and I think you guys can help me. So give me an example of what kind of conversation you have with that person? What do you do with them and how does that reinvigorate them and get them excited about growing again?

Yeah, we have several, but one firm in particular joined us. They're in the Midwest. They were actually a hybrid tax and accounting and wealth management firm, and they had built to a certain size on the wealth management side, but they were always distracted. There's, there's a part of the year we're focused on tax and there's a part of the year we're focused on the other side of the business. And we said, what if we figure out a way to bifurcate the efforts and have a consistent approach to meeting with prospects and be telling, give you a better story to tell to the people you already work with, maybe on the tax side who are not wealth management clients. And it's been unbelievable. I think they've grown 50% in one year and it's, we're just really starting. And they weren't tiny to begin with, but, and that's maybe an untapped or latent opportunity. But we have other firms where it was more just maybe more of the blocking and tackling of, okay, now I'm freed up from— we were stock picking, but now we're using your model portfolios. And I didn't really feel like I had time to meet with prospects because I was spending all my time talking to my clients about what we were doing with their investments. And they're growing 15, 20% on an annualized basis because they've just shed that responsibility. And we have the prospects for them to meet with. They like had turned off the phones, figuratively speaking, but in terms of prospecting, prospecting at the time we met them, they're like, yeah, we've just stopped meeting with new prospects as we just don't have time. And at first they thought we need to add people to the office. We didn't wind up adding anyone to the office as of this point, but we freed up in particular the lead advisor's capacity. And it was just like, oh, and it, and also probably freed his mind a little bit from having to worry about some of the things he was worried about before. I need to be an expert in what's going on in the markets today. Now you don't. Because you have a team behind you and we have a monthly report that's going to go out to the clients from our head of investments that's going to talk to them about what we're seeing, what we're thinking, what changes we might be making, which is usually not a lot because you don't want to be overreactive. That's not our model. Firms like that, they're growing at rates that they haven't grown at really since they started, which is really exciting.

Guys, as we wrap up here, what final thought would you like to leave us with here? Mike, why don't we start with you?

I think it is interesting to see where we're having success in finding good fits for firms out there that are a good match for what we're building and where we're headed. I don't know how long it's been, over a decade that we've heard about the aging advisor base, and ultimately they're gonna be retiring, moving on some way.

And the $75 trillion of generational wealth that's gonna transfer. I've been hearing that for 30 years now.

And the need for succession plans ultimately, right? At least for us, it seems like we're actually running into those situations. And I, I think if you look at quite a few of the transactions that we've done and the businesses that we've acquired, we've enabled that succession plan to occur, whether it's going from the first generation of the founders to the second generation, or even the second generation to the third generation. But it does seem like that is actually coming to fruition. What's been forecast for so long.

Okay. I can retire now. It's, it's finally happening.

Uh-huh. It's finally happening. And they do need an enabler though. There is quite a gap from The old model was, hey, your next generation can basically buy you out of the business over time. Trying to make that work these days with where valuations of these businesses are, there's a gap and there needs to be some way to bridge that gap. And we're finding a lot of success in coming in and enabling that. And so anyway, interesting, I think, perspective on what we're seeing in the marketplace.

I appreciate that. And Gary, I know you play in a band, so what I'd love for you to do is think about one of the songs that's in your set list and use that song to describe the final thought that you would like to leave with us today.

That's a tough question, Steve. Let's see. The band that you may be referring to, High Fidelity, which I, I've played in over the years with a number of people from the industry.

We always— Dan Cantor, I think is one of them.

Dan Cantor, Sanjeev Merchantani. We always start with the song Rebel by David Bowie. I would like to think that this industry needs still a few rebels to break the mold a little bit and not just follow the tried and true path. So we're still looking for, we like to think we're a little bit different than everybody else. It may look from a distance like everyone's doing the same things, but we like to think we're building our company in a little bit of a different way. And I would encourage the other companies out there to be thinking about how do I break out from the pack a little bit and not just look like everybody else and assume that Hey, the rising tide lifts all boats. So that's the first song I thought of. So that's what you get.

Yeah, that's what you get.

All right.

Great way to wrap up the show today. So Gary and Mike, appreciate you being on today.

Thanks a lot. It was fun.

All right. That's all for today. Make sure you like and share this podcast through your favorite social platforms. And for more great podcasts, visit us at barons.com/podcast. Take care and be safe.

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