Jeff Brown: How to Successfully Transition From Advisor to CEO

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Hello and welcome to Barron's The Way Forward. I'm Greg Bartellis, and my special guest today is Jeff Brown, President and Founder of Stratus Private Wealth. Today we're going to talk about how advisors can successfully transition from advisor to CEO, a subject that Jeff can discuss with authority. Welcome to the podcast, Jeff.

Thank you very much. Thanks for having me.

Absolutely. Before we jump into the topic, tell us a bit about your background, which is quite interesting, you know, how you got into the business and fast forward to the present day.

Yeah, I'll try to keep it I was, I went to school at San Diego State. I was a major in finance and was gonna be an investment banker. That's always what I wanted to do when I was a kid. I knew they made good money and I was good with numbers. After living in San Diego for a little bit of time, I learned how to surf and snowboard and realized I did not wanna leave Southern California for New York, LA, or San Francisco. So I stayed and got my master's degree. And then I fell into the business. A couple of individuals would come into the restaurant that I worked at and they were financial planners. And that was the beginning of my career. So I started in financial planning at 26 years old and ended up kind of starting at Prudential Securities. And that, through acquisitions, became Wachovia, became Wells Fargo. And in 2015, decided to go independent. At that point in time, I'd already looked at independence in the financial crisis, and it seemed like a lot of work to do, doing it on my own. So I joined Stratos, which helps with supported independence. The 4 of us left with about $400 million under management. And from there, I got some good coaching, honestly, some very good coaching that helped me realize that there was a big difference between being an advisor and running a company. And through that period of time, I slowly transitioned, as you mentioned, from an advisor to the CEO, and really kind of took the steps in place to help my team get the authority to be able to make decisions on their own, and hire the right people for the right seats, and grow the org chart from there.

OK, now a lot of— there are a lot of people actually who are in this situation. And some handle the transition more gracefully than others, or with fewer headwinds, et cetera. I want to tap your wisdom and learn some of the things that you would recommend today, or things that you learned on your own that apply, people can learn from.

Yeah, so there's a few different things I think people need to do. I think one of the key things that I did was to build an accountability chart, or an org chart, if you will, with all the different positions. Of the firm that I wanted to build, let's call it 3 years from now or 3 years from that point in time where I did it. And then I had to put in, you know, if there's a CFO and a CIO and a CEO and a lead advisor, I'd have to fill in those blanks. And you know what? My name was in a lot of those spots. So what I then did was to try and figure out, okay, if you're going to, if I'm gonna grow appropriately, where are the first jobs that I need to remove myself from? And at what point in revenue or size do I need to do that? And it's called, you know, workforce planning. Is the name for it. So that was one approach to slowly sort of kind of give away, if you will, responsibilities over time. Another one was having a system in place to do that. So we're a big fan of OKRs, traction, if you will, and Rocket Fuel was kind of the key that got me where I was. I held myself out as the visionary, and I needed to have an integrator, someone to run the day-to-day business, and that was very, very critical. I think that the other thing that, you know, I'll talk a little bit later about giving, you know, how to give up clients, but the key is giving people the authority to make decisions and fail and not micromanaging. And at the beginning of my career, I was not very good at that. But through some good coaching, I realized some key tools that you could use in order to do that. So an example is forming an operating committee where people, various stakeholders in the firm, could make decisions on very important items like Who do we hire? How much are we gonna pay them? What's our policy for XYZ thing? As long as it didn't affect strategy, and as long as the dollar amount wasn't over a certain figure, I would let them make those decisions. And I think by letting people do that, and by the way, there's a lot of those decisions that I would see later, I'm like, ah, you know, we probably shouldn't have done that. But that was few and far between relative to the value that I got and that they got from becoming really good leaders in their positions.

It must have been quite empowering for them, because it's really— yeah, you're putting your faith in them. You're saying, I trust you implicitly, and it's OK. You're going to make some mistakes. That's how you learn. That's how you grow. But I think having that vote of confidence must go very far. And it's like, again, teaching them how to fish, et cetera. You're not just—

Yeah, and it really— it's really about— I think that's what people like to do. People don't— no one likes to be micromanaged. And I think once they got used to the fact that, hey, we don't need to ask Jeff this question— by the way, That took a while to do, right? Everyone asked Jeff, and it just became back, like pushing it back to them. And some people really, really did well with that. And those are the next-gen leaders of the firm today.

How often is this done? I mean, are there a lot of people still holding the reins too tight and not really putting their trust in these younger people?

Absolutely. In fact, you know, being at a recent conference, I realized in talking to a lot of people, it's interesting how many, successful CEOs are still managing 100 clients and that are not delegating a lot of the work out and do not have a process around the strategic vision of the firm, which you need to have in order to have people lead the firm. It's shocking. I mean, so people are really still stuck in the mindset of like, I need to be the advisor and I'm gonna build a business behind me.

Yeah, and I suppose to, danger there is it'll work until it doesn't, right? And then suddenly you have to scramble to pick up the pieces.

Well, yeah, I mean, we talk a lot in our field today about the M&A and the transaction and the valuations and all of that. Well, if it's all based around the lead advisor or the founder of the firm, and it's like this— I think of it as this pyramid where the founder's at the top and they've built a firm with everybody underneath them supporting the founder to go rainmake, which is honestly, what I was doing when I left the wirehouse. So I've learned from that. Your business, should something happen to you, is gone. The business will evaporate. The valuation is gone. All those people, not just the clients who lose the relationship with their primary advisor, but it's also all the people that work there. What happens to them? So as a true fiduciary is really something I think people need to be working on.

Absolutely. Absolutely. You alluded earlier to the idea of giving up clients. Let's talk about that.

Yeah, this is interesting. So I was this person where I had all the hats, and I was trying to give away the various— call it the executive hats— marketing, CFO. And in my study group through a company called ClientWise, one of my dear friends there— his name is Rick Kent with Merit— Rick said, hey, in order to be successful, Jeff, You need to give up all your clients. And he said this one time and we meet quarterly. And he said this again 6 months later and I hadn't done anything. And so I promised him that I was going to take a concerted effort to do this. And what I realized in doing it, because we run things in what we would call like some people call them pods, you have a lead advisor and associate. So I had someone with me in the meetings and they would cover the planning and I would cover the investments and I would helicopter into all these other meetings. And we slowly transitioned over a year, a lot of clients. And what I realized is that the clients were happier. I talk kind of fast. I confuse people sometimes apparently. I'm very, very busy, so I may not give the people the attention they deserve. And the clients were happier with the other advisors. And so as the momentum began to go, we accelerated this process. And what's interesting today is that, you know, this was a while ago, is that we've grown. So now we have, you know, 10 advisors, call it, between lead and associates. As we've grown, we have effectively— some people have transitioned from myself to the first person, to the second, to now the third advisor. And I think what advisors should learn from this that I didn't even know is that if you provide something that is extremely valuable and you hire people that are smarter than you, at certain things. And these people come in with a specialty. The clients don't care. They do not wanna leave. They like the service. They like what they do. It's, you know, it's not easy to leave a firm too. And I got an email the other day. This was one of the, it made me so proud. This person had been transitioned over 3 times from me. And the email was titled, you know, Stratos Private Wealth Growth. And I was just expecting it to be, oh boy, this is our growth is hurting the relationship. And I got the nicest email saying, We've been passed down from you to Pat, to Tyler, to Colin, and we couldn't be happier with who we've landed with today and the job you're doing running this firm and the services you continue to provide for us. So what you get from being out of the role of the primary advisor is now you have the bandwidth to focus on the firm, the services, how to really execute instead of that just being your secondary job, if you will.

So what are some of the ingredients of that successful handoff? I mean, given that you've done it a lot now, What have you seen that, you know, any dos and don'ts, I guess?

Yeah, so the dos, I would say that we get a lot of value from the team approach where we have a lead advisor and associate advisor. It makes it very easy because in that, I think of it like the doctor's office, right? The doctor does the primary thing, someone else comes and takes your blood pressure. So that's a simplification way of putting it. The associate advisor is doing a lot of the work, the planning, the initial outreach, the follow-up email. So if you're doing it right and it's a good associate advisor and they have a good career path, et cetera, then they know eventually that they might become the lead advisor for that client. And so they're, if we're training them correctly, they're operating like that day one, that they're already gonna be the client. The other thing that I think is useful is to, as you begin to think about this, we try to have our associate advisors specialize in something. So whether that's being an expert on a certain type of benefit for a corporate employee or company that we deal with, writing an article on that, or for example, becoming a specialist at a software program like we know HolistaPlan, right? So that is an example of, hey, we can train our associate advisors to do that. The associate advisor brings it to the client. If the client hasn't seen it before, ooh, this is neat, this is tax planning. I get help from the associate advisor. Now they're going to the associate advisor. And slowly over time, that associate advisor begins to take more and more presenting responsibility during the meetings. Might start with something small like one specific thing like education planning, then it's the entire financial plan, then they're moving on to the investments. We're doing this in line with their career path so that at the end, like, it's very comfortable for the client to say, oh, I've been dealing with, you know, Mary, the associate advisor, all this time. And then when the lead advisor says, hey, Mary's going to be your primary point of contact and we're bringing in another associate to help and I'll be here if you need me, it makes it a very easy transition. You don't do it overnight, but over the course of a year or 2 or 3 meetings, it's easy to do. It's easier than people think. And the clients do not cry, which is— they do not cry when they leave you, I found, so.

Exactly, exactly. And again, It's putting faith into them and empowering them. And I'd imagine— I wonder if a side effect of this is that there's an unintended benefit of retention. I mean, I'd assume they feel more valued, and they might be more likely to stay with you, too.

Absolutely. Absolutely. Yeah.

Yeah. Let's talk about building a vision once you're in this role. I mean, what do you need to know? Like, a lot of these people are unintentionally thrust into this position, and they're probably a little bit scared, depending on the person. There are a million things to tend to. So what are kind of some priorities?

For the CEO of the firm? Yeah, yeah. Yeah, so I think that, as I mentioned earlier, I think one of the best things that people can do is really understand what are you doing it for. You know, some people are doing it for the money, right? Some people are doing it to help people. Some people are doing it to build a business. Some people want a lifestyle practice. Some people want to grow an ensemble. Some people want to have a national RIA. You may not know all of that right now, but I would just say what's the next, you know, what's the next thing I need to do? Look 3 years out and build that vision. What do I want to be 3 years out? And you can have like the long-term vision out further, but things are going to change, obviously. So have that. And I mentioned before, kind of build out what that looks like, who needs, how many people you need to work there. Make sure that you have a vision, a written vision. Make sure you have a written mission for the firm. We actually have ours on the wall for our employees to see. So it's, everyone can articulate it, hopefully, and everyone can row in the same direction. And make sure you have values that you can hire and fire by. Then now you've kind of got the base. It's the base of the pyramid. I think the other thing you need to do if you're going to grow a firm, if you're going to grow it, if it's not just having a lifestyle practice, you're going to need to attract people. And I hear about this war on talent and it's so hard to find people. I disagree with that. I think it is— I think it's, it's hard to find good people, but I think especially younger folks, they— what they want, they want a career path. They want to understand exactly where they can be, how much they can make, and what it's going to take to get there. And I feel like that's something we spent a lot a lot of time doing on all positions in the firm is developing a career path, exactly what the compensation is, exactly the duties you need to do. What we do is we give people performance reviews on their job duties on career paths, scale of 1 to 5. 3 means you're doing your job, 4 means you're doing a really, really good job, and 5 is superb. It's hard to get 5s, but as you begin to get 4s on these, you're now eligible for a promotion to the next level. You're already accomplishing what you're doing in the, in the existing. So we can kind of grow our associate advisors up, our client service people up, and they know what it takes to get promoted, and they know— they'll know on a regular basis what they're doing well and what they're not. So I think by having them understand, and having them understand how much you can make in the long-term role, full transparency about what that is. Um, and I— and another thing that I, I really think, whether you are a lifestyle practice or you're trying to grow a full-blown firm— I talked to a lot of folks still at the Wirehouse that are, that are my friends, and, and also people that have gone independent recently, and it is so interesting how many people focus on the income that they bring in. The value, hey, I brought in X percent, my profitability's— I have somebody I talked to last night, they were proud their profitability was 60%. That's crazy. I think it's, you focus on enterprise value, the value of the company that you're building. It is a game changer in terms of when you get that mindset shift to focus on the valuation of the firm, then you can invest in the right areas. Then you know what to do that kind of fuels that vision. Because if you do the vision right and when you're calculating your 3 or 5-year vision and you have your AUM and you have your profitability, you can do the math to figure out what the valuation is. And that's a really good carrot for the owner and everybody that's an equity owner of the firm to get there. And I think the other thing that folks should do that really, really helped me was the coaching side of things. I get coaching from not just business. I have, I have multiple personal coaches, you know, athletic coaches. Having somebody hold you accountable and provide a very unique insight as to what you are doing well and what you need improvement is critical. People on your team are not going to tell a founder very often that you're doing a bad job in XYZ, and your clients aren't going to know. So you're not really getting the feedback that you need in order to really excel. And by having an external coach can really, really move things quickly. It made a huge difference for me. In terms of how our growth and what I was able to accomplish.

In your estimation, are you typical, or are you more an outlier? But what extent you could mention it, I think I'm good at some things.

I think we've done a very good job in terms of what we've done with like career paths and hiring people, and that isn't just me actually. I, um, Janine, my chief of staff, has done a remarkable job with individuals and focusing on employees and employee engagement, something that I was not good at. I think that I've been good at hiring good team members and keeping them and having good partners in my business. They have done incredible work for the overall. So it's really for us, it's about the team. I think I'm a little unique in the fact that I've been able to do things that a lot of advisors have had a tough time to let go of. So whether it's letting somebody, you know, run a certain division of the firm, whether it's not being involved with the clients anymore, letting people fail and also selling part of the company, which I've done, right, in order to gain succession and to grow and for growth and to give equity around. A lot of those things, people hold equity dear to their hearts, and I completely understand why. But on the flip side of it, we also have to be smart about having an exit plan. And I think there's so many folks out there that have no exit plan, and we are all going to exit, everybody. It's just, is it going to be planned or unplanned? And the more you can set it up and plan for that, I think you're going to be much better off. Your family's going to be better off, the clients are going to be better off, as well as the employees of the firm.

Okay. Any other final points that you haven't hit on that you want to mention?

No, I can't. I mean, it's, it's been a— it's, it's just the most amazing industry. And I think that what everyone can do is every so often and is to take that step back and to really kind of work on the business and to think like, what am I doing it for? What do I really want out of life? And really design your future in business around that. I think it is so easy to get caught up in the noise and the day-to-day complaints from a client or managing people, and there's so much stuff to do. But when you take a step back and look at what you can create, it is a phenomenal business. And you can just do so many good things for the employees and the clients. It's really exciting, and I'm looking forward to the years to come.

Excellent. Well, thank you so much for joining.

Thank you. Thanks so much for having me.

My pleasure. My guest has been Jeff Brown. For more podcasts and the latest wealth management news, visit barons.com/advisor. For The Way Forward, I'm Greg Bartolis.

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.