Matt Somberg: The Art and Science of Scaling to $2 Billion in AUM

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How do you structure and run a nearly $2 billion advisory firm? Hi everyone, I'm business coach Steve Sandusky for Barron's Advisor, The Way Forward podcast. In today's episode, I talked to Matt Somburg. Matt is the co-founder of Gottfried and Somburg Wealth Management, and he's ranked by Barron's as one of the top 100 independent advisors in the country. Matt and I discuss how he started in the industry straight out of college, was thrown into the fire by doing seminars in the eat-what-you-kill environment, and eventually found his way to starting his own firm. Through trial and error, Matt and his partner built a fast-growing wealth management firm with about 30 employees, 9 client-facing advisors, and they did it almost exclusively through organic growth. With that, Let's get started with Matt Somberg. So a lot of advisory firms today have a pretty structured career path for a financial advisor. You come in, maybe you're a paraplanner, and maybe then you become an associate advisor, and then an advisor, and a senior advisor, and then you make partner. You obviously didn't have that when you were starting out. So compare and contrast a structured development plan for an advisor versus what happened to you which was, I'm 22 years old, go do seminars, I can't pay you, see what you can do and throw you into the fire.

Yeah, I definitely would not recommend the path that we went down, but certainly today, yes, in our firm where we're located, we have quite a few colleges and universities that are close by. So we usually have 1 or 2 interns that are there, schools like Wesleyan and Trinity and University of Connecticut. So we've got some good schools that are close by that we can have interns from. Our typical path today is, you know, really what you described, which is intern, to paraplanner for a few years, sit in meetings with advisors, observe how things happen, and then really give that paraplanner the opportunity to decide if they see themselves in more of a research CFA track versus a client-facing CFP track. And, you know, certainly the beauty of that is that they can take their time. They're not being asked to sell right off the bat. They can kind of pick a path for themselves. You know, looking back, you know, what my partner and I did was really just try to accumulate clients right off the bat. Being in that teacher market initially, we were, you know, going after 403Bs was sort of the niche that we were in. And we did that for years. And then eventually you'd meet an educator that was married to a doctor, or an educator that was married to a dentist, or an educator that was married to a business owner. And so the practice just kind of grew from there. But starting off that early, one One of the things I'm sure that we'll talk about in our conversation today is just the importance of capacity. And if you're just accumulating clients, what does that wind up doing for you? So I think for younger people today, you know, the ability to work with a mentor, the ability to be mentored, the ability to be part of a larger team, an experienced team, the ability to not have to go out and sell right away. I mean, that's a wonderful, wonderful trajectory and career path to be on. I don't know that I'd go back and change anything, but clearly would have benefited from having an opportunity to work in the industry in some capacity for several years to learn it and to understand it, to identify where the opportunities are instead of just being thrust into go get clients and accumulate assets right off the bat.

One of the frustrations I often hear from advisors when I'm coaching them is when they find young advisors, they don't want to sell. They don't want to do the traditional blocking and tackling of selling and follow-up and prospecting and all of that. They just want to work with clients. They want to have conversations with clients. They want to do financial planning. How do you think about that in your situation where you had to sell, okay, early on? And so you're probably 1 out of 20 that was put in that situation that actually made it, and the other 19 fleshed out and are doing some other industry these days. And people like you that are mid-40s, 50s, 60s, you grew up in that culture. Yeah. And you're the folks that are running the big firms today.

Yeah.

But then the second and the third generation didn't cut their teeth on that. Right. And now they've got these smooth career path trajectories. How do you strike the balance between We really want you to be trained and knowledgeable before we put you too much front and center with clients versus we gotta push you out of the nest and you've gotta figure out how to sell, how to bring in new business. How do you strike that balance there?

That's a good question. You know, going back again to when I started, when we were doing seminars, the, the firm that I was with as an intern, no one wanted to make the phone calls after the seminars. No one wanted to pick up the phone and make appointments.

I'll bet you did though.

And I got paid $35 for every appointment that I could make. Yeah. And I was happy to make as appointments as I could. All you had to do was pick up the phone and be friendly and get it done. And to me, that was just so easy, but no one wanted to do it. So people are wired, you know, differently in that regard. You know, I remember coming in on Saturday mornings and making phone calls or telling prospects we'd go out to their home and visit them in their home or work on a Saturday or a Sunday. And that's just— if you were starting from scratch and you wanted to be successful, that's what you had to do. So You know, fast forward to today and we have an operation that generates 1 or 2 new households a week sort of organically. It's not the fault of people in the organization that we have people who call us up and want to become clients without us needing to do any real marketing or reaching out proactively. So it's not necessarily their fault. We need people to be able to meet with prospects, certainly convert them to clients, service them as clients. But the ability to rainmake is underappreciated because it is very hard to do and there's a lot of responsibility that comes with it. And so there is a lot of mentoring, there is a lot of ongoing education that I do, that my partner does with some of the younger people in our office that are looking to be advisors to teach them the skills that they're going to need to take the initiative to bring in new business on their own.

Would you say that mentoring program for those advisors to help them get better sales skills or communication skills, is that a formalized program? Is it more informal? How would you think about that?

It's formalized in the sense that it's put in the calendar every 2 weeks to happen. It's not realistic for the senior advisor, in my opinion, to think that the junior advisor is just going to know how to sell without setting aside time to mentor, to teach, and to explain. I mean, yes, all of us can learn by watching. Yes, we can learn that. But if you want to learn how to read people or you want to learn how to move a conversation from one direction to the next or learn how to be empathetic, those are things that are probably better explained to a younger person on how to do it or way to do it than just thinking that they can sit in the meeting and learn how to do it. So I think there's a disconnect between a senior advisor who says, oh, this junior advisor, they're not producing, they're not generating anything. Well, if that's the case, are you taking the time to try to help them and to mentor them? Because if you're not, then you have to take some of the responsibility yourself. So it's formal in the sense that there's time blocked off in the calendar every 2 weeks to meet with junior advisor, younger advisor, to talk about cases that we're working on together, to coach them through those cases. To try to bring them up faster that way.

Well, and you just made an interesting distinction there between what an advisor in training can learn by sitting in on the meeting and seeing the senior advisor in action versus what is best explained outside of the meeting with the client. And you mentioned like being able to move the conversation along. I think you gave a couple other examples there. I'd love for you to take one of those examples and say, okay, here's an example of if the client is rambling or something, or I feel like I need to move the conversation along, how do you make that shift? Or some other example, specific example of the training in sales or communication that you would have with one of these younger advisors?

[Speaker] That's another great question. So an example would be that a married couple client and the husband passed away. Sadly, we knew it was coming. And in this example, I knew that in this next meeting, what was going to be most important was not talking about how the portfolio is allocated to the surviving spouse, but to come across in a reassuring, positive, we're going to take care of you kind of way. And so in speaking to the advisor, I asked the advisor first, what do you think you want to go through? And he gave me a list of a lot of things that would have been helpful in looking at the entire client situation. And that was my way of to sort of hear what he was thinking. And then I chipped in my two cents. Well, I think for this meeting, really what we need to focus in on is just listening, letting her tell us how she's feeling, what her concerns are, and then really probably just going over enough to reassure her that she's going to be perfectly fine for the rest of her life. The other details are important, but they're not important today. So that advisor was well equipped for the meeting. Would have done a great job in the meeting, but sometimes you have to pick your spots about what information you're going to produce and what information you're going to go over. So, you know, that would be a classic example of that. Another example are just what I think are important details as a part of the sales process. So we had a junior advisor kind of did a couple meetings with a prospect kind of on their own, had a co-advisor sitting in with him, and I followed up with him after the second meeting and he said, you know, I'm pretty sure they're going to become clients. Well, that's great. And then a couple of weeks go by and I checked in on them and I said, you know, you know, by the way, what's happening? Well, they haven't responded. Okay, that's fine. Well, what did you do as follow-up after the meeting? Well, nothing. Okay, that's fine. He didn't know, right? No one had taken the time to explain. Right. So I talked about the importance of handwritten notes. Right. Anyone can fire off an email. Right. Anyone can write an email. It takes 2 seconds of your time. You take out your little stationery, you write a handwritten note, you put some thought into it, you send it out, you follow up with a phone call. Like, you need to go above and beyond to try to make some of these connections. But it's unrealistic to expect that people are going to know exactly what to do in meetings unless they're coached along the way. And that never ends.

But Matt, it's not efficient to do a handwritten note when I can send an email out. Come on. How am I going to scale my business if I have to do these handwritten notes?

So you're certainly right.

I'm kidding.

Well, I know you're kidding, but differentiation is so important, right? And I've said this to our junior advisors, when you're young and you look young, you have to find ways to differentiate yourself, okay? Because you're already playing at a disadvantage. And whether it's handwritten notes, whether it's extra phone calls, whether it's birthday calls, just all the little things that you can do to try to differentiate yourself. And I think that comes back also just earlier for when, you know, my partner and I started as independents at a time where being independent was not really the way to go. And so to do these small little things to try to differentiate yourself was so important. And I don't think that that ever ends no matter how big, you know, the firm gets.

I want to go back to something you said here a minute ago, and you may have just done this intuitively, but one of the things that you did was when you were explaining to that advisor who you knew you had this meeting coming up with a couple, and I think you said the husband had passed away, Instead of you meeting with that advisor and telling them, well, this is what you should do in this meeting, you asked him, what are you planning on doing? So instead of you telling, you're asking. So you were essentially acting as a coach there.

Yes.

Which was great because now that advisor is going to feel empowered because now it's his idea. Right. And he probably was 70, 80% correct in terms of he would have done the things that you would have done. So now he feels like, oh, Matt thinks I'm doing okay. And now Matt, you just add, well, here's a couple other things I would also suggest that you do. And you're adding another 10 or 20%, but he's feeling really good.

Yeah.

Because he already knew the majority of what you would've told him anyway, but now it's like his idea.

Absolutely.

Yeah.

And I think as a senior advisor, you can create a culture around that where it does not come across as your ideas are bad and wrong and mine are correct, right? If you approach it in the way of tell me how you think you want to handle the meeting, You can say, those are all great ideas, good for you. Here's the couple ideas that I would dial in and focus in on. And I think that creates a good culture where I think co-advisors or junior advisors respect senior advisors in many instances for what they've created and what they've done. But I don't think we want to put them in a position where anyone feels in these firms that ideas are not welcome from other places. We want to be inclusive of ideas in that regard.

Right, yeah. So that's good leadership on your part. And no surprise you're at about $2 billion in assets for such a young guy. All right, so you touched on this a little bit in terms of some of the things that you think differentiates your firm. I'd love for you to share a little bit more, go a little deeper there.

Yeah, so again, I think we've got the emotional scars of trying to prove ourselves as young independents. And I think it's easy to say that, you know, great service is a differentiator. I would think hopefully any great firm is providing great service. We would hope that, but we would certainly say, you know, great service. So one of the ideas that we had a long time ago is we started to accumulate— when I say we, my partner and I— land in the town where our office is. And we accumulated 3 small adjacent properties right next to each other that happened to be right off the highway exit into the town. And so what our vision was as a differentiator was to be able to create a one-stop shop in some fashion for our clients. So we accumulated the land over a period of years, we went through a zoning process over a period of years, and we built a 3-story, 20,000-square-foot office building right off the highway as the entranceway into our town. And that not only houses our firm, but it houses someone who does tax returns, it houses an estate planning attorney, it houses a mortgage person. And the idea, again, from a differentiation standpoint, was to be able to provide different services to our clients than perhaps they could find elsewhere. Now, the concept of a one-stop shop is not unusual. Family office is not unusual, but the demographic where we are is not used to sort of a family office environment. I'll talk more about that in a minute. So in many ways, we're able to create, if clients want, a family office for sort of the mass affluent. And I think as people get older and are further along in their retirement, centralization, simplification, one location becomes more and more desirable, and we've been able to create that. We've also been able to create a pretty neat environment for the complementary professionals that are in our building as well, whether it's bringing them into a meeting with a client to share their expertise or us being able to send one of our clients to them for their help. So it's created some nice energy and some nice synergy in the building, and I think at the end it creates a better result for the client when their professionals can talk to each other like that.

Now, some firms will have those people on staff and they'll tout that as, we can handle everything. We've got the attorneys, we've got the CPAs, we've got the investment professionals, we've got, you know, the insurance people and everything. But in your case, you're basically saying you're sticking to your knitting, which is financial planning and probably the investment side. And then you've got these other complementary professionals that are in the same building and you're quarterbacking, but they're not on your staff, obviously. And do you feel like it's better to have them not on your staff or do you think it would be better if they were actually all on your staff? And do you see any difference there? 'Cause I know firms go both ways and they—

There's certainly two ways to do it. I don't think that every single one of our clients has the exact same needs and the exact same personality. And so I don't think it would be fair to one estate attorney to be responsible for all of our clients because their needs are different and their personalities are different. I like the convenience of having those people in the building, but they're not the only estate attorney that I would suggest our clients go to. Given the level of complexity, given the geography, given the personality, we have a, a whole list of accountants and estate attorneys that we work with mutually with our clients. So I love the convenience factor and the quality of work that's done by the attorney and the mortgage people and the tax people in the building is really good. But I never would think that one firm or one person could service all of the needs of all of our clients because they're varied. So we've got great accountants and great estate attorneys locally that we share business with that when the referral is right, we send out. And there's great people in our building. When the referral is right, we send them downstairs.

Yeah. So obviously we have a lot of M&A business taking place in our industry. And one of the reasons why— not the only, but one of the reasons why advisors say, hey, I want to sell my business is because this firm that I'm selling to or merging into has the estate planning on staff, has the tax, has the insurance. They've got it all in one place. And so I can offer expanded services to my clients.

Yes.

Do you think that's just selling point, but it's not in practicality any better than the structure that you have, which is I'm trying to match up my client to who I think is the best estate planning attorney, not just the one who happens to be on my staff.

Yeah, I think there's pros and cons, right? I mean, I know that in some of these firms, larger national aggregators, they have an incredibly deep bench of people who can do taxes. They have an incredibly deep bench of estate attorneys, and that is Fantastic. Even if I'm with that firm, I am going to have clients who want to sit across the table face to face from the person who is doing their taxes and go in and physically see them. Even if I'm with that aggregator, I have clients who will want to sit down across the table from their estate planning attorney. So I know that there are different solutions, but I don't think it's going to be one solution for everybody. Still think that there's going to be choices. In that regard. And, and again, when we're matching up clients for estate planning or for taxes, I'm thinking about the client's personality, the estate planning's personality, what fees do they charge, how is the client going to respond to that, what's the geography? You try to put your clients in front of someone that they're going to be most comfortable with. So I think that those are great solutions, and it's clear that the industry is, is moving very quickly in that direction, but I don't know if there's one answer for everybody.

We've touched a little bit on growth. I want to go a little further into that. So as we mentioned, your firm, you started zero, you're coming up on $2 billion and been doing this for 20-some years. So certainly a great growth rate. And I think almost all of it, vast majority of it is organic growth. So tell me, how does that growth come about? I know you touched on it a little bit, but tell me a little bit more about the growth strategy.

Sure. So geographically where we are is a suburb of Hartford, Connecticut.. And if we think about who the major employers are of Hartford, Connecticut, it's companies like Cigna, UnitedHealthcare, Travelers, the old United Technologies, which is now Raytheon, big employers. And for many of those companies, this is their home office. So not necessarily that there's an, an endless supply of C-suite people, but there's an endless supply of people who have made a really good living working there and have spent their entire careers there. And probably have defined benefit plans from that company in some way, shape, or form. So what that means is in our area, there is probably an endless supply of people who have $1 to $5 million and they need their taxes done. They need probably some basic estate planning. They need to come in and see their financial person a couple times a year. And so that creates a very scalable business. And so that's what we've done. And so today we have 9 client-facing advisors. Each of them has a block of clients of approximately 100 or so, and their job is to meet with those clients twice a year, talk to their accountant, talk to their estate planning attorney, and stay in constant contact with the client. So I think many people's practices will sort of reflect the geographic area that they live, right? Where we are, there's an endless supply of people with $1 to $5 million, and there's, zero supply of people who have, you know, $150 million. That's just sort of where we are. So our business reflects that. So with that model, we have roughly 1,000 clients. And I think when you have roughly 1,000 clients, there's some element of critical mass where someone's always retiring, someone's always selling a business, someone's always getting an inheritance. There's always something that is happening. So we take on somewhere between 1 to 2 new clients a week. New households. So it's somewhere between 50 and 100 new households a year, and we can kind of just keep doing what we're doing and that's going to continue to happen. So that's been a nice trajectory for us to have. If your model includes talking to their local estate attorney and talking to their local CPA, what you find is you don't need to network with estate planning attorneys and CPAs. You're working side by side with them on mutual cases.. And so instead of calling someone up and saying, hey, do you want to have a cup of coffee and we can learn about what each other does? We're in the trenches with a lot of them already. And so when they have opportunities amongst their client base where they need help, in many instances we're front of mind. So the business comes probably from critical mass. The business comes from sort of an endless supply. We've built a pretty good brand. We've got our geographic location and we've got a number of centers of influence who that we, you know, have shared clients with and done work together on behalf of clients where they feel comfortable sending their clients to us. So that's sort of how the, the organic aspect has come. For the first 21 years, everything was organic, and then we were approached by another firm, two women who were on the cusp of retiring. It was a couple hundred million dollars, and we had one meeting, and then they decided that we were the right fit for them. And we were able to fold in their practice into ours, not just the clients, but their employees came into our office and we learned an awful lot from that experience. But I think because we had the depth, 8 or 9 advisors already in place, we were able to really go down the list of each one of their clients and understand the personality of each one of their clients and what type of advisor would they feel comfortable with and literally played matchmaker. Figured out which client would be most comfortable with which advisor.

And for the most part, that worked out really well. So you mentioned each advisor has about 100 clients.

So how do you figure out what that capacity is? Constant conversation. Capacity is always front of mind for us at our firm. Each year we start out with a meeting with each advisor asking them how their capacity is. How much room will you have this year for new relationships as we think about where the new business will go to during the course of the year? I think we have 4 advisors who at one point in their career worked for firms that had walk-in centers where at those walk-in centers they were responsible for 400, 500, 600 households. Today they work for us where they have 100, Some obstacles. It's a piece of cake. And it's a little, it might feel like a vacation, but I know that they are thrilled and happy to be able to have the time to really get to know those clients and build relationships with those clients and not come in each day feeling like they have to make 50 phone calls and fill a grid and check off these boxes of all this production that they need to do. We're the total opposite of that. So knowing that advisors have been elsewhere in walk-in type centers, and love the service model that we have. I mean, that makes my partner and I feel really good that we've created something that's very client-centric and can really give our advisors the opportunity to have deep, deep relationships with their clients.

In terms of how you think about your firm's profitability, and you've got advisors that have 100 clients and your typical client, it sounds like, is between $1 to $5 million, how do you think about advisor compensation? Conversation knowing that they only have 100 clients, does that translate into $100 or $200 million or $300 million in assets that each advisor on average is managing? Is that— Yes. Okay. And then as you think about how you comp them, are they on salary? Are they on bonus? Do they get a percentage of revenue?

How does that look? Yeah, they're all salaried. They're all W-2'd. And I would say that at the end of the year, that W-2 probably reflects a certain percentage at the end of the year of what they're being compensated for the revenue that comes from their block of business. So they are incentivized to retain, retain, retain. They're not paid anymore on bringing in new assets. They're just paid on the revenue that is being generated from the block of business that they're responsible for. Comes to them in the form of a salary and bonus. But they're not brought in to rainmake. That's not their responsibility. It's welcomed, of course. You know, new business that they generate on their own is welcomed. But we have enough happening organically where we just need them to do a great job keeping the business that we have on the books and doing a great job for their clients.

And that salary, is that adjusted each year based on their revenue? So if, if they happen to bring in a $50 million client, probably not your normal market, but just for example purposes, if they bring in a $50 million client and that generates $250,000 of additional revenue, are they going to see a nice bump in their income from that?

They would, they would. It's certainly not paid up front, but as it becomes a part of the revenue that is being generated from the block of business they're responsible for, they would see a bump up in their compensation because of it. Just like if they lost a $100 million client or a $50 million client, which would, you know, this is hypothetical, they'd see a significant decrease in their compensation.

Right, now what if the market drops 20% and their portfolio drops 20%? Is their income going to go down commensurate?

It is. I mean, that's, that's the nature of the beast, right? That's the nature of being a fee-based wealth management firm. Okay. There's times when we're probably paid a little bit more than we're worth when markets are going up, and there's probably times when we're not paid enough as we're worth when markets are going down. So what it does, Steve, is it essentially puts them in a position where they feel, and in a way are owners of that block of business. They're thinking like an owner. They're thinking about, is this a client that I want to add to my my client list? Is this someone that I want— you know, I only have so many spots available. Is this someone that I want to add? They have input on pricing when it comes time to, okay, we have a new prospect, how do we want to price this out, right? I want their input. I want them to think like an owner. If they think that this is someone that should be priced way down, well, they have skin in the game on that, right? That's going to affect the revenue on their block of business. So they don't own it per se, but this is a model that gets them to think like an owner, and that's great because I want all the advisors— you know, I'd like everyone in the firm to be thinking like an owner, but certainly We want the advisors to be thinking like owners as well.

Right. So you said you pay them a salary. Do you also say, hey, you're getting 20% of the revenue of your book, you're getting 18%? Do you tell them what the percentage is?

Yes. It's essentially a percentage of the revenue that's being derived. And depending upon the circumstance, it's probably somewhere in the, you know, 20 to 25% range.

Okay, great.

Plus benefits. Plus 401(k), plus benefits. And then there's some, you know, small little things here and there, like, you know, You try to bring in lunch a couple times a month for everybody and show everyone a good time here and there. So yes, 401k, health plan, and then some fringe things as well.

How do you get the team to operate as a team and help out other people in the company if they're essentially compensated for their book of business?

That's a good question. I don't think I've ever had an issue where, that someone wasn't willing to help out someone else in the company. In fact, some of our senior advisors quite often refer business to the junior advisor, which helps the junior advisors tremendously. They don't get compensated anything for doing that. They're just trying to help someone else within the organization. And I suppose to a certain extent, they're helping themselves by not taking on a client that they don't want to take care of going forward. Culturally, I don't think we've ever had an incident where a senior advisor wasn't willing to help out another advisor or wasn't willing to help out the junior advisor. The senior advisors are all asked to sit in meetings with the junior advisor and kind of be by their side in meetings and kind of do that on a rotating basis. And everyone's been willing to do that. I don't think we've had an issue with that at all. That might just speak to the culture or hiring good people or some, some combination of the both. Yeah.

And then what about the non-advisor staff?

Are they on salary as well? Yeah. Non-advisor staff is all salary. You know, we have, We have some C-suite people, as you know, we're up to nearly 30 people now. So we have some C-suite people. We have 5 RMs, relationship managers that are really in charge of, you know, creating new accounts, cashiering, things along those lines. We have 3 CFAs that are really dedicated to primarily portfolio management and research. They're somewhat client-facing. They come into meetings with the advisors as the portfolio managers so that the advisors can focus on advising and the portfolio managers can focus on managing portfolios. But everyone else in the firm is on a salary track.

And is there a bonus program for them of some type too?

Yeah, I mean, that's going to depend upon their specific role. So a relationship manager is going to have a bonus matrix that's tied to the things that they need to do servicing clients. A CFA person is going to have a variable compensation piece that's tied in part to portfolio performance, for example, how we compare to benchmarks and a few other elements to that as well. So Variable compensation is really tied specifically to what are they doing within the company.

Okay, so let's switch gears here a little bit. So as we've mentioned, you've gone from zero to about $2 billion. A lot of people would say you're going through the messy middle. Yeah. And firms that are in the $500 to maybe $2 billion range, it's really difficult. We see a lot of firms decide they want to sell at that point 'cause they don't want to do what they have to do to get to that next level. Right. I would say you're probably coming out the other end of that. Did you ever go through this messy middle that people talk about? And if so, how did you get through some of the challenges there?

I think that messy middle piece in a way goes back to the idea that neither my partner nor I worked in the industry before jumping right in and becoming advisors. So, we never knew that there were better ways to do certain things. We were just sort of doing our way and you bang your head against the wall a few times and then you realize, realize you could go around it or open the door or whatever the expression is. So we never had a blueprint of we're gonna start here and we're gonna go there and this is how it's gonna all wind up. Like, this is all from putting your head down, working hard, and really just trying to get one new client at a time. And like, we woke up and, you know, here we are today talking about this, right? So, so I wish I could say that we had this long-term plan of what it was all gonna look like, but that did not exist. And that's because we didn't spend time working outside of our business in the industry. So I think in that regard, while it's made for a great story, it probably made things a little bit harder. In terms of the messy middle, I had a meeting a long time ago, probably 20 years ago, with a practice management consultant at the broker-dealer that we affiliate with. A great lady, name is Joni Youngworth. And, and I remember asking her, I said, you know, I had some success and just in the sense I had accumulated some clients. I said, Joanie, can you tell me what I need to know that I don't already know? Like, what is that? And she had a great answer. She said, Matt, you're going to need to reinvent yourself within your career several times. And that, I mean, it probably should have been obvious, but I had no idea. And that's absolutely true that if you start out just accumulating clients and building a business, you're eventually going to become a rainmaker and a manager and have input on investments and an HR person and all these different things that are going to need to be done. To grow your business. So the messy middle, yeah, that occurs a lot, right? It's the chicken and the egg of, do we hire C-suite people now or do we wait? Do we hire HR people now or do we wait? Do we hire an investment consultant or do we hire another CFA? So I think we're constantly in the messy middle because we're an independent business. We're 100% owned by ourselves. We don't have a third party that owns a piece of us that's telling us what we should or shouldn't do. We're just sort of figuring out on our own. Now, I don't know if it's always gonna be like that, but I feel like we've been in the messy middle a lot and we've somehow found our way to get out of it and keep moving forward until we get back to the messy middle again.

Yeah, well, I, and I agree with you 100%. I think this idea of the messy middle is really misleading. And the reality is like you're describing, if you're a growing firm, there's always gonna be another challenge. And Joni, she's an icon in the industry.

Is she still in the industry or? I think she has some involvement, but I think she's been able to take some time to, to do some things for herself as well.

Yeah, yeah. So if you're growing, you're always gonna come up with that next challenge. And like Joni said, you've gotta reinvent yourself. It's almost like you gotta be the Madonna of business. It's like you always gotta come up with something new to stay ahead of, you know, what the competition is doing. And even if you're a multi-billion dollar firm, oftentimes by the time you get to that size, you've got some private equity money, you've got some other outside investors. So that's another whole dimension. Of people that you've got to figure out, well, how am I going to work with this board and what role do they have versus what can we do, what decisions can we make? And so there's always a next challenge. And it's only for those advisors that have that growth mindset that are really willing to do the work necessary to make it. And so I firmly believe that any firm of any size, you don't have to merge, you don't have to sell to another firm because you feel like you're lacking. Something, you will find a way. Just like you, a lot of people are saying you got to have the estate planning attorney and all this stuff on staff, and you're like, well, we can just put them in the same building, right? And we can get a very similar result. So you're finding a way around some of the conventional wisdom out there, and I think the best advisors do that. They get around the conventional wisdom and find a way to make it work in their particular situation.

Absolutely. I would agree with that completely.

All right, so let's Let's look at the future a little bit. What do you see are some of the biggest challenges ahead for your firm?

So I've been dialed in on this next point for a couple years now. So let's pretend, Steve, that I'm your client, all right? You're the advisor. You know, I come in and I see you twice a year and you're a great advisor, you're the rainmaker, and you deliver an A+ experience to me every time I see you. So you give me two in-person A+ experiences a year. And then whenever I email you, you email me right away with a fast response. And so maybe that's another 3 or 4 times a year where, boy, Steve, he's just a great communicator. And maybe once a year you call me about something that you want me to— on your birthday. On my birthday, right? So you're delivering to me probably less than 10 instances during the year where I'm getting an A+ experience. And I love you and you're a great advisor. But the technology portal that you give me as your client in this example is not good. It doesn't give me the data that I need. I can't upload documents. It's just sort of antiquated. And so I'm looking at that website 365 days a year and 365 days a year you're delivering to me like a C experience, even though the 10 days a year I'm actually dealing with you, I'm getting an A+ experience. Now, let's flip this around again. This time you're an average advisor, okay? Same thing. I've got 10 instances where I'm dealing with you. You know, you respond a day or two later on your emails. I come in the office like, you're okay. I'm playing golf. What do you expect? Yeah, you're okay. That's okay. That's fine, right? Like, yeah, Steve, he's, you know, he's fine, right? Like, he does a pretty good job. But your website and your client portal is an A+, right? So you're giving me 365 days a year where the technology that you're giving me is excellent. You know, play around with financial planning tools. I'm getting market updates. Your content is excellent. So where I'm going with this is client-facing technology, in my opinion, is incredibly important. It can dilute the experience of an A+ advisor. It can enhance the client experience for an average advisor. So I don't necessarily think that our firm needs to be cutting edge with all of the technology that we use, but if we're building a practice and have a practice that's based on scale and having a lot of clients, We need to have top-notch technology at all times, both to deliver top-notch technology experience when you come into the office and for you to have access to top-notch technology when you're just looking at things on your own. So I think that's very important. I think technology for the industry as a whole, you know, people are still going to want to have personal advice. I know that we all agree on that. But the 365-day technology experience that we can deliver to clients, if that can continue to be enhanced, that's going to keep clients really sticky, in my opinion.

So let me push back on that a little bit. Sure. What is the usage of your clients today logging in to check in their account balances or to do whatever they do through your existing portal or broker-dealer system?

Do you see a lot of that today, or— I mean, we have access to a report that shows us who logs in and how frequently, and that's helpful because that way we know who is worried or who is paying attention. I think some of it skews also based on demographic, right? Like, I guess we're stereotyping, but younger people probably tend to utilize the app more than maybe a 95-year-old is, right? Like, I know I'm sort of stereotyping a little bit there. Yeah. But as our client base gets older or gets younger, depending upon how you look at it, right? If we're able to bring in more younger people with more money, that's going to continue to be very important. So I think we would be kidding ourselves if we thought that all we needed to do was talk to our clients a couple of times a year and meet with them a couple times a year to deliver an A+ experience. It's gotta be a 365-day-a-year A+ experience in my opinion.

Right, well, I'm 100% on we've gotta have good technology. I'm just wondering how much of a client's desire to stay with their advisor is gonna be based on how cool your technology is. Now, there's a table stakes, absolutely, because the problem with technology is it changes every single day. I mean, now we've got AI and all this stuff. It's like, you know, everyone's trying to run as fast as they can to incorporate AI into their technology. So it's like, I'm never going to be caught up on technology because everything changes. There's always a new shiny object. So what if we did the reverse? And this is, quote, not scalable, but put more human into the advisor relationship and have good technology, but not bleeding-edge technology? Because at the end of the day, clients want a human. Right. Okay, sure. If I need a quick thing, I want to get an account balance, absolutely. I don't need to call my advisor about that. So certainly all that stuff. Sure. But if I don't want to be talking to a bot about some personal situation, I want a human being. So what if we double, triple down on the human side of advice and have good technology.

I don't disagree with that, and I think our service model is such where there is more than enough human touch during the year. But I don't want that high-quality human touch to be diluted by what happens when there isn't the human touch. So I don't need to be— we don't need to have cutting-edge, leading-edge. Now, there's no need for that because you might lead for a while, then you fall behind. I think we need to have consistently good or very good technology, and I think that's a really good balance. And again, just the way that our advisors are set up for the amount of contact that they have during the year, there is enough human contact. I'm not looking to get rid of that or delegate that, but I want a 365-day-a-year positive client experience.

That's what we're looking for.

Right.

Okay. Let's talk about culture, vision, mission, some of those things that people might call the softer side of the business. But of course, we all know it's, it's not soft at all. It's really the hard stuff and the glue. That keeps organizations together. How do you think about those things in your business?

I think a couple things come to mind. The first is just a recent experience. We recently hired a, a new relationship manager, and she came to us from a firm where the advisor that she was supporting had 800 households. It was a bit of a, a factory. And so as a part of her onboarding process, she's asked to sit in on our client meetings and sort of understand how we operate and how we communicate with clients. And I guess when you don't bring an outsider in often, you're— you kind of forget that maybe your way of doing things is exceptional, right? And I mean that in a humble way, like, this is just how we do it. I didn't know it was exceptional. This is our way. And just the feedback from her of she can't believe how much time we spend with the clients. She can't believe how well we get to know them. She can't believe how above and beyond we go on the servicing side compared to where she was before. So I, I was thrilled to hear that, of course, and it was reassuring. And I think just a nice pause and reminder that we're doing things the right way in that regard. And to see that from an outsider who's come in was, was just great to hear. And she came from a pretty well-respected firm. In the area as well. You know, on the culture side, I think everyone working from home during COVID kind of put a pause on culture for a while. We were fully remote during that, and I think we all, to a certain extent, kind of forgot how to play nicely with others. You know, if everyone's working from their living room, when they go back to the office and they have to interact—

Do you have people coming into the office 5 days a week, or what's your policy on the work from home?

Well, the answer to that kind of ties in with the culture piece. So we're flexible. With some limitations. Yeah, most people are in the office 4 days a week, some are 5, and some are 3. So it's somewhere between 3 to 5. The flexibility is, you know, we have single people who don't want to be home by themselves every day, and we have people with families who need to be flexible to put their kids on the bus and get them off the bus. And I don't think that we should have a one-size-fits-all program because I would be a hypocrite myself if you know, if I wasn't following the rules in that regard. So I think having balance is good. I think talking to the people in our firm about— we get it. I'm a parent. I've got 3 kids. My partner has 3 kids. Like, we understand the flexibility of it. It's good to have some balance. It's not all about working here. So I like that flexible aspect. And I think that that builds into culture as well. So I think there was probably some bumps when everyone came back to the office. I'm sure it wasn't just our firm. Where people needed to sort of get along well with others after working at home by themselves for a year. And we've definitely hit our stride. You know, we've implemented a culture committee that plans fun events once a quarter of things that people in the office want to do so we can remember that we all have personalities outside of the office, that we can get together again. And so I think we're in a really good place from a cultural standpoint. I do think that COVID kind of put a pause on that when we didn't really have to physically be around each other anymore.

All right, well, Matt, as we wrap up here, is there anything else that you want to share? Is there a question that you wish I would've asked you?

I think the question probably would be, you know, sort of like when I asked Joni Youngworth years ago, you know, what do I need to know that I don't know? I think when you're in your mid-40s and you have your own firm, you're looking at where are you going to take your firm going forward? Through the lens of what's going to be best for the client and how can we deliver the best experiences for our clients. What do our clients need? When you consider the landscape that's out there, you know, we're not going to retire in 2 or 3 years. We don't need a succession plan. So I think if the question was what's most important to you and your firm and how is that going to impact your decisions over the next 20 years, It's what can deliver the best client experience to our clients over the next 20 years.

Well, is there, in that area, is there anything that you think you are lacking or you're falling behind in terms of delivering the client experience that your clients want and deserve?

I think we've consistently over time swum upstream in terms of larger clients, bigger clients, You know, I mentioned the 1 to 5, but that's just the mass in the area. You know, we have plenty of households that are significantly larger than that. And so I think hopefully our clients make money on their accounts over time and the account balances grow, of course. And I think as they accumulate more wealth and have more wealth, we want to be able to make sure that we can meet the demands of that, whether that's more comprehensive planning, more alternative investments, more banking options, more bill pay options, all of the things that people who have more money will eventually look for and have. So we have access to it, but I want to make sure that whatever vendors we're using for that are improving themselves as much as we're trying to improve the experience for our clients as well.

All right. Well, Matt, this has been great. If folks want to connect with you, are you on LinkedIn or what's the best way for folks to stay in touch with what you're doing?

We're on LinkedIn. I'm on LinkedIn. And GottfriedSomberg.com. Feel free to email me, somberg@gottfriedsomberg.com. I really appreciate the opportunity today, Steve.

It was great. Awesome.

Great show. Thanks, Matt.

Thank you. 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 Barron's.com/podcast.

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