Michael Nathanson: Scaling Your Firm From Practice to Enterprise

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Building a sustainable wealth management enterprise requires letting go of control, embracing interdependence, and architecting a firm that can outlast any one individual. Hi everyone, I'm business coach Steve Sandusky for Barron's Advisor, The Way Forward Podcast. My guest today is Michael Nathanson. Michael is the CEO of Focus Financial Partners, where he's leading a bold transformation from an aggregator of firms into a unified fiduciary advice enterprise with global ambition. In today's conversation, Michael shares what it really takes to transition from a practice to an enterprise, how leaders can build enduring firms by distributing power, not hoarding it, and why Focus's rebrand signals a deeper cultural and strategic shift for for the future of wealth management. We also talk about the paradox of leadership and why letting go can lead to more growth and impact. He shares how Focus is using hubs and shared services and cultural alignment to unify their dozens of firms. And he talks about why Focus went private and what that unlocks for the firm and its partners. Michael's been a CEO for more than two decades, and his insights around vision and mission and structure and transformation are both timely and timeless. With that, here's my conversation with Michael Nathanson. I want to start at the 30,000-foot level, and I want to talk about something that a lot of advisors may start to roll their eyes at, but it's something that I know you think is really important, and it's something that I think is really important. And so I want to go there, which is vision, mission, and values. So I'd love for you to talk about going back to the Colony Group days when you were running the Colony The Colony Group. How did you think about vision, mission, and values there? And then as you moved to Focus and now the CEO of Focus, big large enterprise, how have you ported over what you thought about vision, mission, and values at The Colony Group to Focus? Has your vision expanded? Tell me a little bit of the, the journey there on those three things.

Great question, and thank you for that. And you're correct, it is something that many people will roll their eyes about, but it's also something that's critical and that I take very seriously. So, when I was at Colony, we spoke about mission, vision, values all the time. And I believe in saying it and saying it again and again and again. And every time I got in front of the company, I always began with vision, mission, values, because it's important that we center ourselves around our purpose and are always looking to what we're seeking to accomplish. As Stephen Covey says, we need to begin with the end in mind. And that, of course, has a broader meaning, but it is an important important message for us. At Colony, it was all about clients, of course. And in our vision and mission, all related to the way we used to say it, and it's evolved now within Focus Partners Wealth, but it's still very much there. The way we always said it was that we sought to empower our clients and help them achieve their visions for tomorrow. So, it was all about thinking about what our clients were trying to accomplish and standing alongside them to ensure that we were with them and that it wasn't about imposing our own vision for our clients or our own version of how our clients should be thinking about their futures, including financially, but rather to understand specifically what every client was looking for and coming alongside them. And we spoke about many values. And I'm going to speak about focuses in a moment. But at Colony, the way we spoke about values was that we have many important core values. But ultimately, we wanted to make sure that we were speaking about what was most important to us so that we could stay focused on that. And what we spoke about were 3 values: kindness, super teams before superstars, and awareness, having a culture of awareness where we had an awareness of how we showed up every day, whether we were in drama during a particular day, whether we were in a good mood or a bad mood, whether we were thinking only about ourselves or thinking about others. And these are all very much human characteristics. And everybody, regardless of our intention, we're all over the place in terms of what we're thinking about. But the idea was simply Can you be aware of how you're showing up, of how others might be perceiving you on a particular day? So those were our 3 particular values that we chose to focus on. So advance now to Focus. Well, Focus is, of course, a much more complex organization, though it's actually a very simple organization in some respects. But it's a much more complex organization because it has so many constituent companies that have come together to form Focus, though that was also the case In Colony, you could sort of see Colony as a microcosm for that. And what I'm doing now at Focus is, is in some respects, though on a much larger scale, similar to what I was doing at Colony. At Focus, we came together around a core vision. I often quote Helen Keller, and she said that the only thing for her that would have been worse than being blind would be to have no vision. And I do think it starts with that. And so we brought a core group of people together from across Focus And the vision we came up with is to be the leading fiduciary advice company in the world, a company whose clients experience it as a company built just for them. And we say that just for them, just for our clients all the time, and whose advisors and advisory teams, because it's more than just advisors, experience us as a company that offers them every resource and every capability that only the largest financial institutions in the world could offer. That's our vision.

Can you measure that? Do you measure that? And how do you reinforce that? And how do you ensure that you actually are striving toward that vision? And sometimes I think of a vision as like an asymptote in terms of, It's out there and we try and get closer and closer and closer to it, but we're never going to quite reach it because hence it's a vision. But we want to get closer. So how do you think of it in those terms?

I want to come back to that point. That's a really important point. I want to speak about measurement and then I'm going to come back to the way we think about vision and the way companies and your audience might think about vision going forward. So I do think that much of it can be measured. I think that we can look at, and we do look at, client satisfaction surveys, advisor surveys, advisor satisfaction, net promoter scores, but we can also look at statistics like growth. We can look at client retention and we should look at these things. We should look at the overall health of the organization. With respect to being the leading fiduciary advice company in the world, well, we're a fiduciary advice company. We're bound by the fiduciary standard and we operate under the fiduciary standard, the client-centric fiduciary standard. You know, it's probably not fair to simply make it about our size, but we are by most measures already, you know, the largest independent player in the fiduciary advice space. I don't tell you that that's the only measure though. I think it goes far beyond size and we're already there. And I'm not prepared to declare that we've already achieved our vision, though I do believe that we're well on our way. One thing I'd say about vision. Is the way I just discussed it with you, Steve, and the way you asked me that question, it suggests that a vision statement is a good substitute for the vision itself. And I actually don't think it is. I think it's important to have a vision statement, but I think it's also important that the vision be deeper than just something that fits nicely on a piece of paper. And so, I'm someone who at Colony, practiced and at Focus, I'm in the process of practicing this concept of a vivid vision exercise. You may be familiar with Cameron Herald's book Vivid Vision, in which he says, look, vision statements are great, but what you really need to do is make sure everyone understands what that means. And what that exercise involves is putting together multiple pages, not too many, but maybe 3 or 5 or even 7 or 8, probably not more than that. Pages that describes exactly what it looks like. And what he says is, think about not 5 years out, that's too far out because the world changes so much, and not 1 year because that's not enough time. So, think about 3 years. Where will you be in 3 years? And it usually starts with, okay, the year is 2028 and clients perceive us this way and advisors perceive us this way and we look like this and we're doing this.. And it's a great exercise. And then what's most important about an exercise like that is involving everybody, including in rolling out that vision. It's not enough to just have a clear vision statement, though that's very important.

I think that's critical. In fact, we go back 20 years when I was running Peak Advisor Alliance with Ron Carson at the time, Imani Carson today. I put together this thing called blueprinting, and one of the keys of blueprinting was the vision. And rather, we didn't call it vivid vision, we called it Your compelling vision of the future, very similar to what you just described there, where we had a series of questions and we said, okay, we want you to actually write out a paragraph or two paragraphs that describe your compelling vision for the future. And it answers such questions as, where are you living? Who are you working with? What do your immediate surroundings look like? What kind of impact are you making in your clients' lives, in your family's lives, in your community? Like those kinds of questions. And it just And what I say to them is, you need to read that. And if that doesn't give you goosebumps, if that doesn't make the hair on the back of your neck stand up straight, then you haven't hit it yet. And so, keep working on it until you can look at that and say, oh my gosh, if I get anywhere close to this, this is going to be amazing. And so, I think we're speaking the same language here.

We certainly are. Just be able to refer back to it. Now, at Colony, we also had some softer language when we spoke about our vision. We spoke about being the leading company for clients and advisors who sought meaning and joy in their lives. And those were appropriate things to talk about for Colony because we had that kind of a culture. I think they're appropriate for much of Focus as well. But at Focus, again, it's a much broader ecosystem. And so we need to be careful about how we can come together and use language and concepts and a true vision that everyone can relate to. And I think what I just described very much does that.

As you move from Colony to Focus, do you feel like you had to water anything down because you had so many more constituencies, all of which had their own microcultures? Or do you feel like you were able to bring everybody together and come to a pretty good consensus that this really fits all of us and we can all really get into this?

This pun is intentional. I actually feel like we had to get more focused. Coming to Focus, it was clearer than ever we needed to have a vision that was crystal clear, that people could relate to, that everyone fully understood, including people who were new to the organization. And at Colony, it was a— I mean, Colony was a large company, but much smaller than Focus. And at Colony, I don't think it was as important that we were as specific because people understood. We all understood what we were talking about. And I think it was actually important that we get more focused and even clearer at Focus. So no, I don't think it was watered down at all. I think it was just, you know, just laser-focused. Sorry for the continued puns, but that is the— that's part of having the name Focus.

And then the mission. So how did the mission develop here?

I think of mission as our purpose. I believe that ultimately our purpose has to be at the center of everything that we do. Freud once said that all people really need beyond the essentials that humans need, like food and shelter and water, is we all need connection, and we all need purpose. And what's important is that our purpose at Focus is a purpose that our clients can relate to and then our team can relate to, because ultimately, if they don't, they won't stay with us. You think about team members. We pay our people really well. We give them good benefits. We give them great career opportunities. But that is not enough. What human beings need is purpose. So, our purpose, our mission is to focus, again, pun intentional, the collective capabilities and resources of the top people in the industry to provide a better future for clients, our communities, and the world that we live in. So, this is how we think about it. It's a big grand purpose. I believe that when you help one person, you're helping the whole world. And so that's the way we think about what we do. We're serving clients and we're serving each other. And as we do that, one client at a time, we're making our communities a better place and we're making the world a better place.

And what are some ways that you're able to deliver on that or demonstrate that?

We have been focused again on improving the experience for both clients and advisors. Our game plan really comes down to what I call 3 strategic imperatives. And those strategic imperatives are to expand capabilities for clients and advisors. That's number 1. Number 2 is to accelerate our growth. And number 3 is to improve and enhance our efficiencies as an organization. And I believe all of those are important for providing better experiences, better outcomes for clients and for advisors.

So, we've got the vision, we've got the mission. Now, what about the values?

So, we have values at Focus that include ones you would expect to see, values around service and teamwork and excellence, integrity. And ultimately, one thing we talk a lot about is execution. Being biased toward action. And those are great values and they're important values. But Steve, you know, you and I have spent time together and you know that I like to push for our organizations to be extraordinary. And many other companies would have similar values. I was doing another podcast actually a few months ago and I was in an elevator lobby and the company had their values listed and they were great.. But I thought to myself, those are everyone's values. So what we came up with that focus is we have our core values, which I just described, but we also have what I call our visionary values. And these are values that we think are distinctive and help better define our culture and who we are as an organization. So I believe that humans ultimately think and make decisions with their head. Their heart, and their gut. And so these 3 values are designed to be consistent with that kind of thinking. So we're resourceful as thinkers. We're responsive at heart to the needs of our clients, our team members, and our communities. And we're imaginative in spirit in the solutions that we offer and deliver. And those would be what I call our visionary values. And Steve, you and I are facing each other. So you can see me. And most importantly, I hope that you realize that I'm not reading any of this. These are things that are ingrained already in the way I think, and I believe in the way that all of our people think as well. It's what holds us together. This is the mortar if we are the bricks.

It's funny you should say that about you're not reading this, because I was actually looking at your eyes as you were going through these, and I was trying to see If your eyes are darting down to look at a screen to read these things, and you are not reading those things. And so you clearly have incorporated these, and these have become a part of your very fiber. So I appreciate you pointing that out. I also love the distinction between, let's call it, more traditional values versus these visionary values or these distinctive values. And I really like how you frame that from the head, the heart, and the gut. I think that's, that's a beautiful way to look at that. So to me, values are verbs. Values are about action. And so how are you reinforcing that action and recognizing that action in your team members?

We have a culture of transparency. You know, culture, you know, we could have a 5-hour debate on what culture is. And I like the definitions, which I didn't make up, you know, the definitions around, well, it's the way people behave when no one's watching, and it's the way we practice our values, et cetera. So we have a culture of accountability and a culture of transparency. By the way, those are both values as well. We have conversations around, well, how do you get people to be accountable? Well, I think it starts with by recognizing accountability is a value. I once spoke with an accountability coach who was trying to get us to use him for our company, and he had scripts. And it's like, okay, here's what you say to someone after you ask them to do something. Now, did you hear what I said? Can you repeat it back to me? Well, okay, those kinds of things are good exercises, but true accountability is really a value. So, we talk about them. Steve is the answer. We talk about them. We don't call each other out when someone is not exercising a value. We talk about it and we refer back to it and say, well, you know, these are our values. And would you be willing to consider whether your words or your behavior are consistent with those values? And so, we talk about them and we reinforce them through behaviors. Our values are at the center of our culture. It's how we interact with each other.

So some firms will include part of the bonus structure is how well are you living up to the company's values and, and living the mission and the vision. Do you guys do that, or is it just something that's expected and we're not going to pay you extra to actually live those things?

It's not a scientific process, so our compensation structures at both our headquarters as well as our operating companies are a combination of, of objective and subjective criteria. We do go through, however, a review process and we go through it twice a year. So mid-year, we actually, we're going through it right now. And then at the end of the year, because we think it's important to continue to give feedback and to continue to communicate about these things. But yes, the questions that we ask on our reviews are very much consistent and actually line up with our values and with our, our mission.

A second key area that I want to talk about is how do you move from a practice to more of an enterprise? And I don't think there's few people out there who have been through it in the way that you have. So I think you've got some tremendous insights that you can share there. But as you mentioned, those 3 strategic imperatives, I think that's probably a good way to maybe step into the conversation. So let's go into a little more detail with those 3 strategic imperatives. So first of all, are those strategic imperatives? Are those something that are going to be like, oh, for this year, that's what they're going to be. Next year, they might be 3 different strategic imperatives. Or do you think these are things that are going to continue for multiple years?

No, those are multiple years, or I wouldn't call them strategic imperatives. To me, a strategic imperative is, is something that is a, you know, a 3-plus-year imperative. It's an imperative to action. It's what governs what we're trying to do. They should be consistent with our priorities for each year. So my priorities for this year, for 2025, I believe are consistent. One is to focus on organic growth. As you well know, Steve, Focus has historically been an organization that was primarily focused on inorganic growth, and with great success. It's led the entire industry. No one's done more transactions. Focus has done well over 300. For all I know, we might even be approaching 400 transactions. I don't think anyone's even close to that. And we've done that really well. But what I want is for us to be balanced in terms of organic and inorganic growth. And I think that it will help us best achieve our potential, best achieve that vision. Number 2 is focusing on integration and efficiency. And I talked about a strategic imperative being around efficiency, but we've now, as you know, we've consolidated much of our company and are still doing external transactions as well. And to me, and I've written about this extensively, To me, you know, doing mergers without taking advantage of integration, well, it kind of defeats the purpose of doing them. And then the last priority for 2025 is continued consolidation, but also returning to the field, so to speak, and reasserting ourselves as the leader in external mergers and acquisitions. And I'd like to think that the transaction that we just announced with Churchill is an example of how we've done that. It's just that last year, we just focused internally. We probably did more transactions, at least by way of acquired earnings, than anybody last year. And yet it wasn't something that was on people's radar as much because it was all internal. This year, we're returning more to a balance of internal and external. So that's the way I think about strategic imperative versus an annual set of priorities. And you'll note, by the way, I gave you 3 priorities. Believe me, I have 1,000 things that I need to do, that we need to do as an organization. But having 1,000 priorities is to say that you have no priorities.

Exactly. So let's tackle each of those. So the first one here about accelerating organic and inorganic growth. I want to just really focus on the organic growth piece here because that's a very popular topic in the industry. And we've seen the numbers in recent years. It appears that organic growth is probably in the low single digits. So what are you doing today in the area of organic growth to accelerate that?

I'm going to answer that question, but I'm also going to, going to talk about practice to enterprise because I want to use both frameworks as I answer this question. So Steve, you talked about, you know, how do firms drive from practice to enterprise? And let's just really quickly set the parameters for what that means. I would define a practice as an organization built around largely one person. Now, that one person may have support, but it's one person who's got clients and may or may not work with others in serving those clients. And then I think sometimes practices come together and you see this all the time and they appear to be working together, but they're really not. They're really still doing things largely separately. They may share resources, they may share the same office, they may share a name, they may share, you know, technology or research, but it's really still separate practices. Some people call these rep shops, but I call that a collaborative. Now, sometimes multiple practitioners work together, usually with support from other professionals. They do have the same mission, vision, values, and that's a business. And most people in your audience think that it ends with being a business, but it doesn't. There's something for those of us who want something more, and that is what I call a sustainable business, a business built to last for 100 years. I call that an enterprise. So to me, this is about becoming an enterprise. So going back to your question now around growth and being balanced between inorganic and organic growth, I think it's just, it's to be a truly sustainable organization. To allow organic growth to happen passively. Here's the secret of the industry. If you do a great job for your clients and you love your clients, and we all do, especially those of us in the fiduciary space, if you love your clients, they'll love you back. And now you got to do great things for them, but they'll make referrals to you. And over time, you should do okay. And that is what happens in the industry. And you're right, low single digits is what you see typically. But if you're intentional around organic growth, well, you can have great organic growth that supports what you're trying to do. And great organic growth is good for clients. It means more capabilities for clients. It's great for, for team members. It means more opportunities for them. It means more compensation for them. It means their jobs become easier because they have more support. And, and it's better for everybody. So what are we doing around that? What is it that we're focusing on in terms of, of, of having greater growth so that we can continue to make sure we are sustainable, built for 100 years organization, which most organizations are not. And so the answer is we've actually gone out and hired top talent, and I believe we have one of the best leadership teams now in the industry. I'm biased, of course, but that team includes people who are specifically focused on client experience and client services. And we are now building shared capabilities around tax services, around trust and estates, around bill pay and bookkeeping, around lifestyle concierge services like concierge medicine and concierge travel and living better lives and having greater experiences, second career coaching, nutrition, fitness, helping people live better lives based on what we are hearing from clients about what they want. So building greater capabilities for clients. Part of this is enhancing our investment offering, including by investing heavily in alternatives and making sure that we have the premier alternatives platform in the industry for clients because we need to continue to offer more differentiated and more personalized and hopefully much more effective investment solutions for them. So these are the kinds of things that we're doing while also investing in infrastructure, the best technology possible. Now, I could talk about technology in the context of efficiency, but I actually think that technology is critical in terms of doing more for clients and doing more for advisors. Again, You know, talk about expanding capabilities for clients and advisors. Technology is something, and we can talk about AI as well, but technology is something that helps with that as well. So, it's a holistic approach to ensuring that our advisors can do more for our clients, which of course is what ultimately is at the center of everything.

And how specific do you get on the organic growth? For example, do you set like a company-wide target and say in 2025, We're targeting 12% or we're targeting 15% organic growth. And here's exactly where we want that to come from. We're targeting half of that's going to come from client referrals and a quarter of it's going to come from corporate paid advertising and a quarter is going to come from center of influence marketing, so on and so forth.

Do you get to that granular level? 100%. Absolutely. So we have set a target. I know you're going to ask me what it is.

What is the target for?

I'd prefer not to answer, but let's just say that it's It far exceeds the, the low single digits.

Is it in the double digits?

Let me just ask that. It's not in the double digits, although I do believe that we could achieve double-digit organic growth. And the reason for that is because, again, I'm setting targets for the next few years. I'm not setting targets for many, many years out. And you also have to understand, Steve, that we have the biggest denominator problem in the industry. We're not quite at a half a trillion dollars of billable assets, but we're just under that. With that kind of denominator, you know, we still believe that we can have high single-digit organic growth, and that is what we're aiming at. But I do think double-digit growth is also a possibility for us, but that's further out. Right now, I'm focused on high single digits. And yes, we are very specific about where it comes from as well, including from what we call advisor-driven solutions. As well as platform-driven solutions. And so on the advisor side, we know that we can arm our advisors with greater capabilities, with better transparency into what's working, what's not working, even for advisors that are less likely to be able to bring in business. We can help them focus on at least ensuring that they have 100% client retention, which of course is an important part of organic growth. Just keeping your clients is, is an important part of all of that. So we work with our advisors. We give them training around centers of influence. We give them training around what works and around, you know, getting referrals and around places where they can go and assert themselves and talk about their services, but just best practices. In terms of platform-driven solutions for us, our custodial referral platforms are of course an important part of that. But we use other platforms as well, and we have a whole separate team that is very much focused on our platform-driven solutions. So we think about this and yes, we do have the ability to anticipate where the growth will come from, from each of these sources so that we can build up a case for how we're going to get to our target and ultimately exceed that target. And we share results. We share them on a regular basis. We share them with each of our advisors. We share them with each of our constituent firms, and we share them with the entire company as well.

I think every advisor understands that the lowest-hanging fruit in terms of getting new business is getting a referral from an existing happy client. Yet many advisors don't feel comfortable asking for a referral or trying to have some kind of introduction conversation or even broaching the topic at all. And also, on top of that, many advisors are very comfortable with their current income. They're making half a million a year, they're making $1 million a year, and they're like, why do I want to ask for more referrals? Because I'm pretty comfortable. So, how far do you go in terms of the individual advisor accountability to get more referrals? Does that tie into the compensation, or is it like, hey, we're giving you every opportunity, we're trying to make it as easy as possible for you to get more referrals. But if you choose not to go down that road, it's okay, or is it not okay?

I just want to step back and just note Focus now operates through two divisions. We have Focus Partners and we have the Focus Network. Within Focus Partners, this is our economically wholly owned division, and it's a division where we can operate in a much more coordinated fashion. And if you're familiar with the legacy Focus operating model, our Focus network is largely full of firms that are still operating under the traditional older Focus model. Now we do work with them much more extensively and in a much more direct way than we did in the past. So we are trying to still all work together to be one company. That's really what the evolution of Focus is. We've gone from what was an association of firms into a company. So even within the Focus network, we're working much more closely together. But as I come back to your question, I want to speak about Focus partners where we have more control and can be more coordinated around our advisors. And this is a, you know, a huge part of our business. It's more than half of our business now in many measures. So yes, our compensation systems are designed to ensure that our advisors you know, don't get so comfortable that they're not thinking about growth. Again, it's not growth for growth's sake or growth for profitability's sake. Profitability is a result. But ultimately, we believe that we're a better company and we can do more for clients, more for advisors if we're growing. And so our compensation systems are in fact set up that way to ensure that people are growing. But ultimately also, it's a question of accountability. It's accountability to each other. I'd point out that it's not just our compensation systems, it's our deal structures as well. So, when we've done our internal consolidation, we always set up structures that are built around retaining clients and growing client base as well. So, we built in incentives around that as well. We also, Steve, and this is a big differentiator for Focus relative to any of our peers, We are aggressive about how we use our Focus equity, especially within Focus Partners. We're now finalizing a plan, an equity plan where our advisors are able to earn more equity through growth. We want them to be larger and larger owners of our company. You know, Steve, when we first got started, August 31st, 2023 was the day we were taken private by CD&R and Stone Point. And about 1% of the equity at that time was held by the principals, the advisors, the people who are running client relationships. That number is now about 20% and on a fully diluted basis. And so we're all in on that and providing incentives around that and also articulating to people what drives value.. And one of the things that drives value is organic growth. And so, we build the right incentives, but again, it's about why. We want our advisors to be thinking we have something extraordinary and that we're helping people. And so, it's not just providing the right incentives, it's providing the why behind why we want to grow. And then, it's also about accountability to each other. If we're not all doing our fair share in terms of supporting growth, Well, then the rest of us suffer from that. And so it's about accountability to each other as well.

You mentioned your two PE investors here. Yes. As the CEO, how do you— or do you try and strike a balance between these PE investors want a really strong financial return, so they want to do everything they can to wring out the profits, to grow this thing as fast as they can so they can turn around and sell and make a great profit and give money back to their investors. So how do you strike a balance between, yes, we want to do that, but also we want to make sure that we have our strategic imperatives, that we've got this 100-year vision for the firm so that we don't make any short-term decisions that might give us some more profits at the expense of our 100-year vision? So how do you as the CEO get the right balance there?

It's such a good question. I'm so glad that you asked it. So I believe that private equity generally is what's driving the maturation of our industry. I believe that we're moving into the age of enterprise. I don't think Focus will be the only 100-year business. I think there will be some others as well, but I think it's all being driven by PE. And it's not just their, their capital that's driving it. It's their expertise. It's their knowledge of other businesses and how other industries work. And PEs, I believe, helping to accelerate the maturation of our industry from an age of the practice to enterprise, from what I like to say is the age of independence to the age of interdependence, the age of investing and financial planning to an age of full life enrichment. I think all of these things, private equity is helping accelerate that. As for the specific question around CD&R and Stone Point, I'm just super grateful for them because they shared the same vision, this vision, which by the way, they would not have invested if they didn't think that the advisory firms, firms like my firm Colony or Buckingham or some of the other wonderful firms that we have, you know, we all had this vision. We all wanted to come together and do something more together. And we're not doing it because we're, we're forced to, in fact, The legal agreements that each of these firms has in place with Focus ensure that Focus cannot force any of this. As CD&R and StonePoint like to say, we have a coalition of the willing. Or another thing that they like to say is we meet advisors where they are, and that is true to what we're doing. So all of this is truly a coalition of the willing. And what I'll tell you about— well, they want a great return. Well, of course they do., but so does every advisor as well. It's just that CD&R and StonePoint understand that the way to get a great return is just to love clients. It's to put them at the center of everything and do great things for clients, do great things for advisory teams. And if you do that, the money follows. But if you start making it about the money and you're not always putting clients first and advisors, Well, that's when you run into problems. And I think that's just, you know, that's the best part of the way CD&R and StonePoint operate. And actually, they are willing to make all kinds of decisions that are short-term, not profitable. They are all about investing in the top talent, getting the best people, the best technology, the best systems, the best consultants. They're not thinking about, you know, short-term profits. They're thinking that long-term profits will be driven by doing great things for clients and advisors.

Let's go to the next one here, which is to improve efficiencies. And let's just narrow that down to technology since everyone's talking about AI these days. What are you seeing in the technology area that is making a significant enhancement to your efficiencies?

So the first thing is, is we talk a lot about operating at scale. I don't believe that anyone in our industry is truly operating at the kind of scale that they could be operating at.. And we're trying to do that. We're working very hard in that. We've hired the top technology talent. We have a gigantic technology team led by a great CTO, and that team is working on scale and efficiencies through bringing technologies together, making decisions around not having 100 vendors for something, but rather Choosing the best technology platforms and implementing them. And so, for example, in terms of portfolio accounting, which is one of the largest technology spends for any RIA, it's about finding no more than, say, two of these and trying to make the most of it and trying to make that the efficient portfolio accounting system. And again, customized to the extent you can do so while still being efficient. Same thing on the CRM, same thing on planning software. And those are, you know, that's sort of the core of a tech stack, but it's going beyond that as well and ensuring that we have all of the right technologies for all functions and then making sure that they all talk to each other. And that's where we see a lot of issues with other RIAs where they may even have the right systems, but they're not talking to each other. They're not operating efficiently. So what we're doing is building what we like to think of as a single tech stack. Now, again, I say a single tech stack, but I do acknowledge though that you can only go so far in terms of standardization while still trying to also make sure you're offering what clients and advisors need. So in some cases, you can't fully standardize something because you might need two different applications, for example, for for two different types of clients or two different types of advisory teams. But it's about building a unified technology stack. And it is about using AI. So we have a chief data and AI officer, which again, I think is a differentiator, one of the benefits of our scale, someone who is focused— there is no AI unless you have good data. Let's just be clear around that. And you not only have to have good data, but as you know, Steve, you have to utilize your data in, you know, in a secure environment. You can't just go and rely on ChatGPT because what you're putting into ChatGPT is ultimately being put out there for everyone to see. And so you have to create environments where this can work. To be clear, we're using a third-party consultant who's been helping us with our AI strategy. But I'd like to speak about where it's going, which is just to say that it's not just utilizing AI to take notes at meetings and to come up with follow-up for clients and to summarize what happened at the meeting. Those are important things. If your listeners think that, you know, that's using AI, well, that's just scratching the surface. The way we think about AI is that it's got to help us be better advisors, which is to say that it's got to help us understand specific needs of clients, understand that while this client "just turned 50 and it's time for catch-up contributions," or "this client isn't taking enough risk in their portfolio given what they're looking to do." And yes, their IPS, you know, says that this is the right allocation for them, but looking at that and saying, "But is it really the right allocation for them?" And maybe circumstances have changed since they became a client and maybe something's happened that we haven't yet accounted for. And it's about making sure sure that we're on top of these things. It's about making sure we're giving them the best possible planning advice, about identifying risks in client portfolios, but also identifying risks in the focus portfolio and looking at our investment portfolio more broadly, but also looking inside our particular companies. You know, people used to talk about business intelligence. AI is the next stage of that. It's about looking at our data and getting insight from that and acting on that. And so there's so much more that we can use with, with AI. And yeah, we think about, well, you know, we'll write articles using AI, or we'll write, you know, social media posts. Well, that's all good, but it can be so much more than that.

And when it comes to AI, where would you rank it in terms of its ability to be a game changer? For example, would you say, oh, it rivals rivals the internet or it rivals electricity or it rivals the invention of financial planning software. Like, so where would you rank it in terms of its potential to be a game changer for the industry?

I actually do think it's similar to the internet, but let me just offer this. And I think your question, you know, shows that you may be thinking about this the same way I'm thinking about it. You know, Steve, you and I have both been in the industry for some time and every few years there's a new trend and everyone's Someone says, "It's going to be a game changer. It's going to change everything." So, certainly, the internet was absolutely one of those things, and that really was a game changer. But if you think about some of the other things that we've seen, we saw the millennials, that was going to change everything, a completely new generation, very different, and that was going to change everything. I remember when social media wasn't a thing and, "Oh, there's social media now, and that's going to change everything." And we've seen ESG was going to change everything. Robo-advisors. Oh, well, robo-advisors are out now. That's, you know, it's going to put everyone out of business. It's going to be very different. You just see, you know, you see trend after trend. And there are people that make a lot of money getting out there and speaking about these things and saying it's going to change everything. Well, I actually think AI is going to change. I do think that the firms that are able to embrace AI and use it effectively in a compliant way, it will be a game changer and those will be winners.. And the firms that can't or the firms that ignore it the way they may have ignored other trends, I think that they'll find themselves with a distinct disadvantage going forward.

As it relates to AI, do you think of AI as we need to have an AI strategy, or do you think of AI as simply a tool that gets used in a strategy?

I think we need to have an AI strategy. I think that we have to understand always, you know, what are our objectives? What is it that we're trying to accomplish? What's our purpose? What's our vision? How does this help us achieve those things? How does it help us make progress against these things? And ultimately, again, we're fiduciaries. How can AI be used in the best interest of clients? But I do think that the opportunity is there and I do think it will make us better advisors. You know, I recently spoke on a panel and when we were talking about AI and during the panel, I went on my phone and I started putting in, Okay. Like 28-year-old, they make this much money. They're looking to retire, whatever they, you know, they have 2 children and just went through all of that. And it's extraordinary, Steve, you know, you get a pretty interesting financial plan. Now, I'm not saying it's going to replace humans. I do agree that, you know, there is something still to be said about human interaction and our ability to work with each other and understand things that go beyond you know, what you can get from AI, but it is, it does have the ability, I think, to make us better at what we do.

And the third strategic imperative was to expand capabilities for clients and advisors. I think you've touched on that a little bit by some of the expanded services and how you think about that, but anything else you wanted to add on that particular imperative?

It's also about opportunities for clients and advisors, and I think that one of those opportunities in both cases relates to specialization, relates to what I call multidimensional client segmentation. Steve, again, you and I have been around the industry for a long time. Segmentation's a topic that we talk about all the time. Most people think about, well, you gotta segment your clients, you know, by the size of the client, typically as measured by investable assets. And while I'm not saying that doing that that doesn't make sense. I think it does make sense. I just think it's incomplete. I think the real way to segment clients is based on their specific circumstances and their needs. And while every client is unique, I think there are opportunities to look at clients in either affinity groups or professional segments. And I think that, you know, the ability to focus on the specific needs of, for example, corporate executives or business owners or lawyers or doctors or professional athletes. Those are all groups of people that need specific expertise and specific advice. And I think that a part of expanding capabilities for clients and advisors is creating opportunities for that kind of specialization.

So, going back to this idea of going from a practice to an enterprise, so we could think of it as The practice is the beginning, the enterprise is the end, and then in the middle we got this messy thing of all the stuff that has to happen to go from the practice to the enterprise. So from your viewpoint, having for the most part gone through that, that whole level there, what would you say is the most difficult part or the biggest hurdle in that messy middle to go from the practice to the enterprise?

Like, what's the most difficult aspect of that? That's an easy answer for me. Before I answer, I also just want to be clear that I am not sitting here preaching that anyone needs to go from practice to enterprise. I believe you can do great things for clients as a practice. I just don't think you're going to be there for your client in the future unless you're going to live forever. That just doesn't work. And so If you're someone who believes that the best way to serve your clients is to be able to serve them and their children and their grandchildren, and if you believe that it shouldn't all be about 1 or even 2 or even 20 people, then I believe enterprise is the right way to go. But I do want to be clear that I think that there are many great practitioners that don't operate as part of enterprises. So yes, the answer for me is quite simple. It's being able to cede some control. Steve, this is the big challenge of our industry. Our industry is full of people that love clients. You know, again, the RIA industry came in large part as a reaction to the suitability standard. You know, now it's Reg BI, you know, to the idea of, you know, sales versus advice. And that's a broader conversation, but ultimately we all in the RIA space are fiduciaries at heart. We all want to do what's right for clients. But when we really think about that, I think it's important that we think about, you know, how far are you willing to go for your clients? And if that means you giving up some control so that you can surround yourself with other people that can do even more and better, can you make yourself a little bit less indispensable for the benefit of your clients? Can you bring other people that add capabilities and talent that you don't currently have or that you don't have the capacity for? Because again, you're 1 or 2 or 20 people. And I think that ultimately we become more powerful as advisors as we give up control. I've referred to this as a leadership paradox. I feel like in my own career, the more I've given up by way of control, the better I've become at what I do.. And I think it's the same for advisors generally. I think that the more we learn to rely on other people, the more we learn to let other people complement our skills and supplement our skills, the better we do. And the more evolved we become. Stephen Covey, and I quote him all the time because I love the book, The 7 Habits of Effective People. You know, he just refers to this as an evolution from dependence to independence. To interdependence.

And it's just a form of embracing interdependence. And in your case, is there something either business or personal where you understand the idea that I've got to give up control, but it's been really difficult for you to give up control of that particular thing?

Yes, absolutely. One of my mentors is Dan Glaser, who is actually the chairman of our board. And he's one— he's the operating partner at CD&R, and he's just been such a joy to work with. And I've learned so much working with him. You know, Dan's the former CEO of Marsh McLennan, so he's operated at an even larger scale. His largest focus is he's operated at even a larger scale. And one thing he's pointed out to me is that all executives are just, you know, naturally insecure in some way. And I think one of my great strengths is that I have good awareness around my own insecurities. Insecurities. And so sure, when I was at Colony, I really didn't have anyone that I had to answer to. I was the person who ultimately could make all the decisions and didn't ever have to worry about my own performance. I did because it's a personal value and I always want to do the best that I possibly can. It's just how I'm wired. But yeah, I mean, I want to be clear, Steve, when Focus decided to shift its model for the coalition of the willing. The most willing company, the first company that said, "Yes, we want to be part of this," was Colony, my company. And that meant giving up control. And that meant saying, "Okay, we're now going to be part of an organization that's going to go and do great things together, but what that means is that I now have to report to a board, that we're going to be held to a whole new level of accountability." that some of the people that I want to work with, they're going to have to do other things in the organization as we get larger and go and do, you know, other tasks. And so it was a big change for me personally, and I don't regret an ounce of it. It's been extraordinary for me. This is my dream. It's my vision. You know, Steve, I don't know if, you know, you're interviewing me, I'm not interviewing you, but if I were to ask you— you don't have to answer this question, but if I were to ask you right now, what's your personal mission? Could you answer it like, you know, in 3 seconds, or would you give like a rambling answer? I'm not asking for an answer. It's a rhetorical question. For me, I already know my mission in life is to live my most extraordinary life by helping other people live theirs. And I've known that about myself for a long time. And that doesn't just mean in business. That's the way I think about my family and my friends and the philanthropy that I do. It's everything that I do. It's my, it's why I exist. And ultimately, you know, I was able to get past any personal insecurities and just say, this is how I'm going to have the most impact professionally by advancing into this model and working with other people.

And I haven't looked back once. Yeah. And I appreciate sharing that. And to answer your rhetorical question, I'll give you two responses to that. So, one is I talked about the compelling vision earlier. I've actually been writing a compelling vision every year for, gosh, probably, well, ever since I started working with Imani Carson. That was one of his big things. And so this goes back, well, more than 20 years now. And so I put it on a PowerPoint slide, I have it laminated, I have pictures of the family in the background. And at the end of each year, I review that and I say, okay, does this compelling vision, which is essentially a long paragraph, does this still get me excited. And usually each year I might tweak a little, a little sentence here and maybe take something out, make it a little bit shorter. And as I've gotten older, what's a priority to me today is different than it was 15 years ago. You and I, before we started recording, I mentioned I've got a couple of grandkids now. Well, that's an important part of my life. And so I do want to spend more time with grandkids and less time perhaps doing something else. So that's going to evolve. But I think the short and simple response that I often give when someone asks me a question like that is I say, my goal of a good life is to go to bed at night looking forward to getting up in the morning. And so to me, that really encompasses everything about the kind of life that I want to live, the kind of impact that I want to have, the people that I want to surround myself with. If I can go to bed at night knowing, hey, I just had a good day today and I can't wait to get up in the morning because it's going to be another great day just like today.

So, I think of it in those terms. Come back to purpose, what we were talking about earlier. You understand your purpose. You understand, you know, what it is that drives you. And it's the same thing for me. And people are going to have to make a decision ultimately about whether they're operating in a model that truly is best for clients. And I wrote an article years ago called, it was something to the effect of, are advisors selectively applying the fiduciary standard? You know, if you ask any fiduciary to talk about making investment selections, they'll all make a good argument as to why the way they invest is most consistent with the fiduciary statement, whether they're right or wrong. They'll say, yes, okay, I believe this is the right way to do it. It's in the best interest of clients. And that's great. But when you talk about something like a transaction, when you talk about the possibility of you not being the most important person in the room, When you talk about giving up control, including legal control through a transaction, oftentimes I think people may think the fiduciary standard doesn't apply in that context. And I actually think it does. I think that everything that we do should be about what's best for clients. And, you know, for me, coming together with others, doing more together than we could on their own, that's the future. And you're seeing it all over. You're seeing other firms embrace this new age of interdependence. They may not call it that, but that's what they're doing. They're learning how to rely on other people. You know, Steve, you go to a conference and people still love to talk about, well, you know, you're all fiercely independent. Yeah. Well, you know, I think there was a time when fiercely independent was a good thing, but I think we can still be independent. If we define independent as putting clients first, knowing that we can think about clients above all else while also being interdependent, which is to say doing more by working with others. And that means not just other people in your organization. It means working with people like the professionals at CD&R and StonePoint. I mean, you understand these people, it's not just the teams. That are working with us directly, they bring expertise on everything. If we need to talk to them about employee benefits, they've got experts for that. If we need to talk to them about PR, they've got experts on that. If we need to talk to them about talent strategy, they've got experts on that. They've got experts on procurement. Just everything. It's just about becoming better.

But you got to give something up to do that. You do. Yeah. So very well said. Well, Michael, you've been super generous with your time. I've got just 2 or 3 sort of rapid-fire questions if we could wrap up with those. So, so one of them is, as you think about leadership, is there a belief about leadership that you held 15 or 20 years ago that has evolved, and perhaps you have a nuanced take on that today?

Yeah, I used to think that, you know, being a leader meant you had to be super smart, and it was a lot about IQ and about being firm and making really strong, decisive moves and having everyone get confident that you're the right person and you've got all the answers. And as I've gotten older, I realized that it's not just IQ, it's EQ, but it's also what I call PQ, which is to say positivity quotient. I think that being able to not only emote and have empathy, part of EQ, is important, but I also think being able to be positive even when times are dark and just being able to, to still be a source of inspiration and optimism. I think that's a key part of being a leader, but I also think that the ability to not show that you have all the answers is critical. And, and I wrote a piece around this too. I think there's extreme power in being able to change your mind. I think that people get far too locked into their decisions. And feel like they're in a trap now. You can't reverse, even though you know, you know what, that was not the right decision. But the ability to change your mind is a powerful ability that very few people, you know, have. If you look at our politicians, can you imagine if our politicians could change their mind? Can you imagine if Vladimir Putin could change his mind and say, you know what, maybe invading Ukraine wasn't the best thing? Now, he can never do that. Because it would be unacceptable politically.

But leaders that can change their mind, it's just such a powerful feature and a powerful ability. Yeah, I think it may have been John Maynard Keynes who was asked a question about why he changed his mind on something, and he said, well, when the facts change, I change my mind. What do you do? And so, like, the situation changes, yeah, I got new information, which means I'm gonna make a different decision because I got new information here. So appreciate you sharing that. You know, before we started recording, we were looking back and it was 2017 when you and I first did a podcast. And I distinctly remember you saying on that episode, you said, in addition to being the CEO of The Colony Group, I'm also the CIO. And that doesn't stand for Chief Investment Officer. I remember. For Chief Inspiration Officer.

So getting back to your idea about positivity here. Yes, although I would say that while it's okay to, you know, to have a Chief Inspiration Officer, I think that inspiration is something— and again, this is an 8-year-later, more mature view of that— but I would tell you that as part of a larger organization, inspiration has to come from throughout the organization. We have to inspire each other. And I'm inspired every day by other people, by clients, by seeing just great little successes and celebrating those successes. Successes.

So it's a team approach. Yeah. And final question here. So you're CEO of this big company. It's common to say that the CEO role is perhaps the loneliest position at the company, because like when you mentioned at The Colony Group, you really had no one to answer to, so you could sort of do your thing. But like, who do you turn to when you have a question, you have a concern, you don't necessarily want to go to your CFO or your COO chief compliance officer. Maybe you could go to someone on the board, but who's like a person that you turn to when you need a perspective on something? And it's not that you're showing weakness or anything, but like, who would you turn to in your position?

Well, first of all, I don't care if it's showing weakness. If someone sees my going and asking for advice from somebody else as a weakness, that's their problem, it's not mine. I do it all the time. And if I had more time I would do it more often. The only times that I'm not doing that is when I'm extremely confident in an answer, which by the way, should not be that often. Because if I'm dealing with it, it should be complex and it should be, you know, a big deal. And then again, if I'm just at a place where I have to make a quick decision, but I would tell you that I mentioned Dan Glaser. He's one of several board members that I do. I work with all of our board members and I think they all bring great strengths. You know, David Winokur and Faiyaz Mutadi, and these are extraordinary people with vast experience. And so I'll go to them for different things, but also the people around me. I work extensively with Adam Bierenbaum, who now serves as our president, Gina Bradley, our chief administrative officer, Justin Ferry, who's our chief operating officer, Travis Danish, who's our chief corporate development officer. But again, if it's a, if it's a legal-related matter, I'll go and speak with Greg Woods, our general counselor of finance matter, Jason Dubinsky. You know, we just have a broad team and we force these conversations so that I can always run things by them. I meet with those people every week. In fact, in 10 minutes, I'll be getting on a call with all of those people and we'll be talking about what's on our minds. We do it every week, every single Monday, we get together at the same time and we do a check-in with each other and we run ideas by each other.

It's this collaborative approach that has made us, I believe, as strong as we are today. Well, Michael, I don't want to keep you any longer here. You've got your meeting here in 10 minutes. So if someone listening to this says, hey, I love what I just heard here, what's the best way for them to— I know you do a lot of writing, so what's the best way for them to connect with you personally if they want to stay in touch with the great work that you're doing, or if someone wants to learn more about Focus Financial?

I'm someone who believes in sharing ideas, and I believe that when I speak about interdependence, that doesn't just apply within company, it applies across the industry. I think the success of our industry is important for everybody, especially for clients. And I think that while I certainly respect our competitors, I even see them as allies and the more successful they are, the better. So you're right, I do write a lot of what I'm thinking. And I would ask that people consider following me on LinkedIn where I publish a lot of my thinking, but they can also reach out to me. My email is michael.nathanson@focuspartners.com.. And I'm always eager to hear from other people in the industry and to learn from them.

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