Michael Nathanson: What Advisors Can Learn From Charles Darwin

This podcast is brought to you by Wells Fargo Advisors. Looking for a firm your clients can't outgrow? Wells Fargo Advisors offers financial advisors full balance sheet solutions with wealth planning, investment products, banking, and lending that meet the needs of affluent to ultra-high net worth clients. Build your practice your way and on your schedule with independent and employee model options designed to meet your needs today and tomorrow. Learn more at joinwfadvisors.com.

This is Greg Bartels for Barron's The Way Forward. Today, my guest is Michael Nathanson, the chairman and CEO of The Colony Group. Michael, welcome.

Thank you, Greg. Great to be here.

I want to hear a lot about the firm, where you are today, your story. Talk about what, what the firm is doing in positioning itself for the future. Let's jump right in and tell me a bit about yourself, the firm, and where you're taking the company.

Sure. Well, I'll go in that order. So as for myself, I am a former attorney, and I still think like a lawyer. I like to think that I think like a lawyer. I spent my first 13 years practicing law, first 13 years of my career, and had a great career, worked at a large law firm, which at one point was called Hale Dorr, now it's called WilmerHale, one of the largest law firms in the world. I was a tax lawyer. Loved being a tax lawyer, and, uh, and I never thought that I'd do anything other than practice law. But ultimately, um, I fell in love with one of my clients, and that client was The Colony Group. I had been representing them for, for a few years, really loved the culture at The Colony Group. I got to know the people, like the people a lot, thought that there was a lot of opportunity. And Greg, the way I think about firms in our space, although I wasn't necessarily thinking about it this way back then, I do now. The way I think about firms in our space is that most of them are practices. Sometimes practices evolve into collaboratives, uh, where practices are working together, but they're really separate. And then sometimes collaboratives become businesses, and a business is when you have multiple practitioners all working in the same direction. And, um, and then sometimes businesses become enterprises. And as I look back on my journey and as I went from practicing law to ultimately being an executive at a financial services firm, a registered investment advisor, what I realize now is that my mission was to help convert The Colony Group from a collaborative or even a business into ultimately an enterprise, which I define as a sustainable business. So The Colony Group today, uh, is about $17.5 billion under management. We have just over 350 team members working out of 20 offices across the country. We have, uh, over 5,000 clients, and our services include not only asset management and wealth management services, but also business management, tax services, and several ancillary services that we think help differentiate who we are as an organization.

I want to go back to that career change because you seem to have an amazing job. There was a consistent trajectory. For you to go to Colony must have been surprising, to say the least, to some. But what was your eureka moment on a personal level where you had an epiphany or whatever it was that made you conclude that that was the right thing for you to do?

It was a little bit on both sides, both on my law firm side and on the RIA side. So on the law firm side, I had already become a partner. I was already in several leadership positions in my firm. I was making, you know, great money. And what I realized was that I loved what I did, and I'm very proud of what I did. It's an excellent firm and has a great reputation. Um, but ultimately what I was starting to realize is that I was looking for something more. And, um, you know, I remember reading merger agreements. I did a lot of merger, merger and acquisition work when I was, when I was an attorney. And I remember thinking to myself that, um, I was losing some interest in, in, in doing, uh, in doing merger agreements. And I realized that I, I might need something else. And so, um, I had this opportunity to go to The Colony Group, and everyone thought I was crazy. Everyone at my law firm, with maybe a couple of exceptions, thought I was absolutely nuts to re— to re— you know, I resigned a partnership at a major law firm, and that's more common now, but back then in 2004, it was not that common to leave a mega law firm as a partner. And everyone tried to discourage me from going. People said that I was making a mistake. But what I saw and what really pushed me toward the Colony Group is just an opportunity to try my hand at being an entrepreneur. Are you familiar with the E-Myth, Greg?

No, I'm not.

So this is a concept that I love. There's a book, actually, E-Myth and E-Myth Revisited. And essentially, the concept is that we think of ourselves, we practitioners, those of us who are practitioners, and I certainly was and to some extent still am a practitioner, If we are a good practitioner, we sometimes assume that we are therefore a good entrepreneur. You see this all the time in law firms, accounting firms, certainly financial services firms. Someone's a great practitioner, and then it's assumed that that person should go on and lead the organization because, hey, they're a great business person too. It's not always the case. The E-myth is that not all great practitioners are great entrepreneurs. I wanted to try my hand at that, and the Colony Group gave me the opportunity to do that.

Did you at that time read books or what have you to, to be forearmed going into that, or was it largely improvisational when you tackled that challenge?

Yeah, truthfully, it was mostly improvisational. I certainly, well, I had had experience already representing investment advisory firms, so I was already doing work for both broker-dealers and independent advisors, and so I was very familiar with the space legally. Mm-hmm. That doesn't mean I was necessarily familiar with it from a business perspective. But people often ask me, you know, what are the keys to success? And everyone has their own answers. And for me, the, the, the main key to success is confidence. It's having confidence in yourself and probably more importantly, confidence in the people around you. I knew that when I went to the Colony Group, I would do my best and that would be good enough. And I also knew I'd be surrounded by great people and I was confident that they would help me fill in any gaps that I needed to have filled in.

That speaks to something you've talked and written about, which is the importance of interdependence, not so much independence, which seems to get most of the fanfare. Can you talk a little about that?

Yeah, this is something that's very important to me, um, and, and I had the epiphany when I read, uh, The 7 Habits of Highly Effective People, which of course is now an older book. It was written in, I don't know, sometime around 1990, um, and, and many people have read it. I think it sold 30 or 40 million copies at this point. But not focusing on all 7 habits and rather just focusing on the general theme of the book, really what the book is telling us is that when we're born, we are born completely dependent. We can't take care of ourselves. And hopefully others around us take care of us. And at some point, most of us become independent. And when we become independent, we celebrate that independence and we cling to our independence. But what the great Stephen Covey points out in his book, "The 7 Habits of Highly Effective People," is that those of us that can move past independence and embrace this concept of interdependence, we will be the highly effective people. So it's this concept that if I look at people around me and I see them all as competing with me, or they're in my way somehow, and I don't need anybody, I'm going to miss out on opportunities to collaborate with others, to learn from others, to be a better version of myself because I'm embracing others around me. And so it is, Greg, with organizations. I believe that the independent movement was very important in our industry. And I love the concept of being independent. We, The Colony Group, is an independent registered investment advisor. And what that means is ultimately that Our loyalties are to our clients and to ourselves. And we make our decisions based on what's best for our clients and what's best for our company. But the organizations, though, that are able to, to go beyond this clinging to independence in embracing interdependence, these are the organizations that will be ultimately the winners in our industry, I believe. And so, we have an approach where we embrace interdependence And we see all the other independent advisors as our allies. We see all the custodial partners as allies. We see regulators are our allies. We look at everyone in the industry and outside the industry as potential allies and friends and people that we can learn from and work with to be better than we would be if we were purely independent.

So for people and organizations that resist interdependence, is there a common reason why that's the case?

I think so. I think it's this— it's a— first of all, it's a failure. It's a failure of vision. It's a failure to see what could be if you embraced interdependence. But I think it ultimately is a form of insecurity that we all feel. I feel it too. We all do. I think it's a natural thing to want to only rely on yourself. But ultimately, those of us that are able to push past that and embrace this concept of what would it be like if I didn't see the firm that sometimes I do compete with for clients, if I saw them as an ally and not as a competitor, if I saw that firm as a firm that I could learn from and even work with, what would happen?

And to the extent that you can tell, when people, organizations have this epiphany or this shift in how they frame frame and see others, when they fully embrace that, does that tend to be permanent? Are there ever people who go and then they maybe lapse and go back to their old way of thinking? Or is that a little unknowable? I don't know.

Oh, I think so. I think the natural state of things is to be independent, is to only want to rely on yourself. I think being interdependent is an effort. It's an intention. It's something that we have to think about and want to do. But I live my life this way, and I try to see everyone as a potential ally, even the people in my life that ultimately, you know, I may have a conflict with, for example. I don't think I have any enemies in my life, but there are people though in my life that, well, we haven't had the best relationship. Those people are still my allies. Those people are still there to teach me something. They all have something that I can get from them, some learning, to make me a better version of myself.

Let's talk a little bit about business right now and where Colony is and how you're very future-oriented, if you will, and always trying to anticipate where things are going. Tell me a little about that right now.

Yeah, well, thank you for asking. You're right, we are constantly thinking not only about where we are right now, but where we're going. And we think about why also. What's our why? And what we have been doing is making sure that we don't get too comfortable. I think, Greg, that many other advisors get comfortable because, hey, let's face it, if you're doing great things for your clients and you care deeply for your clients and you have good people, you'll do well in this business. But how long will that last? And is that sustainable? One thing that I'm mindful of, I just got back from the Galápagos. Galápagos is this beautiful place, and you learn all about Darwin and traveling on the Beagle and ultimately figuring out the theory of evolution. What you learn is that Darwin, he never talked about the survival of the fittest in The Origin of Species. Now, he did talk about that afterwards. Someone else came up with the concept and he liked it, so he embraced it afterwards. But in The Origin of Species, what Darwin talks about is simply this: that the organisms that can best adapt to changes in their environment, those are the organisms that will thrive and do well. Those that cannot, those that just don't change as the environment around them changes— and change is a constant Stephen Hawking says that, or said that. Those organisms will be naturally selected for extinction. I believe it's the same thing for organizations. I think that if we are not in a constant state of evolution, that we will be naturally selected for extinction. So what does that mean? Well, it means several things. It means that we have to be evolving our team. We have to be thinking about the composition of our team, making sure that we have the kind of people with the right expertise that is necessary for the future, not just for the present. We have to make sure that our team is sufficiently diverse in all respects. We have to think about our service model. We have to think about our— is providing asset management and wealth management enough? Is that going to be enough going forward? And I think that that's foundational. That's critical. But going beyond that, we are now doing tax services for, we do thousands of tax returns a year for clients that want us to. We have embraced business management starting in 2018, and then we went really big into it in 2019. So we are now doing business management services. We are increasingly getting into family governance and, And we've actually embraced— we have a dispute resolution practice, a mediation practice. And more recently, we have built a platform we call Curated by Colony. And Curated by Colony is— can I talk a little bit about that?

Yeah, certainly.

OK, so Curated by Colony, what that is, is a life enrichment platform. So financial enrichment and preservation of capital, of course, still remains primary goal of our clients. But when we survey our clients and when we speak with our clients, what we realize is that clients are looking for more than just money. And clients want to have good, rich lives, not just financially rich. They want to have productive lives. They want to have lives of meaning. And so what we learned was that clients wanted wanted to focus more on health. They wanted to focus more on legacy, on their children. And ultimately, what we did was we built a platform of third-party providers. And it is a platform— we do not get paid for it. It's just a platform of parties that— of third parties that we vet, that we negotiate with, that we choose and we selectively place in our platform for purposes of providing their services to our clients. So our services now include concierge medicine. But that's concierge medicine, different flavors. We have different providers. So if you want general concierge medicine, you want to know that you can always just go on your phone and you can press a button and speak with a doctor and tell them what's going on with you. Well, we have that. But we also have a concierge medicine provider that offers services for people who have difficult diagnoses, like a cancer diagnosis. We have behavioral health concierge medicine. So people who can help children that may have drug dependencies or personality disorders, behavioral issues. We, we have an elder care provider. So all of these providers can help with people as they get older, but they have different areas of specialization. We have cybersecurity providers. We have travel concierge providers. And again, we have big companies that do amazing experiences. We have active vacation providers. We have one of our providers will actually do planning around travel the way we do planning around money. That is, she will actually work with a client to come up with a travel plan for the next 10 years. This is what you're going to do for the next 10 years. Really interesting concept. We have people who are providing services around second careers, around executive coaching, around philanthropic engagement, around tutoring and applying to college. So we have— we've built this platform that I think better speaks to what clients are looking for. Fidelity came out a few years ago with what they call their advice value stack, and I was really inspired by it. And what they did was, based on this concept of Maslow's hierarchy of needs, what they did was they looked at work that BCG had done for other companies, and they said, you know what, we're going to take that and we're going to apply it to our space, financial services, and we're going to look at what clients do you perceive as providing the most differentiated and greatest value? And they created a pyramid, 4 tiers. At the bottom of the pyramid is asset management. Now, it's not to say that asset management is not important. It's foundational, which is why it's at the bottom of the pyramid. It's very important. But ultimately, it's not really perceived as a differentiator. We all do it. Hopefully, we all do it well. The next level up is financial planning, or what they call achieving goals, and that's more differentiated. But if you really want to provide differentiation to your clients, the next two levels up are peace of mind— providing peace of mind to your clients. When you can provide your clients with peace of mind, now you're providing real differentiated value. And the top of the pyramid is fulfillment and legacy. When you are working with your clients not only to manage their money and do their estate planning and their tax planning and all the good things that we do as advisors, but you're also understanding what it takes for your client to feel fulfilled, well, now you're providing differentiated value. This is what I mean by the evolution of services. It's got to go beyond where we currently are. What's the next chapter? In how we service clients.

And I imagine that the higher you go up on that hierarchy of needs, that probably correlates with increased client retention as well. I mean, it's harder to get, but the more you get up there, you're probably really locking in more trust and more business.

I think so. I think so. And that's certainly why we're doing this. I mean, the truth is we only launched it a couple of years ago, so it's something we began thinking about in 2017. It took us a long It took a long time to build it and to get it up and running. But I think so. I mean, we have great client retention rates, but I know that many advisors do. Yeah. And yeah, I do think that this is— it's more than that, though. I think it's also just, you know, as we think about what's our mission, our mission is to provide peace of mind to clients and empower their visions of tomorrow. This is a way that we're going to achieve that mission. Yeah.

And I'm curious, so since COVID what changes have you seen in terms of the services that people want, or more specifically, specifically what they desire, and that may manifest itself in various things that you offer, but what big themes or patterns are you noticing?

Well, one of them is cybersecurity. So post-COVID, I go back to the last survey that we did, and the top 2 answers in terms of what our clients were looking for in this kind of platform were cybersecurity services and travel and leisure kind of services. And I think that that is partly a result of, as I think about where we are now in a post-COVID world, cybersecurity is more important than ever. We are just all constantly bombarded with cyberattacks. And I think that is something that increasingly is in demand. And I do think that, you know, when we all had to stay home for a while, that did change the way people think, not only about travel, but also just about their future and about life being short. And people want to enjoy their lives. So this is really what motivates us.

Yeah, I mean, just anecdotally, so many people just having, not getting out of the rat race, but not doing the daily grind and the commute there. And then, you know, being touched by people who may have passed away from COVID et cetera, there's a real reappraisal of goals and what's important.

Absolutely.

Yeah.

Yeah.

I did want to ask you for an actionable idea that listeners can take and act upon.

I'm gonna go with something very consistent with what I've been saying, which is to embrace interdependence. Look at your life and ask yourself, are you doing everything that you can do to embrace this concept of interdependence? And if you are fortunate enough to be at a company where you have a say, where your voice matters, think about whether your company has fully embraced interdependence and imagine what would happen if you did. You know, we do a book club at the Colony Group, and it's voluntary, but we ask people to read a book, and then we get together and we talk about it, and we have some fun talking about it. And sometimes we read new books, sometimes we do old ones. We did read The Seven Habits, but we also recently read Who Moved My Cheese?, which is another older book that sold millions of copies. And that is a book about change. It's a book about how we think about change and why we resist change, which is largely based on fear. And what I would say to your listeners is one of the great things that comes out of that book is the question, what would you do without fear? And I challenge your listeners to think about that and think about whether it might be fear that holds you back from this idea of embracing interdependence. And imagine if you didn't have that fear, what life could be like, what your business could be like if you could fully embrace interdependence, working with others to do that which you cannot do on your own.

And what would be a great way just for them to take baby steps in that direction? Because the idea, the concept is quite simple and readily, you can grasp it easily. It's in a way a subtle but profound shift in how you see and approach the world. Is there any behavioral aspect to this or way that you can get the ball rolling, would you say?

Just to— I can think of a thousand ways to get the ball rolling, but I'm gonna give you the most obvious, which is if you're not in a study group of some sort, join a study group. Go out in the industry. I'm not necessarily talking about YPO or Vistage. I'm talking about form your own study group of peers in the industry. Reach out to them, tell them what you want. Which is you want to get together, you want to share information, share your secrets with them, which I got news for you, they're probably not that secret. None of the things that we're doing are that, you know, that secretive, even though we sometimes tell ourselves that they are. Go join a study group, find people that you might have thought of as your competitors and see them as something else, and you will be amazed at what you learn. I've done this myself. And I've actually been part of several study groups, and every one of them has, has made a profound difference in my life, and I believe in my company's trajectory as well. Excellent.

Well, that's a superb answer. Thank you so much for that. My guest was Michael Nathanson. For more advisor-specific podcasts, please check out barons.com/podcast. For The Way Forward, I'm Greg Bartalus.

This podcast was brought to you by Wells Fargo Advisors. Looking for a firm your clients can't outgrow? Wells Fargo Advisors offers financial advisors full balance sheet solutions with wealth planning, investment products, banking, and lending that meet the needs of affluent to ultra-high net worth clients. Build your practice your way and on your schedule with independent and employee model options designed to meet your needs today and tomorrow. Learn more at joinwfadvisors.com.