Scott Hanson, Pat McClain: Partnership Secrets in Building a $20B RIA

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How do you sustain a 30-year business partnership as you build your firm from $10 million to $20 billion in assets under management? Hi everyone, I'm business coach Steve Sandusky for Barron's Advisor, The Way Forward Podcast. My guests today are Scott Hanson and Pat McClain. Scott and Pat are the founding principals of Allworth Financial. In today's conversation, we explore Scott and Pat's journey to $20 billion and the key decisions that shaped their business and their complementary skill sets that allowed them to thrive. Scott and Pat also open up about the personal attributes that have driven their success, including ego, insecurity, fear, and money. They also share insights into how they created a strong company culture the importance of marketing, and how they've adapted their business model to meet changing client needs. Scott and Pat's story is a powerful example of how personal drive, a shared vision, and the ability to confront one's own insecurities can lead to extraordinary business success. With that, here's my candid and insightful conversation with Scott Hanson and Pat McClain. We've known each other for more than 30 years. You guys are still partners to this day. And you started out, I think, Pat, you told me back in the day you left with about $10 million in assets. And what are you guys up to today, roughly?

$20-some billion. Yeah.

$20-some billion. A little nice compound annual growth rate there. So what I want to really talk about here today is how the heck have you guys remained partners? Because we have seen so many partnerships just fail. And yet somehow you guys have stuck it out through massive growth.

I had someone ask me, I don't know, within the last 6 months, can I get you some business advice? He says, I'm thinking about getting a partner because I've seen you've had a long-term partner. So tell me what it's about getting a partner. And I said, do not get a partner. He's like, what? I thought things work out well with you and Pat.

And they normally don't.

They normally don't, right? The stats say they don't. And I've talked to enough people that got frustrated, the partnership didn't work. So my advice to others is don't. And we were, I'd say, accidental partners because we had started working together at Lincoln National, and then we'd started working with retirees from the telecommunications company, PacBell today, the time. So we did a lot of what we called joint work back in the day. And so we started working together naturally. So it wasn't like we said, let's go create a business together. And we hadn't had that experience together.

We were working together and we were splitting business.

We were splitting business. So back then we were writing business 50% under Pat's code and 50% under my code.

And then if I picked up a piece of business outside the phone company, I'd write it in my own own him. And same with Scott. But the problem with that is— and yeah, because someone left Lincoln, created our own little shop, was the two of us, and we did that for about the first assistant month, continued to split this.

I think maybe a few months, but yeah.

But what it came down to was, well, human nature would say, okay, I'm gonna try to find as much business on my own and not split Scott Hanson or anyone else on it because it's in my best interest. And then it came down to an allocation of resources. So it wasn't really fair to your business partner to have that sort of environment where you could put yourself above your partner.

This is— there's still a lot of practices in our space that are like this today. And these ensembles—

they're not ensembles, they're clusters. I hear this ensemble—

it's a nice word—

and ensemble means that they're all playing together in perfect harmony, one would hope.

A decent ensemble, that's right.

But then there's a split here and a split there, and someone gets split on this, and then a portion— I was talking to a gentleman, like, on a piece of business, they might have 6 people being cut in for parts of the business. And you're like, this is not only counterproductive, it doesn't build a team because you've got individual players not interested in the overall organization.

Yeah, it's competing against each other.

So you came to me, Scott, this is a long time ago, this is— and you said, this split thing, why don't we just throw it all in? And that way we're all going the same direction.

Our production, whatever they call the back was roughly the same. We were in the same ballpark.

That was right.

So we're like, what's the point of keeping track of all this? We're about the same. We have some different skill sets. If we didn't worry about who gets the credit for it, maybe we can go a little deeper on what we're good at and what we're not so good at. Yeah.

And that to me is a key thing where you're saying, hey, our production's about the same. And oftentimes we see these partnerships fail because one of the partners feels like I'm working harder or I'm bringing in the bulk of the business. So why do I want to split half of this when the other person's not bringing in the business. But you also said a key thing there too, which is you felt like you had some sort of maybe complementary skills or some different skill sets. So back in those early days, and even through today, have you guys done a division of labor thing where one of you focuses on something different? Or how do you think about each of your contribution to the partnership over time?

Today it's— there's 400+ employees.

Yeah.

So, you know, our job mostly is to take credit for other people's work.

That's right. Pat's always been good at that, right?

At least you're honest about it.

Oh, have you spent any time with me? You know I didn't do it by myself. But back in the day, yeah, we had—

Pat has zero call rejections. Actually, Pat enjoys cold calling.

I like rejection. I mean, rejection gives me energy.

He literally— most people, I'm like, I could do it. I could force myself to do it. It's painful. The whole time it's painful. I gotta psych myself up, then I gotta drink heavily when I get home. But I'm not kidding about that. But I can do it. It's just not the easiest thing for me. That gives them— literally energizes them doing that.

And back in the day, that was important. But what I'm not good at, which you're really good at, is attention to detail and making sure everything lines up. So I like to throw stuff up in the air and hope it just lands in the right place.

Yeah, I know.

I love starting things. I hate finishing them.

And there I was, make sure the financial plans were done. And one of the reasons we became successful in the phone company is we became experts at their pension plan. I I didn't have any problem. It's not my research. It wasn't my favorite thing to do by any means, but it was easier than cold calling. I had no problem like digging through and figuring out how these nuances of the pensions work.

And then Scott would show me, okay, this is how it works. And I'm like, oh, that makes sense.

And create the workshops.

And yeah, we would do that together. So there is a complimentary skillset. It isn't as important today as it was then.

And actually most people looking in, they'd say we're more similar than we are different. When you're just a small business, you've got to do everything right. And so maybe neither one of us likes doing whatever it is, but But whoever has the least amount of pain will do that.

Let's talk about the organizational chart. We put an organizational chart together. There must've been 5 of us in the—

I think 4. I think that we had maybe, yeah, maybe 2 or 3 employees.

We have this full-on organizational chart, 14 different jobs and who does what. And then Scott's name was in a third of them. My name was in a third of the boxes. And then the other employees, other 2 employees got with 6 each, but our job was to get our name out of the boxes. That was the job. So you took the thing that you disliked the most and wasn't really your core, and you figured out, okay, how am I going to get someone else to do this?

Yeah.

Do we hire?

Do we— my whole career, how can I get someone else? Whatever it is.

That's right. Right now there's contractors in my house and a gardener and a pool guy.

So over time, as you guys were pulling yourselves out of the boxes, tell me a little bit about how that developed. What were some of the first things that you're like, hey, I really dislike this aspect. I need to get someone else to do this. What are some of the evolution to maybe where you are today? And I know you've pulled out of the operational management of the company. I think that happened here maybe in the last year or so. Looking at you, Scott, cuz I think you were more the operational leader and president and, or CEO, and now you pulled out of that.

So we were co-CEOs technically, but early on We said, let's focus on what we're good at and enjoy doing those two things. And let's free up time. So in the early days, it was pretty easy because I don't like inputting to do financial plans or filling out applications for whatever, opening new accounts or trading. Like meeting with clients. A lot of the other stuff didn't like doing so much. So we found people to do those things. And then as the business had grown, it was really like, what are those things that only we can do? Which is really nothing, but that's right.

But there was a belief that I did have a belief at one point in time that I was really the guy that was going to give the best financial advice. And then we did a lot of workshops and then I was like, I'm the only one that can do workshops.

I've gotten myself—

and that was wrong. And then I'm like, I'm the only one that can run the company. And that was wrong. I can't wait to see where I'm wrong again.

And I actually, I think this is where a lot of businesses get stuck because Maybe someone's really good at something and maybe they're hiring a staff, not going to be quite as good. And I think a lot of businesses get stuck. If you look at the average advisor has less than $100 million under management. I think they get stuck because they're not able to give up some control to somebody else and let them do it, even though it might not be, it might not be an A+. Maybe it's an A-.

Do you remember what you used to say to me when we were hiring people? I'd say our overhead, and you'd say, imagine how big Microsoft's overhead is. You would say that. Back in the day.

How big is Bill Gates' payroll? Poor guy.

And then he would say, 2 people working at 85% or 80% of your ability is better than you doing it yourself.

Is that what I said?

Yes. And I'm like, that's right, Scott. You're excellent. You're excellent with math. 2 times 80 is 160. 100%. Yes. It's 60% better. That was key. And it was to change. Look, your life doesn't change. Your business doesn't change unless you change the way you think about it. That's the reality. If you can't get through it in your mind first, it will actually— I can't tell you how many meetings I've been in. I remember our reverse mortgage company that we started and sold for fun, where people would come in with these business plans and they were very elaborate. And we— the head of wholesale sales came in and he showed me this business plan and he put all this work into it. And I passed it back to him without even opening it. And I said, do you have numbers in there? Key performance indicators? And he said, yes. And I said, all right, we're going to come back and we're going to compare what you did in the first 2 months to what you said you were going to do on paper. Because theoretically everything works until you involve people. And the point being is, look, we could sit and talk about what our business was going to look like.

Every business is that way. These startups, you think that the marketplace wants this and you head down a path and you— that marketplace doesn't want that. You tweak until you find some vein that works and then you go deep.

Yes. I've started With you, I don't know if you know this, we've started 6 businesses, 4 of which we talk about.

Today we're gonna talk about the other 2.

Oh, I can think of another one. But anyway, there's a few that, little things that we might as well, we could have just taken our dollars and put 'em in a big pile and had a bonfire that might have been more fun.

But we tried.

Roast some marshmallows on the bonfire.

We tried.

Anyway.

Yeah, so you talk about the people here. Let's go down that thread here for a moment in terms of how you hire people. How did you think about that in the early days? What are some of the tough lessons that you learned when it came to hiring people?

Oh, this is great. Obviously done much different today than that.

We're terrible at it, both of us. 'Cause I have a tendency as the Scott to like almost anyone.

And you wanna make everyone a friend. Yeah, it's a good challenge. Pat's challenge is, particularly the more ornery somebody is, Pat's gonna turn 'em on to a fan. You can't help yourself.

That may be true. How did we do it? Pretty much luck. We got a couple good people in and then— Them do the hiring. We let them do the hiring.

From when we were pretty— from the small time. And then when there's a key role, we've been involved. We've had to learn over the years that what type of person are we looking for? It's a little different now. We've got a very formal process and everything and different kinds of screenings and stuff.

But we actually have an HR department, professionals in it like that. Is that what you're talking about?

Yeah, but it's funny. I was literally last night, I was starting— I'm writing an article I write for Investment News every 2 weeks and it's on hiring the opposite. You're up, hire your opposite. Most Businesses are pretty small in the space. People tend— our mistake, my mistake early on was to hire people that were like myself, and then I just got more of myself and I didn't need more of myself. I needed some other skill sets.

Let's go back again to the early days when you guys established this partnership. Was there any formal establishment? Was there a legal document? Yeah. Something get legalized in later days?

No, no.

Advice for folks on that area?

We didn't have much of a buy-sell at the beginning because there wasn't much to sell. But as it grew, I think a number of times over the years we went through a process to form analyze that. I know we hired Moss Adams back in the day when they were pretty busy in our space to do an evaluation, to help us come up with a formula for a buy-sell agreement should something happen to us. So we—

and then shares.

Yeah, we've been pretty formal about that process, realizing that first of all, one of us could die or become disabled, but also things could change. And we wanted to make sure that we had things written down. I learned early on, this was actually for someone at Lincoln National. They said, you want to have an agreement in place Not so you can sit and fight over something, but to remind yourselves what you agreed to. Because as the years go on, you'll forget. And that was really good advice from Briggs Matsko way back in the day. And anytime now, and I talk to friends, they, he's going to pass the business down to me one day. Is that in writing? No, but he's an honorable guy. I'm like, I don't care how honorable he is, like, or she is, like people forget. So you're going to want an agreement just so we can memorialize what the thoughts were today. So as the times go on, the years pass, we can look back And this is what we agreed on.

I want to go back to two things. One is when we left, the business that we left with was the stuff that we had generated ourselves, right? From the phone company.

It—

what we realized when—

$10 million under management.

Yeah.

It's got 20 clients or something.

We came to the same conclusion early on in the business, which is we did not want to create the normal investment advisory firm where there were splits for everyone, much like ourselves, because it would create conflict and mostly resource conflict of who gets to use what, when, and how it's charged for. So early on, we moved to this advisor model where they were salaried advisors, where they worked on a salary and then a percentage.

And I remember you saying, let's just copy what Charles Schwab does.

Exactly. I read an article years— gosh, 30, 29 years—

they didn't hire producers.

That's right. And I called Scott. There was an article in the Wall Street Journal that said Charles Schwab is not that discount broker anymore, and it talked about their business model. And I called Scott the next morning and I said, I want you to read this article and let's have a discussion about whether we should actually be emulating that sort of business model. Look, businesses inherently have conflict between management and employees. Businesses inherently have conflict between partners and capital partners, if you will. It's inherent in any relationship. I've been married for 38 years. There's always a little bit of conflict. It's just, that's just life. So the whole idea was, how do you, not only in our partnership, but in how the business is run, how do we minimize conflict with as many people as possible. And when you were at Securities America, Steve, back in the day, and we were at Securities America, we oftentimes would sit in a room and we were like, okay, this isn't really working for us. And you'd say, this is how we want to do it. And we'd come to a compromise. At least that's how I think. That's how I remember it.

No, I think what's— it's an interesting point you bring up, Pat, because we all have partners. So we're business partners together, but we also have We have other partners. So we have custodians. They're our partners. We have our products that we use. They're our partners. We have our software vendors. They're our partners. And so part of it for us is to understand what does success look like for our partners? What do our partners need in their business model? And for them to understand what we need in our business model, and then how can we get an agreement together that's going to serve both of our interests so it's so we can all win.

Yeah. And by the way, you started with a question about formal contracts. The formal contracts are important, but it's how you interact with your partners on a day-to-day basis is the really the only thing that matters.

Let's talk about this conflict for a minute, because as you mentioned, you can't go 30-plus years in a partnership like you guys have, as successful as you guys are, as strong of personalities as each of you have, without having some conflict, some disagreements. How did you deal with that? How, how'd you come to some resolution if you guys disagreed on something?

We would argue our point and whoever's the most passionate would win. That was frankly pretty much it. And I think we, look, we were fortunate. We had pretty good success early on. We've had good success over the years. We really have. And I think we were pretty lucky.

We were in the right place.

Yep. Luck is where hard work and opportunity—

That's not— Maybe a little bit. We saw some opportunity.

We just seized it. And you mentioned Charles Schwab. We haven't created Chuck's business like Chuck did. So we can say maybe we haven't— aren't that successful, but we've been pretty dang successful over the years. We've had a good run. We are also very fortunate in— we're in the same stages of life. So when we started working together, we were both married. Our wives both had careers. We had no kids. Pretty easy time to start a business. We both started having kids at the same time.

Our wives were pretty close. Your kids used to spend all kinds of time because we worked all the time.

We did work all the time back in the early days. And so we went through the kind of seasons of life together, which was really helpful. And we both worked a ton in the early days. And then when we started getting some success, we both had the mindset of why don't we have— figure out how to have some good work-life balance through our career instead of just waiting until we retire to do things we want to do. And so we were just fortunate on that. But I think part of it is we have some conflict. We got a good thing here going.

Let's not screw this up.

This is working out pretty well.

Yeah. Our goal when we started was to get $100 million under management. Yeah. Within 5 years.

We hit that number, I think, in 2 years, year and a half.

Yeah, it was pretty quick, but that was the goal. And so every time the chaos comes up or there's a disagreement, you're like, you try to leave ego out of it. It's gotta be what's best for the business, not what is best for the individual, right? What is best for the business? And if it means stepping down or moving aside, then so be it. And I think that was evidence when both Scott and myself stepped down as co-CEOs of the company.

What was it, been 6, 7 months ago?

Which, by the way, it was a little bit of a blow to my ego when I realized that this company, I had to be honest with myself, had grown past my abilities to run an organization of this size. And that it was best for everyone involved, including myself, the employees, and the clients, and me and my family, it was the best thing for the company, for myself to step aside. And Scott and I had a conversation, and— Yeah. And then Scott said, "Well, I should step aside too." Pat, I want to ask you about that.

So, was that a realization that you came to? Was that a realization that other people came to you and said, "Hey, Pat, I think you ought to think about this"?

It was a combination of the both. Both. My behavior was not as engaged as it should have been.

You know, you know what? So here's what happened. I think with us, we are very collaborative, which made our partnership successful. So every decision would run by— any major decision would run by one another, get the other person's input, which would be helpful. But when we were small, we could make nice, quick decisions. Then as we grew 40, 50 employees, that model still worked. But when we got to several hundred employees and had a really strong leadership team, scattered across the United States, frankly, that collaborative decision-making process no longer served the organization.

We needed bold, decisive decisions. It wasn't our style.

Yeah. And I think that's frankly, I think that's where our partnership— and we have some strengths on it, but I think that was one of the weaknesses of our partnership.

Oh, there's no question.

And we were so used to over the years, no major decision— I would make no major decision without running it by Pat. He would make no major decision running it by me. That was like an unspoken, we never, I don't think we ever talked about it. It was just, I think probably what happened is someone made a big decision without running by the other one. They got pissed off and said, all right, not gonna do that again. And it's just how it worked. That made it really difficult when the organization got large, having that same kind of approach of, I wanna make sure everyone on the team's bought into this.

Sometimes you gotta add to the mix that you guys have outside investors. And so now how does that enter into the equation in terms of how you guys make decisions?

We've got a CEO now that's not me.

Yeah, that's right.

Yeah.

And before you were the co-CEOs, how was that?

We were in every meeting, most every meeting with our capital partners together.

Yeah, that's right.

And it was cumbersome. And by the way, look, the problem with being co-CEOs in a large organization is the organization will use that to their benefit.

Oh yeah.

That's much like your kids go to your mom and mom says no, and then they tell me yes.

Yes. Yesterday morning, my 13-year-old, my wife makes her a sandwich that day. And Ruby, little Ruby wanted me to bring her an açaí bowl. She had asked the day before and I said, probably not. And then, so mom, I'd already heard the conversation. Mom's like, you're going to eat this if I make you the sandwich. Oh yeah. Then she comes sneaking in my office all quiet. Hey dad, do you think you'll be able to bring me the açaí bowl today at lunchtime? After mom had already made the sandwich.

It's disappointing and so proud.

The same kind of stuff happens in an organization.

It happens. It's human nature.

I know I talked to Scott about this, but maybe I go to Pat.

So Pat, a few minutes ago you brought up an infamous 3-letter word: ego. And people don't get to the level of success that you guys have reached without some strong ego. So tell me a little bit about how you've managed that. Again, you guys stepped down from the co-CEO role, which is, as you're saying, yeah, maybe it's a little bit of a blow to the ego, yet you guys have managed it. So what role has ego played both in your rise as leaders and in the growth of the business? And also, how did you, or did you, feel like you had to tame it a bit in order to continue to be successful and let other people rise?

Wow, that's a big question.

So look, first of all, ego is not universal. So someone that has a large ego in front of me may not have a large ego in front of, uh, someone that they view higher in status than themselves.

And it's really how we define an ego here, because if I'm honest with myself A lot of what pushes me forward is an insecurity and a feeling that I'm not quite adequate, that I need to do more. I need to produce more. I compare myself. I know I shouldn't do all this, but I compare myself to others. I mentioned Chuck Schwab. I compare myself to Chuck. If I was a really successful guy in our space, I would have created something like Charles Schwab, which is weird because Chuck compares himself to you. So I think at least that's how my nature, if I'm honest with myself, which isn't, and I think I think most successful people, they've got a bit of that in them.

Well, look, you could have ego. You should have ego. Everyone, you're not going to be—

We all have ego. Yeah, you're not— The question is how are we using it?

That's right. You're not gonna be successful in your business unless you believe that you're gonna actually, unless your ego is relatively large. You have ego. You just gotta check that ego when certain decisions need to be made. But I can't be right if Scott hasn't, so if I say, okay, let's do this business decision. And Scott makes an argument against it. And I can't at any point in time say my idea is always better. It's who's going to make the business argument as to why— what's best for the business, what's best for the business. And who cares whose idea it is? What have you said, Scott? If you steal from me, steal an idea from me, you're stealing twice because I took it from someone else.

I'm not an idea guy. I know that.

And unfortunately, I am an idea guy.

But most of them are brilliant.

Most of them are terrible ideas.

He believes they're all brilliant. 1 out of 10 are brilliant.

They're terrible ideas. Most of them.

But I think also part of, maybe even part of my ego is one of the things that I think I pride myself in is I get really good people to work with me and able to attract really quality people. And so I don't have any problem with me saying, oh, they're better at it than I am. And maybe my pride in this is saying, look how smart I am to get all these great people to work for me.

You said something here a minute ago, Scott, about insecurity and how that was a bit of a driver. And one thing that I have noticed in having known guys like you for 30 years and a lot of other really successful people, having known them and worked closely with them for many years, is for most of them there is something that is driving them. And I'd love to learn a little bit more about when you say insecurity, what is that? Where does that come from? And Pat, I'm not going to let you off the hook either. I'm going to ask you if there's anything driving you, so you could be thinking about that while Scott's answering my question.

I know I said it years before, let's look for people that come from slightly dysfunctional families.

Which family's not slightly dysfunctional?

I, fair enough.

No, I think for me it's a bit of a fear of not being good enough. It's funny. I was always the tiniest kid growing up. I'm short now, but I was tiny growing up. I was always the smallest kid. We all had our issues, but there was particularly on the athletic field. I was, no one wanted Scott. No, you take Scott. I don't want Scott. You take Scott. I think there's part of me that is still trying to prove something that I'm worthy. I'm okay.

Is that why you do triathlons?

I'm running a 50K tomorrow with my daughter, my oldest daughter. Yeah. I think that I can do this. Like, you can't stop me from— and actually I'm a fairly decent athlete as an old guy. And I think about all the guys that didn't want to play with me. They can barely even walk anymore.

Bastards. Well, I wonder where that drive came from. I've been on 2 or 3 of these adventure trips with you and man, you just kick our butt. On these, uh, climbing trips and hiking.

I think that's what—

I don't know, that's a dysfunction. Yeah, whatever works, man.

Yeah, clearly what drives— if I could just be content— I don't know, it's complicated.

And the other thing that really fascinates me is you guys have obviously reached a level of success where you really don't need to work another day in your life, yet here you are, you're still working, you're still working hard, you're still crushing it, you're still trying to make an impact. So What is it that drives you to keep working hard past the point of when you really have to?

Unfortunately, most people in life don't quit working when they can afford not to. I think of people who've really made an impact in the world, whether you like the individuals or not.

There's—

you can—

we can all think of a handful of people in the last 20 years that have had a tremendous impact. As I'm looking at my iPhone, ordering something on Amazon as an example. And I think for me, I want to be involved in some sort of game of sorts. Pat, you mentioned like triathlons and it's fun to be involved in some sort of game. And it's fun to, to see other people win, to do well, to be part of a team. It's fun to accomplish new things and to learn and to grow, have new challenges, new opportunities. That's why I still, I don't want to ever retire. Like those things, I want to continue to do those things.

I hope you never retire as well.

Yeah.

How about you, Pat? Tell me what's been driving you all these years.

I am, as embarrassing as it sounds, I think I'm pretty coin-fed. Money to me is a measure of, first of all, I view profit as a measurement in your business as to how well you're doing.

Of course it is. Right? The marketplace decides. The marketplace decides. Yes. Do you have a good product or service or don't you? And if you have a great one, then you get rewarded. And if you don't, you're out of business.

Yeah. And whether your peers believe it or not, who cares?

Right?

It's the marketplace that gets to determine the winners and losers. That's right. And the marketplace is the consumer.

So one of the beautiful things of capitalism, it really is.

All right. So I'm pretty money-driven. I didn't grow up with much. I've worked since my youngest job was in the—

Okay.

Now you sound like the guy coming retired. Pat, you don't understand. I've been working since I was 14. I haven't had a day off.

Who waits till they're 14 to start working? That's what I always say. Okay. You wasted a good 10 years. So anyway, that's what drives me. And by the way, it's a fault of mine in managing people is because I oftentimes don't understand the softer side of the human relationship.

I don't believe that.

I oftentimes—

Pat likes to act like he's this real tough guy. He's got the—

Oh, I am a little—

I've seen him cry. I can't tell you how many times I've seen him cry.

Oh yeah. I like people. I have a hard time understanding people that aren't motivated by money though.

Yeah, people that are not motivated to better themselves in some way.

Okay, fair enough.

And along those lines, how does that filter into the culture? So how have you guys, or have you guys intentionally created a culture at Allworth? And what would you say is the culture that you have tried to cultivate? Because Pat, here you're telling me, hey, I'm serving my money. Scott, you're telling me I love to work, I love impact, I love to see other people be successful. How have you taken those ideas, your own personalities, and built them into the culture that you've created?

Yeah, I think one of it is you just, you tend to attract people that want to be part of this, organizations like this. And an organization needs— you need people that want to continue to grow and to learn and love the challenge and, and your job themselves.

And your job is to provide that environment in order to do that.

But you also need those that they're just good worker bees and they like what they're doing. They don't really need a lot of personal advancement. They just want to continue to do what they're doing.

And you need both. Yeah. And you should reward both.

Let's say you guys have a magic wand, you can wave this thing and you can make either some changes in the business, or what would you want to change if you could change something today in the business?

There's a gazillion things you'd like to change, and sometimes a large organization, things take some time to change.

It's okay to say like a unified tech stack that comes from one vendor.

That would be good.

That's an easy one.

I'm looking for a harder one. You know what I would change? I would change the industry as a whole to bring more professionalism to it. You can't tell the difference between a good advisor and a bad advisor. You can't tell the difference between an annuity salesperson and an asset manager. If you can tell the difference, I can tell the difference. But the average American consumer—

look, there's no Good Housekeeping stamp of approval or whatever you want to call it for our industry. That's right. When you think about Think about the top accounting firms, the Big Four. They go to the best schools, hire the top students, train them well, work them like dogs for— but they train them well. They know that half those employees aren't going to last after a few years, but the other half will. And they certainly don't expect these new college grads to be business development people. They give them a task, they put them on certain accounts. They don't expect them to go out and hunt for business. Our industry is still so much reliant upon getting producers, which is just another name for go out and find someone to sell something to. I would like to see our industry evolve to the point where we act more like a large accounting firm.

And by the way, it is in the midst of a rapid change. Our industry is with the evolution of firms like Wealth Enhancement Group and Mercer Creative, big firms, Allworth. And, and they're starting to delineate whether they're high net worth, middle net worth, who they work with.

Well, most work with all. You look at any of the major firms, they will work with Charles Schwab. They don't care if you got 8 cents or $80 million.

So if I had a magic wand, I would change the professionalism in the industry just because I think the consumer deserves it.

I'd also change the way advisors move around in the— the way that people— advisors depart. Because this industry, an advisor wants to go leave Allworth and go to wherever. There's no sit down, let's have a conversation. They just split one day and then the clients are confused. Like, what the heck happened? This person get fired? Did they leave? What's wrong with the organization? What's wrong with advisor. Why in the world does this happen? And my advisor just leaves in the middle of the night. I get no warning. And the other firm had no knowledge of what's going on. That's what's very typical across the industry. That is not client-centric.

Something else you said here a minute ago was about the sales culture. So again, the three of us are old enough to remember back when it was really the old eat what you kill idea. And to some extent it still is. But we've seen, and you mentioned Wealth Enhancement Group and Creative and some of these other organizations that have done an amazing job creating marketing machines where it's not totally reliant on the individual advisor to go out and drum up the business. It's more, hey, at the corporate level, we're doing all these marketing activities, we're generating some reasonably warm leads, and then we can pass them on to an advisor.

And that is the key to growing. If you look at our industry and you look at Fidelity, had some numbers like this, 2023, the RIA space that had no growth. And the firms that were growing were all the large firms. They were taking the market share from the small.

And many of them on a custodial referral plan.

Most on a custodial referral. Yes, all. I believe. Unless the organization itself takes responsibility for at least some of the business development, i.e., finding new clients, the firms are not going to grow because an advisor, the guy who hunts and eats what he kills, they go out there, they eat, and then they get full. Their client book is full. They don't have the time to go out and prospect anymore. They get stuck, and that's why most firms don't grow.

Yeah, and net of market, there's almost no growth in our industry. No, you back out the market, unless they're large, mid to large firms.

We're pretty fortunate to be an industry where we have the market. Your firm automatically grows without you really doing anything.

So what are you guys doing in that area? So let's take out the custodial referral program. So what are you doing from a corporate marketing standpoint?

We've always done a bunch of— so From the early days, we said we're a marketing firm that happens to be in financial services. So from years ago, you even talked about this whole kind of split, commission split, which we didn't want our business built on. So our organization, we've always taken a marketing approach. We've got a huge marketing team. We have a big marketing budget.

It doesn't— by the way, some people say if you're all marketing, then are you good advisors or good asset managers? You can be both. You can be both. Apple is pretty good at marketing and sales, and they're pretty darn good at developing technology. You can be more than one thing. So we take responsibilities for keeping our advisors' calendars full. That's a responsibility. And you'll find is that this delineation between marketing, sales, and delivery of financial planning and asset management is starting to become more and more bifurcated in our industry.

I also think—

I've seen a lot of the large firms, and you guys may be this case too, where they have a separate business development department and the advisors— Rick Edelman told me this many years ago. He says, our advisors do one thing. Thing. They advise, they meet with clients all day long, and then they've got other people that do other things. So when you get to a size like you guys are, yeah, it's like you can have specialization. It's a marketer's market, the advisors advise.

That's exactly right.

Yeah, we've had someone that has led marketing for over 25 years.

But I also think what the consumer wants from a financial advisor has changed and it's evolving. And our industry 20 years ago was fee-only, was The hot thing, it'd be fee-only. Consumers today don't care about fee-only. I hate to say it. They don't. They want a financial advisory firm that can help in a lot of different areas, not just the financial planning and the asset management, but in the tax planning and the tax preparation and in the estate planning. And which Medicare do I do? Medicare supplement or like, how do I figure that out?

And insurance planning and implementation.

So the firms that are winning today are not the ones that say we're fee-only shop. It's the ones that are saying, how can we provide the clients all the services and products that they want regardless of how the compensation comes? The fiduciary mindset, right? And do everything in their power to maintain that fiduciary mindset.

And the bulk of the revenue is coming from fee, right? RIAA fee or financial planning fees, but they're not afraid to actually use a commission product where appropriate, like a long-term care policy or or an asset-based long-term care policy or Medicare or—

That's right. That's where things are headed. Like it or not, that's what the consumer wants.

It's really difficult for advisors to enter the industry like Scott and I did 30 years ago or 35 years ago. Back in the day, Liz as well as I, we worked together at Securities America. It was a mostly commission-based business and commissions were paid upfront. That's right. And so the clients finance the growth of these businesses.

A-share mutual funds used to pay 8.5% commission.

The clients finance the growth of the business. So you could open up shop and decide to collect revenues 3 to 4 to 5 years in advance from the client and use that to finance the growth of the business.

Some people still sell commission and crap.

Yeah. But you open a business today as fee-only. I've only seen it done twice. Case where it was successful, where someone came new to the industry and said, I'm going to open a fee-based financial planning firm. Both situations, it was second careers with money in the bank.

Yeah. They had money and they have to have money in the bank. How else could you finance it?

Right.

So if you're a spouse that's working.

That's right. So you come right out of college and you say, I'm going to open up my own firm and we're going to be a fee-only.

You're going to lose money for the first couple of years, at least.

I want to wrap this up with one more question here. So, each of you have a billboard, and I want you to have one sentence on that billboard. And the audience for this billboard is the financial advisor community. So, what is the sentence that you're going to have on your billboard that is directed to the financial advisor community?

Hone your skills to be the best advisor in order for your clients to to maintain their financial plan through all cycles of life. And I think what we do really matters. Most of our clients are what we call single-digit millionaires. So they're not the person who's got $100 million. If you're working with a client with $500 million, whether you can help them grow it to $1 billion or you lose $100 million, either one's not going to have any difference in that person's life. You're working with someone who's got $5 million saved up, the right kind of planning,. And the wrong kind of planning can be the difference between them being able to afford to see their grandkids.

$5 million, you said?

Whatever the number is. Okay.

Yes.

You're not dripping in money at $5 million, right? Or a million. Single-digit million. Like the kind of planning that we do makes such a difference. And being so good that you can communicate to the client when the markets are going south, they're fearful, everyone around you is fearful. It's time to get out. Being able to convince that client to stay the course or conversely, Hey, NVIDIA is now up. I want to buy more. Like keeping the client with that financial plan. That is the work. That is what really makes the value in this business. And the more an advisor can get good at those skills to keep those clients invested, the better they're going to be serving their clients. I think the idea here is like, what do you think really matters?

Mine would say, be good at what you do. Your clients deserve that.

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

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