Shirl Penney on the 10 Things Elite Advisory Teams Do Best

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This is Greg Bartellus for Barron's The Way Forward. My guest, Sheryl Penny, needs little introduction. He's the founder and CEO of Dynasty Financial Partners, and today he will describe the 10 things that elite advisors do best. Sheryl, welcome.

Greg, thank you. Thanks so much for having me.

My pleasure. You've been at the center of the wealth management business for a while, specifically at least since 2010 when you founded Dynasty. And you've seen enormous growth and you've seen what the best advisors do. What I wanted to focus on today is the 10 things that elite advisors do best. Before we jump into the list, I wanted to ask if there's any high-level thoughts you'd like to share on this point thematically, directionally, et cetera.

Yeah, thanks for that, Greg. I would say that I've had the great pleasure of working with some of the top advisors in the industry over the course of my career. You mentioned the last, you know, 10-plus years building Dynasty, but I would even highlight before that, I spent the first decade of my career at Smith Barney and helped build and was a senior leader in the private wealth division there, working with, you know, a couple hundred of the firm's top advisors who had, you know, on average, $1 billion of private client assets under management and flew all over the country, you know, working with them, helping them to build out their teams, helping them to win new client opportunities. And that was an amazing experience. And then to be able to move over, and now we work with 48 teams, if you will, RAAs that are on the Dynasty platform who have in aggregate a little north of $75 billion of assets that they advise on. So that's over $1.5 billion on average each. So a lot of similarities, the first part of my career working with larger teams inside of a big organization and now being able to support and work with larger advisors that are on the independent side. So I like to tell people I speak both languages. I understand,, the broker-deal world quite well, given I grew up there. And then obviously after better part of a decade on the independent side, I speak the REA language as well.

Okay. Thank you for providing the macro view in your career. Why don't we just jump into this list? Because it's definitely an enticing topic. The first one that you have here is have a defined talent strategy.

Yeah. So, the best advisors that I've worked with over the course of my career have a very clear strategy around talent. They spend a fair amount of time looking at their org chart. They have a vision over time in terms of where there might be gaps, where they can look to fill those gaps. They have very clear written policies and procedures, roles and responsibilities within the team. They might also think about M&A, not just in terms of the financial impact of M&A, but they're thinking about acquire hires. And they're seeing opportunities to make acquisitions that can be very synergistic for them in terms of adding key talent within the business as well. I find that the teams that we've supported, again, whether it's earlier in my career or now, the ones that win, and this won't surprise anyone who's listening to this, are the ones that have the best team and make it a priority to focus on that team development.

Okay, and yes, that segues right into the next point of investing in professional development.

Yeah, we joke sometimes that in our business or advisors don't like to be trained, but they like to be professionally developed, which is just another way obviously of saying the same thing. But once you have the right team, you know, on the field in the right roles doing the right things, obviously this is a very dynamic business. So the focus on evolution and evolving that talent is something that, again, elite teams really spend a fair amount of time on. You know, having spent, you know, literally, you know, time in probably thousands of meetings over my career with advisors and their top clients, I think I'm in a unique position to say that the two things that are going to be really difficult to commoditize in our industry, one is the competency and the quality of advice given, and the second is the quality of service offered. So a lot of the advisors that we support, we tell them, really invest the time and resources in the professional development of your team because it's one of the things at the end of the day that's going to truly differentiate yourself from the competition.

On a less unique note, in terms of enabling the technological dimension of all aspects of the business, speak to that.

Yeah, so look, I think the future of our business, our industry is kind of the cyborg or the cyborging of what's happening in our space. Which is, you know, I don't think there's ever going to be anything that can replace human empathy, right, when it comes to advising somebody. You may have an economic model that says go ahead and sell the family business, but it's not going to speak to all the emotion that comes around that, or, you know, going through, you know, a divorce or all these life events that happen to people. So the human empathy, the understanding around the advice when matched with technology to tech-enabled aspects of the business, like trading, you know, or some of the operational side, billing, client, new account openings, the compliance oversight of a business. There's a lot of things that advisors, if they focused on leveraging their firm's resources or look to outsource, they could get themselves further out of the middle office, which in turn would then free up their time to spend more time with their clients and ultimately go get new ones. And again, we're talking talking about what elite teams do just a little bit better. And when you do something better over an extended period of time, it really puts you in a position to win disproportionately. Uh, elite teams that I've seen in the industry really leverage all of the technology that's available at the larger firm that they might be at, or really dedicate the time to understand technology that might be available in the independent space that again, frees up their time to focus on what's unique about their offering and pushes the things that should be more commoditized to technology.

Right, and what you just described is distilled quite well in the following point, which you already touched on a bit, which is insourcing the special sauce and outsourcing the rest.

Look, we're all entrepreneurs in this space, and shiny object syndrome affects all of us as entrepreneurs. We could do a lot of different things. It doesn't mean that we should. And we really have to ask ourselves what makes us unique What is unique? Where's our passion? And what is it that we love to do? And hone in on those 2 or 3 things. It's not 12 or 13 things. And then everything else, where we can, we should look to outsource. And I think it's, it's part of why we see advisors that specialize in particular that are growing faster than their peers that don't, because they end up going really deep in a particular subject, which is helpful for them from a branding perspective, but it also allows them to be very efficient in how they build their model. Southwest Airlines flies one plane, right, for a reason. It allows them to really specialize on that aircraft. And similarly, within our business, if you looked at the 48 firms that we service, roughly half of them have at least a part of their business that specializes. On average, we've run the numbers over the last couple of years, those firms are growing 20% faster than their peers who don't specialize.

OK, and yes, on your next point, you were talking about the differentiated and repeatable service model. So tell me a little about what's required to have a repeatable service model. What are the ingredients?

Sometimes it can just be little things. We work with a firm that does an amazing job around preparing for a prospect coming in where they think about— or a client— they think about the experience even before they get to the office. And they're sending them an agenda. They're sending them biographical information of the team members that they're going to be meeting with. They're showing them where they're going to be parking in the building. They have somebody who's meeting them and bringing them into the office. They know what their favorite drink is. You know, they have really tangible and actionable follow-up notes that come from that meeting. Little things like that sometimes maybe we take for granted, but the firms again that win on a consistent basis over a long period of time are the ones that do oftentimes the little things right. More broadly, We're seeing a lot of creativity around client engagement with unique events that maybe the client wouldn't have normal access to, whether it's, you know, next week I'm headed off to the Kentucky Derby with a number of our advisors with their large prospects. We do it, you know, in quite a unique high-end way. We've seen hunting trips, fishing trips, Art Basel in Miami, you know, different events that can appeal to interest of clients. Prospects and centers of influence, but done really well and done consistently over time, can have a real impact on your brand around how you're seen as servicing clients within your market.

When you do the exploration to find out what those passions and interests are, how is that generally done? Just through conversations, or is it done in a certain frequency, or it's kind of more organic, the process?

Yeah, it's a great question. Again, having the benefit of having sat in so many meetings and Look, I say this often, my life has been profoundly impacted because financial advisors have trusted me to work with them. I was a homeless kid from the sticks of Maine and have worked my way up on Wall Street and started my own firm. The whole time I saw financial advisors as my clients. And I work for advisors, and that's the mentality and mindset that we have at Dynasty. And it frankly was the mindset that Sandy Weill had when we were back at Smith Barney, The advisors were the partners. Somewhere along the way, you know, within the industry, that misalignment, you know, in some pockets has occurred. But I think the firms that are really getting it right see the advisor as client. That being said, sitting in all these meetings with the advisors and their clients, the best ones that I've had the chance to observe might spend, you know, the first half of the meeting on personal goals and objectives. Because what they understand, money, financial goals and objectives, where so oftentimes people in our industry will try to spend the bulk of the time talking, is just a tool to accomplish the first, right? So we always tell around the professional development, the advisors that we're working with, focus most of your time on the personal goals and objectives. The best presentation I've ever seen is a blank sheet of paper, right? It's someone who knows the questions to ask, knows how to listen, Gathers that information because from that there's typically, you know, 2 or 3 catalysts that are most important to that family that you can focus on. You understand the financial goals and objectives. You coordinate with the other resource partners, whether it's advisors, you know, in trust, estate, tax, et cetera. Understand who your competition is regardless of what channel you sit in. If you take that approach, I find advisors win more oftentimes than they don't.

Right, I guess just through those conversations, the clients will reveal a lot of the passions without even you directly, just their dreams and whatnot will kind of answer it.

I once, I would just as a quick aside, I once sat in a meeting for a couple hours with an advisor who asked 2 questions basically. They asked the client, if there was a book to be written about your life, this is a gentleman who just sold his business, what would you like it to say? And he literally talked for an hour, which was wonderful in terms of being able to gather information. And then the advisor said, you know, if there was, If there was a second edition written 20 years after your passing, what would you like it to say then about your family? And that really gets into legacy and family. And it was a fascinating meeting. Ended up closing that relationship, which was substantial. Never talked about firm capabilities, never had to, you know, get into, you know, performance conversations, et cetera. The client felt incredibly listened to, understood, and we were able to move forward on starting that relationship.

That's definitely quite powerful and it's very similar to what you described, but I heard a similar thing in the past, which was a similar exercise, which is write your own obituary. And I think that's a pretty heavy and intense thing, but boy, that can tell you a lot.

Brings a new meaning to begin with the end in mind.

Exactly, exactly. Back more to the business aspect. Next point is having pricing discipline. And consistency?

Look, it's difficult for all entrepreneurs, but having pricing discipline— again, we're talking about what the absolute elite advisors tend to do on average better than, than maybe some of their peers. It's ensuring that they're getting good value in return on their time and talent. And we do reviews of pricing from time to time with advisors we work with. And oftentimes advisors will say, I have great discipline. Other people don't, but I do. And then we'll pull their fee grid and we'll look at their top 20 relationships. And there's always excuses and reasons why. That's my college friend, or there's some connection. But for the most part, advisors that are really focused on the professionalization of the business end up being a little more consistent on the pricing. Sometimes you can do repricing exercises, in particular in the independent space, in a space where you have maybe a little more flexibility on how you charge. We've seen a lot of advisors build custom SLAs, service level agreements, based upon different services that their clients want. And sometimes when you go through those exercises, Greg, what you find is you may have clients that you're doing things for that are nice to have for the client, but they're really, they don't have to have it and they're not gonna pay for it. You can cut those things out, which in turn saves you time that you can deploy elsewhere. And at the same time, if you approach a client and say, look, these are services we're adding, and we'd like you to pay for them, they'll do it. We had an exercise recently with a firm. They do about $5 million in REA up in the Northeast. We were able to help them increase their revenue by 10%, $500,000, by creating this type of tiered service model while also freeing up their time by taking out services that they were doing that they didn't fully realize that their clients actually didn't need., or weren't willing to pay for.

In terms of branding, having a 5-year plan for your brand arc.

Yeah. And again, this is, a lot of this is around kind of the evolution of elite advisors to elite CEOs. Uh, and we actually have launched a program in partnership with MIT, uh, called Advisor to CEO, uh, where we're helping to invest, you know, in that evolution of advisors who want to become, CEOs, but part of that is thinking about your brand strategy, thinking about the brand arc over a 5-year timeframe, and that allows you to break it down into individual bite-size. Where do I want my brand to be in year 1, 2, 3, 4, 5, et cetera? Going through branding exercises with your team so that you have great buy-in, allowing you to think through how you're gonna execute your brand strategy. Is it going to be digital? So many advisors and, talking to some just earlier this morning, don't fully know what's available to them for frankly not a lot of money on digital. I mean, we're running digital campaigns for low thousands of dollars. I mean, you'd be shocked at how little it costs if you know how to deploy it, have the right tools, have the right talent, whether it's on your team or outsourcing it. There's just a lot of ways that you're able to connect with prospects and then digitally interact with your client, right? The technology is a brand extension in terms of how you connect and deliver that client experience. I would love to say to advisors, look, if you're not at a wedding and you've got several of your clients that are there and they've never met, how can they quickly, and they're describing their financial advisor relationship, can they understand that they're with you, right? Is there that consistency? That's building a brand. And with advisor businesses, it usually starts out, you're newer in your career. Some of it could be ego, but you want your client to have a relationship with you. As you mature and grow, you then want the clients to have a relationship with your team. The next evolution is you want the clients to have a relationship with your brand, right? And that brand, And that experience is something that will resonate with people. And frankly, for those listening that are really trying to maximize valuation creation around your business, evolving to that level is where you're going to get the highest multiple in terms of valuation of the business.

Multiple leads nicely to the next point, which is to know your numbers.

Yeah, it's surprising that a lot of people don't. But again, there's a lot of people in this business that love being an advisor and maybe don't like as much being a CEO. CEO or CFO, but again, we're just honing in here on the elite, the best of the best. When you spend time with them, they talk as much, if not more, as a CEO or CFO in terms of they can tell you definitively, Greg, here's what my fixed costs are. Here's what it is as a percentage of revenue. Here's my variable costs. Here's where I'm making investments. They might not think about spend on marketing as a cost. It's an investment. They'll talk that way. They know exactly what their gross income on their business is. They know where advisor comp is, which leads to net income. They know definitively within a band of 1 or 2 turns, you know, a firm of our size right now at our growth rate and profitability is going to sell at 7 to 9 multiple. If we, you know, turn the dial on these couple things, this is how we're going to get into the 8 to 10 range. And then a couple years from now, we have aspiration to get into the 10 to 12 range, and here's exactly how we're going to do it. When you talk to, again, elite teams and advisors— and by the way, I talk to advisors that think this way inside of the big brokerage firms oftentimes. Just like, they don't have to just be running an RIA to think this way. Really understanding ROA, ROI on investments in the business, knowing their numbers, tracking it on a monthly or at a minimum quarterly basis. Setting annual goals for the business, understanding what your best peers are doing, being able to learn peer-to-peer, knowing your numbers, knowing them cold. I think it's a big differentiator. And for anyone looking to monetize at some point, being able to speak that way, showing clean books and records over a period of time that you've done it, is a differentiator that will ultimately get you a much higher return if and when you decide to monetize the business.

OK, and knowing the numbers is really a starting point for your next point, which is to have a written business plan and economic model. It's not enough to have it in your head. You've got to make it more tangible.

Yeah, and really involve the team too. I mean, and this is a mistake that myself and a lot of leaders sometimes can be guilty of. We hope that our team gets it through osmosis. But we have to sit them down, involve them in the process. Some of the great ideas obviously come from all across the organization. But then having a 1, 3, 5-year plan, holding each other accountable is really important. And then I also like to talk about having an economic model. And an economic model, Greg, we think about that as, you know, imagine a business plan that doesn't have years on it, right? It's really a look at a business over time just based upon the revenue. So at $2.5, $5, $7.5, $10 million, here's what our business will look like. And it's not something that you're going to, you know, definitively run the business by. But when you and your partners say, look, we want to add another couple administrative assistants, or we want to add a chief operating officer, whatever it might be, let's go back and let's just reflect on the economic model, what we agreed to in terms of where we would be at certain points of time based on revenue, where we wanted our margins to be, and to use that as a tool over time to help inform decisions is really helpful. And again, We see elite teams using tools like that to help them think through critical business decisions over time.

And do you, once you have that narrative arc, if you will, do you over time try to, if possible, shorten it and accomplish the same goals sooner, more efficiently, et cetera?

Well, you know, look, it's maybe not surprising, you know, part of this process is forcing you to take a step back and work on your business. As opposed to what most of us do is just work all the time in our business, right? And the clearer the understanding and vision is that we have on where we want to go, the more efficiently we can move through it. So in and of itself, obviously economic model isn't necessarily going to make you get anywhere any faster, but the process that you go through to build it, I find oftentimes does.

Now, next point, leveraging a board of advisors.

Yeah, it's— So, Harvey Golub is the chairman of Dynasty. Harvey ran American Express, obviously. Harvey has incredible business intuition. He's been around the block, as they say. And he gives me real-time, sometimes hard and honest feedback. And that's great. And I have other great mentors. I believe in mentorship by committee. I think of someone like a Mike Rapoli who founded Vitaminwater and BodyArmor most recently, sold actually both to Coke, both for multi-billions of dollars. Just a world-class entrepreneur, brand-building genius. So as I think through, you know, being an entrepreneur and building a business, building a brand, having people like that in my life is a blessing. And I tell, you know, the advisors we work with and the ones that I see again, that are really professionalizing and building great businesses, they have a board of advisors at a minimum. Oftentimes they're clients, which is great, getting feedback on how to enhance the service. But the bigger and bigger RIAs in particular, because they're standalone businesses, are now professionalizing and having true boards of directors where oftentimes they're professionals who are investing in the business. One of the things, trends we've seen we've seen more recently where clients are buying into RIAs. And there's legal and compliance procedures you have to follow. So get a lawyer that knows what they're doing if you're thinking of doing that. But we've seen it now done a number of times and one done well. It's really interesting because someone who might send you a referral, so you should work with my advisor Greg, now says, No, no, you should work with my firm. And it's a really powerful dynamic if you get the right advisors with the right buy-in on the board that can help you not only professionalize the business, but push you, give you that real-time honest feedback, as I said, but help you be spot on in terms of how you grow the enterprise value over time.

Yeah, and in terms of honest feedback, it's interesting that you've spoken about no yes women, no yes men.

Yes.

And many boards historically at least, have been kind of the opposite of that.

A lot of them would show up, get a nice paycheck, and just kind of rubber stamp things and say, "Sure thing." Yeah, I tell you, I tell people all the time, if you're coming to your very first Dynasty Financial Partners board meeting, kind of wear the helmet, get ready, be prepared, be honest. There's certainly no salesmanship that goes on there. The board's very smart, very sophisticated. But if it's your first time, you would come in And look, our financials are public now. You can look at it. We've grown at a tremendous rate. We've built a really nice model that in line with that growth is reasonably profitable as well. But if you went to our board meeting, you'd think nothing's working because we literally spend the entire time on constructive items. And if we have time, And usually we don't. Occasionally we do. But if we have time, we'll get to the good stuff. But I spend the entire time, you know, with the board saying, here's what, you know, we could get better at. Here's what we need to modify. What do you— Because for me, it's 4 or 5 hours where I have these remarkable minds that are focused on my baby, our baby, and giving us their best thinking. It's not a good use of their time or mine if I just sit there and talk about everything that's going great, right? They can read about that. We put together really nice board decks. They can see what's working well. It's really the time together I want to spend on how we can improve.

Finally, you recommend hiring a chief of staff.

Yeah, in terms of the— in true kind of Barron's form also, I always like, you know, to leave that tangible, actionable, you know, idea for people. And And I have shared this one before. So if you've heard me say this before, I'm sorry, but I'm passionate about it. So I'm going to highlight it again. A chief of staff for any leader is just massive leverage where it's somebody who can literally take half the meetings that you don't have to, can give you leverage on email with key strategic priorities and projects within the business. And it's also an incredible training ground. To have somebody that's gonna work, you know, kind of around the clock, work really hard, and get trained up over the course of a couple years, that you then can move further onto your team, you can move, you know, someplace else in the business. I've had 7 or 8 now over the course of my career. The vast majority of them work with me at Dynasty, including Justin Winkle, who is our chief financial officer. Justin actually started as a summer analyst. At Dynasty over a decade ago. From there became my chief of staff and has worked his way up through the organization. And we have quite a number of senior people at the firm that started in that role. So can't— in terms of practice management tip for somebody listening, I can't recommend strongly enough considering adding a chief of staff.

Excellent. Well, that was all extremely useful and interesting, so thank you so much for joining us.

Greg Bartolus.

Thanks again for having me. My pleasure. Appreciate it. Uh, my guest has been Sheryl Penny, the founder and CEO of Dynasty Financial Partners. For more advisor-specific podcasts, please check out barons.com/podcast. For The Way Forward, I'm Greg Bartolus.

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.