Tom Klingman: The Best Things About Independence | Next Gen

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Welcome to Barron's Advisor: The Way Forward Next Generation, a special series spotlighting the emerging leaders shaping the future of financial advice. Twice a month, we'll be digging into the strategies, insights, and game-changing moves that will help you take your practice to the next level. I'm your host, Allison Tucci, and today with me is Tom Klingman from Klingman and Associates, managing partner. And today we're going to be talking about Succession planning from sole practitioner to enterprise, how you can build your business. So before we get into it, I'd love to understand a little bit more about your business. Give us a background, clients, asset under management, just overall structure.

Sure. So we're an independent RIA based here in New York City. We manage about $5 billion primarily for retail clients, individual clients, about 350 client families. We also manage a few pension plans that total about $1.5 billion. So we have 26 employees. We're entirely employee-owned, so we've taken no outside capital or anything, you know, that some other larger RIAs, businesses like ours, have. Most of the client families we're working with have generational wealth transfer issues, education issues, trying to bring children into the fold, right? This money is going to last beyond them. So most of those families tend to have between, let's call it, $10 and $100 million. That's sort of our target client profile.

That's retail.

That's retail. That's retail. And, you know, I guess that would be considered high net worth or ultra high net worth space.

So how did you get into the business? It sounds like, you know, independent firm here in New York. Did you just fall into it? What was your origin story?

So the company itself bears my name, and that's not because of me. So I grew up around this business because my dad started in this business.

Unless you're Benjamin Button.

Yeah, exactly. Going in reverse. But no, I was incredibly fortunate because I grew up and was able to have real insight and visibility into my dad's work. And I was around his clients, right? And I think that's the beauty of what we do. Many advisors try to make their, you know, friends into their clients. I think my dad did that, but he also had a tremendous ability to transition, you know, clients into friends over time. You know, ultimately I thought, I don't want to work for dad. And that was really to preserve our friendship, our relationship, and wanting to go out and do something on my own, right? And kind of blaze my own trail. I worked for 2 years at Deutsche Bank, actually almost 3 years if you include the internship that I did there, and on the investment banking side. So very different from what my dad was doing. And that was really a function of being swept up at 20 or 21 years old with what all of my peers were doing, right? Sales and trading, investment banking. I want to work at a hedge fund someday. I want to be in private equity. I knew very little about what any of those words meant. I knew finance. I knew my dad's business somewhat, right, as a 19, 20, 21-year-old person, but really just trying to get my foot in the door. And I liked it. But what I started to see was that it was very much about chasing a fee for the bank. And not that that was some big negative, immoral, oh my gosh, how could I go to work every day and sort of try to drive shareholder value for Deutsche Bank shareholders? No, it really was a matter of my boss, my managing director, would come to me and, for example, say, hey, I've got a meeting with DuPont. Can you print out a list of board members to see if I have any connections that I can kind of— and, you know, or we're going to go into this meeting. Should we be pitching, you know, M&A? Should we be pitching dividend recaps? Should we— it wasn't so much focused on what the client, the corporate client needed. It was more what the bank needed. Fee generation. Right.

Interesting.

And I looked at what my dad did and it was the opposite. Granted, it's not charity work. We generate a fee. We charge our clients to manage assets and to manage portfolios and to handle all of their comprehensive wealth management needs. But what I saw is he was building relationships. My managing director, when he came to me and asked for a list, he was looking to find a relationship, right? He wasn't looking— and then ultimately transact based on that relationship. Whereas I kind of had the lens through my dad of these are long-lasting relationships that you build with clients and next generations of client families. So what really excited me about coming on board and, you know, kind of skipping ahead was the opportunity to work with those next generation families. So children that I kind of knew had grown up with in some ways, but then to really start to drive impact, to have conversation with them. So that to me was really, okay, this is what's different about this business. We're going to help send people to college. We're going to help them retire, right? We're going to have conversations with their kids, their grandkids. What what matters to them most versus sort of catching them in a moment at work, trying to generate a fee, trying to be a bit more transactional for a larger organization.

What are some of the advantages that you see with working at an independent RIA?

You know, in terms of just working there as a younger advisor, the ability to really drive change, to drive, thinking, innovation. We have a 26-member team. We have 4 equity partners. Even, you know, removing myself from sort of the management of this group, if we've got an advisor or a client relationship associate or somebody in operations that has an issue or thinks something can be done better, there is no red tape. There is, you know, me, there's Michael, there's Jerry, there's Dan. Those are our 4 partners. And they come and talk to one of us and we have a conversation and we try to do things better. So I would say, you know, number 1, the ability to be nimble. That's incredibly important now as we evaluate different types of technology. But it is the Wild West in terms of what are the providers, what should we be looking at, what should we be using. So it's a little bit scary as an independent because we're not being told top-down sort of here's what you will use, this is the technology, this is the platform. But it also gives us tremendous ability to sort of understand what do clients need. And I would say for a younger person or for advisors that we're trying to hire, when you work for a larger organization, you work for the clients, but you also work for the bank or for the larger organization. So without getting into product or what hits the grid or all of these other things that I don't—

Feed compression.

You know, that I don't necessarily claim to know too much about. In our business as an independent, we've removed all of the conflicts that we possibly can remove, right? We work just for the client. And, you know, we have two custodians that we use for that reason. So we have Charles Schwab and we have Raymond James, and we keep assets on both platforms. The reason being, for the client, right, to be able to negotiate on their behalf. As we've gone into this alternative investment world, right, with Kase, with iCapital, the ability for a client with very small minimums to be able to have access to institutional quality private equity, private credit, private real estate. How are we accessing that for our clients, right? Is Raymond James through Kase or through iCapital able to do it cheaper? Is Schwab through Kase or iCapital able to do it cheaper? These are conversations we are constantly having with the custodians behind the scenes to really try to effect change on behalf of our clients. And it's not just alternative investments. It's direct indexing, which we think, again, going a little bit more to product, is the future when we talk about investing in equities specifically. The technology has gotten so good, the ability to own the index but own all of the underlying constituents. JPMorgan's got a, you know, a direct indexing tool. We look at, you know, Parametric has a direct indexing tool via eAdvance. You know, there's a whole host of them out there. What is the best technology? It's not necessarily going to be offered by Raymond James or Schwab or any of these others, right? So how are we leveraging them against one another to make sure that we're providing the best, most cost-effective solutions for our clients? Being an independent puts us in a position to be able to do that.

There's been a lot of private investing going into wealth manager technology that have spurred a lot of these smaller startups to really compete to the point that you just mentioned with the Charles Schwabs, with the Fidelities of the world. So you're now not just looking at your old school firms, your Microsofts of the world, but you're also looking at these like nice little startups that are moving really fast in other ways. How are you determining build versus buy?

Totally. And build versus buy is a great way to look at it. Another term that we use in our office is this push-pull between best in class and integration, right? So, you know, this build versus buy, we're not really at the point where we're going to go and spend the money to hire an engineer to double down and build build it out ourselves. But to your point, it is out there in terms of the number of different smaller providers that are offering technology solutions, particularly when it comes to AI. We think, you know, to go that route for a second, that— and we're going to be implementing a tool in Q2— but for note-taking, for follow-up task generation, for manual account updates, you know, we're not necessarily comfortable yet with allowing AI into all of our business, right? And, you know, but how can we use it in certain ways to really drive productivity. And these are things that behind the scenes— let's take a manual account update for an example, right? We're a comprehensive advisor. We're going to manage assets at Raymond James or at Charles Schwab, and we're going to charge a fee to manage those assets. But we also want to be able to report on all outside assets that a client has. And we think that's been a big value add we've done for the last 15 or 20 years. And technology has allowed us to do it better going forward. So whether it's on a simplistic level, your 401(k), But on a more complicated level, restricted stock, you know, other investments that clients have made, whether venture capital, hedge fund, private equity, right? How are we tracking them, reporting them, updating them, right? So for a client, the fact that we can now potentially use a tool and internally be able to update all of these manual accounts, we think that's going to take tremendous effort off of our team, right? And lift off of our team. We're trying to find little ways like that for things that we're doing on a consistent basis to be able to drive sort of additional scale and additional efficiency.

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Welcome back to Barron's Advisor: The Way Forward, Next Generation. Let's get back into the conversation. As you're growing your firm, it looks like you're transitioning it from a practice to more enterprise. What are some of those dimensions and considerations as you're kind of growing the firm?

Yeah, initially for me it was, okay, this is great. I want— I think I want to be an advisor, but I also want to help dad grow this business. Right. So beyond sort of this sole practitioner, and he also recognized that too. And that's why this partnership really worked because, you know, 10 years ago when I left Deutsche Bank, you're was thinking about leaving Deutsche Bank in 2012. I guess we're getting to about 13 years ago.

You're aging yourself.

I'm aging myself as we sit here. No, but it was 13 years ago that I joined my dad's firm. And a lot of the initial conversations were around, well, you know, he wanted to build a firm that was going to outlive him and I was going to be a part of that. But it was not going to be just me. And I viewed that really as an opportunity. How was that an opportunity? Because I didn't have to be a wealth advisor if I didn't want to be a wealth advisor.

You can go into a CEO role, you can help build the business in that way.

At that time, Dad was really— we had 10 people people that worked for us, right, in 2012 or '13, or really I should say worked for him. And when I joined, he had made the decision and he had worked with different advisor coaches and consultants that he was of the belief that he did not want to sell his practice like many were at that point. Obviously, more have since then. And had worked with Michael Paley of Focus Financial Partners in terms of talking through succession or planning or what they might offer him. And really, you know, sort of made through these different conversations that he was having the decision that he wanted to ultimately build an enterprise, right? Not just a practice. So for me, that was a great opportunity because I came in and really initially was an investment analyst. So as much as I dove deep on chemical companies, I knew very little about portfolio construction, about asset allocation, about asset location, right? Tax efficiency. So for me, it was coming in, learning something from the ground up, being an investment analyst, right? And then understanding, okay, I like this, but I don't love this. So then I was able to work as a junior advisor to my dad and I realized, okay, this is what I really like. I want to work with the clients. I want to work directly with the families. I want to understand the investments, but I don't want that to be my entire job. And it was pretty clear that I didn't have the skill set at that time or the want to, to really run the operations side of the business. Because, you know, I think with Dad and many of these other people of his generation, right, that didn't work for a JPMorgan or a Morgan Stanley, but did it themselves on the independent side, they sort of had to cobble it together over time. Right. And you hire people to fill certain roles, whatnot. But then ultimately, if you make the decision, I'm going to have this outlive me, you know, what Dad was very clear on is I've been doing 3 things. I've been a wealth advisor. I've been a chief operating officer, meaning running the business. And I've been running the investments, right? Clients, investments, business. I can't do all three anymore. And he always said, and I think this is inaccurate, but that he was an A+ at the— I think that's accurate with the clients, you know, a B with the business and a B+ A- with the investments. Now, I think he was an A+ with the clients, A-, A with the investments.

Give him an A. I'll give him an A. Give him an A.

And I think with the business, he was probably more of a high B, low A, but recognized of all the things and also in terms of what he had interest in doing, that that was kind of far down the list. And so it was communicated to me, you know, very clearly in 2012, hey, I want you to join, but you're going to join and you're going to be a part of a larger group, right? A larger enterprise. So that was exciting to me. I think other people might have been turned off by that. I viewed it as let's grow this pie and I'm going to figure out, right, what I like to do, how I like to do it, and be a part of a larger group. I think that fit my personality well. I'm not sure it's necessarily for every sort of successor, next generation, you know, owner. But I think I saw the bigger picture, which was the opportunity to really take the, you know, kind of kernel of client service that we have that is exceptional and comes all from Dad, to take that and then build sort of a larger, more long-lasting organization around that.

And when you were brought into the business, I'm sure you had to have conversations with his colleagues about, you know, being the son coming in, what role you would play. How did you manage those conversations?

When I first started, my dad printed out a piece of paper and it was 5 bullet points of things that he wanted me to sort of think about. The last one was have fun. But no, it was— and one of the bullets was everyone's watching. You know, and one of the bullets was be a sponge. And there were a couple other on there that I might have forgotten, you know, as time has gone on. But, but those three, I think, you know, that's been what's carried me through. I think initially when I joined the firm, being able to just sort of shadow, watch, observe. Yes, there is some uncomfortability. I'll be honest, coming in to an organization, you're the son. As Dad joked, Klingman and Associates, you're an associate, you're not a Klingman. You got to earn that, that sort of, you know, other title. I tried to just really put my head down, work hard, be an employee, be an associate, not be a Klingman. You know, I don't think I did a perfect job. You know, over time, I think that, you know, I showed up, I asked questions, I didn't appear entitled, you know, from the standpoint of just that I wanted to learn and I was hungry to help clients. I think as long as is, you know, for a next-generation person coming into the practice to give some advice is just be hungry, be a sponge, right? People are gonna assume that you're there for the right reasons, believe it or not. They're gonna think whatever they're gonna think about sort of your abilities, but you're gonna demonstrate to them over time what those abilities actually are. So I do think that it's important to recognize, as I did, I recognized it later, some of the imposter syndrome, right? You're coming in, Who am I? Who are you? And wanting to sort of assimilate. But you've got to move past that eventually, too, in that, you know, Dad hired me ultimately not to be an associate, ultimately to be a Klingman. Right. And I mean that to be an owner, to act like an owner. So I think it took a little while to grow into those shoes and to feel like that was actually, you know, I wasn't just trying to pretend to be that person, but that's actually what, you know, what it felt like to be coming to work each day. But no, I think the biggest kind of takeaway that I had from that time period was just learning from people, was just going, Caesar in operations, Caesar, what do you do every day? Right?

Yeah.

And if people recognize that you're there to actually understand what it is that they're doing, not just for a free ride, then I think they pretty quickly, you know, want to get on board, want to help the clients. Again, it's a culture of caring and it's a culture of helping clients. So as long as you're playing into that sort of overall culture, I found it it was okay, you know, kind of coming and working in a smaller organization for Dad.

So it sounds like you have to be inquisitive, right? You leaning in, having conversations, asking, being humble, and having just this sponge mentality, for lack of a better word. So in terms of the next stage for you, as you're pivoting to being an owner, it's a little bit more of a difference that you're making. You're moving from an associate to a Klingman per se. What does that actually mean for you in terms of how you structure your day, what decisions you make versus which decisions you're going to offset to your team? But how do you approach that? And when did that pivot happen?

Yeah, it's happening right now. And we're working with actually the four of us, you know, earlier today left a leadership sort of, you know, session that we're doing with a coach. But we've hired an executive coach to come on and sort of really for myself and for Dan. And Dan Del Moro is our director of investments, will ultimately become our chief investment officer, is one of our 4 equity partners, also happens to be my best friend from high school. From the standpoint of, you know, just how do we, Dan and I, now at 37 years old, transition into leaders? And it happens quickly. And it's funny because the most, you know, the most relatable thing that I have in my world to this that I've leaned on a little bit is some of the advice that I've given our young professional athletes. So about 20% of our client base is professional hockey and football players. And I work directly with all of those folks. I've had to speak to guys that I recruited when they were 19, 20 years old and are now in their early 30s about how quickly they go from being the rookie to the veteran in the room. And I feel like that has happened in our practice. Now, granted, it's been 13, 12, 13 years since I've been there. But it feels like in the last couple of years that's happened pretty quickly and it's happened, you know, almost overnight where I, you know, am no longer just the wealth advisor or trying to sort of go in, service my clients and have good conversation and be a good, you know, kind of employee to now, okay, you know, people are looking to you for vision, for leadership, for mentorship. And that's been, I think, one of the greatest challenges for me in terms of my personal growth is I'm still trying to become a good advisor myself. I think I'm getting there. I don't think that journey is ever complete. And now the expectation is, we talked about younger people in the organization, I've got to now mentor, train financial planning associates, right? They're looking to me to do work, but they're also looking to me to sort of, well, I want to be an advisor someday, so what does that look like? And I think, you know, it can, again, I'll use the term imposter syndrome, right? You can kind of sit here and say, or I can sit here and say, Well, maybe I'm not ready for this, or this is too much, or— I think it's just a matter of continuing to do what I've been doing for the last number of years, which is just becoming a better advisor every day. And that's by doing, because, you know, it's all experiential, what I found in this business. You talk to a client, you have an emotional conversation about a particular investment that they made or decision that they made, and you learn something about yourself, about the recommendation, about the client, right? So it's funny, this— I feel like this is happening for me every single day, right? I'm learning, learning, learning. But then it's like, oh, how do I stop and maybe pass some of that on? So I've found, again, trying to give an actionable item for the folks that might be listening is just bring people into the conversations that you're having. I'm learning too, right? Let's talk to this client together. And you don't have to be so kind of silly educational about it. It's like, hey, let's come and learn together. But that is the truth. And what I'd say to other advisors behind the scenes, is that at 37 years old, you know, I'm well equipped to advise people, but I'm getting better equipped to advise people also, right, as time goes on. Bring people into that conversation, right? You're not going to have the answer and then go disseminate it to somebody else. Be more collaborative. So I think that we have done a really good job in our office of creating teams of advisors, client relationship associates, financial planning associates around client families. And then that allows us to be very collaborative and sort of idea share and then ultimately over time mentor and train because we're so kind of dialed into what it is that we're doing for that particular client.

What is the biggest learning that you've had both working with your father during this transition as well as you're transitioning during this time and the business is transitioning? A lot of transitioning.

It's a good question. I think be myself has been my greatest takeaway, and it took me a little while to sort of understand what that looked like, who I was, because I think I joined the practice when I was 24 years old, and it was a practice at that point. Now I'm 37, and it's an enterprise. That change was real over 13 years. And what did it look like? For me, it was about sort of being who I am, being a leader. I think initially having some level of shyness or imposter syndrome around, well, what am I supposed to be doing? You also have to spend some time actually learning the business, which I did, learning the investments, you know, learning the operations side before I felt like I was actually comfortable advising clients. But then going forward, and my dad gave me this advice, but I've embraced it, is to embrace complementary skill sets. You know, I was very open 13 years ago to this when Dad came to me and said, okay, well, if you're going to join the business, this is my vision, right? And it's going to be an enterprise. And, you know, there's going to be someone to run the investment committee and someone to run operations. And there's going to be a next generation group of wealth advisors. And that to me was exciting because I wanted to be a part of a group, right? I like being a part of a team, not necessarily saying that's for everybody, but then I think buying into that and kind of launching headfirst, being very open over time to adding people that are not necessarily going to come in and do what I'm doing, but are going to come in and assist and do other things very, very well. And, you know, again, working with Dad and Michael and Dan to identify those people over time.

Well, Tom, thank you so much for joining me today on this podcast.

Thank you very much. I really enjoyed the conversation.

The production team for Barron's Advisor: The Way Forward: Next Generation is Ellie Ismailidou, Rebecca Bisdale, Paul LeBlanc, Kinga Rojek, Joseph Lusby, and Alexis Moore. Melissa Haggerty is the executive producer. Jenna Mathis is the director of programming for Barron's Advisor Programs. Greg Bartalus is the editor-in-chief of Barron's Wealth and Asset Management Group. We'll be back soon with another episode. Thanks for listening.

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.