Lessons Learned From How Mega-RIAs Are Scaling Their People To Support Growth: #FASuccess Ep 486 With Lisa Crafford

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Resources Featured In This Episode:

• Lisa Crafford: LinkedIn
• Constellation Wealth Capital

Full Transcript:

Michael: Welcome, Lisa Crafford, to the "Financial Advisor Success" podcast.

Lisa: Hi, Michael. It's great to be here. Thanks for having me.

Michael: I'm really excited to talk to you today and to have a conversation about what it really means now to scale up a really large advisory firm. The whole nature of "large" in the industry has changed. There was a point 15, 20 years ago where a billion dollars of AUM was on the pitch. That was a mega firm. That was unimaginably large and a lot of firms were like, "Someday we can get to a billion dollars." And then we got there and some big firms kept growing. And by 10 years ago, suddenly we're talking about it's only a matter of time before it gets the first $10 billion firm, 10x the old size. And now it feels like there's a lot of large advisory firms or platforms that are shooting for $100 billion. I'm pretty sure Peter Mallouk is gunning for a trillion at Creative Planning at this point.

And at that point, not even at a trillion assets, maybe just "tens of billions" of assets where you're legitimately talking about more than $100 million of revenue. I feel like we're not even just talking about the difference between a practice that's built around you as an advisor and a business that sustains beyond you. It's some other thing at this point. As I start thinking about it, it's an enterprise in the truest sense. It's a going concern enterprise that actually has remarkably little to do with you as the advisor, founder, owner, because at $100 million of revenue, there's hundreds of people who do all the things that happen in the business to deliver the services to the clients that it serves.

And it feels like there's really no particular playbook of how you scale up a hundred plus million revenue enterprise because the folks doing it now are literally at the forefront of the largest independent advisory firms there's ever been. So, we're all building the proverbial plane as we're flying it. But I know you, Lisa, have a very front row seat to how all that's unfolding in real time with background as a business consultant, now working with a firm that also invests in these businesses or invests in these enterprises. And so today I'm excited to talk about what it really means to try to scale up an advisor enterprise. Not all of us or most of us or even really very many of us will probably ever build a firm that has $100 million of revenue, not just clients but revenue. But I feel like there's still something that we can all collectively learn about how it works and what happens when advice businesses try to get that big and are still growing and reinvesting to the next level.

Lisa: Yeah, I'm excited to dig into it today.

Lisa’s Career Journey And Path To Constellation Wealth Capital [05:42]

Michael: So, to kick off, I'd love to set the stage for everyone listening a little bit about who you are and your background. So, can I ask you to share just a little bit of your background and journey through the industry, and then we'll get a little bit to where you are now and then talk about all the cool perspectives that it gives you on what's happening in the advisor world.

Lisa: Yeah, absolutely. So, I moved to this country 19 years ago with zero plans of what I was going to do as an adult. And I thought my path was going to take me down being in the diplomatic service in Australia, and that had been my goal and vision for many years, and got disrupted, got a better offer, got married, moved here. And I was in country for 24 hours and got a call from the company where my husband was working at the time that somebody had slipped on ice and broken her ankle, was going to be out for six months. Could I come to work tomorrow?

Michael: Oh, my gosh.

Lisa: I was...

Michael: Okay, I...

Lisa: Sure.

Michael: Hey, that new person's spouse must not be employed right now. Let's call her and see if she can fill in.

Lisa: That was literally the conversation, and these people are wonderful. And I actually just emailed them the other day, and I was like, "You guys were so great to me and I owe so much to you." And poor Carol, I'm glad that she did actually finally recover.

Michael: That's good.

Lisa: But I got a job as an admin at an RIA in the D.C. Metro area. I didn't know what an RIA was other than I knew that my husband worked for one.

Michael: Okay, so that was his background and your entrée to the industry.

Lisa: Yeah, but not intentionally either. So, he had studied economics at George Mason, and I don't even remember how he got the job over at this RIA, but he had just started. He'd been there three months and was studying at night to get his CFP and was the junior person on the team. And so none of us knew anything. We just turned 21. We were very much figuring life out as we got started as a new family unit. I couldn't drive. I didn't have a Social Security card. It was a fun first week in country, but it turned out to be a really great experience. It was a really sweet little team and they had really great clients. I got to learn the business and I was doing admin work. I was scanning documents, and scheduling appointments, and making coffee, and doing all those things.

Michael: Right, because we're almost 20 years ago. So, we're squarely in the phase where we're "going digital" because we get pieces of paper but we scan them to make digital files so we don't have to use many file folders.

Lisa: Oh, yeah. Yeah. We had a room that had documents, and every client had a folder, and every email had been printed in this folder for the duration of this business. So, we bought a BizHub and I scanned eight hours a day for six months, putting all this stuff in digital records, and answered the phone and did whatever they needed me to do because I was just frankly quite happy to have a job.

Michael: I feel like it's a great note for anyone who's frustrated about how hard it is to wrangle your data digitally and do things with it and how expensive it is to invest in team members to support you on that. Just remember there was a time where we had full-time jobs in the advisory firms to scan pieces of paper just to get them into a digital file. That was an actual job for a while.

Lisa: Yeah, but I learned a lot.

Michael: Yeah, you see all the documents.

Lisa: While I was waiting for stuff to scan, I would read it and I would be like, "Wow, this is really interesting," and I'd go home and talk about it. Since Ian was in the business too, we could have a great conversation about it. Near the end of my time when my papers were coming through, they offered for me to stay and I was like, "Oh, that'd be great, but I really just want to spread my wings a little bit." So, this is August of 2007, and I ended up leaving and taking a job at Robert Half, which is...

Michael: Oh, the staffing agency or something.

Lisa: Staffing company. Yep, yep. I actually applied as a temp just to get a job because I didn't know the companies here. I didn't know organizations. None of the names were familiar. And back then when you'd be filling out a job application on an HRIS [Human Resources Information System] system, especially in a city like D.C., it's like, "Where'd you go to university?" I'm like, "Well, I went to university in Australia," and it doesn't come up on the dropdown list. And so you have to pick "Other," which is basically the HRIS system's way of saying, "You will never work here. Not interested." If your university is not accepted on this already pre-populated list of universities, forget it.

Michael: Oh, right. If you literally have to be the write-in and you can't pick from the dropdown, this is not good.

Lisa: Yeah, you're not going to get a job. So, I took a job at Robert Half and it was great. Had a great team there and it was cool because I got to see a lot of different companies and that's exactly what I wanted. I wanted to see what made a good company a great company and what made a good boss a great boss. You meet a lot of not great people in that role, and you get hung up on every day, and you have to fire people every day. You got to interview people. I have so many stories that are probably not good to be on a recorded line, happy to share at a cocktail or at a conference somewhere, of things that we saw and experienced in our days at Robert Half. And then fast forward, did that for a couple of years and it was really hard during the GFC [Great Financial Crisis]. No one was hiring, and I was putting people to work who were lawyers for $10 an hour to answer the phone. And it just didn't feel great.

Michael: Because you were filling out their temp job opportunities.

Lisa: Yeah. So, I was the one interviewing people, placing them, calling on companies, trying to convince them to hire temps. And in that kind of 2008 and '09 era, not a lot of hiring going on. So, it was scratching at the dirt a little bit, and it got a bit much. Had a little baby at home, so I decided to spend some time there. And I was home for a couple of months and one of my former clients from Robert Half, who was an RIA, called me and said, "Hey, we need to hire an office manager. Do you know anyone?" I said, "Yes, me." And I was like, "You should interview three other people, but then you should call me and offer me the job." And I hung up and I was like, "Gosh, that sounded so arrogant. Who am I?"

Michael: I love it. I love the confidence.

Lisa: But I really want this job. I really, really liked them. I had placed a couple of admins in their company. I'd met the people. I'd gone and visited their office. They were all really nice people. And I was always drawn back to that RIA world because having seen so many different companies across so many different industries, and D.C. really is a very diverse company area. We had the Volkswagen headquarters next to us, AWS was in the building next door, but then you had all these incredible little startups in technology, and healthcare, and education. And you got to see a very nice spectrum, but the RIA companies were the ones that I was always drawn back to. And so when they called and said, "Hey, would you like to interview for this office manager job?" I said yes.

So, FJY [Financial] hired me as their office manager. And I think I'd been there six weeks, and I remember walking into John's office and saying, "I want to do more. I think that you could use me here or there. Let me do other things." And so slowly, or maybe not so slowly, but every couple of days I would take on a new job or task or responsibility inside the organization because I had time and I was interested and they were incredibly gracious and let me. And that was super fun. And I sort of got my feet wet a little bit more in the business of the business. I'd graduated past simply scanning documents and calling people to remind them of their appointments. And, yeah, I felt like I'd made it. I had an "adulting" job, which was great. And I didn't have to fire anyone every Friday, which was also really lovely.

And so I ended up spending about five years there. While I was there, so much happened in the business. We doubled people, clients, AUM, locations. We were audited by the SEC. A founding partner exited. We promoted someone to partner. We changed most of the technology. And I got to have a front row seat at all of this, and it was really exciting. And it was just a really incredible opportunity to learn from great people who cared so much about their clients and who were willing to let me push the envelope a little bit, sometimes in ways that they hadn't been pushed before, when we're thinking about growth.

Michael: So, what were you pushing them on?

Lisa: So, one of the things that back then was kind of cool about the industry was any of our advisors could go to a community event or whatever, and they would come back with a client. And we'd sit in our leadership meetings and I'd say, "That's not always going to be the case. I feel like we need some more structure around it." And so I created over the course of a few years several different strategies to help motivate, incentivize, track, measure growth, where growth was coming from, and be more meaningfully planned around that. And it was not always welcome. And honestly, they weren't all very good ideas. Some of them were genuinely terrible ideas, but you don't know until you try it. And they were very good to me, and they let me try a lot of things.

And so we were doing content strategy before that was a thing. We were doing niche content for each advisor based on who they were and who their community was and what they were passionate about. One of our partners was really passionate about college planning and 529s and preparing your kids, because that was the stage of life that he was in and so building stuff around there. And we were getting clients back then from our company blog, which was kind of wild. So, yeah, it was fun. We had a great time over those several years. Got my MBA while I was there and just have some lifelong friends that I got to work alongside for those years, which is really cool.

Discovering A Love For Helping RIAs Make Their Businesses Better [16:28]

Michael: Okay. So then what came next on this journey?

Lisa: Yeah. So, I just finished my MBA. I was at, I think it was, the Bob Veres conference, and having a chat with Mark Tibergien, who I'd met a few years ago and had kept in touch with. And we share a love of travel in Belgium and Australia and many other things. And I was telling him I just finished my MBA and I was super eager to jump into what was next. And he's like, "Yeah, you should come work for me." And I was like, "Sure, doing what?" And the answer was super vague, but I respected Mark a lot. And I was like, "Yeah, let's do it." And so I navigated my exit from FJY, which was really hard. They were just great people to me, and I'd had such a good experience there. I really didn't think I was ever going to leave.

But as Mark and I got talking and he would explain the role that I was going to be stepping into was, "Do what you've done for FJY but do it for 35 companies a year, not just one." And so that appeal of helping more firms do business better was hard for me to turn down with my freshly minted MBA and thinking that I knew all the things. And I was like, "Yeah, I've built an RIA. I know exactly what to do," like me naively thinking there's a playbook. There's not a playbook, by the way.

And so I joined Mark and the team over at Pershing. We moved our family down to Orlando, and I started my career at Pershing as a relationship manager. So, I was in charge of about 30 of our Pershing Advisor Solutions, at the time, clients, spread from the mid-Atlantic down to Florida, and then put my European passport to use. And I also covered our European clients as well. And my mandate there was to help them develop their relationship with Pershing, which means bring more assets to Pershing. That's every custodial relationship manager's primary function. But my approach to that, having not grown up in custody, because I knew enough about custody but it was not my area of expertise. My area of expertise was run your business better.

Michael: The firms, yeah, how to run and operate the business.

Lisa: And so my approach to it was, if I can help my 35 or 30 or however many I had at the time clients run their business better, they'll grow faster and therefore they'll bring more assets to Pershing. And so that's how I approached the role. So, I created this very consultative approach to the clients that I was assigned to. And we would talk about things like talent development, and marketing strategies, and growth investment, and technology processes. And I would be walking out of the meeting, and many times the executive team would say, "You never really mentioned Pershing." And I'd say, "Yeah, but it's all connected, right?"

Michael: Yeah, but you did.

Lisa: If you're growing, then you're going to go get a new client and you know where I work. You know what I'm doing here, but I don't need to come in and hit you over the head every time about what's new in custody. If you ask, I will tell you, but let's talk about how to run a better business. And that was super appealing and it was wonderful. I got to work really closely with Mark for several years until he retired. I got to support my other relationship management colleagues because some of them had grown up in custody and didn't have this exposure to actually running the business. And so I would lean heavily on them for all things like nuanced custody and leverage their help, and expertise, and wisdom on those things. And I would repay the favor by dropping in and doing consulting work here and there for their clients and doing calls and whatnot off the side of my desk. And really enjoyed that and got to meet so many of the Pershing clients across the country.

There were some leadership changes at Pershing when Mark retired, and I took that as an opportunity. I met up with Ben and Christina, who were at the time my joint bosses, and I said, "I love being an RM, but what I really want to be is a business consultant." And we don't have a business consulting team, and I'd written up this whole case study on what the other custodians had. And I was like, "And it's working for them. They're growing and they're creating these really sticky relationships with our clients. And I think that we can really compete here, and we can create really immense value for Pershing."

And I was sitting there. I've never been so nervous in my life. And Ben and Christina and I, great relationship, like zero reason for me to be nervous, except I realized that in that meeting, if they said no, I was basically talking myself out of a job. So, I was like, "Either this is going to go really well and then I've got to somehow figure out how to stand up a business inside of Pershing, or I'm talking myself out of a job. Either way, big change." And they liked the idea. So, they bought onto it. I moved to Denver to have a little bit more of a national coverage presence and built out that team and spent about four and a half years delivering that on a dedicated basis to clients of Pershing.

Michael: Okay.

Lisa: Yeah.

Michael: Very cool. So then what comes next on the journey?

Lisa: Yeah. So, I had kind of carved out that niche at Pershing and was really enjoying that work. I'd also created this student experience. I was really passionate about making sure that the next-gen coming into our industry had access to people, and companies, and resources, and knowledge so that they could make really great choices when they graduate and join a firm. And we'd run an internship program at FJY, and so I'd seen what they got to experience and wanted more people to experience that. And I'd also kind of built out this next-gen leadership program where we were bringing together cohorts of about 20 next-gen leaders of Pershing clients and putting them through an MBA-style coursework.

So, I'd been doing lots of different things here and there at Pershing, and I was getting that niggling sense of like, "Maybe I've done what I need to do here." And I'd never really formed it into a proper thought. I wasn't looking for a job. I wasn't trying to exit. I was I think on a really good path at Pershing and doing important work that was impacting our clients and helping them. And it was good.

And then Karl Hackenberg called me, and I knew who he was, and I was a little starstruck. And he explained to me this business that he was building and would I like to come and join it and run the advisory team and have a chance to do similar work to what I was doing at Pershing but do it for our partners and do it from the same side of the table and have that really meaningful impact on the business while they're going through a season of change and evolution. And the more we talked, the more obvious it sounded to me that this was the very best job I would ever have in my life, and I would be a fool to say no. And so it was a pretty quick yes on that one. And I wrapped some things up at Pershing and tried to leave the place in a better place than I found it and, again, took with me so many great relationships, so many lessons learned, so many stories to tell, and joined Constellation back when we started in 2024.

Constellation Wealth Capital’s Business Model [24:19]

Michael: So now tell us about Constellation and what that business is. I feel like more folks are probably familiar with Pershing as a custodian. So, what is Constellation?

Lisa: Yeah. So, I laugh and say we're PE [Private Equity], but we're the good PE because I feel like there's this sometimes a little bit of a black cloud in our industry of what people think about PE.

Michael: All right, so I'll take the bait. So, what's good PE? And how is good PE different from bad PE?

Lisa: So, we're good in that everybody who works at Constellation is from the RIA space, knows and understands the RIA space. So, Carl and Pat and Daniel and the investments team know and understand deeply the business on the valuations and metrics and diligence side of things. And then I've had the immense pleasure of building out a team of now seven people who have all committed their careers to working in and with and for RIAs and the RIA community. And so we're able to provide that minority capital to an RIA that's looking for that kind of partnership and then come alongside them and give them tangible support in actually executing the strategic goals that they have set for themselves, that they want to accomplish.

And so we're long-term capital. So, our fund is a 12-year fund with two one-year extensions. So, we're not in a rush to do anything. We don't have a three-year turnaround to try and make things look good. We're really there for the long run. We're there to meet folks where they're at and not leave them there. And so today we have 15 firms that we've made minority equity investments in. They range in size from $2 billion of AUM to over $90 billion of AUM, depending on where the market's at today. And we're able to then, as I said, come alongside them and give them that support.

And each of them have a different goal of what they want to accomplish with the capital. We have some that have said, "This date is important to me and I want to retire before I hit this age." We've got others who've said, "When I can sell my business and make every single employee an equity partner and be able to participate in the upside of this growth, I'm out." We've got others who said, "We want to create an enduring majority-employee-owned organization, and we want your capital to help us accomplish that."

Every company has different goals. They have a different definition of success. They have a different target of what growth means to them and how they want to accomplish it. They’ve got different types of clients. They’ve got different kinds of employees. They use different technology. And so we get really, really deep with them and get to spend a lot of time knowing the people and really knowing what they want to accomplish as a business and then creating the support network to get them there.

The Challenges That Firms Face As They Scale Into The Billions Of AUM [27:17]

Michael: So, now in this vein where you're working with firms, you said from $2 billion of AUM to $90 billion of AUM. So, I presume that basically means tens of millions of revenue up to $100-plus million dollars of revenue and just the size complexities that come with that, right? You're going from tens of team members to hundreds of team members. So, I'm really curious now in practice, getting all the way back to some of our original theme and discussion, what kinds of issues and challenges crop up for firms as they're at that size and level of scaling up the business?

Lisa: Yeah, and there's different kind of plateaus, I think, that firms reach in this scaling story where they find themselves at a position where they've hit a target that they've potentially arbitrarily or otherwise set for themselves at some point historically. And now they've got to get over to that next level. So, I think at the heart of any of these, regardless of what level they're at, whether they're hitting that $5 billion or $10 billion or $50 billion mark for the first time, at the core of what the challenges are is always people. And it's people from a couple of different perspectives.

So, it's people as to who do you need in your organization. And when you look at some of our firms...one of our firms has, I think, 12 employees and another has over 500. The nature of the roles changes over time as you grow and change in complexity. You need people who become specialists in different things. You bring things in-house that previously you had outsourced or used a vendor or partner for. And so how do you create this enterprise where the very best talent wants to come and work for you? How do you become that employer of choice as you're growing, as you're scaling, as you're changing…because I was talking to one of our CEOs yesterday. He said, "All these people joined our organization when we looked like this, and now we look like that. And this is not the same company that they've joined." And so we've got to every day remind them about this growth story and that change is good and this is how it benefits them and their clients. But there's that employee piece because you look at the P&L [Profit and Loss statement] of any RIA, and the biggest number on there is people. It doesn't matter whether you're 10 people or 1,000 people. That's always your biggest number.

And then on the flip side of that, on the people side, is the client side. And as you scale, how do you continue to deliver a consistently excellent client experience when you don't, as the founder advisor, get to sit in on every single client meeting anymore? Or you don't even know who half the clients are because other people have brought them into the business. How do you navigate the growth of the client base, the niche, or the evolution of the niche, or adding new niches to the business, and having a real strategy around people on that side of the equation, I think is really important. So, biggest challenge, things that I think most CEOs and executives at RIAs lose sleep over is people.

Michael: It's fascinating to me that...for so many of us in the advisory business, I feel like we've gotten in this business to serve clients and help them achieve their financial goals. Not to hire, train, manage, and retain employees. If you keep attracting clients and you serve them well and have the sky-high retention rates that most of us do, it is a mathematical inevitability that you will run out of time to do all the things for your clients, and they need to hire a team, and then run out of room to serve the clients even with a team, and now you need more advisors. And then you need more team to support more advisors, and they need more infrastructure to support more teams and more advisors. The businesses are just naturally accretive and grow. We grow in clients, we grow in revenue, and when at the end of the day it's a service business, you have to grow in people.

One of the things that's long struck me from the benchmarking end is once you get to a certain size, somewhere around $10 million of revenue, give or take a little, almost every firm has about $400,000 of revenue per employee, give or take a fairly small band, maybe 10%. Take almost any firm's revenue, divide by about $400,000, and you'll probably get their head count within a close throw. And what that means to me is, for almost any advisory firm, if you want to 10x your business, you're going to 10x your head count, because that's how it works in a service business. And I find so many firms don't want to do that. It's like, "If I could just find the right tech or the right other thing, then we wouldn't need to hire so much." I'm like maybe that's technically true, but all it means is the difference between a normal firm and a super tech-savvy, amazing technology firm is a normal firm that 10x's its revenue 10x's its head count, and a super tech-savvy firm that 10x's its revenue 9.5x's its head count. So, congratulations. When you get large enough, that last half x is a non-trivial number of people you don't have to hire, and it maybe saves you a little bit on your P&L, but you still have to hire a zillion people, and learn how to attract them, and retain them, and manage them, and engage them, and do all the things that we have to do to create a good place to work, I think the label you used, to become an employer of choice. I don't know. It fascinates me. Most of us advisors were people-people because we're here to serve clients, but I find a lot of us are remarkably reluctant to deal with this whole, "But we have to get good at hiring, training, and managing people." Like, really? Do I have to? Do I have to, Lisa? Really?

Lisa: Yeah, and I think one of the most impactful templates that I built while I was at Pershing was a pipeline management tool. It was the most basic Excel spreadsheet. I'm not an Excel wizard by any stretch of the imagination. I don't even try to make things look pretty because I just need them to work.

It's like there are other people on my team who are like, "Can I take this PowerPoint and make it look better?" I'm like, "Sure, but it's got the words on it, I'm good." But it was like you meet a great person at the Chick-fil-A, at the bank, at your kids' school, wherever you are, write their name down. Keep in touch with these people because you just never know when you're going to need to hire. Go to conferences, and meet people, and network and just track these people.

And I was chatting with some folks on my team this week about growth. And I think that if advisors and advisory firms thought about growth from not just a "where am I going to get my next client from" but "where am I going to get my next employee from," then they'll grow faster. Because when you bring in that employee, you create capacity to go then serve new clients and do more interesting things for those clients that you're serving. But the employee part so often feels like an afterthought. It's like, "Well, gosh, somebody quit, or this person tells me that they're over capacity and they're stressed out and their work product is dipping because they're tired and they're working too late and they're trying to do too much. And so I guess I should hire someone," rather than meeting great people.

One of our CEOs calls me fairly regularly with, "I just met this person. They'd be so great, but they're really expensive, and I think this is what they could do for us," and whatever. I'm like, "Keep them warm. Put them on the list, keep them warm, and let's build out a plan of what you can do with this person. What impact could they have on your organization?" And if we think about that, then we create the capacity for new growth. And guess what? When that new client walks in the door, you have room to serve them and serve them really, really well, which will in turn lead to referrals because that's what happens in our business. And stop leaving that employee hire to the afterthought of what you have to do as a result of growth rather than you do it to help you grow.

Michael: Well, to me, you make an interesting point there. Good team members give great service to clients, and great service helps drive referrals and all the growth that comes from it. And so you can make an indirect but very substantive link of, if you get the hiring and staffing part right, you can grow faster. It's not just a service thing, it's a growth thing.

Lisa: Yeah, the number one source of growth is still referrals. Despite how sophisticated the growth channels have gotten over the years, that's still where the majority of the firms who are growing organically are getting new assets. And so if you're creating that incredible client experience, if you're using new staff members to create new ways to engage and create value for the client relationship, then the referrals will follow. You've got to ask for them, but they will follow. If your clients' experience of your staff is delayed, stressed, late, or incomplete, then that does a ripple effect to how they then think of you as an organization.

How Larger Firms Are Trying To Get Better At The People Side Of The Business [37:15]

Michael: So, how are big firms trying to solve this with big firm resources and big firm scale? What are they doing to try to get better at, I'll probably call it, the people side of the business?

Lisa: Mm-hmm, mm-hmm. So, on the employee side, when I started at Pershing, very few. I hesitate to say none because it's bad to be so black and white on it, but very few RIA firms had HR in any shape or form, whether that was recruiting support, learning and development, just anything beyond payroll and benefits. I think we've seen an evolution of that, and I think RIA firms and wealth management firms have had an awakening of the value of having a value partner in the organization that sits in an HR seat, that's thinking about the development of, the hiring of, the retention of your employees. And so that's really important. And I think that's a challenge that smaller firms have, right? If you're 10 people, are you realistically going to have an HR department? Well, no, because it's expensive and you've only got nine employees, but there's some really great outsourced, partial resources that you can tap into and still get the benefit of that.

Michael: So, who's out there that helps me tap into this when I'm small? And how big do I have to be before I get to bring this in?

Lisa: Yeah. So, I think there's a lot of different ways to solve that. And I think part of it depends on who's on your staff today and who are you trying to be, right? So, let's say you're a 10-person firm today, and I use the number 10 because it's a great round number, but you could go 5, 15, 20. It doesn't really matter, but like a small firm, your goal as an organization could be to always be that size. And here's one of the great things about this industry. You can decide to be a solopreneur or a 500-person organization or a 10,000-person organization, and you can be successful at any step along the continuum.

If you don't know who you are and where you're trying to go, it makes it a little bit harder. But let's say you have decided as an organization, as a business, that you are going to continue and your goal is to be a 10-person organization. The way you would approach finding an outsourced HR partner will differ from an organization that is 10 people today that quickly wants to get to 50. And I think what's missing for some advisory firms is that they haven't decided where they want to go. And so it makes it really hard to engage a vendor if you're not entirely sure what you're trying to build. And there's no wrong answers. There's no bad choices. You can decide to always be 10 people, but the decisions that you make as that organization are going to be quite different from someone who's trying to scale up to 50.

So, going along that example, let's say you're 10 people, you're trying to get to 50. Maybe you hire someone full time because that will help you get to 50 faster. If you're trying to be 10 forever, then I would look at, in your local market, there's tons of partial-time CHROs [Chief Human Resources Officer], consultants that do that work. They don't have to be from the RIA space, right? What you're looking for is someone who aligns with your businesses, the cultural side of the business, and who can solve for what your people need. So, let's say you're a team of people that are really young and they need a lot of training and development, you're probably going to lean into some HR services that are a little bit more coaching and development heavy. But that doesn't necessarily need to be everybody's solution.

I think we just have to think outside the box. I think RIAs and wealth management firms are really good at hiring consultants, but they are oftentimes a little nervous about hiring a consultant that's not specifically for the RIA space. And they're like, "They have to be RIA-specific." It's like, "Well, actually they don't." And sometimes it's really cool to hire a consultant that's never worked with an RIA before. Think about hiring a client experience consultant. They're going to make you think very differently from how you see it today.

Michael: So, they're not constrained to "the way it's always been done" because they have no background.

Lisa: Right. Or they're going to come in with some playbook and then you look and you're like, "Well, hey, now we look exactly like this other RIA firm down the street." Not really creating that much differentiation.

Michael: And I guess part of the point is a lot of things that you need to solve for on the HR side, they're not RIA things. They're HR things. They're things that aren't really... How to run a hiring process is not really specific to RIAs. There's particular things you look for from particular RIA positions. How to run a hiring process is not really unique. How to build training programs is not unique. What the training is unique, but how to build a training program is not.

Lisa: Yeah. And the training one is big, right? I think that's an area where a lot of firms really struggle. And I'm excited for our team because one of my colleagues on the advisory team has built out this new manager training program, because one of the consistent pieces of feedback we heard from our partner firms at the end of last year was, "We really want to put our new managers in some kind of training and we just can't find a great solution for it." And they're not big enough to have a learning and development team, and it's not a full-time job for somebody to do this. And so we created it because I was like, "Well, this is great. If we can go back to my initial thesis, if I can help businesses do business better, then they'll grow faster. If I can help new managers manage better, then the people will become efficient faster. They'll stay. They'll do better work. They'll create a better client experience," and the list goes on.

The Value Of Having A Chief Human Resources Officer In An RIA [43:37]

Michael: So, if I'm struggling with the HR things, I guess this is for those who have no background in context to this. The thing you said, "You can look at part-time CHROs," chief HR officer, something like that.

Lisa: Yeah, chief human resource officer.

Michael: So, what do they do? What do they actually do, Lisa? What is this person going to do for me, or what should I be looking for, expecting them to do, or problems I can look to them to help me solve?

Lisa: Yeah, absolutely. So, again, I would go back to what's not working real well in your business and have them work on that specifically. So, it requires a little bit of introspection and honesty with yourself and your team on what's working and what's not. But Gallup has done so many studies on what engaged employees bring to an organization and the difference of output from engaged versus kind of nominally engaged to disengaged employees. And so I think one of the biggest things that having someone who's really dedicated to the maturation of your people is improving and increasing employee engagement, getting everybody rowing in the same direction.

And I grew up near the water. I was always watching people row, and it was always amazing to me just how in sync they all were. And you would know, like almost before it happened, before the oar would touch the water, you would know when one of them got out of sync. But in an organization, we let people row in different directions all the time before we think to start addressing it. And so if you've got a team where there's maybe a misalignment on what the vision and strategy and mission of the organization is, then you can have an outside person really help bring alignment to that.

If the incentives are misaligned, it's not all about making money and getting paid, but it's a big part of it. It's often why people leave jobs. And so if your compensation package, which is your salary plus your bonus plus any long-term incentives, which might include equity in some way, shape, or form, if those things aren't aligned with the direction of the organization, then your people are in conflict with that. So, having somebody take a fresh set of eyes and look at what does your compensation plan say, what is it incentivizing people to do, and what behaviors are you expecting to see as a result of this? And is it yielding the results that you thought it would?

Many conversations over the years with RIAs around the country where they were like, "I feel like I pay my people pretty well, but the last three people told me they were leaving for a $5,000 raise." And it's shocking to me that someone would do that, but if you as the owner aren't articulating what the value of your incentive compensation or equity plan or anything like that looks like to your people, then why would you think they would value it the same way that you do? If they don't understand it, if they don't even know it exists, then they're not going to use that as a decision factor in how they show up in the business. So, I would have an HR person potentially look at that.

Michael: Wait, help me understand a little bit more there. Where's the gap? It's just like, "I'm paying them well. They've seen their career progress. They're making more money." What's missing that I'm not doing that the HR person can help me do that's causing them to leave?

Lisa: Yeah. So, holding really good performance reviews and understanding what's actually going on. I saw a lot of companies over the years overpay for bad culture. And so they're like, "I'll just pay people more, but I'm going to work them harder." And people will work for less money in a nicer place, right? Having somebody else in the organization, especially if you're a 10-person or a smaller company, having your performance review with your direct manager versus a third-party coach creates a different dynamic in that conversation.

Navigating The Decision Of Whether And How To Offer Equity To Employees [48:00]

Lisa: And I think also owners value things differently than the people who are working for it. And so one of the things we saw probably 10 years ago was this huge movement of folks that were eight to 12 years into their career from one RIA to the next. The studies were showing for years that it would take 18 months to hire an associate advisor with seven to 10 years of experience. And then all of a sudden for two years, that number went down to six months or three months. And I think anecdotally, watching what was going on, talking to my friends who were in that position, many of the advisors that were leaving were leaving because they felt they had helped build these businesses from 100 to 250, 250 to 500, whatever the number was, they'd helped build it and now they were being offered an opportunity to buy in. And it was so expensive that they couldn't afford it and that opportunity wasn't provided to them previously. Or, worst case, they had helped build it, they'd been part of the business development plan, they'd served the clients, they'd gotten referrals, they'd done all the things right, and they were asking for equity in the business and were being denied. So, they would leave. I think having outside people who are challenging the ownership on that helps make better decisions.

Michael: So, what ideally should that look like? I think a lot of us struggle with whether and when to put equity on the table for team members.

Lisa: So, I would say if you're a wealth management firm and you have employees and you're not wrestling with this, then that's more of a red flag than anything else. So, I hope that everybody is thinking about it. And I hope that you are, because you've hired people that you think so highly of that you want them to stay. And you see their long-term value and you want them to participate in the financial gains of the business, right? So, I'll say that.

And I remember there was one advisor where we met where there was this throwaway comment made about his succession plan and what would happen if he were to pass and that basically none of his employees were to touch his stuff. And I was like, "Do you not trust them?" He's like, "No, not really." And I was like, "God, that's a terrible thing to think about the people that show up and work for you and give eight hours of their day to you five days a week." So, I hope for everybody's sake that you've got employees that you like and that you trust and that you respect and that are doing a great job for you.

There are a lot of different ways to solve for the equity piece that have different tax consequences. I'm not a tax person. I'm not going to give the specifics about it.

Michael: Yeah, you don't have to get into the gory tax details.

Lisa: But you should take that into consideration as financial planners. Good thing is you know more than I do, so you should do that. But there are ways to do it from a way that creates that alignment and that ownership mentality but doesn't disadvantage you as the owner. You're not going to just give away your business when you're ready to be done. You're running a business, and the goal probably is to exit at some point, whether it's internally or externally or whatever that might look like to you. But the people that are working in the business want to have a part of that. They want to have a contribution to that. And so your role as the executive team, as the leader, as the founder, however you're identified, is to develop that talent, is to have those conversations with them about what ownership looks like, what the path to partnership could be, what are some of the different incentive plans that can be created or used to help in that retention piece. And so there's profits interest units. There's long-term incentive plans. There's phantom equity. There's real equity. There's a chance for them to buy equity. There's a lot of different ways to solve for that, and each business should be wrestling with that with their employees. And if you find yourself with an employee where you don't really want to give them equity, I challenge you as to why they're still working in your business.

Michael: I'm still curious to say, I know you see so many different firms and the ways they're tackling some of these equity questions. Are there particular versions that seem to be working? Are there particular versions that are not working out well? What are the patterns you see as you see so many firms trying to do this firsthand?

Lisa: Yeah, I think something that works out not as well as people intentioned is they give away equity too quickly, too early without enough fanfare. Equity in an RIA should be seen as and received as an incredibly valuable thing. And my friends joke with me that I call my 401k "fake money" because I can't touch it for... I'm still young enough that it's years and years away. I know it's there. I know it's real, but it's not real to me today. I can't go buy something with it today. So, to me, it's like, I'm stashing it away and one day it'll become real, but today it's not so real to me. You don't want to distribute equity to people in your organization and for them to not feel like it's real, for them to not really feel the value of that grant or that purchase that they make, because if they treat it like Monopoly money, like I treat my 401(k), then they don't really see the value, and then their behavior changes as a result. And so that's one of the pitfalls I see is when folks have given it out too quickly, not enough fanfare, not enough understanding by the people who are receiving it as to what the value of this actually is.

Michael: But then help me balance that against, "But they don't have a lot of money to afford it." And we just cautioned earlier that one of the reasons they leave is they waited too long for equity and got dropped again and didn't get it soon enough. So, I guess just connect these dots for me. How do I balance or manage this when if I wait too long, they get unhappy and leave, but they don't have a lot of dollars to afford it but I need to make sure they value it, because if I just give it to them for free, then they might not, and it's like fake money and it doesn't achieve the goal?

Lisa: Yeah. I think it's one of those conversations that needs to be had regularly and before you're at the point of deploying whatever method you're using to deploy equity, whether it's phantom, real, or some kind of profits interest units, participation at a future transaction. I think if folks understand how it works and what it is and how it's valued and you're able to continue to communicate that, that helps. If you leave it too long, it's really hard to kind of throw that in at the last minute when they've got one foot out the door. So, it definitely has to be done before they're looking to leave but not on their first day at work either.

So, in the last couple of years, we've placed I think it's like 22 executives across our partner firms. And in many of those conversations, in part of their compensation package and their offer letter, there is language around a long-term incentive plan and what that can look like, and that based on different success metrics or tenure or whatever, that this will come into play. It's talked about very early. It doesn't mean it happens on day one, but it's something for them to look forward to.

Expanding The C-Suite To Allow RIA Executives To Focus On Their Strengths [56:08]

Michael: And what kind of executive roles are you hiring? I'm fascinated by that. You've placed 20-plus executives. What are those roles?

Lisa: So, we've done several chief compliance officers, and that was fun. There was five of them in a row, and I feel like I tapped the well of CCOs around the country pretty well.

Michael: So, what's driving the hiring growth of CCOs? Just big firms getting more complex. This needs to not be the side hustle of someone's job.

Lisa: Exactly. Oftentimes it was like, "This person was the advisor and the CCO," or they were the COO and the CCO. We've used it a few times with some of our firms that are more acquisitive and doing more volume of M&A to use it as an opportunity to do a CCO with a general counsel. We've done a few COOs, CFOs, chief technology officers. That maybe was one of the scariest calls for me because it was one of our larger firms and they called right before we closed our deal and said, "We need a CTO." And I'm thinking, "Gosh, I don't know that many. There aren't a lot of CTOs for really large RIAs." And I called a friend of mine actually from Australia who lives in New York and I was like, "Hey, do you know anyone?" And he ended up taking the job. So, that helped me out a lot, and he's done great. And that's been fun to be able to see him in a work context.

But we've done, kind of, heads of advisor success. We've done a couple of chief investment officers. And I apologize for anyone who's listening that we've placed that I've forgotten to mention your title but kind of all over the space in terms of role and function, oftentimes upgrading that function from someone who was dual-hatting to oftentimes adding a role or function that did not exist in the firm previously.

Michael: What's the difference between the executives you're hiring and the people that these firms already have at various levels of leadership? Are we in the they just need someone more specialized and literally don't know anyone, or is this a different kind of hiring? There's executives and there's executives, like some size distinction.

Lisa: Yeah, we're not coming in and firing a bunch of people and hiring the people that we want just to be clear. Like I said, most of these hires have been when one person has been doing two people's jobs and they want to split and specialize on one side versus the other. There's been a couple of examples where somebody was in the job and they felt like the job got more complex than they were comfortable handling, and they raised their hand and said, "You know what, I shouldn't be doing this. I want to stay here at this organization, but I want to do something else. But I feel like the organization will be better served if we bring in somebody else who's done this before." Those are my favorite, because then you know that person's really committed to the success of the organization. There's no ego, and they're willing to bring someone else in and help support it.

We've got others where...we've done two chief human resources officer, chief people officer type hires over the last few months. And both of those have been they've had an HR team with a generalist, a specialist, a recruiter, or whatever it might be, but they've never had a real chief people officer. And the folks on the team today are great and they're committed and they're doing an amazing job and we love them, but they're not chief material today. And so we've gone outside and hired for those.

Michael: I'm struck what you said there, but they've been good but they're not chief people. What's the distinction? For those who haven't grown a firm to a size where you have to hire those roles, it's hard to visualize what the difference is.

Lisa: Mm-hmm, mm-hmm. I think there's a similar kind of ambiguity for a CFO. It's like, "Well, I'll just promote my controller to be the CFO." It's like, "Well, this is legitimately a different skill set," from being a strategic leader in the organization to knowing what the rules are and where to put things. And so from an HR perspective, a really good generalist is going to cover all the things—onboarding, payroll, benefits, hiring, maybe doing some interviews, that sort of stuff. A chief human resources officer is going to stand up leading talent development programs, is going to refine the performance management program, is going to take a deep look at compensation and benchmarking and making sure that you're aligned, is going to look at all the regulatory stuff. And we're talking about companies often that have offices in almost every state or in 20 states, where employment law is very different in California than it is in Florida. And you've got to be able to discern the difference.

And one of the cool things I get to do at my job is we bring communities together across our 15 partners. And so, for example, we have an HR community call where we have the most senior person from HR from each of our 15 firms join on a call. They've talked through the legalities of exempt and non-exempt, and how do you handle PTO, and what is the maternity and paternity leave policy, and why and how do you set that. There's a lot that goes into HR when you're running a 200, 300, 400-person company. That's more than just making sure that payroll and benefits are paid.

The Role Of A CFO Versus A Controller [1:02:28]

Michael: So, that's a helpful distinction. Now you opened the door and I'm now also curious. So, what's the difference between a CFO and a controller in this similar regard?

Lisa: Mm-hmm, mm-hmm. So, similarly on that kind of executor versus strategic partner. And I think this shows up really well for firms who are doing M&A as well. Having your CHRO show up in an M&A meeting where you're meeting a prospective firm that's potentially going to sell their business to you and having that HR person talk about the culture and how they think about that, similarly on the financial side and maybe it's a topic we'll get to today, I don't know, but around data and having real clarity on data, and growth, and costs, and profitability. And it's beyond doing the quarterly reporting, getting the numbers out, getting advisor comp out and into the system and whatnot.

But a CFO is really the visionary financial of, "How are we going to pay for different things? Where is this money going to come from? How are we allocating resources within the organization?" And they've got eyes and ears on everything from all the different teams around the country to the technology that's being used to the speed of an integration. How long does it take the acquiring firm to integrate the acquired firm and off-board the technology costs, and helping manage and plan and do that? Again, on the CFO side, if they're doing M&A, then doing the math on how are they going to pay for this? And generally speaking, firms that are doing an M&A have some kind of capital, whether it's debt or equity, that they're using to pay for that. There are covenants. There are requirements when you have outside capital, and having a senior strategic person with eyes on that that's monitoring and maintaining all of those that's vitally important.

Michael: So, just help me set expectations. What do these kinds of roles cost? I've never hired one, so I have no idea. Are these $200,000 jobs? Are these $500,000 jobs? Are these million-dollar jobs? What do these take?

Lisa: Yeah. So, I'm not going to put myself in hot water here too much, but I'll say yes to all those numbers. I think part of it depends on what the role is, right? A CFO is probably one of the more expensive roles in an RIA, but we're recruiting right now for a COO for one of our firms and I've interviewed folks with a $400,000 swing in what their expectations are on compensation and they've all read the same job description. So, part of it comes down to the experience of the person and the size of the firm, the geography, right? You've got to know in New York City, you're going to pay a very different rate than what you're going to pay in Arkansas for folks. So, yeah, they're all six-figure jobs. And anything with a C-suite title, you have to anticipate some pretty meaningful long-term incentive compensation alongside the salary.

Michael: Meaning like equity or something equity-like, additional upside?

Lisa: Yep.

Michael: So, is that enough to add to their salary, enough to the equivalent of their salary? Is that actually still supposed to be the bigger part of the comp like the multi-hundred-thousand-dollar salary is just the teaser because most of the growth is supposed to come there? How much do I have to make this add up to be compelling?

Lisa: I know, and I don't want to frighten people and think, "Oh, I'm never going to afford that." Again, it depends on where you're at today and where you want to go.

Michael: Well, again, anchor my expectations because I'd rather know how much it costs than go in completely inaccurate about how much it costs and either undershoot and get the not-good people or waste a bunch of time spending six months hiring only to find out I just literally can't afford the people.

Lisa: Yeah. So, I would say if I'm looking for one of these, kind of, C-suite roles, the way I would structure my compensation and the negotiations is that I would want the long-term incentive plan to be worth more than my salary.

Michael: Okay.

Lisa: Fairly significantly more than my salary. But I also don't expect to see it for a few years, so there's time for that to build and grow. But that's because I'm at a position where I want to take on that risk, and I want to make a bet on the company that I'm joining and that I want to help grow, that we're going to accomplish that and achieve that. And when we do, there's an exit, and that exit gives me that opportunity.

Michael: And I guess ideally these are incentives I can literally tie to growth. So, you don't get paid unless we're much bigger. And if we're much bigger, then I should be quite happy with what I paid you because we're also bigger for my existing owner or founder stakes as well.

Lisa: Exactly. Yeah. But I think for each of these positions, you should be looking at what is the contribution that this person is making to the organization and what are they generating for this business. And so that helps you structure what that compensation should and could look like.

Michael: Well, to me, that's part of why this gets so interesting around the size of the business, that there is, to me, just a very real dynamic of, look, even the most amazing executive person, they can only ever move the needle so much on the business. So, if I'm a business with a million dollars of revenue, that's an amazing thing. But if an amazing executive can move my growth needle by 2%, it's $20,000. This is not really meaningfully changing my numbers. If I'm a business that runs $20 million of revenue and you can move my needle 2%, I'm like, "Well, that's like $400,000 of revenue. That's a lot." If I'm a mega RIA with $100 million of revenue and you can move my numbers 2%, that's several million dollars of annually recurring revenue or profitability. That's a really big number. It's the same skill set, but it feels like I have to be a certain size for some of these roles to just be able to do the awesome thing they do and have a business large enough that the needle moves in a meaningful way.

Lisa: Mm-hmm. Yeah. Yeah, and I think the challenge then goes back to the founder who's probably also an advisor. It's like, where's the best place for you to spend your time? If maybe this executive that you hire can only move the needle this percent or that percent, but if you weren't spending 60% of your day on payroll, HR, compliance, technology, insert thing that's not client-facing here, and you were spending it on getting new clients, serving your existing clients, getting referrals, growing your business, then I'd argue that that dedicated business executive is making a bigger impact because you are also alongside them making a bigger impact.

And I think that's one of the things I feel like I'm a little bit of a broken record on sometimes when I'm talking to our partners and really any of the advisors out in the space is, as an advisor, the most impactful thing that you can do for the financial well-being of your business is grow the business. Go get another client, figure out how to serve more clients profitably, and allow the business to be run by business people.

How Constellation Chooses Firms To Partner With [1:10:29]

Michael: So, how does Constellation choose who to pursue and partner with as you're trying to decide where to put your dollars and resources?

Lisa: Yeah, I think it starts with people maybe not surprisingly given our previous conversation on the podcast today, but we're looking for a really quality management team. And maybe it's two people today, and we see the potential of what it could be if they add more people to it over time. But it's a quick no if the management team is not right because you can have the world's best clients, you can have the world's best workflows and the most amazing technology stack that no one's ever seen before, but if you don't have the right people at the helm, all of those things are for naught.

So, we talk to a lot of firms who reach out to us, and we're not very media forward. We kind of pop up here and there, but we don't have some marketing campaign. And when I meet people, they're like, "Oh man, private equity calls me every day," and I'm like, "I guarantee you it wasn't us." But when people call us, we often talk them out of it. We talk to a lot of firms who are hitting that billion-dollar mark, or maybe they're even at $5 billion. The number doesn't really matter, but we ask them questions like, "Where are you trying to go? What do you want to accomplish? What's the exit strategy for you? Do you have the team around you that's going to allow you to get to this next step?" Because I think taking on minority capital, it's work. You don't take the capital to just keep doing what you're doing and go buy a boat or a plane or something. You do it because you want to double down, and you want to bet on yourself, and you're investing in your company, and it's going to be an exciting next several years of whatever.

But a lot of firms we talk to, we ask them, "What are you hoping to get from this capital?" And it's just like, "Well, I want some cash out of my business." I'm like, "Well, there are other ways to do that," and we'll help guide them and help them understand that. I think the influx of capital in our space has been really confusing to most advisors because they do get calls every day from some private equity firm or some capital provider that's like, "I will write you a $100 million check." And that sounds really, really good. And then you start thinking, "Oh, I just read today. There was an article this morning about what valuations are at and the ridiculous multiples that everybody's seeing," and they think, "I'm worth that too, and I could get that money too."

And so we spend a lot of time talking to them about what do you want to do, what are you trying to build here, what are you trying to accomplish, and then we go from there. If you haven't grown organically, that for us is a bit of a red flag. And years of selling custody, of folks saying like, "I promise I'll bring over like $400 million in the first 12 months." I'm like, "You only manage $200 million today." "Oh yeah, yeah, but we're going to grow." I'm like, "You've been in business for 20 years and it's taken you this long to get to $200 million. The math's not mathing."

Michael: I'm glad you grew to $200 million, but let's not magically assume the growth rate's going to suddenly be different than it has been for a long time.

Lisa: We really encourage folks to go back and look and think about, "How are you investing in the growth of your business? What kind of firm-level things are you investing in? What ways are you empowering your advisors to grow organically?" Because that number matters a lot. And if you can't tell people what your growth number is and you stumble over it a little bit, then that's cause for concern too. And we've had a number of calls with people who've shown up underprepared, and it's kind of like selling your house. If you're going to sell your house, you're going to clean it, stage it, probably move out, because when I show up, you want to give me the very best look at your house. And so you should treat any conversation with a capital provider just like that. And you should be ready. You should know your business inside and out. And you should be really confident in how you got to where you got to, where you're going, and how you're going to get there.

Michael: So, what does organic growth have to look like to actually be interesting and compelling for you? There's all sorts of numbers thrown around these days of what people are even growing at, and a lot of industry discussion that the median growth rate is actually quite low. It's low-to-mid single digit by the time you pull out market and all the rest. What's good-looking organic growth from your perspective?

Lisa: Yeah, high single digits, low teens is kind of where we see our firms on aggregate.

Michael: And what goes into that number? What counts? What doesn't count?

Lisa: New clients, new money from existing clients.

Michael: New clients, new money from existing clients. Net of...

Lisa: No market, no M&A, no purchase growth.

Michael: Okay. But net of outflows...

Lisa: Oh, yes. Mm-hmm.

Michael: Net clients in, minus clients out, net dollars in, minus withdrawals out. That number should be high single digits or low teens as a growth rate percentage before we get into M&A purchases and the rest.

Lisa: Mm-hmm, yep. And that happens when... And this is different from when I started back in the business and we would just send people to the Chamber of Commerce and they'd come back with a client is there's got to be structure around what that growth looks like. And that is an expense line on the P&L that didn't exist 10 years ago, where firms are building lead gen programs, paying for lead gen programs, investing in digital marketing, investing in content marketing, or event-based marketing on a firm level that benefits all the advisors in the organization. And so a lead comes in and it gets distributed to the most appropriate advisor on the team, and the advisor themselves are out there generating new business on their own behalf.

And so it's great. Let's say you have 10% organic growth, which is awesome. But if it's only coming from one place, that can be a cause for concern. It depends what that one place is, but it's good to be able to see a dispersed origination of that growth. So, think custodial referral programs, lead gen programs, firm-level content marketing, firm events, individual advisor networking, referrals from existing clients, COI [Centers Of Influence] networks, that sort of thing. The more channels of growth that you can show that are consistently achieving positive returns, the better.

What Surprised Lisa The Most During Her Industry Journey [1:18:03]

Michael: So, what surprised you the most as you look at how the industry continues to do this growth, sizing-up process, as we're now into the tens and hundreds of millions of dollars of revenue compared to the old world where we were all just trying to get to a billion in assets?

Lisa: Yeah. So, it's been really fun to be a part of it and not be an advisor at any step of the way along this and see the evolution of it as a consumer of it and as somebody in it. And so the size thing, I believe, has created better outcomes for clients. And I mean that in that the advisory firm that I work with coordinates with my tax planner, helped us buy a second property, helps us with the capital calls for private investments, has exposed us to a much broader and more diverse range of investment vehicles that I never would have had access to before. The fee hasn't changed. They've become more efficient and more effective in how they're doing business, but I guarantee that the outcomes I'm getting today are significantly better than what we were getting 10 years ago in terms of the coordination of services, the depth and breadth of services, and therefore the outcomes.

As someone in the business, I think the coolest thing that's come from this evolution of our space and through the consolidation and the professionalization and the maturation of our industry, I think it still has a ways to go, is that the jobs that aren't advisory jobs are so much more meaningful today than they were 10, 15 years ago. And I say that because I remember sitting there scanning documents into a BizHub. No one's doing that anymore, thank goodness, or hopefully not. I think everyone's passed that. Operations jobs have become so much more than just filling out custodial paperwork. We used to literally do that by hand and then we would fax it in. And I'm not that old, but that just feels really ancient today. The jobs that aren't advisory jobs have become more meaningful, more interesting. There's more depth in the career path that is just creating such cool outcomes for people that didn't exist before, whether it's in compliance or finance or marketing or HR or in your operations and service parts of the organization too.

Michael: Part of me is fascinated by this because I feel like the general industry narrative, the advantage of getting big is that you get economies of scale, which brings new efficiencies so you can run more profitably, better margins, higher client loads, all that stuff that you ostensibly get with size and economies of scale. But what you're describing to me, at least, is very different. These are not conversations of you'll have better margins and more client load. This is we'll have deeper services, we'll have more offerings, we'll have higher level, more capable non-advisory jobs that do great things to manage and lead the business because you have business people running the business right now, which are not inexpensive roles as highlighted, but ideally you're running a better business, attracting better talent so you can do deeper tax planning and more private investments and new services that you didn't have access to before. It strikes me that more depth and breadth of services is a very different flavor of conversation to me than big firms can invest in the tech with economies of scale and gain more efficiency and higher client loads.

The Low Point On Lisa’s Journey [1:22:06]

Michael: So, what's been the low point on this journey for you as you've navigated through all of our fascinating industry?

Lisa: The low point? I think I'm a pretty direct person. I've been called out on that a few times. I think I get frustrated when I see the obvious thing to do and people don't do it. And I get personally invested in that. And I think I've gotten better over the years of navigating my feelings on those things, but I think it's really easy as an outsider to be like, "Well, duh, like this is a pretty simple thing." But I've been outside of being in the business for 15 years at this point. I don't have to live it every single day. I live it at Constellation, but it's different. But I think that is just... I see the potential in people and I see the potential in the business, and either they don't, or they do and they don't act on it. That's the thing that I lose sleep over at night, that I struggle with.

Lisa’s Advice For Her Younger Self And For Newer Advisors [1:35:00]

Michael: So, what else do you know now that you wish you could go back and tell you 20 years ago as you're first coming into the industry at FJY? What do you know now with the wisdom of experience you wish you knew back then?

Lisa: I've answered that question differently over the years. Sometimes I've said I wish I'd become an advisor back then. It's a pretty great job, everybody, in case you didn't know. And I think I could have gotten past the need to be really in it on the markets and be more about the people side of it. But I got obsessed with the business of the business. This is a path I did not expect for myself. I mean, I honestly thought I was going to go into the diplomatic service. It was my goal to figure out a way to get paid to travel around the world and speak different languages. So, if I was going back to my 20-year-old self, I wouldn't change a thing about what I did. I feel so incredibly blessed, which sounds really cliche, to have met all the people that I have met and to have been welcomed into so many businesses and for them to have opened their doors and their books and their plans and allowed me to critique them and challenge them. And it has been an absolute privilege to do that.

And I have made plenty of mistakes along the way and ruffled a couple of feathers here and there, and maybe I'd go back and change that. But I still kind of pinch myself of, "I get to do this every day." And that was made all the more clear last year when my 15-year-old at the time told us that when he grows up, he wants to do what mom does. And I was like, "Yeah, okay. I would just go cut my onions over here." And so this is a great space of people who are meaningfully impacting people's lives. They are open to share what they want to do and what they want to accomplish. They're open to giving and getting feedback and making each other better. And I think this podcast is an incredible example of that. I mean, looking back to the episodes I've listened to and all the people that have appeared on here before who've just been so honest and transparent with their journeys, and their companies that they're building, and what they've struggled with and where they found success, you don't find a lot of lawyers and accountants doing this. This is a really special space, and I really do kind of feel very lucky to be where I'm at.

Michael: So, any other advice you would give younger, like newer folks coming into the industry, into the planning profession today to try to steer themselves well for the next 20 years?

Lisa: Yeah. So, I think for those kind of coming into the industry, if you know you want to be an advisor, then lean in on that, and meet and talk to as many advisors as you can because there are so many flavors of advisor out there. There are so many different ways to be successful in this business and to be authentic in how you do that. I'd say if you've come into this space because maybe you graduated from one of the incredible CFP university programs that are out there, or you're a career changer and you're coming in but you're not entirely sure if the advisor track is the goal for you, stick with it and ask lots of questions and look around your organization and think, "What isn't being done today that would be valuable? And what can I raise my hand and figure out how to do?"

And what's so cool is, in five years, there's going to be all these new jobs that don't exist today, just like there are today that didn't exist five years ago or 10 years ago. And there's just so much opportunity to have an impact on these businesses that if the advisor route isn't that perfect-perfect for you, don't give up. There's something else. There's some other way that you can create value here, and we need you, and we want you, and we want you to stay in the industry and innovate. The sky's the limit.

What Success Means To Lisa [1:40:00]

Michael: So, as we come to the end here, this is a podcast about success. And just one of the themes that always comes up is literally that word, success means very different things to different people. Sometimes it changes for us as we go through different stages and seasons of life. And so you've had this wonderfully successful career path through the industry, now leading all the cool advisory stuff at Constellation. So, the business and career seem to be in a wonderful place. How do you define success for yourself at this point?

Lisa: Yeah. And I think it's changed a little bit in terms of on the professional side. I'm very much like I'm in the moment, and when I have a job, I want to be the absolute best at it and show up intentionally and all of that. But my motivation, my definition of success on a more grander scale, has never changed. And that is that I'm doing this for my family. I'm doing this to show my kids the value that they can create in the world and to be a good person and to be a great wife to my husband. And my family is my guiding light, and they're the reason that I show up every day and why I care as much as I do. And I work hard and I really enjoy it, but I do it for them every day.

Michael: I love it. And now they want to follow in your footsteps. Well, thank you so much, Lisa, for joining us on the "Financial Advisor Success" podcast.

Lisa: Appreciate it, Michael. Thanks for having me.

Michael: Thank you.