Welcome, everyone! Welcome to the 66th episode of the Financial Advisor Success Podcast!
My guest on today’s podcast is Adam Birenbaum. Adam is the CEO of Buckingham Strategic Wealth and BAM Advisor Services, a combination of wealth management firm and TAMP platform that oversees more than $30 billion of assets under management.
What’s unique about Adam, though, is that he took over as the CEO of the Buckingham companies just over 10 years ago at the age of just 32, when the company was “only” $6 billion of AUM, and has nearly quintupled its size since then, as one of the youngest CEOs of any major advisory firm.
In this episode, we talk in depth about the Buckingham and BAM growth strategy, particularly on how a major investment by Focus Financial has helped to power the firm’s growth, giving Buckingham access to capital from Focus at 0% interest rates to fund its acquisitions (because Focus ultimately profits from the growth as an owner anyway), and the way Adam and Buckingham have been able to leverage the capital to accelerate their inorganic growth.
We also talk about the actual structure of Buckingham and BAM itself, why Buckingham has chosen to grow offices in multiple locations, how BAM Advisor Services aims to work with advisory firms by providing what they call a “Turnkey Wealth Management Platform” that provides back office services but does not require its advisors to use standardized investment models, and how the company is positioning itself for an increasingly competitive environment with threats from both low-cost robo-advisors and also large financial services firms like Schwab, Fidelity, and especially Vanguard getting into the advisory business.
And be certain to listen to the end, where Adam talks about what it’s like to be the CEO of a $30 billion AUM firm, where he focuses his own time as a leader in the business, and why he believes that strategy is important, but the real determinant of the most successful advisory firms of the future will be all about the firm’s ability to execute, and deliver on the client experience.
So whether you are interested in learning more about using outside capital to fund mergers and acquisitions, how you may be able to utilize a Turnkey Wealth Management Platform in your business, or are simply interested in what it’s like to be a CEO of a $30 billion AUM firm, I hope you enjoy this episode of the Financial Advisor Success podcast!
What You’ll Learn In This Podcast Episode
- Why Adam says national organizations with scale, size, and resources need to remember financial planning is an intimate business. [9:03]
- What small independent firms ultimately need to figure out in order to compete with larger firms. [20:35]
- The huge opportunity for solo advisory firms. [29:33]
- How Buckingham Strategic Wealth has been able to leverage capital to accelerate their inorganic growth. [53:21]
- Advice for firms that are looking to sell. [1:02:33]
- How to effectively build a business that lasts beyond you. [1:19:36]
- What a CEO at a firm like Buckingham Strategic Wealth does. [1:36:53]
- Where Adam says leaders of large wealth management firms need to focus their time. [1:36:53]
- Why a world-class service will be the real determinant of the most successful advisory firms of the future. [1:48:37]
Resources Featured In This Episode:
- Adam Birenbaum – Buckingham Strategic Wealth
- BAM Alliance
- Live Oak Bank
- Focus Financial Partners
- #FASuccess Ep. 028: Scaling Up A $6B Independent RIA with Michael Nathanson
Full Transcript: Turbocharging Inorganic Growth With Outside Capital To Fund Mergers & Acquisitions with Adam Birenbaum
Michael: Welcome, everyone. Welcome to the 66th episode of the “Financial Advisor Success” podcast. My guest on today’s podcast is Adam Birenbaum. Adam is the CEO of Buckingham Strategic Wealth and BAM Advisor Services, a combination of wealth management firm and TAMP platform that oversees more than $30 billion of assets under management.
What’s unique about Adam, though, is that he took over as the CEO of the Buckingham companies just over 10 years ago at the age of just 32 when the company was only $6 billion of assets under management and has nearly quintupled its size since then as one of the youngest CEOs of any major advisory firm.
In this episode, we talk in depth about the Buckingham and BAM growth strategy, particularly on how a major investment by Focus Financial has helped to power the firm’s growth, giving Buckingham access to capital from Focus at near 0% interest rates to fund its acquisitions because Focus ultimately profits from the growth as an owner anyway, and the way that Adam and Buckingham have been able to leverage the capital to accelerate their own inorganic growth.
We also talk about the actual structure of Buckingham and BAM itself, why Buckingham has chosen to grow offices in multiple locations, how BAM Advisor Services aims to work with advisory firms by providing what they call a turnkey wealth management platform that provides the back office services but does not necessarily require its advisors to use their standardized investment models, and how the company is positioning itself for an increasingly competitive environment with threats from both low-cost robo-advisors and also large financial services firms like Schwab, Fidelity and especially Vanguard getting into the advisory business.
And be certain to listen to the end, where Adam talks about what it’s like to be the CEO of a $30 billion AUM firm, where he focuses his own time as a leader in the business, and why he believes that strategy is important, but the real determinant of the most successful advisory firms of the future will be all about the firm’s ability to execute and deliver on the client experience.
And so with that introduction, I hope you enjoy this episode of the “Financial Advisor Success” podcast with Adam Birenbaum.
Welcome, Adam Birenbaum, to the “Financial Advisor Success” podcast.
Adam: Thanks, Michael. A true pleasure to be here and honor.
Michael: I’m excited to have you on the podcast today to talk about I think a couple of themes or perspectives that we haven’t really covered on the podcast before because you guys are by a good size margin the largest advisory firm that we’ve had onto the podcast. You know, Buckingham Wealth and BAM Alliance put together, I know you guys are over $30 billion under management. You, I guess, run the grand show as the CEO, a role that you took over at the tender age of 32 just a couple of years ago. And yeah, like, not a lot of firms out there at $30 billion, even fewer that are run by someone who’s just closing in on 40 and has already been doing it for several years. So, you guys have a lot of unique things about what you do with the business there. And so I’m really excited to tell some of the story and share just what’s it like being the guy that’s running a $30 billion AUM firm.
Adam: Oh. Well, thank you. No, I’m excited to talk about all of this stuff. You know, as I will always say, it’s fun to share this. We are certainly doing some interesting kind of different unique things, and hopefully, this is valuable to your listeners and at the very least, I know you and I will both have some fun talking.
Michael: I think we will. I think we will. So maybe just to start it off, like, just paint a picture for us of this giant $30 billion base of stuff that you do. I know there’s a couple of different businesses, so you’ve kind of got a core wealth management business, you also have a TAMP platform for other advisors, so how do you describe, like, the family of companies under the umbrella for you?
Adam: Sure. So, you know, I think at the very core, we are a financial services organization. And in many ways, I like to think of us as a destination for like-minded advisors. So if you’re an entrepreneur and you just simply are excited about having your own business and running that and that is critical and core to you, BAM Advisor Services is a great destination. That’s our TAMP, that’s our wealth management partner to other like-minded firms. And if you’re a great wealth advisor and you’re either at a stage of your life or your career where being the entrepreneur isn’t all it was cracked up to be or it’s just simply time to transition on, or you’re a great advisor that wants to be in an environment and a culture that is focused on development, a very strong investment ideology, a very strong planning approach, then Buckingham might be your destination. And that’s the two core businesses, Buckingham Strategic Wealth and BAM Advisor Services.
Michael: Okay. So Buckingham is the core wealth management firm, BAM Advisor Services is the TAMP platform.
Adam: And Buckingham today, just to give everyone a little bit of perspective, is about $13.1 billion as we sit here recording this, and BAM is over $20 billion. But those $20 billion of assets are really those of the independent firms that partner with us. So that’s how we get to somewhere between $33 billion and $34 billion, depending upon where markets are these days.
Michael: So I love that I just kind of rounded you to $30 billion because, you know, it’s easy to round off numbers, never mind that that was $3 billion of rounding error. So sorry about that. That’s kind of a mind-blowing number to think about.
Adam: It’s hard to sometimes think about, you know, where you start in the wealth management business, where you’re just focused on getting that first client in the door and to be talking about numbers and scale and size like we are. And at the same time, I think we all have the perspective of we really do still know our place and rank so to speak within the broader financial services, you know, world. You know, firms like Edward Jones, firms like Morgan Stanley and so forth. You know, we’re still such a fraction of their size.
Michael: Yeah, it is an interesting dynamic that I find. You know, like, as much as the independent advisory movement has grown and we talk about the surging growth of RIAs, and it used to be that…you know, it was like, “Someday some of these RIAs are going to have $1 billion under management.” And then a lot of firms hit $1 billion, and it seems like $10 billion is the new $1 billion now. And we see firms that are breaking the $10 million threshold and crossing the $20 billion threshold. You know, I know United Capital just went over that line and Edelman Financial just went over that line. And you guys are up there at $30 billion and blew past that number.
And then at the same time, I know, like, Merrill Lynch alone, just Merrill, is more than $2 trillion, and then Morgan Stanley is another $2 trillion. So there is still this aspect of it to me that, like, you know, it’s humbling just understanding how large wirehouses really are when you recognize like Merrill Lynch and Morgan Stanley alone have more assets on their two platforms than Schwab, Fidelity, and TD Ameritrade have in all RIA assets combined.
Adam: Yep. So I think you said it well. It’s humbling, but at the same time, how much opportunity is out there, right?
Adam: So as a young guy within this industry, I look at that and I sit there and say. “My gosh, you know, we’ve made so much progress over the past few decades, what’s possible in the decades to come?” And, you know, again, you’ve got to be humble, you’ve got to have perspective that taking on the large wirehouses is a daunting task, but somebody is going to do it. So, you know, someone in this space is going to emerge to be able to compete against the largest of wirehouses. I think that’s pretty cool to think about.
Why National Firms With Scale Need To Remember Financial Planning Is An Intimate Business [9:03]
Michael: So as you look at these two firms, Buckingham is $13 billion and then BAM is $20 billion. Buckingham is kind of the core wealth management and then BAM Advisor Services is the TAMP. So can we go a little bit deeper on each of these maybe separately? So let’s just start on the Buckingham. So $13 billion under management, like, what does that look like? Like, how many clients is that? How many advisors is that? Like, what does the staffing look like to do $13 billion under management?
Adam: Sure. So, you know, our organization is so tightly connected that there is a lot of overlap between folks that work on both sides of the business. So I’ll start off by sharing that, which is we’ve always said that Buckingham is the living laboratory for BAM. It is the test kitchen. It is the model if you will. And it’s always been our dream that BAM was going to ultimately be mini-versions of Buckingham in people’s, you know, local communities. So collectively across the organization, we’ve got 285 team members. I think with some transaction activity, which I’m sure we’ll get into later, we’ll certainly soar by 300 in the coming weeks and months, you know, and we’ll end up well north of that by end of 2018.
But at Buckingham, we’ve got 20 different locations these days. So St. Louis is certainly our headquarters, but we have offices all over the country. And I think that’s really important because I do believe that national organizations with scale and size and resources capabilities, expertise, need to still remember that this is a local, intimate boutique business, and you’ve got to serve your clients in very personal ways. And a lot of that is geography. And so, you know, for us, we have really, you know, been passionate about having locations where our clients are.
We have approximately 100 wealth advisors. Now, that includes associate wealth advisors. And again, we can certainly talk more about that, but I think most folks think about our industry as one where, you know, it’s very barbelled as it relates to the ages of advisory team members. And so you certainly have the senior statesmen and women, you know, often the founders of organizations, and now a next generation that’s coming up, and unfortunately, not all that much in the middle. Well, you know, the reality is we like to team wealth advisors with associate wealth advisors to create that kind of development opportunity, that teaching hospital of sorts. And so we have 100 team members who are advisory personnel working with clients, but both of a senior and junior level.
And I think you also asked about the number of clients. So we’ve got about 6,000 clients representing the $13.1 billion or so of assets at Buckingham.
Michael: So just doing rough math, $13 billion, about 6,000 clients, like, your average client is a little over $2 million if I’m doing that math right?
Adam: Yeah, our average investable assets for clients is north of $2 million, but the reality is we range from, you know, young professionals getting going to extremely high-net-worth families and everything in between. But I would share that our sweet spot is probably that $1 million to $10 million family.
Adam: Yeah. And then bringing to life the BAM side of the business, so that $20 billion of collective assets is really among about 140 or so firms. So what we decided a long time ago is that we weren’t going to be a volume business on the BAM side. What we wanted to do is work with folks in a very deep, holistic way, just like, you know, you do on the wealth management side but not just be a processor. Truly help them in all ways. And to be very candid, it makes for a lower margin TAMP, but we’ve helped firms get into the business, we’ve helped them grow. We’ve got a number of firms that are at or approaching $1 billion. You know, that’s really meaningful to us.
I told you one of the things that we had a vision for was to create these versions of Buckingham and/or to help others create these versions of Buckingham. And I think when folks, you know, go from zero to several hundred million or $1 billion of assets and have done that with very little team members and just really focused on their end client and having the access to resources and capabilities like a big firm might build out, that’s pretty cool. That’s a leverage model, and it’s certainly the type of business that I think advisors dream of versus once with gigantic staffs and infrastructure and all of the fixed costs and other elements of that.
Michael: So on the BAM side, like, can you help us understand a little bit more like what are you guys doing there? I mean, I get there’s some outsourced investment management process where you’re managing dollars for them, and that’s why you get to claim $20 billion under management for the TAMP because you’re managing it, but what is that TAMP? What else goes on that TAMP service? Like, what does that look like compared to just all the other TAMPs that are out there, right? We’ve got everything from Loring Ward folks over to mega-firms like SEI. Like, how does BAM compare and contrast that?
Adam: Yeah. So probably a very different model. Very different ideology to a Loring Ward, who we’re great friends with and think the world of. In fact, spend a whole lot of time with their leadership talking about the future of the industry. And again, we’re very aligned with what they’re doing. But the reality is actually, and I’ll clear up a misnomer, which is we don’t actually manage investments for our BAM clients. That’s something that a lot of folks think about. So the word TAMP, while is easy vernacular to use to describe what we are and to ultimately give folks a little bit of way to zero in or target what we do, probably a better phrase for us is something more like a turnkey wealth management partner.
So we’re providing all of the back office services. We’re providing a technology stack. We’re providing the vendor relationships, helping folks to really interface and interact with scale, from the custodians to the mutual fund providers, to the technology solution providers and everything in between. We’re providing investment strategy solutions to folks, but we’re leaving it up to them to actually do the implementation, with one primary exception, which is, or I should actually say two. The fixed income side, we do create custom ladder and bond portfolios for our firms for their higher-net-worth clients.
And then on the retirement plan side, we help people get into that retirement plan business, which is a very exciting and awesome business to be in. You can help a lot of people, and it can be very rewarding, but if you do not have a partner in that and you have only a handful of plans, that can be a very challenging and in fact even dangerous business to be in. You know, it’s a little bit like running with scissors. So we will be the investment manager on that side of the business as well.
Michael: When you say retirement planning, like, you don’t mean helping individuals plan their retirement, you’re talking about, like, 401(k) qualified prospects?
Adam: Yeah, 401(k) plans, profit-sharing plans, everything that falls into those kinds of…
Michael: Okay. Okay.
Adam: So basically being a turnkey provider for that.
You know, we’re also helping people with content. So, you know, one of the good but also maybe, you know, overwhelming things about the services we provide is we produce so much original content, whether it’s around investment ideology and our strategy, whether now it’s around planning topics, whether it’s around life topics. And we provide that to our firms in the form of certainly white papers, in the form of newsletters, in the form of client letters, in the form of articles that they can utilize so that they can, not just arm themselves with knowledge, but also put that stuff in front of clients. And again, other marketing solutions as well.
So we try to be turnkey and take as much as we possibly can off of the advisors’ plate so that they can really spend their time on a handful of things, which is their relationships, planning, and growing their business. And we certainly help at all three of those categories as well, but if we can give advisors back more time to focus on those things, then the reality is we end up becoming very inexpensive. And that’s how we ultimately will demonstrate our value proposition.
Michael: So I’ve got to ask, though, like, if the focus is relationships, planning, and growing the business, why not be more hands-on on the investment implementation of the whole portfolio stack as well beyond just the, you know, high-net-worth custom ladder bond portfolios?
Adam: Yeah. So it’s a great question, and I will share with you that it’s something we talk about internally all the time, but most of it I would share comes from client demand. And so when we talk to the BAM firms that we work with, when we ask them these questions, this is something that has really been important to them, which is to be able to, not just have models, but customize those solutions for the benefit of their individual clients and their families.
So they want to have our investment strategy expertise, they want to have our simulated strategies, they want to have the tools that make the trading and the rebalancing and the tax loss harvesting efficient, but they want to ultimately press the button as it relates to the implementation. And so if we can reduce that to a very minimal amount of time, then I think we can allow them to have what they’re asking for, but at the same time, you know, continue to affect the strategy that we have, which is to give them more of their time back, to be more leveraged.
Now, I will tell you, though, that the internal dialogue and conversation that we have is not whether we take that all back from them, but whether we give them the option of having that. And I will tell you, in a more automated world as tools and technologies expand, there is no question in my mind that that is something that we should absolutely continue to take a look at. And whether that is joining forces with somebody who already does it or building it internally, those are capabilities, you know, that may be interesting to have to be able to solve problems in both ways.
What Smaller Firms Need To Do In Order To Compete With Larger Firms [20:35]
Michael: Yeah. I mean, I would think at some point, like, just the fact that you’re providing the rest of the back office services, I’m going to presume, like, that comes down to support on…planning support services, admin services, investment services. Like, at some point, it feels like, you know, “Hey, if you work with us, you can keep control of your investments and implement them.” “Oh, but I don’t have time to implement them.” “No problem, we’ll give you a back office person that helps implement them.” So, like, you kept control of it except you don’t actually do any of it because you outsource the person who presses the button to the people who you said you weren’t going to outsource your investments to. Like, is this just a thing of, like, us as independent advisors that we get it stuck in our heads like, “Dammit, I’m going to keep control of my investments, now please do all of it for me, including the implementation?”
Adam: Yeah. I couldn’t say it better, which is it’s really funny. When we talk to our various advisor councils, when we’ve talked to clients over the years, there’s only a handful that have said, “Please take this off of my plate.” The rest say, “No, thank you. We appreciate the offer, but we want to control this.” So whether this is unique to my community, our community of firms or whether this is a broader industry thing, I certainly would say that the overall implementation and figuring out ways to make that even more streamlined and take that off of the plate of our firms, which certainly seem to be a value-add, but whether or not folks are actually comfortable or ready to give it up, you know, interesting.
But it actually speaks to a broader concept in our industry, which is you have these small independent firms that ultimately need to figure out how to solve for their most precious commodity, which is time. And then you have these larger firms that have built out these infrastructures and teams that can do all of this, they’ve specialized, so they don’t have to focus on that because they’ve got all those internal resources. At some point, the smaller firms to be able to compete from an expertise standpoint, from a client experience standpoint, have to continue to find more efficient ways to either outsource or do things, or they’ve got to start looking more and more like the larger firms. And that takes investment, that takes time, that takes, you know, execution and strategy. So it should be really interesting to see how that all plays out over the coming years.
Michael: It is a fascinating juxtaposition to me that, you know, there are a lot of folks out there that just pound the table that, you know, growing complexity in the business and the threats of technology and large firms and competition and robos and all the rest, that, you know, the solo practitioner is doomed and you have to be giant with huge economies of scale. And then I just look at the raw data of the industry benchmarking studies, and it basically says solo practitioners have never been more profitable and successful than they are today. Way better than it was 10 or 15 years ago. Because of all this technology stuff, like, the more administrative aspects of the advisory business get automated with technology, or at least expedited with technology, the easier it seems to be to be a solo practitioner.
You know, in the past, I needed a staff member just to schedule my client meetings, now I just send my clients a link on Calendly or ScheduleOnce or TimeTrade or one of those, and they click their own meeting in 30 seconds and then it’s gotten scheduled. And, you know, I used to need a staff member to help me rebalance every single portfolio one at a time, now I just need some rebalancing technology where I’ve just got to hit a button from time to time. A little more setup, but at least once it’s in place, I’ve got not much more than hitting a button to rebalance and make sure everything goes where it’s supposed to go.
And, you know, all of this technology, to me, like, I view this as frankly the golden age of the solo advisor, with the caveat that that’s great when you’re a solo, like truly a solo and you just use the technology to get more and more efficient so you don’t have to hire more staff, but if you want to grow, it’s actually the growth stage where to me in many ways it gets even more painful to try to do it yourself and without someone that provides some back office services support.
Because, like, the solo gets more and more efficient as the technology comes along, but if you want to grow and scale a multibillion-dollar firm, you ain’t solving that with technology alone, you have to hire a whole bunch of people. And people are expensive and hard to scale, and it’s really messy early on, you know, when you go from 3 staff members to 4 staff members and your headcount increases by 33%. When your overhead increases by 33%, it’s really expensive to hire another person. And outsource providers are much easier for you to manage with a variable cost because I just buy the time that I need and it’s your problem, you know, at BAM to figure out how to do that scalably across 140-plus firms.
To me, I’m fascinated by the outsourcing potential in, I’ll call it, like, the mid-market segment. Not that it’s not handy to do it as a solo advisor so there’s just less to worry about, but the more tech comes along, the more the tech will just do it for you and you’ll probably even need a little bit less in back-office services, unless you’re growing and trying to scale.
Adam: Huh. So you just actually well-articulated one of my kind of, like, favorite views on the future of the industry. And I’ll kind of tease it out just because it’s fun to talk about this, you know, back and forth a bit. Which is, I really believe…I’m not one of these guys who’s, you know, going to declare the death of the, you know, solo practitioner or, you know, solo proprietor. I similarly believe that there is absolutely a future for these folks. I think some of them are some of the best wealth advisors I’ve ever seen. Great planners just don’t want to run a business, right?
In contrast, you know, this is also the golden age of the start of…so maybe it’s not the golden age, maybe it’s the start of a golden age of the large-scaled firm, right? This has been a cottage, fragmented industry. Thousands upon thousands of these small independent firms that…and now it sure seems like there’s some bigger business trends and things that are occurring. So I think that we’re going to be this barbelled industry, right? I think you’re going to have the really successful, great solo wealth advisors, and then a lot of, or maybe not a lot but a handful of really successful large firms. I think being stuck in the middle is where things are going to get really challenging.
Again, not that you’re in trouble, but I think the $200 million, the $300 million, the $500 million firm has a decision to make. Not the solo firm, not the large firm, right? The large firm has decided to be an enterprise. They’ve decided to invest, they’ve decided to create career paths, they’ve decided to dedicate resources to just the investment process, to just the client experience, and they will continue to get better. The sole proprietors are really, really good practitioners on average who said, “Hey, I don’t want to deal with any of those headaches.” And they do have solutions to that. They have TAMPs, they have technology, and I think that the cost of all of that continues to come down and be much more accessible.
I think it becomes those multi-advisor firms that do have staffs that say, “Who do we want to be when we grow up?” And they’ve got to, over the coming years, make a decision. And if they want to be a lifestyle firm, meaning that they’re not going to keep growing and investing for the future, then that may be okay, but it probably won’t be great for your team members or for your clients in the long run. But if they want to become the large firm then you know what? They’ve got to devote time, energy and, oh, by the way, money, capital to doing that. And that’s hard to take a step back, to take many steps forward. So it’s just a really interesting dynamic that I love chatting about. You know, I know you’ve got strong feelings on this, too, so it should be fun to see how it plays out over the next decade or so.
The Huge Opportunity For Solo Advisors [29:33]
Michael: Yeah, it’s an interesting phenomenon. You know, I call this the deadly middle. That, you know, clearly there’s a subset of very large firms like what you guys are doing and Colony and United Capital and Edelman and Creative Planning and a bunch of others that are at this, like, $10 billion, $20 billion, $30 billion AUM levels. And for a lot of them, like, as they’re getting to this point, their growth rates are accelerating. You know, they kind of slowed for a while and now for a bunch of these firms their growth rates are actually picking up, you know, when in theory, you’re supposed to get harder to grow when you get big because the denominator gets so big. But they’re actually getting a lift because, in the true sense, they’re starting to see economies of scale around marketing and client acquisition, around how they’re executing growth, all the internal dynamics of just operating the firm and managing overhead.
So, you know, there’s a subset of large firms that are really running, like, lasting enterprises and are just growing and scaling their way through it as quick as they effectively can, we have the other end of the spectrum, the solo advisor that’s never been more profitable than they are today. You know, there are solo firms out there that are doing $300,000, $400,000, $500,000 of revenue or more and taking home, like, 75 cents to 85 cents on the dollar, just these ludicrously high margins. It’s like $400,000 or $500,000 of revenue and an admin assistant and a bunch of technology. You know, just amazing efficiencies if you can get a reasonably affluent set of clientele.
And then there’s this deadly middle that seems to be somewhere, like, you can get slightly beyond just what you do as a solo and hire, like, two or three staff members that support you. Maybe you’ve got a paraplanner and a full-time admin assistant, maybe a little bit of part-time help. And I see some firms like that that get up to even $100 million-plus under management.
But then if you start getting much larger than that, you get north of about $150 million and certainly up towards $200 million, you hit this inflection point where the business can’t grow unless it truly grows beyond you, and you have to start hiring very expensive advisor staff members who want high compensation, and then if they do well they also want a piece of the pie, right? They want to become partners. And you’ve got all these staffing demands on you as the organization gets more complex. And profit margins tend to get compressed. And, you know, the striking thing to me I think was the 2015 advisor benchmarking study was the first time this really showed up. That partners in $1 billion firms had the same take-home pay as the most profitable solo advisors. And basically, everyone between $100 million and $1 billion made less money than if they just stayed at $100 million and got efficient.
Now, the flip side at least is, you do have an entity that’s getting more valuable, so someday you get a liquidity event maybe on the back-end that kicks up that cumulative lifetime income a bit. But truly, like, partners in $1 billion firms had no better average income per partner than successful profitable solos. And that was a few years ago. I feel like the more time that goes by, the higher that threshold gets.
You know, our advisory firm is now closing in on $2 billion under management. We’re like $1.9 billion-something as of the last number that I saw. And even as we close in on $2 billion, like, I joined when we were under $200 million, so I’ve seen 10X growth. And even now, all I can see at closing on $2 billion is like, “Man, if we get to $3 billion, I think we could finally have the resources to do all the stuff that I wish we could do in the firm.” And it’s really depressing to me to have come this far of reinvesting into the firm only to find that even as we’re getting here, like, you know, just the larger the business gets, the more new pain points that crop up and you continue to have new resources that you want to invest into. And it’s a really tough haul.
And so some people are just hardwired as entrepreneurs like, “This stuff is fun. Yeah, it’s challenging, it’s got stresses, but, like, it’s fun to solve these problems and figure them out and make the business grow bigger and be more successful.” And, like, more power to the entrepreneurs that are wired that way, but, you know, for everyone else, like, this valley between $200 million and $1 billion becomes really challenging and kind of dark for some firm owners.
I mean, I think that’s part of why we’re literally seeing an uptick in the amount of merger and acquisition activity happening for firms in that deadly middle because there really are a lot of partners that are just getting to the point of saying, you know, “I just want to get back to those three things you mentioned,” right? Like, “Relationships, planning, growing the business. That was the fun stuff. That’s why I got into this in the first place. It’s not so I could spend 80% of my time managing other people who do relationships, planning, and growing the business. Like, I want to get back to that and get out of this tough deadly middle zone.”
Adam: Yeah. No, I could not agree more with kind of your view on this. And, you know, I think the other thing I would say is sometimes you’ve just got to decide what you want to be when you grow up, right? So, you know, I always think about this which is a lot of people got into this business to help others, right? So they started out being great wealth advisors and they had this vision of working with one client at a time to help them achieve their goals and objectives. And along the way, they took on this responsibility to provide for the lives of families. So, you know, their team, their client base got larger, and they just have to decide, which is when is enough, enough, and where do they actually get the most enjoyment?
And so I think, you know, what we have built is intended to be something that allows people to have the best of both worlds. If they want to truly be that entrepreneur, great, partner with us on the BAM Advisor Services side. If they want to be at a place where we have solved a whole lot of things that they don’t have to keep beating their heads up against the wall again about, where they get the benefit of team and collaboration, where they get to go back to really just being great advisors and knowing that their people and their clients have…or their people have career paths and their clients are going to be well served by like-minded folks who share similar values, then maybe Buckingham is the right place for them. But again, at some point, these advisors and these owners of advisory firms have to figure out where they get their energy and what moves the needle for them.
And there’s no judgment in that, right? I just happen to personally really love the stuff that we are doing to build this organization. And I get energy from that. I don’t like growth for growth’s sake, I like growth for the opportunities it provides. I like growth for making us a better organization. And I truly believe that those things are happening day by day. And, you know, that’s kind of what gets me up in the morning. You know, and again, other things get other people up in the morning.
Michael: Yeah. Even as much as I’ve lived through the growth cycle at Pinnacle, you know, I think I was, like, employee number 9 or so and we were closing on $200 million and now we’re closing in on $2 billion and we’re 55-plus employees, for me it wasn’t actually until we started doing the growth cycle in XY Planning Network where we’ve got all these team members. You know, our average employee at XYPN is actually much younger than the average employee in an advisory firm because we have a lot of folks in their 20s and 30s. And, you know, we have all these great, upwardly mobile, awesome people. And I look at it and I just say like, “Oh my God, if we can’t maintain the growth of the firm, I’m going to lose these awesome people because they’re just going to go to another place that gives them more opportunities.”
Like, I’d never really felt the pressure around…like, the pressure of being a business owner to grow for the sake of your people until we got a really big group of young people that have really long career time horizons and just saying like, “If we can’t double the size of the business in five years and give them a whole bunch of new opportunities that come when the business is twice the size, we won’t be able to keep our people.”
Adam: Yep. Well, my story is one, I was super blessed, right? I had a founding generation that wanted to grow because they thought they were helping folks, and then once they achieved levels of success, their desire for growth had nothing to do with their own personal situations. It was all about creating that opportunity for folks like me and my fellow colleagues, that next generation. And it’s strange in my 30s still, and I can hold on to that for a few more months, that, you know, I’m finding myself feeling the same way. It’s incredible pressure if we’re being candid, but it’s also an incredible, like, opportunity to create an organization that is rich with opportunities, where people can achieve their personal and professional goals, that ultimately they may even be able to have higher levels of success than the generations before them.
And by the way, I mean, if you can create a business that is like that, that has that sustainability, that has that opportunity, you know, I think you can feel…you know, count yourself pretty fortunate. And I know that that’s kind of the way I’m starting to look at life a little bit more, which is some of the success we’re having and the growth we’re having, will I certainly benefit from it? It’s produced more jobs, it’s produced more career paths than I ever even thought of. And that gives me a tremendous amount of joy every single year looking at the people that have progressed, however that’s defined.
Michael: So how do you look at career tracks and ladders within a firm at the size that Buckingham and BAM are? Like, is there a giant ladder of positions all over the firm? Like, you’re an associate and then a wealth manager and then you move up the line, or like you’re investment ops and then an investment analyst then a portfolio manager and you move up the line? Like, do you build ladder tracks like that in a firm your size or does it look different because you’re growing so quickly that, like, half the positions you’re going to have in five years don’t even exist right now because they won’t exist until your firm doubles in size in five years and then positions will be there? Like, how do you look at the growth cycles that way and how you actually formulate these into career tracks for your team?
Adam: Is it okay for me to answer both?
Adam: So we have both. We absolutely have clearly defined ladders, guidelines that help people if they know truly what they want to be to get to that point, but at the same time, that’s the most fun thing, which is all of that can also get ripped up in any given year. And when you are a growing organization and new stuff is happening, because the roles that exist today that we didn’t even have last year or the roles that will exist tomorrow that we’re not even yet thinking about, continue to pop up.
And so, you know, when you’re a small, independent wealth management firm and back office in St. Louis, it’s one thing. You certainly have more job types than many other organizations and there’s some opportunity to move back and forth through there. When you have 20 locations across the country now and the number of team members, and again, the momentum, we can certainly talk about kind of what’s in the pipeline for us, but, you know, we will do a number of transactions this year after doing a number of transactions last year. We will onboard some very large BAM firms this year after onboarding some very large BAM firms last year. We will have strong organic growth this year. Already off to a great start.
And, you know, for perspective, think about that. When we have organic growth… You know, we used to love the years where you could shout from the rooftops you had 20%, 30% organic growth, right? Non-market organic growth, like, real organic growth. Think about that, when you’re $13 billion and maybe $15 billion on the Buckingham Strategic Wealth side at the end of this year, if you’re growing 10% per year organically, you’re growing a $1 billion RIA every single year.
Michael: Absolutely impressing.
Adam: Do you know how many years it took us to hit $1 billion? You know, we hit that in, like, 2006/2007 on the Buckingham side, and we’ve been in business since 1994. And now we’re growing $1 billion organically, you know, every year. So it’s staggering to think about.
So to answer your question, both. We absolutely have career paths and career tracks that we’ve put in place, that we think are really important for folks to have an understanding of how they achieve what they want to achieve, but at the same time, it’s pretty cool to tap people on the shoulder and say, “Hey, I know you’re not thinking about this, but you’re a great wealth advisor, but how would you like to go lead an office in Houston, Texas?” Or, “Hey, you’ve really demonstrated an ability to train and develop your wealth management staff, how would you like to take a broader leadership role within the organization helping other teams to do that well?” Or, “Hey, you’ve been a planner, you’ve been an advisor, you’ve been a rainmaker, you’ve been a thought leader, how would you like to be our director of advisor development?”
And so those are the types of things that pop up. And the cool thing also is, again, we have two sides of our business, and we have people moving back and forth Buckingham and BAM. And I think that adds a lot of, not just cool experience and exposure for our team members, but I think it benefits our end clients as well.
Michael: So how do you look at the growth? So as you said, like, organic growth gets harder at some point just from the sheer size of how big that denominator is in order to make a growth rate compelling, right? Like a 3% growth on $30 billion is making a new $1 billion RIA every year now.
So, you know, I know you guys, as many firms out there have, handle this in part by going down the inorganic path, which is the world of acquiring advisory firms to grow. And I feel like this is something that’s been very popular across the industry, right? Like, I forget what the number was but, like, a bunch of these surveys now basically said something to the effect, like, the majority of large advisory firms are all interested in acquiring other advisory firms to accelerate their growth rate. You know, you guys were maybe a little bit earlier to that than some of the others, but lots of firms are doing it now. So how do you look at the mergers and acquisitions marketplace today? Like, how do you think about that in the context of a $34 billion firm that’s trying to drive profits and growth in a competitive environment?
Adam: Sure. So I’ll make a pretty bold statement and say that if you are looking at inorganic growth strategies solely for growth, you should not do them unless you are, you know, an investment bank, unless that is the only thing that you do. If you are looking at inorganic growth strategies to add talent, to add capabilities, to add geographic expansion, you know, to help create scale, to help, again, you know, as I mentioned, talent but to help deal with succession as well, those are the kinds of viable strategic reasons that need to accompany pure financial and growth goals. And I think that that often gets missed. I think why, whatever the figure is, you know, whether it’s 85% or 70% or 60%, who knows? It’s a large percentage of firms out there that are saying, “Hey, we want to grow. We too can raise our hand and say, “We’re open to buying a wealth management firm. Just let us know if you want to sell.” Yeah, sorry about that.
Michael: I mean, what’s wrong with that? Right? Like, I just know a lot of firms out there, I think particularly some in that deadly middle that are feeling the pressure of like, “We’ve got to be bigger to try to hopefully get some new economies of scale.” Like, what’s wrong with a, you know…
Adam: The pure economic..?
Michael: …$100 million firm that’s like, “Hey, you know, there’s a firm in our area and it’s, like, $120 million, and, you know, this would add well to our size and, you know, we grow by 10% or 20% by bringing them in. And, you know, we can make the cash flow work. And we’ve got some staff infrastructure already. I think we can do this.” Like, what’s wrong with them trying to do that growth so that they can grow?
Adam: Yeah. So what I would say is there’s nothing wrong with it, I’m just making the argument, I guess, that it needs to be accompanied by other strategic reasons as well, because the risk to your business of doing this wrong, the amount of time, energy, and effort to do this right, the resources that are required to actually onboard and integrate, you know, are so significant that a firm of that size and scale cannot afford to be wrong, cannot afford to take that step to onboard a $100 million, you know, firm and waste multiple years, you know, and not be able to fully integrate, not add talent, not get some capabilities, not get something beyond the math.
Actually, it’s funny. I think I just used a phrase “beyond the math.” Two of my great colleagues, Dave Levin who’s our president and chief operating officer, he runs the place day-to-day, and Shannon O’Toole who’s our chief talent officer, have actually started this presentation they call “Beyond the Math” because so many acquirers out there just their eyes get big about the dollars, their eyes get big about, you know, the headlines, their eyes get big about, you know, telling this sexy story of M&A, and they don’t fully comprehend how challenging inorganic growth strategies and truly executing them well can be. And again, I would argue how very dangerous they are. You know, this is something that can blow up your core business. And so again, if you’re just looking at it primarily for economic reasons, I would tread very lightly. I would have my caution flag up.
Michael: So what goes wrong?
Adam: So first of all, you know, I think that there need to really be a handful of core things for it to go right. Which is there’s got to be cultural alignment, there’s got to be ideological alignment, there’s got to be service model alignment, and both parties have to bring something to the table. So you’ve got to make them better, they have to help your organization in some way too. And, you know, if somebody is willing to transact, if somebody is willing to come together, you know, then they are going…you know, these are folks that have been entrepreneurs their entire lives, and very practically, you know, they are going to have very strong feelings about how things should work, and your client experience, and technology, and, you know, everything in between. And so the answer is there is a tremendous amount that can go wrong.
We’ve got a 1400-line checklist, we always tease about it’s very real, of topics and things that must be discussed prior to closing a transaction. So this is not just simply, you know, coming up with a fair price and signing some legal documents. Although I think a lot of folks wish that it was that simple. This is just like you would do for end investor clients. This is really heavy discovery, making sure you fully understand, you know, their business model, their client experience, you know, the expectations that are going in, making sure that you have laid out how everything works in your world, and ultimately delivering a solution that really is a win-win-win. It’s a win for the end investor, it’s a win for the team members, and it’s a win for ultimately the owner or the shareholders as well. And in theory, like, ideally in that order. So, you know, I could spend days talking about all the things that could go wrong. Hopefully, some of that is an easier-to-digest recipe for, you know, how to actually think about that.
And I get, I don’t mean to wax poetic too much on this, but, you know, over the years we’ve had to build out a dedicated transactions team. We’ve had to build out a dedicated onboarding and integration team, resources that are fully focused on actually doing this right. And I think, you know, knock on wood, it’s why we’ve never had to actually unwind a wealth management transaction. And again, I think that it’s a testament to the process that we’ve gone through. It’s a testament to how seriously we take it. It is also a testament to the idea that we’re only going to partner with folks where one plus one can equal three.
Michael: So I know the other challenge that comes up for a lot of firms that are looking at this kind of merger activity is just literally, like, where do you come up with the cash to, like, do the deal? You know, there are a lot more lenders in the space than there were a couple of years ago, including, you know, folks like Live Oak Bank that are sort of specializing in financial advisor mergers and acquisitions. But, you know, you guys do a lot of these deals. I mean, you did what? How many deals did you do like this last year?
Adam: We did six transactions last year. Yep.
How Buckingham Has Been Able To Leverage Capital To Accelerate Growth [53:21]
Michael: Okay. So, you know, you’re buying a firm every other month, on average, throughout the year, how do you manage the cash flow for this? Is it just the reality is after the first $30 billion there’s just kind of enough cash around in the margins to write checks for firms that may be sizable? You know, you can spend your lifetime making an advisory firm that’s $50 million, $100 million, $200 million, $300 million. Relative to you guys, like, those are still very small firms that maybe are just manageable to cash flow the deals at some point. But what does that buying activity look like for firms like yours? How do you just manage all the cash flow with these acquisitions?
Adam: Sure. So yeah, I will share that the larger you get, the less burdensome managing that becomes. But I once heard from an advisor that the only thing they want in life is an unfair advantage. And I like that phrase. I thought that was pretty clever. And in many ways, and certainly another topic we can talk about, you know, I have a little bit of an unfair advantage in this inorganic growth strategy space that a lot of other firms simply do not have. And that was, back in 2007, we ourselves went through a transaction with a firm that many folks probably listening know the name of. It’s called Focus Financial Partners, one of the leading solution providers kind of in the industry. So with that solution, I was armed with what amounts to unlimited capital to do this for firms that, you know, make sense to join forces with. Paid, you know, the dollars available by Focus at no interest and paid back over a period of time.
So again, I tease around, you know, that I have that unfair advantage, but it’s pretty real actually. Which is I’ve got a partner that does this for a living. They provide me with as much capital as I need, they allow me to be entrepreneurial and do what is in the best interests of my business. They have a phrase that they use often that I think is so wonderful, that they don’t turn entrepreneurs into employees. And, you know, I certainly can attest to that. And they give us that capital at such wonderful rates, that we, in turn, can go out and utilize it in effective ways.
Now, here’s the other cool thing, we don’t have quotas. We don’t have inorganic growth, you know, strategy goals. We are only partnering with firms that we really believe are like-minded and aligned with us and that really will be good matches. We just happen to have, you know, another benefit, which is there’s a lot of firms out there that believe in the way that we believe, that practice in the way that we practice, that know we have this capital, that know we have this expertise, that know we have these resources. And combine that with the demographics of what everybody is seeing in the industry and that everybody writes about and talks about so often, we’re the recipient of a lot of conversations, calls to join forces.
And it’s a pretty powerful combination, and it’s proved itself out to be, you know, pretty successful over the past few years. And I don’t see that trend really stopping anytime soon. In fact, I would tell you that the calls are picking up. And, you know, we just want to really make sure that we do this right, but it’s with those types of firms that are good fits. And that we never stretch, we never think about joining forces with folks, you know, where all of those core elements are not there.
Michael: You know, as someone that run some businesses and has gone through the world of financing and trying to raise capital myself, you know, I’ll admit my ears perked up a little there when you mentioned dollars at no interest. So help me understand a little bit more about how this deal structure works. Like, how do you just get access to borrow money from Focus at zero? I mean, if only because I’m assuming at some point they kind of want to make their return on investment as well. So this has to come back to them somehow. So, like, how does a deal work in the context of being a firm under the Focus umbrella?
Adam: Great. Great question. And so a lot of people always are very curious about this, right? Because you hear a lot of people in the industry talking about, “Well, they’re not patient capital because they’ve got private equity behind them,” or, you know, “Do they really let entrepreneurs, you know, not feel like employees? Do they really provide all of these inorganic growth strategy benefits? Do they really have expertise to help you build out your infrastructure, you know, and the leveraging power, you know, that they’ll talk about?” And the answer to all of that from my experience is yes, and.
So you asked specifically about the capital, which is, you know, that is one of the clearly defined things that Focus is very transparent about. And they’re transparent about everything, but this is one that they will say to you, “If you are a firm that is simply just looking for a succession solution, you may or may not be the right fit for us. We have to explore further. But if you are a firm that is looking for a succession, you know, solution and you have a desire to be bigger and better than the current version of yourself, we can help you. We can arm you.” And this is, you know, the M&A expertise, the legal and regulatory counsel that they provide, that goes along with that, the capital, the capital rates and the capital structure, it’s all just part of their offering. And it’s very real.
And I know you had Michael Nathanson, you know, on the podcast a few months ago, and he and I are two of the folks that have just simply taken advantage of that. Now, by the way, you can’t deploy the capital nor should you deploy the capital in inefficient or irresponsible ways, right? It’s still on us as leaders of businesses to really do that thorough due diligence to really make sure that these are the right fits. Because guess what? When you’ve got all this capital that you can deploy, you know, it can be exciting and sexy, but it’s one of these things where we’re able to deploy it when and if we see the right fit. And we’ve just been very fortunate to have a lot of firms, you know, that we’ve either known from, you know, over the years or have gotten to know over the past few years that have been good partners to deploy that capital to. And so that’s my unfair advantage actually in this inorganic growth strategy which is Focus.
Michael: So help me understand a little bit more, though, just like I’m just trying to understand how the math of all this works. Like, you know, Buckingham and BAM sits on its own, Focus owns a piece of you, you borrow money from them at 0% rates, but then they want you to do it because if you grow successfully, they get a percentage of your profits because they’re owners in you, and, like, that’s how they get the ROI on their capital? I mean, is that sort of the mechanics of the structure?
Adam: Yeah. I would actually say that’s exactly the way to think about it. And if you think about a partnership, right? Each party should bring something to the table. And so what do we bring to the table? Well, we’re going to run this thing. We’re going to do a lot of the work to put this together and to manage it, both the process as well as, you know, then after the fact, after closing. And what are they bringing to the table? They’re bringing to the table capital. Do you know how? Oftentimes they’re even introducing us to opportunities. And that’s their contribution.
So that’s why I think this has worked out so well and it’s why I’m such a big fan of their model, which is they really operate in the spirit of partnership. They know what we bring to the table and they match that, you know, through this approach. And again, I think a lot of people have the same reaction you do, which is, “Oh, come on.” Like, “Is that real? Is that true?” And the answer is absolutely. And so they arm all of their firms to grow in this way if that’s their vision. Again, Michael Nathanson and I just happen to be two of the folks within the partnership that have taken, you know, maybe even more advantage of it than others and plan on doing so for the foreseeable future as well.
Adam’s Advice For Firms Looking To Sell [1:02:33]
Michael: So I know there’s also a lot of discussion out there around deals with firms like Focus of just…you know, so the flip side, hey, the good news is you get access to capital at, you know, cheap rates of zero, you know, asterisk, except they want a slice of your equity. Like, that’s part of the trade-off, right? You know, you can grow the portion of the pie you get to keep but they want a portion of the pie that’s part of the terms of having access to the capital. But there’s a lot of discussion out there as well of, you know, but they take these preferential profits interests and, you know, it can be really bad for the firm if you can’t grow enough. Like, how does that side of the transaction work when Focus buys into a firm like yours in the first place?
Adam: Yeah. So it’s a great question. And we may actually be a model example of how this works and good and bad at times, okay? So if you think about the timing of our transaction, which was 2007, what happened the next 2 years, right? We went straight into the global financial crisis. So Focus purchased a large portion of our cash flow, and we went straight into ’08 and ’09. And believe me, that is the test of partnership is how people perform when…
Michael: When the blank hits the fan?
Adam: Yep, absolutely. Again, you know, certainly we want to be respectful to your podcast listeners, but, yeah…
Michael: Some people listen with kids in the car, so when the blank hits the fan. Yeah.
Adam: That’s right. When the proverbial X hits the fan. So they absolutely have a preference on our cash flow, which again is why you have to be thoughtful and sensible about the partnership structure, right? You should only sell off enough cash flow that you’re comfortable selling off, that both achieves your personal goals and objectives, and yet at the same time sets up the next generation for success, that they still can have a big slice of the pie. You have to be fully aware that markets do go up and down, and you’ve got to be able to be lean and be smart when things are bad, and you have to have a partner that works with you when times are not always great.
And so I can always shout from the rooftops, I had a partner in Focus that wasn’t in my office in ’08 and ’09 asking our leadership team what they can cut. They were instead asking the question of, you know, “How are you preparing for when times turn around? What conversations are you having? What are you doing with your clients? What might you need as it relates to capital to go out and do certain things?” Whether it was infrastructure-related or whether it was inorganic growth, you know, perspective? Which is they took a longer view, they took a partnership view. I got to see that firsthand in ’08 and ’09. Now, by the way, did that mean that they waived their preference? Of course, not, nor should we have expected them to do so. But we did a transaction with them walking in eyes fully wide open that our cash flow might go down if things turned around.
But what’s the other, you know, part of that equation? Which is, our owners sold at all-time highs. They wanted the benefit of the forward-looking market and the heights of the market, they had to be prepared for…so they had cash sitting on their sidelines, but they also had to be prepared for lean time. So you can’t always, you know, have the best of both worlds. We just wanted to make sure that we were walking in eyes wide open and understood how it worked. We got hit with ’08 and ’09, and you know what? We took advantage after that as things settled down of all of that…you know, all of the great benefit that I kind of have already shared about our partnership with Focus and grew faster than we had ever grown before. So, you know, we benefited greatly there.
And now, if you are one of these organizations that sells to grow or sells to be, you know, something better than the previous version of yourself then things like preferences don’t ultimately matter when you start directionally going that way. So we are so far beyond our preference because we took advantage of the solutions and resources that Focus made available, that we haven’t talked about that, in, you know, so many years. Now, by the way, I would say firms that are looking to sell but don’t have a mindset to do anything after that, they should think about their deal structure. They should think about whether that’s the right model for them. I still will argue, you know, that there are definite benefits of it, but you just walk in eyes wide open.
Michael: I don’t know, like, can I kind of walk through maybe a hypothetical example with general numbers? Just I’m trying to make sure I understand, like, how these deals work.
Michael: So imagine I’ve got a firm that has, say…you know, I’m a couple hundred million dollars, I’ve got, like, $3 million or $4 million of revenue. I’ve got $1 million of profits because I think that’ll make the math, you know, nice and round and easy. So I’ve got $1 million of net profits. I mean, running 25% margins on a $4 million revenue of a half a billion-dollar firm. So I’ve got $1 million of profits and I say, “I’m going to do a deal with Focus for 20%.” So Focus now takes 20% of my business. They effectively have, you know, the rights to 20% of my profits.
Now, the nature of this preferential profit interest, like, am I thinking about it correctly to say so what they’re really going to buy is not 20% of my profits per se, what they’re going to buy is a $200,000…you know, rights to the first $200,000 of the profits because it was 20% as of when we marked the deal but they’ve got a preferential interest and so every year going forward, like, they get the first $200,000, or I guess they get the first 20% up to $200,000 and then I get the rest? Like, how does this play out over time then?
Adam: Yeah. So I think that’s exactly the right way to look at it, which is you might look at it as a percentage to start, but it really is a dollar amount. And so if you did a transaction and the markets went against you and, you know, $1 million becomes $800,000, then the reality is they’re getting $200,000 of $800,000, right? So the percentage has increased, the dollar amount is up. But at the same time, you know, we like to think over the long-term. And when $1 million becomes $2 million, you know, they are practically getting 20% of that, and they have fueled your opportunity to get farther faster is the way we look at it.
Michael: And, I mean, this is just part of the trade-off of the capital, right? So if I’m down, they take their $200,000 first, I get whatever is left, which means I actually end out eating more than…you know, they end out taking more than 20% of my profits in that scenario. If we grow up, like if my $1 million of profits goes to $2 million, they just get their 20% interest, so now they’re going to get $400,000 because we doubled the profits, but I’m also not taking $1.6 million because I keep the other 80%. So they get a percentage when it’s up, they get basically a fixed dollar floor if it’s down. That’s the deal. That’s how the structure works?
Adam: Yep, absolutely. And again, think about this as well, which is, you know, if you are successful, if you are large enough to be on Focus’s radar, the reality is an internal transition plan is going to require you to wait many, many, many, many years to ultimately get paid out, right? If you have to go to a bank, you have a bank as a partner, right? With its own issues and structure challenges. If you go to other, you know, capital providers, again, there’s always pros and cons. I think Focus’s model is very straightforward. I think it is very simple. And I can share from experience, it enabled us to have the kind of growth numbers that we’ve shared.
Actually, I don’t know if I’ve shared this yet, which is…I always love to kind of share. We were a little over $1 billion on the Buckingham Strategic Wealth side back in 2007. At the end of this year, with transactions and a little bit of organic growth, we should hit $15 billion, okay?
Michael: Yeah. So you went from $1 billion to $15 billion in a little over 10 years because that’s what happens when you get kind of an open checkbook at 0% interest rates, off you go. So I guess, like, somewhere out there on the ledger, there’s still, like, the math of what 20% on the profits of $1 billion or whatever your percentage was, but like, whatever 20% of the profits on $1 billion was all the way back in 2007, like, there’s still some watermark out there where if you ever actually manage to fall below that, suddenly their preferential interest kicks in again. But short of that just they own X% of you, they get X% of the profits in exchange, you get access to their capital to just accelerate the growth.
Adam: Absolutely. And the way I’d like to think about this, and I don’t know if this is helpful again to some of your listeners is at some point if you are successful, you are going to have some partner, right? So most folks initially think about it being an internal partner, you know, again, pros and cons of that. You know, it’s certainly a very provincial paternalistic type of a solution, but we know that some of the capital constraints, again, that success creates more challenges. Just wait for that, you know, situation where one of the owners wants to exit and one or two others aren’t yet ready, and figure out if you can agree on valuation, on deal terms, see if you can, you know, figure out financing and all of the rights and securities, no matter what your operating agreement may say, it becomes a very interesting situation. I’ve seen it many, many times.
And then again, you can think about, you can certainly go for some of the top dollar, you know, buyers, but those have implications. Entrepreneurs do become employees. The path ahead for team members and elements that were really important to you about…made you unique and special can certainly always, you know, come into question. And so I think being a young person like I was, recognizing that I was going to have a partner at some point and that I couldn’t solve the issue and the challenge of the capital stack of my founding generation alone, nor did I want to mortgage my future to solve that. Think about had I done that in 2007. Think if I had somehow figured out a way to put the same deal Focus put together for us and did that.
Michael: The mother of all internal leverage buyout succession plans.
Adam: Yep. Yep. And certainly, you know, at the time in this space, and then I had been confronted by 2008 and 2009, what would have occurred? Would a $34 billion financial services organization even be in existence anymore? Think about that. I mean, it’s pretty crazy to digest.
So once I could get over the hump or the hurdle of realizing I was going to have some partner, and I just wanted it to be a partner that shared my values, that brought something to the table, and that allowed me the opportunity to continue to run the organization, create opportunity for our next gen, and didn’t change our client experience in any way, like, that’s everybody’s dream, right? And if it provides you with inorganic growth strategies and expertise and infrastructure strategies and expertise and a community of partners, firms that share and try to help each other, oh, and by the way, unlimited capital, 0% interest financing, you know, and fair deal structures, you know, I couldn’t be happier as I sit here today. And again, this isn’t a sales pitch, this is just telling my story and, you know, really trying to bring a real case study to light.
Michael: Well, it is a strange…strange is the wrong word, like, it is a unique perspective to me of…right? I think a lot of advisors, if you’re focused around building a business, like truly building a business, a lasting enterprise that lasts beyond you, then it quickly becomes apparent the only way to effectively do that is to truly allow the business to grow beyond you, which means you need other great people on board. You need employees, you need future leaders, and often you end out needing a partner of some sort.
But I feel like most of us, like, when we talk about finding a partner, we talk about like, “Hey, I’d like to find another advisor who has some clients.” Or like, “I’d like to find an advisor who’s kind of good at, like, operations stuff because I’m really good at the client relationship stuff.” We don’t often think of partners as, “I really wish I had someone who had access to hundreds of millions of dollars at 0% interest.” Which maybe just speaks to, you know, there’s a lot of different kinds of business owners and entrepreneurs that come to the table with different views around what’s a good partner, but just, it’s an interesting thing to me that you just… You know, most of us, when we talk about finding a partner, we talk about finding a person with a complementary skill set. And you use “partner” in a very different context, a very different framing when you apply it to partnering with an entity like Focus and the stuff that they collectively bring to the table.
Adam: Yeah. I think that’s an interesting call-out. I think I’ve never really thought about it that way, but I absolutely do. And it really goes back to what I was talking about earlier, which is so much of this depends on what you want to be when you grow up and how you want to define the career path and the type of organization that you want to build. And so if you are a sole practitioner, a solo advisor, you have the opportunity, you know, to define partner in a much more normal way. It’s an individual. It’s a person. When you want to have an organization, it’s just simply a little bit different than that, than I think you have the opportunity to define partner in much broader ways. And I’d like to believe more strategic. Again, as I said, with no judgment. But our founding generation was very purposeful about the partner that they, you know, ultimately positioned us to arms with for the generations to come.
Michael: So, you know, you’ve talked about, like, this was a transition event in part because you had a founding group of partners who needed a transition of their own by 2007. I mean, you guys were what? You were founded in the ’90s?
Adam: Yep, around ’94. Yep.
Michael: ’94. So, you know, you had a set of partners that did this for 13 years, a subset of them wanted out and to be done. You had a firm that was already $1 billion in the core, so, you know, a good valuable firm. And, you know, while today we see a lot of firms that are, well, $10 billion, $20 billion, you guys are at $30 billion under management in total. Like, back in 2007, like, being $1 billion firm was, like, that was the thing, that was the number. Like, if you got to $1 billion in the mid-2000 cycle, like, you had arrived. You were one of the leaders, one of the very select few.
Adam: Well. And I should share that Buckingham was $1 billion then, our TAMP, BAM, was about $5 billion then.
Michael: Okay. So you were actually $6 billion combined.
Adam: Yes. So $6 billion combined. And so again, that also should hopefully give people perspective, which is, you know, Buckingham, you know, will go from $1 billion to roughly $15 billion at the end of this year, BAM, $5 billion, you know, to $20 billion today. We’ll see what it is, you know, at the end of the year. But, yeah. So we were certainly large for 2007.
How To Effectively Build A Business That Lasts Beyond You [1:19:36]
Michael: So you’ve got the subset of founding partners, some of whom wanted out. And I know, like, a few of your founders, you know, they had done other things in the industry for a long time before they came to founding Buckingham. So you weren’t founded by a bunch of 20-somethings who were getting out in their 30s, like, you were founded by a number of 50-somethings who were getting out because they were 60-something by the mid-2000s and, you know, ready to have a liquidity event for this great thing that they built.
So I get, like, you know, they had an industry-leading firm that they were ready to cash out of, you had Focus coming to the table as one of the early players that said, “Hey, we will give liquidity events for some of these founders that want out if they’ve got some next-generation leadership that wants to come in and take over.” And, you know, as you said like, “We don’t want to turn entrepreneurs into employees. We’ll let you guys keep running your firm, but we’ll help make this liquidity event happen.” So I get why some of them wanted out. I get why Focus was interested in the deal. I understand at some point, like, literally if the founders are going to retire, someone has to come back in and take over the business, but, like, help me understand how 32-year-old you ends out being the guy to suddenly step in and take over a combined $6 billion AUM firm. Like, how does a 32-year-old land in that position?
Adam: A lot of luck and incredible good looks.
Adam: Hey, this is podcast so they can’t see. So, you know, they can just imagine.
Michael: Yeah. But we’re going to put a picture on this podcast…
Adam: Oh gosh, here we go.
Michael: So they’re going to see your smiling face when they download this episode. So you’ve been warned.
Adam: So only teasing, of course. So actually, the story is even better. As time goes by, the more I think about it. So first of all, one really interesting data point is my founders weren’t necessarily all in their 50s when they started. They weren’t in their 20s or 30s either, but a lot of them were in their mid to upper 40s, okay? So think about this, which is they weren’t actually at an age where they necessarily all had to do something.
Michael: So, like, you had a mixture of ages?
Adam: We did.
Michael: Some had to do something, others didn’t. But once anybody needs to do something, it kind of forces the issue for everyone?
Adam: Well, it certainly forces the conversation. But what I will share, and this is why I think our story is so cool is our founding generation, Bert Schweizer, Mont Levy, Larry Swedroe, Ed Goldberg, you know, and the list…Stuart Zimmerman, the list of great folks goes on, Bob Gellman, of people that really started this firm and built it over the years. They took this step, not because they necessarily had to, but because they wanted to. They said, “Hey, down the road, we are going to face this, and our own success is only going to magnify this issue and challenge. So we can hold on, and we can work to maximize our own incomes, but it may come at the detriment of our people and our client experience.”
And so what do I mean by that? Well, this is a state of firm that a lot of people will face, which is they have to ultimately think beyond themselves and their own personal situation and be totally committed to continuing to build the business, to build the organization. And there become times when you want to work a little bit less or you want to slow things down. You don’t want to necessarily take, you know, salary or distributions and go backward. There are times when you don’t want to necessarily take the risk of investing in a major technology infrastructure upgrade because it simply makes life more challenging and difficult, right? And so they knew that if they waited to do this, that they might be those folks. They might be those people that said, “Hey, now we’re five years older and oh my God, life is really good.”
So they actually took the step before they needed to because they wanted to. Because they got approached by lots of different folks, you know, in ’05, ’06 and, you know, the early parts of ’07 who wanted to buy their cash flow because they had gotten to, again, back in ’07 a size and a scale that it certainly, you know, would have made headlines. And they said, “We’re only going to do this if it helps our clients, if it helps our people, and if we really can see a path to a better future with it. We’re all going to be okay. Where none of us are going to eat ramen noodles.”
So I feel so blessed, and I always am so appreciative to them for having that mindset. And a lot of RIA owners may not have that strength to very practically say, “It’s okay to think beyond oneself. My Monte Carlo will work. I don’t have to maximize. I don’t have to hold on until the very end. Instead, I can ask the question, “What’s going to be better for the long-term of my organization?” And so they took that leap of faith, they planned for that, and they had that foresight. And I will forever be grateful. My colleagues will forever be grateful.
And I’ve got to tell you, I really believe, when I think about them, that I think about their selflessness, I think about their vision of, you know, having a longer-term view of our industry and the world. I think about their trust. You said they handed over the reins. They actually tapped me on the shoulder at 31 years of age and said, “Hey, we got into this business to be great advisors, you’ve shown.” Again, I mean, you cannot become the leader of a successful wealth management firm, unless you started it, without having a great work ethic, without being intelligent, without having some competency and skill set there.
But a lot of mine was being in the right place at the right time and having a founding generation of folks that had those core values and characteristics that I mentioned, that said, “Let’s try to put this person in this role so that we can go back and be the best wealth advisors we can. And that’s our secret sauce, that’s our superpower, being great wealth advisors. And this kid,” and I’ll call myself a kid, “Seems to have an interest and, again, hopefully a competency to run this thing. And we’re going to still be here. And in fact, because we’re doing this now, we’re going to be here for even longer, that we’ll be by his side. And it will leverage us, it will make the firm better, and the downside risk is not all that significant because, you know, we’re going to do this together.”
And again, I mean, I guess I say this as humbly as I possibly can, the proof has been in the pudding, so to speak. Like, we’ve had great outcomes. I’ve been very fortunate that I have…you know, strong markets, great organic growth, great inorganic growth, you know, will certainly make a lot of people look really smart and capable, but it’s been a good run. Oh, sorry, I was going to say I will tell you a funny story, which is the first year or two, I definitely had more phone conversations and emails than in-person meetings with other leaders, you know, and the reason being…
Michael: Just so they didn’t quite…at least they would have an initial, like, digital, virtual interaction with you and then they could sit across to me like, “Oh my God, you’re young.”
Adam: Yes. That’s exactly right. Because the first question whenever you get in the room and you are that young and you’re among 65-year-old leaders is, “How old are you?” And so they haven’t yet seen your capabilities, they haven’t yet seen, you know, who you are, you know, your values as a person. And so the great thing is, email and phone allowed me to build up some credibility. And then the question always came up, but it didn’t always…it came up more as comic relief after we’d had our serious business conversations, and they said, “All right, come on, how old are you really? And tell me your story.” Yeah, so pretty funny.
Michael: So, I mean, how did you get to that point? Like, what were you doing in the firm? What was your path in the firm that they turned to you at I guess, like…turned to you at 31 so the deal can close at 32 that you can become a CEO of a multibillion-dollar RIA?
Adam: So I’ll give you a little background on myself. I don’t know if any of this is interesting. I apologize if it’s oversharing. But, you know, I’m a St. Louis boy, born and raised, went to Vanderbilt University for undergrad. I was a history major, but I took more economic and finance classes than you needed to major. I just didn’t take the right combination. After college, I went and did basically valuation work, you know, light investment banking work within an energy company down in Texas. So we were, you know, valuing and transacting gas pipeline deals and, you know, working on power plant, you know, purchases and so forth.
And I woke up one day, and I tell this story a lot, you know, I felt like I was taking money from one bucket and I was putting it into another, but it wasn’t really creating value. I wasn’t getting, you know, like, the kind of psychic benefit and other benefits that you really want to get in a career if you’re going to do this for the next 30, 40 years of your life. So here I am, you know, in my 20s and I have this epiphany that this isn’t what I want to do. And I better not get caught up in the money. I better not get caught up in, you know, the deal-making and all of that stuff.
And so what did I do? I went home. I literally quit the job. That was a funny experience. I can certainly tell you that someday. But I left the organization and I went home, I moved back in with my parents. I applied to law school because I wanted to zig when others zag. All my friends were going to business school so I figured getting a law degree might be a different thing. And I helped my dad, he had a small little manufacturing business in the gambling industry, which again is another fun story but for another time. And I loved working with him for the time that we got to work together. Helped him to sell that business and then went to law school. And, you know, law school is an opportunity to reflect and think about what you want to do when you grow up. And I found…
Michael: Well, hopefully, you learned a little bit about the law too but mostly…
Adam: Yes. Yep. Oh, and we’ll have to ask my professors about that one. But no, absolutely. And so I found Buckingham by reading one of Larry Swedroe’s books that happened to be on my dad’s desk at home. And I read about 60 or 80 pages and I walked back in to my dad’s office and I’m like, you know, “Why did I not know about this? You know, you’ve got to make an introduction to me to these guys.” He said, “Well, you know Bert Schweizer, you know, one of the founders.” He’s like, you know, “He used to be my accountant. I’ve known him forever.” I said, “I need a lunch.”
And so my entree into the firm was truly, you know, reading one of Larry’s books, becoming so passionate about the belief system and the way that they were operating. And I had been an active, you know, investor. I was a little bit of a day trader. I thought it was fun to watch CNBC. And now, I mean, all of us know all the academic is out…you know, it’s out there. You know, we don’t need to exhaust that debate.
Michael: You’re not going to be retiring on your day trading account at this point.
Adam: Exactly. So I was just like, “How do I not know about this?” And here’s this small firm in St. Louis, Missouri that seemed to have so much potential and such great core foundation. And I wanted to be a part of that. I wanted to get in there any way I could. And so I legitimately started first as an unpaid intern, my summer after my first year of law school, and then I think they felt bad and paid me $8 an hour.
And my story is truly one of I have had every role in the place. I helped set up our compliance, you know, program. I certainly did, you know, legal counsel-type stuff. I led us through our transaction with Focus. I provided practice management solutions to our BAM firms. I did operations. I was in human resources, you know, peripherally. I was a Jack of all trades. I did everything that you think of, you know, within a small firm. And basically, they looked around one day and said, “My gosh, he’s taken all of this stuff off of our plates, let’s give him the role. Let’s give him the title.”
And, you know, I think when a lot of organizations think about taking over as the leader, you think about taking over as the operational leader, and then the reality is it morphs into the strategic leader, leader that is driving the vision forward, the leader that is actually working on your biggest opportunities. And I think that that’s a little bit about how my career path here unfolded. If I’m being candid, if I’m being reflective, it just unfolded even faster than even I thought it would. And certainly you dream of being a leader of the business that you work in, and I always feel so fortunate that I got that tap on my shoulder.
And there’s a funny story there that I always love to share. When they actually did that, when Bert Schweizer and Steve Laurie who was our chief talent officer at the time asked me to come in for a meeting and they said, “We have something very serious to discuss with you.” So most people, you know…
Michael: Excellent. So you’re getting fired.
Adam: Exactly, right? So most folks that walk into that room, you know, basically say, “I’m in trouble. What did I do?” Well, in my mind, I hadn’t screwed anything up. Like, I thought things were going great.
Michael: “Why am I getting fired? I thought I was doing well.”
Adam: Right. And so Bert says to me, he’s like, “You’re going to want to simply listen to what I have to say and not do what you normally do, Adam, which is, jump to conclusions or talk.” And anybody who knows me knows I can be pretty passionate about topics. I can go on and on. And I don’t do it to hear my own voice, I do it because it’s just my personality. I am passionate and I love to engage in the dialogue and stuff. So I had to sit there as they tried to scare me but ultimately decided to tell me, you know, that the partnership had really voted and it was time to have a truly dedicated leader. And that they weren’t going anywhere, that they were going to be by my side. And that in a year, I would assume the title, but practically today, they wanted me to function as if I had the title and was in the job.
And Bert had two things for me as I walked out of the room. The first was, “Don’t screw this up.” But again, because some people, you know, are listening to this in the car, “screw” was not the word that he used. Which I always think is funny because I had never heard him curse before. And he was, of course, teasing. He had this wonderful smile on his face.
And then the second thing was after Steve Laurie walked out of the room and Bert and I were alone, he also said, “All right, what did I just tell you?” He said, “You’re getting the title next year, but practically speaking, you’re supposed to assume the role and responsibilities today.” And he said, “I have great confidence in you, I have great trust in you. I wouldn’t be having this conversation if we weren’t ready. And so for all intents and purposes, today you are CEO, so start acting like it. I’m down the hall if you need me.” And, I mean, again, it just kind of speaks to the type of leadership and founding generation that I was fortunate to have. And it makes for a fun story too.
What A CEO At A Firm Like Buckingham Does [1:36:53]
Michael: So, you know, when you’re coming into a firm that size, I guess I’m even curious both then and maybe comparing to today, like, what does a CEO do exactly in a firm that size? Like, you know, the overwhelming majority of advisory firms are up to $100 million solos, a subset of them are larger enterprises that are maybe hundreds of millions or up to $1 billion or $2 billion, but even in those environments, like, most of the time the CEO is, like, a hat that a partner or often a founder wears on top of a bunch of management duties and also handling 72 clients. So, like, in a firm at your size, even for where it was and then what it is today, like, what does a CEO do? How do we think about, like, standalone CEO of a wealth management firm?
Adam: Yeah. So what I will share with you is it’s a lot easier for me to speak to what I do today than go back in time and think about the differences. So let me start with today and we’ll go backward, because I think that process will be helpful to me. Today, I think that there’s a handful of things that I focus my time and energy on. The first is strategy, okay? So I believe our industry is getting more complex, not less. I think competition is increasing. I think technology and infrastructure challenges are alive and real, and you’ve got to be, you know, looking out into the future to connect all that to what a client experience really needs to be. Certainly, I think the legal and regulatory environment is more challenging than it has ever been. I think the war for talent and the talent shortfall are all real. And there are so many other things.
So part of your time as a leader of a larger wealth management firm has to be thinking about… You know, there’s a great, you know, sports analogy or story about Wayne Gretzky, that he skated to where the puck was going to be. And I think that as a leader of a larger wealth management firm, you’ve got to be focusing some of your time, energy, and effort, not on the day-to-day, but on that stuff. And not just thinking about it, but making plans and getting into action to put that into place. And again, not just being folks that spend their time, you know, in the media talking about this stuff, being back home, working with your advisory team members, working with other leaders within your organization, turning strategy into action.
And, you know, Steve Laurie who I mentioned earlier once told me strategy is not easy, but it is nowhere near as challenging as execution. And so I think a CEO’s responsibility is to turn that strategy into action and make sure that it really moves forward. So that’s one component of my time.
The second component I would say is our biggest growth opportunities. So what does that mean today? Well, it certainly means working with our advisors and our leaders that work with our advisors on the organic growth strategies, okay? It also absolutely means our inorganic growth strategies, too. I don’t want anybody to join our organization without me being a central part of bringing them in from a transaction. So I am personally very involved in that process. I certainly have a dedicated team, but myself, our president and chief operating officer Dave Levin, Shannon O’Toole, our chief talent officer, all of us spend a considerable amount of our time on those inorganic growth strategies.
On the BAM side of the business, you know, while we have really become very particular about who we bring on to the platform, again, bringing on a firm with existing assets. So right now we’re onboarding a firm, you know, that’s got roughly $400 million of assets, and there’s, you know, a handful of others with hundreds of millions right behind it. I have been personally involved in that, along with the president of that division, Al Sears, because I think that’s critical and important. So again, I would say your biggest growth opportunities. And that also means on the expense side of the equation. So our relationships with, you know, our various strategic partners, our relationships with Focus, you know, I’m intimately involved in that.
And then, you know, the third area that I spend my time on today is culture, right? So if you want to be the type of organization that we want to be, the tone has to start from the top. And so I do not pretend I am a perfect leader in any way, but I think you will be hard-pressed to find somebody who cares more than I do. And again, I don’t say that in any kind of a braggadocious way, I just simply say that as I care so greatly about our people and our clients that I want as we grow to maintain the roots, the history, the legacy of what this place was built on.
And I don’t know if you know Scott Slater at Fidelity, I heard him say a few weeks ago, actually, it may have even been last week, a great phrase that, “We want to outnational the local and outlocal the national.” And I think that that’s something that culturally we care greatly about, which is that we do not hide that we want to be a big firm with big firm resources, okay? Because we think that really does make us better. We think it positions us well, we think it creates opportunity for our people, we think it can turn into a great, great outcome for our end clients. But at the same time, we are not unaware that this is a local, personal, intimate client service experience and business. And so if you forget you have to have that national with the local combination, you know, then I think you’re going to miss the target most times and build something that really isn’t all that exciting or thrilling or rewarding. It might be financially rewarding, but I’m not sure that you’re going to feel all that great.
And the fourth thing that I spend my time on is leading our C-suite, right? So we’re one of those organizations that’s actually built out dedicated C-suite members. So a chief investment…
Michael: So what does a C-suite…like, what does a C-level executive structure look like for a firm like yours?
Adam: So we have a president and chief operating officer of the whole business, that’s Dave Levin that I mentioned. We have a chief talent officer, that’s Shannon O’Toole. We have a chief innovation officer, that’s Jeff Remming. And sometimes I love our titles, but Jeff is focused on the future and innovation and our infrastructure, and making sure that we are keeping up with the times. And not just keeping up but hopefully, you know, trudging ahead. You know, we certainly have a chief investment officer, a general counsel and chief compliance officer, that’s Sal Papa. You know, I mentioned our chief investment officer, that’s Jared Kizer. And we certainly still have Larry Swedroe as well. You know, we have a head of finance, that’s Dan Anderson.
So, you know, that’s kind of the make-up, if you will, C-suite in our world. You know, and also the leader of transactions, Jeff McGovern, just because I’m so intimately involved in that piece of it reports to me as well. But I do spend, you know, day-to-day management time with the leaders of our team members. And so, you know, that’s probably the fourth component of, you know, what I do.
So kind of, like, reflecting back of how that has changed over time, yeah, I mean, first, we didn’t have a C-suite. So I had direct leadership responsibilities for our advisory team members. I was personally, you know, involved in so many elements of various components of what I just said. We have people that are now dedicated to those areas. I mean, that’s the biggest thing to reflect on, which is we now have people that are in charge of those functions.
And by the way, that’s one of the things I think that’s been so attractive to folks wanting to join forces, whether that’s on the Buckingham or BAM side, which is they know that we are focused on that stuff. They know that we have people that spend all of their time on those things. While it’s tough to sometimes give some of those things up because you’re very close to the people in your organization and it’s what you’ve done for so long, at the same time, I don’t think that our growth trajectory has ever been better. And I’ve got to believe that’s because I myself have gotten the leverage, you know.
And then the other thing is, I kind of mentioned this, which is in most other organizations, I think they often look at a leader as an operational leader. If you rewound 10 years ago, if you rewound 8 years ago, so many of my day-to-day efforts and responsibilities and tasks were operationally tied. So, you know, I guess I’ve graduated.
Michael: Yeah. So, like, how big did the firm have to get before you got to that level of C-suite depth? Like, does that start coming around at $5 billion of AUM, at $10 billion of AUM?
Adam: Yeah. So, you know, I think the honest answer is it’s probably going to be different for all organizations, but I think it needs to start with a commitment to it. I think the ownership group needs to recognize that to get farther faster, to build the type of organization that you might want to build if this is directionally the type of place that you would like to someday have, that it’s really about taking that first step. And again, it started with me back in…you know, when I was 31. I in many ways was that first step, right? They said, “Hey, we’re going to make you dedicated specialized leadership.” It didn’t have to be me. There’s a lot of other great team members around that, you know, could have also similarly been chosen. But it was that commitment to say, “We’re going to free you up to do this so you, in turn, can free the rest of the organization up to do even better things,” that is so critical.
And guess what? It probably cost them money to do it, it probably scared them a little bit, you know, as much credit as I gave them for having that foresight, you know, and courage, but it gets easier after that. And so the idea of hiring a general counsel and chief compliance officer, you know, like, real general counsel three years ago, that was a lot easier, you know, than probably making the move to say, “Hey, Adam, you know, you’re our first dedicated leader.”
Why Ability To Deliver A World-Class Service Will Be The Determinant Of The Most Successful Firms Of The Future [1:48:37]
Michael: Yeah. So as someone who spends, you know, almost all your time just focused around strategy and growth opportunities and dynamics in the industry atop this $30 billion-plus advisory platform in our independent space, I’m really curious, like, what worries you? Like, what keeps you up at night about current landscape and trends in the industry? Is it robo-advisor stuff? Is it competition? Like, what worries you?
Adam: The answer is varied, and it depends probably on the day or the night. You know, I mean, there’s just been a lot of things over the years. But I think if I try to summarize it up, it would be that if we are not delivering a world-class, exceptional client experience, I think everything else, you know, ends up being kind of an afterthought. Because if you’re not doing everything you possibly can to add value to clients’ lives, to build out more, you know, solutions to enhance your offering, then the reality is it doesn’t matter who your competition is because, you know, everybody is going to eat your lunch. It doesn’t matter what technology you’re using. It doesn’t matter, you know, all that stuff. Like, those are all components, I think, you know, of a world-class client experience.
And again, Bert Schweizer’s wisdom, you know, he said to me also, again, I can’t remember if I said this earlier, “Add value to clients’ lives and you’ll never have to really worry about profits.” So most of my restless nights are probably focused on, are we doing enough there? Now, I feel we are, but I think that that needs to be a question that any leader continues to ask every single day and have a healthy fear and concern.
Robos won’t be competition if you’re adding great value. It might be to a certain segment of clients. You know, you may no longer get the do-it-yourselfers, you may no longer get, you know, those that just want an investment experience, you know, but then the question is are the wirehouses or the other independent RIAs enhancing a wealth management experience that’s going to, again, compete with you, you know, in very direct ways?
The other things that I would say that I think about a lot are matching client experience with tools and solutions for the benefit of our advisors. Are we doing enough to arm advisors in ways that allow them to be successful? Again, however that’s defined. And so whether it’s Buckingham, whether it’s BAM, we have to keep asking ourselves that question.
And then I think, you know, again, there’s a whole lot of other stuff, you know, that I certainly think about, but I think those are the primary things I’d probably make mention of. How about you, Michael? What’s on your radar?
Michael: You know, to me the biggest…you know, I look a lot at the divide of the industry around that. You know, the big get bigger and the small have to survive environment. You know, while we said earlier, you know, it’s sort of the golden age for the solo advisor from like a pure profitability productivity efficiency perspective, thanks to all the technology, you know, I think, like, we’re at a high point for the productivity and efficiency of a solo advisor, and we’re at the absolute low point for the marketing capabilities and the differentiating factors of the solo advisor.
And, you know, I do see an environment right now where, you know, frankly large firms like yours are getting better at both inorganic acquisitions as well as organic growth. And, you know, while at your size, like, even 3% organic growth is a challenging heroic feat, like, 3% growth on your firm is $1 billion. Like, a mediocre growth rate that barely keeps pace with inflation is more than what most multi-advisor firms build in a 20-year career.
And so, you know, I see this world where a lot of the growth is frankly concentrating in larger firms that are either, you know, building up boutique experiences at scale, the way that I think you guys are trying to do, or they are building just the truly scaled mass advice solution. I’m thinking of firms like what Vanguard is building, which egregiously it keeps getting mischaracterized as a robo-advisor. And they’re really not. They’ve hired I think, like, 600 CFPs in 2 years to oversee $100 billion of AUM. And the growth rate is just accelerating. I think technically they’re still in beta. I’m not even sure it’s, like, full release yet. And, I mean, you just start thinking about that like, “$100 billion, they charge 30 basis points.” So yeah, you have to figure out how to service and scale this, but they have $300 million of advisory fees that they’ve taken in over just the past 2 years. Like $300 million of annual revenue over just the past 2 years.
And so to me, like, the large firms are gobbling up the growth. So the good news about being solo is you can be really nimble and have tremendous operational efficiencies because you can rely on technology and don’t have to build up this deep staff infrastructure, but if you don’t have scale just to scale the marketing, I think that environment becomes very challenging.
And so, you know, I see all these crossroads that are coming in the industry that, you know, large firms can scale their marketing, small firms are going to have to become niche specialists just to differentiate themselves from the kind of resources that a Vanguard or a Schwab or a Fidelity are going to bring to the table as they build out their planning divisions. And you might say, “Well, you know, I’m going to give my clients a deeper, higher level of service.” Well, okay, so does Buckingham. And they have a 300 staff member head start. So how are you going to differentiate against what they’re doing?
And, you know, the good news about being small is you could be really nimble. It’s like, you know, an advisor could pick this amazing niche of like, you know, young doctors in the St. Louis area and just build around that. And it’s probably too small of a local niche to really be cost-efficient for you guys to pursue. Like, it’s not a big enough market to move a $30 billion firm’s needle, but you can have a wonderfully successful solo advisory firm just targeting into that hyper-focused niche, whether it’s local or virtual or wherever you go. So, like, I see huge opportunities for small firms that find that kind of focus, but to me, sort of the strange crossroads is the efficiencies for small firms have never been better, but the marketing challenges for small firms have never been worse.
Adam: Hey, couldn’t agree more. And one thing I will share is we’ve all heard…you know, we all should have our heads, not in the sand, on Vanguard and solutions like that, but at the same time, we should also be very aware of how differentiated we can continue to be from them. I mean. I’ve heard from Vanguard employees about what that client experience is like, and that, you know, is great at investment experience, as it may be, although again, maybe a little bit more generic than what a lot of us might provide. It’s adequate, right? And it’s really good for a big chunk of the population. They haven’t yet perfected truly delivering what we all can deliver as it relates to, you know, the true wealth advisor experience, but that’s today. What happens when Vanguard is focused on this for another 5 years and 10 years? So if we are not aware of what could be coming down the pike, then, again, shame on us, right?
Michael: Well, and, you know, there were a lot of people that laughed when Vanguard launched the index fund. And, you know, back when they launched the index fund, it was also a heck of a lot more expensive, right? It took 10, 20, 30 years of them iterating with scale, and then all of a sudden the index fund got down to about 3 basis points, and now no one’s laughing because they’re taking more growth than I think the entire mutual fund industry in the aggregate, just to Vanguard.
So, you know, I think it’s true. Like, yeah, I think a lot of independent advisory firms today have a value proposition that is stronger than what Vanguard is doing at their size and scale right now, but Vanguard is reaching a lot of clients that advisors weren’t reaching anyways. They’re using that to build their base. They’re going to get bigger and better. And even for a lot of individual advisors, you may be better at what you’re doing than what Vanguard is providing, but you still have to figure out how to communicate that to prospects who trust Vanguard and don’t know who you are.
Adam: Well, and think about this. Think about how difficult it is to already differentiate ourselves from the wirehouse world, right? The vernacular that is used, the marketing dollars that they have available at their disposal. You know, you think Buckingham is ever going to have a Super Bowl ad? I highly doubt it, right? Practically speaking, these folks can deploy resources because of their size and scale that make this very, very confusing to the end investor.
And so even if we are better than Vanguard, being able to articulate that in a clear and concise and effective way that explains why on average we can charge 50 or 60 basis points for a higher-net-worth client where they can charge 30 is important because somebody is going to ask the question. They’re not going to disagree probably that you are worth something more, but it’s going to be hard to understand is it 10 basis points? Is it 20? Is it 30? Is it 70? And again, I think so much of that depends on what people build out and create, but doing that is not enough. Being able to articulate it and clearly understand it and define it and be passionate and truly believe it is something entirely different.
Michael: So where do you guys build from here? Like, what’s next for Buckingham and BAM? Or is there even like a focus between Buckingham and BAM at this point?
Adam: Yeah. You know, I think I’ve said this already but maybe I’ll rearticulate it in a way that hopefully is a little more eloquent and concise. Which is where we go from here is this, we’re trying to be a destination for like-minded advisors that are culturally aligned, ideologically aligned, and service model aligned. I think we can help them at all stages of their, you know, kind of advisor life cycle. And I think that, you know, one of the things we didn’t talk about is that was actually the reason we got into the transaction effort was because our clients on the BAM side were asking us for solutions. So we’re going to continue to be a solution provider to advisors so that they, in turn, can be solution providers to their clients.
And what does that look like? You know, if you had told me today we’d be sitting here, you know, at $33 billion, $34 billion of collective assets with 20 locations, that BAM would have $20 billion, that Buckingham would be over $13 billion with a very clear path to be over $15 billion, I mean, I wouldn’t have believed it. And so what that turns into tomorrow or 5 years from now or 10 years from now I think is anyone’s guess. Whatever it looks like, I still want to be like that organization that our founding generation started, and just keep providing the opportunities, keep living our mission, our vision, our values, and just growing up more and more and being a bigger and better version of ourselves. And if that occurs, you know, I’m going to be pretty proud of the organization that we’ve built and feel pretty good that hopefully left it in a great situation for the generations after me.
Michael: So this is a show about success, and one of the things we always talk about at the end of every podcast is just, you know, what success really means. Because it means different things to different people, sometimes even different things to us at different stages of our own lives and careers. So, you know, by any objective measure, you’re at a phenomenal point of success. You came in at 32 to manage a $6 billion firm combined, you’re at 34 today. More than 5X the firm in barely 10 years. You know, it’s an incredible business success, but I’m curious just for you at the personal level for yourself, how do you define success for yourself?
Adam: Yeah. Well, I’ll share a little bit about me personally. So I have a wonderfully amazing and much more talented than I am wife, who is a pediatrician. And she and I were college sweethearts and have really known and been together basically…known each other and been together since we were 18. We have three awesome, healthy children, nine, six, and four, two girls and a little boy. And this is just a really fun stage of life. Working hard but at the same time, I’m getting to be part of my family growing and prospering. And I am one of those folks that as my as I love what I do, and I do, I am so passionate about this and believe so strongly in what we’re doing, I do actually get equal feelings of success in the other side of my life, my family.
And this weekend was a really particularly fun weekend. My oldest daughter got first place all-around at a gymnastics meet, and I got to be there, you know, and watch her. And, you know, we made the time to do that. In two weeks, we’re traveling to Kansas City for state to be with her. My youngest daughter, you know, who’s my middle child, similarly having, you know, a lot of, you know, fun success. And my youngest who’s a boy is, you know, one of the funniest kids I’ve ever met. And so just watching them grow up, watching them, you know, achieve happiness. It’s really funny how you change your definition of success once you have children. And if they grow up to be happy and healthy well-rounded kids and have confidence and are wonderful people and do good things in this world, then you know what? That’s probably the biggest mark I can make on this world.
At the same time, if I can combine that and, you know, do some pretty cool things professionally myself, I won’t turn that down either. You know, what was it? “Charlie and the Chocolate Factory,” Willy Wonka, where Gene Wilder at the very end said, you know, “Have you ever heard the story of, you know, the boy who got everything he ever, you know, dreamed of?” And Charlie says to him, he goes, “No.” And he goes, “But do you know what happened?” He said, “No.” And he goes, “He lived happily ever after,” or something like that. I mean, that’s, again, not to be too cheesy, but at this point in my life, I really feel that I’ve been blessed.
And again, now I think I’m turning to thoughts of legacy and how I can help others, you know, both at Buckingham and BAM as well as the BAM firms that we support, and our end investor clients as well as, you know, again, my family and my friends, and having them feel as happy as I do on a daily basis. So again, hopefully not too cheesy and answers the question, but just a little bit about me.
Michael: Yeah. No, I appreciate that. I felt the similar pull as well. You know, I’ve got three as well, a little bit younger than yours but in that same sequence. We were a girl, a girl, a boy. Ours are six, four, two. And, you know, it is true that your definitions of success start changing once you have kids and family becomes more and more of that picture. And, yeah, it’s interesting trying to balance the two, to say the least, and figuring out how to do the balance and to nurture both the way that they want me to be nurtured when you’ve got a family and a business, which sometimes feels like one giant child as well.
Adam: Yep, absolutely. And I think you and I both share a very common challenge, which is our travel schedules, right? I know your conference schedule is robust.
Michael: And you’re out on the road seeing firms that you’re talking to about potential acquisitions and deals.
Adam: Exactly. And so something has to give. And so, you know, one of the things that I’ve started to do more and more is really be very purposeful about my travel schedule. Or if there is truly something that is important to travel to, you know, hey, consider how you can make it a fun family event as well or include the kids in the process of where you’re going and why and what to learn about that destination. You know, I went and did some speaking down in Scottsdale, Arizona a few weeks ago. You know, the sessions were over on Thursday evening, and my family came and met me for a long weekend. So figuring out a way to incorporate both sides of your life, you know, I think has been something that I’ve been trying to do. And, you know, I think we’ll struggle with that, you know, over the years. But to actually care about it and doing it well I think is important.
Michael: Yeah. Well, amen. Well, thank you for taking your time from busy family schedule to join us here on the “Financial Advisor Success” podcast and share some of this amazing story that you’ve had of the run that you’ve had.
Adam: Oh well, thank you. Again, it’s been an absolute honor to spend some time with you. You know, congratulations on all the success and impact that you’re having too because, you know, it’s really fun to watch this industry, to see all the great stories that are out there. And, you know, again, privileged to spend some time with you, and hopefully this was, you know, somewhat interesting and valuable to some of your listeners.
Michael: Amen. I think it will be. It’s a pretty powerful story. Well, thank you. Thank you for joining us on the “Financial Advisor Success” podcast.
Adam: My pleasure. Take care.