Welcome back to the 112th episode of Financial Advisor Success Podcast!
My guest on today's podcast is Andrea Schlapia. Andrea is the founder of Ironstone, a practice management coaching and consulting firm that works primarily with midsize advisory firms that are struggling with the actual business execution challenges of transitioning from a practice to a business.
What's unique about Andrea, though, is that she's built upon her own prior experience as a financial advisor and a practice management consultant to develop what she calls the Fundamental 4 pillars of practice management and has developed tools and strategies to support each of the domains across the four pillars.
In this episode, we talk in depth about Andrea's Fundamental 4 business framework of strategic planning, business development, operational effectiveness, and the human element, how most advisory firms have a natural strength in strategy and business development but may struggle with the operational effectiveness and human element, why Andrea advocates that, ultimately, a firm should take one development day per month where they close their doors to clients and solely work on the business instead of in the business, and why it's so important to find the time to be ultra-selective in how you hire and develop your team in the first place.
We also talked about Andrea's actual process for conducting interviews with prospective hires. Her four steps of phone screening, in-office interviews, a meeting over a meal, and what she calls an office simulation to really test a prospective hire's skills in a real-world business setting, the assessment tools, including PXT Select and Myers-Briggs, that Andrea uses to evaluate whether a candidate really has the capabilities and personality to be a good fit for the firm, and her approach to doing what she calls not performance evaluations, but performance feedback sessions with all team members on a quarterly basis.
And be certain to listen to the end, where why sometimes even A plus advisors with their clients may still only be C plus business owners, and how to lift your own business owner and implementation grade by steadily building up the time you're dedicating to developing your team and working on your own Fundamental 4.
So whether you're interested in the tools you can use in the interview and onboarding process to make sure you get the right people into the right role at your firm, how to carve out enough time to work on your business instead of in your business, or how to make sure run an intensive interview process efficiently, then we hope you enjoy this episode of the Financial Advisor Success podcast.
What You’ll Learn In This Podcast Episode
- The biggest challenge in this industry. [04:26]
- Where most advisory firms have a natural strength – and where many struggle. [11:33]
- Andrea’s “fundamental four” pillars of practice management. [15:49]
- An overview of Ironstone and how they help advisory firms. [24:48]
- Her unique approach to employee reviews. [26:59]
- Tools she uses to assess potential hires. [34:03]
- Her four-step process for conducting interviews with prospective hires. [40:05]
- How Andrea uses assessment tools. [44:31]
- Where firms can find the time for this sort of intensive interview process. [1:11:48]
- Typical firms that Andrea works with. [1:23:50]
Resources Featured In This Episode:
Michael: Welcome, Andrea Schlapia, to the "Financial Advisor Success" podcast.
Andrea: Thank you very much, Michael. It's great to be here.
Michael: I'm excited for today's discussion because you have a really interesting practice management consulting firm to me that just comes at the challenges of running an advisory business a little bit different than some of the other consultants and coaches that we've had on who I think by and large tend to work a little bit more maybe with solo advisors that are just trying to figure out their own path and how to leverage themselves, improve their productivity and make themselves more successful as individual advisors. And you have, I think, a little bit more of a mid to large-size firm focus where a whole...you know, there's still that coaching element of what does it mean to be a good advisor and business owner, but a whole dynamic of what does it really mean to hire and develop and train the right people in your firm? Advising is a people business at the end of the day, if you can't figure out how to hire and develop people well, you know, you may have a successful practice around yourself, but you're not going to have a successful business because it takes other people.
And so just, I'm excited to have a discussion today about, I don't know, what does it look like when you actually try to start growing your advisory firm beyond yourself and you have to find all these other people and hope they work out?
Andrea: And therein lies the challenge that we focus on every day and the entertainment it brings and the successes that we get to be a part of with the people that we focus their energies on to actually run the practice like a business. And that being the key.
The Biggest Challenge In This Industry [04:26]
Michael: Yeah, it's just... I think for a lot of advisors that we talk about sometimes this shift of, "What does it mean to go from a practice to a business? What does it mean to try to build a firm beyond yourself?" And, you know, some of it is just sort of a sizing and a scaling thing and, you know, figuring out that fundamental like, "Oh man, how do I take a client that I work with and give it to someone else in the firm, this other advisor?" That's a big jump and a big leap and a big challenge, for people to make that transition. That it's not just all of my clients, it's my firm's clients and there will be other advisors.
But if you take that to any depth, any extent, if you go further than that, just all of a sudden what you discover is when you're running a business and not a practice around yourself, like, the whole thing is dependent, is entirely dependent on your ability to attract and retain good people that'll do all this stuff. And your job isn't to do the advising stuff, your job is to attract and retain and develop and manage all those other people who do the advising stuff. And just, it's such a mindset shift challenge and I think for most of us, something that, like, we're not trained to do. I mean, I was maybe sort of trained how to deal with clients, but no one really teaches you how to find and attract and develop employees and team members.
Andrea: That is absolutely correct. And I think that's...you know, the biggest challenge is not only finding top talent but keeping top talent. And that more than anything in this industry is what's driving the relationships that we have to build the practice that you want for the legacy that so many advisors want but they're not getting the right people on the bus per se, nor in the right seat once they're on the bus. So the human element aspect of running the practice like a business is absolutely so critical to the formula, if you will, for putting this all together.
Michael: Yeah. And I love that analogy that at least I had first read in Jim Collins' "Good to Great" of, it's about getting the right people on the bus and then getting in the right seat. And just, it's such a simple analogy but I find so powerful. You can find a great person, but if you don't actually figure out the right role for them in the business, this doesn't work out. You got the right person, but they're literally not in the right seat.
And, you can put someone in a seat for the job, but if they're just not a great person that you want tied to your business, eventually, this isn't going to work out. And so you need this combination of the two. Like, you've got to find the right people and then you've got to actually align the position to match them and what they do and what they're good at. And just, it's hard. It's hard to do. It's hard to figure out, and then it gets particularly aggravating because people go and change over time and then the right person that was in the right seat isn't in the right seat anymore and just the business gets so much more complex with figuring out how to manage and develop all these people.
Andrea: Absolutely. Not only is the business evolving, it's the human capital on your team evolves. And if we're not mentoring, coaching, giving them feedback, and God forbid if we say it's performance reviews at the end of the year and that's the only time we give anybody feedback, I would challenge to reconsider the frequency of that feedback because it really has to be a coaching experience to be effective, sustainable and really for somebody to absorb it, because you've got to hear things more than once. So that goes for the business owner-advisor, but it's for all the players on your team for you to have the practice that you want.
Michael: So I'm cognizant now, like, you know, we're talking about this here in February, we've just come off of our end-of-year employee reviews a month or two ago and you're talking about not just doing it all at the end of the year. So as we're still staring down the better part of 2019 in front of us, what are those employee review structure supposed to look like? Because, I know I only learned this, you do this once a year at the end of the year, in part because I think for at least my first few jobs, that's how I got reviewed, once a year at the end of the year.
Andrea: Right. Absolutely. And I had the same exact experience in my career path as well is, end of the year, here's your form that you fill out, thumbs up to you, great job, you still have a job. That's not really coaching and development and mentoring and helping somebody get to the next level. So part of it is getting comfortable with giving feedback. So I like to challenge people to say performance feedback versus performance reviews, just from the mindset of exactly what you described, of that's what we're used to, end of the year performance review. So for performance feedback, and I'm always going to speak from a best practice perspective, quarterly, every 90 days, even if it's, you know, the true quarters of the year, but if it's a 90-day window, that's the ideal. And I get so many advisors and business owners saying, "Are you kidding me? I don't want to do it once a year, let alone do I want to do it four times a year."
Michael: Well, I'm just literally imagining the math of this. Heck, if I just have a half a dozen employees that report to me, I need like an hour for these meetings, a little bit of buffer time in each, so if there's six of them, like, you've nuked an entire day of my schedule every quarter just doing these. And of course, I have to probably do at least a little bit of prep work for some of them. So all of a sudden, like, I'm taking two days every quarter just to give all these employees ongoing feedback?
Andrea: You are absolutely correct. And I know that sounds painful in some regards of the time spent, but I will challenge on the other side of, what's the cost to you as the business owner if you don't take that time? Because that then turns this around to refocus on getting the people in the right seat on the bus and ensuring that they're always evolving in their role and engaged in their role with a quality feedback opportunity. So it's really a collaborative conversation, not just a one-sided, if I was giving you your review, Michael, of just going through hardcore numbers and good luck to you in the next 90 days, but a self-assessment on their side and what their perspective is of where they've done really well in the last 90 days, where the opportunities are to shift change, where they even need help. So it's the opportunity to say, "You know what? Here's where I feel vulnerable because I'm not ready, prepared, I need more coaching, I need more training." So a huge piece of this is, again, getting comfortable with feedback, good, bad, negative, positive, so that everybody is moving forward.
Where Most Advisory Firms Have A Natural Strength – And Where Many Struggle [11:33]
Michael: It strikes me that, and I think it was one of the things that I struggled with the most in sort of growing and developing as someone that runs a business. Well, I should say struggled with, like, still struggling with. We're not going to say in past tense, this is current tense, is just the time it takes that you have to put in to really be supporting and developing people. You know, for me at least, I came from a background where I was the doer person, right? I got things done, and then the business grew and there were too many people to serve, so I couldn't just be the doer person, so I had to get a person that I could delegate some things to and have a little more time to do the other doer things that I was doing.
But it was always just this world of, I'm trying to get more stuff done and then I'm trying to delegate, you know, the simpler tasks or "the lower value" tasks so I can focus my time on the higher value tasks. But it was just, it was always focused on the doing and how do you, like, in the most literal sense, make yourself more productive by allocating tasks and work amongst yourself and all the other doers that you may be hiring around you? I just feel like, at least as I was learning this journey the hard way, like, no one ever told me how much time I have to put aside just to also be trying to manage and support and develop all of these other people so that we're focusing on them and getting them developed as well, because as we said, like, they evolve on their own and move in their own direction. So even if it's a great person in a great role that's a great fit, they may not want to be there for the long run. And I was like, "Oh, I have to be having these conversations with these people so that they start getting to the direction of where they need to be or want to be as well or frankly, they're going to leave the business anyways and this won't go well for either of us."
Andrea: You were spot on and framed that exactly the scenario that we're dealing with on a day-to-day basis with the teams that we have the privilege to work with, and helping them to step back and look at the whole practice as a business, and human element being one of the top areas that we're focusing on with advisory teams to...if I drill down into what do I really mean human element of roles and responsibility, and how are you even hiring and onboarding the team members and creating a career path? And yes, that performance feedback, creating the culture, being an active leader in your practice so that you're focused more on driving the business than being in the business day-to-day as your practice evolves.
So if you are the advisor business owner, you're shifting and you have multiple hats, but the more you grow and the larger your team gets, the more you have the CEO, if you will, and I'll put a C-suite on so many of the areas in this, but now you're really the CEO of your practice and so you have to look at it as a business, and the human element is absolutely one of the most challenging pieces.
Michael: Well, it's just one of those things that, like, I don't know, I feel like I'd heard, but I had to live a little more to understand and appreciate. Like, this whole joke that, at least joke to me, that like CEOs don't actually do anything is sort of literally true. That you actually have so much work to do just to make sure all of the other people around you are getting what they need to be able to do the work that they do and be successful in the work that they do that, if you're doing that well, you just run out of time to actually do the doing things in your business because more and more of your time ends out being consumed by the people: finding the people, developing the people, you know, moving around the company so the right people are in the right seat on the bus. The people and talent issues really become very consuming, are all-consuming as the business grows.
Andrea’s “Fundamental Four” Pillars Of Practice Management [15:49]
Andrea: Absolutely correct. Absolutely correct. And what you want for the legacy of the firm will absolutely drive the human element of your practice and everything else. And we have...the Fundamental 4 is our measuring stick, so strategic planning, business development, operational effectiveness, and the human element. That's in the original order that we look at things, but human element is always the driver and always what floats to the top as the biggest gap as the practice evolves and grows.
Michael: So you laid out four interesting pieces there. So can you say those again? I think you said they're your Fundamental 4. So human element and then what are the other ones?
Andrea: Strategic planning, so really looking at, again, the big picture. This is really where I'll put the CEO hat on of what is the business plan? What are we doing for succession? You know, what's our business model, investment model, operating cost? Those types of things in strategic planning. Then the business development, how are you literally growing it? What's the brand? What's the niche? How are you prospecting? Referrals. Any strategic partners? And then the operational effectiveness, well, that's the machine. That's your process, your systems, client segmentation, service metrics, all the technology that you potentially could use, and your workflows. So it's repeatable processes. You know, this is the standard ops, SOP section. And then human element, again, job description, hiring, career path, performance feedback, culture of the practice.
But I'll say if I reorder that of like, why do people engage with us, human element is first, operational effectiveness is second. Strategic planning is only really third because they're established practices already, they're just tweaking something in the direction they want to take their firm. And then business development is very last because again, successful practices, it's not as though they're not bringing in business, now we're just tweaking it. But human element and operational effectiveness absolutely have the biggest gaps from our experience in working in the industry.
Michael: And again, it sort of makes sense to me, just it's where we tend to come from, especially historically in the business. Like if you have an advisory firm, it's because 5 or 10 or 20 years ago you were pretty good at business development, got brought into the business somehow to go get clients and you're still here. So you're one of the people that were able to check that box. And so, you know, just sort of the natural selection bias that comes, if you're a relatively established firm, you at least figured out something competent around business development and you came up with something reasonable in the strategic planning area because, like, you have a business and it makes revenue and has some dollars at the end so you can pay yourself and you've stuck around.
So it makes sense to me like, those two, not that a lot of us couldn't perhaps do some of those better, but for most of us, the challenge, particularly if you're good at those, is you keep doing business development and getting clients, you keep doing business development and getting clients, and then you get too many clients so you hire a staff member or two to help handle the clients and then you can get more clients, so you go get more clients. So you just kind of iterate on that for a while.
And there are lots of firms that I find that do that for a period of years and then they get to anywhere between like $50 million and $200 million under management and they've got 3, 5, 7, 10 staff members and they were really good at the business development and the strategic planning but they just kept layering in more and more people and now their whole job is managing people, and they don't know how to do that and the firm isn't very operationally efficient because no one ever really tells us how to do that, and you hit this painful wall in the business because we struggle on, as you framed it, the human element and the operational effectiveness pieces.
Andrea: Absolutely. I just hear it far too often of, "This is not something that I even got into this business to do, but now I have to do it because I've grown the business and I am successful, so now what do I do?" That's the huge pain point and the challenge of growth and success.
Michael: I love that comment, that framing, "This isn't something I got into business to do but now I have to." And so what do you...I don't know, what do you tell folks that are there? Like, when you're hitting that wall, like, what comes next?
Andrea: This is where we will pull off the shelf, if you will, in our Fundamental 4 to ensure that we're giving resource and tools to help guide. I'll call Ironstone the architect and guide within this practice management framework. But in looking at, "Okay, what is it, one, that you want for your practice?" Because we'll reverse engineer that and determine what the roles, responsibilities are that are needed to fulfill what you are really driving towards for your legacy of your practice.
You know, here's a phone call that I would typically get. "Hey, Andrea, I hired somebody, now what do I do? What do I pay them?" I said, "What did you hire them for in the first place? One, well, I don't know. They had a great personality. I just loved them and I just, you know, felt like it was somebody that I couldn't pass up on." "But what did you hire them for?" "I don't know." So therein lies the challenge of not even having clarity of what it is from an expectation standpoint before you even go out and hire somebody. I promise you, Michael, that is a phone call that we have on far too regular of a basis.
Michael: Yeah, I can think of a time or two I've been guilty of something similar. It's like, "Oh my gosh, this person just seems awesome." I tell myself something to the effect of, "This person seems awesome, they've just got a great skill set, I've got some free cash flow, like, I'm just going to hire them because they're available and, like, we'll figure out what we're going to do with them to make this work for the business because I just can't pass this good person up."
Andrea: Right. And so potentially setting up that person for failure because there are no clear expectations. Because I know I've experienced in my own career of, "Welcome aboard. Here's your desk. Here's your phone. Here's your computer. Good luck." Okay, but now what do I do? So from an onboarding perspective, we want to help teams not only identify what the role and responsibility is before we even start the hiring process, because that's the foundation for even the interviews is to really drive towards what the expectation is and to determine if they're a fit with those expectations, and giving real clarity to the potential hires and candidates through the process. And multiple interviews, I will say if nothing else, meet with these candidates more than once to get perspective of who they really are. And have your whole team involved in the process versus said business owner interviewing, reading a resume, making a decision. That's the worst way you can go about hiring somebody.
Michael: And again, I think for most of us it's just like, "Oh my God, everything Andrea is talking about takes so much time."
Andrea: And it is so true. And again, here's the, what's the cost if you don't take the time upfront in this hiring process? There is my challenge to anyone is while it feels heavier on the front end, the results that you'll have on the back end are going to be greater odds that you will have a better fit, the right person, the right players in the right seats. But that's where we support advisory teams to do all that heavy lifting upfront to ensure that you are interviewing in a very thorough way, that you are really doing simulations and testing as far too often. Again, we just read the resume, answer, you know, a couple of questions, have a Q&A conversation and make a decision on that. Versus when I talk about simulations of literal real-world work to see how they would manage that particular scenario in simulation that you've given them. And it's not about perfection, but it's just to give additional insight into the human that you're potentially going to bring on to the team.
Michael: And so, I don't know, I'm just wondering like, so how do you...like, what else are you doing to get these insights into the human? Like, can you give me, I don't know, sort of more specific examples? I mean, I get it, like, don't just read the resume, go deeper, but, like, what does that mean in practice?
An Overview Of Ironstone And How They Help Advisory Firms [24:48]
Andrea: So what we're doing is really doing an analysis of the practice itself to help you to determine. So we'll take a look at roles and responsibility and what the infrastructure is for the business and then be able to identify where the gaps are in your human capital. So we're really helping to forecast what's needed and we're evaluating who the actual team members are on the current and existing team and where they fit. So we'll interview current team members, and not to interview them for a job but to just really get to know and take a look at who are the players on the team? Where are the gaps from a skill set?
We use a lot of assessments. We use Myers-Briggs and we use PXT Select. So those are two really great tools that will give human capital insight all day long. More data than most advisory practices want, but I love that data and it will just help to paint the picture of who you do have on the team. And then we are helping to build a hiring process and leading you through, "What does an office interview look like? What do simulation look like?"
So helping you to actually implement the steps in the process and then putting together an onboarding training schedule. So instead of that scenario of desk, phone, computer, good luck, there is really a process that we help you to put together in the first 90 days so that that person is set up for success and a strong foundation and bringing them into the culture of the practice, and then help set up the performance feedback system, While I say quarterly is the ideal and the best practice, I'd rather have people do it at least twice a year and do it really well and strong versus try to do it four times a year and not do it very well at all. So grow into four times a year. Part of this is being realistic too of what's going on in the practice and how much of this is doable. Because I can say every team that we work with has a different and customized plan based upon what their practice needs are.
Andrea’s Unique Approach To Employee Reviews [26:59]
Michael: So I'm just curious, like, we keep coming back to these sort of quarterly performance reviews or quarterly performance feedback meetings.
Michael: You'll train me. It is a different framing, though, isn't it? Like, "Hey, we need to schedule our quarterly performance feedback meeting." "Hey, we need to schedule our quarterly performance review." Yeah, there is a like, feedback feels positive, review feels, well, judgy, reviewy.
Andrea: Yes. Absolutely correct.
Michael: It does set a different tone. So what happens in that meeting? Like, what am I supposed to be doing? I'm presuming I'm not literally, like, making comp adjustments and the whole nine yards every quarter.
Andrea: You are correct in that. The monetary piece and the compensation piece, that's the only thing that's a once a year timeframe to focus of what that new comp can be for 2019, right? But in the feedback portion and the coaching portion, we've created a 15 key performance indicator format to be able to score in how you are doing in these 15 key performance indicators. So is there a lot of learning to be had or are you a leader and a teacher and so that being the bookends of the scale? But that scoring is merely the catalyst for the conversation. So if I'm the employee and I score myself, you know, a...there's a lot of learning to be had, that's my opportunity to say, "I need help in this area." And said business owner or manager of the human capital, so it may not be the business owner, depending upon the size of your practice, but whomever is actually implementing the performance feedback system, their opportunity to score that in an individual. So it's an employer and employee, if you will, scoring. And again, the number being the catalyst.
Michael: So you give people a list of 15 items and my employee scores themselves on how they're doing in those 15 areas and then I also score them in how they're doing in those 15 areas and then we compare notes and see what we think?
Andrea: Correct. Absolutely.
Michael: So what are these 15 areas?
Andrea: So the 15 areas are encompassing from the practice level and looking at it from the aspect of literally getting into the weeds and knowing exactly all the elements of the business side of things. So if I looked at it from the aspect of, "Do I understand the actual business of the practice?" And looking at it from an enterprise level job knowledge and expertise, judgment and decision making, initiative and driving for results and maintaining and surpassing client expectations. So that's under our enterprise factor.
Then you look at a leadership factor and you say, "Commitment and continuous learning and improvement and coaches and inspires others." And while I'm rattling all of this stuff off, there's so much more to the definition of these different areas that are in our system. So if I just broke down the sections, if you will, we look at it from big picture enterprise to leadership to self-management, then administrative factors, and then we actually are setting goals and objectives between now until the next performance feedback timeframe. So if it's a 90-day, we're setting 90-day goals. So each person is comparatively scored on the same 15 key performance indicators, but each individual will have their own goals that they're working towards within that timeframe, whatever that timeframe is. Again, ideally four times a year but twice a year, and do it really well if that's the most realistic within your practice.
Michael: So I'm going to give my list and they're going to give their lists and we'll have things like, you know, they, think their job knowledge is a nine, but I only think it's a six. So we say like, "Okay, over the next 90 days, like, you've got to get more up to speed on some of the key stuff that happens in the business. You know, we're going to cross-train you with this employee, we're going to do this other thing and try to get that job knowledge factor up higher so that I can score you better on it."
Andrea: Absolutely. That's exactly right. And so part of the process too is collecting specific examples in each of those areas so that when you do come to the conversation and the collaborative part of this, that you're not just going through the numbers and saying, "Okay Michael, you got a four, a five, a three, a two, a one in these areas," but the collaborative aspect of, "How do we get better in said area? Here is the specific action item that we want you to take," and that both employer and employee are agreeing upon what the next steps are. So there's more buy-in instead of that directive of just saying, "You know what? Here's what you've got to do in the next 90 days." Again, this is why I changed it to feedback and collaboration and coaching. And people get really comfortable with the system.
I had one advisor that I think has tried it at every timeframe. Going from once a year to four times a year, down to two, up to three, and now they're back to quarterly. And she says, "If we didn't do this, it's exhausting but yet it's the reset button with my entire team and we get back on the same page." So, she has tried it at every time slot or I should say frequency because it is a lot of work, but she's seen the value of the collaboration and the efforts in the 90-day time period.
Michael: Interesting. Interesting. And just same questionnaire, same performance indicators. Like just, I'm rescoring their every quarter, they're rescoring their every quarter and we're talking about it every quarter of, "Okay, what are you working towards next? What are we going to shore up next?"
Andrea: Exactly. Because you're always in a forward-looking, if I can say. You know, part of the conversation is looking at the rearview mirror because it's looking at the past, you know, 90 days or 6 months or it's looking out the front windshield to say, "Here's what the next looks like" so that you're always evolving, moving forward in whichever one of those categories. And fewer is better I will say. So this is not to have a laundry list of items to work on that's overwhelming but rather why not one or two areas? So you could add in ultimately, as someone grows in the practice, if they're getting any kind of certification, I mean, if CFP is on the list, it may not be realistic in the 90-day, but we can break that down into smaller chunks so it's realistic to actually achieve that.
Tools She Uses To Assess Potential Hires [34:03]
Michael: Okay. So you mentioned a couple of other sorts of tools and items I'm curious about as well. So in addition to performance feedback sessions, you mentioned kind of upfront doing an interview and I think what you called an office simulation. So what is an office simulation?
Andrea: So in the actual hiring process, we want to help put together real-world work so that you can have that individual team, or I should say an individual candidate put their fingers to the keyboard. If you're hiring for a planner, give them a scenario of said client prospect and have them design what they would put together for a plan for this client. If you want to see their writing skills, have them write their bio that you would put on the website. You know, depending upon what the level of team member is that you're hiring will absolutely drive what kind of simulation. I mean, this can be from, you know, telephone skills to administrative client service skills to, you know, again, planning and literal roleplaying out what you would and how you would interact with a client or a prospect.
One of the most entertaining, I think, simulation examples is we recommend as a part of the process taking candidates to some type of meal event. So one of the advisors we work with has the restaurant as a part of the process. They have a specific place they go. They take the candidates to lunch. And this is the third interview in. So they have a telephone, they have an office. If they make it past that, and I'm going to use my air quotes of saying we always want to ask the question of "am I curious and do I want to know more" through the whole entire process until you get to your top candidates. Because at the very beginning, you don't have enough information to really make the decision, "Would you hire them?" So "am I curious and do I want to know more" will help push the person to the next interview stage. So telephone, office, lunch or a meal type. Again, the one advisor we work with, they have the restaurant actually mess up their meal to see how they handle it. So it's a pre...
Michael: Well, I've heard a few firms that do stuff like that. I think something like...just like Walt Bettinger or something at Schwab had, like, a really public profile where he said he does something like that. Like, he takes his finalist candidates to a restaurant, tells the wait staff to bring the order out wrong. Like, make a mistake because he just wants to see like do they just roll with it? Do they, you know, correct the situation? Do they do it gently? Do they do it abruptly? And all I can think is like A, that's actually kind of cool if you really want to see how someone reacts in their natural moment. And B, like, Walt, when you tell this in a public interview for a trade publication, you can't do it anymore because now everybody knows.
Andrea: Now everyone knows. But now, you know, fair enough to people to say, "Well, if you know you're going to get an interview and your meal comes messed up that you might be mindful that this is actually a simulation for you." So fair warning to all.
Michael: But it's an interesting framing, right? That just, like, you're literally trying to see how do they...well, I guess in that context how they handle the situation. But if you're giving them like, you know, "Here's a client scenario, you know, show me the sample plan with the strategy that you would create for them and do in the situation," like, you know, as you said, I mean, just in very literal terms, like, it's a simulation of what they do and you want to see how they handle the simulator.
Andrea: Exactly. Because just, here's the flip side of this and why I challenge anybody to consider the time investment. While it seems heavy upfront, what's the cost if you don't do this? Because I've gotten far too many conversations and calls to say, "We just messed up on who we hired, now, how do we get rid of them?" Because everyone...you know, I don't know that anybody really enjoys conflict, so letting somebody stay on board knowing that they're not the right fit is more what we see, too frequently what we see because they're hoping to fit this person into the space even though they realize it's not the right fit. So with multiple interviews, again, telephone, office, meal. We interview a lot for our clientele and our advisory practices. So part of our interview process is via, you know, a web call. So we, you know, can use Skype or GoToMeeting or, you know, something of that nature.
But part of that is, how well did they test their technology before they even got into that interview scenario? Did they really pay attention to what's behind them when they're having that web call? Does their audio work? So that in and of itself is a simulation of how prepared they are and what you may experience if you choose to hire this individual. So that's why we also say, "Am I curious and do I want to know more" based upon what information I have collected at this point about this particular candidate to help move them through the stages of the interview. And then at the top, you know, two, three candidates really taking a look and then flipping the question to say, "Would we hire them or not?"
And another I will say simulation but assessment is where we're plugging in PXT Select, which is a Wiley & Sons assessment, fabulous data. And then Myers-Briggs, of course, which is personality and more of a communication element of how we show up in our communication style.
Her Four-Step Process For Conducting Interviews With Prospective Hires [40:05]
Michael: So I want to come back to those in a moment, but first, I'm just trying to wrap my head in full around this interview process. So in essence, you've got like, I put a job ad out, I get a bunch of responses. Like, first I run around are telephone screening interviews and just decide if I'm, like, even curious enough to have another conversation with them. Then I'm bringing them into the office and maybe I'm interviewing them or a few other staff members are as well. Then I'm taking them out to lunch or some kind of meal and, like, we're getting to know them a little further. Then I'm bringing them back in for some kind of office simulation test exercise to see how they do in a real-world environment, assuming I didn't just serve them the wrong meal at the meal to test them that way. And so, like, I'm going through, like, four-plus different meetings and interactions with them in this funnel where every time only a limited subset moves on to the next stage so it just keeps, you know, winnowing narrower and narrower?
Andrea: It is a numbers game, and everything you've described is absolutely accurate. Now, can we consolidate and do we consolidate some of those interviews together to maximize the time? Absolutely. I mean, we don't want to lose candidates in the process because it's lengthy, but part of the process of this whole entire experience is to educate the candidates about the process itself and that we want to and are going to that and there are multiple stages so that we get to know you. You get to know our entire team. We can really better understand what you're great at through these simulations.
So as part of, like, the office interview, that's where we can say, "Okay, part one is individual Q&A interview or panel interview with the team," even to the point where some of the teams we work with say, "Okay, we have a signal, a code, and if they make it past phase one of our office interview, we'll put them into the simulation phase; same day, same interview timeframe to maximize." And so it's not just, "Oh, okay, come back in for yet another step in the process."
Michael: At some point, I don't know, I just start getting worried like, even if it's a pretty good candidate, just, are they going to stick with me through this, like, multistep, multiday, multi-week process with all these hurdles and hoops I keep giving them to jump through? Like, I get it, I'm trying to winnow down to a good person, but, you know, if it's a good person, I'm presuming they're interviewing somewhere else as well. They might get an offer somewhere else as well. Like, in some way I just get nervous that they're going to be like, "You know, the other firm already offered me a job and you're giving me, like, the seventh test, I'm just going to go to the other firm." Like, is that not a rational fear?
Andrea: It is. Absolutely, it's a rational fear. And that's why we want to ensure that each team that we work with, that we maximize the stages that we have and that we've built out. So, you know, while there's a framework of posting, resume screening, telephone, office interview, simulation, meal and a literal assessment of the Myers-Briggs and PXT potentials, we can take any one of those layers off if there is true concern of losing a candidate and that someone is identified as a top quality fit. Because all of this is again, dealing with humans. That's the challenge and the curse, if you will. So we have to have, I'll use my air quotes, "rigid flexibility." Rigid in that we have this infrastructure but flexible enough to be able to ebb and flow with the candidates that come into the pipeline. But that we're also getting true intel and insight into who the human is to really vet and ensure that they're the right fit for the culture of the practice to not upset the applecart if you've got a great team. That's where we really caution and want to ensure that all the team members are a part of the process to again, make sure that we're not disrupting what's been created either.
How Andrea Uses Assessment Tools [44:31]
Michael: So you've mentioned assessment tools a few times: Myers-Briggs and PXT Select. So can you talk a little bit about, like, what these are, what they measure? What do you do with them?
Andrea: Absolutely. So on the...I'll start with the PXT Select. This tool, I absolutely love what the data is and what it can provide as far as insight into human capital. So what it's actually measuring, it's measuring an individual against a specific performance model. So if we said we're looking for financial planner, financial advisor, client service, we have performance models built out on each of those individuals. Then Michael, if you're hiring for that planner, we say, "All right, we want to have you complete a job analysis survey for us," because now we're going to customize that performance model specifically for you and for your practice.
So what the outcome is when someone takes that PXT Select, this is so much more SAT-like. From a completion time, it's anywhere from 60 to 90 minutes to complete that. And what the outcome is is a literal percentage compared to the performance model. So this person may be, you know, 60% match to the performance model, 90%, you know, 32%, but it breaks down literally 9 different, again, and back to those key performance indicators, not the same as in the performance feedback system, but it's 9 different performance indicators in the performance model and where they fit in comparison to the actual job that you want them to do.
Michael: So can you give me just a little more insight, like, what does performance model of the job mean?
Andrea: What it's measuring is verbal skill and verbal reasoning. So how big is your vocabulary? How well do you understand the information that you might be reading or writing or hearing? Numeric ability, how great are you at math or not? And what do you do with those numbers and the data that you're looking at? And then from a behavioral trait standpoint, we look at pace and assertiveness and social ability. And I can keep going down the list. There's so many others. And then there's an interest level
Michael: So I'm then scoring up a job to say like, "Okay, you know, this is an investment job, so, like, you've got to crush it on the numeric ability. You've got to be pretty strong in the verbal skill, but, like, this is mostly a back-office job, so, like, you don't actually have to score that high on the sociability. You're not going to be client-facing." And then I might have someone else like, "Okay, you're going to come in as my client service administration person. It's like, I don't maybe need quite as high of a numeric ability, but, like, I need really good verbal skills because you're communicating with clients. I want high sociability because you're interacting with clients." And, like, I'm giving targets in these different categories of ideally what would someone in this job need in these different categories?
Andrea: You got it. So again, we've already got a performance model built in all the roles that you can imagine in our industry. And then that analysis survey is exactly how you just described it, of customizing the performance model that we pull off the shelf to say, "You know what? Yeah, I don't need that much of the numeric ability for this particular role. You know, as a planner, I need you to have higher skill set in this particular area." So the job analysis survey that we have as a part of this might take you 10 minutes to take it at best. And that's just the customization of the performance model. For the end user to take it, it's anywhere from 60 to 90 minutes to complete this assessment.
Michael: So you've made your own, like, templates, "Hey, client service administrators typically need this scoring profile, paraplanners need this, senior advisors need that." It's like you've got a bunch of these templates. So you would then ask me a couple of questions just to adjust it like, "Okay, your firm is a little," I don't know, "Heavier on investments, you're going to want a little more numeric ability. This role is a little bit more client-facing than others in a similar position, so you want a little more verbal skill and sociability," so you can then adapt the targets for my particular version of the role. And then we give the prospective employee the test and just see like...I guess I now see sort of the SAT analogy like, "We scored high on numeric ability and they failed the math questions then this ain't going to work."
Andrea: Right. Exactly, exactly. And, you know, specifically on that job analysis survey, now this might sound heavy what I'm about ready to say, but again, it will maybe take 10 minutes to complete this JAS, job analysis survey, it's 57 questions and it says, "Rarely, occasionally or frequently does this role, you know, do these..." You know, 57 different things that customizes your performance model. So it's yours specifically for your practice. And then we can run 13 different reports once somebody completes that, from a team report to an employee manager report. So how well are you going to even work with this person, manager-employee? A leadership report, a sales report. So in the sales report, this is what we just get so often the request in this day and age in our industry of, "How well is this person going to be able to sell? We need to have better insight into them."
Michael: So someone goes through this whole piece, like, where do you put this in the process? Like, is this after the telephone interviews but before the office? Is this like all the way after the office simulation, because if they are going to tank the office simulation then we don't need to bother with the rest of this stuff? Like, where would you put an assessment tool into the process?
Andrea: What I would say is, again, back to rigid flexibility, it's ideal to have it, to your point of if they tank on the office simulations, why would you want to put them through this piece? So that's where the recommendation is is to have it further down the line. And to your earlier concern of like, "I don't want to lose this candidate, so let's push it up." So I can say every team that we work with has it at a different stage and where they like it. Some of the teams that we have put it at the very front end because they love the data so much.
And I can think of a specific group that we work with. It's a very, very large team, and they have now been able, because they've used it so much and such a big group of people and interviewed so many and not everyone's been hired, they have now detected patterns and consistencies from these reports that they can see, "You know what? Actually, we believe it more than ever because of how much we've done it and consistently this person shows up this way in this role." So the top performers fall into, again, higher frequency that you run these, you have the opportunity to start seeing the patterns and consistencies. So they like it at the beginning of their process because, in their opinion, it's a timesaver because they've done it so much and the pattern is there.
Michael: But the idea of it is that kind of literally, it's sort of a, well, I was going to say final screening tool but I guess it can be final or initial screening tool, but it just...I mean, it feels like it's sort of a, I don't know just, "Do you have the horsepower to do the stuff that this job is going to take?" Like, is that a fair characterization?
Andrea: Absolutely. Because this fills the gap between the resume and the interviews and helps you to make human decisions simpler and smarter because of the data that it provides us. So it's not only...I wouldn't say, "Do you want it at the end?" Not necessarily, because part of what the outcome of these results are are actual interview questions based upon how they show up in the performance model. So now you can even turn around and say, "All right, maybe their midway through they take this, and wow, look where they fell within the performance model, I want to have another conversation with them based upon these results and vet them even more."
Michael: So that's PXT Select. And then for advisors that want to do this or try this, like, how do you do it? Like, can you just go to their website and, like, buy these tests? Do you have to go through a person that administers them? Like, how does that work for someone that wants to try this?
Andrea: You do have to go through an administrator. So we can do that all day long and get that set up. Everything is electronic, so we make it as simple as possible. And the PXT link that would be sent has to be sent directly to the person that's going to complete it because it's tied to that performance model and tied to a specific person, which is different than what you will see in a Myers-Briggs link and how you can complete that. But we can set that up. My team is ready to go to set that up when anybody is interested in running that. And the samples of the reports, Michael, I'll give you all 13 samples if you'd like to see what those are. It might be overwhelming in data, but I think it just gives you a better perspective of what the outcome is going to be.
Michael: Happy to, you know, include kind of the PXT report samples. So we'll put them up on the site for anybody who's interested and just wants to check this out. So we're episode 112, so if you go to kitces.com/112, one-one-two, we'll have some of the samples there that Andrea sends along. And just costs for this, like, what does it cost to put an employee through an assessment tool like this? Because I know some of them vary wildly in cost.
Andrea: Sure. PXT Select is higher because we can run those 13 reports for you inclusive in this. So it's $395 per person. And the value of what you see, that's why I want to share with you the sample report so you can really get the tool understood and what the outcome is going to be for you. So you can see the different results.
Michael: So $395 to put a person through it. So I guess I can see from that end like, "$395 versus hiring the wrong person who can't actually do the job, this is a good deal. Three hundred and ninety-five dollars for each of the 17 first-round interviews you're doing, this is going to get pricey pretty quick."
Andrea: Right. And that's why we recommend it's like midway through so that you have the telephone, you have the office interview, you have some of those real-life work simulations, and then if they've made it through to that level, then let's give them PXT Select.
Michael: But you do view this as...I mean, it feels like this is a very screening tool-esque thing. Like, literally, if you can't pass this test in the requisite areas up to the necessary amounts, like, you will fail this stage. Like, you will not be advancing to the next stage of the journey here.
Andrea: And if you are so far outside of what the performance model for that particular role is, I will say ultimately, it's the business owner's choice if they want to move forward even though they see the results are outside that performance model. Too often what we've experienced is people have not felt comfortable saying no about the person even though they see what the performance model is. And that's why I love to share the team that uses it all the time. They trust this data 100% because too often they've chosen someone that has gone outside of what they see in the performance model, and it's not been a great result. And so they've had to disengage with them. So the cost of a bad hire is your time and investment in the interview process, any monetary aspect that you've put into it. Okay, I could correlate somebody's hourly rate. Your team members' time. So if you start adding up those, this is a minimal cost in that perspective.
Michael: I've known a couple of firms over the years that, like, deliberately do some of these tests early on because what they found was if they go too far in the interview process and then they give them and someone flunks it, you know, flunks it, like just isn't a good match, in essence, they've gotten so attached that they can't walk away from the person at that point. And so they give it...
Like I'm thinking of a particular firm that was doing this. And I think they did it with Kolbe tests, not PXT Select, but same kind of thing. Like, if you don't fit the Kolbe file, this isn't going to work out well. They've done it enough times to know it doesn't work out well. They've also done enough times to get really deep into the process with the person they liked, gave them a Kolbe, it wasn't a good fit, they hired them anyways and then it really went badly that they just said, "Forget it, we're incurring the cost at a much earlier portion of the interview process stage because otherwise, we keep interviewing them, taking them too far down the pipeline, you know, deciding that we like them and can't let go of them that, like, we just have to screen them out before we like them," is essentially what it came down to for them.
Andrea: Right. Absolutely. Absolutely. And that's the exact...one of the reasonings behind the firm that I said puts it at the front end because it's saving them on the time investment that their team is going to spend and nobody is getting attached right up front. And a part of this process is each person that takes this assessment is actually, and I don't want to say it's different in that the questions are different, but this assessment uses adaptive testing, which means the system itself is selectively asking the questions based upon how the candidate answers his previous or her previous response. So it's going to get harder and harder and harder, and the moment you can't answer the question correctly, it's going to plateau out. So each candidate is going to have a different experience with the exact same assessment, but it's going to tap out eventually.
Michael: You know, if you get two people that are really strong in math, if your questions don't get harder and harder, you actually won't be able to tell who is better at each. But if you give them all really hard questions then the merely average person or several average people at math, like, all fail it horribly because the questions were ridiculously impossible out of the gate for the one math whiz at the other end. So yeah, I get it. Like, people have such a wide range, you kind of have to progress the questions in the direction to really find their limits rather than just testing the extremes out of the gate.
Andrea: Exactly. And that's why I say it's so SAT-like. You know, my whole team took this as a part of the vetting process to even determine if we wanted to use this tool. So full disclosure, we all hated the assessment, as do every advisor team that takes this, but they love the data that's the outcome of it.
Michael: Well, because it's literally built to keep hitting you until you fail, right? Like, it's not the most pleasant experience for the test taker. It's always hard for everyone because it literally gets harder until you break.
So the other one that you mentioned is Myers-Briggs, so can you talk to us a little bit about Myers-Briggs, like what it is, how it's different from PXT Select?
Andrea: Absolutely. So Myers-Briggs is looking at 16 different personality types. It measures four different dichotomies: extroversion-introversion, sensing and intuition, thinking-feeling and judging-perceiving. And this is how we show up and communicate and what we need as far as how we're making decisions, how we are energizing ourselves. So extroversion and introversion is measuring your energy source, sensing and intuition is measuring how you need information given to you to really take it in and understand it, and thinking-feeling is how we make decisions. So it's our filter of decision-making. And then last but not least, lifestyle, which is in the judging-perceiving dichotomy. So when you take that, it's either 93 or 144 questions, because we have a short version of it that's a 6-page report and then we have a long version that's an 18-page report that we can produce. So just depending on which one we want to use, that'll be the number of questions that you have.
It might take you 30 minutes to take it, but then it will look at those 4 different dichotomies and you will have a 4-letter combination. I will say my letters are ESFJ, so extroversion, sensor, feeler, judging. And there is a scale underneath each of those letters, a scale from zero to 30. So you're slight, moderate, clear, and very clear in those particular areas. So again, this is more a communication aspect. How you're going to show up in these four versus PXT is a literal performance model and percentage of how you fit into that model. So very different. Great information on both ends, just very different ways to slice up intel on human element.
Michael: Well, and I was giggling as you were talking through this and talking about, you know, these Meyer-Briggs archetypes and that you're an ESFJ. You know, so if you kind of break those down, like, extroverted, so, you know, very sociable, enjoys interacting with other people. You know, sensing as opposed to intuiting. So, like, looks at just the realities of the moment, what's going on, interacts with what's in front of you. You know, feeling very oriented around empathy and people's feelings and what they're working with. And then judging, which I know is always a weird framework in Myers-Briggs. Like, it's basically sort of like, are you a...Js are sort of structure people and Ps are kind of go with the flow types. That, like, when you put those together, like, it's literally the archetype of coaches and consultants, which happens to be what you do.
And I've always been fascinated by Myers-Briggs as well. So, like, my Myers-Briggs type is INTP, so introversion, intuition, thinking and perceiving. And like, you read the definitions of what INTPs are and it's like logical, analytical, objective, critical, intellectually curious, loves ideas and like, "Yeah, that's pretty much me to a T."
I actually remember being really disturbed the first time I had just, like, learned about Myers-Briggs, put myself through the assessment, got this, you know, archetype, I'm an INTP and then started looking up information about INTPs and what does that mean and, like, reading the description of INTP. I mean, some of this goes back to, like, Carl Jung, who was a famous psychologist who started this work I think close to 100 years ago now. And so, like, I'm reading the descriptions like what do INTPs look like from, like, a dude who wrote this 100 years ago, and it was like, it was freakishly accurate in describing me and just, like, habits and tendencies and how I approach the world or not. Like, it's absolutely fascinating to me in just sort of understanding how someone, as you said, just, like, approaches and interacts with the world.
Andrea: Indeed, it's frightening.
Michael: Yes, in every dimension.
Andrea: And that you shared your type, you and I are direct opposites. So if you visualize standing...right. And, you know, if we stood back-to-back, that would mean we have a 360-degree view between the two of us. So the value of knowing differences on your team is I need to tap into the value you bring because you look at it...you know, it's like you handing me your glasses and saying, "Look through my lenses," and I say, "I can't see through these." But okay, if it helps you to see then describe to me how you see it because I can't interpret it or I can't see it the way you do. Tell me how you see it. And so really valuing people's differences is really, really key. So I love working with my opposites because it just brings a deeper understanding of, you know, scenario, situation, whatever it might be when you really take in the information from another perspective and value the differences, versus saying, "What is wrong with you Michael? You just don't see it the way I do."
Michael: So I am curious, so like, how do you use this or frame this? Because, like, I also know there's actually a lot of criticism out there about Myers-Briggs that like it's not good to use in employer context. It's not predictive of job performance. Like, do you just find those criticisms to be bunk, like, "No, no, I use it in practice, it works," or do you use it differently in the process? Like, how does it fit in for you?
Andrea: That's why we use the PXT upfront in the candidate assessment and then the PXT will really bring it into the fold of team, current team, existing team. And if they're hired then we implement that with new hires, again, from a communication standpoint. Because you're right, it's not a predictor of performance. And that's again, back to PXT, it is a predictor of performance and it's the tool that from a legality standpoint, PXT is built for pre-hire, Myers-Briggs is post-hire.
Michael: Okay, so Myers-Briggs is more of like, "Okay, welcome to the team, here are your teammates and the ones that, like, you'll bizarrely get along well with and the ones that you will really struggle to communicate with because they just view the world completely differently than you do."
Andrea: Right. And helping them...each team member to really understand, again, back to the differences, and what's the value of that other person and their perspective that they can bring. You know, as an extrovert, I might say, "Okay, I know I'm meeting with Susie Q and John Smith clients and you know what? I think I might just overtalk them as an extrovert. Michael, how would you handle them? You know all those clients, what do you think? What stands out for you?" So really it's an opportunity to tap in and perspective.
Michael: Well, clearly, I would just give them a 27-page printout and then ask them if they have any questions. I know how to handle the situation.
Andrea: Oh, that's so painful as an extrovert. Let's just talk about it.
Michael: So you had said there like PXT is pre-hire, Myers-Briggs is post-hire, like, do you literally use them that way? Where PXT is one of your screening tools upfront and Myers-Briggs is something that you use in the onboarding process or do you still tend to do it in the interview process because you're just trying to figure out things like team fit and dynamics? Like, where does it actually get used for you?
Andrea: You know, this again is back to rigid flexibility. Where does the advisor team...? I'll always speak from the best practice and say pre and post, but can we have that as a part of, you know, the onboarding and, you know, you're in the top two and you want more information? I mean, I will say any assessment, and obviously with the gamut that are out there of Kolbe and DISC and Hogan, you know, and the like, an assessment should truly be a third of your decision-making process, a third of it should be your actual human interaction and interview aspect of it, and a third should be your simulations. You know, the fingers to the keyboard, true work that you put them through so that you're getting a 360-degree view perspective. And that's back to why multiple interviews is so key to see them in different light of, you know, panel interview, work simulation, these assessments before you make a decision.
And again, not to lose a candidate because we drag this out so long, but let's consolidate and really understand the market because what happens, you know, north, south, east, west, coast and everywhere in between, you may be in a very, very competitive market. So we need to actually expedite and consolidate some of the stages versus, you know, we can have it as a lengthier. But critical always at the front end is explaining to your candidates that there is a process, there are multiple stages, here's what they are. And that's all a part of what we're doing with advisory teams is to craft what we want in the actual infrastructure of the hiring process. Everybody's is different based upon what they truly want. Again, I'll always speak from best practice foundation, but everyone's is custom to what is going on in their market, in their backyard, just what they're looking for in their candidates in and of themselves and what roles we're hiring for.
Michael: I like that framing, though, that just to say like, you know, as you're sort of weighing these factors of decision making, just to view them as a third, a third, a third. The assessment, a third to the human interview, and a third to the office simulation. And of course, I'm giggling about this because I'm thinking like, for a lot of firms I know, there is no assessment tools and there is no office simulation, so it's 100% on the human interview because that's all that's there until you start adding these other factors in just to get I guess a more well-rounded view of a candidates' actual capabilities and fit.
Andrea: Yes. The cost of a bad hire is 50% or more of a first-year income. So if we have a $60,000 job, you know, that's a $30,000 potential loss. All of the things that we want to help you to implement are a lot less than that.
Where Firms Can Find The Time For This Sort Of Intensive Interview Process [1:11:48]
Michael: Yeah, a lot less than that. Although the other challenge, again, kind of getting back to the discussion earlier is just finding the time to do this amount of structure and process. And we're just talking about the time for quarterly performance feedback sessions and running all these assessment tools and then the time to do this, like, four-plus stage hiring process with the telephone calls and the office meetings and the meal and the office simulation and then the assessments and then making a final decision. And, like, this stuff all just takes time, and we're still only in, like, one of your four pillars. I mean, you haven't gotten to the other three yet. That just, where do we find the time to literally do all this stuff? Like, most of us are not sitting around with a bunch of extra time in my day just being like, "Oh, this is what I should do with all my free time, now I see."
Andrea: I wish that was the case. And that would be so nice to fit it into that space.
Michael: So where do we find the time to even try all of this? I feel like there's a lot of like, "Yeah, you know, if we could wave the magical time wand, all that sounds awesome. I don't have that time."
Andrea: So multiple layers to this question that you pose. One of the things that we absolutely believe in and see the results of those that choose to implement this is what I'll call a development day. Development day is when you're literally shutting the doors, and this is pretty much where everybody falls out of their chair, but literally shutting the doors to clients and working internally on the practice. So while hiring could be a part of that, performance feedback could be a part of that, but then this is even looking at the practice in all of the Fundamental 4 areas of, again, shutting the doors, closing to clients. This is where the voicemail is on, out of office, you know, email, autoresponder is on, lights are off, doors are locked. I can't stress that enough. And best practice and those that we see...so and those that have the highest rate of success around all of this practice management stuff is they're willing to close the doors once a month.
So I will challenge anybody to think about, if you can't find 12 days out of 365, what are you training or how are you training, I should say, your clients to entrust what you're doing for them and knowing that you could be closed 12 out of 365 days and it really is going to be okay around what your financial future looks like? Because we've put your plan into place, and this is helping us to be better at our jobs because we are closing the doors and you should want us to work on the business so that you have a better experience as the end user client.
Michael: That's fair. So I guess there's two pieces. One is just like, how do you literally communicate to clients? It's like, "If you call us on this day, we're not available." And then there's just the, how do you actually get all your other stuff done so you can take a day, a month to do this?
Andrea: Right. And so this is why identifying roles, responsibilities, who is doing what. Having an infrastructure, again, around Fundamental 4, practice management. We build out a custom roadmap around the Fundamental 4 for implementation so that it is very crystal clear of what is going to happen on each of those development days so that it is such a strong implementation success rate that it's going to show your clients a different experience. You're going to be a more well-oiled machine for the efforts that you put into play. And those folks that...you know, at the beginning of the process, it is the mindset shift, and it's hard to think about closing the doors to work on the business.
Again, it's challenge of, what's the cost to you if you don't do this and if you don't focus on running the business and you hire the wrong folks or you don't have the standard operating procedures in play or you don't have your business development plan outlined? Or what about just the business plan? And how about succession planning? Where are we going to fit in the time to do all of that stuff if we don't dedicate literal time on our calendar and protect it so that we can focus in on that? Because we need thinking time to do all of the Fundamental 4 areas, not just the human element.
Michael: And so I also just have to come back once more just because I've got to imagine you hear this from some advisors, that just, "I don't have a day a month." Like, it's not a, "How do I convince my clients I'm not available for a day," it's like, "I just literally don't have a spare day every month." Like, how do I get to this?
Andrea: So it's the same concept as the performance feedback. And four times a year is, you know, the ideal and best practice, but let's make it realistic. So maybe you start with half a day every month or maybe you start with, "You know what? Let's close the doors once a quarter for a full day." The longest amount of time would be quarterly. Ideally, get to your once a month, but there has to be literal agenda, action items, focus areas. This is your strategy, your war room, your brainstorming. This is coming together as a whole entire team to identify where the gaps are. And that's an analysis that we do with teams and evaluate the Fundamental 4 and have the whole entire team as the process.
And you actually started with this for our call today Michael was, you know, we're not just working with the business owner, we are working with the whole entire team to get a 360-degree perspective on what strengths and the weaknesses of the practices are, where the gaps are, and we help build a custom roadmap, and your guide through this whole practice management experience to ensure that you do have implementation success. Otherwise, this is a potential to go off the rails, if you will, and no accountability, and nobody actually, again, guiding you and supporting you through the process.
Michael: And so that's essentially your work in your world is being involved with firms to help give them more of that process and more of that structure?
Andrea: That's what is...I will say the energizer to my extroversion is to be able to help guide you through this process. And it's not pulling something off a shelf and saying, "You're in this program," but rather each team that we work with has a custom plan and the outcome from our analysis so that it's truly... the gaps that are critical to their practice, to their business, filling those gaps, and that there's a repeatable, sustainable process that's now built and a true infrastructure, whether it's in any one of the categories of those Fundamental 4 areas. I'll say in a 12-month roadmap that we can create, you know, some folks only close the door every 90 days because they just can't mentally shift to once a month. And as they get the flow of that every 90 days, they've added another month and another month and eventually move closer to the one time a month. It might be only for half a day, but it's that dedicated time to focusing on running the practice like a business.
Michael: So can you tell us a little bit more about your business? Just about Ironstone. Like, what do you do? What is your business in practice with advisors?
Andrea: Absolutely. So, you know, just from my ESFJ and the absolute everything, DNA of a coach, that's where we want to focus practices. So my history is financial industry and in the industry a little over 20 years. And had the opportunity to be in the advisor chair but actually got to mentor new advisors that came in. And I fell in love with that, and that just was the catalyst to a shift to practice management and training and coaching and focusing on all of the things that are in the Fundamental 4 now.
And transitioned through different mutual fund firms, was the, I'll say "value add" that would come along with the wholesaler when they want inside of your firm. But what the value of that experience was is that I got to see how little implementation took place in return visits to these different firms and traveling with the wholesalers. And the same gaps kept coming up. And so that was really the catalyst and the start of the Fundamental 4 and how the items in those areas, which again, I'm going to be sharing that with you to share with all your listeners, Michael, so you can really see that infrastructure.
We put it into a goal tracker. Again, we're all about implementation. If we're not helping you implement, we haven't done our job, because I truly believe that's the hardest part of practice management is dedicating the time and outlining the areas that you want to implement and putting a structure in place to get you there. So we love to be the guide of...and we work with teams. And again, a key is we really do work with the whole entire team, not just the business owner, to ensure that we're really looking at this in a 360-degree view. So we work with some teams on an annual basis to help them implement the path that we've outlined through the practice analysis. Some teams we work with on a project basis because, to your point, they want just to focus on hiring and getting the right people on the bus. So we pull that off of the Fundamental 4 and turn that into a project.
And I will say the folks that we work in on an annual basis, they typically stay in our program for a couple of years and they will graduate. And we changed it to graduate because we...one of the teams that we worked with, the team said, "We don't want to tell you that we're ready, but we're ready. We don't need you guys as much." And I said, "That's the whole point of this is that you're not codependent on us and our resources, we want you guys to be able to do this on your own. So we'll give you every tool, every template, every resource possible to help you to implement all the Fundamental 4 items." So you will graduate from our program and ensure that...
Michael: I like that. Graduating is very inspirational. Like, we worked with you until we got to the point where we're good on our own. That's much better than, you know, getting kicked out or someone else...
Andrea: Right. Exactly. And respectfully, if we don't see implementation, that is when we disengage, because that's what we want to help you to do is implement. Otherwise, what is our purpose? We look at both sides of that. So we would prefer you graduate, but if we need to disengage, we'll disengage too because we want the best for you. So we will save you from yourself.
Typical Firms That Andrea Works With [1:23:50]
Michael: And so what are the typical, like, firms or advisor, I don't know, types that you work with? Because I'm imagining like just the depth of stuff that we're talking about, right? I mean, just once you got on the road of all of this ongoing performance feedback for employees and hiring structure with all these interview steps that you're doing on a regular basis, like, you've got to be a certain size before you're actually dealing with all that stuff. Right? You know, there's only so much operational effectiveness pain when you're the only one operating the business. Like, usually you've got to get a certain number of staff members before this becomes a complicating, messy point. So, like, are you generally working with larger firms? How do you describe your typical advisor clientele?
Andrea: Profile would be, you know, anywhere from $200 million and up. And really the most important question that we have when people are exploring the world of Ironstone is, "How committed are you to practice management? How much time are you willing to spend?" So granted, while there's a level and a size of a practice, you know, multiple team members already, $250 million in production, you know, asset level, and from that perspective, the commitment to practice management. Those are the key drivers to really determine if we're the right fit for what you need, what you're looking for. And again, whether it be a project on an as-needed basis or our full program, that's where folks, you know, ebb and flow, because all the folks that have graduated from our program have really stayed with us.
I have to say I'm really proud of the fact that nobody has really gone away from us in that they're all in an as-needed and, "Hey, when we need you, we'll call you," but they always call us for something. Because, especially with the human element, that's what changes the most. Granted, technology and operations changes a lot as technology evolve so quickly, but your standard operating procedures shouldn't be changing a huge amount. Your strategic planning and your business plan ebbs and flows, you know, business development, but human element is what can change very, very quickly and rapidly.
Michael: Interesting. And for folks that want to work with you, like, is there a typical cost structure for engaging you? I'm going to imagine it's fairly wide just because you've got, you know, ongoing relationships versus, you know, one-time projects which are different in structure, but can you give people some, like, context of just sort of ranges and typical engagements?
Andrea: Absolutely. I mean, even from a project aspect, you know, projects can last anywhere from, you know, three to six months if we're talking about, you know, hiring or staffing, you know, comp study, career path, process and systems versus our annual engagement. Again, people typically stay in that two to three years to get the things implemented that are in the Fundamental 4 infrastructure. We don't necessarily work on all of those because literally, Michael, there's 32 different line items. If we open the door to each of the fundamentals, there's eight subcategories underneath each of those.
Michael: So, like, eight things under strategic planning, eight things under business development, eight things under operations, eight things under human element.
Andrea: You got it. So the outcome of our practice analysis that we do upfront, when you're not sure what you want to work on, the outcome of that analysis is a roadmap of what a 12-month engagement would look like. Some folks say, "You know we're really good at doing this on our own, we're good at implementing, so we want to work with you on an as-needed basis." Or "No, we want that accountability because we know we're going to have a strategic...you know, strategy session every month," and it's unlimited support in between there. Or those folks that come to us and say, "We need help on hiring and that's all we want to focus on. We don't have any other time for anything else. That is what we want." So that's where we can turn it into that project aspect.
Michael: And what are those typically priced out at? Is there like a general range of just what expectations people should have if they're interested in something like this?
Andrea: Sure. Absolutely. So, I mean, depending upon if it's a project, I will say, you know, if you look at it from a $2,000 and up aspect, that's a good starting point. Again, from a project standpoint and an as-needed to our monthly coaching engagements, you know, we go onsite to practices as well to get into the weeds with their team. So I will say Ironstone, our whole team is virtual. Nobody is in the same place. We don't need a brick and mortar location for you to come to us. We need to come to you. Otherwise, we can stay in a virtual relationship. And we've made everything accessible online for you to access tools and resources to make it as easy as possible and the most digestible way to take in this Fundamental 4.
Michael: And so if they want to hire you on an ongoing basis, they're paying like a couple thousand dollars a month for just ongoing services as you work through all the different items in the Fundamental 4 and just rotate through as you go? I'm imagining like, as you said, everyone's got a different roadmap because I'm going to come in and say like, "Oh yeah, I'm crushing it in these two columns. Like, oh, I'm horrible on this one, we've got to work here." And then someone else comes in and says like, "Oh, I'm actually good on that column, but this other one is a mess for me. Like, I need help in five of the eight over here."
Andrea: Right. Right. So everybody has a custom roadmap and path that they're going to take inside of that structure, and I would say a good starting point to consider that's an investment of, you know, a couple of thousand dollars a month, depending upon what your roadmap looks like. And again, if it's a project aspect, we can plug that into more of a time-intensive. You know, we know that building out job descriptions or the hiring and staffing is going to take a certain number of hours, so we can build it into blocks of time if we need to build it into blocks of time versus a monthly retainer type. And then onsite visits. So all of those things are doable, and a $2,000 is a good place for us to start on what that investment would be.
Michael: Well, and to me, just, it's an interesting framing about how you think about your business and investing in your business, and in part, like, why size of firm and revenue base matters, right? Like, if you're a $200-plus million firm and you're doing $2 million a year of revenue, right? If I'm just using like a 1% of AUM as a benchmark, like, you're running a $2 million revenue practice. Like, if this coaching process lifts up your margins by 2% in the future, like, a 2% lift in your profit margins and you make back the entire investment of several thousand dollars a month for a year. Like, that's all you need. Now, if you're a smaller firm, you've got to move the needle much, much more. But the larger the business gets, like, the less you actually have to move the margins and the needle for a very material ROI and investing into the business.
Andrea: Correct. Absolutely. I mean, it'll be an increase in net new asset, profit margin, cash flow and then add on the layers of client satisfaction and higher retention levels to more internal process and systems, employee engagement and lack of turnover in a great way, and the desired outcomes that you want in the Fundamental 4 are going to be filled, the team is self-sufficient. So again, this is not to make you codependent on our resources, but it's actually educating you so that you can replicate these time after time. And quality of life, so much better when everybody is going in the same direction, has clarity around the direction that we're going as a team member, and you as a leader of the business can really be in the CEO space and looking at this Fundamental 4 as your infrastructure and having the right people managing those particular areas. It gets you to the legacy that so many independent advisors are wanting and so many people moving towards independence for that freedom and flexibility. But with freedom and flexibility comes responsibility of running a practice like a business. So if you're an A plus advisor...
Michael: You have to make all these pesky choices now.
Andrea: Exactly. You might be an A plus advisor, but a C minus business owner. And we want to help you to have a better grade, if you will, and be an A plus business owner running an advisory practice.
Michael: I like that framing that just you can be an A plus advisor but you might be a C plus business owner. And just recognizing like those are such different skillsets and requirements that you really can be awesome at one and really not good at the other and need some help. And like, it's okay that you can be a great advisor and still really need some help to figure out how to be a better business owner as well because they really are such different skill sets.
Andrea: Without a doubt different skillsets. And if we can help do the heavy lifting in the running the practice like a business space, that's euphoria in the world of Ironstone. That's our desire and goal of working with any of the teams that we have the privilege to work with.
Michael: So I am curious as well that, you know, at the end of the day, like, the Fundamental 4 pillars that you set forth, I mean, I get it, like, you apply them in the context of financial advisor firms because that's what you do and focus on, but, like, strategic planning, business development, operations and human element, like, that's just ultimately what you need to do to literally run any business. Like, just that's business at the end of the day. You apply it in a particular advisor context.
And so I am curious for just how has this been for you? Like, you also run just a consulting practice that at the end of the day, like there are actually a lot of parallels between consulting firms that work with advisor clients and then advisors who work with investor clients. Like, it's the same kind of, you know, knowledge business, implementation business, help your clients business. So, you know, you started on the advisor side, you went to the practice management coach side, you've now, you know, done your version of going independent and building a business. So I'm just curious, like, what surprised you or what have you learned about the experience of doing it and trying to build the business in that context versus what it's like to be the coach trying to help someone else do it?
Andrea: I will say the pain and suffering is all worth it in the end, in my opinion. And it's the hardest thing I've ever done and the most gratifying thing that I've ever done. So I will share, Ironstone's 10-year anniversary was December 8th of 2018. So if you do that math, why not start a small business consulting firm in December of 2008? The best time in our industry to start...
Michael: Well, the best time in the industry to start because there weren't a lot of other people hiring and giving you other choices at that point. The whole fund industry was trying to not completely collapse in on itself.
Michael: Yeah, as the saying goes, necessity is the mother of invention, so, you know, financial crisis is the mother of financial services startup businesses?
Andrea: Yes, that's so true. And I will say the catalyst for Ironstone was 2002 of downsizing from my mutual fund firm that I was employed at, staying in the industry and getting laid off again in 2008 and saying, "You know what? I actually really love what I do." To your point is me being an ESFJ and that is the absolute antithesis of being a coach educator and my DNA. It's my passion. And so it was...continued to stay in on the corporate side of things and have the roller coaster of down markets, because practice management is absolutely the first in line for downsizing in those times.
Michael: That's what you get for being a value-add. You're unfortunately also an easy value subtract in times of difficulty.
Andrea: Absolutely. Absolutely. So, you know, the objective in 2008 was the passion around the deliverable and the failures and the sacrifice and the disappointment led to what Ironstone looks like today. It's the stuff that people don't necessarily see, but it's the hard work and the habits that you implement and which that's the foundation for the Fundamental 4. I mean, to your question of, you know, where do I find the time, well, we all have the same 24 hours in a day and energy is like currency. So ensure that you spend and invest wisely in where you put your energy. And it's not easy to make some of those decisions, but good habits, hard work, dedication can lead to success. Whatever success is to you. I know what it is for Ironstone, and I speak a lot from a business owner perspective to other business owners and can share my failures and successes and the learning stages of going through running a business, because to your point, the Fundamental 4 really is about running a business. Regardless if it's in the financial industry or not, these are the elements that it takes to run any business.
Michael: I love that statement you made, that energy is like...you know, your personal energy is like currency, be certain you focus on where you're investing it. I love that. I love that.
So as you look back, like, I don't know, what was the low point for you in trying to build the business? So, like, what was the biggest roadblock for you?
Andrea: I think it really is defining what Ironstone was all about and really getting clarity around that. Because the moment I got clarity on that, things started getting easier, because it was the track to run on and it was the foundation of everything. So I will say it's the Fundamental 4. It was figuring out that roadmap and that we stick to today and use as our measuring stick with any team that we work with. But then it was the dedication not only to build that infrastructure, but now living by those same values and putting those into practice for Ironstone, my own business, not just trying to have other folks implement it and say, "These are great tools and resources," but living by them. And, you know, we better practice what we preach at Ironstone. So all of the things that I've suggested today, we do those things of, you know, development days and close the doors and bring on folks in that same way, from interviewing and hiring process and providing feedback and coaching and mentoring because we want to live by those same things so that we're real examples to the folks that we're suggesting those to as well.
Michael: So for advisors who maybe are a little earlier still in the business stage, you know, they're growing and someday in a few years hope to be at the size of the firm that can engage Ironstone for the services that you deliver at that size, what's your advice to firms that are still a little smaller and earlier but trying to grow this direction and hopefully is by the time they call you will not have, like, made themselves into a train wreck of a business? Right? What should you be watching out for when you're a little bit earlier still in the business but you don't want to be the problem case that ends out needing so much help in the first place?
Andrea: Right. Well, I'm going to go with Stephen Covey's quote of, you know, start with the end of mind. I think that's too often what we don't focus on, and it's, you know, right here, right now I have to do...you know, get this many, you know, clients and assets and onboard, versus really thinking about what's the long-term that you're working towards? And that's why I say, you know, give your listeners the Fundamental 4 roadmap now.
Something exciting that we haven't announced yet but I'll share a tidbit with you today, we're creating the Ironstone Lab so that it's more for the folks that maybe don't need all of the things that we have and the heavier involvement but so that you can DIY, if you will, and take and access these resources so that any level of practice can tap into these and get you on the right road and the right path so that you're not building something that you're going to have to correct later on. So you will see Ironstone Lab coming out later this year. We're very excited about that new opportunity.
Michael: Very cool. And so the idea, like this will be like an online subscription thing? Like, you know, "Pay a couple hundred dollars a month and get access to our resources and the lab?" Like, that sort of structure?
Andrea: Correct. And so you can blow things up in the lab, and it's okay and it's good to explore and learn. And again, the lab, we like explosives, so blow it up there, practice it so that you're really building it the right way the first time. So stay tuned for that later in 2019.
Michael: Very cool. And I think you had said like you're willing to share a copy of just your Fundamental 4 and the pillars as well. So are these 4 pillars 32 areas of things you've got to have sorted out in your business?
Andrea: Absolutely. Absolutely. We'll give more things away so that... We sleep really well at night here at Ironstone and have feel good from the aspect of, we really want to help make sure the industry is moving forward in a great way and building great businesses. And the more people that we can impact, that's just part of who we are at Ironstone. That's the exciting part.
Michael: Awesome. Well, thank you for sharing it. We'll include that in the show notes and resources area as well. So again, this is episode 112, so if you go to kitces.com/112, one-one-two, we'll have a copy of Andrea's Fundamental 4 so you can kind of see that framework.
Like, it really is interesting to me as just literally, like, here are the 32 areas that you have to be spending some time and focus and effort on as a business owner. And, like, obviously, you can't do all 32 at once, so you work on different areas that are a challenge to the business. And as the business grows and evolves, you need help in different areas. But to me at least, it's really powerful just to literally see all 32. And it just remind you as you look at like, "Okay, I'm, you know, pretty good on team development and communication, oh, but I'm bad on performance feedback." And like, "We're good at onboarding, but we're actually not very good at existing client workflows." Like, you've just got this list of like, when you can't think of all the different areas you've got to worry about in your business, here's literally a list of all the different areas you've got to think about in your business, now just figure out where are you strong and where are you not and where do you need to plug some holes to get better?
Andrea: Yep. I mean, we're literal, we're old school, we want to give you things to keep it top of mind awareness, and again, to ensure that you're spending your energy in the right place and having implementation success.
Michael: So as we wrap up, this is a podcast about success, and one of the things that we always observe is just that word "success" means different things to different people, sometimes different things to us as we go through stages in our own lives. So you've built this successful coaching practice for advisors, you've built a business yourself as you help others build a business, but I'm wondering for you just at a personal level, like, how do you define success for yourself?
Andrea: When I sit in the back of the room and one of our teams is being highlighted as the go-to advisory firm from a practice management perspective and they are, again, highlighted because of the successes that they had. And I get to sit in the back and watch that happen. That is like a box of chocolates that I could eat all day, Michael and I will never get fat.
So, you know, success is really watching or I should say being a part of a practice and watching them implement these different areas and seeing the successes that they're having and seeing their evolution. And if we can be a grain of salt of impact to the human beings that are in this industry to make them a little bit better in running their practice like a business, that's euphoria and that's what success is. We don't have to work with everybody. We want to work with the folks that we're the right fit with and that we have the same outlook from a want and desire for defining success. And those that subscribe to that, we're very privileged to be a part of their practice. So these people become an extension of our team and almost family, if you will, and getting to impact their lives. That's the exciting piece.
Michael: Very cool. I love it. I love it. Well, thank you, Andrea Schlapia, for joining us on the "Financial Advisor Success" podcast and sharing this story and journey of what you've built.
Andrea: Thank you, Michael. It has been an absolute pleasure of our collaboration and time together.
Michael: My pleasure. Thank you. You have a good day.