Using A “Pillow Test” To Make The Hard Business Decisions On The Way To $3.5B AUM: #FASuccess Ep 505 With Andrew Rosen

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Resources Featured In This Episode:

• Andrew Rosen: LinkedIn
• Diversified, LLC
• EOS
• Radical Candor
• Why More Leaders Need Radical Candor
• FP Transitions
• Advisor Growth Strategies
• "Your Intentional Financial Life" by Andrew Rosen

Full Transcript:

Michael: Welcome, Andrew Rosen, to the "Financial Advisor Success" podcast.

Andrew: I'm really excited to be here. Thanks for having me.

Michael: I'm excited to have you on today and to get to dig a little into, so I just think of it, what it takes to actually navigate the hard decisions that we have to make as we grow an advisory business. There's always a lot of sayings out there to the effect of, "One of the defining characteristics of successful entrepreneurs is they make the hard decisions." And I'll admit I find very few people who say, "Oh, no, I don't like making decisions in my business. We just waffle on everything." Everyone kind of says they do this. And then, often, when I really start talking to someone about the details of their business, I realize they're really not, or they'll say they made a decision, but then they don't want to actually take the action that comes after the decision.

And it's things like, "We have this beloved team member, and he's been with us forever. But the business has really outgrown his skill set, and we know it's not working anymore. But we don't really want to fire him or do anything about that because that would be awkward. And so we're just sort of suffering along in the problem," or, "I've got to partner with another advisor, and it's kind of turning south, but we don't actually want to take the steps to dissolve the partnership because that would be really messy consequences." And for obvious reasons, these are legitimately hard things to do, or even knowing if it's really the right decision to make, "Will the negative repercussions I'm worried about actually be better or worse than the thing that I'm trying to relieve in the first place, a lot of building businesses, making decisions in the face of uncertainty?"

And so I know you have lived this path quite a bit over the years, Andrew, in building the business and doing the hard decisions. And I think you actually built a whole framework about how you try to navigate these business decisions. So I'm excited to talk about just what you created for yourself to actually get to the hard decisions or to get to the hard actions that come after the hard decisions that the business sometimes needs to take.

Andrew: Sure. Yeah. And you're absolutely right, Michael. And you know as well as anyone, when you're sort of at the top of an organization, there's a lot of people looking to you to make these decisions, to be the final word, to be the change agent in an organization, whether they want it or not. And sometimes you have to really think through the negative and the positive repercussions, but you also have to think from other lenses, which has been the hardest thing for me to do and I think humans to do. We all see the world through our lens and our lens only. And so when we make these decisions in our firm, the first thing I'm always attuned to, I would say, is that just because I see it one way and I have a different vantage point than most other people in my firm outside of the executive team is that I may see that, "Oh, making this decision..."

We just are switching to Claude Enterprise as we speak, right? We're running this whole project now. And I've been working with it for six months and hired our head of AI who's awesome, and we're seeing the superpower that it can be. But these other people haven't even tasted it in our organization. And we just, on Monday, released it to everyone, and you start realizing that, yes, this is the best decision for our firm, but they don't necessarily see it, right?

Michael: They don't have the buy-in because they haven't been spending the past six months seeing it iteratively built and doing all the cool things. They're just living the "Andrew rolled a thing out, and I'm supposed to do it now, and I'm already busy. What's up, man?"

Andrew: Exactly. I just got used to the new process, and you're throwing this whole new thing that's going to uproot my whole entire world. And they don't have the benefit of all that. And so it's actually been a struggle even in our organization, this sort of change management, because, yes, I know it's the right thing to do. Then you have to articulate it. You got to sell it. You got to give space for individuals to grieve the loss of their comfort, wellbeing. And then you've got to champion it, the change or the initiative, forward. And it's not always popular, right? But if you do it with a set of principles and a philosophy, I found, then at least you're consistent.

The Value Of "Radical Candor" In Leadership [07:11]

Michael: So I am curious, just as you were describing, right, from the leadership, and we've got a thing we want to roll out to the firm. So I have to articulate it, then I have to sell it, then I have to give people space to grieve for the loss of the change, then I got to keep championing going forward, even including when it's not popular. So, is this your natural operating style? Because I hear that list of things, and a few folks out there I know who just love to galvanize everybody, empower them forward, "Yeah, that's awesome. That's what I do. I get everyone on board and going along." And I'm envisioning a lot of people are like, "That sounded exhausting." You said that, thinking through that. That really kind of sounded exhausting. Do we really have to do that?

Andrew: Yeah. So the short answer is no, this is not natural whatsoever, right? I started in this industry, and when we bought out the founder of Diversified LLC in 2013/14, I was nothing but a college graduate in finance, no business management background or degree or anything, right? And so I have our pen story, right? We bought the company and the whole leadership team, which was four of us at the time, me, two partners and our office manager. Probably looks like every other firm listening to this right now. We're sitting there, and we have a big client event coming up in a month.

Michael: Okay. Celebrating the new deal.

Andrew: Yeah, it's like...no, no, it's a client economist event, right? We bring in speakers, and we invite our clients, so on and so forth. And we're going to give Diversified notepads and Diversified pens. And Kelly...

Michael: Yes, all the things we do. Yes.

Andrew: Oh, yeah, you know it. And Kelly, our office manager, brings in a box of pens. And here we are on Monday morning with the three big advisors in our firm, our office manager. And I'm telling you, you would think we were negotiating over land rights of Germany after World War II. This was bonkers. We were fighting like you've never seen over, "This pen writes," "This one feels cheap," "Oh, the letters on this one." And I remember, at that moment, I was like, "We got to blow this up. Something needs to change. We can't run. This company is running us."

Michael: This isn't going to go well. Okay.

Andrew: No, for sure not. And so in that moment, I realized we needed something. And so the first sort of step in this journey, right, a journey of a thousand miles starts with the first step. The first step for me was I had a mentor at the time. I was going through a coaching thing. And he got me on to Traction, EOS, which I know we both are huge fans of. And the advice I got from him, he's like, "Look, you can deviate it, all those things, but not now." You must run it to a T for two years. And now we've run it to a T for 13 years. And that was the first element to me of getting any sort of management style. Because again, I joke, I grew up with the American dream, which wasn't to start your own business or buy out a business. It was to take over your dad's business. My dad was a successful entrepreneur. He got sick when I was in college and so couldn't take over the family business, unfortunately. But good planning kept our family alive. So I'm very thankful to this industry and really indebted to it.

But I never had these visions. So it's very much learned. So some of it is following other principles. Another component for me is I am a voracious reader. I read a ton. I believe you do, too, Michael. And then just I'm an observationalist, right? I'm trying to stay attuned. I try to better myself. I try to just learn from real-life examples, whether it was my father's teachings when he was alive and watching me go through this stuff. And so those were defining moments that helped lead to my sort of management ethos, if you will.

Michael: So I'm curious to hear more there if there are, besides EOS, are there other tools, systems, particular books that were turning points or especially impactful as you're going down this journey to try to figure out how to do all the leadership things you need to do in this growing business?

Andrew: Yeah, I think there's two that resonate with me when you ask that question. The first is "Radical Candor" by Kim Scott.

Michael: Okay.

Andrew: If you haven't read it, I highly suggest it. And even better yet, there's a 15-minute YouTube video or a TED Talk or something she did. You can find Kim Scott, "Radical Candor." And it's transformative. The concept here is that if you actually care about people, trust that they are adults and big enough to deal with information, tell them, right? One of the analogies she gives in her speech, or something to the effect of, or in the book, something to the effect of, well, Michael, you're about to go on stage, right, which you do often at big conferences, and let's say you have a big piece of food stuck in your tooth, and your collar is backwards, right?

There's two tasks you can take. I can say, "Well, I don't want to hurt his feelings to say he looks like a mess right now, so I'm not going to say anything." Or I can say, "Michael, I just want you to know that you got something here. Let me fix you up here, pal," and be honest and radical. Because we're so afraid we're going to hurt someone's feelings versus if you care about them, you want to be honest. You want to be open.

And so, in real-life practicality, in my firm, I give people the benefit of the doubt. I tell them what they need to hear, in an empathetic way, right? I'm certainly not a jerk about it. And in doing so, I put my trust and faith in them because, again, especially if they're doing something wrong and I don't share it, well, if you don't share it, it will continue, right? The behavior will continue.

Michael: It's certainly going to continue if you don't say anything to ask it to be something different, because otherwise, behaviors in motion tend to stay in motion, something to that effect.

Andrew: Correct. Correct. I say that all the time. And so radical candor has been really important to me. Sometimes, yeah, you're not the kindest human in others' eyes because you're telling what needs to be said, but I think we've all lived through, especially business owners, or in any store, anyone in charge of anything, there's been times where you wish you said something, because in hindsight, you realize that that was the error of your ways, is that you missed the opportunity to say something on the spot. And you didn't because you were afraid of the repercussions. And I've had plenty of difficult conversations in my life. And what I found is it's sort of head trash. Most of the concern is in your head and your anxieties. Once you have the conversation, it's amazing what happens. So radical candor is the first big principle.

Andrew's "Pillow Test" For Making Hard Business Decisions [14:57]

Andrew: The next one that I kind of have come to develop myself, if you will, because it's just a bunch of, again, real-life observations, my mentor and greatest man that I've ever known, my father, who was really successful and just an awesome person, and just reading. And so the other concept is my sort of pillow test, right? I'm a big stoic. I like stoicism.

Michael: Okay.

Andrew: It's been a fun journey to sort of get into it. But anyways, it's sort of the concept of doing what is right, not what is easy. And so sort of the test I run major decisions through is sort of, will it enable me to sleep at night? Can I put my head on my pillow tonight, fall asleep at ease, not thinking about whatever this issue or problem or decision is, but rather all the wonderful other things in my life? And so the simple concept is, one, you create your own North Star or moral compass, but there's two decisions I run through or two thought processes I run through when making a decision.

One, which we all do, what happens if this goes wrong? What happens if I merge with Michael Kitces and it goes wrong? What happens if I hire this individual or make this investment? We all make it, right? We are risk-averse human beings. There's all the studies, right? You feel pain twice as much as you feel successes, right? All these anecdotes, and I think we all probably agree with it. But that's easy. That's nature. Fight or flight. Just what happens if this goes wrong?

And then people make calculated risks. Here's the one that I don't think enough people run their decision-making through, which is, what happens if this goes exactly as planned? What happens if the merger works perfectly with Michael Kitces? What happens if I take this private equity money and it goes exactly as they say it's going to go? What happens if I...? And then what I find is if you balance those two things...what if I let Schwab, because I'm pals with their wholesaler, put Schwab funds on our platform, and I don't think they're the best funds? My investment team doesn't want it, and I force it down their throat because of the relationship.

These are the type of things that I'm not willing to compromise on, and I find help me make a decision, which is okay, understanding, if this goes wrong, it's pretty easy to understand and make a calculated risk, what probability of this going wrong. But then if it's a 10% issue that it goes wrong...most decisions are made when there's more than a 50% chance it goes right. And so I then look at it and say, "Okay, let's look at the 50%, 60%, 70%, 80%, 90% chance this goes right. And can I live with myself? Can I feel comfortable and go to sleep at night knowing that I've done what I believe is the best, right, virtuous, ethical decision?" And so those have...I'm no genius, and I'm no business expert or MBA or professor, but that has guided me pretty well in our firm through the years.

Michael: So help me understand further. I get the first part. What if this goes wrong? And we can do all of our risk calculations and downside scenarios and such. Help me understand more of the "If this goes right" side, because I feel like, by definition, well, if it went right, it went right. And if it went right and it was a more than 50% chance it went right, I feel like I've just cemented my decision. And I feel like this is supposed to be a framework to maybe not make the decision. So I feel like I'm missing something here, about the "goes right" part, yeah.

Andrew: Okay. Let me... And I think I'm whooshing you in the "go right." You get the answer you want, right?

Michael: Yeah, yeah, yeah. How does this not just give me the answer I want?

Andrew: Yes. So let me give you an example of what I mean. So the first M&A deal we ever attempted to do, call it an $80 million retiring advisor in our backyard, older gentleman, just wanted to go travel the world. We had everything agreed upon. We're going through the legal documents back and forth. This thing's on the two-yard line. Guy is starting to get chirpy, a pain in the butt as we're talking. And then he starts coming up with crazy things out of the documents. "Hey, I'm not giving up the website or the phone number." Well, what happens when clients call? We need to own the website and the phone number. And he started getting real odd on things like that.

And I could have acquiesced. I could have said, "Look, the go-right here in this situation is I can make this deal close." I can say, "Fine, keep your website, keep your phone number. We'll figure it out after this closes." But I, at that point, said pencils down to all attorneys, "Deal is off. Sorry, we can't agree to this." And the first deal...I was hungry to do a deal. I desperately wanted to do my first deal. We're taking our first foray into M&A, and I walked away after $70,000 of legal expenses on a small firm that wasn't worth $70,000 in legal expenses, and just walked away. Ended it because I knew what happens if it goes wrong to me was if this deal doesn't close. But what happens if it went right, which is I get the deal I wanted, and now I'm dealing with an insubordinate seller on a small book. We were adding a ton of growth organically on a monthly basis.

And it dawned on me that, "Hey, I could get the answer I want here. Attorney, get it done. See you later." But it was thinking through further than just the immediate decision, is, what is the chain reaction that this leads to on getting the answer I wanted? And as I sat with it overnight and did my own pillow test, it became obvious that this is something that, on the go-right, I'm not comfortable with. And so that's what I'm trying to articulate. Does that make...does that shed some more light?

Michael: Yeah. So I think of this as, if I take the action, make the decision, do the thing, what are all the consequences that come afterwards? What are all the consequences that come afterwards, right?

Andrew: Yes.

Michael: Am I thinking through all the things that can come from this, right? The immediate effect is we close the deal, the firm gets bigger, the valuation goes up, it's more profitable. But let's not also ignore, "But I've gotten an insubordinate seller," who's actually still going to be on board for some period of time that I'm going to have to navigate with and deal with. Am I not giving enough credence to how challenging that might actually be?

Andrew: Correct. And what does that challenge then reverberate through you physically, mentally, and your ability to perform and your entire team? Now, we're spending all these efforts and resources, dealing with not only supporting a seller, but someone who's being a pain, who you're legally bound to, and all these other things. And you're realizing you're taking an eye off the ball. This doesn't feel right to me. I've made similar decisions with looking to take private equity money or a rollover. And I've had these dialogues, and I've been uncomfortable every time because I said, "Look, I can make this go in my 'right.' I can get the decision. I could get them."

We all know there's blood in the water right now. These guys would throw money anywhere. I can get it, but what does that compromise? What does that...what happens if it goes right, if I get the yes? Well, now I'm a slave to someone else's money. I'm a slave to investors that are investing with the investors, right? Not my clients, not my partners. And so it got to a point of not following the North Star that I've set out from get-go and that I'm trying to build in the marketplace. And so those are the things that, to me, I really try to think through, think through multiple layers of both sides. And again, I think we, as humans, do such a good job on the downside. We don't do enough of thinking on the upside or the yes side.

Applying The "Pillow Test" When Receiving Interest From Private Equity Firms [24:08]

Michael: So, can you take me a little bit further down, just how this whole thought framework plays out in a scenario like private equity? Because that is a call so many firms are getting on a monthly, weekly, or daily basis, depending on how visible your firm is. So just that feels very, very real-time and salient for a lot of us. So, what's your wrong downsides? What's your "It goes right" downsides? Can you just filter that for us in more detail?

Andrew: Yeah, the wrong downsides are...so, yes, absolutely. So the wrong downsides are glaring and obvious, again, to most people. We don't perform, right? We take on $50 million, and we simply don't perform. And now we don't get the investment we wanted. It doesn't grow. We can't acquire the way we think. Everyone's incomes change drastically, right? This fails. They are a miserable partner, right? That's there. There's your downside.

Michael: Okay.

Andrew: Now let's look at the upside. I take the $50 million, and now I give up board control. And now I have someone prescribing to me how I'm going to run my firm. And now someone's telling me, "Oh, you can't keep these three people. They're too expensive and redundant," despite the fact that they're real humans to me that I made promises to, and I'll never go back on one of my promises ever, and they have families, but they're eating up $250,000 of payroll. And on a 20 times multiple, you know how much that money that is to our bottom line in our investment? And now they start changing the culture that I'm proud about. And now they start...and now this isn't everyone. I'm not just crapping all over private equity. I'm just saying these are the dialogues and the thought process I go through.

Okay. Now, I have to take products and implement them, or tech, or investments. Because again, to get the best multiple on the exit in three to five years, if it's all here, here, or here, right, "Oh, they have a relationship with Schwab. Put me together with another firm I don't want," all these sort of... This is what life would look like here on the positive end and in their mind. And remember, in this scenario, this is exactly what PE wants. This isn't a secret. I'm not sharing some big private equity industry secret. This is...

Michael: Grow EBITDA [Earnings Before Interest, Taxes, Depreciation, and Amortization]. Get good multiples. This is the wealth-building plan.

Andrew: Correct. And you do that by not caring about the debt you get into by increasing the top line and decreasing the bottom line. That's it, right? It's the easiest mathematical equation created by very intelligent, shrewd business people. And God bless them. We all play some version of the game these days. But the fact that all these things I just described are the deal going right. Yes, you have other investors. Okay. Yes, those investors have people who invested in a private equity fund. Okay. Yes, they're going to be investing you and be out in five years, and you're going to have to figure this out again. This is it going right.

Those are the decisions that...and again, more people take it than not, and very good friends of mine and yours and great business people and thought leaders and wonderful individuals. Not the firm I want to build. And by having my core principles, right, things I don't want to compromise on in my firm, like control or having people that aren't working in the firm have a say, or building what we believe is the best downstream family office out there and bringing in partners. I start with those non-negotiables, and then you start to run it through your thought tree of, "If it goes wrong, what happens to my core principles? Am I going to not keep the promises I've made?" That's a big one for me.

I have a partnership program here. If someone comes and works for us or they aren't at the level to be a partner, they can go earn it. And I have a lot of advisors that work for me that are super excited to make partner. Well, once they got a private equity firm, they ain't so excited to let other people become partners.

Michael: Right.

Andrew: I can't live with that, yes.

Michael: So one of the things that's fascinated me over the years, when I talked to folks who have hit difficult crossroads in the business, made decisions, and it didn't go well. I took on the partner, I did the merger, I did the deal, I took the leap for the thing, whatever it is. And something goes sideways. And then I ask, in retrospect, could you have seen it coming? And basically everyone says yes, with ludicrously rare exception. And it's always some version of, "Well, there were some signs about the thing, but in retrospect, I didn't give them enough credence. I didn't give them enough acknowledgement." They didn't escalate to the point of actually stopping me from doing the leap or doing the deal or making the thing happen or whatever it is. I didn't give it enough weight to stop me, and in retrospect, I should have. But there were always signs.

And so what strikes me is, what you're describing here, my interpretation of it, it feels like it's some version of, how do we actually create the pause moment to say, "Am I really thinking about all the consequences? Am I really giving the space for the things that maybe there are some signs of?" And at least just give it room to actually play out. "No, no, really, if we do this and it's going right, how are these things going to manifest and play out in the days, weeks, months, years to come?" And make sure I'm giving them enough weighting in the decision, right? As you've noted, "Okay, but if I do the PE thing and it goes great, I'm still playing a game now of growing EBITDA and enterprise value, and that becomes a heavier metric than it used to be. And I've got a board, and I've got investors. And then, in five years, they'll be out, and I have to do this over again."

As you said, those aren't hidden things. And for some folks, that's fine. That's the game they want to play. But are there factors that maybe you're dismissing that you shouldn't dismiss that this framework helps you ruminate on a little bit longer, constructively ruminate on?

Andrew: Yeah. Look, I think you said it well. It gives you the ability to have more space and time to think, right, and to think both what it actually means if you get the answer.

The Values That Guide Diversified's Executive Team [31:38]

Michael: So you had commented earlier part of the...I think it was the change management process, just making decisions in the business process was a set of principles that become guiding lights to you as well. So, can you share more about some of that?

Andrew: Yeah. It's less crystallized as far as we have...you run Traction like we do. We have our core values at the company, right? And then we even have our executive team core values, because being a leader or a partner in a firm, it's different, right, in addition to the others. So those aren't what we're talking about here.

Michael: What are those? I have not actually heard that framing before.

Andrew: The core values.

Michael: So, what are executive team core values as distinct from the rest of the business core values? Tell us more about that.

Andrew: Yeah. So you're familiar with the company core values, right? For instance, one of ours is clients are everything. Have fun, get stuff done, things like that. If you work here, that's non-negotiable. But now, that's from employee 1 through 63 or whatever the exact number we have today is. But then, for us, we have our executives. They are called to serve a different role in our company. And so they have to lead by example, be students of the game. They are 24/7 a representation of our firm. There are things like that, that to us exude leadership of our firm, right? Someone who's 25 or 30 may not have developed all these skillsets yet, as I'm still developing business and leadership skillsets. And so we have a whole separate list, five or six of them, I think, that we showed. It's on our weekly L-10s with our executives. They're the first thing you see that runs through sort of each and every one of those.

So when we determine, "Can you be promoted to the next level? Are you someone that should have this seat? Okay, are you good at your job?" there's, again, two sides of the coin. That's very easy to determine. "Oh, yeah, you're great at operations or excellent at marketing, blah, blah, blah." We look at your output or even an advisor, right, "Hey, you're bringing in a ton of business, and you're doing great with clients." But then there's the other side, right? Are you a good person? Are you doing the right things? Do you put the company first? Are you leading by example? Are you ethical? So they're a separate set of things that if you're going to be in charge of people, if you're going to be looked at as a stalwart and a leader and a pillar of our company, there are other criteria outside of, "You just hit these for our core value."

Michael: And so these essentially become criteria in sort of the similar core values lens. These are things we ideally hire, fire, reward on within the organization. This is the additional criteria it takes to be a successful executive within the organization.

Andrew: Bingo bango. Yep.

Michael: Okay.

Andrew: Spot on.

Michael: Okay. So I'm sorry, I pulled you off track for a moment. So you were talking about, I guess, principles, guiding lights, the disciplines to make hard decisions.

Andrew: So for me, it is more, this is where sort of the pillow testing, gut feeling, am I keeping my promises? I do everything in my being not to go back on a promise. Am I running things from a fair perspective? Am I looking through other people's lenses when I make this decision? If I were to make this decision in an open forum with a microphone and every one of my employees and clients knew it, would I be comfortable making that decision out loud? These are the things that I run it through.

Using The "Pillow Test" To Make Career Decisions [35:52]

Michael: So I'm curious now, where else in the business just has this framework come up? What other kinds of big decisions has this been a guiding light, I guess, either in making the decision to say yes or making the decision to say no?

Andrew: Okay. Why don't I start with...here's a good one. The first week I was at this company, right, and it's kind of where a lot of this even stemmed from. So the first week I joined here was 2010, and it was after the '08, '09 mess in global recession we were in. And it was a more insurance-based company, dealing with unscrupulous people, and just wasn't what I was looking for, right? And I was dying to get out of heck. I was interviewing at bank teller jobs. It was so bad at that time. No one's taking a call from someone trying to hawk insurance.

And so I had two jobs I was looking for. Diversified, independent financial planning firm. I really like the founder, Frank Levy, since retired, doing it sort of the right way, in my opinion. And then TIAA-CREF, right?

Michael: Okay.

Andrew: More context, Diversified, I was negotiating to get a $70,000 salary. I was engaged to my now beautiful wife and mother of my three wonderful kids. We were living in Center City, Philadelphia. Fine. Going to Delaware, right? We've all seen "Wayne's World," right, Delaware. My wife was a Main Line Pennsylvania gal. This couldn't be more scary or terrifying to her. And then TIAA-CREF, which was three blocks from where I lived. It was $125,000 plus $30,000 in bonus. It was twice the income. You had all your clients already set because they're TIAA-CREF, and somehow they got every college, university, and hospital in the country. And I was done doing 10 years of work of killing what I ate as a young, late 20-year-old, early 30-year-old. It was tough. And all I wanted was a salary at the time.

And I started this company, Diversified, as a rinky-dink house in Philadelphia, Pike, Wilmington, Delaware. The house was crooked. It was crazy that people trusted us with their life savings after going there. And the first week, I was sort of ghosted from TIAA-CREF. I get a call, and I was like, "Oh, crap, I know this number." I was like, "Hello?" And they go, "Oh, it's TIAA-CREF. Andrew speaking?" I was like, "Yeah." And they're like, "Yeah. So we're ready to make you an offer." And I was like, "Oh, you got to be kidding me." I said, "Um."

Michael: After you've taken the Diversified job...

Andrew: Yeah, it was my first week.

Michael: ...because they took their time getting back to you.

Andrew: Correct. More than an obnoxious amount of time. I since started another company, and which was, again, terrifying to me. We had a small office. This wasn't a glorious place to work at the time. And there was five people in the office in Wilmington, Delaware. Again, Delaware. And a foreign place to virtually everyone on this planet. And, yeah. And I get a call. I already accepted. I walked outside of the building. I'm in the backyard of this little office.

Michael: Because you recognized the number, you're like, "I have to take this call outside."

Andrew: Yeah, exactly. And I was like, "Ah, geez, can I thank you for the offer? I didn't think I was a candidate anymore." Because, holy hell, it's been months. And I was like, "Can I get back to you?" Sure enough, they said, "Yep. Give us 48 hours." Called my dad. And here I was. See, this is the genesis of the sort of philosophy I have. And I called, and I said, "Dad, you were a successful business owner. What do I do? It's twice the money. I just want to breathe. I want something easy. I'm great with clients. I'll kill it at TIAA-CREF."

And there was so much unknown at Diversified, 60-something-year-old owner, 2 guys who are now dear friends of mine who I just met, some goofy other employees. And I'm sitting there, "This is crazy." And he said, "All right, let's look at this." And he really helped me frame it. He said, "What happens if each would go wrong?" which was obvious, job security, this, that, the other, which was somewhat on par. I'm in no way to really even ascertain that in a rinky-dink house in Delaware. But it was, what happens if these go right?

TIAA is pretty prescribed. You go from a level one, two, three, whatever their stuff is. Here's your job. You service these clients, these accounts. You move up. Let's say I was going to be CEO someday. I could have a nice lifestyle, still always be working for the company, so on and so forth. At Diversified, first of all, there was an opportunity to become an owner. It was clear that he was looking for a successor. I thought I could really shine there if I had the ability to. It was going to be tough. It's going to take a while. And I also made a commitment, right? I looked these people in the eye, and I said, "Yeah, they needed someone, too."

And so this started to lead me down the path of, what do I want the future really to look like? If each of these goes right, what can I sleep at? Can I leave here today, five days in, and say, "Hey, guys, sorry, I'm out," leave you in a lurch and not be a man of my word? Am I willing to bet on myself? Am I willing to see this and try to build something special, or am I going to go to this sort of prescribed path at TIAA? Great company, right?

And these were the decisions. And so I made, obviously, the harder decision. I made the one that I thought was ethically and followed my sort of internal compass and probably the one that, if I had to guess, most people wouldn't have made. And I'm not saying that from a moral high ground, but I'm just saying that I think most people will...

Michael: Yeah. I'm getting married and want to start a salary, and a big institution offers me a great salary. And I'm working at a small firm with an exiting founder. What's going to happen? Yeah.

Andrew: Correct. In a rinky-dink little house in Wilmington, Delaware, or Center City, Philly, in a beautiful high-rise building that was my dream. Oh, my goodness, that was my number one choice when I was interviewing. And I rejected it. So that's, I think, a really good anecdote and story to how this has come into play from Jump Street for me and developed over the years and just gotten sharper. And you get more conviction, you get bigger, you get more ego or attitude or belief, whatever we want to call it.

And yeah, as I said earlier, it doesn't mean I always make the right decision. Quite frankly, I probably make more wrong decisions than right decisions. But it means that, one, I'm not afraid to make the decision, and because, two, I can look myself in the mirror, I can put my head on the pillow at night and know that I made it from an educated, morally sound, in line with my virtues, and fair for everyone. And so when I do that, good things happen more times than they don't.

Michael: I'm struck by the "What if this goes wrong? What if this goes right?" framework. And in this scenario, in going with TIAA versus Diversified, you start painting a very different risk-reward dynamic of a stable salary path versus a more entrepreneurial path, start lower, greater upside, all the things that come with the risk. No right or wrong answer there. We'll all make our own decision about how we want to handle those risk tradeoffs. But it certainly gets you to, as you know, not just what goes wrong, but what if this goes right? "Okay, I'll be at TIAA. I'll climb the ladder. I'll get my incremental salary raises as I service the clients, do the thing, and I can make my lifestyle while I work for the company." And then, what does this look like in Diversified? I'm like, "Well, I might have a path to ownership. I might be the successor. If this goes right, I'll become the successor and become an owner of a firm that I'm growing and scaling."

And again, different risk to that, but it certainly crystallizes at least what's the return opportunity, what's the positive opportunity if I go riskier door number two versus less risky door number one. We're framing...it just strikes me, this framework also frames up the difference in upsides of each if you're really doing the pros, cons, upside, downside.

Andrew: What's the ceiling?

Michael: Yeah.

Andrew: Yeah, totally. Totally. And remember, these decisions were made, Michael, when, in early 2010s, '11, '12, '13, PE wasn't swimming around like they are today. I had no clue I would wake up one day and say, "Holy macaroni, my firm is worth how much money?" That wasn't even...the thought didn't even enter or couldn't even have entered my mind. These are unbelievable times we're living in in our business. But yes, that's part of the...this sort of framework allows you to do just that, because it's not just negative. And when you look at sort of the affirmative, "If this goes as planned," but you start to run through how far...you start to play this game, right, as far as painting what's next. "Oh, I own the firm. What does that unlock? And what does...? Oh, okay." Because I never looked out with it, and I've never looked at building this firm with the end sight in mind.

It was always building the right way, building what I wanted out in the marketplace, and having fun and doing it with awesome people, right, doing it as a team. These were sort of important to me. And as you start going down this thought tree, right, TIAA, it sounds appealing at first, but you start unlocking, what decision does this lead to, and also, what decision comes off the table when I make this choice? What is now not possible? So TIAA, I wasn't ever going to own anything, right? TIAA, I was never going to be the head boss. TIAA, I was never going to call the shots. I could make good money. It could be very predictive. And I think more people go that route, right? It's why there's more employees than owners, I think, out, in general.

Michael: And then, at some point, you grew up in an entrepreneurial family, and so that's what makes this path call out a little bit more once you got to the moment of that decision.

Andrew: Oh, yeah. I saw the impact my dad made on people's lives, his employees, how they looked at him, and how he looked at them. It's exactly right. You unlock this whole iterative steps of what comes next and next and next if I make this decision. Again, TIAA is raise, raise, raise. Maybe you can be a regional manager. Oh, that's a $250,000 salary with $100,000 bonus. Oh, my goodness, I make $350,000? I would have signed in blood back then if you told me I could go there. Versus you start saying, "Okay, what is unlocked here, it's so much more. It's fuller. I get to have passion about what I do. I get to change people's lives. I get to create industry and jobs that weren't there."

I had 60-some people that work for me that are employed right now because our company exists. How freaking cool is that? And they're dynamic. They're more important than me in this company at this point. They're awesome people. And so this is life fulfillment. This is what running a dual-sided thought process when making decisions, especially big life decisions, has, at least for me. Again, like money management, a lot of ways to get there. This is my way, and it's worked, and it's been fulfilling and thought-provoking. And at least, it's better than not having a plan.

Andrew's Journey To Ownership At Diversified [49:02]

Michael: So now, take us down the Diversified journey. So, what did the firm look like when you got there? I guess, I'm just thinking in terms of team, clients, assets, revenue.

Andrew: Yeah, so I joined...

Michael: Paint the picture for us at the time.

Andrew: Okay.

Michael: We're in 2010, right?

Andrew: 2010, yep. At the end of the financial crisis, right, it's starting to slowly creep out. Terrible time in our business. The firm had an owner, Frank Levy. Again, great guy, mentor of mine, still a dear friend. His son, David. His right-hand man, Kyle Hill. We had a COO at the time, and we had an office manager, Kelly, who's still there.

Michael: Okay.

Andrew: The only person who's not still there is Frank, who's retired, and the COO. I joined, and basically, the setup was Frank brought in all the clients. And he split up the clients into thirds, and you service this book, you service that book, you service this book. Of course, I'm the new kid in town, which gave me a distinctive advantage and disadvantage.

Michael: And the thirds were to David, to Kyle, and to you?

Andrew: Correct. Correct, exactly.

Michael: Okay. Okay.

Andrew: Precisely. So the disadvantage I had is I was the new kid in town that didn't know the systems. And so when he divvies up the clients, who do you think got all the important clients at the time or all the bigger clients or all the harder clients, right?

Michael: That's going to David, the son.

Andrew: Yeah. And Kyle his right-hand man, especially Kyle, his right-hand man, because again, this is the guy that's been around and worked with these clients. So I think, out of the $70 million, David and I maybe took $25 million, and Kyle had the rest. And fast forward, my book, which I'm doing less, I have a whole team that's really taken over my clients, I'm more the executive chairman now. So it went from $10 million to about a billion-dollar book over that time period. But at the time, it's $10 million, $10 million-ish, and the rest to Kyle. We had a broker-dealer. We had Signator and John Hancock.

Michael: Okay.

Andrew: But we're really independent. But it's a different world of independence back then than what we think of the true RIA play today. You sort of had this broker-dealer affiliation, but you're still independent. And then, over the next three to four years, Frank was working less, and we were building the business. And it was becoming evident that he was working a day a week, and I was going to have to buy this business out from him at an increasing price as we were adding assets. It's the definition of insanity, right? Okay, every month that passed, I was making my purchase more difficult.

So we said, "Hey, Frank, it's time to transact." He actually brought in, I think, Gladstone at the time, who said...

Michael: Good local Philly firm. Yep.

Andrew: Except they said, "You have no one here who can buy the company. Search outside." Talk about a chip on your shoulder. "Search outside sale," was their conclusion, right? He hemmed and hawed, and thankfully, for Frank, he didn't take their advice. And he went to FP Transition, who put some plan together. And Lisa started it. We bought a minority. And then fast forward, we bought the rest out a year later, basically, and got this thing on ours. Right now, it's ours. Long story short, we ended up getting rid of the broker-dealer completely, although we have a relationship with PKS today for anything that is broker-dealer affiliated. We have an entity that can handle it. But really, we're a true RIA play at the end of it.

The Key Decisions That Have Driven Diversified's Growth [52:45]

Andrew: So there we are. We're growing. Again, I told you, we needed EOS. We needed some operating system, so we would stop arguing over pens. And then the next sort of transformative decision was, in 2019, a Traction guy like you, I'm the visionary, we don't have an integrator, and we're probably a $400 million or $500 million firm at the time, right?

Michael: Okay.

Andrew: And it dawned on me. It was the most ludicrous thing if you think about it. What business...? You've worked with business owners. I worked with business owners. Virtually anyone listening to this has worked with business owners. What business has a $4 million or $5 million revenue, maybe a market cap of $15 million, $20 million bucks, whatever it is, and you say, "Hey, who's running the company full-time?" You go, "A bunch of the sales guys in their spare time, right, are running this company." That's what happens. I guarantee, 90% of people listening to this are nodding their heads yes, saying, "Oh, shoot, that's my company." When I'm not meeting with clients 40 hours a week, I'm running this business. You're not running a business. It's running you, and you're just putting out fires left and right. Let's be honest. That is what's happening.

So in 2019, a friend of mine, Michael Fisher, who is my brother from another mother, we got together. I had to sell it to my partners because, "Wait, we're going to pay him how much? We're making good money. Why are we going to go pay hundreds of thousands of dollars to a CEO and an integrator? Can't we just...?" I said, "Guys, we need someone watching this business." If we're going to make a conscious decision, which is we can keep a lifestyle practice, which, if you get to know me better, that is not me, or we can really try to grow something special. I'm on board for growing something special. And to do it, I was like, "David, Kyle, either of you want to be the integrator and stop producing?" David, who I actually thought would be pretty good at it, said, "My passion is clients. I really love it." I was like, "Then, guys, it's time. We need someone to run our $20 million company."

Not a brilliant decision here or epiphany. It's what you would give. It's what I would advise you or I would give to any person out there with a business. Who's running the business? Not the sales guys in their spare time. So we brought him on in 2019, and then it was a rocket ship. Then we could offload all the administrative and the running of the company. And then, in 2020, as we're growing nicely organically, Michael, Mike Fisher, came to me, and he's like, "Hey, man, let's start trying to grow quicker." You know the old adage, the issue. At $500 million, 10% growth is $50 million, right? At $100 million, 10% growth is $10 million. Well, you're just making it harder if you're going to keep growing. So it's like, "All right," he's like, "maybe we should look at M&A." We gave it a hard look. We made our first acquisition in 2020, full buyout in Wayne, Pennsylvania. Awesome guy, Irv. He has since retired. We have two awesome advisors in that office now.

And then we got the bug. We said, "Okay, we don't want to be serial acquirers." Actually, I don't even consider us acquirers, because we like mergers, and when we do either buy or merge, we think of ourselves as integrators, not aggregators.

Michael: Okay.

Andrew: And so, in 2020, we did our first one, and have done about 10 since then, including a tax company or two tax companies, which is a story for another day, running a tax firm. Not enough hours in a day for that. But then we started growing. We then restructured. Because it was kind of a messy restructure, or how we were structured was messy, because it just was an amalgamation as we grew, and so sought out, through a friend of mine, this group in Arizona, Advisor Growth Strategies, which is John Furey and Brandon Kawal, who have become dear friends and consultants and integral to us knowing what I don't know, right? I don't know cap tables and term sheets. This is just foreign to me. Again, I'm a dude that graduated from University of Delaware, right, with Bs and Cs in finance. I didn't know this stuff.

So they helped us restructure, helped us open up a partnership structure as well, so that we can allow partners, future partners. So now we do, we call it, Founder 2.0. And so now we're very active in M&A. We'd want to grow about 50% organically, 50%, 60% a year, and about the same inorganically through strategic mergers or acquisitions with good people who see it the same way we do and want to be part of this.

Michael: At what growth rate? What's appealing? What's a compelling growth rate for you?

Andrew: Twenty percent a year. Ten and ten is sort of our stated goal and what we've been at. And we're, for context, $3.6-ish billion today.

Michael: Okay. So, a couple of questions in these waypoints of the journey. When you got to the purchase deal, just how did that work? I think you said there were two rounds, a piece and then another piece a year later. But whatever it was, 18 months prior, Gladstone said, "You all can't afford it." How did this deal get done? What was the structure? What was the term? Was it the financing? How did you make this work when they said they didn't think it was going to math?

Andrew: Yeah. Well, it wasn't even the math. They just thought that highly of myself, David, and Kyle. They didn't think it was going to work. So, to be clear, the math was fine. It was me that was the problem.

Michael: Okay.

Andrew: So take that, Gladstone. So, yeah. So they did that, and then, I guess, Frank did his soul searching and said no, he'd like us to take it. Plus, I think there was some probably some chirping, "Hey, we want it, and if not, this won't be so pleasant for everyone," because of all those clients that we've been bringing on.

Michael: You can leave, and clients will follow. Yeah, yeah.

Andrew: Exactly. So let's do this amicably. And so the first step was FP Transitions. They have this sort of program, or at least they did at the time, where you're buying 5% at a minority stake, and basically, it's being funded with distributions over top, and it's a ten-year note. And it was a great way to get a bite of the apple and get a piece of the ownership. But at that point, it was 5% versus 95%.

Michael: That was five across the three of you or five each?

Andrew: It was five...well, it was actually four of us at the time. The COO, who's no longer here, had to buy back out later. So it was five each. And so it was eight. So you're right, thank you. It was 80% to Frank, 20% to us. And then you look at the FP Transition packet, or program, or whatever they put together, it's like, "All right, well, you pay that off, you prove you can be owners, and after 10 years, you get to buy 25% more." And then after ten years, I'm like, "Holy, what the...? I'm going to be 57 years old before I buy this whole thing out. This is crazy." And I'm going to buy out a firm at 20 times the cost because he's not working. Love the guy. He's not working. What's fair is fair.

And so, about a year in, as you can probably tell, I'm the squeaky wheel in the situation. I went up to Frank, and I was like, "Frank, love you bud, but we got to move this thing along. We got to transact, for your sake and for ours. This is not right or fair." And again, looking at it through all lenses, this needed to happen. And so then, interestingly enough, when we then put the program together and we bought them out and we got a loan from Live Oak at the time, lent us the money through SBA for whatever, a couple of million bucks, $3 million, $4 million, whatever it was at the time. I don't even remember the exact amount.

And what was interesting is, in the first round, Frank had his attorney, and we had ours, right? It was this sort of acrimonious attorney game that we've all been through. And in this deal, he was so impressed with our attorney, shout out to Rob Salad and Michael Salad at Cooper Levenson, that he said, "You know what, I'm going to not use my attorney, and let's just hire your attorney for the deal." And honestly, I don't know the deal could have been done without it. So Rob and Michael, they represented the company in the deal, which was critical because, again, you had Frank thinking, "I now see the other side of the coin more than I did then. I'm bringing all this business, and it's all me and my partners. And why is he getting so much?"

And Rob and Mike, to their credit, we're like, "Look, this is how it works, I know, but you built it, and he built it." And then Frank, on the other side, would have his stuff, "Oh, that is all me, 100%." And this is the old senior and junior advisor sort of conundrum we all run into. And because we worked with the same group, they were able to broker it, mend fences, get us together, all happy-go-lucky. Actually, the day after we closed, I was out to dinner. Frank was ironically at the same spot, bought me dinner, because he's a mensch. And the rest is history. So that's sort of how the deal started. And then we'd just been implementing and doubling down since then.

Michael: And so buyers were the four of you. You went from buying 5% each to buying 25% each at the time?

Andrew: Yeah, we bought 100. We didn't play FP's sort of slow-play game. We, at that point, just bought the whole thing out.

Michael: No. But I mean each. You bought 100%, and 4 of you bought. So, did each of you own a quarter of the firm?

Andrew: Well, it was a third because the COO didn't.

Michael: Okay.

Andrew: He exited prior to that.

Michael: He exited between the first piece and the second.

Andrew: Precisely. And we had to buy his 5% back and then bought the rest. A third, a third, a third. And then we've restructured over time, multiple times, to make it more equitable and fair. And then we've restructured to make it sort of able to live in this framework we are in today.

Michael: What kind of restructuring was required to make it fair later? Normally, I think of this like we do a third, a third, a third, because we're trying to "make it fair." So it's even all for one, one for all. So, what changed that there had to be more transactions later?

Andrew: Okay. So my book is now $1 billion. Theirs wasn't, right? So there was a disproportionate...we own the business a third, a third, a third. And let's just use somewhat fictitious numbers. My book was $250 million. Kyle and Dave's was $100 million each. I was bringing in $60 million a year, and they were bringing in $20 million a year.

Michael: Okay. Yep.

Andrew: And so I started doing some obvious math, right, not that we're looking to sell it, and I said, "Hey, guys, not for nothing." And age-wise, we're all four years apart. I'm in the middle. So I'm 45, Kyle's 49, and Dave's 41 today.

Michael: Okay.

Andrew: I started doing the just logical math of, so Kyle, if we all retire at the same age, right, let's call it 60, Kyle's going to retire at 60, and on a go-forward, my book's $2 billion, his is $800 million, and Dave's is $800 million. And I have to buy him out for a third of the enterprise value.

Michael: Yep.

Andrew: That seems odd. What world would I do that? And if I wanted to leave, what world would I sell it back to these guys at a third the value when my book is 50% of the revenue? So we had to get creative. So I really spearheaded that at the time, saying, "Guys, I think we just need to make this more formulaic and, again, fair," right? It's a terrible, très cliché word, but I just wanted it to be fair. Look, I'm not looking for an outsized thing, but I don't think it's right or fair that if someone sells and they're 10% of the revenue, I have to give them 30% of the value. And so that was the first sort of restructure.

Michael: So, what did you do to do the restructure? Are you giving shares to each other? Are you buying shares from each other?

Andrew: Yeah. So, at that time, what we did is we affixed the value of the firm at a low value. We said, "If we sell it, the firm Diversified is worth $150,000," a third, a third, a third. But if you sell, the rest is goodwill. And goodwill is attributed to a formula based off of a 12-month trailing on your revenue, right?

Michael: Okay.

Andrew: So now it became, we would all get $50,000 for selling the company, plus, "All right, if it's $3 million in revenue and you're $2 million, you're $500,000, and you're $500,000, you would get two-thirds," so on and so forth. One-sixth, one-sixth.

Michael: Okay.

Andrew: And so we made it, on transactions, it would go via the formula, not the ownership percentage. So that was the first restructure. And that ran us for a while.

Michael: Okay.

Andrew: Okay. And then what we did is, once we engaged with Advisor Growth Strategies, they said, "Guys, you're not running an ensemble here. You're running three siloed practices. You're sharing expenses." And they were right. I refused to believe it at the time. It's like, "You guys know nothing," right? I was so ignorant. And I was angry at them even, "Oh, you want us to restructure?" They're like, "Yes." Because we also had multiple entities. We had our acquiring entity that bought businesses and our legacy business. And I can't give up any of my legacy stuff.

Michael: Because now, acquiring deals, at least, no one brought disproportionately, more or less. We can split acquiring deals, but we've got the revenue formula on the legacy business. Then we need separate entities, that kind of thing?

Andrew: Well, yes, and we didn't want to conflate it with our revenue. And that we got right from the get-go. It was disproportionate, because really, I was doing the M&A stuff, and they were being advisors, and we were all sharing it. But we agreed on that. We agreed on, okay, forget what it was, 50, 20, 20, 10, whatever it was. Because now my CEO was involved. And so we had this acquiring firm, right, Diversified Penn, we called it, versus Diversified Delaware, we called our legacy business. And then when we met with Advisor Growth Strategies, they're like, "Guys, this is great for you, but if you're going to take the next step with the big boys and you're going to grow, you need one cap table. You need one balance sheet and P&L [Profit and Loss statement]. You need to restructure from an S-corp to a partnership so that you can do different share classes. You need to allow other share owners in this deal."

When people joined here, I wasn't giving any shares out. I didn't see the efficacy of it. It's like, "Well, this is my firm. This is our firm. Why am I going to share with anyone? They didn't do it." And then, really, it's like, you want to go fast, go low, and you want to go far together. They were right on literally everything. So we restructured. We recapped everything. We all contributed our shares into basically a new co[mpany] that we just called Diversified Enterprises. And that's the holding company that owns all of this and has shares on the shelf. So if Michael Kitces joins us, I can go get the shares. And you do this similar stuff. And now it's clean.

And I'll tell you the biggest thing that happened when we did that, is it stopped becoming me versus you, me versus my partners. "Oh, I want that client." "Oh, who answered the phone first?" "Oh, Andrew's spending too much money on this or that." "Look at all these expenses. He's networking more than we are." It stopped all of that instantly, and it really became a true ensemble, a true team. And that's what's enabled us to attract people because they want to be part of that. It enabled us to do things we couldn't have done before. And everyone's happy.

And so that's where we currently are in sort of the restructure that was finished a couple of years ago. And we've just been implementing our strategy of growth and development ever since.

Michael: And so, did you have to do another capital transaction or reallocations of equity to figure out who owns what of new co, or did you use the old legacy formulas, your rolling amounts, and then everybody's sort of locked in the cap table there?

Andrew: It was more the former because it wasn't so cut and dry, right? So we had to...a starting point was basically your revenue gave us...sort of got us in the stadium, right in the ballpark. And then we had to get...because, also, you're catching a sword, right? Because you're also trying to say, "Well, on a go-forward, well, he's growing at that, and he's in charge of this. And who's adding different values?" So there's a tangible side and an intangible. It's certainly an imperfect science, right? But it was methodical. It was subjective and objective. It took attorneys and counsel and a lot of individuals. And I think we got the perfect deal because no one was 100% happy.

Michael: Yeah. And so, once you got there, now we're just in a realm where everybody owns whatever percentage they own of one standard entity with a regular cap table. The whole goodwill formula thing went away.

Andrew: Yep, exactly. We had our partner meetings on a quarterly basis. We show you, "Hey, each one of your shares is worth $1,523 this quarter," right? You do the math. You own 1,000 shares, figure it out. Next quarter, we graph it out, and we show it. We do distributions on those shares. And so, yeah, you can actually run a company. Now, I consider myself not just having clients and not just being an accidental business owner, which I was, and I think many of us are in this industry. And we now run a business. I pay people now more than I thought I would ever make in my career, right? And it's awesome. Really, it's been one of the most enjoyable parts of this job.

Michael: So now, take me forward to when Michael, the CEO, got added. So I'm just fascinated. What was his actual scope of responsibility? What did you give him? What were you willing to give him? How did you know he was the one to give it to among the others interviewed? Talk to us more about that transition, because that just seems like, I think, for a lot of longstanding business owners, a somewhat terrifying level of relinquishing potential control.

Andrew: Yeah, so, for sure. And I still have final control, but I think, for all intents and purposes, truthfully, I don't. I don't treat it that way. Mike runs his lane. I run mine. I don't step on his toes. We have a great yin and yang relationship. So first of all, context, I knew Mike for a while prior. He was a friend of mine, not as close as he is now. Now, he's a brother of mine. And so he was, I think I mentioned, at Lincoln Financial or Lincoln Investments, I think it was, pretty high up. So he was never really an advisor. He didn't have clients. He was head of sales at this broker-dealer.

And when we started talking, he wasn't even like a CEO. He was going to be the integrator for those Traction people out there, right? Actually, I gave him the title of COO, which was really what he was at first.

Michael: COO. Okay.

Andrew: COO. But he wanted the title of CEO. And I was like, "All right, fine." He's like, "Titles matter to me." I was like, "Okay, I don't really care." And I'll tell you, for the first two, three years, he had the title of CEO. He was a COO. Today, I can look him in the eye and say, he is about as good a CEO as you get in this business. So a lot of it was learning on the job. As I've learned to be a visionary and not just be an advisor, he has learned to be a true CEO, executive, and run this company. So at first, yeah, it was, "Here's the keys to the castle. Here's my vision, right? Here's what I want to deliver in the marketplace. I need your help getting there and running the enterprise. I need you in charge of all the people. I need you in charge of the P&L."

Luckily, I had some background with him, so it wasn't someone I didn't trust. I wasn't worried he was going to abscond with all our funds or something of that nature. I made promises to him, he made promises to me, which have been more than kept on both of our sides. And slowly and surely, he just learned. He learned our business. He learned the business. He learned to be an executive, a real executive, a real leader of our firm. And I can categorically say we wouldn't be where we were if it wasn't for him, both his talent as an individual and him in sort of the more intangible sense of the role he fills, right? The ability for people to focus on what they do best on a 24/7 basis, and what he does best is he's an operator man. He is excellent at it, holds people accountable.

Fortunate for me, I'm really good at delegating, or unfortunate for everyone that's around me, I'm really good at delegating. So instantly, I was like, "Hey, elevate and delegate, brother. I'm giving you all this stuff. You figure it out. You ask me questions. You work with whomever. I'll share in whatever you want." But at the end of the day, I personally didn't struggle with, and I've seen it with others, but I never really struggled with a power thing or control. And it's been magic ever since.

What Surprised Andrew The Most Building And Scaling His Business [1:16:01]

Michael: So, what surprised you the most on this path of building and scaling the advisory business?

Andrew: I'll tell you. You start out in this business, you want to get to $100 million, and then billion dollars, and you have all these sort of markers out there, and you just laser-focus. I'm sure most of us are built similarly, type A, just run through a wall and just do it, right? And that was sort of my mentality for a while. Then, as I started to build it, Michael, I started to see the impact it had on the people that worked for me and with me. And I remember, one year, I was at our company retreat. We do a cool company retreat at Woodloch Resort. Shout out to them. It's a freaking great spot for this. And it was, I don't know, maybe 35 people at the time.

And I had a slide where I gave an opening presentation, rah-rah presentation. I said, "Look at this slide, guys." And I'm telling you, about 80% of our employees at the time, within 12 months, had a baby or bought a home. And I got to be honest, I was a little speechless. I was a little gut-punched, gobsmacked from it. I'm like, "This is the work we are doing," sort of the Nick Murray, you can do well by doing good, mentality, right, which I love. I saw it. And every time, I'm like, "Oh, cool. My right-hand guy, my underling, my whatever, this person who joined here two years ago, just got engaged or went on a vacation. And with their own funds that came from the work we're doing."

That surprised me. I knew I didn't want to work for someone. I knew I wanted to build something great for clients out in the marketplace. I didn't think I'd be moved as much as I am and motivated to watch other people who have put their faith and belief in me and our company and what we're building. Their successes, it's the best. It's better to give than receive, you know what I mean? Really, I'm sure you see it as well with what you do.

What Diversified Looks Like Today [1:18:11]

Michael: So, what does the business overall look like today? I guess something like team, assets, clients, revenue.

Andrew: Yeah. So let's see. Team, we're 60-some people. We have an executive team that's myself as the visionary. We have Mike, the CEO, who is our integrator. And then we have our chief investment officer, great guy, recent hire, Scott Lavelle. We have our head of marketing, Sarah Thomas. She's a killer. We have our head of tax, Adam James. We have our chief compliance officer, Dave Levy. He's one of the big starting partners with me. We have our chief operating officer, Anthony LaBarbera. We have my brother, talk about amazing things, who joined recently from Amazon. He runs AI and tech for us, which is a big initiative for us. And, oh, Steve Wildman, he runs our sales and all our advisors and planning team. Think I got everyone. I'm sure someone's going to send me a nastygram that I forgot them. So that's our executive team.

And so then everyone slots into there…20-some advisors, 10 offices, with the tax company in addition. We got a head of planning. We have a planning team, a business development team. So our value prop is you come here. If you're an owner, we call it Founder 2.0, which is you don't have to worry about running a company, but you get to be an owner and get all sort of the benefits of it without the negatives of it. And then, if you're not, you can earn partnership, like I said. So we have a partnership track because, again, I like to run this thing from a table and on the throne. And we got, some more numbers for you, I think, 2,500 clients on the planning side, 1,400 on the tax side. I think, top line, we're in that $26 million range, with 3.5, give or take, depending on what happens today in the market, billion dollars in assets. Multi-custodian, true RIA, although, like I said, we do have a relationship for, basically, legacy assets for a broker-dealer.

The Low Point On Andrew's Journey [1:20:33]

Michael: So, what was the low point for you on this journey?

Andrew: Oh, that's easy. So, '08, '09, I'm at this insurance-backed insurance company. And they call themselves a planning company, but really, that was sort of a ruse to sell insurance, right? Everything ended with buy an insurance product. And '08, '09, like I said, I'm dating the woman I wanted to marry. I went from making okay money to virtually nothing overnight. No one's buying life. No one was spending money on variable life insurance policies in 2008.

Michael: Right.

Andrew: No one, right? Cold-calling people or family friends, "Hey, you want to meet and talk about your finances?" "Dude, I just lost my job. I ain't buying." On top of that, I had some unscrupulous people I was dealing with at the company, senior people, that I was like, "This is unethical. This isn't the type of people I want to be around." And literally, I was interviewing for bank teller jobs, anything that gave me a salary, going backwards, back to beginning my career. I was interviewing…I wrote a business plan for a gentleman that was going out to be a concierge doctor, right, doing that whole thing. And I was going to maybe go work with him. He's since been arrested, so I'm glad that didn't happen.

So I was looking anywhere, and I was talking to anyone. And there was something that just kept me drawn to this business, but I just needed to stop this boat from sinking at the time. And things happen for a reason. It was very serendipitous. I think I was at a urinal when I got the call from Diversified, that they were taking my resume and wanted to interview. And it was tough. You had a lot of forces. I owned a condo in Philly, interest only, because I bought it, of course, like every other schmuck out there.

Michael: Like everyone else, yep.

Andrew: Yep. So it was bad, dire straits, right? The fact I am where I am today is not lost on me. The irony or the shock every day when I wake up, I'm like, "Man, this is crazy."

Andrew's Advice For His Younger Self And For Newer Advisors [1:22:49]

Michael: So, any other pearls of wisdom, things you know now from experience you wish you could go back and tell you 15, 20 years ago as you're starting on this path?

Andrew: Yeah, there's a couple out there that really resonate with me. One of the big ones is early on in my sort of leadership growth journey here, I sort of had this misnomer that leadership was this sort of stoic thing. You lead by example, right? But there's an insecurity, especially when you're younger and being a leader, right? You don't want to share all your insights. You want to make yourself indispensable to an organization. Prove your moxie and your worth, right? "I am Andrew. Hear me roar. I run this company. I can run through walls. All jump on my back. I'll take us to the promised land." And that got me so far.

But as I've become slower and more thoughtful in my old age here at 45, it's dawned on me that really a true leader makes themselves replaceable, right? You have to be vulnerable. You have to be willing and comfortable enough to say, "Look, if someone's better than me, they will eclipse me." And I'm not going to get there by holding back pearls of wisdom. It's hard to outwork me. It's hard to out-motivate me, right? But if you are and you should be running my company or doing X, Y, Z, then you should be doing it. And I think a true leader goes with that mentality.

And I think when you operate in that sort of comfort of knowing, "I don't care if someone surpasses me. I'm going to work my butt off and go in to make everyone around me better and try to make them go into it, trying to make them better than me," that to me has been a revelation. A rather recent one over the past year or two, where I've said, "I've got to be a different kind of leader." And so, that, I would tell my younger self that.

Michael: Any other advice you would give younger, newer advisors coming into the profession today to carve their own path now?

Andrew: Yeah, for sure. I got some pretty good advice when I was younger, and a couple of them really resonate here. First is the fact of, if you want to be successful, it's as simple as doing the things unsuccessful people are unwilling to do. Make the extra call. Life compounds like everything. Eat an extra donut every day for a year, you're going to put on weight. Stop, you're going to lose weight, right? It's just a donut, but again, it compounds. Make the extra five calls. Stay an extra 30 minutes tonight. Make the phone call to the person who you're scared to make. Do those things. Good things happen.

But I think the biggest thing told to me by one of my mentors is we spend so much time, especially early on. I think we all have a little bit of that imposter syndrome. You're a 25-year-old kid who just passed your CFP, and you're giving advice to your dad's doctor friend, who is the smartest guy you ever met, it's intimidating, right? And so we go on this...just try in a short period of time to tell you how smart I am, how much I know. "Oh, you know about backdoor Roths? No, you don't. You know about QCD [Qualified Charitable Distributions]?" Just wow them with your knowledge. And the truth is that we spend so much time investing in that and not enough in our relationships and realizing that people don't care what you know till they know that you care.

And to me, that has been something that I've told a lot of younger men and women starting in our business, that this is a relationship business, and there is no time in the history of our business that is more important than the here and now with the emergence of AI and these things, that if you are just trying to invest in being the smartest person and the most knowledgeable, that's great. I'm not telling you not to, but people don't care what you know till they know that you care.

What Success Means To Andrew [1:27:02]

Michael: So, as we come to the end here, this is a podcast about success, and just one of the themes that comes up, that word success means different things to different people, changes through us through stages of the business. And so you've built this incredibly successful business, as the company is coming up on $3.5 billion and jogging right along the objectively very successful by any measure. How do you define success for yourself personally at this point?

Andrew: Yeah. So it's no longer achievements. I just wrote a book, "Your Intentional Financial Life," and I didn't write it to sell a million copies, right? It was just sort of a passion project. And I don't look at assets or things of that nature. I look at success as, one, I want to build this company to last without me. I want to make...I don't want to go anywhere until I think I have given everything I can. And we need a different leader here than me. I want us to touch 9,000 lives. I want to give personal guidance to 9,000 lives, including our pro bono initiative we're opening, starting at the end of this year. I want to count those people there. I want to give financial guidance to 9,000 people because I think we can really benefit them and change their lives.

And I don't want to do it on my own. I want to do it with a team. I value the team. And I've kind of surpassed all my wildest dreams from building this. So when I really drill down on what success means to me, I have this sort of dad issue since I lost my dad relatively young, and I think you probably heard today what an impact he's made on my life, is success to me is knowing that I've done this my way, I've done it the right way, and my father, and of course, my mom, I haven't talked about how wonderful she is, but my father smiling down on me, saying, "I'm proud of you, kid." And to me, there's no metric. Heck, I don't have proof that he would be proud of me just because, unfortunately, he will never say those words to me ever again. But that weighs on me, and I feel him on my shoulder every single day. And to me, that is how I will define success at the end of the day, knowing that I did it right, I didn't compromise for anyone, and the big man's watching down, proud of me. So that's success.

Michael: The big man's watching down. Thank you, Andrew, for joining us on the "Financial Advisor Success" podcast.

Andrew: Michael, thanks for doing all the great things you're out there doing. It's been a real pleasure.

Michael: Thank you.